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I say it does, but that does not stop it from being attacked. The words Ponzi Scheme are being thrown about. The fact it is underfunded is being used as a argument that it doesn’t work. Some in government are calling for it to be replaced with private accounts. I read one official say there is plenty of money to pay all the benefits to those now collecting, but we can’t continue. Well, that’s not true on either point.
No doubt Social Security is underfunded, but that is the fault of every Congress since the 1990s and of the Americans they fear will not support higher taxes or other changes. That is not a valid reason to claim the system can no longer work.
It’s true the worker to retiree ratio is shrinking-fewer workers to support a growing number of retirees and that needs to be considered as well and can be over time by increasing the tax paying base – another discussion.
The irony is that making Social Security sustainable requires relatively minor changes and increases in funding. If changes had been made gradually over the years, they would hardly be noticed. For example, today just increasing the payroll tax by 3% (1.5% each on employer and worker) and applying FICA to employer cafeteria plans results in 97% of funding covered for the next 75 years (Committee for a Responsible Federal Budget SS calculator.) That amounts to about $17.00 a week for the median wage earner – meaning half would pay less. That seems a small price for future retirement income. The increase would be considerably lower had it been applied ten years ago.
The challenge now is a general anti-government anti-tax ideology in favor of individual empowerment and responsibility.
What’s missing is a realistic understanding of human behavior- in this case related to finances and long-term planning. Americans are not even adequately saving and managing money for their share of retirement income, let alone all the required income.
I used to joke that there was no reason to worry about Social Security, it will always be there. My confidence is waning.
I think Social Security has definitely met its original purpose of preventing widespread poverty among seniors, but the challenge now is that the system wasn’t designed for today’s demographics. When it started, far fewer people lived long enough to collect for decades. Now, with longer life expectancies and fewer workers paying in per retiree, the math doesn’t work the same way. Adjustments like gradually raising the retirement age, tweaking payroll taxes, or means-testing benefits could help keep it sustainable. The key is making changes that preserve its core mission financial security in old age without overburdening younger generations.
My comment was too long to post here, and may encourage a continuation of comments from the original article.
Please read:
Comments to 8-22-2025 R. Quinn’s “Does Social Security Work?”
Much of the discussion below centers around the FICA tax.
But, as William Dorner mentions, isn’t another necessary reform raising the retirement age? With advances in healthcare helping people live longer, 70 may be the new 65.
For decades, demographers have been telling us that Social Security will be in trouble when the Baby Boom generation retires. Indeed, that has come to pass. Yet, numerous congresses have been content to kick the can down the road.
Like other HumbleDollar readers, I’m disheartened by the failure of Congress to tackle the hard problems the nation faces. The cynic in me sees too many representatives more interested in reelection and ideology than passing tough, but necessary, legislation and taking the heat.
Raising the retirement age might be OK for those with desk jobs, but what about those who perform heavy manual labor? I turned 67 this year and have worked out fanatically for nearly fourty years both weight lifting and aerobic exercise and I’m still feeling the effects of getting older.
When I’m shot after cutting my hilly lawn for an hour with my push mower I wonder to myself what it would be like if I hadn’t kept in shape?
That’s very true and in addition advances in longevity have not been the same across race or ethnic groups. There is no reason to raise the FRA.
You raised a valid point. Those who cite the increasing life expectancy statistics as a reason for delaying the retirement age are not taking into consideration whether people can continue performing heavy manual labor for longer periods before retiring. I suspect those who write such ideas have desk jobs themselves.
After 90 years this program SS has been fantastic, however that all depends on what happens next. Based on the performance of our elected officials of the last 20 years, there is little doubt that you should start to worry about SS. Many or most of us on this Humble Dollar forum, will most likely be OK, no matter what happens to SS. However, our children and grands are what I worry about. Changes are necessary to keep up with the times, my suggestion is advance the age of when SS starts like 75, and no cap on earnings. A program designed in 1935 cannot keep its goals in 2025, as inflation alone is 2200%, you read that right. I am not saying changes have not been made, but of late we have not done an adequate job. So $1 in 1935 is equivalent to $23 dollars today. We all know REFORM is needed, and we also all know, it will come at the worst possible time, too LATE.
