Social Security’s trustees report warning that the trust fund runs out around 2032 may sound shocking—but the bigger issue is how badly the system gets worse afterward. In this conversation, Dr. Andrew Biggs explains what the “2032” headline really means, why Social Security isn’t like a 401(k) or a corporate defined-benefit pension, and how the shift to pay-as-you-go financing created a system that was never meant to last unchanged as demographics changed.
We also break down the misconceptions behind “my account” Social Security, why Congress has the incentives to delay action year after year, and why promised solutions are complicated. The discussion turns to the role of private retirement savings—401(k)s, IRAs, auto-IRA programs, and pooled plans—arguing that expanded coverage and participation matter far more than tweaks to technical details. Finally, Dr. Biggs addresses what it would take to reduce the demographic pressure on Social Security and why a “numbers game” approach—especially universal savings—could make the problem more manageable.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now, or I should say welcome back to the program to Dr. Andrew Biggs of the American Enterprise Institute. Dr. Biggs, Andy, great to see you. Thanks for joining us.
Andrew Biggs, PhD., American Enterprise Institute
Good to be back, I always enjoy it.
Jeffrey Snyder, Broadcast Retirement Network
All right, you’re probably aware since you cover social security for AEI that there was a recent report issued by the trustees and everyone’s kind of get their head, they’re going crazy because it says that the trust fund will be depleted by 2032. So immediately when I thought of social security, I thought of you, I wanted to get your reaction to those statements and then maybe we can talk about some of the misunderstandings around social security. So start with your reaction to the trustees report.
Andrew Biggs, PhD., American Enterprise Institute
Well, the 2032 number actually isn’t the surprising one. I mean, if you go, like when I was at social security 20 years ago, I was involved in this process and making the trustees report. And at that time, there was a lot of uncertainty about when the trust fund was going to run out.
When you get closer, you have a pretty clear idea. I mean, some people are like, oh, it’s 2032 or it’s 2033. This difference is a matter of months.
And so we know with near certainty, the trust fund is going to run out somewhere around 2032. So there’s that angle on the date. And that really hasn’t changed very much.
What has changed a lot in this year’s report was the trustees projection of the system’s long-term deficit, not when it’ll go broke, but how broken it will be in the years after that. Last year’s trustees report said you had a long-term deficit equal to 3.8% of the wage base. What that means is if you raise the payroll tax rate by 3.8 percentage points from 12.4 to 16.2, that would keep the system solvent for 75 years. So obviously there’s other ways of doing it, but that’s a way of illustrating the size of the deficit. This year, the trustees projected a long-term deficit of 4.4% of payroll because they took into account the effects of the one big beautiful bill, this sort of the benefit giveaway for state and local employees, and they also reduced their assumptions regarding the future birth rate. But so that’s a big, that’s a 16% increase in the long-term deficit in one year.
But I think one thing I’d point out is the increase could have been even bigger. People like the Congressional Budget Office and the Census Bureau, they project even lower fertility going forward. You could have plausibly pushed this to 4.8% of wages. That’s a lot of money. And it’s not something that’s easily solvable by some of these plans. Oh, we’re just gonna tax Elon Musk.
You’re not gonna get 5% of payroll out of the millionaires and billionaires. So this is a tougher problem to solve than it used to be.
Jeffrey Snyder, Broadcast Retirement Network
Okay, so before we talk about maybe solutions, and we did talk about this, I think a month ago when you were on, but we’ll refresh the audience. I wanna go back to 1935, if I can take the time machine, talk about the establishment of social security. There are a lot of misunderstandings or misgivings about social security, what it is, what it isn’t.
So let’s start with, if I could drive, ask you the first question, then you can come back and say whatever you want, of course. I think the first thing that I’d like to ask you about is, is there an account for Jeffrey Snyder? Is there an account for Andrew Biggs?
Is there an account for all the recipients of social security segregated specifically for me, like in a 401k or a pension plan?
Andrew Biggs, PhD., American Enterprise Institute
No, no, there absolutely isn’t. And social security was never designed that way. In 1935, it was designed to resemble kind of a defined benefit pension program where the government, the social security program would actually build up a big investment fund, and then you would get your benefits based on a formula.
So what they were intending was something very similar to a defined benefit plan, a traditional pension. By 1939, that’s four years later, they decided to switch it to what you call pay-as-you-go financing. And what that meant was you could start paying benefits out immediately, which they wanted to do.
It meant the government wasn’t going to build up this big fund, which would have pros and cons to it, but it also had this effect that social security is an incredibly good deal for those early generations of retirees, a much poorer deal later. And so when people think about this, oh, I’ve got this account, how come I’m not earning the same as the S&P 500? It’s just a misunderstanding of how this program works.
