Trustees for the Social Security trust fund projected this week that fertility will decline faster than previously anticipated, a change that raises fears about the health of the program and the broader economy and that some experts say is still overly optimistic.
The trustees revised down the long-run projections for the national fertility rate on Tuesday in their annual report, which also showed that the Social Security retirement trust fund is expected to run out sooner than expected.
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They said the total fertility rate, or the average number of children a woman will have in her lifetime, will settle at 1.75 over the next 25 years, down from 1.9 projected last year.
Yet the fertility rate has already fallen below the trustees’ projections. It stands at 1.6 right now, the lowest in a century, according to the Centers for Disease Control and Prevention’s most recent data.
And other projections of the fertility rate are even more conservative.
For example, the Census Bureau projects the fertility rate will be at 1.61 by 2045, while the Congressional Budget Office assumes a long-run decline to 1.53.
Romina Boccia, the director of budget and entitlement policy at the libertarian Cato Institute, told the Washington Examiner that the discrepancy raises questions about why the trustees’ projection is so much higher and how those higher projections affect estimates about Social Security.
“The problem with these assumptions is that it creates the illusion that there will be more revenues coming in the program than is likely going to be the case, such that the trustees likely underestimate the total shortfall and what will be required in terms of tax increases and spending cuts by almost 10%,” she said.
“So that’s significant,” Boccia said.
The report showed that Social Security’s projected 75-year solvency gap grew from 3.82% of taxable payroll to 4.42% of payroll over the past year. The lower projected fertility rates accounted for half that deterioration, according to the Committee for a Responsible Federal Budget.
The fertility rate has trended downward since 2007, when the total fertility rate reached the replacement rate of 2.1 births per woman. Demographers define the replacement rate as the number of births that will keep a population stable, with no growth or decline.
The lower projected fertility rate will have notable economic effects.
Most significantly, it will mean fewer workers in the years to come. The size of the labor force and the number of people working are very important for tax revenue, said Mark Warshawsky, a senior fellow at the American Enterprise Institute and an expert in healthcare and retirement policy.
“I think naturally you would expect lower economic growth and lower revenue growth for the federal government,” Warshawsky told the Washington Examiner. “It means that the budget deficits will increase faster than what we would expect otherwise.”
Lyman Stone is the senior fellow and director of the Pronatalism Initiative at the Institute for Family Studies. He said that a variety of factors are driving down fertility rates.
“The biggest single factor is just that marriage is declining — for people who get married at a given age, their fertility has not declined very much, it’s just that people aren’t forming as many partnerships,” Stone told the Washington Examiner.
The reasons for the decline in marriage are many, but Stone highlighted changes in social life due to the digital revolution as one such factor.
“So the rise of smartphones, social media, pornography, streaming services,” he said.
Stone said that, despite the downward revision from the trustees, they remain “unbelievably optimistic” about the country’s future fertility rates. He said that if the decline continues, it would be bad news for the country and the economy.
“The result of this will be fewer people, fewer workers, lower population, lower economic growth, more people aging into retirement with additional care needs, which means the growing share of retiring population living in institutionalized care, like nursing homes, which will mean just worse quality of life in retirement, as well, and shorter lifespans,” he said.
Also in the report, the program’s trustees projected that the Social Security retirement trust fund will be exhausted in 2032, earlier than previously anticipated.
The trustees predicted that the Old Age and Survivors Insurance trust fund would only be enough to pay 78% of scheduled benefits in the fourth quarter of 2032.
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The OASI trust fund, combined with the disability insurance trust fund, is projected to be able to pay out benefits until 2034, after which there will only be enough to pay out 83% of benefits, the trustees project.
“To protect the promise of Social Security, it is important for lawmakers and the Social Security Administration to work together to ensure the trust funds continue to provide financial stability now and for future generations,” Social Security Commissioner Frank Bisignano said.
