Whether directly or indirectly, Social Security has likely touched your life or the life of someone you know. It’s more than likely, if you have a full-time job, a chunk of your paycheck goes toward Social Security. In 2023 nearly 70 million Americans will receive a Social Security benefit every month. It's a lifeline for millions of retirees, disabled Americans, and family members who lost a loved one. But the program is at risk and if action isn't taken, Americans might see a cut in their benefits starting in 2034.

Chapters:
1:29 How Social Security works
2:57 Solvency and Sustainability
6:06 The future of Social Security

Produced and Edited by: Emily Lorsch
Animation: Alex Wood, Jason Reginato
Senior Managing Producer: Tala Hadavi
Additional Footage: Getty Images
Additional Sources: Social Security Administration, National Academy of Social Insurance

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#SocialSecurity

Why You Will Be Getting Social Security After All

Whether directly or indirectly, Social Security has likely touched your life or the life of someone you know.

A retired teacher, disabled construction worker, wounded warrior, or maybe the family of someone who passed away.

It's more than likely if you have a full-time job, a chunk of your paycheck goes toward Social Security.

It's the biggest single source of income for American retirees.

Without Social Security, older Americans would have a poverty rate of

In reality, they have a poverty rate of 10 percent.

In 2023, nearly 70 million Americans will receive a Social Security benefit every month.

For the year, that's more than 1000000000000 dollars.

It's most crucial for the 22 million Americans it keeps out of poverty.

That's including nearly 15 million seniors and 1000000 children.

It's a lifeline for millions of Americans.

Do you know that Social Security is going to be insolvent in 2035?

It's not the first time that we've had a discussion on a national level about Social Security's solvency.

The good news is that it has been fixed before.

But if it was as simple as that, we wouldn't have made this 13-minute video.

The first monthly Social Security check was cashed in 1940 for $22.54.

Fast forward to 2022, the average monthly benefit for a retired worker was $1, 825.

Social Security is largely a pay-as-you-go program.

That means today's benefits are funded primarily by the payroll taxes collected from current workers.

Self-employed Americans pay 12.4 percent of their wages to the government, while employed Americans pay 6.2 percent.

That's on everything they earn up to a certain amount.

In 2023, that cap is $160, 200 and employers match that amount.

Social security is extremely important for Americans.

The Social Security payroll tax is the biggest tax that most Americans pay.

Researchers estimate a single male with average earnings of about $59, 000 retiring at age 65 in 2025 will have paid more than $340, 000 in Social Security taxes during his lifetime.

Those taxes then go into 2 federal trust funds, the Old Age and Survivors Insurance and Disability Insurance Trust Funds.

They're often referred to collectively as the Social Security Trust Fund and are invested in U.S.

Starting in the mid 80s, The Social Security Administration collected more in payroll taxes and other income than it paid out in benefits and other expenses.

Asset reserves for the combined funds were at $2.9 trillion at the end of 2020.

Social security is invested in government bonds and bond government bonds are a very safe investment.

They're backed by the full faith and credit of the United States government and they do grow over time.

And so Social Security has benefited from interest income over time.

Social Security's structure relies on the ratio of workers to retirees.

There needs to be enough current workers paying in to fund the benefits of those aging into the program.

So what happens when there are more people retiring than there are working and paying taxes?

Well, that's exactly what we're dealing with now.

Back in 1950, there were 16 workers paying into Social Security for each person collecting benefits.

But over time, the aging of the population has reduced that ratio of workers to beneficiaries.

In the early 2000s, it was 3 workers per beneficiary.

Going forward to the 2030s, it'll only be 2 workers for each retiree.

That makes the program much, much more costly to fund.

Due to a decline in the birth rate after the baby boom, we now have more people receiving benefits than we have paying taxes.

In 2010, when Social Security's cost was exceeding its non-interest income, the agency had to tap into the interest.

That still wasn't enough, and in 2021, the agency started to dip into the actual trust funds.

Now, that $2.9 trillion worth of Treasury securities is dwindling.

