Rehearsing The Future: Scenario Thinking And Longevity

For years, I’ve championed the power of scenario thinking as a way to “rehearse” the future. In my work, I’ve seen how structured, forward-looking narratives help us move beyond guesswork or simple extrapolation, allowing us to imagine multiple possibilities and develop more resilient strategies. This approach is particularly vital when it comes to the challenges of longevity and the strain on social safety nets like Social Security — areas where demographic shifts, policy decisions, and economic factors converge in ways that few people anticipate. By rehearsing tomorrow’s potential realities today, we equip ourselves with the foresight to adapt, innovate, and thrive no matter which scenario becomes our new normal.

The urgency of addressing Social Security’s financial challenges cannot be overstated. According to the 2023 Social Security Trustees Report, the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds are projected to be depleted by 2034. Once this happens, incoming payroll taxes will only cover about 80% of the scheduled benefits. This shortfall isn’t just a statistic — it represents a real threat to the retirement security of millions of Americans, potentially leading to significant financial hardship for retirees and disabled individuals unless action is taken to reform the system.

The demographic trends tell an equally compelling story. In 1960, there were 5.1 workers supporting each Social Security beneficiary. By 2020, that ratio had fallen to 2.7 workers per beneficiary, and by 2035, it’s projected to decline further to 2.3 workers per beneficiary, according to the Social Security Administration. This shift is partly due to the aging of the baby boomer generation and declining birth rates. Meanwhile, life expectancy has increased dramatically since Social Security’s inception in 1935, when Americans could expect to live just 61.7 years at birth. By 2019, life expectancy had reached 78.8 years, though it declined to 76.4 years in 2021 due to the COVID-19 pandemic, as reported by the CDC. More importantly for Social Security’s finances, Americans who reach 65 today live an average of 18.5 additional years, compared to just 12.5 additional years in 1935. This means beneficiaries are drawing benefits for longer periods, further straining the system’s resources.

Let’s walk through the most likely (probable) reforms, then branch into some that are possible, plausible, and finally, those that are unlikely to happen anytime soon.

PROBABLE SOLUTIONS

Raising the Retirement Age — The international context is instructive here. Many developed nations are already implementing retirement age increases:

• The UK is moving to 67 by 2028
• Germany will reach 67 by 2029
• France recently increased to 64
• The Netherlands and Italy are at 67
• The U.S. is currently set at 67 for those born in 1960 or later

Given these trends and our increasing longevity, raising the full retirement age to 68, 69, or even 70 seems increasingly likely. While politically challenging, it’s often seen as more palatable than benefit cuts.

Increasing Payroll Taxes or Removing the Wage Cap — these are potential solutions to bolster Social Security’s finances. Currently, wages above $160,200 (2023) aren’t subject to Social Security payroll taxes. Removing or raising this cap would bring in significant revenue, particularly from higher-income earners. According to the Social Security Administration, eliminating the wage cap could cover a substantial portion of the program’s long-term funding shortfall. This approach would help ensure that higher-wage workers contribute proportionally more to the system, addressing some of the financial strain caused by the declining worker-to-beneficiary ratio. However, it’s important to note that this solution does not directly address the demographic shifts driving the ratio’s decline, such as the aging population and lower birth rates. Additionally, some critics argue that removing the cap could be seen as unfair to high-income earners, who already pay a larger share of federal taxes.

Modifying the Cost-of-Living Adjustment (COLA) — this is another potential solution to address Social Security’s financial challenges. Currently, COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which aims to keep benefits in step with inflation. Shifting to a ‘chained CPI’-a measure that accounts for changes in consumer behavior in response to price increases — would reduce program costs over time. The chained CPI typically grows about 0.2–0.3 percentage points slower annually than the CPI-W, resulting in smaller benefit increases. While this approach could extend the trust fund’s life beyond 2034 without requiring more obvious benefit cuts, it is still a form of benefit reduction. Critics argue that the chained CPI may not adequately reflect inflation for seniors, who spend a larger share of their income on healthcare, which tends to rise faster than overall inflation. Additionally, this solution does not address the underlying demographic challenges, such as the aging population and declining worker-to-beneficiary ratio.

POSSIBLE SOLUTIONS

Substantial Immigration Reforms to Expand the Workforce — Substantial immigration reforms to expand the workforce could play a key role in addressing Social Security’s demographic challenges. Given the projected decline to just 2.3 workers per beneficiary by 2035, a targeted immigration policy focusing on working-age individuals could help maintain a more sustainable ratio. By increasing the number of workers paying into the system, such reforms would provide immediate payroll tax contributions to the trust fund, helping to offset the financial strain caused by an aging population. Studies have shown that increased immigration could significantly extend the trust fund’s solvency. However, this approach faces challenges, including political feasibility, the integration of immigrants into the workforce, and public opinion on immigration reform. Additionally, while immigration reform could help, it would need to be part of a broader set of solutions to fully address Social Security’s financial challenges, such as adjusting benefits or raising payroll taxes

Partial Privatization — When partial privatization took center stage in the early 2000s, it sparked one of the most high-profile debates around Social Security reform. Proponents argued that diverting a portion of payroll taxes into private investment accounts could yield higher returns for future retirees, offering a potential path to long-term solvency. However, the global financial upheavals of 2008 and the market volatility unleashed by the 2020 pandemic have deepened concerns about exposing retirees’ primary safety net to the vagaries of stock markets.

Despite these reservations, the projected 2034 depletion of the combined Social Security trust funds raises the stakes in any reform discussion. As policymakers grapple with the reality of fewer workers supporting a swelling retiree population, they may have to consider even previously dismissed ideas-if only to weigh all possible paths toward solvency. While partial privatization has undoubtedly become more controversial, the looming fiscal crunch could reignite conversations about whether market-based solutions, if carefully regulated, might still play a role in ensuring that tomorrow’s retirees don’t face abrupt benefit cuts.

