How Social Security Funding Works

Making Sense of Social Security Funding

The solvency of Social Security is incredibly important for retirees. We most often hear this concern: Will Social Security be there when I need it?  The Social Security Administration estimates that about 4 in 10 beneficiaries age 65+ get at least half of their income from Social Security. And the 65+ population is set to swell to about 77 million by 2034, so more families will feel the pinch of stalled legislation unwilling to change acritical entitlement program. Social Security isn’t vanishing, but it does face a math problem that gets harder the longer it gets ignored.

How the program pays the bills

Social Security is primarily funded by payroll taxes taken out of workers’ paychecks. Employees and employer each contribute 6.2% of your wages (12.4% total) up to a yearly limit; if you’re self-employed, you pay the full amount. That money doesn’t sit in a personal account — today’s taxes from current workers are used to pay benefits to today’s retirees and other beneficiaries. When tax income is more than needed, the extra goes into the Social Security trust funds, which buy special U.S. Treasury bonds. When benefits cost more than taxes bring in, the program cashes in those bonds to cover the gap.

What the numbers say right now

The headline dates get all the attention, so let’s clarify what each means. The Trustees project the OASI trust fund will be depleted in 2033. If Congress does nothing, OASI payroll taxes at that point would still cover about 77% of scheduled benefits. Look at the combined picture (OASDI): the combined reserves are projected to deplete in 2034, with about 81% of scheduled benefits payable from ongoing revenue.

As for disability, the DI trust fund isn’t projected to deplete over the 75-year window. And yes, there’s still a large balance: combined reserves were roughly $2.7 trillion at the end of 2024.

Economic paths keep these dates in constant flux. The impacts of fertility, mortality, immigration, and wage growth all play a role, but the direction is the same. Without changes, the fund dwindles.

How times have changed

Over time, Social Security’s value to beneficiaries has shifted as living costs changed faster than benefits. While the program’s monthly checks are adjusted each year for inflation (through the COLA), those increases are based on a wage-earner price index (CPI-W) that often understates what older adults spend more on—health care, housing, and utilities. As those essentials outpaced COLAs, the purchasing power of Social Security benefits eroded, so a check that once could cover most day-to-day expenses now often stretches to only the basics.  

“Depleted” doesn’t mean “dead”

Depletion only means the savings account is empty. Payroll taxes keep flowing every payday, and taxes on benefits still come in. The system keeps paying. Today’s estimates land in that roughly 20%–25% haircut range under the no-changes scenario (the exact percentage depends on whether you’re looking at OASI or the combined OASDI view). That’s not great news, but it’s very different from “going broke.” It’s a pay-as-you-go plan with a shrinking cushion.

How policymakers could shore it up

There’s a menu of options. Lawmakers could raise the payroll tax rate, raise or remove the wage cap, adjust the full retirement age, slow benefit growth, or tweak the cost-of-living formula. Without a magic bullet to fix the issue, some blend of revenue and benefit adjustments will likely take shape. Every lever has trade-offs across income levels and generations, which is why the debate will be like a tug-of-war. Congress only acts when the clock gets loud and there are higher priorities in D.C. now.

Plan accordingly

The truth is duller but more useful: the program will still be there, and the gap is fixable with policy choices the country has made before. That doesn’t mean relaxing. It means plan with clarity; assume some benefits but leave room for decreased payments unless Congress acts. As always, we are here to answer any questions and address your concerns.

Sources:

*Social Security Administration press release and 2025Trustees’ Report; SSA “Basic    Facts” sheet; U.S. Census Bureau projections.

*DeSilver, D. (2025, May 20). What the data says about Social Security. Pew Research Center.