The Social Security system is on the brink.

Closing offices is not the resolution.

Mar 29, 2025

March 29, 2025

“Should any political party attempt to abolish Social Security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history.” ~ President Dwight D. Eisenhower

As our Disruptor in Chief swings his wrecking ball through the federal government’s budget, the one area that is in the direst need of attention is noticeably being ignored – the perilous condition of the Social Security Trust Fund. Current estimates suggest that the SSI payment system, as it is currently structured, will support itself until approximately 2034, at which time the trust fund that is supporting the system will be exhausted. The specifics of that support warrant some clarification.

Unlike what many people believe, Social Security income during retirement is not a “return” of the money that participants paid into the system during their working years. SSI does not function like your personal IRA or 401k retirement accounts, which you accumulate and hopefully grow while you are working, and at retirement start to withdraw money to support your living expenses. Social Security income is not your money coming back. Alternatively, SSI payments received by beneficiaries are funded by current contributions from current workers. In the past, when current employee contributions to the system exceeded the benefits that were being paid out to retired recipients, those excess payments were deposited into a reserve fund for future use. That “reserve fund” is the Social Security Trust Fund, which is currently supporting payments to retired SSI recipients. That “subsidy” from the SSI Trust Fund is required because people are living longer than when the system was set up, and there are no longer enough younger workers to support the retirees. Older SSI beneficiaries receive benefits that are primarily funded by current workers, but approximately 20% of each payment is (now) comprised of money being withdrawn from the SSI Trust Fund. Current estimates suggest that there is only enough money in the trust fund to last another eight to ten years. At that point, the math would no longer work and benefits to existing beneficiaries would have to be reduced.

We need to strengthen Social Security for today’s workers. If we don’t act now, this system, born out of the New Deal, will become a bad deal. ~ Senator Mitch McConnell (20 years ago, in 2005)

If the mechanics of the Social Security system (current disbursements funded by new contributions) sounds to you like a Ponzi scheme, you would be correct. Elon Musk was pilloried in the media last week for saying that “Social Security is the greatest Ponzi scheme of all time”, but he is partially correct (accent on partially). Charles Ponzi did in fact pay his investors their “profits” with money that was not actually earnings, but rather capital that had recently been contributed to the investment pool by new investors. Ponzi neglected to mention that part to his original investors. That math worked until it didn’t, which was when Ponzi’s new contributors’ capital infusions could no longer offset the money that Ponzi was filching from the pool. Think Bernie Madoff. Social Security does use current contributions to fund current disbursements, but the process is transparent and by design. It is not a “scheme”. Musk left that part out.

When reading about the timing of this collapse, keep in mind that all these numbers and projections are estimates, because there are many variables in the equation. How many people will be working over the next ten years contributing to the system? How many people will file to collect SSI benefits over the next ten years? What will interest rates be? (The trust fund is invested in US Treasury bonds, which pay interest each year.) Will a recession exacerbate the problem? Previous negative cash flows in the SSI system have occurred before, but there was a large enough trust fund balance to buffer the negative cash flows. SSI ran large current account deficits in the mid 1970’s, during which time we suffered through a major recession and severe market declines—in 1974, 1975 and again in 1977. We ran large deficits beginning in 2008/9, not coincidentally the years of the financial crisis and subsequent recession. Rising unemployment during these recessions reduced the income being contributed via SSI taxes to the system, but beneficiaries still received their monthly payments. Will a recession in the near future accelerate the depletion of the trust fund? Projections suggest that we may have eight to ten years to fix this—or maybe not. The sooner we fix the problem, the less expensive it will be to do it. If we had actually done something thirty years ago the solution would be a lot less painful than it will have to be now.

The good news is that the solutions are simple, and apparent. It will just require that politicians find the courage to talk about the changes that will be required, each of which will require goring someone’s ox.

Under the current system, cash flows coming into the system are funded with OASDI (Old Age, Survivors, and Disability Insurance Program) payroll taxes: Employees pay 6.2% of earnings in SSI tax annually, until they earn $176,500 (new in 2025). Employers pay a like amount, 6.2%, totaling 12.4% . Additionally, each pay a “Medicare Tax of 1.45%. When the solvency of the Social Security system first started appearing on policy wonks’ radars, I often heard the impending collapse of the system described as a “1% problem”. By that they meant if you just increased the current levy of 6.2% to 7.2% (the one in the 1% problem), it would close the funding gap and solve the problem for the foreseeable future. That was thirty years ago. Implementing that recommendation would certainly help now, but it would no longer be enough of an increase in revenue to bring Social Security inflows / outflows into balance. According to the Peter G. Peterson Institute, raising the percentage from 6.2% to 7.2% would now only cover 43% of the annual negative cash flow in the system. If politicians had acted fifteen years ago, in 2010, it would have covered 73% of the annual deficit. The longer they wait, the harder it gets to make the math work, so any solution now will require some additional pain somewhere else.

