Social Security Shortfall Could Be Worse Than Reported

The 2019 Social Security Trustees Report estimates the program's trust funds face a 75-year actuarial shortfall of 2.78 percent of taxable payroll. While closing this gap will require significant tax and benefit changes, the truth is that the program's financial gap could be worse if economic reality ends up different than the Trustees assume.

The Trustees' estimates are based on a number of assumptions about demographics, the economy, disability rates, and other factors over the next 75 years – these assumptions are explained at length in the report. Yet some of these assumptions differ from other mainstream estimates such as those by CBO, OMB, the Federal Reserve, and the Blue Chip Financial Forecast.

Should the economy perform differently than these assumptions, the shortfall could widen. For example, the Trustees project the Consumer Price Index (CPI) will grow 2.6 percent per year and wages will grow 1.2 percentage points faster than that, while long-term interest rates will rise to 2.5 percentage points above CPI. By comparison, other forecasters estimate CPI growth of 2.2 to 2.4 percent, wage growth closer to 1 percentage point above CPI, and interest rates somewhere closer to today's levels (about 1 percentage point above CPI).

Using rules of thumb provided by the Trustees, we can estimate the effects that lower inflation, wage growth, and interest rates would have on the program's imbalances. For example, if CPI rises 2.4 percent, wages rise 1.1 percentage points above CPI, and interest rates are ultimately 1.5 percentage points above CPI, the program's shortfall would grow to roughly 3.4 percent of taxable payroll.

Potential Social Security Shortfall Under More Pessimistic Assumptions

  75-Year Shortfall 75th Year Shortfall
Trustees 2.78% 4.11%
Assume 2.4% (instead of 2.6%) CPI growth +0.04% +0.06%
Assume a 1.1% (instead of 1.2%) real wage differential* +0.18% +0.29%
Assume 1.5% (instead of 2.5%) real interest rate* +0.40% +0.00%
Potential Shortfall under Alternative Assumptions 3.40% 4.46%

*Wages and interest rates measured relative to CPI.

A shortfall of 3.4 percent of taxable payroll is more than one-fifth larger than what the Trustees project. Closing that gap would require reducing benefits today by 21 percent as opposed to 17 percent, or increasing revenue by 27 percent as opposed to 22 percent.

Again, Social Security's financial situation could be better or worse than estimated in the report, based on the accuracy of a litany of assumptions about the economy, demographics, and disability rates. So, on one hand, the shortfall may not be as large as our illustrations above (or even as the Trustees project). On the other hand, it's possible that the shortfall will be even larger. For example, the Congressional Budget Office estimated a 75-year actuarial shortfall of 4.4 percent of payroll – three-fifths more than the Trustees' estimate.

Regardless of which estimate is closer to reality, Social Security faces a large shortfall over the long term. Under current law, Social Security will not be able to provide full benefits to current retirees. The fact that the shortfall could be even worse than the Trustees project is even more reason to enact a solvency plan as soon as possible and to include robust elements that ensure solvency under a variety of assumptions and outcomes.


You can find a full breakdown of the 2019 Social Security Trustees Report here. Try your hand at fixing Social Security here, or see how old you'll be – and what you stand to lose – when the retirement program becomes insolvent.