There’s no account with your name on it. To be frank, you don’t have a legal right to those benefits. If Congress changes the benefits tomorrow, the Supreme Court said they can do that.
So it’s just, you may have a moral right or political right, but it’s just different than your 401k, and that’s important for people to understand.
Jeffrey Snyder, Broadcast Retirement Network
So it’s now pay-as-you-go. It was originally kind of set up, established like a DB plan where contributions would be made, et cetera. So the birth rate, I think you talked about this before when we were talking about the trustee’s report.
Well, forget the birth rate for a second, but there were a lot more workers paying into the system, I think, I don’t know what the number was, 11 to one, 20 to one, whatever the number is, compared to what it is today. Maybe that is tied to the birth rate.
Andrew Biggs, PhD., American Enterprise Institute
Yeah, when social security started paying benefits, first benefits came out in 1940. At that point, there were 42 workers paying in for every beneficiary. So at that point, the system was cheap, and a lot of people, they think it’s just ordained by God of how this benefit formula works, but at that point, it was so incredibly cheap to provide these benefits that Congress said, okay, we’re not just gonna provide a safety net for people who are in poverty.
We’re gonna pay benefits all the way up the income spectrum and all that, and I get it because that’s how politicians are, and it was cheap. When you go from 42 workers per beneficiary to about two and a half workers per beneficiary, the costs just skyrocket. So nobody back in 1940 would say, let’s have some system that’s gonna pay, or it’s gonna cost 16% of wages.
That’s around what our current sort of cost rate for the program is, and pay $100,000 a year to a high income couple. Nobody would have invented that, but because these very particular demographic circumstances of the time, that’s sort of what they invented, and then you just sort of keep doing what you’ve always been doing, and we really need to start thinking fresh of what do we need to do, and what are things that are sort of optional to do.
Jeffrey Snyder, Broadcast Retirement Network
So very short-termism for, it’s kind of ironic, short-term thinking, right, the political things that we don’t talk really about on the network, because we’re not a political network, but there’s a short-term thinking about how do I get votes? How do I get elected? Well, of course, it’s giving people things, versus retirement or some type of benefit that’s a long-term benefit, right, Andy?
People retired at what, age 65, 62, somewhere along the line to get the benefit?
Andrew Biggs, PhD., American Enterprise Institute
Yeah, when Social Security started, you couldn’t get benefits before 65. The average person was actually claiming 67 or 68, because they had this really strict earnings test. If you had a penny of other income, you lost your benefits.
So people really delayed claiming a lot. Then when they introduced early retirement, the typical age dropped down quite a bit, and then over the past 20 years or so, it started coming up. So the average claiming age for retirement benefits stays right around 65.
Jeffrey Snyder, Broadcast Retirement Network
So how does the benefit, let’s just, now let’s fast forward to 2026. How does the benefit that people get, or suppose they get, for put the trustee of report aside, how does that compare to, you know, what they need in terms of retirement? Is it designed to replace everyone’s income?
My income, your income, the average person’s income?
Andrew Biggs, PhD., American Enterprise Institute
Well, you know, Social Security used to have a thing on their website, it may still be there. They say, you know, financial planners say that you want to have a retirement income equal to around 70% of your pre-retirement earnings. And so that gives you an idea of what you call the replacement rate.
Now, if you look at for a middle-income person, a median, typical person, Social Security probably replaced around 50% of their pre-retirement earnings. So they need to save a little bit, to be honest, less than you would think. For somebody at the very bottom, Social Security replaced almost all of their pre-retirement earnings.
For somebody at the top, making 180,000 a year, it’ll replace only 25%. So this gets at when people say, what’s your magic number? Or what percentage of my salary should I pay, or should I save for retirement?
There’s no single figure because the replacement rate provided by Social Security really varies. It’s a progressive program, but in absolute terms, in dollar terms, the people at the top are still getting pretty high benefits. And so that’s something we just have to think about going forward.
Is that a luxury we can afford to continue?
Jeffrey Snyder, Broadcast Retirement Network
So let’s talk about some of the solutions. So that was great. That was a good history lesson.
I didn’t even know about the shift to PAYGO. So, hey, I learned something there. I presume the audience did as well.
Thanks for that. Let’s talk about the solutions, because as you said, there’s not one solution. There’s pain.
I think you talked about this last time. There’s pain to be felt everywhere. It’s about compromise.
Andrew Biggs, PhD., American Enterprise Institute
Sure. It’s Social Security, according to the trustees, most recent projections is about $30 trillion underfunded, which means between today and the next 75 years, we’ve got to come up with $30 trillion in present value. I mean, if we wait to next year, it’s 30 trillion plus interest.
