Why is Social Security running out of money?

In short, it’s because of a “perfect storm” of demographic changes.

Social Security is a pay-as-you-go system, so payroll taxes from current workers and their employers pay for the Social Security benefits being collected by current retirees.

This system works as long as there are enough workers paying enough taxes to fund what’s owed to current retirees, but now that the population is growing older, that’s no longer the case.

When Social Security began, there were over 40 workers paying in for every 1 person receiving benefits. By 1950, that ratio had dropped to about 15 to 1. In 1960, it was 5.4 to 1.

Today, there are only 2.8 workers for every 1 beneficiary, ss1 and the Social Security Administration estimates it will drop to 2.2 by 2037.

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Here’s another way to look at it. In 2019, there were 64 million Social Security recipients and 178 million eligible workers. In 20 years, there will be an additional 21 million recipients but only 12 million more eligible workers. Each worker will have to pay more and more in Social Security taxes each year if we want to keep the program afloat.

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So what’s going on? Why is the number of workers shrinking?

Two reasons:

1. Declining birth rates. In the 1950s and 60s, the average number of children born per woman was over 3. By 2019, it had dropped to around 1.7. (Immigration has added to our working-age population, but not enough to fully offset such a drop.)‍

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2. Rising life expectancy. In 1940, the first year that Social Security checks were mailed out, average life expectancy was about 63½ years. By 2019, it was 78¾. In other words, people are now getting benefits 15 years longer than what was originally anticipated!

That doesn’t mean the program is doomed, but it will require reform and bipartisan compromise. Changing how we pay for the program or how benefits are structured could return the program to solvency, but it will require leadership on both sides to make that happen.