Perspectives on Social Security Projections

This is an excerpted version of a study by Diane Lim, Sophie Shin, and Kent Smetters, available online here.

Diane Lim, Sophie Shin and Kent Smetters contributed to this analysis. Prepared for the Penn Wharton Budget Model website by Mariko Paulson. Calculations are based on PWBM’s model that is developed and maintained by PWBM staff.  

Key Points

  • The Social Security Trust Fund is projected to be depleted between 2032 – 2035, depending on various assumptions.
  • Upon Trust Fund depletion, Social Security’s “payable” benefits, based on annual payroll taxes collected in each year, will equal between 70 – 75 percent of the “scheduled” benefits, based on the statutory formulas currently used to determine benefit levels.
  • Since Social Security’s financial projections typically extend beyond the depletion date, a modeling assumption must be made for benefit payments (“payable” or “scheduled”) after Trust Fund depletion when projecting the impact of potential Social Security reforms on the economy. This decision plays a major role in projections of different potential reforms on the economy.

The Penn Wharton Budget Model Typically Focuses on the Scheduled Benefits

  • PWBM does not take a position on whether scheduled or payable benefits are more “realistic” upon Trust Fund depletion, as that decision inherently involves a judgement about the course of future political action. In particular, PWBM does not try to predict whether Congress will find another specific revenue source to fund scheduled benefits, or whether Congress will allow benefits to be reduced to their payable levels.
  • However, like the CBO, PWBM typically assumes scheduled benefits in our Social Security projections, including in our recent analysis of the Social Security 2100 Act. This assumption allows our projections to be more directly compared with CBO projections. Moreover, our reading of the empirical evidence is that the scheduled-benefits baseline appears to be more consistent with expectations of U.S. households, as indicated by their retirement savings behavior. We estimate that many non-poor U.S. households would likely increase their retirement savings if they believe that Social Security benefits would be reduced in the future to their payable levels.
  • Measuring retirement income adequacy is currently an active area of research at PWBM, and so our reading of the empirical evidence could change over time.

Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.