Social Security: Past, Present And Future

Social Security is an important social insurance program that many Americans have come to rely on for retirement, disability, and survivor benefits—according to the Social Security Administration (SSA), about 63 million Americans will receive $1 trillion in benefits in 2018. Because Social Security was designed to replace only roughly 40 percent of a worker’s income in retirement, most financial advisors suggest supplementing its benefits with other sources of income, such as personal savings and investments. Nevertheless, the SSA estimates that about one-third of beneficiaries depend on Social Security benefits for more than 90 percent of their retirement income.

Due to several factors, primarily changing demographics in the U.S., the trustees of the Social Security Trust Fund—the surplus of funds created by collecting more tax dollars than are being paid out—project that it will be depleted by 2034 without meaningful entitlement reform. Given that Social Security has served as the foundation of most American workers’ retirement income for decades, many current workers and young retirees are concerned about what the future of Social Security looks like and how it will impact their retirement plans.

A Brief History of Social Security

The Social Security Act, which, among several provisions for general welfare, created a social insurance program designed to pay continuing income to retired workers aged 65 or older, was signed into law by President Franklin D. Roosevelt in 1935. The program was designed for workers to fund their own benefits through additional income taxes. Originally, Social Security only provided retirement benefits to workers with a history of earned income, but in 1939, two amendments to the program extended benefits to dependents and survivors of those with earned Social Security benefits. Regular, ongoing monthly retirement benefits started in January 1940.

The program remained virtually unchanged until the 1950s, when Congress passed legislation to increase monthly benefits to offset the effects of inflation and expand Social Security coverage to disabled workers. Social Security began to experience financial stress in the 1970s as U.S. economic conditions worsened, and the program faced its first short-term financing crisis in the early 1980s. In response, President Ronald Reagan appointed the Greenspan Commission to make recommendations for legislative changes that would address the program’s funding issues. As a result, several changes were made to Social Security in 1983, including the partial taxation of benefits and gradually raising the program’s full retirement age from 65 to 67. The goal of these reforms was to solve the program’s immediate financing problems, while creating a surplus of funds over the next few decades to prepare for the retiring baby boomer generation, which was expected to be a drain on the program’s reserves.

The Current State of Social Security

As the Greenspan Commission intended, the Social Security Trust Fund accumulates more each year than it spends, and the fund maintained its surplus as of the end of 2017. However, changing demographics largely due to the retiring baby boomer generation, longer life spans, and reduced birth rates in the U.S. are quickly depleting the program’s reserves.

Social Security is intended to be “pay-as-you-go,” meaning each generation of workers pays for the benefits of current retirees. However, the number of workers per retiree has fallen meaningfully over the last couple of decades. In 2000, there were four workers per retired beneficiary. This number fell to 2.8 workers per retiree in 2017, and the Social Security Administration projects there will be 2.2 covered workers for each beneficiary by 2035.

Investing Digest: Know what's moving the financial markets and what smart money is buying with Forbes Investing Digest.

Get the latest news on special offers, product updates and content suggestions from Forbes and its affiliates.

Sign Up

By signing up, you agree to our Terms of Service, and you acknowledge our Privacy Statement. Forbes is protected by reCAPTCHA, and the Google Privacy Policy and Terms of Service apply.

An Uncertain Future for Social Security

Although the collapse of Social Security has been a looming threat for some time, funding issues have become a more imminent concern in recent years. According to the SSA, Social Security programs are currently facing issues of long-term insolvency. Without new legislation to reform Social Security as we know it today, the program is expected to experience significant challenges in the next two decades and may be met with decreased benefits, increased taxes or borrowing from other areas of the government.

While the program will not disappear completely, future Social Security benefits are expected to be reduced to approximately three-quarters of what retirees have been promised when Social Security Trust Fund reserves are eventually depleted. In other words, a retiree who expects to receive $2,500 each month in Social Security benefits will only collect $1,925. The fund’s trustees currently expect reserves to be exhausted by 2034—almost a century from when Social Security was initially signed into law.

The future is uncertain, but a solid retirement plan considers both knowns and unknowns. While the future of Social Security and other entitlement programs is yet to be determined, those planning for retirement can take steps to offset the risk of these programs reducing their benefits. By working with a trusted financial advisor to develop an effective savings and investment strategy, you can still achieve a comfortable retirement without depending on Social Security for the majority of your income.