Social Security, a bedrock of American retirement security, is in deep trouble. Born during the Great Depression as a way to prevent poverty in old age, the program now consumes 22 percent of the entire federal budget. Social Security’s promises now far exceed its means.
Without serious reform, this prior pillar of security will continue to transform into a weight holding back future generations from comfortable golden years. If we are to save Social Security—and the American ideals of personal responsibility and limited government—we must act now, and we must act boldly.
The Coming Impasse
Today, Social Security payroll taxes total 12.4 percent, split evenly between employer and employee on income up to $176,100 (as of 2025). The vast majority (close to 75 percent) of this tax funds “old age insurance”; the remainder provides financial support for people with disabilities. For decades, the program took in more than it paid out, with the surplus “saved” in government bonds. But since 2009, that cushion began to disappear, and it has continued to shrink as the population ages and the ratio of current workers to beneficiaries declines. As a result, the “trust fund” is shrinking as the government cashes in the bonds to make up the growing difference between benefits paid and revenue collected. When this trust fund is fully drained, which could happen as soon as 2034, the program will no longer have the resources to provide benefits at current levels.
At that point, Congress will face grim choices: substantially raise taxes, slash benefits to the bone, or borrow trillions to cover the shortfall. None of these are good options, but unless we act soon, all will become necessary.
When the trust fund is depleted, benefits will have to be cut by roughly 21 percent immediately to bring outlays in line with revenues. Alternatively, payroll taxes could be raised by close to 4 percentage points. In today’s dollars, this could mean a $14,000 annual tax hike for dual-income upper-middle-class families. Benefit cuts or tax hikes are politically difficult. As such, Congress may choose the path of least resistance: even more deficit spending to finance the shortfall between promised benefits and payroll tax revenue. As James Capretta points out in his recent essay, deficit spending is already harming families by “being a drag on economic growth,” even if the public does not yet broadly recognize this harm. Dramatically increasing deficit spending to plug the Social Security funding gap risks higher long-term inflation, lower capital investment, and stagnating economic growth. A once well-intentioned program designed to care for the elderly will have morphed into a monster that devours American prosperity.
A System Out of Balance
The underlying problem is demographic. At its inception, there were over 150 workers per recipient. Today, that ratio has dropped to about 2.7 to 1—and it’s still falling. This may continue declining to just 1.5 workers per beneficiary in the coming decades. Fertility is down. Longevity is up. These trends appear to be here to stay. In addition, legal immigration of younger workers may mitigate these trends less than in years past.
What this means in practice is stark: today’s retirees, particularly those who retired in recent decades, are receiving far more in benefits than they ever paid in taxes. But future generations—especially millennials and Gen Z—will almost certainly receive less than they contribute.
This current generational wealth transfer is already robbing younger workers of the opportunity to build real retirement wealth for themselves. Capretta’s suggestions would help us avoid the future dilemma of choosing between far higher taxes, steep benefit cuts, or massive increases in deficit spending. However, workers will still be diverting a large chunk of every paycheck to a system that denies them the ability to take age-appropriate investment risks that can harness the power of compounded returns. Instead, they are forced to contribute to a system delivering far lower retirement payouts, even before accounting for potential future reductions. This violates American principles that conservatives have long held dear: individual freedom and personal responsibility.
The Chilean Model: A Vision for Reform
Thankfully, a better way demonstrably proven to work exists.
In the early 1980s, Chile faced a crisis similar to ours: an aging population, an unsustainable pay-as-you-go system, and a future of mounting deficits. But unlike most countries, Chile took bold action. With the guidance of economists like Milton Friedman, they implemented a radical reform: privatization.
Workers were given the option to leave the old system and invest 10 percent of their wages into individual retirement accounts. Licensed private firms managed these in accordance with government regulations to ensure prudent investment. An additional 3 percent went towards administrative costs and insurance. As a sidenote, the development of passively managed index funds with management fees of under 0.1 percent annually ($10 per $10,000 invested) would enable a reformed US system to avoid much of this overhead.
Delay in reforming Social Security invites draconian choices: higher taxes, spiraling inflation, diminished opportunity.
In Chile, workers owned their accounts and could track their balances. At retirement, they could purchase annuities or make programmed withdrawals. The government guaranteed a minimum benefit for those with insufficient savings, preserving a social safety net. However, for those who work most of their adult lives and must save 10 percent of their wages, sufficient savings are quite easy to achieve.
The results? Over 90 percent of eligible workers have opted into the new system. In the first 25 years, the average real (inflation-adjusted) annual rate of return on these accounts exceeded 10 percent. Over the past 20 years, the real returns averaged near 3.0 percent as restrictions on investing in foreign markets held back returns at a time of slowing Chilean economic growth. Leftist parties rolled back free market policies of prior administrations.
