2021 OASDI Trustees Report

II. OVERVIEW

A. HIGHLIGHTS

This section summarizes the report’s major findings.

Readers of this report should note that the data and projections presented include the Trustees’ best estimates of the effects of the COVID-19 pandemic and the ensuing recession, which were not reflected in last year’s report.

Employment, earnings, interest rates, and GDP dropped substantially in the second calendar quarter of 2020 and are assumed to rise gradually thereafter toward recovery by 2023, with the level of worker productivity and thus GDP assumed to be permanently lowered by 1 percent. In addition, the pandemic and recession are assumed to lead to elevated mortality rates over the period 2020 through 2023 and delays in births and immigration in the near term. Taken together, these data and assumptions cause the reserve depletion date for the combined OASI and DI Trust Funds under the intermediate assumptions to change from 2035, shown in the 2020 report, to 2034 for this report. These changes also result in a small but significant reduction in the actuarial balance for the OASDI program.

The pandemic and precipitous recession have clearly had significant effects on the actuarial status of the OASI and DI Trust Funds, and the future course of the pandemic is still uncertain. The Trustees will continue to monitor developments and modify the projections in later reports.

In 2020

At the end of 2020, the OASDI program was providing benefit payments¹ to about 65 million people: 49 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 10 million disabled workers and dependents of disabled workers. During the year, an estimated 175 million people had earnings covered by Social Security and paid payroll taxes on those earnings. The total cost of the program in 2020 was $1,107 billion. Total income was $1,118 billion, which consisted of $1,042 billion in non-interest income and $76 billion in interest earnings. Asset reserves held in special issue U.S. Treasury securities grew from $2,897 billion at the beginning of the year to $2,908 billion at the end of the year. The total cost and asset reserve accumulation shown for 2020 reflect the twelve months of benefits scheduled for payment, and exclude the benefits scheduled for payment on January 3, 2021, which were actually paid on December 31, 2020 as required by the law.²

Short-Range Results (2021-30)

Under the Trustees’ intermediate assumptions, Social Security’s total cost is projected to be higher than its total income in 2021 and all later years. Social Security’s cost has exceeded its non-interest income since 2010.

To illustrate the actuarial status of the Social Security program as a whole, the operations of the OASI and DI Trust Funds are often shown on a combined basis as OASDI. However, by law, the two funds are separate entities and therefore the combined fund operations and reserves are hypothetical. The combined reserves are projected to decrease from $2,908 billion at the beginning of 2021 to $1,336 billion at the end of 2030, the last year of the short-range period.

The reserves of the combined OASI and DI Trust Funds along with projected program income are sufficient to cover projected program cost over the next 10 years under the intermediate assumptions. However, the ratio of reserves to annual cost is projected to decline from 253 percent at the beginning of 2021 to 85 percent at the beginning of 2030. Because this ratio falls below 100 percent by the beginning of the 10th projection year, the combined OASI and DI Trust Funds fail the Trustees’ test of short-range financial adequacy. Considered separately, the OASI and DI Trust Funds also fail this test. For last year’s report, the Trustees projected that combined reserves would be 248 percent of annual cost at the beginning of 2021 and 94 percent at the beginning of 2030.

Long-Range Results (2021-95)

Under the Trustees’ intermediate assumptions, OASDI cost is projected to exceed total income in 2021, and the dollar level of the hypothetical combined trust fund reserves declines until reserves become depleted in 2034. Figure II.D2 shows the implications of reserve depletion for the combined OASI and DI Trust Funds. Considered separately, the OASI Trust Fund reserves become depleted in 2033 and the DI Trust Fund reserves become depleted in 2057.³ In last year’s report, the projected reserve depletion years were 2035 for OASDI, 2034 for OASI, and 2065 for DI.

For the third year in a row, there has been a significant change in the DI reserve depletion date because the DI reserve depletion date is very sensitive to changes in program cash flows, and there is now less revenue projected in the near term for the DI program than was expected in last year’s report. Nevertheless, the DI program has continued to have low levels of disability applications and benefit awards for 2020. Disability applications have declined substantially since 2010, and the total number of disabled-worker beneficiaries in current payment status has been falling since 2014. For this report, disability applications are assumed to rise gradually from current low levels, resulting in a rise in the age-sex-adjusted disability incidence rate to an ultimate rate of 5.0 per thousand exposed by the end of the short-range projection period, the same ultimate rate as was assumed in last year’s report.

OASDI cost has been increasing much more rapidly than non-interest income since 2008 and is projected to continue to do so through about 2040. In this period, the retirement of the baby-boom generation is increasing the number of beneficiaries much faster than the increase in the number of covered workers, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. Between about 2040 and 2055, OASDI cost and non-interest income are projected to increase at more similar rates as the cost rate (the ratio of program cost to taxable payroll) roughly stabilizes, reflecting the return to birth rates above 2 children per woman between 1990 and 2008. Between 2055 and 2078, OASDI cost is projected to grow significantly faster than income because of the period of historically low birth rates starting with the recession of 2007-09. From 2078 to 2095, cost is projected to grow somewhat slower than income, as birth rates return to a level of 2 children per woman for 2056 and thereafter.

