Is the SSA Going Broke?

2026-01-04

Social Security’s Old Age and Survivors Insurance trust fund is projected to run out of reserves by 2033, at which point it could only pay 77% of scheduled benefits. This article explores how Social Security actually works, why the projections have worsened over time, and what policy proposals exist to address the funding gap.

How Does the SSA Work?

Social Security is a federal program established by the Social Security Act signed into law by President Franklin Roosevelt in 1935. Medicare was established by the Social Security Amendments of 1965 and signed into law by President Lyndon B. Johnson in 1965.

The philosophical basis is the idea of social insurance to provide reliable health care for older Americans by pooling the risk amongst the entire working population and financing it through dedicated funding streams so that any individual senior isn’t left open to the catastrophic risk of having debilitating health conditions that they can’t personally afford to pay the health care costs for.

There are four main programs:

1. Old Age and Survivors Insurance (OASI)
2. Disability Insurance (DI)
3. Hospital Insurance (HI)
4. Supplemental Medical Insurance (SMI)

We’ll focus mostly on OASI in this article.

Each year, OASI pays out benefits for retirees and survivors (including spouses and children of workers that pass away having earned enough credits). And there’s also insurance payments provided to dependent spouses of retirees and children of retirees (both programs that I didn’t know existed until researching this).

Each year money comes in from three sources:

1. Payroll taxes (this is what we see as OASDI on our paychecks)
2. Interest payments on trust fund reserves
3. Taxes paid back on the Social Security benefits that were paid out

Any year that more money is collected than is paid out, the trust fund reserves gradually increase.

The Tax Rates

2025 Social Security Payroll Tax Contribution Rates (in percent)

Federal law establishes payroll taxes for OASI and DI, which apply to earnings up to an annual maximum ($176,100 in 2025). The maximum usually increases each year as the national average wage increases.

How Did the Program Do This Year?

Trust Fund Operations, 2024 (in billions)

We can see that the net change in reserves is a $103.2B deficit for OASI. This deficit draws against the starting balance of $2.64T and current projections show that deficit increasing such that we completely draw down the reserves by 2033.

A Few Notes on the Different Income Sources

1. The Payroll Tax Cap

Federal law establishes payroll taxes for OASI and DI, which apply to earnings up to an annual maximum ($176,100 in 2025), which comprises about 80% of total wages.

2. How the Trust Fund Invests

The Trust Fund reserves are invested in Treasury securities but a very specific kind. They’re special issues with maturities from one to 15 years that can be redeemed at any point for cash including the interest earned.

The OASI trust fund’s interest income was $63.7 billion despite its reserves being $2.6415 trillion dollars. That’s an annualized rate of 2.4% at a time when treasury bills are typically returning 4% on average throughout the year. And you can see that the overall amount is actually a bit lower than the current market rate.

3. Who Pays Income Tax on Their Social Security Benefits?

Social Security beneficiaries with incomes above $25,000 for individuals (or $32,000 for married couples filing jointly) pay income taxes on up to 50 percent of their benefits, with the revenues going to the OASI and DI Trust Funds. Those with incomes above $34,000 (or $44,000 for married couples filing jointly) pay income taxes on up to 85 percent of benefits, with the revenues from taxation in excess of the first 50 percent going to the HI Trust Fund.

The tax itself is complicated!

Forward Projections

The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, unchanged from last year’s report. At that time, the fund’s reserves will become depleted and continuing program income will be sufficient to pay 77 percent of total scheduled benefits.

Typically we’ve seen changes in the trust fund ratio, which is the ratio between the trust fund reserves at the start of the year and the total program expense over the course of the year.

Comparison between the expenses and the cost as a percentage of the trust fund

Current cost vs income for each of HI vs OASDI

Why Did the Projections Get Worse?