So much so that the Social Security Board of Trustees projected in its annual report that the combined asset reserves of the trust funds will become depleted in 2034.

That means if no action is taken before then, millions of Americans will receive only 80 percent of their benefits.

That would dramatically increase the number of retirees in poverty.

So Social Security solvency isn't just a matter of federal bookkeeping.

It is a matter of how we protect Americans who depend on this program the most.

At the end of 2022, the asset reserves had reached $2.83 trillion, down about $20 billion from just a year prior.

Nearly 9 out of 10 people 65 and older were receiving a benefit as of December 2022.

About 4 in 5 Social Security beneficiaries are older Americans, but 1 in 5 are not.

And those people either have disabilities or they lost a parent or a spouse to premature death.

That's especially important for children of color who are more likely to lose a parent.

It's also very important for over 7 million people with disabilities who get social security disability benefits.

This is money that people need to pay their rent, to pay for food, to pay for medical expenses.

As we all apparently agree, Social Security and Medicare is off the books now.

Saving the Social Security program is a bipartisan issue.

More money coming in or less money going out.

Members of Congress don't want to tell Americans they need to pay higher taxes or receive lower benefits.

But that's just the mathematical reality of how Social Security's financing works.

So let's start with more money coming in.

That means the revenue sources would need to see some changes.

Workers paying more in taxes or the Social Security fund invested in a different way.

If we finance Social Security with money from the stock market, that's going to make the federal budget less stable.

It's going to make recessions and stock market downturns much more damaging to the federal budget.

Another way to bring more money in is through higher taxes.

1 supported plan is to increase the current cap on contributions, which, as I mentioned earlier, is about $160, 000 each year.

Back in the 1980s, the Social Security payroll tax was set at a level that covered 90% of earnings in the economy.

But because we've had so much inequality growing over the past 40 years, now the social security cap is such that it only covers 83 percent of wages in the economy.

We're missing out on a lot of revenue from workers who are very comfortable and who would be able to contribute more.

If social security's tax cap had simply stayed at that same level, covering 90 percent of earnings in the economy, it would be $300, 000 today.

And if we simply increased that, that would go a long way to restoring some of the fiscal balance to the program.

Now, let's get to our other option, less money coming out.

The idea of cuts might not be unilateral.

Some experts are in favor of changing the way benefits are paid out, gradually scaling down benefits for middle and upper income retirees and increasing benefits for the bottom third.

Today, the maximum Social Security benefit you can receive is about $43, 000 per year.

Over time, it makes sense to transition Social Security to focus more on preventing poverty and old age and less on paying benefits to high income people.

At the same time, the government should ensure that every worker is offered a retirement plan on the job and everyone is signed up for that plan.

So even as social security benefits are scaled down for middle and upper income workers, the increase in retirement savings on their own would make up for the losses.

As a presidential candidate, President Biden proposed imposing higher taxes on the wealthy to make benefits more generous for Americans who need them most.

Broadly speaking, that's been the kind of reform Democrats have proposed.

As president, he's promised to defend and strengthen the program, but has yet to lay out a specific plan.

We are all waiting to see what President Joe Biden might propose as we near the 2024 elections.

I think that may again put pressure on him.

The Republicans have not put forward formal legislation really as of yet, but have talked about raising the retirement age, finding different ways to invest Social Security's trust funds.

The retirement age was gradually raised to 67 years old back in 1983, the last time Social Security finances were in danger.

Now they're supporters of raising the age even more to 70 years old.

Not everyone is in a position to continue to work.

Some people have jobs that demand a lot of physical labor, and it would be hard to continue to work until a higher age.

Then there's the opposite argument that, you know, people are having longer careers, living longer lives, and this could be sustainable for some people.

Would there have been a better place for this program of where this money could have grown more so that we wouldn't be at the place that we're in now?

Government bonds are a very safe investment.

When you're looking at other types of systems like, say, for example, a pension system for state government employees, those funds may also be diversified and invested in things like the stock market.

Stock market investment brings potentially more rewards, but also more risks.