And so we need either $30 trillion of benefit cuts or $30 trillion of tax increases. Now, every politician now, whether it’s Donald Trump or Joe Biden or Kamala Harris says, we’re never going to cut your benefits. And for low income retirees, that’s going to happen, not just because of politics, but because it’s cheap.
Retirees that serve at the bottom of the income scale, their benefits are not very high. There’s not very many of them. That’s an easy problem to solve.
The issue comes with everybody else. And the thing is, if you don’t want to cut benefits for everyone, then come 2032, you need a pretty large tax increase. The payroll tax rate would have to go up by four percentage points or so, or you have to raise income taxes or something.
If Americans wanted to pay higher taxes, we would fix the Social Security problem 40 years ago. We’ve known about this problem for decades and Americans didn’t want to pay and they still don’t want to pay. So this is this unstoppable force and immovable object.
And in 2032, when the trust fund runs out, then they’re going to meet and we’ve got to decide how we’re going to handle this. And so it’s Americans want to have something for nothing. They want to get high benefits.
They don’t want to pay high taxes. Politicians respond to that, but you can only kick the can down the road for so far. And that’s the moment of truth where we’re sort of staring down the barrel of right now.
Jeffrey Snyder, Broadcast Retirement Network
But why is it, there just seems to be, I’d call me a cynic, but there just seems, we’ve known about this for so many years, all of a sudden, in my mind, and I follow the news every day, I curate the news, I watch the news, all of a sudden, this thing pops up as a major issue. And is that because of the midterms that are heading up and everyone needs to go on record? Why right now?
Why in June, 2026? Is this such a dire issue? Because we’ve known about this.
This was a dire issue, the last trustees report. So it feels like, to me, almost orchestrated in a way.
Andrew Biggs, PhD., American Enterprise Institute
Well, there is a little. I mean, Social Security comes up every election year. And to be honest, Democrats will say, if you vote Republican, they’re going to cut your Social Security benefits.
Well, look, a lot of Republicans have, in fact, gotten elected over the last four years and your benefits haven’t been cut. So the idea of this sort of apocalyptic outcome based on the election is just not true. And Republicans are scared of cutting benefits.
They’re also scared of raising taxes. And the same goes for Democrats. Back in the early years of the Biden administration, they had the White House and both houses of Congress, something like 90% of House Democrats had co-sponsored legislation to fix Social Security entirely by raising taxes.
That bill didn’t even get out of subcommittee because they knew how politically difficult it would be. So you do have some coincidence now. I mean, the deficit has increased a lot in the last year.
In this coming election year, senators are being elected who will probably still be in office when the first term will be there, when Social Security runs out. So it has a little bit more saliency and potency right now. But to a certain degree, I don’t care.
As long as we don’t keep ignoring it. And literally, I mean, the joke I make is if you wanna understand Social Security today, read the New York Times from 1990. Nothing has really changed.
We understand all these issues. It’s just that Congress doesn’t wanna do it. And this is a big difference of Social Security from like a private pension.
Say if you’re running a defined benefit pension for a big corporation, every year you have to do an analysis of that pension’s finances. And if it’s underfunded, you have to take action. Of course, Congress doesn’t apply those rules to themselves.
So they look at the trustees report in 1985 or something. They say, well, the system’s got a long-term deficit. We could raise taxes or cut benefits or could simply do nothing.
And repeat that thought process 40 times and you are where you are today. There’s never the incentive to get ahead of the problem. There’s always the incentive to pass it down to somebody else.
Jeffrey Snyder, Broadcast Retirement Network
So I think a lot of people, middle-income people in particular, they’re like, ah, you know, this is, you know, middle-income people tend to get churned in the, they’re in the middle. So they kind of get churned on during any type of, you know, negotiation or process. How important is the private retirement system?
So if I’m gonna see some benefit cut, I mean, does that mean that I can, does the private retirement system stand an opportunity to help make up the difference that we’re talking about here for everybody or for most people? I think it does.
Andrew Biggs, PhD., American Enterprise Institute
And this is why, and when I talk to people in Capitol Hill, I’ll tell the people who work on social security, the congressional members, you’ve got to talk to the members of Congress who work on pensions. And they’re in different committees and don’t talk to each other, which is idiotic. Yeah, kind of weird.
But we’ve had everybody in America saving for retirement as they should. You know, everybody’s offered a 401k or some other retirement plan. They’re automatically enrolled in it.
Things like that. Social security’s job becomes much easier. And, you know, by and large, retirement savings are doing well in America.
More people are covered, more people are participating. But as long as we have some chunk of people who are not, then the burden falls back on social security. So I think, you know, reforms to private insurance or private retirement savings can really do a lot to help on the social security end.
