Banners celebrating the 250th anniversary of U.S. independence hang outside the U.S. Capitol building in Washington, D.C., U.S., June 22, 2026.
Kylie Cooper | Reuters
Delaying Social Security reform could have negative effects on the bond market and the economy, new research shows.
The findings — published June 26 by George Mason University’s Mercatus Center — come on the heels of the annual Social Security trustees report. The agency projects that the Old-Age and Survivors Insurance, or OASI, trust fund may be depleted in the fourth quarter of 2032 — three months earlier than projected the previous year. Just 78% of those benefits may be payable at that time, according to the projections.
Pushing reform closer to that depletion date would increase fiscal risk and make it more likely that lawmakers would turn to additional borrowing, straining Treasury markets and the broader economy, wrote co-authors Veronique de Rugy, senior research fellow at the Mercatus Center, and Jason Fichtner, executive director at the LIMRA Retirement Income Institute, a research initiative within the insurance trade association LIMRA.
“We view the impending depletion of the Social Security OASI trust fund in the early 2030s as the inflection point that could lead to a fiscal crisis if legislative action is not taken beforehand,” wrote de Rugy and Fichtner.
The Committee for a Responsible Federal Budget, a nonpartisan organization dedicated to educating the public on fiscal policy issues, has likewise identified Social Security’s looming trust fund depletion dates as a potential tipping point for the U.S. economy.
Social Security is primarily funded through payroll tax revenue and can supplement its benefit payments through its trust funds, which hold previous surpluses plus interest. If Social Security is permitted to spend beyond that money, potentially by using general revenue, that would result in a large amount of new borrowing, according to the CRFB.
“There’s been this 90-year promise that Social Security is a self-financed contributory program, and in some ways that’s one of our last fiscal rules,” said Marc Goldwein, senior vice president at the CRFB.
“Once you say we don’t have to pay for Social Security, you’ve opened the floodgate to borrowing far more than the country can afford,” Goldwein said. “Once you open that floodgate and that borrowing happens, that’s when we can get a fiscal crisis.”
How trust fund shortfall could create ‘fiscal strain’
A sign for the U.S. Social Security Administration is seen outside its headquarters in Woodlawn, Md., on Thursday, March 20, 2025.
Tom Williams | Cq-roll Call, Inc. | Getty Images
Social Security’s trust funds are invested in government securities that are backed by the full faith and credit of the U.S. government, according to the Social Security Administration. The trust fund securities are special issues of the U.S. Treasury, which are “just as safe as U.S. savings bonds or other financial instruments of the federal government,” the agency states on its website.
The government spends the borrowed cash and has always reimbursed the program with interest, according to the SSA. But without legislation to address the trust fund shortfall, it would be necessary to redeem the long-term securities prior to maturity, the agency has said.
By combining the trust funds, lawmakers may extend the depletion dates from the fourth quarter of 2032 to the third quarter of 2034. At that time, 83% of scheduled benefits would be payable.
“But at that point, the bond market looks and says, ‘Well, you guys have 12 months to get your act in order; you’re going to be looking for another $600-plus billion a year,” Fichtner told CNBC in an interview.
Social Security’s annual shortfall may grow from $600 billion in 2033 to around $700 billion by 2036, according to the research from de Rugy and Fichtner. That’s on top of the estimated $2.7 trillion deficit and $46.5 trillion national debt in 2033.
“Fiscal strain could come earlier than trust fund depletion,” Fichtner said.
The CRFB cites an even larger tab — $800 trillion of borrowing for the 75-year solvency window in nominal terms, or $180 trillion when adjusted for inflation, Goldwein said.
Recent market events that have disrupted auctions of Treasury securities may be a “harbinger of things to come,” according to de Rugy and Fichtner.
Foreign holdings of U.S. Treasurys have declined amid global uncertainty and new U.S. tariff policies, Fichtner said. Other potential early warning signs include the inflation surge that has not yet subsided to the Federal Reserve’s 2% target and longer maturity rates for Treasury Inflation-Protected Securities, which suggest expectations that higher inflation may persist.
The affordability crisis ‘on steroids’
While the research does not predict an “imminent crisis,” there are already early warning signs, according to Fichtner and de Rugy.
Markets may be expecting a fiscally responsible solution from Congress that avoids large-scale borrowing. But if that forecast changes to expect borrowing without fiscal backing, “the market’s revision will not be gradual, nor will the adjustment of the price level that follows,” Fichtner and de Rugy wrote.
The absence of Social Security reform may present two risks, their research found.
First, borrowing costs across the economy could go up, as rising deficits increase the Treasury supply and push bond yields higher, they wrote. Sustained deficit spending would reduce private sector investment, while interest rates may outpace economic growth, leading to a debt-to-gross domestic product ratio that is difficult to stabilize.
Second, investors may lose confidence that future government revenue will be enough to cover its outstanding debt. As a result, rising domestic price levels may erode the real value of government liabilities, according to the research. That would prompt inflation, and while bonds may also react, there wouldn’t necessarily be a decline in those prices, as with the first scenario.
As rising interest rates crowd out private spending, consumers looking to borrow to buy a house or car, or to use credit cards, would pay higher rates, Fichtner said.
Interest rates would rise across the board for both the government and consumers, and spiral into price increases, according to Fichtner.
“It’s like the affordability crisis we’re seeing today, but on steroids,” Fichtner said.
As soon as 12 months out from Social Security’s depletion dates, if Congress has not done anything to address the program’s solvency issues, the bond market may start to change its holdings and duration risk, and move money around, Fichtner said.
If general funding were used for Social Security, a 4% neutral rate on 10-year Treasury bonds may increase to 6.6%, according to 2025 research from the CRFB. In turn, a 30-year fixed-rate mortgage could jump from 6.3% to nearly 9%, the CRFB estimates.
Reform may provide economic opportunity
Intentional decisions about the program’s future could have a beneficial effect on the economy, according to Goldwein.
“If we make smart choices, we can target Social Security benefits to those who need it and actually promote faster economic growth in the process,” Goldwein said.
Any adjustments to Social Security, which is most people’s largest source of retirement income, may change incentives to save, invest and work, Goldwein said. That, in turn, may help promote faster wage growth and faster economic growth, he said.
In 2019, the CRFB came up with a plan to fix Social Security that the organization said would grow the economy’s projected size by between 3.5% to 13% by 2050 and add about 0.25 of a percentage point in the annual growth rate. Average per-person income would increase by about $8,000 in 2050, and projected debt levels would be reduced by about 20% of GDP, prompted by that growth rate, according to the proposal.
The CRFB’s plan calls for a mix of reforms, such as raising Social Security’s retirement ages while protecting vulnerable 62-year-old workers, automatically enrolling workers in supplemental retirement accounts, and counting all years of work toward benefits.