The good news is we do still have a decade before the trust funds are expected to run dry.

And experts don't seem to think it'll get to the point that we enter 2034 and Americans experience a 20% cut across the board.

I'm confident that Congress won't allow the trust funds to become insolvent for 2 reasons.

First, Social Security is extremely popular.

And second, Social Security is extremely important.

They would vote out of office anybody who would impose a sudden 20% cut in benefits.

And the reason is that low-income Americans who rely on Social Security will be pushed into poverty.

Americans aren't going to stand for that and Congress won't allow it.

However, what is concerning is how long we'll have to wait for Congress to take action.

I think it's unlikely that we will have legislation on Social Security passing in the absence of a crisis.

We already do see increasing interest in the program's long-term prospects.

We already do see members of Congress and senators coming up with ideas about how they might change the system and update the system.

But I doubt that we'll actually see a bill passing into law until we get pretty close to that date.

President Biden does not have a plan that adds up to pay for Social Security.

President Trump has false promises that he's somehow going to pay full benefits, but we don't know how he's going to do it.

For Social Security reform to happen today, we need somebody to make it happen.

We need leadership at either the presidential or the congressional level.

If Congress had addressed Social Security in the 1990s, when we really knew that the program faced long-term deficits, we could have had an easy and painless resolution to this problem.

But by delaying for decades, it means whatever resolution we come to is gonna be more difficult.

If reform is enacted today, there's time to plan, adjust, and gradual changes are always less painful than drastic ones.

Whereas waiting until the last minute, experts say, could be detrimental.

I am increasingly fearful that we're going to face a hard land.

It could cause a recession if we have to have a dramatic increase in taxes or dramatic cut in benefits.

The risks of waiting are huge, not just to Social Security beneficiaries, but to the economy as a whole.

For American people, the real responsibility for them is

to pay attention to what they're talking about and how they might want to either vote or influence their lawmakers to decide.


Speaker 0: Whether directly or indirectly, Social Security has likely touched your life or the life of someone you know. A retired teacher, disabled construction worker, wounded warrior, or maybe the family of someone who passed away. It's more than likely if you have a full-time job, a chunk of your paycheck goes toward Social Security.

Speaker 1: It's the biggest single source of income for American retirees. Without Social Security, older Americans would have a poverty rate of

Speaker 0: 38%.

Speaker 1: In reality, they have a poverty rate of 10 percent.

Speaker 0: In 2023, nearly 70 million Americans will receive a Social Security benefit every month. For the year, that's more than 1000000000000 dollars. It's most crucial for the 22 million Americans it keeps out of poverty. That's including nearly 15 million seniors and 1000000 children. It's a lifeline for millions of Americans.

But there are some concerns.

Speaker 2: Do you know that Social Security is going to be insolvent in 2035? It is not going to be. That is not true. That is actually not true. No, it's actually not true.

Speaker 3: It's not the first time that we've had a discussion on a national level about Social Security's solvency. The good news is that it has been fixed before.

Speaker 0: So Is Social Security going to run out? The short answer is no. But if it was as simple as that, we wouldn't have made this 13-minute video. The first monthly Social Security check was cashed in 1940 for $22.54. Fast forward to 2022, the average monthly benefit for a retired worker was $1, 825.

Where does all that money come from? Social Security is largely a pay-as-you-go program. That means today's benefits are funded primarily by the payroll taxes collected from current workers. Self-employed Americans pay 12.4 percent of their wages to the government, while employed Americans pay 6.2 percent. That's on everything they earn up to a certain amount.

In 2023, that cap is $160, 200 and employers match that amount.

Speaker 4: Social security is extremely important for Americans. The Social Security payroll tax is the biggest tax that most Americans pay.

Speaker 0: Researchers estimate a single male with average earnings of about $59, 000 retiring at age 65 in 2025 will have paid more than $340, 000 in Social Security taxes during his lifetime. Those taxes then go into 2 federal trust funds, the Old Age and Survivors Insurance and Disability Insurance Trust Funds. They're often referred to collectively as the Social Security Trust Fund and are invested in U.S. Treasury securities. Starting in the mid 80s, The Social Security Administration collected more in payroll taxes and other income than it paid out in benefits and other expenses.

