SOCIAL SECURITY: What it Is. What it Isn’t. Why it Matters. Why it’s SO Hard to Reform

Last August when we launched our very first issue we asked What Will Become of Social Security? A week later we followed up with Social Security, Please Hold, focused on the operational breakdowns inside the SSA itself – delays, underfunding, and a staffing crisis.

Back then, the headlines were familiar: warnings about the trust fund running out, projections about automatic benefit cuts, debates about whether political leaders would act in time. But even as those national conversations played out, millions of Americans were calling SSA offices, stuck on hold, hoping for answers. That reality hasn’t improved. In fact, it’s gotten worse.

Before we get into how Social Security works, how it’s funded, and whether it’s truly at risk, we want to make something very clear. This isn’t a retirement story. This is an everybody story.

Who It Affects….ALL OF YOU

Social Security isn’t a niche issue. It is not just about seniors. It is not just about checks in the mail. And it is NOT someone else’s problem. Here’s why it matters to every generation:

• If you’re already retired, you likely depend on Social Security as a core piece of your monthly income. For many, it’s the difference between getting by and going under.
• If you’re approaching retirement, chances are you’ve built this into your financial planning. Without it, the math might not work.
• If you’re in your 30s or 40s, you’re paying into the system now and probably thinking more seriously about long-term financial planning. Your pay stub shows FICA taxes, but do you know what they fund? And do you believe you’ll get that money back?
• If you’re in your 20s or part of Gen Z, you’re likely just starting your career but you’re still paying into the system with every paycheck. The question is: will you be the first generation to contribute for decades and get nothing back? And if your parents or grandparents rely on Social Security, what happens if that support disappears? Would that burden fall to you?
• If you’re a gig worker or freelancer, are you paying into the system at all? Many aren’t. What happens if you never earn enough quarters to qualify for benefits?
• And even if you’re independently wealthy, you’re still part of this society. Widespread elder poverty impacts public health, housing, policing, and the basic fabric of everyday life. These aren’t hypotheticals, you can see it on the streets of major cities across the country.

This isn’t just about money. It’s about trust, continuity, and what happens when a core promise of American life becomes uncertain.

The Money Problem

Let’s confront the numbers. According to the latest Social Security Trustees report, the combined trust funds (for retirement and disability benefits) are projected to be depleted by 2033 or 2034. At that point, the system will still collect revenue, just not enough to pay full benefits. The estimate? About 77% of scheduled benefits would continue to be paid.

Why the gap?

• Americans are living longer.
• Birth rates have declined.
• Fewer workers are supporting more retirees.
• Wage growth has been uneven, and income above a certain level isn’t taxed for Social Security.

Back in 1960, five workers supported each retiree. Today, that ratio is about 2.8. The math doesn’t lie and without adjustments, the system’s long-term stability is at risk.

But the real question isn’t if the system needs reform. It’s how we go about it and who bears the weight of that change.

A Brief History Lesson

To understand the urgency of today, we must look back at why Social Security was created in the first place.

In 1935, America was in the depths of the Great Depression. Nearly half of older Americans lived in poverty. Retirement, as we think of it today, didn’t exist for most. People worked until they couldn’t, and then they either moved in with relatives or fell through the cracks entirely.

Social Security was created as a response to that crisis. It wasn’t about comfort or luxury. It was about dignity. The idea was simple: if you work and contribute to society, you should have at least a basic level of income in old age.

It was never meant to be your entire retirement income. The vision was a “three-legged stool” – Social Security, personal savings, and employer pensions. But today, pensions are rare, and personal savings are often insufficient.

Over the decades, Social Security expanded to include survivors’ benefits, disability insurance, and cost-of-living adjustments (COLA). Each year, COLA is calculated based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), aiming to keep pace with inflation and preserve the purchasing power of benefits. It became more than a safety net – it became foundational. But the economic realities it was built on have shifted.

Some critics argue that people should manage their own retirements without government involvement. That might work for a few. But what happens to the many who can’t? And what happens to you when an aging population becomes a public crisis?

A society where older people slip into poverty creates broader instability – more demand for public assistance, increased homelessness, greater health care burdens. Even if you don’t think you’ll rely on Social Security personally, it’s in everyone’s interest to keep it functioning.

Ponzi or Policy?

A provocative comparison keeps surfacing: is Social Security a Ponzi scheme?

Critics argue that it operates just like one, using money from new contributors to pay older participants. And that part is true: Social Security is a pay-as-you-go system. But that’s where the similarity ends.

Let’s look at the official definition from the SEC:

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Now contrast that with Social Security:

• Contributions are required by law, not solicited with false promises.
• There’s no promise of high returns.
• Funds are publicly tracked and transparently distributed.
• The system is backed by the U.S. government, not an individual promising riches.

To illustrate the difference, take Bernie Madoff, who ran the largest actual Ponzi scheme in history. Madoff fabricated account statements, lied about returns, and pocketed investor funds. Social Security’s finances are open to public scrutiny, audited annually, and debated constantly.

Throwing around the term “Ponzi scheme” might make for a viral headline or a spicy tweet. But we encourage readers to go deeper. Understand the history. Read the definitions. Study the structure. You’re allowed to agree or disagree with pundits or politicians but don’t stop at soundbites. Empower yourself with facts.

How Your Benefits Are Really Calculated

Understanding how Social Security calculates benefits isn’t just academic—it can shape your retirement plan, your vote, and your confidence in the system.

Here’s the simplified process:

• The Social Security Administration calculates your Average Indexed Monthly Earnings (AIME) using your 35 highest-earning years, adjusted for inflation.
• A progressive formula is applied using “bend points”, which give a higher percentage of replacement income to lower earners.
• Your age when you claim benefits matters. Claiming early (as young as 62) reduces your benefit. Delaying (up to age 70) increases it.

