Social Security Benefits: Will They Be There When You Retire?

The uncertain future of Social Security benefits could impact your retirement plans, but maybe not as much as you think.

By , Attorney · UC Law San Francisco

If you're like most Americans, Social Security is a key part of your retirement plans—94% of the workforce is currently covered by some sort of Social Security plan. But the current economic downturn has many people seeing an increasingly uncertain (if not downright bleak) future for their Social Security benefits.

This article describes how the Social Security benefit process works and explains how your Social Security benefits might be impacted by funding shortages.

How Does Social Security Work?

When you work, you pay taxes into the Social Security system, usually in the form of deductions from your wages and other earnings. (You can see the amount withheld for Social Security by looking at your paycheck stub or accessing your direct deposit records.) Once you retire or are unable to work due to disability, you can apply for the benefits you've earned.

The amount of your Social Security benefits will depend mainly on three things:

  • the number of years you worked at Social Security-qualifying jobs
  • how much money you made at those jobs, and
  • the age at which you retire.

The longer you work—and the more money you make—the higher your Social Security benefits will be. Benefits don't kick in automatically, though. You need to apply for your benefits through an application process. You must also accumulate the appropriate number of credits (more on credits below) and reach the age of 62 before you can apply for any Social Security benefits. Your spouse, any dependent children, and eventually your survivors will also be able to receive your Social Security retirement benefits.

How Do Social Security Retirement Benefits Work?

As you pay your Social Security taxes over the years, you accumulate credits that can be used towards your Social Security benefits. The number of credits you need before you can apply for your retirement benefits depends on your date of birth. For example, people born after 1929 currently need 40 credits to apply for their benefits. This is equivalent to ten years of work.

You can't receive benefits if you stop working before you reach the required number of credits, but you don't lose those credits either. When you return to the workforce, your credits will begin accumulating again from the point at which you left off, until you have enough to qualify.

You can begin estimating what your retirement benefits might look like by carefully reviewing your Social Security Statement. You can view your statement online at www.ssa.gov/mystatement/ by setting up an account. (Social Security only sends out printed statements to people who are over age 60 and don't have a Social Security account.). For information on reviewing your statement, see Nolo's article on checking your earnings and benefits.

Are Social Security Benefits in Trouble?

The short answer is "somewhat." This is because the next decade will see the largest drop in worker-to-beneficiary ratios in history, as baby boomers begin to retire. The problem gets compounded when you consider that people's life spans are growing longer, the birth rate is declining, and the cost of living is only going up.

When Social Security was first established, the worker-to-beneficiary ratio was over 15 to 1; today it's less than 3 to 1, with odds that it will shrink even further over the next few decades. (In 2023, the ratio was just 2.7, and the SSA estimates it will fall to 2.3 by 2035.) This decreasing ratio means that less money will be put into the Social Security system, while more gets taken out.

While the system does have built-in reserves (called the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance Trust Fund), the ongoing retirement of baby boomers, with their longer life expectancies, means that the reserves won't be able to keep up with the strain on the system. (In 1940, when the OASI trust fund was being created, the average life expectancy of a 65-year-old was about 14 years; today it's over 20 years. And in 2022, there were approximately 58 million Americans 65 and older; in 2035, there are expected to be more than 75 million.)

Because of these pressures, in 2021, the federal government started to pay out more money in Social Security benefits than it took in via payroll taxes, interest earnings on the trust fund, and income tax on benefits. And it's expected to have to do so for the next ten years. Without an infusion of money from another source, the reserves may face depletion in a decade. Current predictions indicate that the combined Social Security trust funds will run out in 2035 if nothing is done (if the retirement and disability trust funds were to be combined).

After this point, retirees would generally be able to expect only about 83 cents on every dollar of their scheduled benefits (if the funds were combined). That's because once the trust fund is depleted, there will be no surplus left. From that point on, the amount that's paid out in the form of benefits can only match what's coming into the Social Security system through employment taxes (as well as a small amount of income from the tax on Social Security benefits).

Addressing the Social Security Problem

The response to this problem varies among politicians, educators, and economists. Some believe that drastic reform must occur to prevent the inevitable bottoming out of the Social Security system. In places like the United Kingdom, governments have begun to prefund their Social Security plans. In the United States, prefunding is being considered, and so are other solutions like infusions from general revenue and increases to the payroll tax.

One popular solution is raising the annual maximum amount that's subject to Social Security taxes ($168,600 in 2024). While the limit does rise each year with the growth in the national average wage, raising the baseline amount would bring in enough money for the trust fund to be able to continue paying out full retirement benefits for many more years.

Social Security is seen as too important of a safety net for millions of American workers to risk losing. If small changes to the Social Security system are made now, they'll go a long way toward ensuring that drastic measures don't become necessary in the future.

For More Information

To learn more about how Social Security benefits can affect your retirement plans, visit Nolo's free legal information on Social Security and Retirement Planning. You can also find information on getting your retirement and disability benefits, and dependents and survivors benefits, in Social Security, Medicare & Government Pensions, by Joseph Matthews and Dorothy Matthews Berman (Nolo).

Sources:

Social Security Coverage of State and Local Government Employees, March 2024
Summary of the 2024 Annual Social Secuirty and Medicare Trust Fund Reports, May 2024
Social Security Fact Sheet, December 2023

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