I had the pleasure of sitting down with economist Larry Kotlikoff recently for a live Substack conversation about the future of Social Security. If you’ve followed Larry over the years, you know he’s one of the country’s leading experts on the subject, a professor of economics at Boston University, and a repeat guest on my Friends Talk Money podcast.
Larry has never been afraid to challenge conventional thinking. Back in 2016, he even mounted a write-in campaign for president to draw attention to America’s long-term money problems.
The backdrop for our conversation was the latest Social Security Trustees Report. It projects if Congress does nothing, by 2032, continuing payroll tax revenue will cover only about 78% of scheduled benefits. That translates into an automatic, across-the-board benefit cut of roughly 22% unless Congress acts.
Larry doesn’t believe Congress will simply let that happen. He expects lawmakers to do what they’ve done before: wait until the pressure is unavoidable and then pass a series of smaller, politically acceptable fixes instead of one comprehensive solution.
In our conversation, Larry was every bit as passionate and opinionated as I expected. My role wasn’t to debate him. It was to ask the questions I hear every day from people who are retired, approaching retirement, or wondering whether Social Security will still be there for their children and grandchildren.
One message came through loud and clear. Larry believes Washington has spent decades postponing difficult decisions, leaving future lawmakers with fewer and more painful choices.
At one point, Larry didn’t mince words. He called Social Security a “government Ponzi scheme.” Not everyone would agree with that characterization, but it captures how strongly he believes the system is fundamentally broken, not merely underfunded.
When I asked who was to blame, Larry got a big laugh from me when he said, “Your grandparents screwed you!” But seriously, his point wasn’t really about grandparents. It was about generations of politicians from both parties choosing short-term political comfort over long-term fiscal responsibility.
Whether or not you agree with Larry’s conclusions, he makes it hard to ignore the broader lesson. The longer Congress waits to deal with Social Security’s funding challenges, the fewer good options remain.
So that’s Washington. What about us, personally?
If Larry is right, don’t expect Congress to suddenly unveil one bold, comprehensive solution. He believes lawmakers will continue reaching for what I’d call political band-aids. They’re smaller, more politically acceptable changes that buy time while avoiding the toughest decisions.
In practical terms, Larry says those band-aids could look something like this:
Gradually increasing payroll taxes, potentially raising the combined employer and employee rate from today’s 12.4% to about 18.4%.
Raising or eliminating the cap on wages subject to Social Security taxes so higher earners contribute more.
Gradually increasing the full retirement age for younger workers while largely protecting today’s retirees.
Slowing the growth of benefits for higher income retirees while preserving benefits for those who depend on Social Security the most.
Most likely, adopting some combination of these changes rather than relying on one sweeping reform.
But here’s where Larry takes it a step further. He believes temporary fixes just delay a much bigger reckoning. He said the real solution is to scrap the Social Security system as we know it and build a new one from scratch.
Whether you agree with Larry or not, there’s no mistaking the urgency behind his message. In Larry’s mind, the best time to fix the system was years ago in order to avoid this crisis.
As for me, I mostly agree. At the same time, I have to remind myself we can’t control what Congress ultimately decides. We can control whether we’re financially prepared for whatever it decides. It’s smart to have a plan that doesn’t depend on Washington getting this right.
If there’s one thing I hope people took away from our conversation, it’s this: Worrying isn’t a strategy. Planning is.
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