Social Security’s Importance as Retirement Income 

Pensions and personal savings provide nearly 40 percent of all income for older Americans, but Social Security is the most prevalent and important single source of income for retirees.

Although Social Security incorporates several programs, we’ll focus on its particular ability to provide income for retirement. Social Security is a system of social insurance where workers and their employers contribute a part of their earnings to the program by way of payroll tax—which remains the primary method of funding for the program. Upon retiring, benefits may be received depending upon several factors, mainly the age at which you retire. 

The Declining Worker-Retiree Ratio  

In 1950, there were 16 workers per retiree. Today, the ratio is currently less than four to one, and by 2030, it is estimated that there will be approximately two to one. The declining worker-retiree ratio has traditionally led to higher payroll taxes to cover the revenue shortfall. If policymakers were to continue that approach, payroll taxes would need to increase from 10.3 percent to approximately 18 percent in 2030 simply to cover costs. When Social Security was created in 1935, the average American’s life expectancy was 61 years, but that figure is projected to rise to 80 years by 2030.
As increasing numbers of retirees claim Social Security benefits for a much longer period than the system’s sponsors originally envisioned, and fewer workers are available to support those transfer payments, the resulting strain on the Social Security system threatens to bankrupt the program.
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