The Future Financial Status of the Social Security Program

by
Social Security Bulletin, Vol. 70, No. 3, 2010

The concepts of solvency, sustainability, and budget impact are common in discussions of Social Security, but are not well understood. Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits. This increase in cost results from population aging, not because we are living longer, but because birth rates dropped from three to two children per woman. Importantly, this shortfall is basically stable after 2035; adjustments to taxes or benefits that offset the effects of the lower birth rate may restore solvency for the Social Security program on a sustainable basis for the foreseeable future. Finally, as Treasury debt securities (trust fund assets) are redeemed in the future, they will just be replaced with public debt. If trust fund assets are exhausted without reform, benefits will necessarily be lowered with no effect on budget deficits.


The author is the Chief Actuary of the Social Security Administration.

Acknowledgments: This article is possible only as a result of the consistent efforts of the Social Security Board of Trustees and their staffs in producing a highly professional and informative report each year. Particular appreciation is extended to Karen Glenn of the Office of the Chief Actuary for her invaluable review and editing of the article. In addition, Michael Leonesio, David Weaver, and Jason Fichtner of the Office of Retirement and Disability Policy provided critical and constructive comments on the draft that contributed substantially to the end product.

The findings and conclusions presented in the Bulletin are those of the authors and do not necessarily represent the views of the Social Security Administration.

Introduction

Selected Abbreviations
DI Disability Insurance
GDP gross domestic product
HI Hospital Insurance
NRA normal retirement age
OASDI Old-Age, Survivors, and Disability Insurance
OASI Old-Age and Survivors Insurance
PAYGO pay as you go

As a result of changes to Social Security enacted in 1983, benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted.1 At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76 percent of scheduled benefits. Thus, the Congress will need to make changes to the scheduled benefits and revenue sources for the program in the future. The Social Security Board of Trustees project that changes equivalent to an immediate reduction in benefits of about 13 percent, or an immediate increase in the combined payroll tax rate from 12.4 percent to 14.4 percent, or some combination of these changes, would be sufficient to allow full payment of the scheduled benefits for the next 75 years.

Since the inception of the Social Security program in 1935, scheduled benefits have always been paid on a timely basis through a series of modifications in the law that will continue. Social Security provides a basic level of monthly income to workers and their families after the workers have reached old age, become disabled, or died. The program now provides benefits to over 50 million people and is financed with the payroll taxes from over 150 million workers and their employers. Further modifications of the program are a certainty as the Congress continues to evolve and shape this program, reflecting the desires of each new generation.

This article describes the financial status of the Social Security program, including an analysis of the concepts of solvency and sustainability and the relationship of Social Security to the overall federal unified budget. The future is uncertain in many respects, and based on new information, projections of the financial status of the Social Security program vary somewhat over time. What is virtually certain is that the benefits that almost all Americans become entitled to and most depend on will be continued into the future with modifications deemed appropriate by their elected representatives in the Congress.

Annual Reports by the Trustees

Each year, starting in 1941, the Social Security Board of Trustees has presented a required report on the financial status of the program to the Congress. The board has six members, including the Secretary of the Treasury as the managing trustee, the Secretary of Labor, the Secretary of Health and Human Services, and the Commissioner of Social Security, plus two public trustees appointed by the president and confirmed by the senate.

The Social Security Act requires that the annual report include (1) the financial operations of the trust funds in the most recent past year, (2) the expected financial operations of the trust funds over the next 5 years, and (3) an analysis of the actuarial status of the program. The recent financial operations and the operations projected for the next few years are a finger on the pulse of the program. The actuarial status of the program is intended to provide an early warning of any potential longer-term financial issues or challenges that will be facing the program.

The longer-term analysis of the actuarial status of the Social Security trust funds provides the Congress with an essential early warning of future challenges and provides the time to make desired changes in a careful and thoughtful manner. Although legislative changes may sometimes appear to be decided at the last minute before a crisis, the long advance warning of financial challenges provided by the trustees in the annual reports has always promoted broad consideration of options for change that allow any eventual modification of the law to be based on sound analysis and consideration of a comprehensive view of possible changes and their effects.

Since the last major amendments to the Social Security program were enacted in 1983, the annual reports have presented a succession of developments in the actual experience of the economy and the program benefits that show a need for more change to address the future challenges we face. The 1983 Trustees Report indicated that the Social Security program was put into "actuarial balance" for the 75-year, long-range projection period. This meant that under the intermediate assumptions used in that report, representing the trustees' best estimate of future experience at that time, program financing was expected to be sufficient to pay scheduled benefits in full through 2057.2 However, that report also indicated that well before 2057, program cost would rise above the annual tax income to the program, requiring redemption of trust fund reserves to pay full benefits. The report also showed that these reserves would be approaching exhaustion in 2057, so that full scheduled benefits would not be payable starting shortly thereafter, without further change to the program. Thus, even at the enactment of the 1983 Amendments to the Social Security Act, it was known that further changes would be needed. The continuing projections in the annual reports since 1983 have borne out this projection and have resulted in extensive consideration of options.

Solvency of the Social Security Program

When individuals look at the financial status of the Social Security program, they often ask, "Will I get my benefits?" Assuming no future change in the law, this question can be answered directly by focusing on the "solvency" of the Social Security trust funds. Solvency for the Social Security program is defined as the ability of the trust funds at any point in time to pay the full scheduled benefits in the law on a timely basis.

The two Social Security trust funds, those for Old-Age and Survivors Insurance (OASI) benefits and for Disability Insurance (DI) benefits, are special. Along with the Hospital Insurance (HI) Trust Fund of the Medicare program, the OASI and DI Trust Funds have the important feature that benefits can only be paid to the extent that the trust funds actually have assets to draw on to pay the benefits. Unlike the rest of federal government operations, these three trust fund programs do not have the ability to borrow in order to continue paying benefits when the dedicated taxes and trust fund reserves are not sufficient.3

Because the ability of these programs to pay benefits is directly dependent on the availability of assets in their respective trust funds, the existence of assets over time in the future is the critical indicator of solvency. Taken from the 2009 Trustees Report, Chart 1 shows that under the trustees' intermediate assumptions (alternative II), the combined assets of the OASI and DI Trust Funds will soon peak at over 350 percent of the annual cost of the program, but will then decline, reaching exhaustion in 2037. The relatively more optimistic assumptions of the low-cost alternative I show solvency for the program throughout the 75-year projection period, while the relatively pessimistic high-cost alternative III assumptions show trust fund exhaustion even sooner than 2037. These alternative sets of assumptions are just one of several ways the trustees illustrate the uncertainty of long-range projections for the future.

Chart 1.
Combined OASI and DI Trust Fund assets as a percentage of program cost, 1990–2008, projected under alternative assumptions, 2009–2085
Line chart with tabular version below.
Show as table
Table equivalent for Chart 1. Combined OASI and DI Trust Fund assets as a percentage of program cost, 1990–2008, projected under alternative assumptions, 2009–2085
Year Asset/cost ratio (%)
Historical Alternative I Alternative II Alternative III
1990 75      
1991 82      
1992 96      
1993 107      
1994 117      
1995 128      
1996 140      
1997 154      
1998 171      
1999 194      
2000 216      
2001 239      
2002 263      
2003 288      
2004 305      
2005 318      
2006 335      
2007 345      
2008   358 358 358
2009   356 354 353
2010   364 360 357
2011   374 366 360
2012   385 369 356
2013   392 367 343
2014   397 364 324
2015   401 359 306
2016   405 354 290
2017   407 347 275
2018   408 338 259
2019   406 327 241
2020   404 315 222
2021   401 302 202
2022   398 289 180
2023   394 275 157
2024   390 260 133
2025   385 244 108
2026   379 227 83
2027   373 209 56
2028   367 191 28
2029   361 173 0
2030   354 153  
2031   348 133  
2032   342 113  
2033   336 92  
2034   330 71  
2035   325 50  
2036   320 29  
2037   315 7  
2038   311    
2039   308    
2040   306    
2041   304    
2042   302    
2043   301    
2044   301    
2045   301    
2046   302    
2047   303    
2048   304    
2049   306    
2050   309    
2051   312    
2052   315    
2053   318    
2054   322    
2055   326    
2056   330    
2057   334    
2058   339    
2059   344    
2060   349    
2061   354    
2062   360    
2063   367    
2064   373    
2065   380    
2066   387    
2067   395    
2068   403    
2069   411    
2070   419    
2071   428    
2072   437    
2073   446    
2074   455    
2075   464    
2076   474    
2077   484    
2078   494    
2079   503    
2080   513    
2081   523    
2082   532    
2083   542    
2084   552    
2085   561    
 
SOURCE: 2009 Social Security Trustees Report, Figure II.D6 and Table IV.B3.
NOTES: Alternative I = low-cost assumptions; alternative II = intermediate assumptions; alternative III = high-cost assumptions.

Exhaustion of trust fund assets is projected to occur under the intermediate assumptions because program cost will begin to exceed the tax revenues dedicated to the trust funds in the future, requiring increasing amounts of net redemptions from the trust funds. The assumptions adopted for the 2009 Trustees Report resulted in projected "cash flow" shortfalls for the Old-Age, Survivors, and Disability Insurance (OASDI: OASI and DI combined) program as a whole starting in 2016, when tax revenue alone was first expected to be insufficient to cover the annual cost of the program.4 Chart 2, taken from the 2009 Trustees Report, illustrates the nature of this relationship between dedicated tax income for the OASDI program and the projected cost of providing scheduled benefits.