The 2010 Trustees report shows that they would have been overdrawn by 2037. And this has been revised until 2033 now. Some reasons for that:

1) Social Security Fairness Act (repeal of WEP and GPO)

WEP and GPO reduced Social Security benefits for some people who also receive pensions from jobs not covered by Social Security. The law enacted January 5, 2025 repealed those reductions, so projected benefits are higher for that group, which raises program costs and worsens long-term finances.

2) Slower recovery in fertility assumptions

The Trustees still assume an “ultimate” fertility rate of 1.9 children per woman, but they pushed out the date when fertility gets back to that level from 2040 to 2050. Lower fertility for longer means fewer future workers relative to beneficiaries, so payroll tax revenue grows more slowly, worsening the outlook.

3) Lower assumed long-term labor share of GDP

They lowered the assumed long-run share of GDP that shows up as total labor compensation (wages + benefits and related labor compensation measures) from 62.8% to 61.2%. Because Social Security is funded mainly by taxes on earnings, a smaller labor share means a smaller tax base relative to the overall economy, which worsens financing.

Does the third factor mean workers will make less? It means workers are assumed to receive a smaller slice of total GDP as compensation. Workers’ pay can still rise in dollar terms, but labor compensation grows more slowly relative to GDP.

What makes up more of GDP then? If labor’s share is smaller, the non-labor share is larger—generally things like capital income/returns (profits, rents, interest) and other non-labor components captured in national accounts.

Understanding the Gap

The gap is often measured as a percentage of payroll. The current tax rate is 12.4% which is a percentage of the total payroll paid by eligible people, basically all private sector workers excluding government workers. We can measure the gap by saying how much would you have to increase that rate to cover all the expense needs.

Gap as a proportion of GDP

The annual balance deficit in 2024 for the OASDI trust funds was 1.34 percent of taxable payroll. Projected annual balance deficits for the OASDI program gradually increase from 2.35 percent of taxable payroll in 2025 to 5.43 percent in 2081, and then decline to 4.84 percent of taxable payroll in 2099.

How to Design a System That Wouldn’t Get Overdrawn?

It sounds simple: just make sure you’re earning more than you’re paying out. But for that, because it’s a pay-as-you-go system, you need to accurately project labor force growth, wage growth, and inflation.

Could they collect more than they needed? Maybe, but it sounds prohibitively difficult to get people to agree to taxes that are higher just to build up a reserve for the future. Nobody wants to pay any more taxes than they need to.

Any such policy proposal is multi-faceted and it requires a deep knowledge of the program’s current revenue sources, demographic factors, and specific program offerings. Republicans would like to cut benefits. Democrats would like to increase taxes.

How Do We Fix It?

Could they preemptively decrease benefits being paid out today so that we deplete the trust fund more slowly? That’s one option. But people would be more interested in keeping the benefits at the same level until it creates a hair-on-fire problem for the people that are getting reduced benefits in perpetuity.

On the other hand, unlike income tax and Medicare, FICA is one of the only taxes that is capped which makes that seem like an obvious opportunity to make it more progressive while collecting more revenue. Though I can imagine that getting adequate support for this might be difficult.

The Brookings Proposal

The Brookings Institution (this seems to be a fairly centrist organization based on online descriptions calling it every political leaning) has a fairly thought-out proposal on how to address the solvency issue.

I would argue that their proposal is relatively easy to understand so I’ll leave most of the points in the article and just add some light commentary on some of the proposals here.

Estimated Effects of Blueprint on the Social Security System’s Finances

Some Thoughts on Specific Proposals

Increase retirement age for high earners

The proposal notes that treating high earners’ retirement age differently is fair because of trends in life expectancy, with men and women with high incomes living longer than everyone else, while those with the lowest incomes tending to live shorter lives than their counterparts in the past. Women aged 62 can be expected to live 26 more years if their earnings are in the highest quintile, compared with just under 20 more years in the lowest quintile. For men, the gap is even greater—25.6 years for the highest quintile, compared with slightly more than 15 years for the lowest.

