Social Security has an immigration problem and it’s getting worse.

According to retirees’ responses to an annual survey conducted by national pollster Gallup for more than 20 years, Social Security income is indispensable. At the time, 80 to 90 percent of retirees said they relied on their monthly Social Security checks to cover at least some of their costs.

It is of utmost importance to ensure that the foundation of America’s best retirement programs remains strong for current and future generations of retired workers. Unfortunately, the 88-year-old program is showing signs of trouble, and immigration issues are one of the key reasons why.

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America’s leading retirement program faces a $22.4 trillion long-term funding gap.

Every year since monthly payments to retired workers began in 1940, the Social Security Commission has issued a report examining the program’s current balance sheet and forecasting its financial health over the short term (the next 10 years) and the long term (the next 75 years). ). The Board considers a variety of factors, including demographic changes, along with changes in fiscal and monetary policy, when issuing projections about Social Security’s financial outlook.

Since 1985, board reports have warned that America’s major retirement programs cannot meet their long-term funding obligations. Put more simply, projected revenue collections 75 years after the report is released will not be sufficient to cover benefit expenditures and administrative costs, including cost-of-living adjustments. As of the 2023 Trustees report, Social Security faces an unfunded debt shortfall of $22.4 trillion (and growing).

A more pressing issue is asset reserves for the Old Age and Survivors Insurance (OASI) Trust Fund. This is the fund responsible for providing benefits to 50 million retired workers and approximately 5.8 million surviving beneficiaries each month. If, as current projections show, the excess cash OASI has accumulated since its inception is depleted by 2033, across-the-board benefit cuts of up to 23% could be needed to sustain payments through 2097 without further cuts.

Put another way, there is no danger that Social Security will go bankrupt or become insolvent and disappear. However, you may not be able to maintain your existing payment schedule as early as nine years from now.

Much of the increase in Social Security’s cash shortage comes from ongoing demographic changes. Some phenomena are well known, such as the retirement of baby boomers and increased life expectancy since Social Security payments began more than 80 years ago. Others, such as rising income inequality and historically low birth rates, are perhaps less clear.

But one of the demographic changes that is causing all sorts of problems for Social Security has to do with the rate of immigration to the United States.

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The Social Security immigration problem has been worsening for 25 years.

Take a closer look at social media message boards, and you’ll no doubt find a very heated debate going on about the role immigration plays in America’s best retirement programs.

In particular, there is a belief that undocumented workers are a burden on Social Security and one of the root causes of the program’s growing underfunding obligations. But this thesis could not be further from the truth.

Social Security is a program that relies heavily on people legally immigrating to the United States each year. Most people who move to the United States tend to be younger, which means they spend decades in the labor market. Social Security collects about 90% of your annual income from a 12.4% payroll tax on wages and salaries (up to $168,600 in 2024).

The dilemma for Social Security is that net immigration to the United States peaked 25 years ago and has declined sharply every year since. According to United Nations data, the U.S. net immigration rate per 1,000 people fell from 6.48 in 1998 to 2.748 in 2023, a nearly 58% decline in net legal immigration.

When the U.S. population reaches nearly 340 million in 2023, a net migration rate of 2.748 per 1,000 translates into a net number of legal immigrants entering the U.S. of about 934,300. The 2023 Trustees report is based on an estimated funding gap of $22.4 trillion through 2097 for an average annual net immigration of 1.245 million people. In other words, if net legal migration continues to decline, the projected funding shortfall is almost certain to grow further in the future. 75 years.

Immigration is a positive element of traditional Social Security programs.

Interestingly, legal immigration is not the only net benefit to traditional Social Security programs, including payments made by the Social Security Administration (SSA) to retired workers, disabled workers, and survivor beneficiaries.

One of the most common issues in immigration discussions surrounding Social Security is the conflation of traditional Social Security programs and Supplemental Security Income (SSI).

Both programs are overseen by SSA, but their funding sources are very different. While traditional Social Security is funded through payroll taxation, benefit taxation, and interest income earned on program asset reserves, SSI is funded through the general fund.

SSI also sometimes provides income to people seeking asylum in the United States. Traditional Social Security does not provide any benefits to undocumented workers.

Here’s what’s interesting: Undocumented workers have contributed a total of $100 billion in payroll taxes to traditional Social Security programs over the past decade, according to a 2016 analysis by New American Economy. Undocumented workers are not eligible for any payments or benefits, but they still account for a little more than 1% of the annual income collected by Social Security.

From a purely financial perspective, undocumented workers help traditional Social Security programs, not hurt them.

More importantly, if net legal immigration to the United States does not change direction soon, Social Security’s already large funding obligation shortfall will worsen.