The U.S. Social Security Administration projects fertility rising to 1.9 children per woman by 2040, compared to 1.6 today. The Congressional Budget Office and Census Bureau estimate a decline to 1.62-1.70. This gap of a few tenths modifies the projected deficit by 3 trillion dollars over 75 years.
These divergences reveal how demographic assumptions quietly transform fiscal sustainability. In France, the absence of demographic evaluation in financial trajectories raises questions about the sincerity of commitments through 2027.
The Essential Points
- The gap between SSA projections (1.9) and CBO (1.62-1.70) generates a 3 trillion dollar difference in U.S. deficit
- France projects its public finances without integrating the impact of accelerated aging
- Optimistic natality assumptions artificially compensate for pension system deficits
- European budget institutions systematically underestimate the costs of demographic decline
Demographic Optimism Costs 3 Trillion Dollars
The U.S. Social Security Administration relies on a rebound in fertility to balance its accounts. Its projections assume a gradual increase from 1.6 children per woman today to 1.9 by 2040, then stabilization at that level through 2100. The Congressional Budget Office and Census Bureau adopt a more conservative approach: stabilization around 1.62 to 1.70 children per woman.
This difference of 0.2 to 0.3 points radically alters the system’s balance. According to Cato Institute analysis, the SSA assumption generates 3 trillion dollars less deficit over 75 years compared to CBO projections. The gap stems from the number of future contributors: each additional tenth of fertility represents 15 to 20 million more working-age people by 2070.
The SSA justifies its optimism through recent family policies and immigration. But 2024 data confirm the downward trend: U.S. fertility rates fell to 1.62, their lowest historical level. Some states show variable rates, with Texas posting a fertility rate of 1.81.
European Pensions Ignore Their Own Demographics
Europe amplifies the optimistic bias. Eurostat projects stabilization of European fertility at 1.6 children per woman by 2030, despite continuous decline since 2008. France, Germany, and Italy have lost 0.4, 0.3, and 0.2 points of fertility respectively since 2010. No mechanism justifies a trend reversal.
These projections underpin pension reforms. France assumes a ratio of 1.7 working-age people per retiree by 2070, compared to 1.5 today. This improvement assumes stable fertility at 1.8 and net immigration of 70,000 people per year. But INSEE observes fertility of 1.62 in 2024 and net immigration fluctuating between 30,000 and 120,000 depending on the year.
Germany illustrates the consequences of demographic denial. The pension system relies on fertility of 1.6 maintained through 2080 to finance 2020-2022 reforms. 2024 data reveal fertility of 1.46, in continuous decline. The estimated additional deficit reaches 400 billion euros over 50 years according to the German Economic Institute.
France Budgets Without Counting Its Seniors
French budgetary documents sidestep demographic impact. The 2025-2027 Stability Programme projects GDP growth of 1.3% annually without adjusting for aging. The share of people over 65 will grow from 21% to 26% of the population by 2035, mechanically reducing potential growth.
The OECD estimates this reduction at 0.3 percentage points of GDP annually for France between 2025 and 2040. Over three years, this represents a loss of 60 billion euros in tax revenue. Official projections ignore this effect, overstating future revenues by 2 to 3% of GDP.
Health spending suffers the same blindness. Government assumptions project stabilization of public health spending at 8.1% of GDP by 2027. But the progression of age-related diseases (cancers, cardiovascular diseases, Alzheimer’s) has accelerated since 2020. Average health costs double every ten years after age 65, triple after 80.
This demographics of solitude amplifies budget pressure. Isolated elderly people consume 40% more care, according to Social Security data. Their share doubles by 2040.
Budget Adjustment by Demographic Variable
Financial institutions exploit these biases. Rating agencies integrate optimistic demographic projections into their sovereign assessments. Fitch and Moody’s use Eurostat assumptions to rate France and Germany, overestimating their long-term repayment capacity.
Bond markets transmit this distortion. French 30-year rates incorporate a demographic risk premium undervalued by 20 to 30 basis points according to BNP Paribas analysis. This underpricing facilitates present borrowing at the expense of future sustainability.
Some states anticipate the reversal. Japan adjusted its budget projections in 2023 to integrate stable fertility at 1.3 and accelerated aging. This revision generated 15 trillion yen of additional deficit over 40 years, but enables more realistic public debt management.
South Korea follows the same path. Seoul now projects fertility of 0.85 maintained through 2070, compared to the 1.2 used previously. The budget impact reaches 200 trillion won, but avoids a sudden adjustment in 2040-2050.
Technical Solutions Already Exist
Several developed countries are developing automatic adjustment mechanisms. Sweden indexes its pension benefits to the actual demographic ratio, measured each year. The system absorbs fertility variations without generating structural deficits. Benefits automatically decrease if the contributor-to-retiree ratio deteriorates.
Germany has tested a “demographic brake” in some Länder since 2023. Social spending is capped based on observed demographic change, not projected change. Baden-Württemberg thus saves 2 billion euros annually by adjusting its policies to actual data.
Technologies enable finer projections. The Max Planck Institute uses artificial intelligence to cross-reference fertility data, migration, and economic behaviors. Its models reduce by 40% the gaps between projections and demographic realities over 20 years, according to a 2024 evaluation.
This approach is already transforming global industry facing the hemorrhage of expert know-how. Companies adjust their skills needs to actual age pyramids, not hopes for workforce rejuvenation.
The United States Tests Demographic Transparency
Three U.S. states have been experimenting with “demographically neutral” budgets since 2024. Utah, Tennessee, and Florida publish alternative budget versions under different fertility scenarios. The gap reaches 15 to 25% of tax revenues over 30 years between high assumption (2.1) and low (1.4).
This transparency modifies political tradeoffs. Utah abandoned planned tax cuts for 2025-2027 after measuring their impact in a context of declining fertility. Tennessee redirects its investments toward automation and productivity rather than public service expansion.
At the federal level, the Government Accountability Office has recommended since 2023 an annual reconciliation between demographic projections and budget reality. Each 0.1-point gap in fertility represents 500 billion dollars over 50 years for U.S. social accounts.
Institutional investors are adapting. CalPERS, the largest U.S. pension fund, revises its actuarial assumptions based on actual demographic trends rather than official projections. This approach reduces its liabilities by 8% but avoids a 100 billion dollar deficit by 2050.
Europe could draw inspiration from this transparency. Several economists advocate for “demographic stress tests” applied to national budgets, modeled on banking stress tests. The idea is gaining traction at the European Commission, particularly for evaluating post-2027 recovery plans.