UCR experts examine social security 'sleight of hand'

For more than 30 years, there have been episodic, gloomy reports about the fate of social security. And politicians have broached this "third rail" of the American political landscape with great trepidation. Recent reports are sounding the alarms again, with Social Security trustees saying that, by 2023, 30% of Americans will be receiving benefits, and the fund will run dry. The prospects could be dire: Payments could drop by 23% and will continue to decrease.

We asked three UCR faculty members who have expertise in varying areas of social security research to offer perspective. The experts include Ajin Lee, an assistant professor in the Department of Economics; Andy Crosby, an assistant professor of teaching in the School of Public Policy; and Dana Simmons, an associate professor of society, environment, and health equity.

How did social security come into being?

Simmons: Advocates for older people began pushing for a European-style social insurance or pension program starting in the 1910s. Some populist political figures took up the project, but there was little popular support for a European state-based pension program, which many

Americans saw as too radical. Immigrant and social activist Abraham Epstein, who was research director for the Pennsylvania State Commission on Old Age Pensions in the 1920s, came up with the term "security" as an American alternative to "insurance" or "pensions." When FDR became president, he adopted this idea and established a Committee on Economic Security, which led to the 1935 Social Security Act. The idea behind Social Security was to create a sense that men who worked hard would be taken care of by society when they are old or disabled and no longer able to work.

Historians Nancy Fraser and Linda Gordon call New Deal social legislation a "two track welfare system." The first track, Social Security, provided national unemployment and old-age insurance to male workers. The social insurance scheme offered the illusion that recipients were paid only what they had already "put into" the fund. It was presented as a counterbalance to economic downturns and age-related disabilities, which prevent otherwise able-bodied men from providing for their families. This first track occupied the category of "social security."

The second track established the regime that came to be known as "welfare," under the assumption that recipients had contributed nothing toward their own care. Women, children, and the elderly could not provide for their own security. As a 1930s pamphlet "Why Social Security?" put it, "mothers' aid and old-age assistance are a modern way of giving what we used to call charity. They are relief measures. They recognize the responsibility of counties and States to give security to people who cannot earn it for themselves." Women, the young and old, could not earn security. If a man could not provide it for them, they had to rely on state relief.

Those who could not provide for their own security were "dependents." Dependents became the foil that allowed white working men to claim the status associated with Social Security. Men on unemployment relief could distinguish their own economic insecurity from the pure dependency of wives, children and welfare. Second-track welfare programs were marked not with the title Social Security, but rather Aid for Dependent Children (later Aid for Families with Dependent Children.) Aid for Dependent Children came with a host of punitive and stringent morals and needs testing, which were entirely absent from Social Security. These barriers to aid also permitted Southern states to exclude most of the Black population from its welfare rolls. Agricultural and domestic work, professions largely occupied by people of color, were excluded from Social Security. State administrators barred many Black families from welfare relief because they lacked "suitable homes" or had an "employable mother."

Was social security designed at its outset to be a sole source of retirement income, or as a supplement?

Simmons: Social Security was meant to guarantee purchasing power and the "American standard of life" for workers who were too old to continue working. The whole concept was to provide a sense that every American worker's economic future was secure. In 1935, corporate pensions and retirement investment plans were not common; these emerged mostly after WWII as incentives to workers in a booming labor market (instead of raising wages, companies offered better benefits). The idea that retirement savings would be the centerpoint of retirement income was a product of 1970s and 1980s movements to privatize Social Security.

Note that Social Security, when it was established, initially was not designed to cover all Americans and was designed for white working men. Everyone else was expected to be supported by someone else in their old or infirm age.

When social security launched in 1940, what were the financial prospects for its sustainability? What changed?

Simmons: There was always a bit of sleight of hand involved in Social Security: it was pitched as a vehicle for workers who paid into the system to receive those benefits once they retired. But those contributions are not saved for the contributor; they are actually used to support the current generation of retirees. So the system is very sensitive to demographic change and becomes unstable when there are many more retirees than current workers. Social Security has a trust fund (one for retirement and one for disability), which is diminishing as payments outgoing are larger than the incoming contributions. Also, I understand that the Social Security trust fund has not been as sealed off from government spending as it was advertised.

Do we know for how many people today social security is their primary source of income?

Lee: According to SSA-affiliated research (Dushi and Trenkamp, 2021), as of 2015, between 40% and 52.5% of Americans 65 and older got at least half their family income from Social Security, depending on whether the estimate is based on survey data alone or survey data verified against IRS and SSA administrative records. For those who relied on Social Security for 90% or more of their income, the range was 14% to 26%.

Was there ever a time when social security supplied people's basic needs sufficiently?

Lee: That depends on what "sufficiently" means. By the poverty-threshold standard, yes - and that's held fairly consistently across generations. According to the Congressional Budget Office (CBO, 2019), Social Security benefits enable most long-career workers - those with substantial work histories of 20 or more years - to exceed federal poverty thresholds. For workers born in the 1940s, that's true for 85% based on individual benefits alone, rising to 95% once household benefits are included, with the share even higher for younger cohorts. But this doesn't extend to workers with shorter careers: among that same cohort, 43% of short-career workers still fall below the poverty threshold even with household benefits factored in.

By a more meaningful "comfortable retirement" standard, however, the answer is no: Social Security was never designed to do that alone. From the outset, it was meant to be a floor, not a full safety net, supplemented by employer-provided pensions and individual savings. The problem is that those other two supports have grown less reliable over time, increasing reliance on Social Security, without a comparable increase in the program's own generosity, which helps explain why so many people today depend on it for half or more of their income.

