On August 14, 1935, U.S. President Roosevelt signed into law the Social Security Act. Originally implemented to assist older Americans by paying retired workers a continuing income, amendments to the program extended benefits to the spouse and minor children of retired workers, workers who become disabled, families in which a spouse or parent dies and more recently medical health coverage (Medicare) for Social Security beneficiaries.

The Social Security program is funded through the Federal Insurance Contributions Act (FICA) tax, a dedicated payroll tax. You and your employer each pay 6.2% of your wages, up to the taxable maximum. If you are self-employed, you pay the entire 12.4%; however, you can deduct half of the self-employment tax as a business expense. Under the law, Social Security is financed by this designated tax, and any money that isn't paid out in benefits (money that is a surplus) is used to buy U.S. government bonds held in the Social Security Trust Fund.

The money that you pay through taxes is not the same money that you will receive when you collect benefits. Instead, it's primarily a pay-as-you-go system where the money you and your employer contribute now is used to fund payments to people who currently receive benefits, including people who have retired or disabled, survivors of workers who have died, and dependents and beneficiaries.

Americans are having fewer children and living longer, both of which contribute to an aging population. Baby boomers (those born between 1946 and 1964) are retiring at a record pace: 14% of the population is age 65 and over, and by 2080, it will be 23%. At the same time, the working-age population is getting smaller, from about 60% today to 54% in 2080. These trends result in declining worker-to-beneficiary ratios: as we move forward, there will be fewer people putting money into the Social Security system and more people taking money out. Because of these factors, it has been estimated that all the money in the Social Security "bank account" will be exhausted in 2033, when it will have only about 77% of what it should pay out that year. That means that without any changes to the system, if you're in your forties or fifties today, you may not have access to the Social Security benefits during retirement, even though you're paying into it now. Increased taxes, benefit cuts, and upping the age at which people can start collecting benefits (or a combination of these) are changes that could be implemented to make up any future shortfalls.

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