PLAUSIBLE SOLUTIONS

Means-Testing Social Security — With average life expectancy for Americans at age 65 now hovering around 84 years, retirees are drawing benefits far longer than when Social Security was launched. This increase translates to significantly higher long-term costs for a system that was never designed with such prolonged payouts in mind. Means testing — where benefits are reduced or eliminated for wealthier retirees — could help target scarce resources toward those who genuinely depend on Social Security, thereby improving the program’s financial sustainability.

Yet the trade-off is substantial: converting Social Security from a universal social insurance into a more income-targeted program. This shift raises challenging questions about the program’s long-standing principle that every contributor, regardless of income, has a stake in its success. While means-testing might preserve the trust fund for vulnerable beneficiaries, it could also erode broad public support for Social Security if higher-income Americans no longer perceive it as a benefit they’ve earned. As lawmakers weigh financial imperatives against social equity, this debate will remain central to the future of America’s most recognized safety net.

Broad-Based Benefit Cuts — If Congress fails to act before the projected 2034 depletion of the Social Security trust funds, an automatic 20% cut to all benefits would be triggered. Such a drastic reduction could have severe consequences for millions of retirees, disabled workers, and their families, many of whom depend on these benefits for their most basic needs. In light of this looming possibility, policymakers might find smaller, targeted cuts — implemented as part of a broader, balanced reform package — more politically and socially acceptable. While no reduction in benefits is ideal, strategic adjustments could help stabilize the system and avoid the far more disruptive scenario of sudden, sweeping cuts. Historically, Congress has intervened before immediate insolvency, but with each passing year, the urgency to act grows more pressing.

Investing the Trust Fund in Equities or Other Markets — Investing the Trust Fund in Equities or Other Markets — Inspired by international models like the Canada Pension Plan, which has successfully built a diversified investment portfolio, the U.S. might consider shifting a portion of the Social Security trust fund into equities or other higher-yielding assets. In principle, higher returns could help mitigate the projected shortfall without requiring immediate benefit cuts or payroll tax hikes. However, market volatility poses a significant risk — one amplified by the sheer size of the Social Security program and the potential for political interference in investment decisions. To maintain the program’s core mission of providing reliable income to millions of Americans, robust governance structures, strict safeguards, and transparent oversight would be essential. This approach may offer a meaningful boost to the trust fund’s performance, but only if carefully managed to balance greater return opportunities with the imperative of protecting retirees’ financial security.

UNLIKELY SOLUTIONS

Universal Basic Income (UBI) to Replace Social Security — The concept of a Universal Basic Income (UBI) has gained attention as a possible response to growing income inequality and the anticipated impact of automation on jobs. However, substituting Social Security with UBI poses steep political and practical obstacles. For one, Social Security is a contributory program, funded and earned through payroll taxes, creating a deep-seated social contract among workers, retirees, and the government. Any effort to dismantle or replace it with a flat, uniform payment — regardless of one’s lifetime contributions or specific needs — would fundamentally redefine this contract.

Moreover, while small-scale UBI pilots have shown some potential benefits, none have operated anywhere near the massive scale required to replace a cornerstone of the U.S. social safety net, which pays out to millions of beneficiaries each month. Cost is another factor: implementing a nationwide UBI at a level high enough to fully supplant Social Security would require significant funding — and likely far-reaching tax reforms — making it a heavy political lift.

Finally, the projected 2034 solvency of Social Security, though pressing, still offers policymakers a buffer to consider more incremental reforms rather than radical overhauls. As a result, while UBI might serve as a complementary policy to tackle certain economic challenges, its feasibility as a complete replacement for Social Security remains highly uncertain in the current political and economic landscape.

Maintaining the Status Quo (No Changes) — According to the latest projections, the Social Security trust funds will be depleted by 2034, at which point benefits would automatically drop by about 20% if no reforms are enacted. In practical terms, this means the program could only pay out what it collects in real time through payroll taxes, falling short of currently scheduled obligations. Therefore, maintaining the status quo isn’t just unlikely — it’s effectively mathematically impossible for those who wish to preserve the current benefit levels. Despite political reluctance to address the issue, the mounting fiscal pressure leaves Congress with little choice but to consider some form of restructuring in the near future.

CLOSING THOUGHTS

The data leaves no room for doubt: Social Security is confronting unprecedented demographic challenges. Life expectancy at age 65 has risen roughly six years since the program’s creation, while the worker-to-beneficiary ratio has plummeted by more than half. International examples make it clear that other nations are already implementing many of the reforms we’re just beginning to discuss.

The 2034 trust fund depletion date may seem distant, but the scale of the changes required — along with the political consensus needed to enact them — means we must start making decisions now. The most likely path forward will involve a combination of measures from the “probable” category, while more radical overhauls may stay on the back burner until circumstances become even more pressing.

Inaction, however, is no longer a viable option. By 2035, only 2.3 workers will be supporting each Social Security beneficiary, and retirees today can expect to live an average of 18.5 years beyond 65. The math simply doesn’t work without meaningful reform. The real question isn’t whether we’ll adapt Social Security to our longer-lived future, but how and when we’ll choose to do so. The sooner we begin, the more time we have to navigate this transition — and the better the outcome will be for retirees and contributors alike.

Ultimately, Social Security’s challenges exemplify the critical need to rehearse the future using well-crafted scenarios. By mapping out multiple trajectories and considering a range of policy options, we build the foresight and agility needed to proactively shape the outcomes, rather than merely react to them.

Originally published at http://frankdiana.net on January 28, 2025.