The practical basis for this being based on life expectancy sounds logical but also penalizes people for moving up the socioeconomic ladder in one sense and doesn’t account for the variance in life expectancy.

What’s the point of living longer if you’re just going to spend more of that time working (although this is a very cynical view that assumes that the average person doesn’t find interest or purpose from their work)? On the other hand, why don’t we actually focus on increasing the overall amount of taxable wages that contribute because only 90% of total wages contribute. This means the people who are excluded earn the top 10% of wages, which is the top tiny tiny percentage of the population. The top 10% of wages were earned by about 0.63% of wage earners (roughly 1 in 160 workers).

Devote all proceeds from taxes on Social Security benefits to OASDI trust funds

This seems risky without considering the other bill at the same time that addresses the potential insolvency in the HI fund.

Some Observations

1. It’s very easy to complain about what’s going on in the government and a bit harder to understand it fully and propose a well-thought-out solution without long-term side effects and that appeals enough to stakeholders from all parties and gets it actually passed.
2. A reminder of the process it takes to get a proposal passed into law:
   1. Convert the policy into bill text (legislative counsel + committee staff)
   2. Recruit bipartisan sponsors on Ways & Means / Senate Finance
   3. Get official estimates: OACT (solvency effects), CBO (budget cost), JCT (tax revenue)
   4. Build a public coalition (stakeholder letters, endorsements, messaging)
   5. Introduce the bill in House/Senate; it’s referred to committee
   6. Committee hearings (policy + politics + public record)
   7. Committee markup (amend, negotiate, vote to report)
   8. Floor action in each chamber (rules/debate, amendments, final passage)
   9. Reconcile differences (conference or amendment exchange)
   10. Final passage in both chambers
   11. President signs (or veto/override) → law

Miscellaneous Questions & Answers

What percentage of Medicare recipients are actually paying premiums? It seems like they have to make over $212,000 a year when filing jointly.

Part A (HI): about 99% of beneficiaries pay $0 premium for Part A because they have enough covered work history (or a spouse does).

Part B (SMI): essentially everyone enrolled pays a Part B premium (usually deducted from Social Security). The standard design is: the beneficiary pays about 25% of Part B costs and the government covers about 75%.

Only about 7–8% of beneficiaries pay these income-adjusted surcharges.

What’s the difference between the people in the VA that are receiving disability benefits versus the people that are getting disability benefits from this OASDI DI fund?

VA disability compensation: paid for service-connected conditions; can be partial (rated by severity) and doesn’t require inability to work in the same all-or-nothing way SSA does.

SSDI/DI: paid if you meet SSA’s disability definition (unable to perform substantial work due to a medical impairment expected to last ≥12 months or result in death) and you have sufficient work credits.

Yes, you can receive both, and SSA states they generally don’t offset each other (separate applications).

What is the Railroad Retirement Program? Why is it so unique?

It was created in the 1930s as a separate federal system for railroad workers, reflecting the rail industry’s cross-state structure and long-standing, industry-specific retirement arrangements.

It remains separate but is coordinated with Social Security (including a “financial interchange” concept so Social Security is treated roughly as if railroad work were covered under it).

Resources & Further Reading

• Social Security Interest Rate Formula
• The Expenditures Approach to Measuring GDP - U.S. Bureau of Economic Analysis (BEA)
• Fixing Social Security - Brookings Institution
• 2025 Trustees Report Summary
• Full 2025 Trustees Report (PDF, 282 pages)
• Windfall Elimination Provision
• Historical Trust Fund Ratios Chart
• Projected Tax Rates Chart
• Understanding the Federal Poverty Line - Part 1: My Life Is a Lie

While I have some feedback and thoughts on the exact methodology especially as it relates to child care. I agree with the general idea that the current methodology is severely dated and serves as an inadequate measure of the poverty line

• Social Security: A Historical Perspective
• Brookings Institution