Chart 2.
OASDI program cost and noninterest income as percentages of taxable payroll, 2005–2008, projected under the intermediate assumptions, 2009–2085
Line chart with tabular version below.
Show as table
Table equivalent for Chart 2. OASDI program cost and noninterest income as percentages of taxable payroll, 2005–2008, projected under the intermediate assumptions, 2009–2085
Year Percentage of taxable payroll
Noninterest Income Program cost, scheduled benefits Program cost, payable benefits
2005 12.71 11.16 11.16
2006 12.74 11.04 11.04
2007 12.75 11.32 11.32
2008 12.71 11.38 11.38
2009 12.83 12.35 12.35
2010 12.87 12.50 12.50
2011 12.87 12.37 12.37
2012 12.87 12.24 12.24
2013 12.90 12.38 12.38
2014 12.92 12.62 12.62
2015 12.94 12.88 12.88
2016 12.96 13.18 13.18
2017 12.98 13.49 13.49
2018 13.00 13.83 13.83
2019 13.02 14.17 14.17
2020 13.04 14.50 14.50
2021 13.06 14.81 14.81
2022 13.08 15.09 15.09
2023 13.10 15.37 15.37
2024 13.12 15.62 15.62
2025 13.13 15.86 15.86
2026 13.15 16.08 16.08
2027 13.16 16.28 16.28
2028 13.17 16.47 16.47
2029 13.19 16.62 16.62
2030 13.20 16.76 16.76
2031 13.21 16.87 16.87
2032 13.22 16.96 16.96
2033 13.23 17.03 17.03
2034 13.23 17.07 17.07
2035 13.24 17.10 17.10
2036 13.24 17.11 17.11
2037 13.25 17.11 13.25
2038 13.25 17.08 13.25
2039 13.25 17.04 13.25
2040 13.25 16.99 13.25
2041 13.25 16.94 13.25
2042 13.25 16.88 13.25
2043 13.25 16.83 13.25
2044 13.25 16.79 13.25
2045 13.25 16.75 13.25
2046 13.25 16.72 13.25
2047 13.25 16.69 13.25
2048 13.25 16.66 13.25
2049 13.25 16.63 13.25
2050 13.25 16.61 13.25
2051 13.25 16.59 13.25
2052 13.25 16.59 13.25
2053 13.25 16.59 13.25
2054 13.26 16.60 13.26
2055 13.26 16.62 13.26
2056 13.26 16.64 13.26
2057 13.26 16.66 13.26
2058 13.27 16.68 13.27
2059 13.27 16.70 13.27
2060 13.27 16.73 13.27
2061 13.27 16.75 13.27
2062 13.28 16.77 13.28
2063 13.28 16.80 13.28
2064 13.28 16.83 13.28
2065 13.28 16.86 13.28
2066 13.29 16.89 13.29
2067 13.29 16.93 13.29
2068 13.29 16.97 13.29
2069 13.30 17.01 13.30
2070 13.30 17.05 13.30
2071 13.30 17.09 13.30
2072 13.31 17.14 13.31
2073 13.31 17.18 13.31
2074 13.31 17.23 13.31
2075 13.32 17.27 13.32
2076 13.32 17.32 13.32
2077 13.32 17.37 13.32
2078 13.33 17.42 13.33
2079 13.33 17.47 13.33
2080 13.33 17.53 13.33
2081 13.34 17.58 13.34
2082 13.34 17.63 13.34
2083 13.34 17.68 13.34
2084 13.35 17.73 13.35
2085 13.35 17.78 13.35
Chart summary: Between 2005 and 2036, the cost of scheduled and payable benefits is equal. Starting in the year the trust funds are exhausted (2037), then payable benefits will equal income.
In-chart note: Payable benefits as a percentage of scheduled benefits:
  • 2009–2036: 100 percent
  • 2037: 76 percent
  • 2083: 73 percent
SOURCE: 2009 Social Security Trustees Report, Figure II.D2 and Table IV.B1.

Because the combined OASI and DI Trust Funds have accumulated assets of over $2.5 trillion, the excess of program cost over current tax income will be covered by net redemption of these assets in the coming years. It is only when the reserves in the trust funds are exhausted that timely payment of full scheduled benefits becomes an issue. As shown in the chart, at the time of projected trust fund exhaustion in 2037, continuing tax revenue is expected to be sufficient to cover 76 percent of the currently scheduled benefits. This precipitous drop in the level of benefits that would be payable in the absence of any legislative action between now and 2037 is the principal and most significant early warning provided in the 2009 Trustees Report.

Historically, the OASI and DI Trust Funds have reached times where dedicated tax revenue fell short of the cost of providing benefits and also times where the trust funds have reached the brink of exhaustion of assets. For years 1973 through 1983, the combined OASI and DI Trust Funds were operating with a negative cash flow that was depleting the trust fund reserves toward exhaustion (see Chart 3). The Social Security Amendments of 1977 and 1983 made substantial modifications to the program that reversed the cash flow of the program to positive levels and caused the substantial buildup of assets to the $2.5 trillion that exists today. The 1977 amendments included a fundamental change in the indexation of benefits from one generation to the next. The 1983 amendments included increases in the normal retirement age (NRA) from 65 to 67 and the introduction of income taxation of Social Security benefits with revenue credited to the trust funds.

Chart 3.
OASDI net cash flows as a percentage of gross domestic product (GDP), 1957–2009
Line chart with tabular version below.
Show as table
Table equivalent for Chart 3. OASDI net cash flows as a percentage of gross domestic product (GDP), 1957–2009
Year Percentage of GDP
1957 -0.01
1958 -0.08
1959 -0.37
1960 0.02
1961 -0.20
1962 -0.35
1963 -0.09
1964 -0.03
1965 0.10
1966 0.22
1967 0.37
1968 0.16
1969 0.42
1970 0.20
1971 0.03
1972 0.01
1973 -0.05
1974 -0.08
1975 -0.27
1976 -0.33
1977 -0.38
1978 -0.28
1979 -0.14
1980 -0.22
1981 -0.13
1982 -0.04
1983 -0.23
1984 0.07
1985 0.20
1986 0.02
1987 0.35
1988 0.64
1989 0.74
1990 0.78
1991 0.56
1992 0.40
1993 0.28
1994 0.38
1995 0.33
1996 0.41
1997 0.54
1998 0.66
1999 0.84
2000 0.89
2001 0.88
2002 0.80
2003 0.61
2004 0.57
2005 0.61
2006 0.65
2007 0.57
2008 0.44
2009 0.02
In-chart notes:
  • Payroll tax rate rises from 6 percent in 1961 to 9 percent in 1971 as program matures.
  • Amendments were passed in 1972, 1977, and 1983.
  • In the 2000s, trust fund assets build, holding down publicly held debt.
SOURCE: Social Security Administration, Office of the Chief Actuary.

However, the occurrence of a negative cash flow, when tax revenue alone is insufficient to pay full scheduled benefits, does not necessarily mean that the trust funds are moving toward exhaustion. In fact, in a perfectly pay-as-you-go (PAYGO) financing approach, with the assets in the trust fund maintained consistently at the level of a "contingency reserve" targeted at one year's cost for the program, the program might well be in a position of having negative cash flow on a permanent basis. This would occur when the interest rate on the trust fund assets is greater than the rate of growth in program cost. In this case, interest on the trust fund assets would be more than enough to grow the assets as fast as program cost, leaving some of the interest available to augment current tax revenue to meet current cost. Under the trustees' current intermediate assumptions, the long-term average real interest rate is assumed at 2.9 percent, and real growth of OASDI program cost (growth in excess of price inflation) is projected to average about 1.6 percent from 2030 to 2080. Thus, if program modifications are made to maintain a consistent level of trust fund assets in the future, interest on those assets would generally augment current tax income in the payment of scheduled benefits.

A cash flow shortfall, therefore, is only a problem if it is large and persistent enough to cause the trust fund reserves to decline over time toward exhaustion. It is for this reason that past major reforms of the Social Security program, specifically those in 1977 and 1983, occurred as the trust fund asset levels were approaching exhaustion. In fact, by the time of the enactment of the 1983 amendments, the OASI Trust Fund had reached the point where it would have been unable to fully meet benefit payments. Special legislation was enacted to provide temporary borrowing authority by the OASI fund from the DI and HI Trust Funds to assure continued payment of benefits by all programs while the Congress developed and enacted the 1983 amendments.

The 1983 Amendments to the Social Security Act reinforced the importance of advance planning for the program. Many have observed that because the trustees produce long-range projections each year and convey these projections to the Congress and the American people, the financing shortfalls facing the OASDI program are small in comparison with many other countries. All policymakers agree that this substantial advance warning is important for adequate understanding of the actuarial status and for development of the most appropriate solution to meet the needs and desires of the American people.

With the advance warning afforded by the trustees' presentation of the actuarial status of the trust funds, we have the opportunity to enact legislation with changes in the program's scheduled revenues and benefits that need not actually take effect for many years in the future. This approach allows those who will be affected by the changes to have substantial advance warning, allowing them to plan for the changes ahead. It also allows changes to be phased in on a gradual basis so that there will not be sharp breaks in the benefit or tax levels faced by succeeding generations in the future. A prime example of this approach was the increase in the NRA—the age at which retirement benefits may be started with no reduction for early retirement—from 65 to 67, enacted in the 1983 Amendments to the Social Security Act. This change only began to be phased in for individuals reaching age 62 in 2000, 17 years after enactment. The full increase of the NRA to age 67 will not be complete until 2022.

OASI and DI Trust Funds Separately

Although the financial status of the Social Security program is most often considered on a combined basis, as though there were just one trust fund, there are in fact two separate trust funds—one for the OASI program and the other for the DI program. Old-age benefits were enacted in 1935 and started to be paid on a monthly basis in 1940. Benefits for disabled workers below the NRA were not enacted into law until 1956. A separate trust fund has been maintained for the DI program ever since that time, in part in recognition of the special nature of disability and a desire to maintain separate focus on the financing of these benefits.

Currently, the DI program is projected to have a less favorable actuarial status than the OASI program. DI Trust Fund exhaustion is projected for 2020 under the trustees' intermediate assumptions in the 2009 Trustees Report. Trust fund exhaustion is projected for 2038 for the OASI fund separately. The proximity of the trust fund exhaustion for the DI program requires special attention. Since 1983, DI program cost has risen above expectations to a much greater degree than has OASI program cost. This is not very surprising, as the benefits under the OASI program are far more predictable than those under the DI program.

