For decades, Social Security has collected more than it needed to pay out, building a surplus that stood at $2.85 trillion at the end of 2021.

However that surplus will be all but depleted by 2035 at the latest if changes aren’t made, and soon.

Social Security’s financial problems stem partly from the impact of individuals living longer and receiving benefits for a longer period — a trend that is expected to continue for the foreseeable future. There is an imbalance between taxpaying workers and benefit-receiving retirees.

In 1960, there were 5.1 workers paying taxes to fund Social Security benefits for each retiree. By 2020, that worker-to-retiree ratio had dropped to 2.7 and it’s expected to slip further, to 2.3, by 2035.

Bottom line, the system is starting to pay out more than it takes in, largely because the retiree population is growing faster than the working population, and living longer. 

Social Security won’t be broke by 2035. It will still collect tax revenue and pay benefits. But it will only bring in enough to pay 80 percent of scheduled benefits, according to the latest estimates.

To avoid that outcome, Congress would need to take steps to shore up Social Security’s finances as it did in 1983, the last time the program nearly depleted its reserves. But that sounds easier on than it is due to a variety of factors.

Raising the retirement age would be a highly controversial ‘hot potato’ and Congress is not likely to do so anytime soon. Politicians realize that any talk of changes in the SS program creates a backlash from voters. 

As part of the solution to a solvency crisis in 1983, Congress agreed to a gradual increase in the normal retirement age from 65 to 67. Based on 2019 mortality rates, life expectancy for retirees at age 65 had increased to 18.1 years for men and 20.6 years for women, the actuaries report said. In other words, since Social Security began paying monthly benefits, life expectancy at age 65 rose roughly 6.5 years, while the age for collecting full benefits increased by only two years.

The current FRA (Full Retirement Age) is 65, the age when a worker qualifies to file for 100 percent of the benefit calculated from lifetime earnings history — It is 66 and 4 months for people born in 1956 and 66 and 6 months for those born in 1957.

Over the next few years it will increase by two months at a time, settling at 67 for those born in 1960 and after.

When Social Security was created in 1935, 65 was set as the age of eligibility. In later decades the minimum eligibility age was lowered to 62, when people could claim a reduced benefit, but 65 remained the standard for full retirement.

That changed with the 1983 overhaul, which raised the retirement age to reduce Social Security’s costs. The increase is being phased in over time; 2002 was the last year in which people turning 65 could claim their full benefit.

Since 1975, Social Security law has mandated that benefit amounts be adjusted annually to keep pace with inflation. But there is no requirement that this cost-of-living adjustment (COLA) produce a yearly increase.

The COLA is tied to a federal index of prices for select consumer goods and services called the CPI-W. Benefits are adjusted annually based on changes in the CPI-W from the third quarter of one year to the third quarter of the next. In 2022, the index showed an 8.7 percent increase in prices, so benefits will be 8.7 percent higher in 2023.

But if the index doesn’t show a statistically measurable rise in prices — if there’s effectively no inflation — then there’s no adjustment to benefits. This has happened three times since the current formula was adopted, in 2010, 2011 and 2016. Whether or not it produces a benefit increase, this process is automatic; it does not involve the president or Congress. They would have to take separate action to change the COLA.

A common complaint about Social Security is that members of Congress don’t bother fixing the program because it doesn’t cover them. Actually, it does. Members of Congress came under the Social Security umbrella in 1984, along with the rest of the federal workforce, as part of the sweeping changes to the program enacted the previous year.

Before that, senators and representatives did not pay into Social Security and were instead fully covered by a pension plan called the Civil Service Retirement System (CSRS). Those in office on Jan. 1, 1984, were allowed to remain in CSRS, but only in conjunction with Social Security. 

The two trust funds that pay out Social Security benefits — one for retirees and their survivors, the other for people with disabilities — have never been part of the federal government’s general fund. Social Security is a separate, self-funded program. The federal government does, however, borrow from Social Security.

Here’s how: Social Security’s tax revenue is, by law, invested in special U.S. Treasury securities. As with all Treasury bonds, the federal government can spend the proceeds on a variety of programs. But as with all bondholders, Treasury has to pay the money back, with interest. Social Security redeems the securities to pay benefits.

This borrowing fuels the notion that the government is raiding or even stealing from Social Security and leaving it with nothing but IOUs. But the government has always made full repayment, and the interest increases Social Security’s assets, to the tune of $70.1 billion in 2021.

The Huffington Post reported: “A bipartisan group of senators has been talking about ways to reform Social Security in order to avert a funding shortfall expected sometime around a decade from now.”

One item under discussion is raising the eligibility age for Social Security benefits for future retirees - a politically fraught move that is more likely to enrage voters than it is to become law in the near term.

Along with potentially increasing the eligibility age, the group has looked at creating an investment fund that would improve Social Security’s long-term finances.

“It’s not locked in concrete yet, but it’s a reasonable proposition in that does not call for changing benefits over the next 75 years,” Sen. Mitt Romney (R-Utah) told HuffPost on Wednesday. “As a matter of fact, it improves benefits, particularly for people at the low end of the income scale, which is something that’d be helpful.”

Sen. Ron Wyden (D-Ore), who is chairman of the Senate Finance Committee, which oversees Social Security, and who is not participating in the informal talks, said he was open to ideas for new policies “on top of” existing benefits. He was hostile to the idea of raising the retirement age.

On Thursday (3/2) New York Senator Kirsten Gillibrand held a press conference announcing the Social Security Expansion Act of 2023. In 2021, Social Security lifted 26.3 million Americans out of poverty, but admitted that fast-rising costs and the aging population are putting benefits of current retirees and future generations at risk. This bill, according Gillibrand would expand Social Security benefits and ensure Social Security is fully funded for the next 70+ years.

Gillibrand noted the nation’s older adult poverty rate is just 10.3%. Social Security provides an essential lifeline to the one in seven older adults who rely on the program for 90% or more of their income, as well as the roughly 50% of Americans who are 55 years old and older living without retirement savings.

The Social Security Expansion Act, led by Vermont Senator Bernie Sanders, would ensure the program’s solvency through nearly the end of the century by requiring millionaires and billionaires to finally pay their fair share into the program.

This is considered a roadblock to many, especially many Republicans, while supported by many Democrats and labor unions.

This bill would also help low-income workers stay out of poverty by:

• Improving the Special Minimum Benefit;

• Restoring student benefits up to age 22 for children of disabled or deceased workers;

• Strengthening benefits for older Americans and people with disabilities;

• Increasing cost-of-living adjustments (COLAs);

• Expanding program benefits across the board.

While the Social Security system is facing impending solvency challenge, any real reform package would likely including changes not only to the retirement age, but to the system’s benefits and payroll taxes to ensure the system’s solvency for the future.

Bottom line.. a political ‘hot potato’.