You often hear elected officials warn that Social Security is going “broke,” “bankrupt,” or more precisely, “insolvent”—especially around May when the Social Security Board of Trustees releases its annual report on the program’s financial health.

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But can Social Security even run out of money? What would happen if it did?

The short answer is no, it’s a pay-as-you-go system, so barring a change in law, there will always be money flowing into the program.

However, with fewer and fewer workers paying into a program that is now supporting more and more retirees, it’s entirely possible that at some point the money coming in might not be enough to cover all the benefits promised. Before COVID-19 hit, the trustees’ estimate was that Social Security would reach that point in 2035.

That doesn’t mean that, once Social Security runs short of money, everyone on the program will suddenly stop getting benefit checks. But it does mean that those benefit checks will be a lot smaller than before.

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Still not entirely clear? Ok, here’s the long answer.

Remember that Social Security is primarily funded by payroll taxes, which are taken out of every paycheck of every working American year-round. Social Security is always collecting revenue, no matter if it’s paying out more than it’s taking in. Last year, for instance, payroll taxes funded $981 billion of Social Security’s $1.06 trillion cost. ss1

But if Social Security ever reaches the point where total benefits exceed total revenue, the law requires that benefits be cut across the board in proportion to what payroll taxes alone can cover.

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Here’s a simple way to think about it: Imagine that $100 million in benefits were promised, but payroll-tax revenue brought in only $75 million. In this case, all benefits would be cut by 25 percent — because that’s all we could afford to pay with just payroll-tax revenue.

The current projection is that payroll-tax revenue will be enough to pay for 79 percent of benefits when the trust funds go bankrupt in 2035. Benefits would then continue to be cut year after year, since benefits tend to grow faster than payroll-tax revenue.

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But Congress could do something. It could pass legislation to plug the hole with revenue from other sources, raise payroll taxes, or cut benefits to keep the program fully funded.

What’s clear is that doing nothing isn’t an option. Either Congress will confront this challenge, or it will confront us.