The Social Security Administration recently announced that the Old-Age and Survivors Insurance trust fund will run out of money in late 2032. The government will no longer be able to pay retirees their full promised benefits at that time.
The new date is earlier than previously expected: The deadline has been moving steadily closer to the present as revenues fall short of the government’s projections. The Medicare trust fund will run out of money in 2033, as well.
This is a rapidly approaching crisis for retirees, prospective retirees, taxpayers, the government, the U.S. economy, and recipients of government welfare benefits. When the Social Security trust fund runs out of money six years from now (or earlier), the projected income from payroll taxes will cover only 78 percent of promised benefits. The government will have to borrow more money, reduce benefits, raise taxes, extend the retirement age, and/or cut other spending. Most of those options would be inflationary, recessionary, or both.
The draining of the Social Security trust fund is a short-term crisis that has arisen from a long-term problem, as is the case with so many of our nation’s current troubles.
The program’s trustees said revenues are less than expected because of last year’s reduction of the tax on Social Security benefits, plus declining fertility rates and lower immigration. The real, fundamental cause of the problem is the aging of the nation’s population, as working people have to support a rising number of retirees. That is not going to change, yet Congress and presidents have refused to confront the truth.
In addition, the federal government has been borrowing against the Social Security trust fund for years, spending it on current largesse to buy votes from various population groups.
More than half of all federal spending goes to entitlements: $3.82 trillion out of a $7.01 trillion overall budget in fiscal year 2025. The Congressional Budget Office forecast over $1 trillion in net interest payments on the federal debt for 2026. Meanwhile, defense spending has risen to $954 billion budgeted for the current fiscal year, up from $778 billion in 2020, a 23 percent increase.
A major sticking point for any Social Security and Medicare reform is that these are programs for which the federal government took money from workers and employers and promised to save it for those people’s future retirement needs. Instead, the government added additional benefit classes and, as the baby boomer generation created large surpluses in the system anyway, the federal government spent that money on other things and put IOUs in the trust fund.
Now, as that money is coming due, the government is saying it is just not going to be there. This broken promise is on top of the fact that Social Security pays much more poorly for retirees than private investment would have done, plus the fact that workers were given no choice in whether to pay in.
Financing retirement requires just one thing: saving. Saving increases wealth as it is invested in economically productive activities, which basically means putting it to use in the private sector. Giving money to the government is generally a bad deal.
Fundamental tasks of government, such as strictly necessary national defense and adjudication of disputes, can raise productivity and improve the quality of life. More than half of all government spending other than interest payments, however, is transfer payments (meaning various types of welfare, entitlements, and crony capitalism favors), which is all a dead loss and in fact creates inefficiencies across the board.
With that in mind, it is clear that Social Security is an inefficient and destructive system. While taking up 32 percent of federal spending, Social Security and Medicare undermine the family, individuals’ self-reliance and respect for long-term planning, and countless other personal and social virtues. We should phase out the system altogether, moving to a privatized approach as soon as possible.
Short of that, transferring a portion of incoming payroll tax revenue into interest-bearing personal accounts that finance private-sector growth is a fiscally sound long-term solution that would greatly benefit the national economy. Combining that with overall reductions of government spending and regulation would grow the economy rapidly and increase the tax base. Those great benefits, however, would not arrive in time to avert the upcoming crisis, even if such a plan could receive congressional approval, which has proven impossible over the years.
In the meantime, a major reduction of federal spending on items other than Social Security and Medicare could allow more money to go into the retirement system and shore it up. The revelations of astonishing levels of entitlement fraud may provide an unprecedented opportunity for reform. Eliminating fraud in those programs could save hundreds of billions of dollars a year, according to what may well prove to be conservative estimates.
Congress and the president could make a very persuasive and truthful argument to the American people: Every dollar saved by fraud reduction would be set aside specifically for Social Security and Medicare, under force of federal law, to relieve the spending crunch. The baby boomers would be all-in on that, and they vote.
In addition, it makes sense to extend and accelerate the increases in the minimum retirement age. The average American now lives about 79 years and becomes eligible for minimum Social Security benefits at age 62 and full benefits at 67. In 1935, a slight majority of men who reached adulthood (age 21) could expect to live to around 65 years, the minimum age for Social Security benefits at the time. The number of Americans aged 65 or older rose from 9.0 million in 1940 (6.8 percent of the population) to 56.0 million in 2023 (16.85 percent of the population).
Moving the retirement age older by one year each year through at least 2033, accelerating a process that ended this year, would greatly reduce the upcoming shortfall. Although such a change will prove jarring for those who were expecting to retire soon, they will probably prefer that over 22 percent benefit cuts in perpetuity or a fiscal collapse of the federal government that could zero out their benefits altogether.
In avoiding political discomfort for decades, Congress and presidents have set the nation up for an economic and social catastrophe. The entitlement fraud scandals provide a unique opportunity for reform. Using fraud recovery to shore up Social Security and Medicare would be a historically important deal and could save the nation from a fiscal calamity.
