Donald Trump defends Social Security on its 90th anniversary
President Trump marked Social Security’s 90th anniversary and pledged to protect and expand benefits for seniors.
American workers pay taxes into a Social Security “trust fund.” The more you earn now, the more you will reap later in retirement benefits. You can monitor your progress in a government account called “my Social Security.”
Those facts might lead some people to believe that everyone has a personal Social Security fund, money earmarked just for them.
Roughly one in four Americans thinks exactly that, according to a new survey from the libertarian Cato Institute.
The poll asked respondents how Social Security is funded. Only 45% of respondents chose the correct answer: “My taxes pay for current retirees, and future workers will pay my benefits.”
How does Social Security work? Most of us don’t know.
Confusion runs rampant on the basic workings of Social Security, according to recent surveys from Cato and AARP. Both polls coincide with Social Security’s 90th anniversary, marked on August 15.
In the Cato survey, released August 7, only 9% of Americans correctly identified the maximum annual Social Security benefit, which exceeds $60,000, on a multiple-choice list. Only one-quarter correctly guessed the average annual benefit, which falls between $20,000 and $30,000.
The AARP survey, released in July, found that three-quarters of Americans believe they are informed about how Social Security works.
But are they?
In that survey, only 40% of Americans knew the earliest age you can claim Social Security: 62. Only 24% knew the claiming age when your benefit check maxes out: 70.
“When we started asking questions, it was obvious people aren’t as knowledgeable as they think they are,” said Bill Sweeney, senior vice president of government affairs at AARP.
Pay as you go: How Social Security really operates
Here’s how Social Security actually works:
A portion of your income goes into a pair of Social Security trust funds, one for retirement, the other for disability. Social Security benefits are paid from those funds.
Social Security is known as a “pay as you go” program, which means that benefits paid to today’s retirees are mostly collected from current workers.
In other words, the Social Security benefit you receive is not money you earned. In that sense, the term “trust fund” might be a little misleading.
“The terminology, alone, confuses things,” said Robert Brokamp, a senior retirement adviser at The Motley Fool.
Relentless messaging on Social Security, from politicians and personal finance websites, might suggest workers are socking away their own money to pay for their eventual retirement.
It is true that how much you earn determines the size of your eventual benefit checks. The money in those checks, however, will come mostly from future workers.
“People who don’t understand the way it works think that they have been contributing to their Social Security benefits through their paychecks,” said Caleb Silver, editor-in-chief of Investopedia, the financial journalism site.
“It’s definitely not sitting in an account with your name on it,” he said. “It’s sitting in an account with everyone’s name on it.”
Social Security faces a fiscal cliff
Through most of its history, the Social Security program collected more money than it paid out, yielding a reserve that totaled $2.7 trillion at the end of 2024. Yet, as America ages, the reserve is dwindling. The latest projections show Social Security will face a shortfall by 2034.
When the reserves run out, the federal agency will have sufficient funds to pay only about 81% of full benefits, according to AARP.
Most Americans know that. In the Cato poll, 79% of working-age adults said they don’t believe they will receive full benefits when they retire. Roughly one in 10 expect no benefits at all.
The AARP poll, too, found Americans deeply pessimistic about the future of Social Security. More than one third of respondents said they believe that when the reserves are gone, benefit payments will cease.
American workers have been predicting Social Security’s demise for years. AARP has polled Americans about the federal program for four decades. Faith has never run high.
“People back in 1985 didn’t have confidence Social Security was going to be there for them,” Sweeney said. “And what’s interesting is, that number has been consistent.”
Social Security has faced insolvency before
Social Security has faced insolvency before. At one point in the early 1980s, amid economic downturns, program trustees predicted a shortfall was months away.
In 1983, policymakers fixed Social Security by collecting new taxes and gradually raising the full retirement age, among other changes.
Congress will have similar options to shore up Social Security between now and 2034.
Policymakers could choose to collect more Social Security taxes. They could again raise the retirement age, asking Americans to wait longer to collect larger benefit checks. Or they could borrow the money.
“I think that Congress will definitely do something to avoid reducing benefits,” said Emily Ekins, vice president and director of polling at Cato. “I don’t think they’re just going to allow a quarter in benefits to be cut.”
But how might Congress fix the program? Raise taxes, borrow money, or reduce benefits? Cato posed that question in its survey.
The largest share of Americans, 37%, said they would favor higher taxes. Slightly fewer, 35%, favored borrowing the funds. Only 28% said they’d prefer reduced benefits.
What if every Social Security check was $1,800?
There are more radical solutions. Congress could abandon its complex benefit formulas in favor of a flat monthly check, the same amount for everyone: say, around $1,800.
In the Cato survey, 38% of respondents said they would support a flat benefit as an alternative to tax hikes or program cuts. Clearly, it’s not for everyone.
“A really foundational part of Social Security is, the more you pay in, the more you get out,” said Sweeney of AARP. “And I think that’s really important to the way the program is structured.”