2006 OASDI Trustees Report
The report's major findings are summarized below.
At the end of 2005, 48 million people were receiving benefits: 33 million retired workers and their dependents, 7 million survivors of deceased workers, and 8 million disabled workers and their dependents. During the year an estimated 159 million people had earnings covered by Social Security and paid payroll taxes. Total benefits paid in 2005 were $521 billion. Income was $702 billion, and assets held in special issue U.S. Treasury securities grew to $1.9 trillion.
The OASI and DI Trust Funds, individually and combined, are adequately financed over the next 10 years under the intermediate assumptions. The combined assets of the OASI and DI Trust Funds are projected to increase from $1,859 billion at the beginning of 2006, or 329 percent of annual expenditures, to $3,932 billion at the beginning of 2015, or 409 percent of annual expenditures in that year. Combined assets were projected in last year's report to rise to 337 percent of annual expenditures at the beginning of 2006, and 418 percent at the beginning of 2015.
Under the intermediate assumptions, OASDI cost will increase rapidly between about 2010 and 2030, due to the retirement of the large baby-boom generation. After 2030, increases in life expectancy and relatively low fertility rates will continue to increase Social Security system costs, but more slowly. Annual cost will exceed tax income starting in 2017 at which time the annual gap will be covered with cash from net redemptions of special obligations of the Treasury, until these assets are exhausted in 2040. Separately, the DI fund is projected to be exhausted in 2025 and the OASI fund in 2042. For the 75-year projection period, the actuarial deficit is 2.02 percent of taxable payroll, 0.09 percentage point larger than in last year's report. The open group unfunded obligation for OASDI over the 75-year period is $4.6 trillion in present value, $0.6 trillion more than the unfunded obligation estimated a year ago. Trust fund exhaustion is sooner and the unfunded obligation increased more than would occur from changing the valuation period alone in this report largely because of a lower assumed ultimate real interest rate.
The OASDI annual cost rate is projected to increase from 11.22 percent of taxable payroll in 2006, to 16.71 percent in 2030, and to 18.74 percent in 2080, or to a level that is 5.38 percent of taxable payroll more than the projected income rate for 2080. For last year's report the annual cost for 2080 was estimated at 19.12 percent of payroll. Expressed in relation to the projected gross domestic product (GDP), OASDI cost is estimated to rise from the current level of 4.3 percent of GDP, to 6.2 percent in 2030, and to 6.3 percent in 2080. In last year's report OASDI cost was estimated at 6.4 percent of GDP for 2080. Projected cost for 2080 is lower in this year's report as percentages of taxable payroll and GDP largely due to a higher assumed birth rate.
Annual cost will begin to exceed tax income in 2017 for the combined OASDI Trust Funds, which are projected to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2040 under the long-range intermediate assumptions. For the trust funds to remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased during the period in a manner equivalent to an immediate and permanent increase of 2.02 percentage points, benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 13.3 percent, general revenue transfers equivalent to $4.6 trillion (in present value) could be made during the period, or some combination of approaches could be adopted. Significantly larger changes would be required to maintain solvency beyond 75 years.
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. The sooner adjustments are made the smaller and less abrupt they will have to be. Social Security plays a critical role in the lives of this year's 49 million beneficiaries, and 162 million covered workers and their families. With informed discussion, creative thinking, and timely legislative action, we will ensure that Social Security continues to protect future generations.