As we mark the 90th anniversary of the Social Security Act, few may think about the name of Ida May Fuller, who was the first American to receive a monthly Social Security check. In January 1940, at age 65, she began collecting $22.54 a month after just three years of work and $24.75 in Social Security taxes paid. She may not have thought much of that first payment, but by the time she passed away at age 100, she had received a total of $22,888.92 in benefits.
Many of us, in the current working age population, consider Ms. Fuller to be one of the lucky ones when it comes to social security benefits. Each year, we get an update about the financial standing of the Nation’s key social safety net insurance, which was established as a base of protection for the nation’s elderly. According to the latest trustee’s report, without any policy action, retirees will face a 23 percent benefit cut in 2033. That is not some distant future anymore and with all the economic and demographic changes in full force, that deadline could come even faster.
Strengthening Social Security’s foundation requires more than financial fixes—it demands that policymakers and the public confront uncomfortable truths about its purpose, limits, and sustainability.
First, it is important to highlight the vital role of Social Security benefits for the financial standing of retirees: According to a recent study, 16.3 million people (27 percent of) aged 65 and over are above the poverty line thanks to social security. As such, it is imperative to put the system on a firm financial ground to strengthen the protections for the elderly.
Second, we need to change the perception of social security among the working age population. Particularly, it is important to highlight the original intent of the program. The system was established in response to the Great Depression’s devastating effects on nation’s elderly. It was not meant to be the sole source of income during the retirement years. However, according to Pew Research, in 2022, social security was their only source of income for 16.4 million people. For another 38.3 million people (63.2 percent of adult recipients) it made up at least half of their personal income. That is a hefty chunk.
Another way of looking at the problem is how an average “Ida May Fuller” would fare under the current tax and payment structure. According to Tax Policy Center Analysis, “for a single male earning an average wage every year and who retired in 2020 at age 65, lifetime Social Security and Medicare benefits would equal about $640,000, while total taxes paid would be just shy of $470,000. For a couple with one average earner and one low-wage earner, benefits would total about $1.24 million, while taxes would reach $680,000.” Throw in the demographic changes in terms of how many workers are supporting current retirees, you get the fuller picture of the problem.
Current proposals to save the system focus on increasing social security taxes, raising the retirement age, and means-testing the benefits. Under the current populist rhetoric, the chance of raising taxes looks slim. In 2023, the average retirement age in the US was 62, despite significant benefit reductions compared to actual retirement age benefits. This number has been steadily increasing over the years, but more financial education highlighting the return on waiting is still needed.
Means testing, however, was never among the popular policy choices. Experts believe it could erode public support for Social Security and complicates the administration of it. It could also tilt the system further in favor of lower earning individuals and change the incentives around saving and consumption. These are definitely important complications that need to be considered. However, the system could be designed to overcome some of these complications.
Each year, government agencies and think tanks come up with policy options and analyze the potential impact on Social Security’s solvency. One recent policy that was analyzed by the Congressional Budget Office is in some sense in line with means testing, but easier to administer: Using the federal poverty line as the basis and set a uniform payment for everyone at either 125 or 150 percent of the poverty line. The amount will be adjusted each year using consumer price index for all urban consumers. These policy options delay the 2033 date one or two years but depending on the percentage chosen, the system achieve a surplus as early as 2050 due to “the trust funds' income rising above the scheduled benefits later in the projection period.”
The policy levers to put the Social Security in the path of solvency are limited and some will require tough choices. The current demographic changes and AI’s potential impact on job markets point to even more dire financial problems for the future of this vital program. A bipartisan approach, taking populism out of policy design, is required urgently as the deadline is quickly approaching. And all policy options should be on the table, regardless of how unpopular they might be. Ms. Fuller was lucky to receive the promise of Social Security in full; it’s up to us to ensure that promise doesn’t end with her generation.
Dr. Pinar Çebi Wilber is Chief Economist and Executive Vice President of the American Council for Capital Formation
