2007 OASDI Trustees Report

II. OVERVIEW

A. HIGHLIGHTS

The report's major findings are summarized below.

In 2006

At the end of 2006, 49 million people were receiving benefits: 34 million retired workers and their dependents, 7 million survivors of deceased workers, and 9 million disabled workers and their dependents. During the year an estimated 162 million people had earnings covered by Social Security and paid payroll taxes. Total benefits paid in 2006 were $546 billion. Income was $745 billion, and assets held in special issue U.S. Treasury securities grew to $2.0 trillion.

Short-Range Results

The OASI and DI Trust Funds, individually and combined, are adequately financed over the next 10 years under the intermediate assumptions. The combined assets of the OASI and DI Trust Funds are projected to increase from $2,048 billion at the beginning of 2007, or 345 percent of annual expenditures, to $4,210 billion at the beginning of 2016, or 407 percent of annual expenditures in that year. Combined assets were projected in last year's report to rise to 344 percent of annual expenditures at the beginning of 2007, and 407 percent at the beginning of 2016.

Long-Range Results

Under the intermediate assumptions, OASDI cost will increase more rapidly than tax income between about 2010 and 2030, due to the retirement of the large baby-boom generation. After 2030, increases in life expectancy and relatively low fertility rates will continue to increase Social Security system costs relative to tax income, but more slowly. Annual cost will exceed tax income starting in 2017 at which time the annual gap will be covered with cash from redemptions of special obligations of the Treasury that make up the trust fund assets, until these assets are exhausted in 2041. Separately, the DI fund is projected to be exhausted in 2026 and the OASI fund in 2042. For the 75-year projection period, the actuarial deficit is 1.95 percent of taxable payroll, 0.06 percentage point smaller than in last year's report. The open group unfunded obligation for OASDI over the 75-year period is $4.7 trillion in present value, and is $0.1 trillion above the measured level of a year ago. In the absence of any changes in assumptions, methods, and starting values, the unfunded obligation would have risen to $4.8 trillion due to the change in the valuation date.

The OASDI annual cost rate is projected to increase from 11.21 percent of taxable payroll in 2007, to 16.59 percent in 2030, and to 18.55 percent in 2081, or to a level that is 5.20 percent of taxable payroll more than the projected income rate for 2081. In last year's report the OASDI cost for 2080 was estimated at 18.74 percent, or 5.38 percent of payroll more than the annual income rate for that year. Expressed in relation to the projected gross domestic product (GDP), OASDI cost is estimated to rise from the current level of 4.3 percent of GDP, to 6.2 percent in 2030, and to 6.3 percent in 2081.

Conclusion

Annual cost will begin to exceed tax income in 2017 for the combined OASDI Trust Funds, which are projected to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2041 under the long-range intermediate assumptions. For the trust funds to remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased during the period in a manner equivalent to an immediate and permanent increase of 1.95 percentage points, benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 13.0 percent, general revenue transfers equivalent to $4.7 trillion in present value could be made during the period, or some combination of approaches could be adopted. Significantly larger changes would be required to maintain solvency beyond 75 years.

The projected trust fund deficits should be addressed in a timely way to allow for a gradual phasing in of the necessary changes and to provide advance notice to workers. Making adjustments sooner will allow them to be spread over more generations. Social Security plays a critical role in the lives of this year's (2007) 50 million beneficiaries and 163 million covered workers and their families. With informed discussion, creative thinking, and timely legislative action, we will work with Congress and others to ensure that Social Security continues to protect future generations.