Taken from the 2009 Trustees Report, Chart 4 illustrates the different projections for the OASI and DI Trust Funds. In addition to the much sooner projected trust fund exhaustion for the DI program under the intermediate alternative II assumptions, the chart shows the even greater uncertainty around DI cost and actuarial status than for the OASI program.5

Chart 4.
OASI and DI Trust Fund assets as a percentage of program costs, 1990–2008, projected under alternative assumptions, 2009–2085
Line chart with tabular version below.
Show as table
Table equivalent for Chart 4. OASI and DI Trust Fund assets as a percentage of program costs, 1990–2008, projected under alternative assumptions, 2009–2085
Year Asset/cost ratio (%)
OASI DI
Historical Alternative I Alternative II Alternative III Historical Alternative I Alternative II Alternative III
1990 78.50       40.40      
1991 87.20       38.78      
1992 103.07       40.30      
1993 116.86       34.56      
1994 129.98       23.05      
1995 138.86       54.51      
1996 148.76       82.83      
1997 159.60       112.52      
1998 177.27       132.96      
1999 200.56       152.38      
2000 222.92       171.39      
2001 246.59       193.03      
2002 272.14       207.63      
2003 299.89       219.49      
2004 321.90       217.67      
2005 339.57       211.57      
2006 360.77       207.10      
2007 372.04       206.33      
2008   392.03 392.03 392.03   197.23 197.23 197.23
2009   392.24 392.10 391.90   182.13 178.81 175.59
2010   405.25 404.26 403.63   168.89 160.75 153.66
2011   418.88 415.67 413.12   158.97 143.97 131.91
2012   432.41 421.55 413.30   152.21 127.51 108.86
2013   439.27 421.41 402.62   148.46 112.75 83.69
2014   444.26 418.84 384.01   147.46 98.31 56.87
2015   447.96 414.97 366.96   147.63 83.94 30.08
2016   450.50 409.97 352.39   148.85 69.55 3.29
2017   450.96 402.73 338.37   151.08 54.85  
2018   449.94 393.70 323.21   154.60 39.94  
2019   446.61 382.63 306.70   158.65 24.71  
2020   442.06 370.11 288.23   163.62 9.24  
2021   437.13 356.92 268.50   168.82    
2022   432.06 343.27 247.73   173.71    
2023   426.36 328.79 225.72   178.73    
2024   420.20 313.58 202.60   183.94    
2025   413.43 297.51 178.52   189.17    
2026   406.14 280.68 153.56   194.50    
2027   397.91 262.79 127.57   201.12    
2028   388.87 243.94 100.62   209.75    
2029   379.83 224.51 72.78   220.96    
2030   370.46 204.45 44.09   234.09    
2031   361.05 183.89 14.59   249.01    
2032   351.72 162.90     265.32    
2033   342.62 141.56     282.69    
2034   333.86 119.92     301.12    
2035   325.41 97.96     320.74    
2036   317.25 75.71     341.60    
2037   309.45 53.16     363.61    
2038   302.24 30.38     386.29    
2039   295.77 7.40     409.06    
2040   290.00       431.77    
2041   284.85       454.57    
2042   280.28       477.28    
2043   276.28       499.83    
2044   272.78       522.41    
2045   269.76       545.14    
2046   267.18       568.21    
2047   265.01       591.77    
2048   263.36       615.69    
2049   262.27       639.99    
2050   261.61       664.57    
2051   261.30       689.39    
2052   261.25       714.62    
2053   261.46       740.26    
2054   261.92       766.48    
2055   262.56       793.59    
2056   263.37       821.93    
2057   264.35       851.39    
2058   265.55       881.52    
2059   267.01       912.13    
2060   268.75       943.01    
2061   270.79       974.07    
2062   273.15       1005.18    
2063   275.85       1036.29    
2064   278.87       1067.49    
2065   282.19       1098.60    
2066   285.82       1129.64    
2067   289.76       1160.60    
2068   294.02       1191.23    
2069   298.59       1221.71    
2070   303.47       1252.49    
2071   308.62       1283.28    
2072   314.03       1313.91    
2073   319.68       1344.51    
2074   325.57       1374.74    
2075   331.70       1404.49    
2076   337.98       1434.43    
2077   344.37       1464.56    
2078   350.82       1494.77    
2079   357.31       1525.14    
2080   363.78       1555.76    
2081   370.23       1586.80    
2082   376.63       1618.34    
2083   382.93       1650.42    
2084   389.10       1683.05    
2085   395.15       1716.15    
 
SOURCE: 2009 Social Security Trustees Report, Figure IV.B3 and Table IV.B3.
NOTES: Alternative I = low-cost assumptions; alternative II = intermediate assumptions; alternative III = high-cost assumptions.

In 1994, the Congress acted to reallocate a portion of the combined OASDI payroll tax rate from the OASI program to the DI program, in order to avert near-term trust fund exhaustion for the DI program. Then, as now, the OASI program had more favorable actuarial status. Given the possibility that comprehensive reform for the OASDI program might not be completed by 2020, a small reallocation of 0.1 percent to 0.2 percent of the existing 12.4 percent tax rate to the DI fund would again be possible to more nearly equalize the financial status of the OASI and DI Trust Funds. It is for this reason, and because of the simplicity of considering the OASDI program on a unified basis, that most analysis of the actuarial status of the Social Security program is done on a theoretical basis where the two trust funds are considered on a combined basis.

Sustainability of Social Security

The concept of sustainability for the Social Security program has come to have two separate meanings. The first considers only the simple question of whether currently scheduled dedicated tax revenue is sufficient to adequately finance currently scheduled benefits in the law, without any modification to the law. The second considers whether the current structure of the program, with a defined benefit reflecting career-average earnings levels and a flat payroll tax up to a specified earnings level, is viable for the future.

The first, simpler concept of financial sustainability under current law is relatively easy to evaluate. As illustrated by the projections under the trustees' intermediate assumptions, modifications of benefits or tax revenue in the future will almost certainly be needed to avoid trust fund exhaustion. In the relatively near term, by 2020, the specific needs of the DI Trust Fund must be addressed. By 2037, the overall projected shortfall of scheduled financing must also be addressed. As indicated in the 2009 Trustees Report, the 75-year shortfall projected under intermediate assumptions for the OASDI program could be met with benefit reductions equivalent in value to a 13 percent immediate reduction in all benefits, an increase in revenue equivalent to an immediate increase in the combined (employee and employer) payroll tax rate from 12.4 percent to 14.4 percent, or a combination of these two approaches.

The second concept, the sustainability of the current structure of benefits and financing of the OASDI program, is not an issue directly addressed in the trustees report. This consideration is more political in nature, in that it depends on the wants and desires of the American people, as reflected by the actions of their elected representatives in the Congress. It is clear that modifications of the program benefit and tax levels can be made within the current program structure to restore sound financial status. But it is up to each generation to come to a consensus on the tax levels it is willing to pay and the benefit levels it wants to receive. Even the form of benefits and mode of financing, historically defined as monthly benefits financed generally on a PAYGO basis, are open to consideration by the American people and future Congresses.

The trustees report does, however, provide insight into the sustainability of currently scheduled benefits by providing a comparison of program cost and scheduled tax revenues, expressed as percentages of the total output of goods and services in the United States—our gross domestic product (GDP).

Projected OASDI cost is expected to rise from about 4.5 percent of GDP since 1990, to about 6 percent of GDP over the next 20 years, and to roughly stabilize at that level thereafter (see Chart 5). Although an increase in the cost of the program from 4.5 to 6 percent of GDP is substantial, the fact that the increase is not projected to continue after this "level shift" is important. Chart 5 focuses on the question of whether the level of benefits scheduled in current law should be maintained for future generations, at the price of higher taxes, or whether scheduled benefits should be reduced to levels affordable with the current taxes in the law.

Chart 5.
OASDI program cost and noninterest income as percentages of GDP, 1990–2008, projected under the intermediate assumptions, 2009–2085
Line chart with tabular version below.
Show as table
Table equivalent for Chart 5. OASDI program cost and noninterest income as percentages of GDP, 1990–2008, projected under the intermediate assumptions, 2009–2085
Year Percentage of GDP
Scheduled tax revenue Program cost
1990 5.07 4.36
1991 5.11 4.58
1992 5.06 4.62
1993 4.99 4.64
1994 4.95 4.57
1995 4.96 4.59
1996 4.95 4.52
1997 4.99 4.44
1998 5.10 4.37
1999 5.12 4.24
2000 5.16 4.23
2001 5.22 4.33
2002 5.15 4.41
2003 5.03 4.37
2004 4.95 4.29
2005 4.86 4.27
2006 4.86 4.21
2007 4.85 4.31
2008 4.89 4.38
2009 4.98 4.84
2010 4.99 4.86
2011 4.95 4.76
2012 4.95 4.72
2013 4.93 4.74
2014 4.90 4.80
2015 4.90 4.89
2016 4.89 4.99
2017 4.89 5.09
2018 4.88 5.20
2019 4.87 5.31
2020 4.87 5.42
2021 4.86 5.52
2022 4.85 5.61
2023 4.85 5.70
2024 4.84 5.78
2025 4.84 5.85
2026 4.83 5.92
2027 4.82 5.98
2028 4.82 6.03
2029 4.81 6.07
2030 4.80 6.11
2031 4.79 6.13
2032 4.79 6.15
2033 4.78 6.16
2034 4.77 6.17
2035 4.76 6.16
2036 4.75 6.15
2037 4.75 6.14
2038 4.74 6.12
2039 4.73 6.09
2040 4.72 6.06
2041 4.71 6.03
2042 4.70 6.00
2043 4.69 5.97
2044 4.68 5.95
2045 4.68 5.92
2046 4.67 5.90
2047 4.66 5.88
2048 4.65 5.86
2049 4.64 5.84
2050 4.64 5.82
2051 4.63 5.81
2052 4.62 5.79
2053 4.61 5.78
2054 4.61 5.78
2055 4.60 5.77
2056 4.59 5.77
2057 4.59 5.77
2058 4.58 5.77
2059 4.57 5.77
2060 4.57 5.76
2061 4.56 5.76
2062 4.55 5.76
2063 4.54 5.76
2064 4.54 5.76
2065 4.53 5.76
2066 4.52 5.76
2067 4.52 5.76
2068 4.51 5.77
2069 4.50 5.77
2070 4.50 5.78
2071 4.49 5.78
2072 4.49 5.79
2073 4.48 5.79
2074 4.47 5.80
2075 4.47 5.80
2076 4.46 5.81
2077 4.45 5.82
2078 4.45 5.82
2079 4.44 5.83
2080 4.43 5.84
2081 4.43 5.84
2082 4.42 5.85
2083 4.41 5.86
2084 4.41 5.87
2085 4.40 5.87
 
SOURCE: 2009 Social Security Trustees Report, Figure II.D5 and Table VI.F4.

The Federal Accounting Standards Advisory Board has recently established new standards requiring reporting on the sustainability of all federal programs as a part of the Consolidated Financial Report of the United States Government. In this context, consideration of the OASDI program must be on the basis of cost and income as a percent of GDP, in order to compare with and combine with other programs.

