2002 OASDI Trustees Report

E. CONCLUSION

A significant shift upward in the average age of the United States population in the decades ahead due to the aging of the baby-boom generation, expected continuing low fertility, and increasing life expectancy, will increase the cost of Social Security faster than its income under current law. Based on the Trustees' best estimates, expenditures, which are now well below tax revenues, are expected to exceed tax revenues starting in 2017 (1 year later than in last year's report) and throughout the remainder of the 75-year projection period. Assets in the Social Security combined trust funds are projected to be adequate to allow full payment of benefits, until becoming exhausted in 2041, 3 years later than was projected in last year's report. At that time annual tax income to the trust funds is projected to equal about 73 percent of program cost. Separately, the OASI and DI funds are projected to have sufficient funds to pay full benefits on time until 2043 and 2028, respectively. By 2076, however, annual tax income is projected to be only about two-thirds as large as the annual cost of the OASDI program.

Over the full 75-year projection period the actuarial deficit estimated for the combined trust funds is 1.87 percent of taxable payroll. This is about the same as the deficit of 1.86 percent projected in last year's report. This deficit indicates that financial adequacy of the program for the next 75 years could be restored (under the Trustees' best estimates), if the Social Security payroll tax were immediately and permanently increased, from its current level of 12.4 percent (combined employee-employer shares) to 14.27 percent. Alternatively, all current and future benefits could be reduced by about 13 percent (or there could be some combination of tax increases and benefit reductions).

Changes of this magnitude would be sufficient to eliminate the actuarial deficit over the 75-year projection period. However, because of the increasing average age of the population, annual deficits are projected to increase to levels in excess of 6 percent of taxable payroll by the end of the 75-year period. The large annual deficit at the end of the projection period indicates that the annual cost will very likely continue to exceed tax revenues after 2076. As a result, ensuring the sustainability of the system beyond 2076 would require larger changes than those needed to restore actuarial balance for the 75-year period.

The trust fund deficits projected for the longer run should be addressed in a timely way to allow for a gradual phasing in of any necessary changes and to provide advance notice so that workers can adjust their plans to take account of those changes. The sooner adjustments are made, the smaller and less abrupt they will have to be. With informed public discussion and timely legislative action, Social Security will continue to play an important role in the life of virtually every American.

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