July 10, 2026

The Biggest Risk From Delaying Social Security Reform Has Nothing to Do With Benefit Cuts— It’s What Happens to Bond Markets

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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.

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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.

Bond Market Could Feel Pressure First

The researchers said postponing reforms increases the likelihood that Congress would finance future benefit payments through additional borrowing rather than structural changes.

That could push Treasury yields higher as investors demand greater compensation to finance larger government deficits. The study estimates Social Security’s annual funding shortfall could grow from roughly $600 billion in 2033 to about $700 billion by 2036.

The paper outlines two key risks. Higher government borrowing could increase interest rates across the economy, making mortgages, auto loans and business financing more expensive. Alternatively, investors could lose confidence in the government’s long-term fiscal outlook, leading to higher inflation and eroding the purchasing power of households.

While the authors said they are not predicting an imminent fiscal crisis, they warned that delaying reforms increases the likelihood of sharper market adjustments as the trust fund depletion date approaches and could prompt investors to reassess fiscal risks before then.

Reform Debate Intensifies

The findings add to the growing debate over Social Security’s long-term finances. Earlier this year, Sen. Elizabeth Warren (D-Mass.) urged President Donald Trump to clarify whether his administration would consider raising the retirement age, warning such a move could significantly reduce future benefits for millions of Americans. The White House has said Trump will protect and strengthen Social Security.

Pressure has also been building from retirement advocates. In May, AARP urged Congress to strengthen Social Security ahead of the projected funding shortfall, emphasizing that while payroll taxes would continue supporting the program after trust fund depletion, retirees would face reduced benefits without legislative action.

Image via Shutterstock

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