A Range of Financial Measures

The financial status of the OASDI program can be considered in numerous ways. As indicated earlier, the most fundamental consideration is whether scheduled benefits will be payable on a timely basis (solvency) as indicated by having positive trust fund reserve levels. Trust fund exhaustion, which is currently projected to occur for OASDI during 2037, would mean a precipitous drop in the level of benefits that could be paid. Thus, a projected date of trust fund exhaustion represents the time by which some change must occur. Congress can be expected to act by this time in order to avoid the dire consequences of inaction. A second fundamental consideration mentioned earlier is sustainability of the program on financial and political bases. Sustainability in both senses can be reasonably addressed by considering the share of the total output of the economy (GDP) that will be needed to support the benefits provided by the program.

It is often desired to express in a single number the outcome of a complex process. Historically, a single summary number, referred to as the actuarial balance, has been used as a measure of the financial status of the OASDI program. The actuarial balance expresses the difference between resources available under current law and the cost of providing scheduled benefits under current law, over the next 75 years as a whole. In the 2009 Trustees Report, under intermediate assumptions, the actuarial balance is negative, indicating a shortfall for the period as a whole equivalent to 2.00 percent of the taxable payroll over the period. While this measure is convenient because of its simplicity, it is of somewhat limited usefulness taken alone. The actuarial balance does not address the timing or trend in shortfalls that are projected on an annual basis over the period. In fact, this 75-year summary measure can only indicate one thing definitively: the level of the trust fund at the end of the 75-year period. If changes were made that resulted in an actuarial balance measured at zero, this would indicate that the trust fund assets at the end of the 75-year period were projected to equal the annual cost of the program at that time. But this summary measure alone would provide no information about whether (1) the trust fund would be solvent throughout the period, or (2) the level of trust fund assets would be rising, stable, or declining toward exhaustion at the end of the period.

The fact that the 1983 amendments were enacted with a projected trust fund level that was declining rapidly at the end of the period toward exhaustion soon thereafter may be attributed at least in part to an overreliance on the single measure of actuarial balance. Since 1983, many additional measures have been developed and have been used widely. One of the best measures has been the concept of "sustainable solvency."

Sustainable solvency requires both that the trust fund be positive throughout the 75-year projection period and that the level of trust fund reserves at the end of the period be stable or rising as a percentage of the annual cost of the program. When these conditions are met, it can be said that under the assumptions used, program financing is projected to be adequate for the foreseeable future. This concept was fully developed and in place by the time of the 1994–1996 Social Security Advisory Council and was used by the council as a guide for constructing alternative reforms for the OASDI program. Since that time, the concept of sustainable solvency has been addressed by virtually every comprehensive reform proposal developed by all policymakers. Requiring that proposals meet the requirements of sustainable solvency provides strong assurance that we will not face substantial projected deficits for the OASDI program soon after enactment of the next comprehensive reforms for the program. Numerous comprehensive proposals have been developed by policymakers over the past 15 years and have been scored by the Office of the Chief Actuary.6

An additional measure that has been used extensively in recent years is the annual balance between tax income and program cost for the 75th year in the long-range projection period. Although the overall shortfall for the period as a whole is shown to be 2.00 percent of taxable payroll, the shortfall is larger in the more distant years, reaching over 4 percent of payroll by 2083. Thus, individual reform provisions can be more fully understood by considering both their effect on the 75-year actuarial balance as a whole and their specific effect on the annual balance for the 75th year. Both of these measures are provided for individual provisions scored by the Office of the Chief Actuary.7

More recently, significant attention has been paid to additional summary measures such as the 75-year and infinite horizon open group unfunded obligations. An open group unfunded obligation shows the shortfall of revenue to cover all scheduled benefits over the period as a whole. The 75-year unfunded obligation for the OASDI program is shown as $5.3 trillion in present value in the 2009 Trustees Report. Taken alone, this value can be easily misinterpreted as being relevant as a shortfall in terms of today's economy, as if it were an amount that is required today. In fact, this present value amount represents the sum total of shortfalls projected for 2037, after the combined trust fund is projected to become exhausted, through 2083. These shortfalls will be met by providing either additional tax revenue in those years or by reducing benefits over this period from the level currently scheduled. For this reason, the trustees provide the size of this 75-year unfunded obligation as percentages of OASDI taxable payroll (1.9 percent) and of GDP (0.7 percent) over the 75-year period. These percentages provide context for understanding the magnitude of additional tax revenue that is needed to fully meet the unfunded obligations represented by the currently scheduled benefits.

Over the infinite horizon, the 2009 Trustees Report indicates that the present value shortfall, or unfunded obligation, for the OASDI program is about $15.1 trillion, or about 3.4 percent of taxable payroll, and 1.2 percent of GDP over the entire infinite future period. Of course, these values must be considered in the context of the high level of uncertainty that accompanies any projection extending beyond the 75-year, long-range period.

In addition, the 2009 Trustees Report provides an estimate of the closed group unfunded obligation. This value is highly theoretical in nature, as the closed group unfunded obligation is only truly meaningful for a program that is intended to be "fully advance funded." A fully advance funded program would have sufficient trust fund assets at any time to eliminate future contributions (payroll taxes) into the system by all current and future workers, with sufficient assets available to still pay all benefits earned to date. For this kind of financing, the closed group unfunded obligation would be expected to be zero or near zero. For a program that has been intentionally financed on a PAYGO basis, however, a large closed group unfunded obligation would be expected. In the 2009 Trustees Report, the OASDI closed group unfunded obligation is reported as $16.3 trillion, or 3.7 percent of taxable payroll, and 1.2 percent of the GDP over the infinite future.

Uncertainty of the Future

Projections of cost and income for the OASDI program are inherently uncertain. This uncertainty is thought to increase for more extended periods into the future. The trustees attempt to illustrate the nature and extent of uncertainty in the annual reports in several ways. Mentioned earlier are the high-cost and low-cost alternatives to the intermediate sets of assumptions. These alternatives provide scenarios in which the principal assumptions used for projecting the financial status of the program are assumed to collectively differ from the best estimate in either a positive or negative direction. Each parameter is assumed to differ by a plausible amount from the intermediate expectation, so it is unlikely that all parameters will differ in the same direction. As a result, the three alternative projections produce a broad range for the prospects of the program.

The range of cost rates projected for the OASI and DI programs under the three alternatives in the 2009 Trustees Report are shown in Chart 6. Trust fund levels expressed as a percent of annual program cost were presented earlier for the three alternative projections. Projected income rates are shown based on the intermediate alternative II assumptions only, as these rates vary little across the three alternatives.

Chart 6.
OASI and DI program cost and noninterest income as percentages of taxable payroll, 1990–2008, projected under alternative assumptions, 2009–2085
Line chart with tabular version below.
Show as table
Table equivalent for Chart 6. OASI and DI program cost and noninterest income as percentages of taxable payroll, 1990–2008, projected under alternative assumptions, 2009–2085
Year Percentage of taxable payroll
OASI DI
Historical cost rates Alternative I cost rates Alternative II cost rates Alternative III cost rates Alternative II income rates Historical cost rates Alternative I cost rates Alternative II cost rates Alternative III cost rates Alternative II income rates
1990 9.66       11.32 1.09       1.17
1991 10.15       11.44 1.18       1.21
1992 10.27       11.43 1.27       1.21
1993 10.37       11.40 1.35       1.21
1994 10.22       10.70 1.40       1.89
1995 10.22       10.70 1.44       1.88
1996 10.06       10.73 1.48       1.89
1997 9.83       10.93 1.44       1.71
1998 9.45       10.96 1.42       1.72
1999 9.10       10.99 1.42       1.72
2000 8.98       10.89 1.42       1.80
2001 9.08       10.89 1.48       1.82
2002 9.29       10.91 1.60       1.82
2003 9.35       10.89 1.68       1.82
2004 9.28       10.92 1.78       1.82
2005 9.31       10.88 1.85       1.82
2006 9.17       10.91 1.88       1.82
2007 9.44       10.93 1.88       1.83
2008   9.40 9.40 9.40 10.88   1.98 1.98 1.98 1.82
2009   10.07 10.17 10.20 10.99   2.12 2.18 2.23 1.84
2010   10.10 10.24 10.32 11.02   2.15 2.26 2.35 1.85
2011   9.97 10.13 10.18 11.02   2.10 2.24 2.35 1.85
2012   9.87 10.04 10.44 11.02   2.02 2.20 2.41 1.85
2013   9.78 10.21 10.78 11.05   1.92 2.17 2.46 1.85
2014   9.98 10.46 11.17 11.07   1.89 2.16 2.51 1.85
2015   10.16 10.72 11.53 11.09   1.86 2.16 2.55 1.85
2016   10.37 11.01 11.88 11.11   1.84 2.17 2.57 1.85
2017   10.58 11.31 12.22 11.13   1.83 2.18 2.59 1.86
2018   10.80 11.63 12.64 11.14   1.81 2.19 2.62 1.86
2019   11.05 11.96 13.03 11.16   1.80 2.20 2.65 1.86
2020   11.30 12.29 13.43 11.18   1.79 2.21 2.68 1.86
2021   11.52 12.58 13.79 11.20   1.79 2.22 2.71 1.86
2022   11.72 12.85 14.14 11.22   1.79 2.25 2.75 1.86
2023   11.91 13.10 14.46 11.24   1.80 2.26 2.78 1.86
2024   12.08 13.35 14.78 11.25   1.80 2.28 2.81 1.86
2025   12.25 13.57 15.07 11.27   1.80 2.29 2.83 1.86
2026   12.39 13.78 15.35 11.28   1.80 2.30 2.85 1.86
2027   12.54 13.98 15.63 11.30   1.79 2.30 2.85 1.86
2028   12.68 14.19 15.90 11.31   1.77 2.28 2.83 1.86
2029   12.79 14.36 16.17 11.33   1.74 2.26 2.82 1.86
2030   12.88 14.52 16.41 11.34   1.71 2.24 2.81 1.86
2031   12.95 14.65 16.64 11.35   1.68 2.22 2.80 1.86
2032   12.99 14.76 16.83 11.36   1.66 2.20 2.80 1.86
2033   13.01 14.84 17.00 11.37   1.64 2.19 2.80 1.86
2034   13.01 14.89 17.14 11.37   1.63 2.18 2.80 1.86
2035   12.98 14.92 17.26 11.38   1.61 2.18 2.80 1.86
2036   12.95 14.94 17.36 11.38   1.60 2.17 2.80 1.86
2037   12.90 14.95 17.45 11.39   1.59 2.16 2.80 1.86
2038   12.83 14.93 17.52 11.39   1.58 2.15 2.80 1.86
2039   12.74 14.89 17.57 11.39   1.57 2.15 2.81 1.86
2040   12.64 14.83 17.60 11.39   1.57 2.16 2.82 1.86
2041   12.54 14.78 17.62 11.39   1.56 2.16 2.84 1.86
2042   12.43 14.71 17.63 11.39   1.56 2.17 2.86 1.86
2043   12.33 14.65 17.65 11.39   1.56 2.18 2.88 1.86
2044   12.24 14.60 17.67 11.39   1.57 2.19 2.90 1.86
2045   12.15 14.55 17.69 11.39   1.57 2.20 2.93 1.86
2046   12.07 14.51 17.73 11.39   1.57 2.21 2.95 1.86
2047   11.99 14.47 17.77 11.39   1.57 2.21 2.97 1.86
2048   11.92 14.44 17.81 11.39   1.57 2.22 2.99 1.86
2049   11.84 14.40 17.84 11.39   1.57 2.23 3.01 1.86
2050   11.77 14.37 17.89 11.39   1.56 2.24 3.03 1.86
2051   11.71 14.35 17.94 11.39   1.56 2.24 3.05 1.86
2052   11.66 14.34 18.00 11.39   1.56 2.25 3.07 1.86
2053   11.61 14.33 18.07 11.39   1.56 2.26 3.09 1.86
2054   11.57 14.34 18.15 11.39   1.56 2.26 3.11 1.86
2055   11.54 14.35 18.25 11.39   1.56 2.27 3.12 1.86
2056   11.51 14.37 18.35 11.40   1.55 2.27 3.13 1.86
2057   11.48 14.39 18.46 11.40   1.55 2.27 3.14 1.86
2058   11.46 14.42 18.58 11.40   1.55 2.26 3.15 1.86
2059   11.43 14.44 18.69 11.40   1.54 2.26 3.15 1.86
2060   11.40 14.46 18.81 11.41   1.54 2.26 3.16 1.86
2061   11.36 14.49 18.93 11.41   1.53 2.26 3.17 1.86
2062   11.33 14.51 19.05 11.41   1.53 2.26 3.18 1.86
2063   11.30 14.53 19.18 11.41   1.53 2.27 3.19 1.86
2064   11.26 14.56 19.31 11.42   1.53 2.27 3.20 1.86
2065   11.23 14.58 19.45 11.42   1.53 2.27 3.21 1.86
2066   11.19 14.61 19.59 11.42   1.53 2.28 3.22 1.86
2067   11.16 14.65 19.74 11.42   1.53 2.28 3.23 1.86
2068   11.13 14.68 19.90 11.43   1.53 2.29 3.24 1.87
2069   11.09 14.71 20.06 11.43   1.53 2.29 3.26 1.87
2070   11.06 14.75 20.22 11.43   1.53 2.30 3.27 1.87
2071   11.03 14.79 20.39 11.44   1.54 2.30 3.27 1.87
2072   11.01 14.83 20.56 11.44   1.54 2.30 3.28 1.87
2073   10.98 14.87 20.74 11.44   1.54 2.31 3.28 1.87
2074   10.96 14.92 20.92 11.45   1.54 2.31 3.28 1.87
2075   10.94 14.96 21.09 11.45   1.55 2.32 3.29 1.87
2076   10.92 15.00 21.27 11.45   1.55 2.32 3.29 1.87
2077   10.91 15.05 21.45 11.46   1.55 2.32 3.29 1.87
2078   10.90 15.10 21.62 11.46   1.55 2.33 3.29 1.87
2079   10.90 15.14 21.78 11.46   1.56 2.33 3.29 1.87
2080   10.90 15.19 21.94 11.47   1.56 2.33 3.29 1.87
2081   10.90 15.24 22.10 11.47   1.56 2.33 3.29 1.87
2082   10.91 15.29 22.26 11.47   1.57 2.34 3.29 1.87
2083   10.92 15.35 22.41 11.48   1.57 2.34 3.29 1.87
2084   10.93 15.40 22.55 11.48   1.57 2.34 3.28 1.87
2085   10.94 15.44 22.69 11.48   1.57 2.34 3.28 1.87
 
