Social Security is not running out

This week, the annual Social Security Trustees report was published, leading to a flurry of headlines and misleading social media posts about the program’s impending insolvency. The combined trust funds for the Old-Age, Survivors, and Disability Insurance programs are expected to run out by 2034, in line with previous years’ estimates.

When the report comes out each year, some social media creators take the opportunity to perpetuate the claim that Social Security is running out, it is a failed program, and that millennials and Gen Z will never see a dime of the money they are paying into it.

Those takeaways are wrong, and amidst the doom and gloom and declining trust in government, it’s important to understand what the report is actually saying. While many young people say they have no faith that this social safety net will be there for them in their old age, I want to push back against that narrative. The program is not doomed, and we shouldn’t just throw up our hands and accept that it is. There’s plenty that can be done.

Social Security is not running out of money. In its 91 years of existence, it has never missed a monthly benefits payment—and unless Congress passes a law abolishing the program, it will continue to exist and continue to pay out benefits each month. Much of Social Security is funded through a payroll tax. The rest is funded via interest on Treasury bonds and a small amount of income tax. If you’re still working and paying that tax, then Social Security is still operating.

However, the program’s trust fund is running out of money. Not even the whole trust fund—the disabilities insurance program is basically fine and solvent through the next century. But the trust fund holding the old age benefits portion of the program is running low.

The trust fund was established to prevent exactly the problem we’re dealing with today: There are a lot of Baby Boomers (the generation born between 1946 and 1964) and not as many working-age people to replace them, and that’s putting a lot of pressure on the program. We have now reached “Peak 65,” with more people reaching the traditional retirement age of 65 than ever before. Ten thousand boomers a day are turning 65!

Not all of them claim Social Security right away, but you can see how Peak 65 means more benefits payouts than ever before. In fact, 2021 was the first year that Social Security paid out more in benefits than it collected in taxes. Other factors are also affecting the program’s finances, including income inequality (more on that below) and lower immigration rates. Fewer workers = less money.

If and when the trust fund runs out, benefits recipients will still get a monthly check—but they will get a much smaller one. In fact, we’re looking at a 17 to 22% benefit cut per person, or around $500 a month.

It’s not a foregone conclusion that this will happen. There are any number of measures Congress could take to help the program’s longevity. None will be popular with everyone, but options do exist besides cutting benefits, including:

Scrap the income cap on the Social Security tax. Payroll taxes are levied only on wages up to $184,500 in 2026. And they are not levied on investment income. Both of those could be changed (particularly as the ultra-wealthy accumulate evermore capital through stock, real estate, etc., rather than wages). Notably, lifting the income cap is very popular among the general public.
Increase the full retirement age. This would be extremely unpopular (for good reason), but it is a possibility and something conservative politicians, especially, are starting to advocate for. It’s a benefit cut by another name.
Increase the payroll tax. Currently, Social Security is funded by a 12.4% payroll tax on annual wages up to the so-called taxable maximum of $184,500. (Half is paid by the employee, half by the employer; self-employed people pay the full amount.) That tax could be increased.

It is likely that some combination of all of the above will need to be implemented in order to keep the program going. And the longer Congress waits to act, the more painful the necessary actions will be to shore up the program. The burden will fall primarily on younger people—not on the older generations or the leaders who have so far refused to fix the program despite the many, many years we’ve known about the problems.

But I’m an optimist at heart. While politicians may be too scared to do something now, they will need to soon. (And they’ve done it before!) Given how popular and important the program is to our collective financial security, we need to hold them to it.