Over the 75-year long-range period 2021-95, the projected OASDI annual cost rate increases from 14.11 percent of taxable payroll for 2021 to 18.38 percent for 2078, and then decreases to 17.70 percent for 2095. The projected cost rate for 2095 is 4.34 percent of taxable payroll more than the projected income rate (the ratio of non-interest income to taxable payroll) for 2095. For last year’s report, the Trustees estimated the OASDI cost for 2095 at 17.97 percent, or 4.55 percent of payroll more than the annual income rate for that year. Expressed in relation to the projected gross domestic product (GDP), OASDI cost rises from 5.1 percent of GDP for 2021 to a peak of about 6.2 percent for 2077, and then declines to 5.9 percent by 2095.

For the 75‑year projection period, the actuarial deficit is 3.54 percent of taxable payroll, increased from 3.21 percent of taxable payroll in last year’s report. The closely-related open-group unfunded obligation for OASDI over the 75-year period is 3.35 percent of taxable payroll, increased from 3.03 percent of payroll in last year’s report. The open-group unfunded obligation for OASDI over the 75‑year period is $19.8 trillion in present value and is $3.0 trillion more than the measured level of $16.8 trillion a year ago. The actuarial deficit and unfunded obligation both round to 1.2 percent of GDP over the 75-year period, increased from 1.1 percent and 1.0 percent, respectively, in last year’s report.

If the assumptions, methods, starting values, and the law had all remained unchanged, the actuarial deficit would have increased to 3.27 percent of taxable payroll, and the unfunded obligation would have risen to about 3.09 percent of taxable payroll and $17.5 trillion in present value due to the change in the valuation date. These measures increased significantly in this year’s report due to changes in methodology and near-term interest rates, described in detail in section IV.B.6 of this report.

To illustrate the magnitude of the 75-year actuarial deficit, consider that for the combined OASI and DI Trust Funds to remain fully solvent throughout the 75-year projection period: (1) revenue would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 3.36 percentage points⁴ to 15.76 percent; (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 21 percent applied to all current and future beneficiaries, or about 25 percent if the reductions were applied only to those who become initially eligible for benefits in 2021 or later; or (3) some combination of these approaches would have to be adopted.

If substantial actions are deferred for several years, the changes necessary to maintain Social Security solvency would be concentrated on fewer years and fewer generations. Significantly larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2034. For example, maintaining 75-year solvency with changes that begin in 2034 would require: (1) an increase in revenue by an amount equivalent to a permanent 4.20 percentage point payroll tax rate increase to 16.60 percent starting in 2034, (2) a reduction in scheduled benefits by an amount equivalent to a permanent 26 percent reduction in all benefits starting in 2034, or (3) some combination of these approaches.

Conclusion

Under the intermediate assumptions, the projected hypothetical combined OASI and DI Trust Fund asset reserves become depleted and unable to pay scheduled benefits in full on a timely basis in 2034. At the time of depletion of these combined reserves, continuing income to the combined trust funds would be sufficient to pay 78 percent of scheduled benefits. The OASI Trust Fund reserves are projected to become depleted in 2033, at which time OASI income would be sufficient to pay 76 percent of OASI scheduled benefits. DI Trust Fund asset reserves are projected to become depleted in 2057, at which time continuing income to the DI Trust Fund would be sufficient to pay 91 percent of DI scheduled benefits.

Lawmakers have a broad continuum of policy options that would close or reduce Social Security's long-term financing shortfall. Cost estimates for many such policy options are available at
www.ssa.gov/OACT/solvency/provisions/.

The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 65 million beneficiaries and 176 million covered workers and their families during 2021. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

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1

The definitions of “benefit payments” and other terms appear in the Glossary.

2

Benefit payments which were scheduled to be paid on January 3, 2021 were actually paid on December 31, 2020 as required by the statutory provision for early delivery of benefit payments when the normal delivery date is a Saturday, Sunday, or public legal holiday. The amount of these payments was approximately $18.7 billion for the OASI Trust Fund and $6.1 billion for the DI Trust Fund. For comparability with the values for historical years and the projections in this report, all trust fund operations and asset reserves reflect the 12 months of benefits scheduled for payment each year.

3

If the OASI Trust Fund reserves were to become depleted in 2033 as is currently projected, the operations of the hypothetical combined OASI and DI Trust Funds would not reflect the aggregated operation of the OASI Trust Fund and the DI Trust Fund because part of the OASI benefits could not be paid without a change in the law. Implicitly, the values shown for the hypothetical combined trust funds assume the law will have been changed to permit the transfer of resources between funds as needed.

4

The 3.36 percentage point increase in the payroll tax rate required to achieve 75-year solvency differs somewhat from the 3.54 percent actuarial deficit. This is primarily because the rate increase required to achieve 75-year solvency reflects a zero trust fund reserve at the end of the period, whereas the 3.54 percent actuarial deficit incorporates an ending trust fund reserve equal to one year’s cost. While such an increase in the payroll tax rate would cause some behavioral changes in earnings and ensuing changes in benefit levels, such changes are not included in these calculations because they are assumed to have roughly offsetting effects on OASDI actuarial status over the 75-year long-range period as a whole.