You can see this in other countries, in the UK, in Australia, everybody gets signed up for a retirement plan. And that means their costs to the government are much lower. But if you look at Secure Act, Secure 2.0, to be honest, they do very little to really expand retirement plan coverage and participation. And that’s the thing you care about. I don’t care about the date for RMDs or whatever. That stuff doesn’t matter.
It is, are you participating in a plan? That’s where Congress has to get serious.
Jeffrey Snyder, Broadcast Retirement Network
But didn’t we, and I could, we’ll probably have to bring you back in a sooner period of time. But didn’t the Secure Act create the pooled employer plan? And also we’ve got auto IRA programs that have been launched in the state auto IRA programs.
So didn’t, doesn’t that make up some of the coverage gap?
Andrew Biggs, PhD., American Enterprise Institute
The pooled plan, look, it’s helpful, but you’re not gonna see a huge dent. The auto IRAs, and I live in Oregon, which was the first auto IRA to really get going. You know, it has, I don’t know, 100,000 or so, maybe 150,000 account holders.
When that system started, they claimed there was, you know, a couple of million people in Oregon if not covered by a retirement plan. So they’re, and I’m fine on the auto IRA plans, but they are not expanding coverage and participation nearly as much as people would like to think.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, and then one more question that I promise I’ll let you go, because I know you want to get to your weekend. What about the Trump IRA? I think he kind of, or the president, the administration kind of pumped up the, or brought back that site, the federal site.
Is that gonna do anything?
Andrew Biggs, PhD., American Enterprise Institute
A little bit maybe, but not very much. I mean, what they’ve done is they’ve created sort of a clearinghouse website. It makes it easier to sign up for an IRA.
But, you know, it’s not that hard to sign up for an IRA to begin with. It’s, they don’t make it that much easier. All of the, the funny thing with IRAs is almost nobody saves for retirement through an IRA.
What they do is they use it as a rollover vehicle. They switch jobs, they’ve got to pull their 401k balance out. So it’s, you know, every Congress, you’ll hear something.
Well, let’s make it easier for either people to sign up for IRAs, make it easier for small employers to start 401ks. We’ve had that stuff for decades. You know, people are just reinventing the wheel.
Those programs to help cover the startup costs or whatever for an employer, they all exist. And so you have to ask, if you’re a small employer, why are you not offering it? Could probably, because it’s very complicated.
And there’s a limit to how expensive. Yeah, it’s you, but even if they paid your fees, it’s just a hassle factor. If you’re running a laundromat or something with 10 employees, it’s just takes time out of your day that you don’t want to do.
At the same time with IRAs, most of the people who are not signing up are pretty low income. They probably shouldn’t be saving for retirement. So part of my work as a researcher is trying to get a good baseline of how many Americans actually should be saving for retirement at any given time.
And the answer to that is not 100%. Low income workers, as I said earlier, Social Security replaced nearly all their pre-retirement earnings. Younger workers probably shouldn’t be saving because they’ve got other costs and their earnings are pretty low.
So you want to say, where are we? And then how do we fill those gaps? And that’s all doable.
But to be honest, the level of sort of research and coverage on these issues is pretty poor. So your average member of Congress has a very, very low level of understanding of that stuff.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, maybe- That’s the country we live in. What’s that? That’s the country we live in.
Look, people have their priorities. That’s what I’ll say. I want to be politically correct.
Maybe what we need to do, Dr. Biggs, is just make it mandatory. You know how we have auto-enrollment, auto-escalation? We just have auto, we just increase the birth rate.
I mean, look, look, I mean, that’s not really, everyone hates the M word, but at the end of the day, that’s what we’re talking about. It’s a numbers game, as we talked about earlier.
Andrew Biggs, PhD., American Enterprise Institute
The interesting thing is, look, if everybody saves for retirement, we’ve got a fully funded system doesn’t care that much about the birth rate. Because, you know, you think of your 401k or IRA, you’re putting that money aside for you. It’s sort of a one-to-one ratio of workers to beneficiaries because it’s the same person.
And if we expand retirement savings, funded retirement savings, we avoid some of these demographic issues. But to the degree you’re just doing a transfer system as Social Security, money goes in, it goes right out again. It depends, you know, very crucially on the ratio of payers in to collectors out.
And the demographics just aren’t in our favor. And so people just need to think hard about it. And to date, you don’t get very much hard thinking, unfortunately.
Jeffrey Snyder, Broadcast Retirement Network
No, you know, it sounds like just going back to our earlier part of our conversation, the seeds of Social Security’s destruction were sown when they made that shift from a funded system to a PAYGO system. And here we are, I don’t know, what’s that, 86 years later and counting. Dr. Biggs, we’re gonna have to leave it there. Thanks so much for educating myself and the audience. I really appreciate it. And we look forward to having you back again very soon, sir.
Andrew Biggs, PhD., American Enterprise Institute
Always happy to be here.
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