The biggest risk from delaying Social Security reform may not be benefit cuts but the impact on U.S. bond markets, according to new research warning that waiting too long could drive up borrowing costs across the economy.
The study, published June 26 by researchers Veronique de Rugy and Jason Fichtner at George Mason University’s Mercatus Center, argues that waiting until Social Security’s retirement trust fund nears depletion could force lawmakers to rely on significantly more government borrowing, increasing pressure on Treasury markets and raising the risk of broader fiscal stress.
The researchers described the projected depletion of the Social Security Old-Age and Survivors Insurance (OASI) trust fund as an “inflection point” that could lead to a fiscal crisis if lawmakers fail to act beforehand.
Social Security is primarily funded through payroll taxes, with its trust funds covering any gap between tax revenue and scheduled benefits. According to the latest Social Security Trustees Report, the Old-Age and Survivors Insurance trust fund is projected to be depleted in the fourth quarter of 2032. If Congress takes no action, incoming payroll tax revenue would be sufficient to pay only about 78% of scheduled retirement benefits.
