Delving into the Truths Surrounding Social Security and Immigration Policies
For many retirees, Social Security goes beyond being simply a monthly payment. This crucial program serves as a financial base, without which a significant portion of elderly beneficiaries would struggle to make ends meet.
Since 2002, Gallup has conducted annual polls among retirees, probing their dependency on their Social Security income. Over these 23 years, 80%-90% of respondents, including 88% in the latest 2024 survey, stated that Social Security is a major or minor source of income for them. In essence, almost nine out of ten retirees rely on their benefits, in some capacity, to meet their financial needs.
However, the stability of this cornerstone retirement program is starting to show cracks. One of the reasons for this erosion can be traced back to immigration issues.
Social Security is grappling with a projected $23.2 trillion long-term funding shortfall
Since the first retiree benefit check was issued in January 1940, the Social Security Board of Trustees has issued annual reports outlining the long-term prospects of the program. In the 2024 report, the Trustees estimate that Social Security is facing a long-term funding obligation shortfall of $23.2 trillion. This gap has been steadily expanding over several decades.
To add to its troubles, the Old-Age and Survivors Insurance Trust Fund (OASI), which is responsible for distributing benefits to retired workers and survivor beneficiaries, is projected to deplete its reserve assets by 2033. Although Social Security won't go bankrupt or become insolvent, the depletion of OASI's reserves would necessitate potential benefit cuts of up to 21%.
The reasons behind this gradual deterioration in Social Security's financial foundation are manifold. Among them are the retirement of baby boomers, impacting the worker-to-beneficiary ratio, and people living longer than they did when Social Security was first introduced.
Given that the program was never intended to provide benefits for an extended period, there are other less obvious factors contributing to Social Security's financial issues. These include a historically low U.S. birth rate, which is further exacerbating the worker-to-beneficiary ratio, and rising income inequality, causing a larger portion of earned income to evade the payroll tax.
Last, but not least, let's delve into the misunderstood topic of immigration and its impact on Social Security.
It's high time to confront Social Security and immigration
On social media forums, the notion circulates that immigrants, specifically undocumented workers, are the primary cause of Social Security's financial woes. While immigration is undeniably one of Social Security's challenges, the basis for this blame is misguided.
Legal immigration plays a vital role in the fiscal health of Social Security. Most legal immigrants entering the U.S. are young, meaning they'll contribute to the program for decades, paying 12.4% of their earned income through the payroll tax. The payroll tax accounted for 91.3% of the $1.35 trillion Social Security collected in income in 2023.
The challenge that Social Security faces isn't too much legal immigration but instead too little. Data from the United Nations shows that the net migration rate into the U.S. fell for 25 consecutive years from 1998 to 2023, resulting in a nearly 58% reduction.
According to the Trustees' intermediate model forecast, which represents the most likely scenario, an average of 1,244,000 legal net migrants should enter the U.S. annually from 2034 to 2098. However, based on the United Nations net migration rate into the U.S. for 2023, legal net migration was closer to 920,000.
In clear terms, this information bears no political implication. The decline in legal net migration into the U.S. has been persistent under both major political parties. Without a significant shift in the near future, this trend is likely to contribute to Social Security's ongoing funding shortfall.
The genuine truth about undocumented workers and Social Security
While legal immigration is crucial for Social Security's smooth functioning, let's now look at how undocumented workers affect the system.
Undocumented workers cannot access traditional retired-worker benefits or disability insurance or supplemental benefits from Social Security. Any claim on social media suggesting that undocumented workers receive benefits from the traditional (key phrase!) Social Security program is false.
Instead of asylum seekers, individuals entering the U.S. under such circumstances might be eligible for Supplemental Security Assistance (SSA). It's important to note that while the Social Security Administration is in charge of both traditional Social Security and SSA, these two programs are funded differently. Contrary to traditional Social Security, which gains income from payroll taxes, taxed benefits, and interest earned on its reserve assets, SSA payments are funded through the General Fund. So, an undocumented migrant receiving SSA benefits is not the same as receiving a traditional Social Security benefit. The SSA payments don't impact the health of the Social Security program in any way.
Following this, a 2016 report by New American Economy indicated that undocumented workers contributed around $100 billion more to Social Security than they took out over the past decade. To clarify, this has no connection to politics and is merely a numerical analysis of undocumented workers' contributions to Social Security.
Regardless of the negative portrayal of immigration in social media platforms, it's crucial for the long-term sustainability of Social Security and its numerous current and future beneficiaries.
In light of the projected $23.2 trillion long-term funding shortfall facing Social Security, many retirees may need to reevaluate their retirement finance strategies, as they heavily rely on Social Security benefits for their financial needs. According to the Gallup polls, nearly nine out of ten retirees rely on Social Security income, either majorly or minimally.
Given the financial challenges confronting Social Security, it becomes essential to address misconceptions about immigration's role in the program. Contrary to common belief, legal immigrants contribute significantly to Social Security's fiscal health, paying payroll taxes for decades and funding a substantial portion of the program's income. Undocumented workers, on the other hand, cannot access traditional retired-worker benefits or disability insurance from Social Security.
