2020 OASDI Trustees Report

II. OVERVIEW

A. HIGHLIGHTS

This section summarizes the report’s major findings.

In 2019

At the end of 2019, the OASDI program was providing benefit payments¹ to about 64 million people: 48 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 10 million disabled workers and dependents of disabled workers. During the year, an estimated 178 million people had earnings covered by Social Security and paid payroll taxes on those earnings. The total cost of the program in 2019 was $1,059 billion. Total income was $1,062 billion, which consisted of $981 billion in non-interest income and $81 billion in interest earnings. Asset reserves held in special issue U.S. Treasury securities grew from $2,895 billion at the beginning of the year to $2,897 billion at the end of the year.

Short-Range Results (2020-29)

Under the Trustees’ intermediate assumptions, Social Security’s total cost is projected to be less than its total income in 2020 and higher than its total income in 2021 and all later years. Social Security’s cost has exceeded its non-interest income since 2010. For 2020, program cost is projected to be less than total income by about $4 billion and exceed non-interest income by about $73 billion.

To illustrate the actuarial status of the Social Security program as a whole, the operations of the OASI and DI Trust Funds are often shown on a combined basis as OASDI. However, by law, the two funds are separate entities and therefore the combined fund operations and reserves are hypothetical. The combined reserves are projected to decrease from $2,897 billion at the beginning of 2020 to $1,819 billion at the end of 2029, the last year of the short-range period.

The reserves of the combined OASI and DI Trust Funds along with projected program income are sufficient to cover projected program cost over the next 10 years under the intermediate assumptions. However, the ratio of reserves to annual cost is projected to decline from 261 percent at the beginning of 2020 to 94 percent at the beginning of 2030. Because this ratio falls below 100 percent by the beginning of the 11th projection year, the combined OASI and DI Trust Funds fail the Trustees’ test of short-range financial adequacy. Considered separately, the OASI and DI Trust Funds also fail this test. For last year’s report, the Trustees projected that combined reserves would be 260 percent of annual cost at the beginning of 2020 and 97 percent at the beginning of 2030.

Long-Range Results (2020-94)

Under the Trustees’ intermediate assumptions, OASDI cost is projected to exceed total income starting in 2021, and the dollar level of the hypothetical combined trust fund reserves declines until reserves become depleted in 2035. Figure II.D2 shows the implications of reserve depletion for the combined OASI and DI Trust Funds. Considered separately, the OASI Trust Fund reserves become depleted in 2034 and the DI Trust Fund reserves become depleted in 2065.² In last year’s report, the projected reserve depletion years were 2035 for OASDI, 2034 for OASI, and 2052 for DI.

For the second year in a row, there has been a significant change in the DI reserve depletion date for two main reasons: (1) a change in the ultimate assumed disability incidence rate, and (2) continuing favorable experience for DI applications and benefit awards, which remained at historically low levels for 2019. Disability applications have declined substantially since 2010, and the total number of disabled-worker beneficiaries in current payment status has been falling since 2014. For this report, disability applications and incidence rates are assumed to rise more gradually from the current low levels to an ultimate age-sex-adjusted disability incidence rate of 5.0 per thousand exposed by the end of the short-range projection period, compared to 5.2 per thousand assumed in last year’s report and 5.4 per thousand assumed in the 2018 report. See page 39 for more details on these changes in the DI projections.

Projected OASDI cost increases more rapidly than projected non-interest income through 2042 primarily because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the number of covered workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2042 through 2049, the cost rate (the ratio of program cost to taxable payroll) generally declines because the aging baby-boom generation is gradually replaced at retirement ages by subsequent lower-birth-rate generations. Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more slowly than between 2010 and 2042.

