As of this year, the Social Security program has existed for 90 years, supporting Americans in their retirement. In a recent poll, 85 percent of Americans said the program will be vital to their well-being, but 79 percent expressed concern that Social Security “will run out of money and stop paying benefits in the near future.”

It’s true that the program faces significant financial challenges. The most recent Social Security Trustees Report showed that the retirement portion of the trust fund will be unable to pay full benefits starting in 2033. But what does that mean for the average American?

In the chart below, you can predict how average monthly Social Security benefits will change in the years to come. With the pointer, draw what you think actual monthly Social Security retirement benefits will look like compared with predicted benefits if the trust fund never runs out.

How Do Actual Social Security Benefits Compare with Your Predicted Payouts?

Source: Urban Institute Dynamic Simulation of Income Model. 
Notes:We do not collect or store any of the data you input when drawing on the graph.

As you can see, assuming the program continues without changes, it will still pay some benefits long after most currently living Americans retire. If the trust fund exhausts, the average monthly benefit will fall by about 14 percent in 2034, 17 percent in 2035, and so on. By 2100, average monthly benefits are projected to be $3,200 if the trust fund runs out rather than a full benefit payout of $4,256—a 33 percent difference.

How does Social Security work?

Fundamentally, Social Security is a “pay-as-you-go” program. This means the money that comes into the trust fund—paid by employees and employers—is directly paid to current beneficiaries. If more money comes in than is paid out—as happened when the baby boomer generation was working and contributing to Social Security—the additional funds are “saved” in the trust fund.

If less money comes in than is paid out in benefits, then the money in the trust fund covers the difference. When the trust fund runs out, therefore, Social Security doesn’t “stop paying benefits” altogether—it just pays the balance it takes in.

You can think of Social Security like your own debit card: You can only spend what you have in your account. When the trust fund runs out, the program just pays what it can afford.

A combination of factors has contributed to the worsening financial picture for the program, these three among the largest:

• Lower fertility. Lower fertility rates since the baby boom has reduced the ratio of current workers to beneficiaries. As a result, Social Security now collects less revenue from taxes than are paid out to beneficiaries. A persisting lower fertility rate than decades past means this problem won’t change anytime soon.
• Increased longevity. As Americans live longer, they receive benefits for longer. The average life expectancy in 2024 was 79.3 years, almost two decades longer longer than the 60.9 years expectancy when the Social Security system started in 1935.
• Widening earnings inequality. Wages have increased more rapidly near the top of the distribution than near the middle and bottom, pushing more earnings above the Social Security taxable maximum threshold. Today, only 83 percent of earnings nationwide contribute to Social Security revenues, down from 90 percent in 1983. This trend diminishes Social Security’s revenues and worsens its financial condition. By one estimate, if 90 percent of overall earnings had been subject to Social Security payroll taxes since 1983, the program’s long-term financing gap would be about 25 percent lower today.

What can policymakers do?

Federal policymakers have opportunities to strengthen the program’s financial foundation, but because doing so requires some combination of reducing benefits or increasing taxes, they have not taken action. That’s not to say none have tried—numerous proposals, including a recent bipartisan proposal by Bill Cassidy (R-LA) and Tim Kaine (D-VA)—have sought solutions to the coming shortfall.

The Urban Institute’s Dynamic Simulation of Income Model (DYNASIM)—a large microsimulation model that projects the size and characteristics (such as financial, health, and disability status) of the US population—can show the path of the Social Security system and how different policy reforms might change that path. For example, DYNASIM shows that increasing the payroll and self-employment tax rates from 12.4 percent to 13.4 percent over 10 years would push the trust fund exhaustion date from 2034 to 2039. Alternatively, changing the annual cost-of-living adjustment for retirement benefits to a slower inflation rate would extend the trust fund by just a year. You can explore how a variety of policy options, including raising tax rates, increasing the early and full Social Security claiming retirement age, and changing inflation adjustments affect benefit amounts using the DYNASIM fiscal health of Social Security dashboard.

Although current workers don’t need to worry about Social Security fully running out of funds in their lifetime, the reality is that without some kind of policy intervention, the program will pay lower benefit amounts for most. Understanding how the program works and what reforms are available—either individually or in combination—is essential to ensuring the long-term health of the Social Security program.