Social security trustees say social security will run dry within six years. Is it time to start worrying?

Crosby: The answer to this question depends in part on who you are. If you happen to be a policymaker in the federal government, you should absolutely worry about Social Security and ideally translate that worry into policy action. However, there is no need for retirees

already receiving Social Security or people nearing retirement to worry at this point. As The Economist notes, Social Security has been rescued before. Perhaps more importantly, Social Security has long been considered the "third rail" of American politics - a reference to subway trains powered by an electrified rail that is almost certainly fatal to someone if touched. No politician wants to touch the "third rail" by reducing Social Security for fear that they will be swiftly ejected from office by voters. As such, I fully expect policymakers to arrive at a policy solution to maintain Social Security's solvency. Although that policy solution may take some time (especially with the 2026 midterms and 2028 Presidential elections on the horizon), I do not expect anyone to experience benefit cuts anytime soon.

From your research, how may uncertainty about social security impact people's decisions to retire in the next few years?

Lee: There's already some evidence that more people are claiming Social Security early out of fear about solvency uncertainty. My research (Lee, 2017; Hur and Lee, 2026) shows that households treat Social Security eligibility as a financial buffer that shapes retirement timing under stress, such as job loss or a health crisis. I consistently find that people work longer when a shock hits, then stop once Social Security kicks in. That strategy depends on the program's eligibility rules and benefit levels staying predictable. If the trust fund deadline passes without action, that buffer shrinks just as today's near-retirees are counting on it.

For at least 30 years, the government has warned social security will run dry, and somehow the government has always fixed it. For that reason perhaps, people don't seem to be panicking. Is that a good or bad thing?

Crosby: People not panicking is a good thing. There is no need for retirees already receiving Social Security or people nearing retirement to worry at this point. That said, it never hurts for people to advocate for themselves to their elected representatives - this is one way that people can contribute to the policy process. If you are concerned about Social Security, find your lawmakers and let them know how you feel!

Senators Bill Cassidy and Tim Kaine suggested the government invest $1.5 trillion in the stock market in hopes of sustained high returns. Good idea or bad idea? What are the best and easiest fixes?

Crosby: One prominent pension researcher, Alicia Munnell, who founded the Center for Retirement Research at Boston College (one of the most well-known pension research centers in the country), labeled the Cassidy-Kaine plan a "huge and risky financial maneuver with very little payoff." Social Security's current reserves are held in U.S. Treasuries - an exceptionally safe form of investment, but one that has relatively lower investment return than the stock market in multiple years. However, one of the challenges of Social Security investing in stocks is that although stocks *could* generate a higher return, they are also much riskier than U.S. Treasuries. If investment returns miss expectations - especially if they miss by a large margin - there could be incredibly painful consequences.

The good news is that plenty of other, less risky policy options exist. In fact, as Munnell notes, Social Security's own actuaries put out a report detailing 150 (!) different policy options. A number of policy changes have been enacted or proposed to maintain the solvency of Social Security over time, and I expect some of these same options will be revisited in whatever rescue plan is ultimately put forth. For example, under Social Security Act amendments passed in 1983, the retirement age to receive full benefits was gradually raised from 65 years old to 67 years old. The payroll taxes that fund Social Security have also been raised multiple times over a period of several decades. Still another option that has been proposed at various points is to modify or eliminate the cap on the amount income subject to Social Security tax. For 2026, any income above $184,500 is not taxed for Social Security (but people with a higher income also do not receive a higher benefit). Each of these options would be far less risky than stock market investments.

Scanning the globe, which countries have the best state-run pension plans, both in terms of sustainability and providing a good standard of living in retirement?

Crosby: One important point here is that Social Security is not the same as a true pension, known in the retirement world as a "defined benefit pension plan." In the United States, although some defined-benefit pensions do still exist, private companies still offering defined-benefit pensions represent a tiny fraction of companies. According to the Bureau of Labor Statistics, as of March 2024, only 15 percent of private sector workers had access to a defined-benefit pension plan, and I would not be surprised to see that number go down further over time. Instead, private sector employers in the United States frequently offer "defined contribution" plans, which are popularly known by the name 401(k) plan. Benefits for these plans typically depend on investment returns and are not guaranteed. Social Security is designed as more of a safety net and a supplement to private retirement accounts - such as a 401(k) - than a true pension system, and as of January 2026, the average Social Security monthly retirement benefit is only $2,071. As such, comparing pensions in the United States to pensions internationally can be a bit like comparing apples to oranges.

All of the above said, internationally, a 2025 OECD report found that future average wage workers in the Netherlands are expected to take home one of the highest percentages of their incomes among OECD countries - over 95 percent - in retirement, compared to only 51.3 percent in the United States. The report also notes that most OECD countries fund their pensions fully (above 100 percent) except for three: Iceland, Mexico, and the United States.

Lee: According to a widely cited benchmark (Mercer CFA Institute Global Pension Index, 2025), five systems currently earn the top grade for providing strong benefits with sustainability: the Netherlands, Iceland, Denmark, Singapore, and Israel. The U.S., despite holding the largest pension asset pool in the world in absolute terms, ranks only mid-pack on adequacy and sustainability, a reminder that aggregate wealth and per-retiree adequacy are different things.

Header image generated by Gemini, Google's AI assistant. Simmons and Crosby photos by Stan Lim, UCR.