This paper examines the Social Security Administration's current operational and financial challenges following its expansion from a purely earnings-based retirement program to one serving disabled individuals, spouses, and survivors. The analysis identifies key issues threatening system solvency by 2036, including rising life expectancy, increasing disability claims, and outdated actuarial standards. The paper evaluates the organization's mission, priorities, and proposes reforms such as raising the full retirement age to 69, recalibrating benefit formulas, and encouraging longer workforce participation to improve long-term sustainability.
In 1935, Social Security was designed as a program to provide a safety net for those who are disabled and as supplemental retirement income. When first introduced, it was structured based on the total amount of individual earnings during a person's career. Over time, the program was expanded to include spouses, the children of those who are deceased, and individuals with permanent disabilities. These expansions meant that Social Security was no longer linked exclusively to an individual's lifetime earnings. Instead, it became focused on other factors such as marriage and permanent disabilities, fundamentally transforming the program from a pure insurance mechanism into a broader social support system.
The situation with Social Security demonstrates how a new approach is needed to address the long-term issues impacting the system. One of the most critical challenges is the aging population and the gap between benefit obligations and available revenue. Since its inception, Social Security has traditionally supported a retirement age of 65 years old. However, over the last few decades, more people are living longer and have the capacity to spend additional years working. At the same time, they are receiving supplemental benefits from their employers through 401(k)s, 403(b)s, and 457 plans, as well as Individual Retirement Accounts (IRAs). The combination of these factors is designed to provide them with additional income sources (Poterba, 2014).
Moreover, the fact that more people are living longer, with average life expectancy sitting at 80 years old, indicates they can work longer and contribute more to the system. At the same time, advancements in technology could enable workers to perform tasks that are less physically demanding. If the retirement age were raised, this would reduce the total demand for Social Security benefits (Poterba, 2014).
The challenges are further complicated by how survivor and spousal benefits are calculated. In the case of survivor benefits, there are inconsistencies in how they are applied, largely due to increases in the total number of divorces. Current rules entitle spouses who were married for 10 years to receive a percentage of their ex-spouse's benefits. If they remarry, subsequent spouses could receive additional benefits, provided they meet the 10-year marriage standard. These discrepancies are problematic because they result in paying several different people the same forms of compensation, despite the fact that those individuals are no longer married to the primary beneficiary ("Spouse and Survivor Benefits," 2011).
The situation is further exacerbated by rising disability benefit claims. Since 1984, the total number of people receiving disability benefits has climbed from 2.6 million to 6.5 million. In the future, this is expected to rise even more, with larger numbers of workers seeking out benefits ("Social Security Reform," 2013). This trend is particularly evident among low-wage and under-skilled workers. In the 40 to 65 year old male demographic, those most likely to seek disability benefits are two times higher among individuals without a high school diploma. To make matters worse, many attorneys are specializing in helping beneficiaries receive their Social Security benefits by using the courts to challenge the conclusions of actuaries. The result is that more people are relying on the system as a primary source of income, which is problematic given that the current system is projected to become insolvent by 2036 ("Social Security Reform," 2013).
The "main thing" impacting Social Security consists of several different factors that will negatively affect its solvency. The most notable include the fact that actuaries are using standards that were developed decades ago, people are living longer, and survivors are receiving more benefits than the current system can sustain. The organization is not positioned to succeed by embracing the concepts that were utilized in the past, as they do not account for changes in mortality rates, the number of recipients, and how benefits are calculated.
"Misalignment between outdated actuarial methods and contemporary demographic realities"
According to the Urban Institute, if these changes were implemented, the system could remain solvent for longer periods of time. Their analysis states:
"As life expectancy increases, the program is paying benefits for longer periods. When Social Security first paid benefits in 1937, the average additional lifespan at age 62 was 14.3 years for men and 16.6 years for women. Today at age 62 a man can expect to live an additional 21.3 years and a woman can expect an additional 24.3 years. Higher retirement ages would encourage people to work longer and give them more time to save for retirement. People can generally work longer now because the share of jobs that are physically intensive has dropped over time. People can increase their annual retirement income by about half, on average, by working an extra five years before retirement. A proposal that gradually increases the full retirement age to 69 and then indexes it for life expectancy increases would reduce the deficit by about 44 percent." ("Increasing Retirement Ages," 2012)
This analysis demonstrates how increasing the retirement age and encouraging longer workforce participation will improve workers' ability to save for retirement while simultaneously extending the solvency of the Social Security system. In the future, these reforms would lead to a decrease in the long-term funding deficit by approximately 44 percent. By coupling incremental retirement age increases with life expectancy indexing, policymakers can create a dynamic system that remains responsive to demographic changes rather than relying on outdated fixed ages. Combined with modernized benefit calculation methods, these reforms offer a pathway to restoring long-term financial sustainability while maintaining adequate support for beneficiaries.
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