Modern-day America’s chasm between the ultra-rich and the rest of the country hasn’t been this wide since the Gilded Age, when the wealthiest 5% held a third of all income while the bottom 60% of Americans lived below the poverty line. (Today, the top 1% hold 31% of the wealth, while the bottom 50% just 2.5%, according to the Federal Reserve). But according to researchers from the University of Pennsylvania’s Wharton School, the modern gap might have been even greater were it not for the redistributive power of Social Security, one of the single largest government expenses which has rarely been accounted for in wealth inequality assessments. 

“Social Security is very large—it’s the main way most Americans save for retirement,” economist Sylvain Catherine said during a Wharton Q&A published this week. In fact, Social Security accounts for nearly half of total wealth for nine out of 10 Americans.

Last year, a study led by Catherine found that Social Security has primarily benefited lower income households over the past three decades. He found that in accounting for these payments, the share of wealth held by the top richest Americans has remained remarkably stagnant during that period. 

But if Social Security has acted as a critical buffer against inequality for decades, that barrier is breaking down fast. The trust fund that supports Social Security has been on thin ice for a while, and Trump’s spate of legislative changes last year has moved its insolvency date up to fiscal year 2032, which starts in October 2031, one year earlier than expected. Absent sweeping changes to how Social Security is funded, the program will hit a fiscal cliff in just six years, erasing one of the few remaining mechanisms keeping wealth inequality somewhat in check.

Holding the wealth gap at bay

According to Catherine’s study, wealth dispersed as a result of Social Security surged from $7 trillion in 1989 to over $40 trillion by 2019. And because of how Social Security payments are structured, lower and middle-income households have captured the vast majority of those gains.

Social Security accounts for 49.8% of the total wealth for the bottom 90% of the U.S. income distribution. In Wharton’s Q&A, Catherine said that because the program’s benefit formula is progressive and contributions are capped, it is “proportionally much more important lower in the income and wealth distributions, so ignoring it mechanically inflates measured wealth inequality.” 

Catherine noted that Social Security payments are rarely accounted for in measures of wealth. This is partially because payments to retirees are primarily funded by current payroll taxes—a more fluid structure than personal retirement accounts—making it harder to match individual recipients with wealth derived from Social Security.

Not accounting for these payments has left a sizable gap in wealth gap measurements, most of which tend to primarily measure wealth by assets and excluding pensions. The Federal Reserve, for example, puts the increase in share of wealth held by the top 1% of U.S. earners at 7.6 percentage points between 1989 and 2019. By including Social Security, Catherine found that the top 1%’s wealth share had actually risen by only 1.5 percentage points, over the same period.

Minimizing the importance Social Security plays in reducing wealth inequality, Catherine warned, could also have real policy consequences. 

“It’s therefore strange not to include it when measuring wealth, especially when comparing today’s level of wealth inequality to historical periods when the welfare state did not exist, like the 1920s,” he said this week.

Racing towards insolvency

Since Social Security was created in 1935, the program has become the “bedrock of the U.S. retirement system,” Catherine said. In the 2024 fiscal year, 21% of the government’s budget, $1.5 trillion, went to paying out Social Security benefits. This year, approximately 71 million Americans are expected to receive payments. 

Social Security has also become a vital lifeline for an aging population, as a 2020 report found that 40% of older Americans plan to rely only on Social Security for retirement. Without those payments, more than 16 million Americans over the age of 65 would live below the poverty line.

Yet, the program that has become a cornerstone of American life is inching closer and closer to insolvency. While Social Security has long faced funding challenges, recent policy shifts have dramatically shortened its lifespan to 2032. The nonpartisan Committee for a Responsible Federal Budget recently found Trump’s One Big Beautiful Bill Act—his signature policy package that includes making many provisions to lower tax revenue and raise government spending—to be mostly responsible. 

While Trump recently vowed in his State of the Union address to “always protect Social Security,” the new legislation will starve the Social Security trust fund of the revenue it usually receives from the taxation of benefits. If Congress does not intervene before the 2032 deadline to restructure the program, Social Security will be legally restricted to paying out only what it collects in annual revenue, triggering an automatic benefit cut of roughly 24%, according to CRFB. 

In his Q&A, Catherine said measures to save Social Security would include raising taxes, lowering benefits, or delaying the retirement age. The alternative could be an insolvency scenario, and the end of a program that has helped keep inequality in check for decades.