I’m gonna keep Social Security without change, except I am going to get rid of waste, fraud and abuse; same thing with Medicare. ~ President Donald Trump

The reason that fixing Social Security is called the third rail of politics is that most of the remaining corrective options will have an impact on seniors, the fastest growing segment of the US population, and—most problematic for US politicians, those most likely to vote. “Hands off my Social Security” is the rallying cry, but unfortunately, ignoring the problem and doing nothing is not an option. Bumper stickers make poor strategic plans. Even the AARP is calling for system remediation (but not reducing benefits to current beneficiaries). Reducing benefits to beneficiaries is one solution to make the math work, but an option with absolutely zero chance of happening (unless Congress continues to sit on their hands). Unfortunately, if our representatives in Washington continue to ignore the train coming down the tracks, the reduction in benefits will be self-actuating, because there will not be enough money in the system to continue benefits at 100%. Current contributions from workers are calculated to be able to sustain approximately 80% of payments to beneficiaries. Something has to happen to continue paying existing benefits.

A lot of people approaching that age have already retired on pensions or have made irreversible plans to retire very soon…I consider it a breach of faith to renege on that promise. It is a rotten thing to do. ~ Former House Speaker Thomas P.“Tip” O’Neill

Another corrective option is to delay the eligibility age to start receiving benefits. Currently, beneficiaries can apply for benefits as early as age 62 and receive their “full” benefit if they start payments at age 67. As life expectancies continue to increase and as people continue to work later in life, this is one option that appears to have a good chance of being included in any ultimate solution. (By good chance I really mean a 99.9% chance). Fairness would warrant implementing this delay in eligibility effective for workers that are many years from retirement. Telling a forty-year-old that they will need to work an extra two years in order to receive their benefits is decidedly different and less painful that telling a sixty-year-old that their plan to retire in a few years has been extended to six or seven years. There are additional fairness issues to this proposed change because of the wide divergence in mortality for people of different circumstances based upon race, level of income, blue collar manual employment versus office workers, etc. Increasing retirement age eligibility will have vastly different impacts on different segments of the population.

Another alternative that is under active consideration is increasing the dollar amount of earnings that is subject to OASDI / Social Security tax. In 2025, only the first $176,100 will be subject to that 6.2% tax (12.4% if you include the employer matching portion). Raising that number, or eliminating the cap entirely, would have a very meaningful impact on closing the funding deficit. Proponents of raising the wage cap argue that this solution has the most equitable impact on working class taxpayers, and that wealthy taxpayers are unfairly favored by the current cap. If someone is making $100,000 per year, they pay 6.2% in tax, $6,200. Someone who make $1 million pays $10,918.20 (6.2% of the $176,100 cap), but that is only 1% of their salary. The one-percenters making $10 million pay the same $10,918.20, a paltry 0.1% in tax. You get the picture, and you can see why progressives favor this solution. The reason that his type of solution has not been implemented is also obvious, the one-percenters are also the folks who are writing million dollar checks to their favorite politico’s PAC, or for seats on the stage at the inauguration. $1 million < (this solution will cost them each year).

It is probably not fair to single out the current Trump administration for ignoring the coming SSI trust fund insolvency, which has been ignored by everyone for most of our lifetimes as the system continues to barrel down the tracks towards collapse. (Although Trump did waste the four years of his first administration.) The worst time to fix this will be when we are under the gun of an imminent shortfall in the trust fund, but don’t be surprised if this turns out to be the way it plays out. Nothing is going to happen to resolve this crisis in the next four years without President Trump’s blessing, and unfortunately his administration seems more focused on wrecking ball “solutions” like closing Social Security offices or firing workers who are actually processing benefits. None of this —absolutely none of these DOGE agency operating cost “savings”—will do anything to solve the problem of balancing the Social Security Trust Fund’s deficiencies. Congress will actually have to pass new legislation.

We all have plenty of reasons to reach out to our Congressional representatives this year, but I will suggest that you should include this topic in those discussions. The solutions are obvious and will be implemented at some point. The earlier that happens, the less it will cost us all. According to the Social Security Administration, SSI benefits represent 31% of annual income for people over 65, and 90% of total annual income for 12% of men and 15% of women over 65. Of all the economic issues that we face today, in scope and scale, the one which will have the greatest impact on the greatest number of people in our lives – this Social Security Trust Fund imbalance needs to be addressed. Unfortunately, only our government can fix it.

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For additional information and ideas about fixing Social Security, I find The Peter G. Peterson Foundation is an excellent nonpartisan resource.

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My Adirondack Diary

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