SOURCE: 2009 Social Security Trustees Report, Figure IV.B1 and Table IV.B1.
NOTES: Alternative I = low-cost assumptions; alternative II = intermediate assumptions; alternative III = high-cost assumptions.

The trustees report also presents sensitivity analyses showing the effect of variation in individual parameters. These estimates provide a sense of the sensitivity of the long-range financial status of the program to any difference that may evolve in a given parameter from the trustees' intermediate projection.

Finally, the trustees report presents stochastic projections of the potential financial operations of the OASDI program in the future. For these projections, many economic, demographic, and disability-related parameters are allowed to vary randomly through time, creating 5,000 separate possible projection scenarios. The random variation reflects the degree of historical fluctuation in each parameter and is intended to simulate a large number of scenarios that could occur in the future. Results are presented in the report for the future cost and trust fund levels of the program, showing year-by-year the distribution of results from the 5,000 separate projections. The distribution derived from these stochastic projections for the 2009 Trustees Report is shown in Chart 7. Stochastic results have the advantage of showing an estimated likelihood that actual results will fall within or outside any probability interval. (For example, the 95 percent probability interval falls between the lines in the chart representing the 97.5 percentile and 2.5 percentile outcomes.) It should be noted that lines on this chart do not represent specific individual simulations. Rather, for each line, the value in a year is for the simulation that is at the given percentile in that specific year. For any percentile line, the specific simulation from among the 5,000 scenarios will vary from one year to the next.

Chart 7.
Stochastic projection of OASDI trust fund assets as a percentage of program cost, 2009–2084
Line chart with tabular version below.
Show as table
Table equivalent for Chart 7. Stochastic projection of OASDI trust fund assets as a percentage of program cost, 2009–2084
Projection year Asset/cost ratio (%)
97.5 percent probability 90 percent probability 80 percent probability 70 percent probability 60 percent probability 50 percent probability 40 percent probability 30 percent probability 20 percent probability 10 percent probability 2.5 percent probability
2009 355 355 355 355 355 354 354 354 354 354 353
2010 364 363 362 361 361 360 360 359 358 357 356
2011 374 370 368 366 365 363 362 361 359 356 352
2012 381 375 370 367 364 362 359 357 353 348 340
2013 389 379 373 367 363 360 355 351 346 339 328
2014 396 382 373 366 360 355 349 344 337 327 312
2015 400 384 372 363 356 349 342 335 326 315 297
2016 404 384 370 360 351 342 334 326 316 303 282
2017 405 381 365 353 344 334 325 316 305 290 267
2018 403 376 359 346 335 325 315 304 293 276 253
2019 398 369 350 336 324 314 303 292 280 262 238
2020 391 360 340 325 312 302 291 278 265 247 222
2021 383 350 329 313 300 288 277 264 250 231 203
2022 375 339 317 301 287 274 263 250 234 214 186
2023 366 328 305 287 272 260 247 234 217 196 167
2024 357 315 291 273 258 244 230 218 200 178 147
2025 345 302 277 258 242 228 213 200 182 159 127
2026 332 289 261 242 225 211 196 181 163 139 104
2027 319 274 245 226 208 193 178 162 143 118 81
2028 307 258 229 208 190 175 158 142 123 96 55
2029 292 242 212 190 171 155 139 121 101 74 31
2030 276 225 194 172 153 135 119 100 79 51 4
2031 262 208 175 153 133 115 98 78 56 27 -24
2032 246 192 157 134 114 95 76 56 33 2 -53
2033 231 175 139 114 93 73 54 33 9 -25 -84
2034 217 157 120 94 72 52 31 10 -16 -51 -117
2035 201 141 101 75 51 30 9 -14 -41 -80 -151
2036 187 124 83 56 30 8 -14 -38 -67 -109 -186
2037 173 107 64 35 9 -15 -37 -62 -94 -140 -222
2038 159 90 45 15 -13 -38 -61 -87 -122 -171 -261
2039 146 73 27 -5 -34 -61 -85 -114 -149 -202 -296
2040 129 56 8 -25 -56 -84 -109 -140 -178 -233 -338
2041 116 39 -10 -45 -78 -106 -134 -168 -206 -267 -375
2042 102 24 -27 -66 -101 -130 -159 -195 -236 -299 -418
2043 91 7 -45 -86 -122 -153 -185 -223 -268 -331 -458
2044 78 -8 -63 -107 -144 -177 -211 -250 -297 -366 -498
2045 67 -23 -81 -127 -166 -201 -237 -278 -330 -404 -539
2046 58 -37 -100 -148 -188 -225 -263 -306 -362 -438 -585
2047 49 -52 -119 -168 -210 -250 -289 -335 -392 -475 -635
2048 40 -67 -138 -188 -232 -274 -316 -365 -422 -514 -680
2049 35 -82 -155 -209 -254 -298 -345 -394 -457 -552 -727
2050 24 -97 -172 -229 -276 -324 -373 -423 -491 -590 -768
2051 16 -110 -190 -250 -299 -349 -399 -453 -525 -631 -820
2052 9 -122 -208 -269 -323 -375 -425 -484 -559 -668 -866
2053 -2 -136 -226 -291 -347 -401 -452 -513 -594 -707 -917
2054 -8 -151 -244 -311 -369 -426 -482 -545 -626 -748 -963
2055 -17 -166 -261 -332 -393 -450 -508 -577 -659 -788 -1,009
2056 -25 -180 -278 -353 -416 -476 -537 -609 -695 -832 -1,057
2057 -32 -193 -299 -375 -442 -499 -567 -641 -730 -876 -1,122
2058 -40 -207 -318 -395 -465 -527 -597 -673 -768 -922 -1,175
2059 -47 -222 -333 -416 -487 -555 -627 -708 -807 -968 -1,230
2060 -55 -235 -351 -436 -512 -581 -659 -743 -846 -1,013 -1,290
2061 -63 -249 -368 -460 -537 -608 -690 -780 -887 -1,055 -1,350
2062 -71 -266 -387 -482 -562 -637 -722 -815 -927 -1,099 -1,407
2063 -73 -278 -407 -505 -589 -666 -751 -851 -965 -1,153 -1,471
2064 -84 -292 -425 -527 -614 -695 -784 -888 -1,006 -1,201 -1,524
2065 -91 -309 -444 -551 -639 -725 -817 -923 -1,047 -1,249 -1,594
2066 -100 -325 -464 -575 -664 -757 -852 -961 -1,098 -1,291 -1,655
2067 -106 -340 -487 -597 -690 -790 -885 -998 -1,144 -1,333 -1,713
2068 -117 -348 -505 -624 -720 -821 -918 -1,037 -1,179 -1,385 -1,781
2069 -125 -367 -526 -645 -751 -852 -950 -1,076 -1,221 -1,437 -1,844
2070 -135 -381 -546 -671 -782 -885 -990 -1,114 -1,265 -1,485 -1,906
2071 -141 -394 -570 -701 -809 -914 -1,029 -1,158 -1,307 -1,544 -1,960
2072 -151 -406 -588 -726 -838 -948 -1,068 -1,198 -1,353 -1,601 -2,018
2073 -160 -421 -607 -754 -865 -983 -1,105 -1,238 -1,399 -1,651 -2,111
2074 -167 -439 -627 -777 -896 -1,021 -1,144 -1,278 -1,446 -1,712 -2,208
2075 -173 -453 -650 -802 -932 -1,056 -1,186 -1,321 -1,501 -1,776 -2,284
2076 -183 -468 -675 -827 -961 -1,091 -1,225 -1,366 -1,548 -1,832 -2,372
2077 -191 -486 -698 -858 -990 -1,130 -1,264 -1,415 -1,609 -1,903 -2,439
2078 -203 -503 -721 -885 -1,022 -1,168 -1,304 -1,462 -1,660 -1,969 -2,514
2079 -213 -523 -738 -911 -1,054 -1,204 -1,345 -1,509 -1,716 -2,027 -2,582
2080 -227 -544 -767 -938 -1,088 -1,241 -1,383 -1,558 -1,766 -2,093 -2,678
2081 -240 -568 -793 -966 -1,122 -1,278 -1,431 -1,606 -1,831 -2,169 -2,783
2082 -257 -589 -817 -995 -1,158 -1,313 -1,473 -1,661 -1,895 -2,244 -2,875
2083 -265 -609 -845 -1,028 -1,191 -1,350 -1,517 -1,711 -1,955 -2,314 -2,981
2084 -284 -629 -872 -1,057 -1,225 -1,390 -1,562 -1,767 -2,010 -2,379 -3,090
2085 -301 -645 -895 -1,088 -1,261 -1,427 -1,610 -1,818 -2,070 -2,453 -3,215
 
