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Social Security‘s trust funds may have a bit more runway than expected, according to new long-range projections by the Penn Wharton Budget Model, shared exclusively with CNBC.
The trust fund Social Security relies on to help pay retirement benefits — Old-Age and Survivors Insurance, or OASI — may be depleted in February 2033, according to the Penn Wharton Budget Model at the University of Pennsylvania, a provider of nonpartisan estimates and analysis on the impact of public policy.
In contrast, the Social Security trustees report released on June 9 projects that the fund may last through the fourth quarter of 2032.
If combined with the disability insurance trust fund, the projected depletion date may be pushed to February 2035, according to PWBM. The Social Security trustees report forecasts a third quarter 2034 depletion date for the combined funds.
Social Security uses incoming revenue from payroll taxes to pay benefits. When benefit payments exceed payroll tax income, the program relies on the trust funds to help make up the shortfall.
The depletion dates assume lawmakers take no action to shore up the program.
Should the trust funds run out, Social Security would not go bankrupt, as payroll taxes that fund benefits will continue to come in.
But payments to beneficiaries could be reduced. When the combined trust funds are depleted, PWBM anticipates that 86% of scheduled benefits will be payable, falling to 60% by 2100. Meanwhile, Social Security’s trustees project 83% would be payable once the combined funds are depleted, dropping to 65% in 2100.
PWBM’s independent analysis of the program’s solvency had previously projected earlier depletion dates than Social Security’s trustees. Now, the gap “has closed and slightly reversed,” according to the report.
‘Pretty sizable’ changes needed to fix Social Security
Yet PWBM’s forecast still indicates the need for imminent Social Security reform, said Kent Smetters, a Wharton professor and faculty director of PWBM.
“We’re still talking about a pretty sizable increase that would be necessary in terms of taxes or benefit cuts going forward, and if we don’t take action soon, that number just simply goes up,” Smetters said.
While a positive actuarial balance represents a surplus in financing, it is called an actuarial deficit when negative, according to the Social Security trustees report. PWBM projects an actuarial deficit of 4.65% of taxable payroll, versus 4.42% projected in this year’s Social Security trustees report.
Closing that shortfall would require raising the current 12.4% payroll tax rate for both employees and employers to 17.1% — a 4.7% increase, according to the report. Policymakers may also opt for an equivalent reduction in benefits or some combination of both, the report states.
How the trust fund depletion calculations differ
PWBM produces its Social Security forecast using a microsimulation model that takes a different approach from the program’s trustees. Social Security’s trustees start with assumptions on aggregates such as the rates of fertility and average wage growth, and apply that information to come up with long-range projections.
PWBM instead starts with individual-level data, such as earnings and family structures. Categories like fertility, life expectancy and wage growth are outputs rather than assumptions, it states in its new report.
There were four major changes in Social Security’s trustees report this year, Karen Glenn, the agency’s chief actuary, said during a June 10 virtual briefing hosted by the Committee for a Responsible Federal Budget, a nonpartisan organization focused on educating the public on fiscal policy issues.
Those were:
- Assumed total fertility rate was lowered to 1.75 children per woman, down from 1.90 children per woman, Glenn said.
- Immigration projections were also updated to reflect recent historical data and future expectations, according to Glenn. “We are assuming that future levels of net immigration for the unlawfully present population will be lower than we had projected last year,” she said.
- Labor productivity, also known as real GDP per hour worked, and average real earnings are now projected to grow faster in the near term.
- President Donald Trump’s “big beautiful bill” made changes to income tax rates and standard deductions, resulting in less revenue to Social Security’s trust funds through income taxes on benefits, she said.
PWBM’s expectations differ in two of those areas. The report forecasts a lower long-term fertility rate of about 1.6 births per woman. The report also doesn’t break out the effects of the “big beautiful” law specifically.
The One Big Beautiful Bill Act does not directly eliminate taxes on Social Security benefits, which would have had a bigger financial impact, according to Smetters. While there’s still some revenue lost due to the law, there are also short-run economic gains, resulting in changes that are “well within the standard error of forecasting,” Smetters said.
To be sure, certain factors may affect projections for Social Security going forward. For example, if GLP-1 drugs are proven to extend life expectancies, that would negatively impact the program’s long-run shortfall as people live longer, Smetters said.
Moreover, while PWBM research shows artificial intelligence will increase productivity and GDP over the long term, there are also risks to the economy, particularly if an AI bubble bursts, which could create negative macro effects, Smetters said.