And that lasted for more than 3 decades. Asset reserves for the combined funds were at $2.9 trillion at the end of 2020.

Speaker 1: Social security is invested in government bonds and bond government bonds are a very safe investment. They're backed by the full faith and credit of the United States government and they do grow over time. And so Social Security has benefited from interest income over time.

Speaker 0: Social Security's structure relies on the ratio of workers to retirees. There needs to be enough current workers paying in to fund the benefits of those aging into the program. So what happens when there are more people retiring than there are working and paying taxes? Well, that's exactly what we're dealing with now.

Speaker 4: Back in 1950, there were 16 workers paying into Social Security for each person collecting benefits. But over time, the aging of the population has reduced that ratio of workers to beneficiaries. In the early 2000s, it was 3 workers per beneficiary. Going forward to the 2030s, it'll only be 2 workers for each retiree. That makes the program much, much more costly to fund.

Speaker 0: Due to a decline in the birth rate after the baby boom, we now have more people receiving benefits than we have paying taxes. In 2010, when Social Security's cost was exceeding its non-interest income, the agency had to tap into the interest. That still wasn't enough, and in 2021, the agency started to dip into the actual trust funds. Now, that $2.9 trillion worth of Treasury securities is dwindling. So much so that the Social Security Board of Trustees projected in its annual report that the combined asset reserves of the trust funds will become depleted in 2034.

That means if no action is taken before then, millions of Americans will receive only 80 percent of their benefits.

Speaker 4: That would dramatically increase the number of retirees in poverty. So Social Security solvency isn't just a matter of federal bookkeeping. It is a matter of how we protect Americans who depend on this program the most.

Speaker 0: At the end of 2022, the asset reserves had reached $2.83 trillion, down about $20 billion from just a year prior. Nearly 9 out of 10 people 65 and older were receiving a benefit as of December 2022.

Speaker 1: About 4 in 5 Social Security beneficiaries are older Americans, but 1 in 5 are not. And those people either have disabilities or they lost a parent or a spouse to premature death. That's especially important for children of color who are more likely to lose a parent. It's also very important for over 7 million people with disabilities who get social security disability benefits. This is money that people need to pay their rent, to pay for food, to pay for medical expenses.

Speaker 2: As we all apparently agree, Social Security and Medicare is off the books now.

Speaker 0: Saving the Social Security program is a bipartisan issue. And there are really only 2 options. More money coming in or less money going out.

Speaker 4: Members of Congress don't want to tell Americans they need to pay higher taxes or receive lower benefits. But that's just the mathematical reality of how Social Security's financing works.

Speaker 0: So let's start with more money coming in. That means the revenue sources would need to see some changes. Workers paying more in taxes or the Social Security fund invested in a different way.

Speaker 4: If we finance Social Security with money from the stock market, that's going to make the federal budget less stable. It's going to make recessions and stock market downturns much more damaging to the federal budget.

Speaker 0: Another way to bring more money in is through higher taxes. 1 supported plan is to increase the current cap on contributions, which, as I mentioned earlier, is about $160, 000 each year.

Speaker 1: Back in the 1980s, the Social Security payroll tax was set at a level that covered 90% of earnings in the economy. But because we've had so much inequality growing over the past 40 years, now the social security cap is such that it only covers 83 percent of wages in the economy. We're missing out on a lot of revenue from workers who are very comfortable and who would be able to contribute more. If social security's tax cap had simply stayed at that same level, covering 90 percent of earnings in the economy, it would be $300, 000 today. And if we simply increased that, that would go a long way to restoring some of the fiscal balance to the program.

Speaker 0: Now, let's get to our other option, less money coming out. The idea of cuts might not be unilateral. Some experts are in favor of changing the way benefits are paid out, gradually scaling down benefits for middle and upper income retirees and increasing benefits for the bottom third.

