Figure II.D2 illustrates the year-by-year relationship among OASDI income (excluding interest), cost (including scheduled benefits), and expenditures (including payable benefits) starting in 2000 and for the full 75-year projection period (2021 through 2095). The figure shows all values as percentages of taxable payroll. Under the intermediate assumptions, demographic factors by themselves cause the projected cost rate to rise rapidly for the next two decades, level off in about 2040 through 2055, rise temporarily between 2055 and 2078, and then decline somewhat by 2095. The projected income rate is stable at about 13 percent throughout the 75-year period.
Annual OASDI cost has exceeded non-interest income every year beginning with 2010. The Trustees project that cost will continue to exceed non-interest income throughout the 75-year valuation period. Beginning in 2021, cost is projected to exceed total income, and combined OASI and DI Trust Fund reserves diminish until they become depleted in 2034. After trust fund reserve depletion, continuing income is sufficient to support expenditures at a level of 78 percent of program cost for the rest of 2034, declining to 74 percent for 2095. Figure
II.D2 depicts OASDI operations as a combined whole. However, under current law, the differences between scheduled and payable benefits would begin at different times for the program’s two trust funds: in 2033 for OASI and in 2057 for DI.
Figure II.D3 shows the estimated number of covered workers per OASDI beneficiary. Figures
II.D2 and
II.D3 illustrate the inverse relationship between cost rates and the number of workers per beneficiary. In particular, the projected future increase in the cost rate reflects a projected decline in the number of covered workers per beneficiary. There were about 2.7 workers for every OASDI beneficiary in 2020. This ratio had been stable, remaining between 3.2 and 3.4 from 1974 through 2008, and has declined since then, initially due to the economic recession of 2007-09 and the beginning of a notable demographic shift. This shift causes the ratio of workers to beneficiaries to decline, as workers of lower-birth-rate generations replace workers of the baby-boom generation. The decline in the ratio slowed substantially between 2013 and 2019, with the recovery of the economy offsetting the demographic shift during that period. The demographic shift will continue to drive this ratio down over about the next 15 years. The ratio of workers to beneficiaries reaches 2.3 by 2035 when the baby-boom generation will have largely retired, and will generally decline very gradually thereafter due to increasing longevity.
The trust fund ratio is defined as the asset reserves at the beginning of a year expressed as a percentage of the cost during the year. The trust fund ratio thus represents the proportion of a year’s cost which could be paid solely with the reserves at the beginning of the year. Table II.D1 displays the projected maximum trust fund ratios during the long-range period for the OASI, DI, and combined OASI and DI funds. The table also shows the year of maximum projected trust fund ratio during the long-range projection period (2021 through 2095) and the year of trust fund asset reserve depletion. Trust fund ratios for OASI and combined OASI and DI are projected to decline from their current levels until reserve depletion. For DI, the trust fund ratio is projected to rise to 116 in 2040, then decline until reserve depletion.
Another way to illustrate the projected financial shortfall of the OASDI program is to examine the cumulative present value of scheduled income less cost. Figure II.D5 shows the present value of cumulative OASDI income less cost from the inception of the program through each of the years from 2020 to 2095. A positive value represents the present value of trust fund reserves at the end of the selected year. A negative value is the unfunded obligation through the selected year. The asset reserves of the combined trust funds were $2.9 trillion at the end of 2020. The combined trust fund reserves decline on a present value basis after 2020, but remain positive through 2033. However, after 2033 this cumulative amount becomes negative, which means that the combined OASI and DI Trust Funds have a net unfunded obligation through each year after 2033. Through the end of 2095, the combined funds have a present-value unfunded obligation of $19.8 trillion. If the assumptions, methods, starting values, and the law had all remained unchanged from last year, the unfunded obligation would have risen to about $17.5 trillion due to the change in the valuation date.
Figures II.D2,
II.D4, and
II.D5 show that the program’s financial condition is worsening at the end of the projection period. Negative annual balances and increasing cumulative values toward the end of the 75-year period provide an indication of the additional change that will be needed by that time in order to maintain solvency beyond 75 years. Consideration of summary measures alone for a 75‑year period can lead to incorrect perceptions and to policy prescriptions that do not achieve sustainable solvency.
1
Appendix F presents summary measures over the infinite horizon. The infinite horizon values provide an additional indication of Social Security’s financial condition for the period beginning with the inception of the program and extending indefinitely into the future, but results are subject to much greater uncertainty. Extending the horizon beyond 75 years increases the measured unfunded obligation. Through the infinite horizon, the unfunded obligation, or shortfall, is equivalent to 4.6 percent of future taxable payroll or 1.4 percent of future GDP.
A first approach uses alternative scenarios reflecting low-cost (alternative I) and high-cost (alternative III) sets of assumptions. Figure II.D6 shows the projected trust fund ratios for the combined OASI and DI Trust Funds under the intermediate, low-cost, and high-cost assumptions. The figure indicates that the combined trust funds are projected to become depleted in 2034 under the intermediate alternative and in 2031 under the high-cost alternative. Under the low-cost alternative, trust fund reserves are projected to become depleted in 2061, but the trust funds would have sufficient income by the end of 2092 to permit full payment of scheduled benefits thereafter and also to pay in arrears the temporary shortfalls between 2061 and 2092. The low-cost alternative includes a higher ultimate total fertility rate, slower improvement in mortality, a higher real wage differential, a higher ultimate real interest rate, a higher ultimate annual change in the CPI, and a lower unemployment rate. The high-cost alternative, in contrast, includes a lower ultimate total fertility rate, more rapid improvement in mortality, a lower real wage differential, a lower ultimate real interest rate, a lower ultimate annual change in the CPI, and a higher unemployment rate. These alternatives are not intended to suggest that all parameters would be likely to differ from the intermediate values in the specified directions, but are intended to illustrate the effect of clearly defined scenarios that are, on balance, very favorable or unfavorable for the program’s financial status. Actual future costs are unlikely to be as extreme as those portrayed by the low-cost or high-cost projections. The method for constructing the low-cost and high-cost projections does not lend itself to estimating the probability that actual experience will lie within or outside the range they define.
A third approach uses 5,000 independently generated stochastic simulations that reflect randomly assigned annual values for most of the key parameters. These simulations produce a distribution of projected outcomes and corresponding probabilities that future outcomes will fall within or outside a given range. The results of the stochastic simulations, discussed in more detail in appendix E, suggest that trust fund reserve depletion (the point at which reserves are insufficient to pay scheduled benefits in full and on time) is very likely before mid-century. In particular, figure
II.D7 suggests that based on these stochastic simulations, trust fund reserves will become depleted between 2031 and 2041 with 95‑percent confidence. In last year’s report, this range was between 2031 and 2042.
Figure II.D8 compares this year’s projections of annual balances (non-interest income minus cost) to those in last year’s report. The annual balances in this year’s report are lower (more negative) in years from 2021 through 2090, and then higher for 2091 through 2095. The differences in annual balances fluctuate somewhat in the early 2020s during the recovery from the recession, are small in the late 2020s, generally grow until the late 2050s, and then decline thereafter and change sign in 2090. For this year’s report, the annual balance improves from 2021 to 2022, due to the assumed path of recovery from the COVID-19 pandemic and the ensuing recession, which were not reflected in last year’s report. The trends later in the projection are mainly due to the changes made this year to fertility methodology and assumptions. For the full 75-year projection period, the annual balances are lower, on average, by 0.23 percentage point.
