AARP Hearing Center
Key takeaways
- Social Security is mainly funded by ongoing payroll taxes, so the program can’t ever run out of money.
- But Social Security’s “savings account” — the surplus in its trust funds — is projected to be depleted in 2034, which could lead to benefit cuts.
- Congressional action is needed to ensure that future retirees receive the full benefits they’ve earned.
Summary
Understanding the Social Security trust fund is essential for anyone planning their financial future. Social Security provides critical monthly payments to more than 70 million people, and it’s funded mainly through payroll taxes — American workers and employers are the primary contributors. That’s why Social Security isn’t “going broke,” contrary to what you may have heard. It’s a pay-as-you-go system, and benefits will continue to be paid as long as people are working and contributing.
The trust fund acts like Social Security’s savings account, covering the gap when payroll tax revenue falls short of benefit payments. Without congressional action to shore up the program’s finances, these reserves will be depleted around 2034. Even if that happens, ongoing contributions are projected to cover roughly 80 percent of promised benefits. Congress has a range of options to ensure Social Security remains strong for tomorrow’s retirees as well as today’s, so there’s no need to panic about the program going away — but it’s important to stay informed and engaged on this important issue.
The key takeaways and summary were created with the assistance of generative AI. An AARP editor reviewed and refined the content for accuracy and clarity.
Full Transcript:
[00:00:00] More than 70 million Americans receive Social Security every month. It’s what people count on to help pay their bills in retirement.
[00:00:08] And for more than 90 years, Social Security hasn’t missed a payment. So where does the money come from?
[00:00:14] Social Security is a self-funded system that’s distinct from the rest of the federal budget.
[00:00:20] Around 90% of the money for Social Security payments comes from payroll taxes paid by American workers and their employers.
[00:00:28] On your pay stub, it’s listed as FICA for Federal Insurance Contributions Act, or O-A-S-D-I, which stands for Old Age Survivors and Disability Insurance.
[00:00:41] The rest of the funding for Social Security, around 10%, comes from the Social
[00:00:46] Security trust fund and income taxes that some people pay on their SocialSecurity.
[00:00:51] Something else to know is that it’s the money from current payroll taxes that funds monthly Social Security payments to retirees and their beneficiaries.
[00:01:01] This is what’s called a pay –as- you-go system. The money comes in through payroll taxes and goes out again as monthly payments.
[00:01:08] That’s why Social Security will never go broke, as some have claimed. As long as there are workers and employers paying into the system,
[00:01:16] Social Security will always be here. But that doesn’t mean there aren’t challenges coming down the pike.
[00:01:22] For decades, Social Security took in more money than it needed to pay everyone’s earned benefits.
[00:01:28] There were more workers contributing to the system for each person getting Social Security. The extra funds were saved in the Social Security trust
[00:01:37] fund, kind of like Social Security savings account that is separate from the rest of the federal budget.
[00:01:42] Now there aren’t as many workers paying in for each beneficiary as there used to be.
[00:01:48] This means that Social Security doesn’t have quite enough money coming in to fully
[00:01:53] fund what current retirees have earned. Right now, it’s about 5% short. To make up the difference,
[00:02:00] the government is slowly drawing down the trust fund reserves — the extra money that was collected through
[00:02:06] payroll taxes, but wasn’t needed for Social Security payments until now. These reserves are expected to run out in 2034.
[00:02:15] This doesn’t mean Social Security payments will stop. As long as payroll taxes are being collected,
[00:02:21] Social Security continues making payments. Today, 184 million people are paying into Social Security, and that number
[00:02:31] will be higher in 10 years, enough to pay around 80% of benefits. So once the trust fund reserves have been exhausted, Congress will need to
[00:02:40] take action to make up the difference so retirees get 100% of their earned benefits.
[00:02:46] The bottom line: Social Security isn’t going anywhere. It needs some attention from Congress, but the system is
[00:02:53] designed to keep making payments. The good news is that Congress has a lot of options to fix this problem
[00:03:00] and make sure that Americans get the benefits that we’ve earned. You can follow our coverage on all things Social Security at aarp.org/Social Security. And if you want to join AARP in our work to protect Social Security
[00:03:16] for current and future retirees, you can sign up to join the fight. Please leave any Social Security questions you have in the comment section below,
[00:03:25] so we can answer them in future videos. Until next time.