SOURCE: 2009 Social Security Trustees Report, Figures II.D7 and VI.E1.
NOTE: The values assigned to charted lines are probability percentiles; thus, the 95 percent probability interval, for example, falls between the lines labeled 2.5 percent and 97.5 percent.

The stochastic projections suggest a high degree of certainty that the combined OASDI trust fund will become exhausted well before 2083, the end of the 75-year, long-range period. It should be noted, however, that the stochastic projection methodology is still being developed and refined. We believe that further enhancements are likely to broaden the range of uncertainty shown for the trust fund exhaustion date across any probability interval.

Actuarial Status and Budget Scoring

The requirements in the law for the annual report of the Social Security Board of Trustees are specific on the nature of the analysis that is desired. Although the OASDI program is highly dependent on the trust fund assets for solvency, and these assets are held in Treasury securities, the assessment of the actuarial status of the program is separate from direct consideration of implications for the federal government budget.

The assets of the trust funds are required to be invested in interest-bearing securities guaranteed as to interest and principal by the full faith and credit of the U.S. government. As a result, all assets are currently invested in nonmarketable special-issue obligations of the Treasury. In scoring assets and liabilities for the federal government as a whole, the trust fund assets are generally assumed to be a wash: an asset for the trust funds, but an equal liability for the General Fund of the Treasury. This is a valid perspective, but it does not lessen the claim that the trust fund assets have for future cash when needed. Trust fund securities have always been redeemed on maturity or when needed, and there is no risk of default on these securities. Moreover, it is reasonable to assume that the financial markets understand that securities held by the trust funds may be redeemed in the future, requiring the Treasury to collect additional taxes, lower other federal spending, or borrow additionally from the public. In fact, the trust fund assets are combined with publicly held debt to compute the total debt subject to limit, which is subject to approval by the Congress. If the redemption of trust fund securities in the future results in issuance of additional publicly held debt, this would not alter the total federal debt (see Chart 8).

Chart 8.
OASDI net cash flows as a percentage of GDP, 1957–2009, projected under the intermediate assumptions, 2010–2085
Line chart with tabular version below.
Show as table
Table equivalent for Chart 8. OASDI net cash flows as a percentage of GDP, 1957–2009, projected under the intermediate assumptions, 2010–2085
Year Percentage of GDP
Net cash flows Shortfall
1957 -0.009  
1958 -0.080  
1959 -0.365  
1960 0.015  
1961 -0.195  
1962 -0.350  
1963 -0.093  
1964 -0.027  
1965 0.095  
1966 0.224  
1967 0.366  
1968 0.158  
1969 0.418  
1970 0.202  
1971 0.030  
1972 0.011  
1973 -0.054  
1974 -0.079  
1975 -0.269  
1976 -0.325  
1977 -0.384  
1978 -0.278  
1979 -0.141  
1980 -0.221  
1981 -0.133  
1982 -0.035  
1983 -0.232  
1984 0.070  
1985 0.198  
1986 0.019  
1987 0.351  
1988 0.643  
1989 0.739  
1990 0.777  
1991 0.560  
1992 0.400  
1993 0.284  
1994 0.381  
1995 0.333  
1996 0.410  
1997 0.537  
1998 0.655  
1999 0.836  
2000 0.893  
2001 0.877  
2002 0.799  
2003 0.609  
2004 0.565  
2005 0.614  
2006 0.650  
2007 0.570  
2008 0.442  
2009 0.023  
2010 0.123  
2011 0.181  
2012 0.232  
2013 0.190  
2014 0.098  
2015 0.010  
2016 -0.094  
2017 -0.204  
2018 -0.321  
2019 -0.437  
2020 -0.551  
2021 -0.657  
2022 -0.757  
2023 -0.850  
2024 -0.934  
2025 -1.016  
2026 -1.089  
2027 -1.153  
2028 -1.212  
2029 -1.261  
2030 -1.304  
2031 -1.340  
2032 -1.365  
2033 -1.385  
2034 -1.394  
2035 -1.400  
2036 -1.398  
2037 0.000 -1.394
2038 0.000 -1.381
2039 0.000 -1.363
2040 0.000 -1.343
2041 0.000 -1.321
2042 0.000 -1.301
2043 0.000 -1.280
2044 0.000 -1.260
2045 0.000 -1.245
2046 0.000 -1.232
2047 0.000 -1.219
2048 0.000 -1.206
2049 0.000 -1.194
2050 0.000 -1.184
2051 0.000 -1.177
2052 0.000 -1.173
2053 0.000 -1.171
2054 0.000 -1.172
2055 0.000 -1.174
2056 0.000 -1.178
2057 0.000 -1.183
2058 0.000 -1.188
2059 0.000 -1.193
2060 0.000 -1.198
2061 0.000 -1.203
2062 0.000 -1.208
2063 0.000 -1.214
2064 0.000 -1.221
2065 0.000 -1.228
2066 0.000 -1.237
2067 0.000 -1.246
2068 0.000 -1.256
2069 0.000 -1.266
2070 0.000 -1.277
2071 0.000 -1.289
2072 0.000 -1.301
2073 0.000 -1.313
2074 0.000 -1.325
2075 0.000 -1.337
2076 0.000 -1.349
2077 0.000 -1.362
2078 0.000 -1.376
2079 0.000 -1.390
2080 0.000 -1.403
2081 0.000 -1.418
2082 0.000 -1.431
2083 0.000 -1.445
2084 0.000 -1.459
2085 0.000 -1.472
In-chart notes: Between 2013 and 2036, the trust funds are redeemed to pay benefits and are replaced by publicly held debt. As of 2037, benefits will not be payable under current law.
SOURCE: Social Security Administration, Office of the Chief Actuary.

An additional important distinction in trust fund versus budget scoring is the assumption about current law. In the trustees report, careful distinction is made between the cost of the program—reflecting scheduled benefits, and the actual expenditures—reflecting the benefits that would be payable subject to the limits imposed by the inability of the trust funds to borrow. If the trust funds ever become exhausted, expenditures thereafter would be limited to the amount of continuing tax income. It is projected in the 2009 Trustees Report that only 76 percent of scheduled benefits would be payable and could be paid at the time the trust fund is exhausted in 2037. This limitation not only places an absolute braking force on the spending that is possible by the OASDI program, but also forces Congressional action before exhaustion of the funds.

Budget scoring convention, on the other hand, assumes that full scheduled benefits would continue to be paid on a timely basis even after the fund is exhausted and the continuing tax income is insufficient to finance full scheduled benefits under the law. When considering the potential effects of the OASI, DI, and HI programs on projected unified budget balances, it should be noted that these projections presume changes in the law that would, in effect, allow the trust funds to either borrow from the General Fund of the Treasury or to receive transfers from that fund sufficient to continue full payment of scheduled benefits.

What is Causing the Financial Status to Show Shortfall?

With the current 12.4 percent payroll tax rate, along with additional revenue from federal income taxation of benefits, the OASDI program has been taking in more tax revenue than it has spent providing benefits for more than two decades. However, this favorable cash flow will be changing in the future as the large baby boom generation, born from 1946 through 1965, moves into retirement. The oldest people in this generation have already reached early retirement age (62), and the transfer of this generation from working age to retirement age will continue for the next 20 years. The substantial increase in the cost of the OASDI program from 2010 to 2030, both as a percent of taxable payroll and GDP, is founded in an even more basic shift in our economy: the change in the ratio of beneficiaries to the number of workers.

Chart 9, showing the number of beneficiaries for each 100 OASDI-covered workers, is almost identical in shape and timing to Chart 6, which shows the projected annual cost rates of the program. This should not be surprising because benefits over time rise at roughly the same rate as the average wage in the workforce. What is notable is that the strong upward shift in both this ratio and in the cost rate is permanent; it does not come back down to a lower level after the large baby boom generation dies off. The permanence of this shift was not caused by the existence of the baby boom generation; instead, the permanent shift was caused by the substantial and apparently permanent drop in birth rates that followed the baby boom births.

