At a time when private pension plans are running out of money and retirement investment accounts are trying to make up for a decade of stagnant growth, people nearing retirement are becoming more dependant on Social Security.

"Private-defined benefit pensions -- already a disappearing breed -- buckled further under the stock market meltdown," said Merton Bernstein, a professor at Washington University in St. Louis School of Law. "The newly dominant 401(k)s plans lost, on average, a quarter of their value during the four years starting in 2008."

But Bernstein says Social Security, not dependent on market performance, didn't miss a beat as the principal source of retirement income. Indeed, with the faltering of private plans, he says it contributed an even larger share than ever to retirees and survivors.

Paper trust fund

According to Bernstein, Social Security is on course to provide full benefits to its expected beneficiaries through 2036 due to its multi-trillion dollar trust fund. However, that trust fund is only on paper.

Congress has "borrowed" the surplus funds over the years and now, facing huge budget deficits, has no way to repay the money. Social Security, starting this year, will now draw money from general revenue to meet current obligations. Had Congress not spent the money, there would be plenty left in the "trust fund."

Much of the budget battles taking place in Washington have so far carefully avoiding encroaching on "entitlements," a euphemism for Social Security and Medicare, whose spending will rise even more as the Baby Boomers retire. But policymakers and economists increasingly express doubts the government can keep looking the other way.

Misplaced budget battles?

John Mauldin, CEO of Millennium Advisors, says the amount of budget cuts Republicans and Democrats and now fighting over is barely a drop in the bucket.

"If  they are to balance the budget, the government needs to raise taxes and cut $150 billion per year or $1.2 trillion over the next five or six years," Mauldin said in an interview with the Daily Ticker, a Wall Street webcast. "You can't cut it all at once, you cut it all at once you throw us into a depression."

Bernstein believes raising Social Security taxes quickly will help keep the system on its feet. Currently, there is a cap on earnings subject to Federal Insurance Contributions Act (FICA) withholding. Bernstein says raising, or even removing that cap entirely, could pump more money into the Social Security, providing an increased measure of security for Americans who are increasingly depending on it.