2016 OASDI Trustees Report

E. CONCLUSION

Under current law, the projected cost of Social Security increases faster than projected income through 2038 primarily because the ratio of workers paying taxes to beneficiaries receiving benefits will decline as the baby-boom generation ages and is replaced at working ages with subsequent lower birth-rate generations. While the effects of the aging baby boom and subsequent lower birth rates will have stabilized after 2038, annual cost will continue to grow faster than income, but to a lesser degree, reflecting continuing increases in life expectancy. Based on the Trustees’ intermediate assumptions, Social Security’s total income exceeds its total cost in 2016, and surpluses continue through 2019. However, cost exceeds non-interest income for 2016, as it has since 2010, and remains higher than non-interest income throughout the remainder of the 75‑year projection period.

The OASI Trust Fund and DI Trust Fund are projected to have sufficient reserves to pay full benefits on time until 2035 and 2023, respectively. Legislative action will be needed soon to prevent depletion of the DI Trust Fund reserves in the third quarter of 2023, at which time continuing income to the DI Trust Fund would be sufficient to pay 89 percent of DI benefits.

Social Security’s combined trust funds increase with the help of interest income through 2019 and allow full payment of scheduled benefits on a timely basis until the trust fund asset reserves become depleted in 2034. (Full payment of benefits implicitly assumes that the law will have been changed to permit the transfer of funds between OASI and DI as needed.) At that time, projected continuing income to the combined trust funds equals about 79 percent of the program cost. By 2090, continuing income equals about 74 percent of the program cost.

The 75-year actuarial deficit for the combined trust funds under the intermediate assumptions is 2.66 percent of taxable payroll — 0.02 percentage point smaller than the 2.68 percent deficit in last year’s report. To illustrate the magnitude of the deficit, consider that for the combined OASI and DI Trust Funds to remain fully solvent throughout the 75-year projection period: (1) revenues would have to be increased by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.58 percentage points to 14.98 percent; (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 16 percent applied to all current and future beneficiaries, or about 19 percent if the reductions were applied only to those who become initially eligible for benefits in 2016 or later; or (3) some combination of these approaches would have to be adopted. If actions are deferred for several years, the changes necessary to maintain Social Security solvency become concentrated on fewer years and fewer generations.

If lawmakers design legislative solutions only to eliminate the overall actuarial deficit without consideration of year-by-year patterns, then a substantial financial imbalance could remain at the end of the period, and the long-range sustainability of program financing could still be in doubt. Sustainable solvency for the financing of the program under a specified set of assumptions is achieved when the projected trust fund ratio is positive throughout the long-range period and is either stable or rising at the end of the period. Making changes now that achieve sustainable solvency could avoid the need for later legislative changes.

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/. Broadly speaking, the approaches that lawmakers can take include increasing revenues from workers and employers by raising the tax rate or the maximum level of taxable earnings, or by dedicating revenues from other sources; lowering benefits for some or all beneficiaries by changing certain program parameters; or a combination of these approaches. There are countless variations on these options, including those that vary the timing, magnitude, and other specifics of the change(s) under consideration.

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 and could preserve more trust fund reserves to help finance future benefits. Social Security will play a critical role in the lives of 61 million beneficiaries and 171 million covered workers and their families in 2016. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

For further information related to the contents of this report, see the following websites:

•	www.ssa.gov/OACT/tr/2016/

•	www.ssa.gov/OACT/solvency/provisions/

•	www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/

•	www.treasury.gov/resource-center/economic-policy/ss-medicare/Pages/social_security.aspx