On February 11, the Congressional Budget Office (CBO) published its annual Budget and Economic Outlook report, covering 2026 to 2036. Among the projections, the report found that Social Security's Old-Age and Survivors Insurance will be unable to pay full benefits in 2032 (a year earlier than projected in last year's report). This is due to the higher projected cost-of-living adjustments and lower projected revenues. To put that in perspective, Social Security will be unable to pay full benefits before the program turns 100. 

Social Security is in desperate need of reform, but doing so is easier said than done. Perhaps the worst cultural consequence of Social Security is that this unsustainable program is pitting generations of Americans against one another. The young support benefit cuts while the old support higher payroll taxes. Successful reform means balancing the interests between these generational divides to prevent political backlashes, which may jeopardize future reforms. 

What Social Security Is and Is Not 

In 2007, AIER published "What You Need to Know About Social Security." This Economic Education Bulletin outlines Social Security's history, some myths and realities about the program, as well as options for reform and what individuals planning for retirement could do in the meantime. Many of the bulletin's lessons are still applicable. 

Chief among them is the nature of the program. Social Security is not a system of individual retirement accounts. Nor is it a defined benefit pension program. It is a pay-as-you-go structure, where payroll taxes collected from working Americans go to fund benefit payments for the elderly. Despite being sold to Americans as an earned benefit, the true nature of the program is much closer to a Ponzi scheme than many care to admit. 

This means that the program relies upon working Americans to pay into the system outnumbering retirees. That number has dwindled, and it currently sits at 2.7 workers per Social Security recipient, an unsustainable ratio. Minor adjustments are not a feasible solution. The program needs structural reform. 

Possible Reforms  

Properly reforming Social Security requires a structural transition to a system based on ownership, savings, and investment. Universal Savings Accounts (USAs) can help anchor the transition if they are paired with policies that address the generational divide over the program. 

One such proposal made by the AIER Bulletin, as well as others, is a transition to a flat benefit. While this would drastically improve the program's solvency, it risks immense political backlash. Current retirees and those near-retirement are planning on specific levels of benefits. Changing those overnight will likely result in voters 50 and over (one of the largest and fastest-growing voting blocs) punishing politicians who supported reforms by supporting challengers in primary and general elections. Furthermore, that punishment at the polls will make incumbents reluctant to offer other reforms in the future.