On Aug. 14, 1935, President Franklin D. Roosevelt signed the Social Security Act into law. This action, intended to protect against the "hazards and vicissitudes of life," created one of the most popular entitlement programs of all time. That program just turned 85. It's accomplished a lot in its time, including keeping millions out of poverty and paying out trillions in benefits. In fact, in June 2020, more than one in six U.S. residents were receiving benefits.
But despite the fact millions of people are relying on Social Security and millions more still regularly pay to fund it, there are serious concerns about its future. In fact, if the program is going to make it to age 100 and keep fulfilling its mission, it may need some help.
Here's why Social Security is in trouble
Despite both the popularity and importance of Social Security, the program is in dire financial straits and has been for some time now. In fact, each year, the program's trustees report there's a serious financial shortfall on the horizon.
Social Security is funded by payroll taxes as well as by taxing benefits on high-earning retirees. But people are living longer, and the pool of workers paying into the system is declining as workers age out, and a low birth rate and reduced levels of immigration mean they aren't all being replaced. This leads to fewer workers supporting retirees than are necessary -- and with COVID-19 causing a recession and record-high levels of unemployment, payroll tax collection will be even lower this year.
When tax revenue plus interest from investing Social Security's trust fund can't provide enough to pay out promised benefits, the cash reserves of the program are depleted. The program's trust fund is actually expected to run dry in 2035 because of this, but thanks to the effects of COVID-19, it could actually be out of money this decade. Whether it runs out of money in 15 years or earlier, the consequences will be devastating. Benefits will only be payable out of payroll taxes collected, and they won't cover the full amount of promised benefits.
Lawmakers could be forced into action if the trust fund runs out, but most of the steps they could take to fix the problem would involve cutting benefits one way or another. And, as if all this isn't bad enough, President Donald Trump recently signed an executive order deferring the collection of payroll tax. The President wants the uncollected taxes forgiven, and has discussed the idea of a permanent payroll tax cut. If that happens, the program would be stripped of its dedicated source of funding. And while the president has said revenue from the general fund would replace it, that would make Social Security much more vulnerable as it would balloon the deficit and be reliant on Congress to authorize continued cash influxes.
None of this is good news for one of the oldest and most respected benefit programs in the country. And if lawmakers don't act soon to ensure Social Security's source of revenue is protected and the financial shortfall is addressed, fixing the problem will only get more costly.
Social Security deserves to make it to 100 with its finances intact
Social Security has done a good job in helping to protect elderly Americans, disabled Americans, and widows and widowers from poverty. But the program is in very real danger of running short of money before it hits its 100th birthday. If lawmakers don't alleviate its financial problems rather than exacerbate them, it may not make it to its milestone birthday with its initial promise intact.