For a majority of retirees, Social Security represents more than just a monthly check. This vital program provides a financial foundation without which an overwhelming percentage of aged beneficiaries would struggle.
Since 2002, national pollster Gallup has surveyed retirees on an annual basis to gauge how reliant they are on their Social Security income. During this 23-year stretch, 80% to 90% of respondents, including 88% in the latest survey released in April 2024, stated that Social Security represents a "major" or "minor" source of income. In other words, nearly nine out of 10 retirees lean on their payout, in some capacity, to make ends meet.
But while America's top retirement program serves as the financial foundation for many, its own foundation has begun to crack -- and immigration is one of the many issues that can be blamed.
Image source: Getty Images.
Social Security is facing a greater than $23 trillion long-term funding shortfall
Ever since the first retired-worker benefit check was mailed in January 1940, the Social Security Board of Trustees has released an annual report detailing the long-term outlook (i.e., the 75 years following the release of a report) of the program. In the 2024 report, the Trustees estimate Social Security is facing a long-term funding-obligation shortfall of $23.2 trillion. This projected shortfall has continued to grow over multiple decades.
To make matters worse, the Old-Age and Survivors Insurance Trust Fund (OASI), which is responsible for dishing out monthly benefits to retired workers and survivor beneficiaries, is projected by the Trustees Report to exhaust its asset reserves by 2033. Although Social Security is in no danger of going bankrupt or becoming insolvent, a depletion of the OASI's asset reserves would trigger the need to cut benefits by as much as 21%.
There is no single issue that can be pointed to for causing this deterioration in Social Security's foundation. Rather, it's a confluence of factors, of which "congressional theft" isn't one.
Some of these issues you're likely familiar with. For instance, the ongoing retirement of baby boomers is weighing on the worker-to-beneficiary ratio. Likewise, people are living considerably longer now than they were when retired-worker benefit checks were first mailed out in 1940. To be blunt, the program was never designed to pay a majority of its recipients for multiple decades.
But there are other less-obvious catalysts responsible for Social Security's financial woes. This includes a historically low U.S. birth rate, which threatens to further lower the worker-to-beneficiary ratio, as well as rising income inequality. Over time, a greater percentage of earned income -- wages and salary, but not investment income -- has escaped the payroll tax.
Lastly, we come to the widely misunderstood topic of immigration and how it's impacting Social Security.
The OASI's asset reserves are forecast to be exhausted by 2033, and immigration is one of many reasons this excess cash is dwindling. US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts.
It's time to get real about Social Security and immigration
On social media message boards, it's not uncommon to find one or more comments suggesting that immigrants -- more specifically, undocumented workers -- are responsible for Social Security's precarious financial situation. While immigration is one of the key reasons Social Security is hurting, the reasoning behind this blame is way off.
Legal immigration into the U.S. is vital to the financial well-being of Social Security. A majority of the legal immigrants that enter the U.S. are younger, which means they'll spend decades in the labor force contributing to the program via the 12.4% payroll tax on earned income. The payroll tax accounted for 91.3% of the $1.35 trillion Social Security collected in income in 2023.
The problem Social Security is contending with isn't one of too many legal immigrants entering the country but rather too few. Data from the United Nations finds that the net migration rate into the U.S. declined for 25 consecutive years from 1998 through 2023, resulting in a nearly 58% aggregate drop.
According to the Trustees' intermediate model forecast, which is the expectation it sees as the likeliest to come true, an average of 1,244,000 legal net migrants should enter the U.S. annually from 2034 through 2098. But based on the United Nations net migration rate into the U.S. for 2023, legal net migration came in closer to 920,000.
To be crystal clear, this data has nothing to do with politics. Legal net migration into the U.S. has been declining with both political parties in charge. Without a discernible shift in the years to come, lower legal immigration into the U.S. would be expected to worsen Social Security's steadily growing funding-obligation shortfall.
Image source: Getty Images.
Here's the truth about undocumented workers and Social Security
However, immigration is a two-part story. The data above demonstrates how important legal immigration is to the inner workings of America's top retirement program. Let's now take a closer look at what impact undocumented workers have.
Undocumented workers are not able to receive a traditional retired-worker benefit from Social Security, nor are they eligible for disability insurance coverage or survivor benefits. Any message board claim that suggests undocumented workers are receiving benefits from the traditional (key word!) Social Security program is false.
On the other hand, asylum seekers entering the U.S. may be eligible to receive Supplemental Security Income (SSI). Although the Social Security Administration oversees traditional Social Security and SSI, these programs are funded differently. Whereas traditional Social Security generates income from the payroll tax, taxing benefits, and collecting interest income on its asset reserves, SSI payments are funded by the General Fund. If an undocumented migrant is receiving SSI, this is not the same as "getting a Social Security benefit." An SSI payout has no bearing on the health of the Social Security program.
With the above being said, a report released in 2016 by New American Economy estimated that undocumented workers generated a $100 billion surplus for Social Security over the previous decade. To reiterate, this has absolutely nothing to do with politics and is purely a statistical analysis of what undocumented workers have contributed to Social Security.
Despite the bad rap immigration receives on social media message boards, it's vital to the long-term success of Social Security and its tens of millions of current and future beneficiaries.