Chart 9.
Number of OASDI beneficiaries per 100 covered workers, 1980–2008, projected under alternative assumptions, 2009–2085
Line chart with tabular version below.
Show as table
Table equivalent for Chart 9. Number of OASDI beneficiaries per 100 covered workers, 1980–2008, projected under alternative assumptions, 2009–2085
Year Number of OASDI beneficiaries per 100 covered workers
Historical Alternative I Alternative II Alternative III
1980 31.17      
1981 31.65      
1982 31.79      
1983 31.77      
1984 30.88      
1985 30.47      
1986 30.40      
1987 30.15      
1988 29.59      
1989 29.41      
1990 29.65      
1991 30.32      
1992 30.75      
1993 30.86      
1994 30.66      
1995 30.59      
1996 30.34      
1997 29.96      
1998 29.55      
1999 29.21      
2000 29.19      
2001 29.46      
2002 29.90      
2003 30.24      
2004 30.29      
2005 30.31      
2006 30.26      
2007 30.42      
2008   31.05 31.05 31.05
2009   32.07 32.27 32.44
2010   32.72 33.15 33.51
2011   32.88 33.53 34.00
2012   32.98 33.84 34.69
2013   33.23 34.27 35.75
2014   33.67 34.81 36.44
2015   34.21 35.44 37.15
2016   34.80 36.17 37.88
2017   35.44 36.95 38.62
2018   36.13 37.76 39.50
2019   37.06 38.55 40.07
2020   37.75 39.41 41.10
2021   38.42 40.23 42.11
2022   39.04 41.02 43.08
2023   39.64 41.78 44.02
2024   40.22 42.52 44.93
2025   40.76 43.22 45.81
2026   41.28 43.89 46.65
2027   41.74 44.51 47.44
2028   42.16 45.09 48.19
2029   42.51 45.61 48.88
2030   42.82 46.08 49.53
2031   43.06 46.48 50.13
2032   43.26 46.84 50.69
2033   43.40 47.15 51.20
2034   43.47 47.39 51.65
2035   43.48 47.58 52.04
2036   43.44 47.71 52.39
2037   43.36 47.81 52.69
2038   43.22 47.84 52.95
2039   43.03 47.83 53.18
2040   42.82 47.80 53.37
2041   42.60 47.76 53.57
2042   42.38 47.72 53.75
2043   42.17 47.67 53.94
2044   41.96 47.64 54.14
2045   41.76 47.61 54.34
2046   41.57 47.59 54.56
2047   41.39 47.58 54.79
2048   41.21 47.57 55.02
2049   41.04 47.57 55.25
2050   40.88 47.59 55.50
2051   40.74 47.62 55.76
2052   40.62 47.67 56.04
2053   40.52 47.73 56.34
2054   40.43 47.81 56.65
2055   40.35 47.90 56.98
2056   40.28 47.99 57.32
2057   40.21 48.08 57.66
2058   40.13 48.17 57.99
2059   40.06 48.26 58.33
2060   39.98 48.34 58.66
2061   39.89 48.43 59.00
2062   39.81 48.52 59.35
2063   39.72 48.62 59.72
2064   39.63 48.72 60.09
2065   39.54 48.82 60.48
2066   39.46 48.94 60.89
2067   39.38 49.06 61.31
2068   39.30 49.18 61.75
2069   39.22 49.31 62.19
2070   39.14 49.44 62.65
2071   39.06 49.57 63.11
2072   38.99 49.70 63.56
2073   38.92 49.83 64.02
2074   38.86 49.97 64.48
2075   38.80 50.10 64.93
2076   38.76 50.24 65.39
2077   38.72 50.38 65.84
2078   38.70 50.52 66.27
2079   38.68 50.67 66.70
2080   38.68 50.81 67.11
2081   38.69 50.96 67.52
2082   38.70 51.11 67.92
2083   38.72 51.26 68.30
2084   38.76 51.41 68.67
2085   38.80 51.56 69.02
 
SOURCE: 2009 Social Security Trustees Report, Figure IV.B2 and Table IV.B2.
NOTES: Alternative I = low-cost assumptions; alternative II = intermediate assumptions; alternative III = high-cost assumptions.

Birth rates that averaged over three children per woman during the baby boom period (1946–1965) dropped to just two children per woman by 1970 and have remained at about that level since that time (see Chart 10). Considering even longer historical periods helps in understanding the significance of the drop in birth rates in the United States (Table 1). It may be surprising to see how high birth rates were back in 1875 (over four children per woman) and how much they dropped by 1925 (to three children per woman). Reductions in death rates during infancy and early childhood help explain much of the longer-term decline in birth rates. Before 1900, the probability that a newborn would survive to age 5 or 10 was far below 100 percent. Thus, in order to have a family with a desired number of children surviving to adulthood, more births were required in the past. Adjusting birth rates to include only those children who survive to age 108 results in fairly flat total fertility rates near three children per woman from 1875 through 1925. From 1926 through 1965, this adjusted total fertility rate was still about 2.7 births per woman, on average, including both the temporary low-birth period of the Great Depression and World War II, and the temporary high-birth period after World War II. After 1965, however, the total fertility rate shifted to a new level around two children per woman. It is this apparently permanent shift to lower birth rates in the United States that is the principal cause of our changing age distribution between 2010 and 2030 and the resulting shift in the ratio of beneficiaries to workers.

Chart 10.
Total U.S. fertility rates with and without adjustment for survival to age 10, 1875–2005
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Table equivalent for Chart 10. Total U.S. fertility rates with and without adjustment for survival to age 10, 1875–2005
Year Children per woman of childbearing age
Total fertility rate Adjusted total fertility rate
1875 4.55 3.09
1876 4.45 3.04
1877 4.37 3.00
1878 4.27 2.95
1879 4.23 2.94
1880 4.24 2.96
1881 4.28 3.01
1882 4.25 3.00
1883 4.29 3.05
1884 4.29 3.06
1885 4.23 3.04
1886 4.11 2.97
1887 4.06 2.95
1888 4.06 2.97
1889 3.99 2.93
1890 3.87 2.86
1891 3.93 2.92
1892 4.01 3.00
1893 3.98 2.99
1894 3.89 2.94
1895 3.83 2.91
1896 3.77 2.88
1897 3.64 2.80
1898 3.60 2.78
1899 3.57 2.77
1900 3.56 2.78
1901 3.38 2.66
1902 3.38 2.67
1903 3.41 2.71
1904 3.44 2.75
1905 3.50 2.81
1906 3.53 2.85
1907 3.52 2.86
1908 3.51 2.87
1909 3.46 2.84
1910 3.42 2.83
1911 3.34 2.78
1912 3.35 2.80
1913 3.35 2.82
1914 3.30 2.79
1915 3.25 2.76
1916 3.23 2.76
1917 3.28 2.82
1918 3.24 2.80
1919 3.00 2.61
1920 3.17 2.77
1921 3.24 2.84
1922 2.97 2.62
1923 2.96 2.62
1924 2.98 2.65
1925 2.84 2.54
1926 2.73 2.45
1927 2.72 2.45
1928 2.60 2.35
1929 2.46 2.23
1930 2.45 2.23
1931 2.31 2.11
1932 2.22 2.03
1933 2.11 1.94
1934 2.19 2.02
1935 2.14 1.98
1936 2.10 1.95
1937 2.12 1.97
1938 2.18 2.03
1939 2.13 1.99
1940 2.23 2.09
1941 2.33 2.19
1942 2.55 2.40
1943 2.64 2.49
1944 2.49 2.36
1945 2.42 2.30
1946 2.86 2.72
1947 3.18 3.04
1948 3.03 2.90
1949 3.04 2.92
1950 3.03 2.92
1951 3.20 3.08
1952 3.29 3.17
1953 3.35 3.23
1954 3.46 3.34
1955 3.50 3.38
1956 3.60 3.48
1957 3.68 3.55
1958 3.63 3.51
1959 3.64 3.52
1960 3.61 3.49
1961 3.56 3.45
1962 3.42 3.31
1963 3.30 3.20
1964 3.17 3.08
1965 2.88 2.80
1966 2.67 2.59
1967 2.53 2.46
1968 2.43 2.36
1969 2.42 2.36
1970 2.43 2.37
1971 2.25 2.19
1972 1.99 1.94
1973 1.86 1.82
1974 1.82 1.78
1975 1.77 1.73
1976 1.74 1.70
1977 1.80 1.77
1978 1.76 1.73
1979 1.82 1.79
1980 1.82 1.79
1981 1.80 1.77
1982 1.81 1.78
1983 1.78 1.75
1984 1.79 1.76
1985 1.84 1.81
1986 1.83 1.80
1987 1.86 1.83
1988 1.92 1.89
1989 2.00 1.97
1990 2.07 2.04
1991 2.06 2.04
1992 2.04 2.02
1993 2.02 2.00
1994 2.00 1.98
1995 1.98 1.96
1996 1.98 1.96
1997 1.97 1.95
1998 2.00 1.98
1999 2.01 1.99
2000 2.06 2.04
2001 2.03 2.01
2002 2.01 1.99
2003 2.02 2.00
 
SOURCE: Social Security Administration, Office of the Chief Actuary.
NOTE: TFR = total fertility rate.
Table 1. Annual average total U.S. fertility rates with and without adjustment for survival to age 10, various periods, 1875–2003
Period Average TFR Adjusted TFR
1875–1925 3.67 2.85
1926–1965 2.84 2.69
1966–1990 1.99 1.95
1991–2003 2.01 1.99
SOURCE: Social Security Administration, Office of the Chief Actuary.
NOTE: TFR = total fertility rate.

Chart 11 demonstrates even more vividly the impact of the changes in birth rates on the age distribution of the population. The aged dependency ratio (ratio of population aged 65 or older to the population at working ages, 20–64) has been almost flat since 1975 and was held down between 1994 and 2010 as the relatively low-birth-rate generations born during the Great Depression and World War II (1929–1945) reached age 65. However, this ratio will rise substantially between 2010 and 2030, reflecting both the attainment of age 65 by the baby boom generation (born 1946 to 1965) and entry into the working ages of low-birth-rate generations (born after 1965) that followed the baby boom. The dashed line in the chart illustrates what the projected dependency ratios would be if we assumed no further improvement in life expectancy after 2008.9 The chart demonstrates that through 2030, the upward shift in the ratio is almost entirely because of the changing birth rate. The illustration for the total dependency ratio (ratio of the population aged 65 or older or younger than age 20 to the population at working ages, 20–64) tells essentially the same story.

