Here’s a clear explanation:
How Social Security Works
Social Security is funded primarily through payroll taxes. When you work, you and your employer each pay 6.2% of your wages into the system. That money goes immediately to pay current retirees and beneficiaries. Any surplus goes into the Social Security Trust Fund.
What Does “Running Out” Mean?
The system doesn’t go broke entirely — instead, the trust fund could be depleted.
- As of recent projections (2024), the Social Security Trust Fund is expected to be exhausted around 2034–2035.
- After that point, incoming payroll taxes will still cover about 77–80% of promised benefits.
So if no changes are made, benefits wouldn’t stop, but they could be cut by about 20–25%.
Why Is This Happening?
- People are living longer – more years of benefits.
- Birth rates are lower – fewer workers supporting retirees.
- Retirement wave – Baby Boomers are retiring in large numbers.
What Can Be Done to Fix It?
Congress could address the issue through a mix of options:
- Raising the retirement age
- Increasing the payroll tax
- Lifting the income cap (currently, only wages up to ~$168,600 are taxed)
- Modifying benefits (reducing them for high-income retirees)
Conclusion
Social Security won’t disappear, but without reform, it may not be able to pay full benefits after the mid-2030s. The system can be fixed with policy changes, but it requires political will. The sooner action is taken, the less painful those changes will need to be.
