The history, the funding crisis, the Ponzi scheme comparison, and the reform strategies that can save Social Security and Medicare for future generations
The History of Social Security
The concept of Social Security can be traced back to early forms of community-based insurance and support systems, but it was formalized in its modern iteration during the 20th century. One of the most significant milestones occurred in the United States in 1935, with the Social Security Act signed into law by President Franklin D. Roosevelt. This landmark legislation was part of the New Deal and introduced a federal program designed to provide financial assistance to retirees, the unemployed, and people with disabilities, as well as support for dependent children.
The program emerged during the Great Depression, a period when millions of Americans faced economic hardship and joblessness. The Social Security Act was crafted to address the vulnerabilities of aging citizens who had no savings or income and to act as a safety net for those unable to work. Over time, the scope of Social Security expanded, encompassing Medicare in 1965 to provide health insurance for older Americans and other supplemental programs to assist low-income individuals and families.
Globally, many nations have adopted their own versions of Social Security systems, tailored to their socio-economic contexts. These programs share common principles of income redistribution and social welfare, providing a safety net for citizens in times of need.
Today, Social Security remains a cornerstone of social policy, though it continues to face challenges, including demographic shifts with aging populations, economic sustainability, and evolving workforce dynamics.
Key Legislative Milestones (Source: National Academy of Social Insurance)
- 1935: President Roosevelt signs the Social Security Act as part of the New Deal.
- 1939: Legislation establishes benefits for survivors and dependents.
- 1956: Early retirement benefits added, allowing women to draw checks at age 62. Disability payments added, initially only for workers aged 50–64.
- 1961: Men allowed early retirement benefits.
- 1965: Payments begin for divorced women (men in 1977). Medicare added.
- 1972: President Nixon signs legislation authorizing a 20% cost-of-living adjustment (COLA) and making COLA automatic annually.
- 1983: President Reagan signs legislation providing for taxation of benefits and a gradual increase in full retirement age to 67.
- 2000: President Clinton eliminates the earnings test for people above full retirement age.
- 2011–2012: Temporary “payroll tax holiday” reduces tax from 6.2% to 4.2% for workers and employers.
- 2015: Congress passes the Bipartisan Act restoring the 6.2% payroll tax. Allocations split between DI (Disability Insurance) and OASI (Old Age & Survivors Insurance) trust funds.
The Status of Social Security Today and the Hard Truth
Payroll deductions amounted to $1.71 trillion in 2024. Expenditures equaled $1.52 trillion. The brutal truth is that the Social Security and Disability Trust funds of $2.85 trillion which are supposed to keep the Social Security program solvent until the year 2033 have no actual money in them whatsoever.
In 1965, President Lyndon Johnson, facing the dilemma of an unpopular war and significant wartime expenditures, merged the general budget with the Social Security Trust Fund so the federal deficit would not look as severe. The official position is that President Johnson did not “steal” any money the SSA Trust Fund issued government bonds for the money transferred to the general fund. These bonds can only be purchased by the federal government. These government bonds effectively IOUs are stored in a file cabinet in Parkersburg, West Virginia.
This is precisely the kind of fiscal sleight-of-hand the Purple Revolution is committed to exposing and reforming. Read more about government fiscal irresponsibility and the national debt crisis.
Is Social Security a Ponzi Scheme?
A Ponzi scheme is a structure that promises strong returns on investment but uses money from new investors to pay existing ones exactly what Bernie Madoff ran. He was sentenced to 150 years in prison.
Social Security operates on a similar pay-as-you-go structure: current workers’ payroll taxes fund current retirees’ benefits. As long as the worker-to-beneficiary ratio remains healthy, the system functions. In 2023 there were an estimated 2.7 covered workers per each Social Security beneficiary. By 2035, the Trustees estimate there will be only 2.4 workers per beneficiary a ratio that makes the math increasingly difficult.
Medicare and Medicaid: The Numbers
Medicare is a federal health insurance program primarily serving adults aged 65 and older. It is funded through payroll taxes (1.45% for employees and 1.45% for employers; 2.9% for the self-employed), premiums, and general revenues. The annual deductible for Part B services increased to $257.00 a 17.99% increase. The cost of Medicare insurance taken out of SSA payments increased 10.3% in 2025 to $185.00 per month.
Medicare expenditure was $912,999,000,000 in 2024. Medicaid a joint federal and state program for low-income individuals spent $914,000,000,000 in 2024, with $326,000,000,000 as the states’ portion.
The Broader Federal Budget Picture
Federal revenue for 2024 was $4.91 trillion. Expenditures were $6.8 trillion. Interest on the national debt was $882 billion in 2024. The largest line items:
- SSA: $1.52 trillion
- Medicare: $913 billion
- Medicaid (federal): $588 billion (states add $914 billion)
- Interest on national debt: $882 billion
- Total of these four items alone: $3.9 trillion against $4.91 trillion in revenue
This is the fiscal crisis in plain numbers and it is why the Purple Revolution demands a balanced budget and an end to debt-financed government spending.