Example: If you averaged $60,000 in earnings, you might receive:

• Around $1,300/month at age 62
• Around $1,800/month at full retirement age (67)
• Around $2,200/month if you wait until age 70

But here’s the question people rarely ask: Where does that money come from?

It comes from payroll taxes—specifically FICA taxes. If you work a traditional W-2 job, you pay 6.2% of your earnings (up to a limit), and your employer matches it. That’s 12.4% total.

But not everyone is paying in:

• Gig workers and freelancers must pay both sides themselves – via the self-employment tax.
• Some public-sector workers don’t contribute at all.
• High earners stop paying into Social Security once they hit the annual wage cap ($176,100 in 2025). This cap typically increases each year based on national wage growth, as tracked by the Social Security Administration’s average wage index.

So yes, the system is funded by current workers, but not all workers are contributing equally. And the people who do pay in should absolutely understand where that money goes and what it will (or won’t) come back as.

Social Security at Every Age: What Most People Don’t Realize

When most people hear “Social Security,” they picture retirement. But the truth is, this system quietly supports Americans of all ages in ways most people don’t fully understand – until they need it.

Yes, Social Security is best known for sending monthly checks to retirees. But nearly one in four Social Security beneficiaries today isn’t retired. They’re receiving payments because of disability, the loss of a parent or spouse, or eligibility through a family member’s work history.

Here’s what else Social Security does:

• Disability Insurance (SSDI): If you become too sick or injured to work, and you’ve paid into the system, you may qualify for monthly benefits. This isn’t just for older workers – many SSDI recipients are in their 30s, 40s, or younger.
• Survivor Benefits: If a parent or spouse passes away, their dependents may receive monthly support. This includes children under 18, some college students, and widowed spouses – even divorced ones in certain cases.
• Spousal Benefits: Even if someone hasn’t earned enough credits to qualify for their own benefits, they might still be eligible to receive a percentage of their spouse’s – or ex-spouse’s – retirement or disability benefit.
• Support for Children: Over four million children receive Social Security benefits today – often because of a parent who died or became disabled. It’s one of the largest safety nets for kids in the U.S.
• Supplemental Security Income (SSI): While not funded by payroll taxes and technically separate from Social Security, SSI is administered by the Social Security Administration. It provides monthly payments to low-income individuals who are aged, blind, or disabled, using general tax revenues rather than the Social Security trust funds.

What happens to all of these groups if Social Security funding runs out or the program is slashed? This isn’t just about retirees, it’s about families, young workers, and anyone who could face a crisis tomorrow.

If you’re paying in now, you’re not just building your future,  you’re funding a system designed to catch people when life takes an unexpected turn. And that includes you.

What Now?

Social Security is not collapsing tomorrow. But it is on a path toward automatic cuts unless Congress acts. So what are the options?

Let’s walk through some of the most discussed reform ideas:

1. Raise the payroll tax cap. Currently, only wages up to $176,100 are taxed. Any income earned beyond that amount isn’t subject to the 6.2% payroll tax. Raising the cap or eliminating it entirely is one of the most frequently proposed fixes. Supporters argue that as income inequality has widened, a growing share of national earnings sits above the cap and escapes taxation. By either increasing the cap more aggressively or removing it altogether, the system could generate significantly more revenue. Some proposals suggest eliminating the cap entirely so that all wages are taxed. Others propose a “donut hole” model, where wages above the cap aren’t taxed up to a certain point (say, $250,000), but taxation resumes on income beyond that. Both approaches aim to increase fairness and sustainability, though they tend to face resistance from high-income earners and their advocates.

2. Gradually raise the retirement age. This was done in the 1980s (moving the full retirement age from 65 to 67). Some proposals suggest increasing it further to reflect longer life expectancy. But this hits lower-income workers hardest as they tend to have shorter lifespans and more physically demanding jobs.

3. Means testing. Reduce or eliminate benefits for wealthier retirees. This would save money but shifts Social Security away from its identity as a universal program.

4. Modest payroll tax increases. Even a small increase for example from 6.2% to 7.2% could extend the trust fund significantly. This would be felt by every worker but shared broadly.

5. Create new revenue streams. Some proposals involve taxing investment income or closing loopholes. Others suggest investing part of the trust fund in diversified assets instead of U.S. Treasuries.

Every option comes with trade-offs. There is no silver bullet. But doing nothing virtually guarantees cuts in less than a decade.

This is also a values question:

• Should Social Security be universal or targeted?
• Do we view retirement as a private risk or a shared responsibility?
• What happens to national trust when we break a promise nearly every worker has paid into?

Final Word

Whether Social Security becomes a buoy or an anchor depends on what we do now. The system is not unraveling overnight, but it is fraying and the people who will bear the consequences may not yet realize it.

The path forward won’t be easy. And here’s why: you can’t simply hit reset on a program like Social Security. It’s not a startup you can pivot or a policy you can unwind quietly. Every American worker is already inside it – paying in, planning on it, or receiving it. Reforming it without betraying that trust is like trying to replace the engine of a moving car.

Sure, we could stop future workers from paying in and promise them something else. But that instantly undercuts the money used to pay today’s retirees. Or we could ask people to pay more now and accept less later. But who signs up for that?

That’s the real challenge. Any reform inevitably hurts someone. So we delay, we argue, we deny. But eventually, we will have to decide whether this system is still worth preserving and if so, what sacrifices we’re willing to make to keep the promise alive.

So as you finish reading this, don’t just think about what Social Security is or isn’t. Ask yourself: What should it be? And what would it take for all of us to get it there? At My Retirement Network, our motto is “facts without fiction, and insights without opinions.” We’re not here to tell you what to think, just to make sure you’re thinking with all the facts. Because asking better questions is where real change begins.