My old union representative in reference to the pension we would get once said, ‘How much would you have to have saved up to receive what we will get?’ That is how I look at my SS benefit every month. And it was all done quite painlessly.
The original goal of SS in 1935 was to keep senior out of poverty, not fund a retirement. Full benefit retirement be age was 65, and life expectancy was 62. Fast forward and now full benefit retirement is 67, and life expectancy is 79.4. This needs better balance in line with the the original program goal. Part of the solution should be to index the full benefit retirement age with to life expectancy.
Looking at FULL retirement, my age is 66, but if I take distribution at 67, there’s more income. At 68, even more so for me 70 was my FULL distribution of SS. I maximize what I can.
The only thing more “regressive” than FICA and FICA-Med taxes are the benefits they fund. Social Security and Medicare are VERY progressive, not regressive in the least.
There was a cap on FICA-Med wages until removed by President Clinton in 1993. President Clinton recognized the funding shortfall but never got Congress to take action, otherwise.
Certainly, some people immensely profited from Social Security’s formula, with highly progressive bend points, with the unfunded 1977 Social Security changes. That was certainly true for the Greatest Generation.
Consider Medicare Part A, Part B, Part D and Medicaid. I once calculated what the FICA-Med taxes an individual reaching age 65 in 2021 needed to pay, to qualify for non-contributory, dual eligible, 100% coverage – 40 quarters of FICA-Med contributions of $723.84 during ten years in the 1970’s (plus an additional, equal amount from the employer)! Keep in mind that the estimated monthly premium for Part A coverage in 2021 was $471, so, the cost of Medicare Part A coverage alone could exceed the worker’s FICA-Med contributions in as little as 2 months (actually one month if there is a spouse the same age who did not work for wages).
To fill out the comparison, consider that almost all of government funding of Medicare Part B, Medicare Part D, and Medicaid comes from general revenues, and, most of that comes from income taxes – where 40% of American households with income pay NO income taxes, and where half of American households pay only about 3% of income tax revenues (resulting from significant changes to a much more progressive income tax structure in 21st Century compared to the 20th Century).
Social Security and Medicare are wealth transfer systems – from higher income to lower income, from younger generations to older generations.
So long as Congress can continue to buy votes through changes such as the Social Security Fairness Act, providing benefits to public sector employees who did not pay FICA taxes on their wages, we won’t solve the funding deficit,
The anti-govt ideology is both left and right, the ones you describe and the ones that are anti-govt because it doesn’t tax enough and give out enough. They’re about in equal proportion.
The other thing that would help SS is more young legal immigrants who hold good jobs. That would increase the number of workers to retired people drawing from social security. As boomers our population bubble breaks a lot of things.
Ah yes, that includes finding a safe way to allow the 5% of our workforce now undocumented to work here legally and openly. They already contribute millions each year to SS, that could be more.
Yes Sir Richard… I worked with a fellow who just made up a SS number when he came here from Ghana. Later he got his official number…and I had another fellow workmate from another carrier tell me he was contacted by SS admin about his number being used as another persons! Crazy….
I’ve never understood why there’s a cap on taxable wages for Social Security but not for Medicare. The disparity is in black and white on paystubs of high income earners. The govt simply stops collecting FICA at some point in the year, but not the Medicare tax. Lifting (or modifying) the cap is an obvious and fair solution here.
Because the benefit calculation is based only on taxable income. Thus it is not regressive my opinion. Keep in mind the benefit formula is skewed to provide a higher percentage benefit to lower income workers. So it is fair. Medicare has no comparable limitation.
for example
The Social Security Administration first calculates your Average Indexed Monthly Earnings (AIME), which is an average of your highest 35 years of earnings, adjusted for inflation. This AIME is then run through a tiered formula using the bend points.
For workers becoming eligible in 2025 (turning 62), the formula and bend points are:
The final sum of these three amounts is your PIA.
you could remove the cap and add an additional (lower percentage- say 10% or maybe 8%) bend point for wages above a set limit in the benefit formula and help but not fix the funding status.
to remove the cap but not provide any additional benefits, even at a lower rate, effectively makes SS another welfare program and violates the basic structure, but also gives higher income people less incentive to support the system and we dont want that.
