Marking a historic milestone in 2025, Social Security celebrated 90 years since the Social Security Act's enactment and recorded an average monthly benefit for retired workers exceeding $2,000 for the first time in its history. Despite the landmark figure of $2,071.30, this amount remains modest when measured against retirees' living expenses.
According to Gallup's extensive polling data spanning 24 years, between 80% and 90% of retired individuals depend on Social Security benefits to cover part of their expenses, underscoring the program's essential role in financial stability for seniors. Consequently, preserving Social Security's financial viability is critical for policymakers.
Annually, since the initial issuance of retired-worker benefits in January 1940, the Social Security Board of Trustees releases a detailed report outlining the program's current fiscal health and projecting its solvency over the long term. These reports provide transparency on revenue sources and disbursement patterns.
The bulk of Social Security's funding—over 91%—originates from a 12.4% payroll tax levied on earned income such as wages and salaries, excluding investment earnings. This revenue model ensures that as long as workers contribute payroll taxes, the program can continue to distribute benefits without interruption.
Despite this revenue stream, sustaining the current benefit levels along with annual cost-of-living adjustments (COLAs) faces significant challenges. The 2025 Trustees Report revealed $25.1 trillion in unfunded obligations projected over a 75-year horizon. Particularly dire is the outlook for the Old-Age and Survivors Insurance (OASI) trust fund, which administers monthly payments to 53.6 million retired workers and 5.8 million survivors.
The OASI's surplus reserves, accumulated from excess payroll tax revenue and invested in government bonds, are anticipated to be depleted by 2033. While the depletion of these reserves will not halt benefit payments, it would signal that current payout rates and COLAs are unsustainable. The Trustees estimate a mandatory reduction in benefits by approximately 23% may be required to maintain solvency through 2099.
Adding complexity to the fiscal outlook is recent legislation informally known as the "big, beautiful bill," enacted under President Donald Trump's administration. Prior to its passage, Trump had pledged to eliminate the taxation on Social Security benefits, a provision many seniors dislike due to its impact on retirement income.
Since 1984, Social Security benefits have been subject to federal income taxation when combined provisional income exceeds set thresholds, with up to 85% of benefits taxable at higher income levels. These income thresholds were never indexed for inflation, resulting in a significant expansion of taxpayers affected by this provision—from about 10% of seniors in the 1980s to nearly 50% today.
Although Trump was unsuccessful in repealing these taxes—due in part to lacking bipartisan support—the legislation instead raised the standard deduction for qualifying seniors by $6,000 ($12,000 for joint filers) from 2025 to 2028 and introduced other tax deductions for certain workers. While these tax breaks provide immediate financial relief, they also reduce the overall payroll tax revenue supporting Social Security.
The Social Security Administration's Office of the Actuary assessed the fiscal effects of this legislation at the request of Senator Ron Wyden. The analysis projects an increase in Social Security costs totaling $168.6 billion from 2025 through 2034, accelerating the exhaustion of OASI's reserves from early 2033 to late 2032. This update effectively brings the timeline for necessary benefit cuts to within six years.
Demographic trends present more profound long-term challenges than legislative changes. The retirement of the baby boomer generation and increased life expectancy mean that beneficiaries are collecting benefits for longer periods than initially anticipated when the program was designed.
More critically, the U.S. fertility rate plummeted to a historic low in 2024, with fewer than 1.6 children per woman compared to the 2.1 replacement rate needed to maintain population levels. This decline reduces the future workforce size and, by extension, the number of contributors to the payroll tax system.
In addition, net legal immigration has slowed since the late 1990s. Given that immigrants tend to be younger and contribute to the payroll tax over many years, this decline curtails a vital inflow of funds to Social Security.
Economic factors further compound fiscal pressure. In 1983, roughly 90% of earned income was subject to Social Security payroll taxes. By 2024, this proportion decreased to about 83%, reflecting that wages have risen faster than the tax cap. For context, in 2026, the payroll tax applies only to earnings up to $184,500, allowing higher income portions to evade taxation.
No straightforward solutions exist to reverse these demographic shifts or expand the tax base. These complex, intertwined factors pose significant challenges to reforming and sustaining Social Security's promise to future retirees.