The Social Security clock is ticking faster than expected

Did you know that the “Doomsday Clock” was founded in 1947 by scientists associated with the Manhattan Project, including Albert Einstein and J. Robert Oppenheimer? According to this “clock,” it is now 85 seconds to midnight.

Fortunately, today’s column will not focus on disruptive technologies, nuclear risk, climate change or biological threats that are the focus of the Bulletin of the Atomic Scientists. Instead, I will focus on projections of the insolvency of Social Security, including analysis from the University of Pennsylvania’s Penn Wharton Budget Model (PWBM) and the official projections from the Social Security Trustees.

The official annual report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds will not be released for a few more months. The most recent report was released on June 18, 2025.

For someone like me who looks for the silver lining in every cloud, I don’t like to make dire predictions or assume a problem cannot be solved. Today’s column discusses both the projections and the potential policy paths forward.

The PWBM analysis is grounded in microeconomics, which refers to how individuals, households and firms make decisions to allocate limited resources. In this case, the limited resource is the funds available to pay Social Security benefits to retirees, survivors and individuals who are unable to work due to disability.

The PWBM projects that Social Security could face depletion in the early 2030s under certain assumptions. At that point, available revenues would be sufficient to pay only a portion of scheduled benefits.

This aligns broadly with the Social Security Trustees’ projections, though the exact timing differs slightly depending on the assumptions used. The Trustees have projected depletion of the combined trust funds in the mid-2030s if no changes are made to current law.

The OASI and DI Trust Funds operate separately under current law. The Disability Insurance Trust Fund is generally projected to remain solvent longer than the Old-Age and Survivors Insurance Trust Fund. Combined projections are often used as a general indicator of the system’s overall financial status, even though the funds cannot be merged without a change in law.

According to the Trustees, several factors are contributing to the long-term imbalance. One is recent legislation that increased benefits for some workers by repealing provisions that had reduced benefits for certain public-sector employees.

Another factor is demographics. Lower birth rates mean fewer workers paying into the system in the future, while the population of beneficiaries continues to grow. The total fertility rate in the United States has declined to historic lows in recent years, contributing to this long-term pressure.

A third factor is the share of income going to wages versus other forms of compensation. Changes in that balance can affect payroll tax revenues, which fund Social Security.

Understanding these drivers is necessary to understand the policy options available to address the shortfall.

The PWBM outlines several policy levers that could address the gap, though any changes would require action by Congress. These include adjustments to the payroll tax rate, the taxable maximum, cost-of-living adjustments, benefit formulas and the full retirement age.

The combined OASDI payroll tax rate is 12.4 percent, split evenly between employers and employees. Only earnings up to a certain annual limit are subject to the payroll tax, with that taxable maximum increasing over time. Benefits are adjusted annually for inflation through cost-of-living adjustments, and the benefit formula is based on a progressive structure tied to lifetime earnings.

The full retirement age is 67 for workers born in 1960 or later, though individuals can claim reduced benefits starting at 62 or delay claiming until age 70 to receive higher monthly payments.

The PWBM presents several illustrative policy options to address the long-term imbalance. These scenarios are modeling exercises, not legislative proposals, and each combines different changes to taxes and benefits.

Option A focuses primarily on revenue increases, including a higher payroll tax rate and an increase in the taxable maximum, along with adjustments to the cost-of-living formula.

Option B combines revenue increases with modest benefit reductions by adjusting the benefit formula and cost-of-living calculations.

Option C shifts more toward benefit reductions, including a gradual increase in the full retirement age.

Option D blends both revenue increases and benefit adjustments.

Option E relies primarily on benefit reductions without increasing the payroll tax rate.

Time will tell whether any of these approaches will be adopted. The reality is that the options generally fall into three categories: raising revenue, reducing benefits or some combination of the two.

The advantage of phasing in changes over time is that it gives workers and retirees more time to adjust. Congress has acted before to stabilize Social Security, though often at the last possible moment. The question is whether it will act again before time runs out.