I agree. The cap on taxable wages makes the tax regressive. Warren Buffett has pointed this out for years. I live in a state that taxes groceries of all things. How regressive is that?
Disagree for two reasons. Benefits are only based on taxable wages, thus higher earnings don’t matter – it’s not like income taxes. Two, the benefit calculation intentionally favors lower earners by providing a higher benefit on those taxed earnings.
No argument with your observations. And perhaps “fair” wasn’t the correct term to use here. High income wage earners do have their SSA benefits capped, so capping the taxable income used for FICA may not be unfair.
But high income taxpayers are expected to subsidize national defense, the passport office, and other public services for the common good. Here, the topic was to find a source of revenue to stabilize / fund SSA for the future. Whether it’s regressive or not, lifting the payroll tax limits is an accessible – and not egregiously unfair – method to pull more money into this important system.
Tax all wages and Social Security remains insolvent. The trust funds will run out in 2059 at which point all beneficiaries will face a sudden 12% benefit cut. Source: CRFB Calculator
Keep in mind the truly wealthy do not receive payroll compensation. Even Buffet’s pay is only $100,000 a year.
Personally, I don’t have a problem raising the taxable cap or eliminating it, provided there is some benefit accrual to go with it.
Everyone should pay and receive benefits proportionally and funding should be dedicated and never mix with the federal budget and general revenue. Imagine if that were the case today.
Define “work.” I would argue that as a social program to solve issues from the Great Depression it works great.
Remember the beginning of Social Security was “The New Deal.” SS has always been an unfunded program. The benefits for those initial beneficiaries were paid by the workforce in place. It was the OG of Keynesian stimulus programs.
The SS Trust fund was built from those years where taxes on workers were more than benefits paid to beneficiaries. We have the opposite situation now. As the surplus grew, more benefits were added but not effectively included in the funding. That is the financial failure, not providing funding for new benefits.
Yes indeed, that and not adjusting for demographic changes. The part that does not work are the members on Congress to keep the program solvent.
In theory the incoming revenue should always at least cover all payments, but as we know that is not the case.
On point. Our biggest issue in the USA is the lack of political will to take action. That is always a defeating position.
We’ve had this exchange before, but running out of money is indeed a great way to evaluate whether something failed.
Yes, it’s true that those Congresses could have made changes by putting more money into the system. But saying something like “my business only failed because the investors didn’t plow more money in” is not a winning statement supporting how great your business was. Same is true for SS.
Disagree. SS is basically an annuity that is funded by worker contributions. It is not a business that is failing because of changing consumer trends.
At the time that SS was created, the average life span was low and there were far more workers contributing to the system than retirees receiving benefits. Today, we have the largest post WWII generation rapidly moving into retirement which has resulted in more retirees receiving benefits than workers paying into the system. As a result, the SS fund reserves that were accumulated in years past are being spent down. Complicating this even further is the fact that Americans are living much longer than when SS was established. That said, as the Boomer generation dies out, the imbalance in the worker/retiree ratio should come back into balance.
Congress is responsible for determining the funding of the SS system and it is fair to say that they have failed in this regard for a variety of reasons, both political and economic. Converting SS from a guaranteed benefit to a 401K-like retirement vehicle might benefit some, but it could as easily be a disaster for retirees who make poor investment decisions. And, the option to end SS and shift the entire burden of saving for retirement to workers would be even worse. Millions of retired Americans depend on their SS benefits and to allow the system to fail for lack of “investment” would have profound political and economic consequences.
Totally disagree. Everything needs adjustment to keep current, but that does not mean the basic structure does not work.
”(Politicians) fear (Americans) will not support higher taxes or other changes.”
A survey was released in January this year detailing Americans’ views on Social Security reported:
Rather than closing Social Security’s financing gap through benefit reductions, Americans strongly prefer bringing more revenue into the system. Eighty-five percent say we should ensure benefits are not reduced, even if it means raising taxes on some or all Americans. The most strongly preferred of all options tested is eliminating the cap on payroll tax contributions for those earning more than $400,000 per year. Additionally, Americans across all groups, including a majority of Republicans, say they are willing to pay more themselves by gradually increasing the payroll tax rate to strengthen the program’s finances.
