What You Need to Know
Social Security remains one of the most important financial resources for Americans in retirement, yet many people are unaware of how the program works, where its funding comes from, and what challenges it faces in the years ahead. As millions of Americans rely on these benefits as a significant part of their retirement income, understanding the system is essential for long-term financial planning.
How many Americans rely on Social Security?
In 2024, approximately 70 million people received benefits from the Social Security Administration (SSA). These individuals fall into three main groups:
- Retired workers and their dependents: About 80%, or nearly 56 million people
- Survivors of deceased workers: About 10%
- Disabled workers and their dependents: About 10%
As of July 2025, the average monthly benefit for retired workers is roughly $2,000. In total, the SSA is expected to pay approximately $1.6 trillion in benefits in 2025, making Social Security the largest single expense of the U.S. government.
How is Social Security funded?
Social Security is primarily a pay-as-you-go program. This means that most of the payroll taxes collected from today’s workers are used to pay benefits to today’s recipients.
For many years, payroll taxes exceeded the cost of benefits and the excess accumulated. However, this trend reversed in 2010 when the program began paying out more in benefits than it collected in taxes and other noninterest income.
This pattern is expected to continue for the next 75 years according to the 2025 OASDI Trustees Report.
When will the Social Security trust funds run out?
The Social Security system is supported by two trust funds: the Old-Age and Survivors Insurance (OASI) fund and the Disability Insurance (DI) fund.
According to the 2025 Trustees Report:
- The combined OASI and DI trust fund reserves are projected to be depleted by 2034.
- When that happens, payroll taxes and other income will still come into the fund, but they will be enough to cover only about 81% of program costs.
Put simply, if no changes are made, the OASI Trust Fund will run out of money in 2033 and Social Security retirement checks will be reduced by about 17%.
This projected shortfall over 75 years equals 3.82% of taxable payroll, highlighting the growing mismatch between what the system collects and what it pays out.
What are the possible solutions?
Lawmakers have long debated how to fix the Social Security shortfall. Most proposals fall into two broad categories of either reducing benefits or increasing taxes. However, both approaches are politically challenging. Reducing benefits is unpopular with retirees and near-retirees, while increasing taxes is unpopular with workers and businesses. As a result, Congress faces significant pressure to find a balanced solution.
While the future of Social Security remains uncertain, it will continue to play a role in planning for retirement. Working with your financial advisor to create a retirement plan that is right for you can help you stay on track to meet your financial goals. If you would like more information, please contact us.