Chile’s reform involved serious challenges. Transition costs had to be managed, primarily through the issuance of “recognition bonds” and the sale of state assets. But Chile’s success proved the possibility of transforming a broken system into one based on ownership, choice, and fiscal responsibility.
What If Americans Could Opt Out?
Let us consider a hypothetical: Sally graduates from college at 22 and works until 67. She earns the median income for most of her career, about $72,000 annually in today’s dollars. Under current law, she will pay nearly $9,000 a year into Social Security (counting both her share and her employer’s). Her benefit at retirement? Around $2,489 a month.
But what if Sally had been allowed to invest that $9,000 annually in a moderate-risk, inflation-adjusted portfolio earning a very conservative 5 percent real returns? By age 62—seven years before the current full retirement age—she would have over $1 million in today’s dollars. That money could buy an annuity paying over $3,000 a month for life, or she could live off interest and leave the principal to her children. Either way, she retires earlier, earns more, owns her future, and gives the next generation an even better chance to live the American Dream.
This is not fantasy. It’s financial reality—if we just let people control their own money.
A US system modeled on Chile’s could allow younger workers (say, under age 45) to opt out of the current Social Security system. Those who opt out could be required to contribute to a mandatory savings account with automatic enrollment, automatic payroll deductions, and automatically managed investment plans to promote long-term growth. At retirement, part of the account could be annuitized to provide a minimum standard of living, with the remainder available for discretionary use.
Yes, such a reform would temporarily raise short-term deficits. More importantly, it would also halt the growth of unfunded liabilities, now totaling nearly $23 trillion and growing. This unfunded Social Security liability is more than $196,000 per current worker. Privatization would also result in capital accumulation, savings, and investment that fuel economic expansion and productivity growth.
Complementary Reforms
Privatization alone may not be enough. A more comprehensive approach might include additional reforms that reflect modern demographics and fiscal realities.
First, we could gradually raise the age of retirement. When Social Security was created, 65 was near the average life expectancy. In today’s America, 65 is no longer old. Today, Americans live almost two decades past retirement. The last major increase in the retirement age was in 1983. It’s time to raise it again, perhaps to 69, phased in over several years. This reform alone would significantly extend Social Security’s solvency.
Second, we might consider offering voluntary buyouts. A worker could accept a lump-sum payment in exchange for relinquishing future benefits. While this would increase near-term costs, it would drastically reduce long-term liabilities and give individuals the freedom to manage their own retirement savings. As an example, the federal government could offer a buyout of $50,000 to a current worker aged 38 with an attached unfunded liability of $150,000. Of course, safeguards would be needed to ensure that these funds aren’t squandered by the recipient, but the basic principle is sound.
What should we avoid? Several proposals circulating in Washington would move us in the wrong direction.
Means testing based on net worth penalizes responsible savers and undermines the incentive to prepare for retirement. A combination of two specific options suggested by Capretta would morph Social Security into a wealth redistribution program: Increasing the cap on income subject to Social Security taxes and tweaking the benefit calculation to lower the “rate of return” for the “highest tranche of earnings.” Social Security already subjects upper-middle-class workers to more than $21,800 in annual taxes. Those contributing more in Social Security taxes throughout a career already receive less of a “return” on those contributions than lower-income earners. These changes would further sever the historic link between contributions and benefits, morphing Social Security into more of a wealth-redistribution program.
Finally, we must not cut benefits for current retirees or those near retirement. These individuals played by the rules and planned their lives around promised benefits. Punishing them for Congress’s decades of neglect and procrastination is not only politically toxic—it is morally wrong.
The Time to Act Is Now
Delay is the silent enemy of reform. With each year we hesitate, the cost of fixing Social Security climbs higher, the burden on younger generations grows heavier, and the window to harness the miracle of compound growth narrows.
Yet the opportunity remains if we have the courage to seize it. We can still fix Social Security, but only by anchoring reform in enduring American principles: personal responsibility, fiscal stewardship, and the power of individual liberty. We must pivot from dependence to ownership, from bureaucracy to choice, from looming insolvency to lasting sustainability.
The earlier we act, the more we preserve—not just economic solvency, but the promise we make to the future. Delay invites draconian choices: higher taxes, spiraling inflation, diminished opportunity. But timely reform lights the path to greater freedom, broader prosperity, and a government that once again serves rather than smothers.
In 1981, Chile summoned the courage to lead. Four decades later, the United States must rediscover its own resolve. We must reform Social Security not merely to balance ledgers, but to renew the principles at the heart of the American experiment: that the fruits of one’s labor belong not to the state, but to the citizen, and that liberty, not dependency, is the birthright of every American.