A new nonpartisan analysis from the Penn Wharton Budget Model warns that Social Security’s retirement trust could be depleted earlier than the agency’s own estimate, underscoring an urgent policy choice for lawmakers. If corrective steps aren’t taken, retirees and future beneficiaries could face benefit reductions starting within the next decade.
Different forecasts, same problem
The Penn Wharton Budget Model (PWBM) estimates the trust fund that supports retirement benefits—known as Old-Age and Survivors Insurance (OASI)—could run out in February 2033. That timeline is slightly later when disability insurance is included, pushing a combined depletion date to February 2035 under PWBM’s modeling.
By contrast, the Social Security trustees’ annual report, released June 9, projects OASI exhaustion in the fourth quarter of 2032 and a combined funds shortfall in the third quarter of 2034. Both projections assume Congress takes no corrective action.
What happens if the funds run dry?
Even if the trust funds are exhausted, Social Security would not stop collecting payroll taxes—those revenues would continue to arrive. But with trust assets gone, those incoming taxes would cover only a portion of scheduled benefits.
PWBM calculates that, after combined fund depletion, beneficiaries would receive about 86% of scheduled benefits initially, falling to roughly 60% by the year 2100. The trustees forecast is modestly different: about 83% payable at depletion and about 65% by 2100.
Either projection implies material cuts in benefit levels or the need for new revenue to keep payments whole.
How much reform would be required?
PWBM quantifies the program’s long-term shortfall as an actuarial deficit equal to 4.65% of taxable payroll—slightly larger than the trustees’ 4.42% estimate. Closing that gap purely through payroll taxes would mean raising the combined employer-and-employee rate from the current 12.4% to 17.1%—an increase of 4.7 percentage points.
Policymakers could instead choose benefit reductions, a mix of tax increases and benefit changes, or other fiscal measures. Kent Smetters, a Wharton professor and PWBM’s faculty director, said the adjustment required is substantial and will grow the longer action is delayed. “We’re still talking about a pretty sizable increase that would be necessary,” he said.
Why the two forecasts differ
PWBM and the trustees reach different dates largely because they use different modeling approaches. The trustees begin with broad assumptions about fertility, wages and life expectancy and apply those to population and revenue forecasts.
PWBM builds its outlook from the bottom up, using individual-level data—earnings histories, family structure and other microdata—so measures like fertility and wage growth emerge as outputs of the simulation rather than fixed inputs.
Recent changes that shifted the outlook
The Social Security chief actuary highlighted four key revisions in the trustees’ latest report during a June 10 briefing:
- Lower assumed total fertility: revised down to about 1.75 children per woman from the prior 1.90.
- Reduced net immigration expectations for some groups, reflecting recent historical trends.
- Faster near-term growth in labor productivity and average real earnings, lifting short-term revenue projections.
- Revenue effects from a recent federal tax law—commonly discussed under an informal nickname—reduced projected income-tax receipts tied to Social Security benefits.
PWBM diverges from the trustees on long-term fertility assumptions (its model uses about 1.6 births per woman) and does not isolate the revenue impact of the tax law in the same way the trustees do.
Uncertainties that could swing the outlook
Several emerging trends could materially change long-range estimates. If newer classes of drugs—such as GLP-1 treatments—meaningfully extend life expectancy, the cost of paying benefits could rise. Conversely, technological advances like artificial intelligence could boost productivity and wages, improving the program’s finances—though PWBM researchers also warn of possible macroeconomic risks if AI leads to asset bubbles or sharp downturns.
Absent congressional action, both independent and official forecasts point to a narrowing window for meaningful reform. The choices lawmakers make in the near term will determine whether future benefit reductions are gradual and predictable or abrupt and disruptive.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.