Here’s how the system works:

When you get your paycheck, you pay a 6.2% payroll tax to Social Security.

Your employer matches that by paying another 6.2%. For a total of 12.4%.

Each year, you pay that tax on every dollar you earn up to the taxable maximum.*

* In 2020, the taxable maximum was $137,700.

That’s because Social Security is a pay-as-you-go system.

The payroll taxes from current workers fund the benefits for current retirees.

Social Security is essentially the federal government making a commitment …

… that if you pay the tax for
10+ years …

+

… and have been a legal permanent resident of the US for 5+ years by retirement …

=

… then you will receive a check every month once you reach retirement age.

Challenges

Here’s the problem:
By 2035, Social Security won’t have enough money.

Why doesn’t Social Security
have enough money?

There are three big reasons:

When Social Security began, it only covered factory and office workers.

It was expanded in the 1950s and grew to include farm workers, domestic workers, and disabled workers and their dependents.

Then, in 2011, the Baby Boomer generation started to retire. And they are living longer.

U.S. Life Expectancy

But birth rates have not kept up.

U.S. Birth Rate

This has caused an imbalance in the ratio of workers to retirees.

In 1945, there were 15 workers paying into the system for each retiree collecting benefits.

In 2018, there were fewer than 3 workers for each retiree.

Social Security already sends out more money than it takes in.

So far, we’ve been plugging the hole with money from the Social Security Trust Fund.

Trust Fund Assets
as a Percentage of Annual Costs

That money will run out in 2035.

What happens when
Social Security doesn’t
have enough money?

The law says we have to cut benefits for current retirees by the percentage that we fall short.

Here’s what that could mean for you…

The Real-World Impact

Say you got a job with a solid paycheck, paid into Social Security for 40 years, then retired in 2062.

You were supposed to get this much each year!

But once that Social Security Trust Fund ran out in 2035, Congress had to cut everyone’s benefits by 25%…

And so, you only get this much:

But you can manage, right?
You did pretty well for yourself while you were working!

Unfortunately, not everyone’s that lucky.

Someone who made less than you paid less than you into Social Security.

So it makes sense that they will get less out of it when they retire in 2062.

Yeah, it looks a lot worse from their end... Oof.

Think you could live on that much per year?

Does it seem fair to promise people benefits and then take them away?

So, how can you get involved?

Save for retirement

Talk to your parents about their retirement plans

Note: This is not financial advice

Ask your elected leaders,
"What's the plan for Social Security?"

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What is
Social Security?

In 1935, FDR signed the Social Security Act

in the midst of the Great Depression.

The goal was to prevent poverty during old age and protect elderly Americans who couldn’t work anymore.

Social Security essentially provided American workers with “old age insurance.”