At the end of 2011, the OASDI program was providing benefits to about 55 million people: 38 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 11 million disabled workers and dependents of disabled workers. During the year, an estimated 158 million people had earnings covered by Social Security and paid payroll taxes. Total expenditures in 2011 were $736 billion. Total income was $805 billion, which consisted of $691 billion in non-interest income and $114 billion in interest earnings. Assets held in special issue U.S. Treasury securities grew to $2.7 trillion.
In 2011, Social Security’s cost continued to exceed both the program’s tax income and its non-interest income, a trend that the Trustees project to continue throughout the short-range period and beyond. The 2011 deficit of tax income relative to cost was $148 billion, and the projected 2012 deficit is $165 billion. The sizes of these deficits are largely due to a temporary reduction in the Social Security payroll tax for 2011 and 2012. The legislation establishing the payroll tax reduction also provided for transfers from the General Fund of the Treasury to the trust funds to “replicate to the extent possible” revenues that would have occurred in the absence of the payroll tax reduction. Including these general revenue reimbursements, the 2011 deficit of non-interest income relative to cost was $45 billion, and the projected 2012 deficit is $53 billion.
The Trustees project that the assets of the OASI Trust Fund and of the combined OASI and DI Trust Funds will be adequate over the next 10 years under the intermediate assumptions. However, the projected assets of the DI Trust Fund decline steadily, fall below 100 percent of annual cost by the beginning of 2013, and continue to decline until the trust fund is exhausted in 2016. The DI Trust Fund does not satisfy the short-range test of financial adequacy because the test requires that the trust fund remain above 100 percent of annual cost throughout the short-range period.
The Trustees project that the combined assets of the OASI and DI Trust Funds will increase for the next several years, growing from $2,678 billion at the beginning of 2012 to $3,061 billion at the beginning of 2021. At the same time, the ratio of assets to cost continues to decline, from 340 percent of annual
cost for 2012 to 227 percent of annual cost for 2021. Assets increase because annual cost is less than total income for 2012 through 2020. Beginning in 2021, however, annual cost exceeds total income, and therefore assets begin to decline, reaching $3,053 billion at the beginning of 2022. Excluding interest earned on trust fund assets from the comparison, annual cost exceeds non-interest income in 2012 and remains higher throughout the remainder of the short-range period. For last year’s report, the Trustees projected that combined assets would be 347 percent of annual cost at the beginning of 2012 and 272 percent at the beginning of 2021. Projected trust fund assets decline more quickly than in last year’s report principally due to updated economic data and assumptions.
The Trustees project that annual cost will exceed non-interest income throughout the long-range period under the intermediate assumptions. The dollar level of the combined trust funds declines beginning in 2021 until assets are exhausted in 2033. Considered separately, the DI Trust Fund becomes exhausted in 2016 and the OASI Trust Fund becomes exhausted in 2035. The projected exhaustion date occurs two years earlier for the DI Trust Fund and three years earlier for the OASI Trust Fund and the combined OASI and DI Trust Funds.
Projected OASDI cost generally increases more rapidly than projected non-interest income through 2035 because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than subsequent lower-birth-rate generations increase the number of workers. From 2035 to 2050, the cost rate declines due principally to the aging of the already retired baby-boom generation. Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more slowly than prior to 2035.
The projected OASDI annual cost rate increases from 13.83 percent of taxable payroll for 2012 to 17.41 percent for 2035 and to 17.83 percent for 2086, a level that is 4.50 percent of taxable payroll more than the projected income rate for 2086. For last year’s report, the Trustees estimated the OASDI cost for 2086 at 17.59 percent, or 4.28 percent of payroll more than the annual income rate for that year. Expressed in relation to the projected gross domestic product (GDP), OASDI cost rises from the current level of 5.0 percent of GDP to about 6.4 percent by 2035, then declines to 6.1 percent by 2055, and remains between 6.0 and 6.1 percent through 2086.
For the 75‑year projection period, the actuarial deficit is 2.67 percent of taxable payroll, 0.44 percentage point larger than in last year’s report. The open group unfunded obligation for OASDI over the 75‑year period is $8.6 trillion in present value and is $2.1 trillion more than the measured level of a year ago. If the assumptions, methods, starting values, and the law had all remained unchanged, the unfunded obligation would have risen to about $7.0 trillion due to the change in the valuation date. The remaining increase in the unfunded obligation is primarily due to updated data and economic assumptions.
Under the long-range intermediate assumptions, the Trustees project that annual cost for the OASDI program will exceed non-interest income in 2012 and remain higher throughout the remainder of the long-range period. The projected combined OASI and DI Trust Fund assets increase through 2020, begin to decline in 2021, and become exhausted and unable to pay scheduled benefits in full on a timely basis in 2033. However, the DI Trust Fund becomes exhausted in 2016, so legislative action is needed as soon as possible. In the absence of a long-term solution, lawmakers could reallocate the payroll tax rate between OASI and DI, as they did in 1994.
For the combined OASI and DI Trust Funds to remain solvent throughout the 75‑year projection period, lawmakers could: (1) increase the combined payroll tax rate for the period in a manner equivalent to an immediate and permanent increase of 2.61 percentage points (from its current level of 12.40 percent to 15.01 percent);
1 (2) reduce scheduled benefits for the period in a manner equivalent to an immediate and permanent reduction of 16.2 percent; (3) draw on alternative sources of revenue; or (4) adopt some combination of these approaches. Lawmakers would have to make significantly larger changes for future beneficiaries if they decide to avoid changes for current beneficiaries and those close to retirement age.
The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes and give workers and beneficiaries time to adjust to them. Implementing changes soon 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 56 million beneficiaries and 159 million
covered workers and their families in 2012. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.
