Social Security Retirement Fund Projected to Run Out by 2032, Wharton Model Finds

The Old-Age and Survivors Insurance fund, called OASI, is running short. Penn Wharton's Budget Model says it hits empty in 2032. Combined with the disability fund, the money lasts until 2034.

After that, the program would pay benefits using only the payroll taxes that arrive that year. Those taxes would cover about 83 percent of promised benefits, and the share drops ever lower by 2100, reaching 64 percent.

The long-range gap equals 4.75 percent of covered payroll over 75 years. A tax-only fix would require the payroll tax to rise from 12.4 percent to 17.15 percent. Today that tax is divided evenly at 6.2 percent from workers and 6.2 percent from employers, and it only applies up to $184,500 in earnings in 2026.

The Five Reform Options

Social Security's benefit formula gives workers a start up using 90/32/15 rates applied to average monthly earnings. In 2026 the bend points are $1,286 and $7,749. A worker with $5,000 in average monthly earnings receives about $2,346 per month, while one with $10,000 receives about $3,563.

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The full retirement age is already 67 for anyone born in 1960 or later.

• Option A is tax-heavy. It raises the payroll rate to 13.4 percent, lifts the taxable cap to $250,000, adds a half-rate donut-hole tax, and switches the cost-of-living adjustment to the Chained CPI.
• Option B takes the same tax changes and replaces the current formula with 90/25/8 over a 20-year phase-in.
• Option C keeps the 13.4 percent tax rate, skips the extra tax provisions, moves the formula to 90/25/8, and raises the retirement age to 69.
• Option D combines the $250,000 cap, the Chained CPI, the 90/25/8 formula, and the age-69 retirement.
• Option E changes no taxes. It uses the Chained CPI, the sharpest formula cut to 80/22/5, and an age-69 retirement.

Tax changes would start in 2027. The benefit cuts be generated in for new retirees. The retirement age would rise by two months per year for people who are 44 in 2027, so born in 1983, and the delayed retirement credit maximum would move from 70 to 72.

No plan fully fixes the system. Option A pushes OASI depletion to 2058 and the combined fund to 2070, but leaves a 75-year deficit of -1.56 percent. Option B -1.50 percent.

Option C -1.44 percent. Option D -1.41 percent. Option E has the best long-term balance at -0.94 percent but only delays depletion to 2033 and 2034.

The Dynamic Effects Change the Ranking

The static load only shows promised benefits. The dynamic model adds how people react when they expect smaller government benefits: they save more on their own, which builds private capital and lifts wages. By 2060, GDP is 2.36 percent higher under Option A, 1.97 under B, 2.87 under C, 3.79 under D, and 6.08 percent under E. Private capital rises 4.4 percent under A but 13.53 percent under E. Wages rise 1.63 percent under A and 5.71 under E.

The dynamic model also changes who wins. A person in the bottom income group gains $22,800 in lifetime value under A after the model accounts for behavior. Under E, that same group gains $43,300 in lifetime value even though E has the largest benefit cuts on paper.

A middle-income person age 60 in 2026 loses $30,745 under A, while a middle-income person born in 2051 and owns $42,025. Under E, the 60-year-old loses $60,970 while the future worker gains $81,932. Most 60-year-olds today actually gain more under Option C than under Option A.

The real answer depends on age. For someone about to collect, avoiding big benefit cuts is the priority. "For someone born in 2051, smaller promised benefits mean the economy better. No plan is fixed, but every plan has one automatic truth: the year you were born determines whether a given fix looks fair or cruel."

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