If Americans won’t support higher taxes, than how is it that California, Illinois and New York can continuously raise taxes? Yes, these states are bleeding citizens but most prefer to pay the tax. It would seem some (Many?) will complain but in the end most stay and pay the tax. I think this will also be true about any future adjustments to Social Security. The tax basis will go up, and adjustments will be made to the benefits. There will be complaining. Nothing at all new about this. But it makes for an easy subject for lazy journalists who lack anything of substance to write or talk about.
You are right, except the politicians don’t have the courage to do the right thing. Right now we will come with three years or so of insolvency before there is action and then it will need to be rather dramatic.
As I like to say today we have politicians who display profiles in cowardice.
I just saw the AARP survey you refer to. It says these are among favored changes. The amount of increase in taxes won’t do it. Adjusting COLA adds to costs.
Reducing benefits for high-income retirees is a step toward making it a welfare program. I think that is a serious mistake changing the very concept of the program.
Gradually raising the payroll tax rate from 6.2% to 7.2% (for both employer and employee),
Keeping the full retirement age unchanged,
Adjusting COLA more fairly,
Offering caregiving credits and bridge benefits for early retirees in physically demanding jobs,
Reducing benefits for high-income retirees.
Americans still want more for less or nothing. If politicians would tell the truth about the program it would help, instead many people get their information and believe the nonsense on social media.
Let someone else pay, no doubt about that. I have heard that before.
But eliminating the cap or kicking it in above $400,000 still doesn’t fix the problem.
I haven’t seen that willing to pay more, but If thats what Americans say then there is no reason not to fix it, nor has there been for decades. Makes you wonder why nothing has been done.
PER AI:
The Congressional Research Service (CRS) suggests that eliminating the cap while leaving the benefit calculation base untouched could fully resolve the 75-year solvency issue. However, this option breaks the traditional link between contributions and benefits and is not a universally accepted approach.
According to a March 2025 report from the Peter G. Peterson Foundation, Social Security Trustees estimate that completely eliminating the cap would raise an additional $3.2 trillion over ten years. This would cover about 53% of the projected 75-year funding gap.
Removing the cap would be highly progressive, as it would increase taxes only for the highest earners. A 2009 Social Security Administration (SSA) policy brief found that most individuals would not be affected by the change, since 77% of those aged 62 or older in 2070 are projected to never earn over the scheduled tax max
If you mean increase taxes without proportionally increasing benefits on those taxed earnings it means we have turned what was a self-funded program for nearly 90 years into welfare.
It would also provide incentives for individuals to move away from payroll earnings into other compensation.
It also reinforces the notion we can have anything we want if someone else pays and in doing so supports the quest for higher benefits paid for by others.
we have come to this thinking because of years of inaction. If there had been annual modest adjustments to the tax rate based on changing actuarial projections we wouldn’t need this discussion.
We experienced this on a smaller scale at my former employer. A dean or provost would underfund a program. It would then struggle to meet its goals. Then that was used as an excuse to take it over, gut it, and start over with something cheaper.
I’ve seen a similar scenario in corporations and government programs. It wasn’t always a deliberate attempt to kill a program. Sometimes it was incompetence, or desperation. I used to describe it as “being painted into a corner, and then blamed for being there”. Some people are very, very good at doing that to others to advance their career.
In NJ it was caused by an unholy alliance between politicians and public unions. Politicians gave into union demands and then couldn’t pay for them so the unfunded liabilities grew. Then to make it worse some funds were diverted to lower property taxes.
When I was on my first governors task force reviewing the benefits plans for the state, the pension was so outrageously generous no company in the world could afford it and neither could taxpayers.
Workers could take loans from the DB plan at interest rates lower than the assumed return on the trust funds and they could keep loan going even after they retired. They could save unused sick time and have all of it added to pension earnings calculation.
now to partially help they made the state lottery an asset of the pension fund thus diverting it from the stated purposes of funding education programs for children and disabled. Their logic was the pension was for teachers, hence education.
Taking state lottery money allocated for children and disabled and giving it to teachers is disgraceful. There is no logic involved with that re-direction, merely greed and a callous disregard for the very people teachers are supposed to care most about.
That’s a scary scenario I have not considered.