The Effect of Immigration on Social Security’s Finances

Source: Social Security Administration (SSA)

This decline is driven by demographic trends on both sides of this ratio.

On the worker side, the fertility rate in the U.S. has been falling by 2% annually since 2014, resulting in a birth rate well below the population replacement rate of 2.1 children per woman. In 2023, the birth rate stood at 1.8 births per woman, and it is expected to decline to 1.6 by 2065. Falling birth rates lead to a slowdown (and eventual decline) in the number of native-born workers paying Social Security taxes.

On the beneficiary side, the retiree population is expected to grow significantly faster than the working-age population because of improvements in U.S. longevity and the aging of Baby Boomers. Female life expectancy at age 65, for example, is expected to increase by over four years by the end of the century, from 86.4 in 2020 to 90.5 in 2100, lengthening the period during which retirees collect benefits. Additionally, the U.S. has officially entered “Peak 65”—the four-year span from 2024 to 2027 in which more than 4.1 million Americans will turn 65 annually, the largest retirement wave in the nation’s history. Figure 2 shows the effect of these changes on the demographic composition of the U.S. population.

Figure 2: Demographic Shift from a Youthful to Aging Population, 1960 to 2060

Source: United Nations

How Could Immigration Impact Social Security’s Solvency?

By 2040, immigration is expected to be the sole driver of U.S. population growth. Currently, 77% of the immigrants entering the country are working age (between 18 and 64). Evidence indicates that immigrants account for 19% of the U.S. labor force despite making up only 14.3% of the total population. This both strengthens the worker-to-beneficiary ratio and helps shore up Social Security’s payroll-tax base.

The 2024 Social Security Trustees Report presents how three levels of net immigration could affect the program’s long-term financial status. Over a 75-year period, the actuarial balance of the combined Old-Age, Survivors, and Disability Insurance (OASDI) trust funds varies by 0.78 percentage points, representing nearly one-quarter of the program’s financial shortfall, depending on net immigration. Specifically, SSA’s base estimate of annual net immigration is 1.2 million, corresponding to the baseline deficit estimate of 3.5% of taxable payroll. If annual net immigration is only 829,000—SSA’s low estimate—the 75-year deficit would grow to 3.9% of taxable payroll, but SSA’s high estimate of annual net immigration of 1.7 million would result in a smaller deficit of only 3.1% of taxable payroll. Alternatively, the trustees estimate that an increase in net annual immigration of 100,000 people would improve the trust funds’ actuarial balance by 0.1% of taxable payroll.

Table 1: OASDI Trust Fund Sensitivity to Annual Net Immigration (Percentage of Taxable Payroll)

Source: SSA

Note: The data in the table apply to the combined OASDI trust funds. Higher levels of net immigration are likely to provide greater benefits to the primary Old-Age and Survivors Insurance trust fund than the Disability Insurance trust fund.

Lower predicted benefits for foreign-born workers

Foreign-born workers contribute to Social Security at the same tax rate but have lower predicted Social Security benefits than native-born Americans because, on average, they earn lower lifetime wages and have fewer years of employment that count toward their calculated benefits. As of 2018, 65% of foreign-born workers received Social Security benefits compared to 84% of native-born Americans. Most of these individuals are earlier in their careers and begin contributing to Social Security immediately, even though they will not claim benefits for years into the future, if ever. This creates a net positive effect on the Social Security system.

Return to home country upon retirement

Recent migration trends suggest that foreign-born workers are increasingly returning to their home countries to retire. As a result, many who pay into the Social Security system during their working years may not be eligible to receive benefits, as non-residents can only do so under certain circumstances. By not fully drawing benefits, foreign-born contributors can generate net gains for the Social Security trust funds.

Unauthorized workers contribute taxes but are ineligible for benefits

In 2022, unauthorized immigrants contributed $25.7 billion in Social Security taxes, typically by working under borrowed or fraudulent Social Security numbers. Unauthorized immigrants, however, are ineligible to claim Social Security benefits.

Bottom Line

Although there is no plausible scenario under which additional net immigration would entirely resolve Social Security’s impending insolvency, immigration has significant interactions with the program’s financial health and plays an important role in the U.S labor market to offset the continued decline in birth rates.