Social Security is Running Out of Money: Here's How to Fix That

5 min read
October 27, 2020

Social Security is Running Out of Money Heres How to Fix That


Fires, viruses, civil unrest; will 2020 ever end?

With only three months left in the year coronavirus has officially claimed another victim: Social Security.

Due to the economic impact of Covid-19, the Social Security system is now projected to run out of money in 2031, four years earlier than originally thought.

We knew this day was coming, we just didn’t know it would be so soon.

The impact of coronavirus has accelerated Social Security’s decline due to the way the system makes money. Social Security makes the bulk of its money three ways:

  1. Payroll taxes
  2. Taxes on actual Social Security benefits
  3. Interest earned on money in the Social Security Trust Fund.

Unfortunately the pandemic, which brought business throughout the country to a standstill, has jeopardized all three revenue sources.

During the first two months of the pandemic alone, the U.S. lost over 21 million jobs and the nations deficit hit an eye-popping $3.3 trillion.

What does this mean for future retirees?

According to the Congressional Budget Office, if nothing happens between now and 2031, future benefits will get cut by an estimated 25%.

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Retirement is a relatively new invention. Like streusel, Bavarian beer, and the Mercedes S Class—the modern idea of retirement was a German invention. In the 1880s, as Americans were tasting Coca Cola for the first time, German Chancellor Otto von Bismarck had a problem. And that problem was Socialism.

Bismarck was losing power to Socialism daily and he had a decision to make. He needed a way to appeal to socialist German’s, without actually doing anything for them.

Something that a politician would never do today…

Instituting a Social Security system was a way to show working-class German’s that he had their best interests at heart. And by using the retirement age of 70, well below life expectancy, it meant Bismarck would pay almost nothing to do this.

In fact most German’s at the time didn’t even live to 70.

But then a funny thing happened…The system became wildly popular. So much so that more than 55 years later the United States started a Social Security program of their own.

Under President Franklin D. Roosevelt the Social Security Act was signed into law in 1935 and a retirement age of 65 was chosen.

Even though the average life expectancy at this time was 61 years.

Today, the average life expectancy is 83 years.

This makes the very idea of a Social Security system purely accidental.

Thanks to modern medicine, a system that was designed to offer retirement benefits to almost no one, now offers retirement benefits to nearly everyone.

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Mr. Bismarck’s opinion of the United States not withstanding…this brings us to the present day…and the problem of a permanent reduction in Social Security benefits.


This potential reduction in benefits is not expected to hurt current Social Security recipients. The bulk of this reduction will affect the youngest workers in the country today.

This is a positive for two reasons:

  1. Current and soon-to-be retirees will not need to worry about a change they didn’t plan for.
  2. Today’s youngest workers will have time to plan around this potential catastrophe.

While we hope that congress will come to a resolution that will save the system, the best thing we can do in the meantime is plan for the worst. We’ll do that two ways:



The average Social Security benefit is $1,514/month.

The highest benefit at Full Retirement age is $3,011/month.

The highest benefit at age 70 is $3,719/month.

Social Security only replaces on average 40% of your pre-retirement income.



If you’re a family making $100,00 a year Social Security will pay you a maximum of $1,624/month per spouse. That’s $38,976 per year—very close to our 40% average.

I used the Social Security Quick Calculator from to come up with these numbers, assuming each spouse makes $50,000 per year.

If benefits are cut by 25% then each spouses monthly benefit will get cut by $406. That’s $9,744 a year in lost income if nothing is done!

To fix this you will need to begin setting money aside in anticipation of this shortfall. The family in this example will need to save an extra $148/month earning 7% for 35 years.

If you’re a family earning $100,000 annually you’ll need to save an extra 2.5% a year to close this gap. By the time you retire you’ll have $245,923 (to cover both SS benefits) comfortably paying you the lost income of $9,836 a year.

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Get your Time Value of Money Calculator here.

If your target is to save 20% of your income a year (which we highly recommend) this additional money will be worth $1,700,294 by retirement comfortably paying you $68,000/year. In today’s dollars this means you will have $27,252 from Social Security, $9,600 from your “Social Security Trust” and $68,000 from your retirement savings. This totals $104,852 in income annually.


Hopefully, we will never have to worry about this. There are many things congress could do right now to shore up Social Security for the long haul. For instance…

Right now high income earners don’t pay Social Security taxes on any money earned over $137,700. Making it so that everyone pays Social Security taxes on ALL of their income is just one change that could be made to fix the system.

StantonBurnsAbout the Author
Stanton Burns works with young families to help them eliminate debt, invest smarter, and retire faster. When he's not helping clients live their best lives you can find him watching Auburn football and working on his lawn, which is immaculate.




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