Speaker 4: Today, the maximum Social Security benefit you can receive is about $43, 000 per year. That's far above the poverty threshold. Over time, it makes sense to transition Social Security to focus more on preventing poverty and old age and less on paying benefits to high income people. At the same time, the government should ensure that every worker is offered a retirement plan on the job and everyone is signed up for that plan. So even as social security benefits are scaled down for middle and upper income workers, the increase in retirement savings on their own would make up for the losses.

Speaker 0: As a presidential candidate, President Biden proposed imposing higher taxes on the wealthy to make benefits more generous for Americans who need them most. Broadly speaking, that's been the kind of reform Democrats have proposed. As president, he's promised to defend and strengthen the program, but has yet to lay out a specific plan.

Speaker 3: We are all waiting to see what President Joe Biden might propose as we near the 2024 elections. I think that may again put pressure on him. The Republicans have not put forward formal legislation really as of yet, but have talked about raising the retirement age, finding different ways to invest Social Security's trust funds.

Speaker 0: The retirement age was gradually raised to 67 years old back in 1983, the last time Social Security finances were in danger. So, yes, this has happened before. And Congress enacted a major overhaul. Now they're supporters of raising the age even more to 70 years old.

Speaker 2: This is not a popular proposal. It's a very divisive 1. Not everyone is in a position to continue to work. Some people have jobs that demand a lot of physical labor, and it would be hard to continue to work until a higher age. Then there's the opposite argument that, you know, people are having longer careers, living longer lives, and this could be sustainable for some people.

Speaker 0: Would there have been a better place for this program of where this money could have grown more so that we wouldn't be at the place that we're in now?

Speaker 1: Well, that's a good question. Government bonds are a very safe investment. When you're looking at other types of systems like, say, for example, a pension system for state government employees, those funds may also be diversified and invested in things like the stock market. Stock market investment brings potentially more rewards, but also more risks.

Speaker 0: The good news is we do still have a decade before the trust funds are expected to run dry. And experts don't seem to think it'll get to the point that we enter 2034 and Americans experience a 20% cut across the board.

Speaker 4: I'm confident that Congress won't allow the trust funds to become insolvent for 2 reasons. First, Social Security is extremely popular. And second, Social Security is extremely important. Voters care about Social Security. They would vote out of office anybody who would impose a sudden 20% cut in benefits.

And the reason is that low-income Americans who rely on Social Security will be pushed into poverty. Americans aren't going to stand for that and Congress won't allow it.

Speaker 0: However, what is concerning is how long we'll have to wait for Congress to take action.

Speaker 1: I think it's unlikely that we will have legislation on Social Security passing in the absence of a crisis. We already do see increasing interest in the program's long-term prospects. We already do see members of Congress and senators coming up with ideas about how they might change the system and update the system. But I doubt that we'll actually see a bill passing into law until we get pretty close to that date.

Speaker 4: President Biden does not have a plan that adds up to pay for Social Security. President Trump has false promises that he's somehow going to pay full benefits, but we don't know how he's going to do it. For Social Security reform to happen today, we need somebody to make it happen. We need leadership at either the presidential or the congressional level. And so far, we don't see it.

If Congress had addressed Social Security in the 1990s, when we really knew that the program faced long-term deficits, we could have had an easy and painless resolution to this problem. But by delaying for decades, it means whatever resolution we come to is gonna be more difficult.

Speaker 0: If reform is enacted today, there's time to plan, adjust, and gradual changes are always less painful than drastic ones. Whereas waiting until the last minute, experts say, could be detrimental.

Speaker 4: I am increasingly fearful that we're going to face a hard land. It could cause a recession if we have to have a dramatic increase in taxes or dramatic cut in benefits. The risks of waiting are huge, not just to Social Security beneficiaries, but to the economy as a whole.

Speaker 3: For American people, the real responsibility for them is

Speaker 2: to pay attention to what they're talking about and how they might want to either vote or influence their lawmakers to decide.

See all CNBC transcripts on Youtube

Why You Will Be Getting Social Security After All