New long-range estimates say Social Security trust funds may last slightly longer than earlier expected. The Old-Age and Survivors Insurance (OASI) trust fund, which mainly pays retirement benefits, may run out by February 2033, according to new projections by the CNBC reporting analysis from Penn Wharton Budget Model (PWBM) at the University of Pennsylvania.
Key estimate difference
This is slightly later than the official Social Security trustees forecast, which says the same fund may last until the fourth quarter of 2032, according to the Social Security trustees report released on June 9. If OASI is combined with the disability insurance trust fund, depletion may move further to February 2035, as per the PWBM estimates.
The Social Security trustees estimate a slightly earlier combined depletion time of the third quarter of 2034. Social Security is funded mainly by payroll taxes, which come from workers and employers, and this money is used to pay benefits. When payroll tax income is not enough to cover benefit payments, the system uses money from the trust funds to fill the gap.
Benefits after funds end
If the trust funds run out, Social Security will not stop completely because payroll taxes will still come in. However, benefits would be cut automatically if no changes are made after depletion. PWBM estimates that after depletion, about 86% of scheduled benefits could still be paid at first. That amount would fall to around 60% by the year 2100, as per a CNBC report.
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The Social Security trustees estimate a slightly different outcome, saying about 83% of benefits would be payable after depletion. Trustees also project that this would drop to about 65% by 2100. PWBM had earlier projected Social Security funds would run out sooner than the trustees, but now says the difference between both estimates has narrowed and slightly reversed.
Funding gap and tax increase
A key expert, Kent Smetters (faculty director at PWBM), said there is still a “pretty sizable” need for changes like higher taxes or benefit cuts, as reported by CNBC. PWBM estimates a long-term financial gap (actuarial deficit) of 4.65% of taxable payroll, while the trustees estimate 4.42%. To fix this gap, payroll taxes would need to rise from 12.4% to about 17.1%, meaning a 4.7 percentage point increase, as cited by CNBC.
Alternatively, policymakers could reduce benefits or use a mix of tax increases and benefit cuts instead of one solution alone. PWBM and the trustees use different methods: PWBM uses a microsimulation model based on individual data like earnings and family structure. The Social Security trustees instead start with broad assumptions like fertility rates and wage growth, then build projections from those assumptions.
Key policy assumptions
This year’s trustees report included major updates such as lower fertility (1.75 children per woman), updated immigration expectations, and faster near-term productivity and wage growth, according to the trustees briefing by Karen Glenn.
The trustees also said changes from President Donald Trump’s tax law affected Social Security income by reducing tax revenue from benefits. PWBM expects slightly lower fertility long-term at about 1.6 births per woman and does not separately model the full impact of that tax law change. Experts also say long-term risks like people living longer due to better medicines or higher productivity from artificial intelligence could make the funding gap worse, as per Kent Smetters, as cited by CNBC.