Over the 75-year long-range period 2020-94, the projected OASDI annual cost rate increases from 13.92 percent of taxable payroll for 2020 to 16.86 percent for 2042 and to 17.94 percent for 2094. The projected cost rate for 2094 is 4.51 percent of taxable payroll more than the projected income rate (the ratio of non-interest income to taxable payroll) for 2094. For last year’s report, the Trustees estimated the OASDI cost for 2094 at 17.52 percent, or 4.16 percent of payroll more than the annual income rate for that year. Expressed in relation to the projected gross domestic product (GDP), OASDI cost generally rises from 5.0 percent of GDP for 2020 to about 5.9 percent by 2038, then declines to 5.8 percent by 2053, and then generally increases to 5.9 percent by 2094.

For the 75‑year projection period, the actuarial deficit is 3.21 percent of taxable payroll, increased from 2.78 percent of taxable payroll in last year’s report. The closely-related open-group unfunded obligation for OASDI over the 75-year period is 3.03 percent of taxable payroll, increased from 2.61 percent of payroll in last year’s report. The open-group unfunded obligation for OASDI over the 75‑year period is $16.8 trillion in present value and is $2.9 trillion more than the measured level of $13.9 trillion a year ago.

If the assumptions, methods, starting values, and the law had all remained unchanged, the actuarial deficit would have increased to 2.84 percent of taxable payroll, and the unfunded obligation would have risen to about 2.66 percent of taxable payroll and $14.5 trillion in present value due to the change in the valuation date. These measures increased significantly for this year’s report due to a change in law (the repeal of the excise tax provision of the Affordable Care Act), as well as changes in assumptions for fertility, price inflation, and interest rates, all described in detail in sections III.B and IV.B.6 of this report.

To illustrate the magnitude of the 75-year actuarial deficit, consider that for the combined OASI and DI Trust Funds to remain fully solvent throughout the 75-year projection period: (1) revenue would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 3.14 percentage points³ to 15.54 percent, (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 19 percent applied to all current and future beneficiaries, or about 23 percent if the reductions were applied only to those who become initially eligible for benefits in 2020 or later; or (3) some combination of these approaches would have to be adopted.

If substantial actions are deferred for several years, the changes necessary to maintain Social Security solvency would be concentrated on fewer years and fewer generations. Significantly larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2035. For example, maintaining 75-year solvency with changes that begin in 2035 would require: (1) an increase in revenue by an amount equivalent to a permanent 4.13 percentage point payroll tax rate increase to 16.53 percent starting in 2035, (2) a reduction in scheduled benefits by an amount equivalent to a permanent 25 percent reduction in all benefits starting in 2035, or (3) some combination of these approaches.

Conclusion

Under the intermediate assumptions, the projected hypothetical combined OASI and DI Trust Fund asset reserves become depleted and unable to pay scheduled benefits in full on a timely basis in 2035. At the time of depletion of these combined reserves, continuing income to the combined trust funds would be sufficient to pay 79 percent of scheduled benefits. The OASI Trust Fund reserves are projected to become depleted in 2034, at which time OASI income would be sufficient to pay 76 percent of OASI scheduled benefits. DI Trust Fund asset reserves are projected to become depleted in 2065, at which time continuing income to the DI Trust Fund would be sufficient to pay 92 percent of DI scheduled benefits.

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

The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 65 million beneficiaries and 180 million covered workers and their families during 2020. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

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1

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

2

If the OASI Trust Fund reserves were to become depleted in 2034 as is currently projected, the operations of the hypothetical combined OASI and DI Trust Funds would not reflect the aggregated operation of the OASI Trust Fund and the DI Trust Fund because part of the OASI benefits could not be paid without a change in the law. Implicitly, the values shown for the hypothetical combined trust funds assume the law will have been changed to permit the transfer of resources between funds as needed.

3

The necessary tax rate increase of 3.14 percent differs from the 3.21 percent actuarial deficit for two reasons. First, the necessary tax rate increase is the increase required to maintain solvency throughout the period with a zero trust fund reserve at the end of the period, whereas the actuarial deficit also incorporates an ending trust fund reserve equal to one year’s cost at the end of the projection period. Second, the necessary tax rate increase reflects a behavioral response to tax rate changes, whereas the actuarial deficit does not. In particular, the calculation of the necessary tax rate increase assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.