2017 OASDI Trustees Report

II. OVERVIEW

A. HIGHLIGHTS

This section summarizes the report’s major findings.

In 2016

At the end of 2016, the OASDI program was providing benefit payments¹ to about 61 million people: 44 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 171 million people had earnings covered by Social Security and paid payroll taxes on those earnings. Total expenditures in 2016 were $922 billion. Total income was $957 billion, which consisted of $869 billion in non-interest income and $88 billion in interest earnings. Asset reserves held in special issue U.S. Treasury securities grew from $2,813 billion at the beginning of the year to $2,848 billion at the end of the year.²

Short-Range Results

Under the Trustees’ intermediate assumptions, Social Security’s total income is projected to exceed its total cost through 2021, as it has for every year since 1982. The 2016 excess of total income over cost for the year was $35 billion. However, when interest income is excluded, Social Security’s cost is projected to exceed its non-interest income throughout the projection period, as it has since 2010. For 2016, cost for the year exceeded non-interest income by $53 billion. For 2017, total income for the program is projected to exceed cost for the year by $59 billion, and non-interest income is projected to be $27 billion less than program cost for the year.³

To illustrate the actuarial status of the Social Security program as a whole, the operations of the OASI and DI 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 reserves of the combined OASI and DI Trust Funds along with projected program income are adequate to cover program cost over the next 10 years under the intermediate assumptions. The ratio of reserves to cost remains above 100 percent through 2026, declining from 298 percent of annual cost at the beginning of 2017 to 165 percent at the beginning of 2026. Therefore, the combined OASI and DI Trust Funds satisfy the short-range test of financial adequacy.⁴ For last year’s report, the Trustees projected that combined reserves would be 293 percent of annual cost at the beginning of 2017 and 149 percent at the beginning of 2026.

The combined reserves are projected to increase from $2,848 billion at the beginning of 2017 to $3,000 billion at the beginning of 2022. Reserves increase through 2021 because annual cost is less than total income for 2017 through 2021. At the same time, however, the ratio of reserves to cost declines, from 298 percent of annual cost for 2017 to 230 percent for 2022. Beginning in 2022, annual cost exceeds total income, and therefore the combined reserves begin to decline, reaching $2,607 billion at the end of 2026.

It should be noted that the DI Trust Fund reserves were projected to become depleted in 2023 in last year’s report. However, as described below, revisions reflecting recent experience have extended the projected DI Trust Fund reserve depletion date beyond the short-range period under the intermediate assumptions of the 2017 Trustees Report.

Long-Range Results

Under the Trustees’ intermediate assumptions, projected OASDI cost will exceed total income by increasing amounts starting in 2022, and the dollar level of the hypothetical combined trust fund reserves declines until reserves become depleted in 2034.⁵ Figure II.D2 shows the implications of reserve depletion for the combined OASDI Trust Funds. Considered separately, the DI Trust Fund reserves become depleted in 2028 and the OASI Trust Fund reserves become depleted in 2035. In last year’s report, the projected reserve depletion years were 2034 for OASDI, 2023 for DI, and 2035 for OASI.

The change in the reserve depletion date for DI is largely due to continuing favorable experience for DI applications and benefit awards. Disability applications have been declining since 2010 and the total number of disabled worker beneficiaries in current payment status has been falling since 2014. In last year’s report, disabled worker beneficiaries were projected to rise from 8.9 million at the end of 2015 to about 9.0 million at the end of 2016. In fact, the number dropped to about 8.8 million at the end of 2016. For this report, ultimate disability incidence rate assumptions are unchanged from the last report. This year’s report reflects lower recent incidence rates and a more gradual rise to the ultimate DI incidence rates. These changes are primarily responsible for the change in the DI reserve depletion date from 2023 in last year’s report to 2028 in this year’s report.

Projected OASDI cost increases more rapidly than projected non-interest income through 2037 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 2038 to 2051, 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 historically low-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 2037.

The projected OASDI annual cost rate increases from 13.41 percent of taxable payroll for 2017 to 17.02 percent for 2038 and to 17.80 percent for 2091, a level that is 4.48 percent of taxable payroll more than the projected income rate (the ratio of non-interest income to taxable payroll) for 2091. For last year’s report, the Trustees estimated the OASDI cost for 2091 at 17.72 percent, or 4.39 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 4.9 percent of GDP for 2017 to about 6.1 percent by 2037, then declines to 5.9 percent by 2050, and then generally increases to 6.1 percent by 2091.

