Congress' failure to act soon to strengthen Social Security could increase the risk of broader financial instability and even trigger a fiscal crisis as the program's retirement trust fund approaches insolvency, according to new research released by the Mercatus Center at George Mason University.

The June 26 study comes weeks after the Social Security Board of Trustees reported that the Old-Age and Survivors Insurance trust fund is now projected to be depleted in the fourth quarter of 2032, one quarter earlier than previously forecast. If Congress does not intervene before then, incoming payroll tax revenue would be sufficient to pay only about 78% of scheduled retirement benefits.

"We view the impending depletion of the Social Security OASI trust fund in the early 2030s as the inflection point that could lead to a fiscal crisis if legislative action is not taken beforehand," wrote Veronique de Rugy, a senior research fellow at the Mercatus Center, and Jason Fichtner, executive director of the LIMRA Retirement Income Institute.

The researchers argued that delaying reforms increases the likelihood that Congress would rely on additional federal borrowing to maintain benefits, placing added pressure on Treasury markets and driving up borrowing costs across the economy.

They warned that investors could begin reassessing the federal government's fiscal position well before the trust fund is exhausted if lawmakers fail to produce a credible long-term solution.

The warning echoes concerns raised by the nonpartisan Committee for a Responsible Federal Budget.

"There's been this 90-year promise that Social Security is a self-financed contributory program, and in some ways that's one of our last fiscal rules," Marc Goldwein, the organization's senior vice president, said.

"Once you say we don't have to pay for Social Security, you've opened the floodgate to borrowing far more than the country can afford," Goldwein said. "Once you open that floodgate and that borrowing happens, that's when we can get a fiscal crisis."

Fichtner said markets could react before the trust fund officially reaches insolvency.

"But at that point, the bond market looks and says, 'Well, you guys have 12 months to get your act in order; you're going to be looking for another $600-plus billion a year," Fichtner said.

"Fiscal strain could come earlier than trust fund depletion," Fichtner said.

According to the study, significantly higher federal borrowing could ripple through the broader economy by raising interest rates on mortgages, auto loans, and credit cards, while adding to inflationary pressures.

"It's like the affordability crisis we're seeing today, but on steroids," Fichtner said.

The trustees' latest report found that the combined Social Security trust funds can continue paying full scheduled benefits until 2034, while the Old-Age and Survivors Insurance Trust Fund alone faces depletion in late 2032. The earlier insolvency projection reflects lower expected revenue and updated demographic assumptions, including slower population growth and lower fertility rates.

Lawmakers from both parties have floated proposals to restore the program's long-term finances, including increasing payroll taxes, gradually raising the retirement age, modifying benefits for higher-income retirees, expanding the amount of earnings subject to payroll taxes, and creating bipartisan commissions to recommend reforms. However, Congress has yet to advance comprehensive legislation despite repeated warnings from Social Security trustees.

Goldwein argued that acting sooner would give policymakers greater flexibility to protect beneficiaries while minimizing economic disruption.

"If we make smart choices, we can target Social Security benefits to those who need it and actually promote faster economic growth in the process," Goldwein said.