When it comes to the future of Social Security, the headlines often make it sound like a done deal that the program will run out of money by 2035. However, the truth is a lot more complex. The projections we hear are based on a set of assumptions that might not actually play out.
The Social Security Trustees Report outlines three potential scenarios for the program’s financial future: the intermediate, low-cost, and high-cost projections. Each of these makes different assumptions about factors like birth rates, economic growth, wage increases, interest rates, and more.
So, while you might hear that Social Security’s trust funds will be depleted by 2035, the reality could look quite different depending on which scenario comes to pass.
Intermediate Scenario
Most estimates about Social Security’s future, including the commonly cited projection that the trust funds will be depleted by 2035, are based on the intermediate scenario. This is considered the “middle-of-the-road” forecast and assumes:
- A fertility rate of 1.9 children per woman by 2040.
- Annualized economic growth of 1.63%.
- Inflation at an average of 2.4% per year.
- Wage growth of 3.56% annually.
- Unemployment of 4.5%.
- An average interest rate of 2.3% on Treasury securities held by Social Security.
These assumptions guide the projection that Social Security will start running short on funds by 2035, meaning that if no reforms are made, the program may only be able to pay out about 80% of promised benefits from that point onward. However, the intermediate scenario isn’t guaranteed, and things could turn out either better or worse, depending on future economic conditions.
Low-Cost Scenario
The low-cost scenario, which makes more optimistic assumptions, presents a far more favorable outcome for Social Security’s financial future. Under this scenario, the trust funds would remain solvent much longer, with depletion not expected until 2080—45 years later than the intermediate forecast. In this projection, the trust funds would even begin to rebuild after depletion.
Here are some key assumptions in the low-cost scenario:
- A fertility rate of 2.1 children per woman.
- Economic growth of 1.93% annually.
- 0% inflation (essentially assuming no inflation).
- Wage growth averaging 1.74% after inflation.
- Unemployment at 5%.
- 8% interest on new Treasury securities.
If these assumptions were to hold, Social Security’s financial future would be much more secure. Factors like higher fertility rates, faster wage growth, and better interest returns on Treasury securities would mean more money flowing into the system, helping extend the program’s solvency.
High-Cost Scenario
On the flip side, the high-cost scenario assumes more pessimistic outcomes for key variables, leading to an accelerated depletion date of 2032—just eight years from now.
This scenario includes:
- A fertility rate of 1.6 children per woman.
- Economic growth at a sluggish 1.33% annually.
- Inflation of 1.8% per year.
- Unemployment at 5.5%.
Under this scenario, with fewer workers paying into the system, slower wage growth, and lower interest rates, Social Security would run into financial trouble even sooner than expected.
What Does This Mean
While headlines often point to 2035 as the year Social Security will run out of money, it’s important to remember that this is just one projection—the intermediate scenario. Depending on how the U.S. economy evolves over the next decade, the depletion date could shift dramatically. Under the low-cost scenario, for example, we wouldn’t face this issue until 2080. Conversely, under the high-cost scenario, the depletion date could come as early as 2032.
This uncertainty highlights the need for reforms to secure the future of Social Security. Even in the most optimistic scenarios, adjustments will still be necessary to keep the program sustainable long term.
But when you hear warnings about Social Security’s imminent insolvency, it’s worth remembering that there’s a wide window of possibilities—between 2032 and 2080—depending on which economic factors prevail.
Benefits
For individuals nearing retirement, the uncertainty surrounding Social Security’s future makes it even more important to maximize your benefits. Here are a few strategies you might not have considered that could boost your monthly payments:
- Delaying your benefits: If you wait until after your full retirement age (typically 66 or 67, depending on your birth year), your benefits increase by 8% per year until you turn 70.
- Spousal benefits: If you’re married, you may be eligible to claim a spousal benefit, which could be up to 50% of your spouse’s benefit.
- Earnings record: If you’ve had years with low or no earnings, you can potentially boost your benefit by working a few more years. Social Security calculates your benefits based on your highest 35 years of earnings, so each additional year of work can potentially replace a low-earning year in that calculation.
These little-known strategies could add $22,924 or more to your annual Social Security income, significantly increasing your financial security in retirement.
Final Thoughts
While Social Security’s future is uncertain, it’s important to approach it with a clear knowing of the various scenarios at play. The projected depletion date of 2035 is based on assumptions that might not hold up over time. Depending on how economic factors like fertility rates, wage growth, and unemployment evolve, Social Security’s trust funds could last much longer—or run out sooner.
So, when you see alarming headlines about Social Security’s looming shortfall, take them with a grain of salt. While reforms are certainly needed, the future isn’t set in stone.
FAQs
Will Social Security really run out of money by 2035?
That’s the projection based on the intermediate scenario, but under a more optimistic low-cost scenario, the funds could last until 2080.
What happens if Social Security’s trust funds run out?
If the trust funds are depleted, Social Security will only be able to pay out about 80% of promised benefits.
Could higher wage growth save Social Security?
Yes, faster wage growth would result in more income subject to Social Security taxes, which could help extend the program’s solvency.
What’s the best way to maximize Social Security benefits?
You can increase your benefits by delaying your claim past full retirement age, boosting your earnings record, or investigating spousal benefits.
Will Social Security need reforms?
Yes, reforms are necessary to ensure Social Security remains solvent long term, regardless of which scenario plays out.
