How will a declining population affect your Social Security
If you are under 50, will Social Security still be there when you retire?
The answer starts with a number, 2.1, that demographers call the replacement rate. When women have an average of about 2.1 children, a country’s population stays level. Below that, without immigration, the population shrinks.
The fertility rate in the United States was 1.599 in 2024 and stayed near 1.6 last year, a record low. The last time this country reached replacement level was 2007.
Nearly every wealthy country is in the same position. China and Singapore are at 1.0. Japan and Spain are at 1.1, Italy at 1.2, Canada at 1.3, Germany at 1.4, and Britain and France at 1.6. South Korea holds the world record at 0.7.
Wealth, education, health care, and paid work for women all correlate with smaller families. High birth rates now cluster in the poorest countries or the poorest areas of prosperous countries. Somalia, Chad, the Central African Republic, and Niger all run near 6.0.
The world population, now roughly 8.3 billion, is still growing by about 69 million people a year. That works out to 0.84 percent annually, down from more than 2 percent in the 1960s. The United Nations projects the total will peak near 10.3 billion in the mid-2080s and decline slowly after that.
What does this have to do with Social Security? It is largely a pay-as-you-go system. Taxes withheld from people’s paychecks this month pay much of this month's benefit checks. There is no account somewhere with your name on it. The program was built in 1935 around a population with far more workers than retirees, and those retirees did not collect for long. A man who reached 65 in 1960 could expect to live to about 80. Today he can expect to live to 85.
In 1950 there were 16.5 workers paying in for every person collecting. Today there are about 2.7, a number that the Social Security trustees expect to drop closer to two by 2040. By 2030, for the first time, Americans over 65 will outnumber those under 18.
Immigration is the one factor that changes this arithmetic quickly. The Census Bureau projects that deaths in this country will exceed births by around 2038. From that point forward, under current projections, immigration becomes the only source of population growth.
This does not mean Social Security disappears. I have written before about the alarmist coverage of the trustees' reports. The program will be adjusted instead, through some combination of higher payroll taxes, later retirement ages, and slower benefit growth. Even if Congress never acts, incoming payroll taxes would still cover roughly 80 percent of scheduled benefits.
There is a reasonable argument that population decline is not a catastrophe. Fewer people means less pressure on housing, energy, and food. Automation may cover some of the missing labor, and countries have absorbed demographic shifts before. Those adjustments take decades, though, and you will likely retire before they finish.
The bigger short-term impact is likely to be the cost of aging. Home health aides, nursing staff, and skilled trades come out of the same shrinking pool of working-age people. Fewer workers competing for those jobs means higher wages, which means higher prices for the care you may need in your eighties.
If you are under 50, here is my view: Yes, Social Security will be there. And it will probably pay you less than your statement projects. It’s wise to assume long-term care will also cost more than today's estimates. Base your retirement saving and planning on the assumption that you will fund more of your own old age than your parents had to.
Rick Kahler, CFP®, CFT™, is a pioneer in financial therapy and a 2026 inductee into the Financial Therapy Hall of Fame. He is the founder of The Financial Therapy Podcast and Kahler Financial Group, and co-author of “Coupleship Inc.” and “The Financial Wisdom of Ebenezer Scrooge.
The information provided is for educational purposes only and should not be construed as investment advice. The views expressed are subject to change based on market or economic conditions. Past performance is not indicative of future results. Any reference to potential benefits is illustrative and may not apply to hotyour individual circumstances. You should consult with your financial adviser before making any investment decisions. KFG, LLC is an SEC-registered Investment Adviser.
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