2020 OASDI Trustees Report

E. CONCLUSION

Under current law, the projected cost of Social Security increases faster than projected income through 2040 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 largely stabilized after 2040, 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 cost exceeds total income beginning in 2021, and throughout the remainder of the 75‑year projection period.

The OASI Trust Fund and the DI Trust Fund are projected to have sufficient reserves to pay full benefits on time until 2034 and 2065, respectively. Legislative action will be needed to prevent reserve depletion in those years. In the absence of such legislation, continuing income to the trust funds at the time of reserve depletion would be sufficient to pay 76 percent of OASI benefits and 92 percent of DI benefits.

Social Security’s combined trust funds are projected to cover full payment of scheduled benefits on a timely basis until the trust fund reserves become depleted in 2035. (Full payment of benefits until depletion of the hypothetical combined reserves in 2035 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 2094, continuing income equals about 73 percent of the program cost.

The 75-year actuarial deficit for the combined trust funds under the intermediate assumptions is 3.21 percent of taxable payroll ,  increased from the 2.78 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) revenue would have to be increased by an amount equivalent to an immediate and permanent payroll tax rate increase of 3.14 percentage points 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 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 financing, 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 revenue from workers and employers by raising the tax rate or the maximum level of taxable earnings, or by dedicating revenue 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 changes 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. 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.

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

•	www.ssa.gov/OACT/tr/2020/

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

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

•	https://home.treasury.gov/policy-issues/economic-policy/social-security-and-medicare-trustee-reports