For the 75‑year projection period, the actuarial deficit is 2.83 percent of taxable payroll, 0.17 percentage point larger than in last year’s report. The closely-related open group unfunded obligation for OASDI over the 75-year period is 2.66 percent of taxable payroll, which is 0.17 percentage point larger than in last year’s report. The open group unfunded obligation for OASDI over the 75‑year period is $12.5 trillion in present value and is $1.2 trillion more than the measured level of $11.4 trillion a year ago. If the assumptions, methods, starting values, and the law had all remained unchanged, the actuarial deficit would have increased to 2.71 percent of taxable payroll, and the unfunded obligation would have risen to about 2.55 percent of taxable payroll and $11.9 trillion in present value due to the change in the valuation date. The remaining changes in the actuarial deficit and the unfunded obligation are due to changes in the law, methods, starting values, and assumptions.

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) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.76 percentage points⁶ to 15.16 percent, (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 17 percent applied to all current and future beneficiaries, or about 20 percent if the reductions were applied only to those who become initially eligible for benefits in 2017 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. Much larger changes would be necessary if action is deferred until the combined trust fund reserves become depleted in 2034. For example, maintaining 75-year solvency with policies that begin in 2034 would require: (1) an increase in revenues by an amount equivalent to a 3.98 percentage point payroll tax rate increase starting in 2034, (2) a reduction in scheduled benefits by an amount equivalent to a 23 percent reduction in all benefits starting in 2034, or (3) some combination of these approaches would have to be adopted.

Conclusion

Under the intermediate assumptions, DI Trust Fund asset reserves are projected to become depleted in 2028, at which time continuing income to the DI Trust Fund would be sufficient to pay 93 percent of DI scheduled benefits. Therefore, legislative action is needed to address the DI program’s financial imbalance. The OASI Trust Fund reserves are projected to become depleted in 2035, at which time OASI income would be sufficient to pay 75 percent of OASI scheduled benefits.

The Trustees also project that annual cost for the OASDI program will exceed non-interest income throughout the projection period, and will exceed total income beginning in 2022 under the intermediate assumptions. The projected hypothetical combined OASI and DI Trust Fund asset reserves increase through 2021, begin to decline in 2022, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2034. At the time of depletion of these combined reserves, continuing income to the combined trust funds would be sufficient to pay 77 percent of 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 and could preserve more trust fund reserves to help finance future benefits. Social Security will play a critical role in the lives of 62 million beneficiaries and 173 million covered workers and their families in 2017. 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 payment” and other terms appear in the Glossary.

2

Benefit payments which were scheduled to be paid on January 3, 2016 were actually paid on December 31, 2015 as required by the statutory provision for early delivery of benefit payments when the normal payment delivery date is a Saturday, Sunday, or legal public holiday. The amount of these payments made on an accelerated basis was approximately $19.7 billion for the OASI Trust Fund and $6.1 billion for the DI Trust Fund. For comparability with the values for historical years and the projections in this report, all trust fund operations and asset reserves reflect the 12 months of benefits scheduled for payment each year.

3

Amounts for 2016 are adjusted to include in 2016 operations those benefit payments regularly scheduled in the law to be paid on January 3, 2016, which were actually paid on December 31, 2015.

4

The test of short-range financial adequacy for a trust fund is met if (1) the estimated trust fund ratio is at least 100 percent at the beginning of the period and remains at or above 100 percent throughout the 10-year short-range period or (2) the ratio is initially less than 100 percent, reaches at least 100 percent within 5 years (without reserve depletion at any time during this period) and remains at or above 100 percent throughout the remainder of the 10-year short-range period.

5

Combined trust fund reserves are clearly hypothetical after one fund becomes depleted, because under current law the funds cannot borrow from each other. For example, if the DI Trust Fund reserves were to become depleted in 2028 as is currently projected, the operations of the OASDI Trust Funds, shown in this report on a hypothetical combined basis, would not reflect the aggregated operation of the OASI and DI Trust Funds because part of the DI 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.

6

The necessary tax rate of 2.76 percent differs from the 2.83 percent actuarial deficit for two reasons. First, the necessary tax rate is the rate required to maintain solvency throughout the period that does not result in any trust fund reserve at the end of the period, whereas the actuarial deficit incorporates an ending trust fund reserve equal to 1 year’s cost. Second, the necessary tax rate reflects a behavioral response to tax rate changes, whereas the actuarial deficit does not. In particular, the calculation of the necessary tax rate 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.