Chart 11.
Total and aged dependency ratios, 1975–2008, projected under alternative life expectancy assumptions, 2009–2085
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Table equivalent for Chart 11. Total and aged dependency ratios, 1975–2008, projected under alternative life expectancy assumptions, 2009–2085
Year Aged dependency ratio Total dependency ratio
Historical Intermediate projection Projection with no increase in life expectancy after 2008 Historical Intermediate projection Projection with no increase in life expectancy after 2008
1975 0.19     0.83    
1976 0.19     0.82    
1977 0.19     0.80    
1978 0.19     0.78    
1979 0.19     0.77    
1980 0.20     0.75    
1981 0.20     0.74    
1982 0.20     0.73    
1983 0.20     0.72    
1984 0.20     0.71    
1985 0.20     0.71    
1986 0.20     0.71    
1987 0.21     0.70    
1988 0.21     0.70    
1989 0.21     0.70    
1990 0.21     0.70    
1991 0.21     0.70    
1992 0.21     0.70    
1993 0.21     0.70    
1994 0.21     0.71    
1995 0.21     0.71    
1996 0.21     0.71    
1997 0.21     0.71    
1998 0.21     0.70    
1999 0.21     0.70    
2000 0.21     0.70    
2001 0.21     0.69    
2002 0.21     0.69    
2003 0.21     0.68    
2004 0.21     0.68    
2005 0.21     0.68    
2006 0.21     0.67    
2007 0.21     0.67    
2008 0.21     0.67    
2009   0.21 0.21   0.67 0.67
2010   0.21 0.21   0.67 0.67
2011   0.21 0.21   0.67 0.67
2012   0.22 0.22   0.67 0.67
2013   0.22 0.22   0.67 0.67
2014   0.23 0.23   0.68 0.68
2015   0.23 0.23   0.68 0.68
2016   0.24 0.24   0.69 0.69
2017   0.25 0.24   0.69 0.69
2018   0.25 0.25   0.70 0.70
2019   0.26 0.26   0.71 0.71
2020   0.27 0.26   0.72 0.72
2021   0.28 0.27   0.73 0.72
2022   0.28 0.28   0.74 0.73
2023   0.29 0.29   0.75 0.74
2024   0.30 0.29   0.76 0.75
2025   0.31 0.30   0.77 0.76
2026   0.32 0.31   0.78 0.77
2027   0.32 0.31   0.79 0.78
2028   0.33 0.32   0.80 0.78
2029   0.34 0.32   0.80 0.79
2030   0.34 0.33   0.81 0.80
2031   0.35 0.33   0.81 0.80
2032   0.35 0.33   0.82 0.80
2033   0.35 0.33   0.82 0.80
2034   0.36 0.34   0.82 0.80
2035   0.36 0.34   0.82 0.80
2036   0.36 0.34   0.83 0.80
2037   0.36 0.34   0.83 0.80
2038   0.36 0.34   0.83 0.80
2039   0.36 0.33   0.82 0.80
2040   0.36 0.33   0.82 0.79
2041   0.36 0.33   0.82 0.79
2042   0.36 0.33   0.82 0.79
2043   0.36 0.33   0.81 0.78
2044   0.36 0.32   0.81 0.78
2045   0.36 0.32   0.81 0.78
2046   0.36 0.32   0.81 0.78
2047   0.36 0.32   0.81 0.77
2048   0.36 0.32   0.81 0.77
2049   0.36 0.32   0.81 0.77
2050   0.36 0.32   0.81 0.77
2051   0.36 0.31   0.81 0.77
2052   0.36 0.31   0.81 0.77
2053   0.36 0.31   0.81 0.77
2054   0.36 0.31   0.81 0.77
2055   0.36 0.31   0.82 0.77
2056   0.37 0.32   0.82 0.77
2057   0.37 0.32   0.82 0.77
2058   0.37 0.32   0.82 0.77
2059   0.37 0.32   0.83 0.78
2060   0.37 0.32   0.83 0.78
2061   0.37 0.32   0.83 0.78
2062   0.38 0.32   0.83 0.78
2063   0.38 0.32   0.83 0.77
2064   0.38 0.32   0.83 0.77
2065   0.38 0.32   0.83 0.77
2066   0.38 0.32   0.83 0.77
2067   0.38 0.32   0.83 0.77
2068   0.38 0.32   0.83 0.77
2069   0.39 0.32   0.84 0.77
2070   0.39 0.32   0.84 0.77
2071   0.39 0.32   0.84 0.77
2072   0.39 0.32   0.84 0.77
2073   0.39 0.32   0.84 0.77
2074   0.39 0.32   0.84 0.77
2075   0.39 0.32   0.84 0.77
2076   0.40 0.32   0.84 0.77
2077   0.40 0.32   0.85 0.77
2078   0.40 0.32   0.85 0.78
2079   0.40 0.32   0.85 0.78
2080   0.40 0.32   0.85 0.78
2081   0.40 0.32   0.85 0.78
2082   0.41 0.32   0.85 0.78
2083   0.41 0.32   0.86 0.78
2084   0.41 0.32   0.86 0.78
2085   0.41 0.33   0.86 0.78
 
SOURCE: 2009 Social Security Trustees Report, Table V.A2 and the Social Security Administration, Office of the Chief Actuary.
NOTE: Projections reflect the intermediate assumptions.
a. Ratio of the population aged 65 or older and under age 20 to the population aged 20–64.
b. Ratio of the population aged 65 or older to the population aged 20–64.

Chart 11 also shows that improving life expectancy after 2008 does begin to produce significant effects on the age distribution of the population after 2030. But the permanent shift in the age distribution between 2010 and 2030 because of lower birth rates remains the dominant factor for the increased Social Security program cost over the next 75 years.

The effect of changes in real wage growth, productivity, labor force participation, price inflation, unemployment rates, and other economic factors all have significant impact on the future cost of Social Security. However, most of these variables, and in particular real average wage growth, affect both the tax income and the benefits of the program—as a result having offsetting effects on the program as a whole. In addition, shifts in these parameters have not been as dramatic as the change in birth rates.

Future Changes for the Social Security Program

One useful way to describe the effect of the change in the aged dependency ratio and the resulting effect on the ratio of beneficiaries to workers is to consider the implied number of workers per beneficiary. For the past 35 years, there have been about 3.3 workers per beneficiary (consistent with the ratio of 30 beneficiaries per 100 workers). After 2030, the ratio will be two workers per beneficiary (consistent with 50 beneficiaries per 100 workers).

With the average worker benefit currently at about $1,000 per month, 3.3 workers would need to contribute about $300 each per month to provide a $1,000 benefit. But after the population age distribution has shifted to have just two workers per beneficiary, each worker would need to contribute $500 to provide the same $1,000 benefit.

Thus, in order to meet increased Social Security costs, substantial change will be needed. The intermediate projections of the 2009 Trustees Report indicate that if we wait to take action until the combined OASDI trust fund becomes exhausted in 2037, benefit reductions of around 25 percent or payroll tax increases of around one-third (a 4 percent increase in addition to the current 12.4 percent rate) will be required. Past legislative changes for Social Security suggest that the next reform is likely to include a combination of benefit reductions and payroll tax increases.

Because the large shift in the cost of the OASDI program over the next 20 years is not due to increasing life expectancy, it is not clear that increasing the NRA should be the principal approach for restoring long-term solvency. Increasing the unreduced retirement age beyond 67 is one option that may be considered, given that the population may be healthier in the future and able to work to an older average age. However, this raises the question of the adequacy of monthly benefit levels. After the NRA reaches 67, those persons claiming benefits at age 62 will receive only 70 percent of the unreduced benefit level. Further increase in the NRA would decrease the adequacy of monthly benefits at age 62, and at all other ages, even further.

There is no one clear solution to the problem of increased cost for retirees because of fewer workers available to support the retirees, which in turn is caused by lower birth rates. This issue is not specific to Social Security, but also affects Medicare as well as many other private and public retirement income systems. The decline in birth rates has been far more dramatic in Japan and many European countries that are struggling with the effects of aging populations because of declines in birth rates even more severe than in the United States.10

A variety of possible changes to the provisions of the Social Security Act have been considered by policymakers and have been scored by the Office of the Chief Actuary. The reader is invited to look through these options, both as individual provisions and comprehensive proposals for improving solvency of the OASDI program.11

Notes

1 These estimates reflect the intermediate assumptions of the Social Security Board of Trustees in their 2009 Annual Trustees Report. The Congressional Budget Office (CBO) has been making similar estimates for several years that tend to be somewhat more optimistic than the trustees' estimates principally because CBO assumes faster growth in labor productivity and real earnings levels for the future.

2 The 1983 Trustees Report also included low-cost and high-cost projections, providing a range of possibilities and illustrating the uncertainty of these projections. The high-cost projection, referred to as alternative III, showed exhaustion of the combined OASI and DI Trust Funds in 2027.

3 A very limited amount of short-term borrowing from the General Fund of the Treasury is permitted in the law. Expected tax receipts for a month can be made available at the beginning of the month when this would be needed to allow timely payment of benefits. This advance tax transfer requires repayment to the General fund with interest by the end of the month. Thus, solvency is not effectively extended to any substantial degree by this provision.

4 However, actual experience since the issuance of the 2009 Trustees Report now suggests that a slightly deeper recession than previously expected will result in a temporary cash flow shortfall in 2010.

5 In addition to the uncertainties about economic and population trends, alternatives I and III incorporate assumptions that ultimate disability incidence rates will be 19 percent lower and 21 percent higher, respectively, than the average level over the period 1970 through 2008.

6 Memoranda for these proposals can be found at http://www.socialsecurity.gov/OACT/solvency/index.html.

7 Available at http://www.socialsecurity.gov/OACT/solvency/provisions/index.html.

8 The probability of survival from birth to age 10 is readily obtainable in the life tables for years starting in 1900, available at http://www.socialsecurity.gov/OACT/NOTES/s2000s.html. For the illustration provided here, these probabilities were extrapolated back to 1875, consistent with the trend in decennial census data for the population of the state of Massachusetts.

9 For this illustration, it is assumed that death rates at all ages remain at the level experienced in 2008 for all future years.

10 See, for example, http://www.oecd.org/dataoecd/13/38/16587241.pdf.

11 For individual provisions, see http://www.socialsecurity.gov/OACT/solvency/provisions/index.html.

For comprehensive proposals, see http://www.socialsecurity.gov/OACT/solvency/index.html. In addition, for detailed projections of the 2009 Trustees Report, see http://www.socialsecurity.gov/OACT/TR/2009/index.html. The full reports for prior years are available at http://www.socialsecurity.gov/OACT/TR/index.html.