Who Receives Social Security and How Much
In 2025, an average of almost 69 million Americans per month will receive a Social Security benefit, totaling $1.6 trillion in benefits paid during the year. As of December 2024:
- Retired workers: 51.8 million recipients average monthly benefit $1,975
- Disabled workers: 7.2 million recipients average monthly benefit $1,581
- Survivors: 5.8 million recipients average monthly benefit $1,546
- Dependents of retired workers: 2.6 million | Dependents of disabled workers: 1.1 million
Nearly nine out of ten people aged 65 and older were receiving Social Security benefits as of December 2024. Social Security benefits represent about 31% of the income of people over 65. Among beneficiaries 65 and older, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
Social Security Is More Than Retirement
- About 90% of workers aged 21–64 in covered employment and their families have protection in the event of a severe and prolonged disability.
- About 1 in 4 of today’s 20-year-olds will become disabled before reaching age 67.
- 65% of the private sector workforce has no long-term disability insurance.
- More than 1 in 8 of today’s 20-year-olds will die before reaching age 67.
- About 96% of workers aged 20–49 have survivors’ insurance protection for their children under 18.
- 30% of the private sector workforce has no access to private pension coverage.
- Only 16% of workers without employer-sponsored plans have any retirement savings.
Strategies to Preserve Social Security and Medicare
Social Security and Medicare are essential programs that provide financial stability and healthcare to millions of Americans, particularly seniors. Below are several strategies to address these challenges and ensure the sustainability of these programs.
Adjusting Contributions and Benefits:
- Increase Payroll Taxes: Gradually raising the payroll tax rate both percentage and wage ceiling can provide additional revenue. Even a modest increase could generate billions annually.
- Adjust the Retirement Age: Considering the increase in life expectancy, raising the full retirement age incrementally can align benefits with demographic realities. Beneficiaries aged 62–67 represent a third of all SSA recipients.
- Means Testing: Implementing formula changes such as reducing benefits for higher-income beneficiaries can ensure resources are allocated more equitably. This would be the least popular change.
Improving Program Efficiency:
- Combat Fraud and Abuse: Enhancing oversight and implementing stronger fraud detection systems can prevent waste and misuse of funds.
- Streamline Administrative Costs: Reducing bureaucracy and leveraging technology can lower operating expenses and direct more resources to beneficiaries.
Promoting Economic Growth:
- Expand the Workforce: Policies that encourage labor force participation such as childcare support and immigration reform can increase the number of workers contributing to the system.
- Boost Wages: Wage growth leads to higher payroll tax contributions, strengthening program funding.
Diversifying Funding Sources:
- Introducing New Revenue Streams: Exploring options like a dedicated wealth tax or consumption-based taxes could provide additional funding while ensuring fairness.
- Invest in Trust Fund Reserves: Implementing prudent investment strategies for Social Security and Medicare trust funds can generate higher returns and enhance fiscal security.
Encouraging Personal Savings:
- Promote Retirement Accounts: Expanding incentives for 401(k)s, IRAs, and other savings plans can reduce reliance on Social Security benefits.
- Financial Education: Educating Americans about saving and planning for retirement can lessen the burden on these programs.
Engaging Public Support and Bipartisanship:
- Public Awareness Campaigns: Informing citizens about the importance of preserving Social Security and Medicare can foster broad support for necessary reforms.
- Bipartisan Solutions: Collaboration between political parties is essential to address long-term challenges effectively and prevent gridlock.
Conclusion
Protecting Social Security and Medicare requires thoughtful and multifaceted approaches. By combining fiscal reforms, efficiency improvements, and public engagement, these vital programs can continue to provide security and stability to future generations.
The Purple Revolution’s campaign to secure Medicare and Social Security is built on exactly these principles. Explore the full blog series for more on how fiscal reform and political accountability are connected.
Frequently Asked Questions
When will Social Security run out of money?
Based on current projections, the combined Social Security Trust Funds are projected to be depleted by 2033. At that point, payroll tax revenue alone would cover only about 79% of scheduled benefits unless Congress acts.
Is there actually money in the Social Security Trust Fund?
Not in cash. The $2.85 trillion trust fund consists entirely of special-issue U.S. government bonds IOUs from the federal government to itself. These are stored in Parkersburg, West Virginia. When benefits exceed payroll income, the Treasury must borrow money to honor them.
How much does the average person receive from Social Security?
As of April 2025, the average monthly Social Security check for retired workers is $1,999.97. For disabled workers it is $1,580, and for survivors it is $1,547. SSI beneficiaries receive an average of $715.00.
How many Americans depend on Social Security?
In 2025, nearly 69 million Americans receive Social Security monthly. Among beneficiaries aged 65 and older, 12% of men and 15% of women rely on Social Security for 90% or more of their income.