Under current law, the cost of Social Security will soon begin to increase faster than the program’s income because of the aging of the baby-boom generation, expected continuing low fertility (compared to the baby-boom period), and increasing life expectancy. Based on the Trustees’ best estimate, program cost will exceed tax revenues starting in 2016 and throughout the remainder of the 75-year projection period. Social Security’s combined trust funds are projected to allow full payment of scheduled benefits until they become exhausted in 2037. At that time, annual tax income to the trust funds is projected to equal about 76 percent of program costs. By 2083, annual tax income is projected to be about 74 percent as large as the annual cost of the OASDI program.
Separately, the OASI and DI funds are projected to have sufficient funds to pay full benefits on time until 2039 and 2020, respectively. The fact that the DI fund is projected to become exhausted in 2020 means that some action will likely need to be taken in the next 10 years. At a minimum, a reallocation of the payroll tax rate between OASI and DI would be necessary, as was done in 1994.
Over the full 75-year projection period, the actuarial deficit estimated for the combined trust funds is 2.00 percent of taxable payroll—0.30 percentage point greater than the 1.70 percent deficit projected in last year’s report. This deficit indicates that solvency of the combined OASDI Trust Funds for the next 75 years could be restored under the intermediate assumptions if increases were made equivalent to immediately and permanently increasing the Social Security payroll tax from its current level of 12.40 percent (for employees and employers combined) to 14.41 percent. Alternatively, changes could be made that are equivalent to reducing all current and future benefits by about 13.3 percent. Other ways of reducing the deficit include making transfers from general revenues or adopting some combination of approaches.
If no substantial action is taken until the combined trust funds become exhausted in 2037, then changes necessary to make Social Security solvent over the next 75 years will be concentrated on fewer years and fewer cohorts:
Either of these examples would eliminate the shortfall for the 75-year period as a whole by specifically eliminating annual deficits after trust fund exhaustion. Because of the increasing average age of the population (due to expected improvement in life expectancy and continued low birth rates), Social Security’s annual cost will very likely continue to grow faster than scheduled tax revenues after 2083. As a result, ensuring solvency of the system beyond 2083 would likely require further changes beyond those expected to be needed for 2083.
The projected trust fund deficits should be addressed in a timely way to allow for a gradual phasing in of the necessary changes and to provide advance notice to workers. Making adjustments sooner will allow them to be spread over more generations. In 2009, Social Security plays a critical role in the lives of 52 million beneficiaries and 160 million
covered workers and their families. With informed discussion, creative thinking, and timely legislative action, present and future Congresses and Presidents can ensure that Social Security continues to protect future generations.
