The Social Security trust fund is on track to be fully depleted by late 2032, according to the latest annual forecast. But don’t let anyone tell you that means Social Security won’t be around when you need it. Social Security has always been a pay-as-you-go system in which today’s workers pay for today’s beneficiaries. The only way it could stop paying benefits is if there were no more workers.
It helps to think of the trust fund as like checking account: You only need enough in it to pay the bills when they’re due. For the first five decades, the trust fund had just a few months worth of reserves, but in the 1980s, the payroll tax was increased and that swelled the checking account. Today’s $2.5 trillion trust fund balance is equal to more than a year and a half of benefits.
Now, with a zero balance six years away, Congress will face pressure to act. If it does nothing, benefits would have to be reduced by 22% by 2033. But politically, it would be almost unthinkable to reduce benefits for 70 million people, most of them seniors.
Fortunately, there are straightforward fixes. Right now the 12.4% total payroll tax — split equally between employers and employees — is capped: No tax is levied on income after the first $184,500. Just eliminating that cap would extend trust fund solvency into the 22nd century.
