Challenges
To quickly review: Social Security’s retirement benefits are financed entirely through the Old-Age and Survivors Insurance Trust Fund that:
- Receives money from a dedicated revenue stream (a payroll tax); and
- Provides the money for benefit checks sent to retirees.
From its inception, the program has operated under a political agreement that set the following conditions:
- The trust fund’s main source of revenue must be payroll taxes; and
- The trust fund can only pay out benefits that are covered by its revenue.
Social Security is different from other government programs, but this unique structure also carries its own set of challenges.
PAY-AS-YOU-GO
Social Security is a pay-as-you-go system, meaning that while your payroll taxes fund the Social Security program, that money isn’t set aside for your retirement. Instead, the Social Security Administration uses your taxes to send monthly checks to current retirees.
To keep it up and running, we need enough workers paying into the program, so it can send benefits out to retirees.
The problem is that Social Security’s pay-as-you-go funding structure makes it vulnerable to certain demographic trends like changes in the number of U.S. workers, the number of retirees, and our average life expectancy. All three have created real problems for the program’s long-term solvency and stability.
MORE RETIREES, LONGER LIVES
When Social Security first started sending out monthly checks in 1940, less than 250,000 Americans were eligible for the program. In 2025, 62.3 million received old-age or survivors insurance from Social Security, with enrollment expected to grow as more Baby Boomers reach the age of eligibility.
Born between 1946 and 1964, more than 64 million members of the Baby Boomer generation are alive today. This group began reaching retirement age in 2011, and all of them will be 65 or older by the year 2030. These Americans are also living longer.
In the United States, a man who reaches his 65th birthday can expect to live until he’s 83.4 years old. The life expectancy for women is even higher at 85.9 years old.
Lower Birth Rates, Fewer Workers
Meanwhile, there are fewer workers paying into the Social Security program. This is the result of declining birth rates in the United States, which dropped sharply following the 1950s baby boom.
In recent years, the United States' birth rate has been so low that it's actually failed to reach the level needed to maintain the current size of the U.S. population, which is an average of 2.1 births per woman in the United States. In 2025, the average was only 1.6. Our shrinking population means that as Baby Boomers retire, there aren’t enough workers to replace them. So while the pool of retirees is growing, the group of young American workers paying taxes is shrinking in proportion.
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Key Ratio: Workers to Beneficiaries
These demographic trends—lower birth rates, more retirees, and longer life expectancies—have created an imbalance in the ratio of workers to retirees. In 1945, there were 42 workers paying into the system for each retiree collecting benefits.
In 2026, there are fewer than three workers for each retiree.
LESS REVENUE, SHRINKING TRUST FUND
You might be wondering how fewer workers are able to support the benefits of a growing pool of retirees. The short answer is: they aren’t.
For most of its history, Social Security has been able to collect enough revenue to pay out the benefits it’s promised to retirees. In fact, it’s even experienced periods of surplus, where it took in more money than it needed to send out. Those surpluses were credited to the OASI Trust Fund, creating a reserve that could be tapped into when needed.
In leaner times, when payroll taxes haven’t been able to cover the total cost of benefits, we’ve used those surpluses to fill the gap. That is what we’re doing today.
In 2010, Social Security began sending out more money in benefit checks than it took in through the payroll tax. In 2026, Old-Age and Survivors Insurance will cost $1.53 trillion, leaving the program with a shortfall of $243 billion.
KEY DATE: 2032
The Social Security Trustees estimate that the surplus will run out in 2032. When the OASI Trust Fund depletes that reserve, it will become what is called “insolvent.” Workers will continue paying payroll taxes, and some benefits will continue being paid out. However, there won’t be enough income from payroll taxes to pay the full benefits promised.
From that point on, projections indicate the program will face deep deficits and be forced to make automatic cuts in benefits if other actions are not taken.