- Alicia

I could talk about Social Security all day, and I wrote about the insolvency issue last summer.
Economist Paul Krugman writes about the upcoming political fight over Social Security and how important it is to elect politicians who won’t hold our benefits hostage.
It’s hard to overstate how important Social Security is to the financial well-being of countless Americans: It makes up at least 75% of income for over 20% of households with aged beneficiaries. And it prevented an estimated 16.3 million adults ages 65 and older from living below the poverty line in 2023, according to the Center on Budget and Policy Priorities.
Nearly every working American qualifies, or will qualify, for Social Security benefits (though amounts vary). Meanwhile, only around half of private sector workers participate in a workplace retirement plan.
As income inequality worsens, so does the solvency of the program, thanks to the cap on the payroll tax: In 1983, 90% of earnings were subject to the payroll tax; last year, it was just 83%. The income tax cut in last year’s One Big Beautiful Bill also pushed forward insolvency by a year.
In 1960, there were five workers paying Social Security taxes per beneficiary. In 2026, the ratio is 2.9-to-1, and it is projected to fall to just 2.2-to-1 by the 2070s.
The Bipartisan Policy Center has a few other suggestions for policy changes, including capping and re-indexing the spousal benefit and “indexing the retirement age to longevity to reflect ongoing increases in average life expectancy.” Again, these wouldn’t be popular! The government could also fund the shortfall with general funds until it figures out a more permanent solution.
It feels like so long ago now, but I’m still deeply concerned about whatever the hell DOGE was up to in the Social Security Administration last year.

What else we read (and watched and listen to) this week

Sometimes I worry that Alicia and I spend too much time talking about our strong distaste for AI, but I really did love comedian Ronny Chieng’s Harvard graduation speech on the topic. Hilarious and inspiring! -Lindsey
I’ve been a New York Knicks fan for all of six days, and I have to say, I’m having the time of my life watching the games! (But spending upwards of $50k on a ticket? IDK about that…) My friend Jen wrote a fun story about how couples getting married this weekend are dealing with the “generational run” that will be playing out during their weddings. Read it here (gift link)! - Alicia
I’ve been listening to Lena Dunham’s memoir Famesick, and I’m pretty much obsessed. I’ve always found her to be such an inspirational creative person, plus I love to hear about how people work. There’s also just the right amount of celeb gossip thrown in. Now I’m gearing up for a Girls rewatch -Lindsey
I’m so appreciative of The Guardian launching this series exploring America’s lack of consumer protections and how that’s making us all miserable. Relatedly, Business Insider has a fun (?) story on how much fees can differ for different people (and even the same person on a different device) for the same seats at the same event. -Alicia
Should we all pool our resources and buy this incredible penthouse apartment in the Dakota? For $8 million, it sort of seems like a steal! -Lindsey

On our radar

My CSA is back! Yay summer! -Alicia
Beyond Family Money, there are two new financial podcasts out from friends of The Purse: Mary in America by financial journalist Mary Childs and How Do You Afford This by Ashley Feinstein Gerstley (aka The Fiscal Femme). Highly recommend you add both to your podcast queues!

TikTok of the week

@babylist
Ambition isn't something you give up when you have kids — it evolves. Taking your foot off the gas can feel like you're leaving it behind. You're not. A career break is not a career ender. It just looks different than everyone else's. Link to listen in bio.
♬ original sound - Babylist - Babylist

Don’t miss the third episode of Family Money where Lindsey chatted with Power Pause founder Neha Ruch about ambition and stay-at-home motherhood.

Comment of the week

“Resonated with the listen to your gut comment and red flags. I didn’t listen to my gut about a job once and left within a year. Your gut is usually right.”

- Courtney on “Work History No. 5: A creative director earning $210,000 in New York City”

What else we published on The Purse this week

Join the conversation!

Love this peek into advertising, an industry I’m always curious about.

Family Money episode 3 is out!

Best money we spent this week

The New York Philharmonic performed a free show in Van Cortlandt Park in the Bronx on Tuesday, which Chris and I attended. The weather was perfect, the Philharmonic was great, and there were even fireworks at the end of the show. I spent ~$8 for a sandwich en route to the park, and the rest of the evening was free! -Alicia
I spent most of the week in Boston for an intensive “learn to take the CFP exam” program. I stayed with Ken’s godparents, and it was really the best. They took such good care of me. As a thank-you, I picked up a cute cactus and a bottle of wine at Whole Foods. (~$40) -Lindsey

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