At the end of 2008, almost 51 million people were receiving benefits: 35 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 9 million disabled workers and dependents of disabled workers. During the year, an estimated 162 million people had earnings covered by Social Security and paid payroll taxes. Total benefits paid in 2008 were $615 billion. Total income was $805 billion, and assets held in special issue U.S. Treasury securities grew to $2.4 trillion.
The OASI Trust Fund and the combined OASI and DI Trust Funds are adequately financed over the next 10 years under the intermediate assumptions. The DI Trust Fund is expected to remain solvent over the next 10 years, but does not satisfy the short-range test of financial adequacy because assets are estimated to fall below 100 percent of annual expenditures by the beginning of 2014. The combined assets of the OASI and DI Trust Funds are projected to increase from $2,419 billion at the beginning of 2009, or 354 percent of annual expenditures, to $3,874 billion at the beginning of 2018, or 338 percent of annual expenditures in that year. Combined assets were projected for last year’s report to rise to 369 percent of annual expenditures at the beginning of 2009, and 378 percent at the beginning of 2018.
Under the intermediate assumptions, OASDI cost will increase more rapidly than tax income between about 2012 and 2030 because the retirement of the baby-boom generation will cause the number of beneficiaries to rise much faster than the labor force. After 2030, increases in life expectancy and the continued relatively low fertility rates experienced since the baby boom will generally cause Social Security system costs to increase relative to tax income, but more slowly. Annual cost will exceed tax income starting in 2016, at which time the annual gap will be covered with cash from redemptions of special obligations of the Treasury that make up the trust fund assets until these assets are exhausted in 2037. Individually, the DI fund is projected to be exhausted in 2020 and the OASI fund in 2039. For the 75-year projection period, the actuarial deficit is 2.00 percent of taxable payroll, 0.30 percentage point larger than in last year’s report. The open group unfunded obligation for OASDI over the 75-year period is $5.3 trillion in present value, and is $0.9 trillion more than the measured level of a year ago. In the absence of any changes in assumptions, methods, and starting values, the unfunded obligation would have risen to about $4.6 trillion due to the change in the valuation date.
The OASDI annual cost rate is projected to increase from 12.35 percent of taxable payroll in 2009, to 16.76 percent in 2030, and to 17.68 percent in 2083, a level that is 4.34 percent of taxable payroll more than the projected income rate for 2083. For last year’s report, the OASDI cost for 2083 was estimated at 17.54 percent, or 4.25 percent of payroll more than the annual income rate for that year. Expressed in relation to the projected gross domestic product (GDP), OASDI cost is estimated to rise from the current level of 4.8 percent of GDP to 6.1 percent in 2030, and then to peak at almost 6.2 percent in 2034. Thereafter, OASDI cost as a percent of GDP is projected to decline, reaching a level around 5.8 percent for the period 2050 through 2083.
Under the long-range intermediate assumptions, annual cost will begin to exceed tax income in 2016 for the combined OASDI Trust Funds. The combined funds are then projected to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2037. The separate DI Trust Fund, however, is projected to become exhausted in 2020.
For the combined OASDI Trust Funds to remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased during the period in a manner equivalent to an immediate and permanent increase of 2.01 percentage points, benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 13.3 percent, general revenue transfers equivalent to $5.3 trillion in present value could be made during the period, or some combination of approaches could be adopted. Significantly larger changes would be required to maintain solvency beyond 75 years.
For this year’s intermediate projections, real GDP starts at a lower level than was assumed last year for 2008, declines through the second quarter of 2009, levels off in the third quarter, and then begins to grow, reaching the projected stable, sustainable path by the end of 2015. These revised economic assumptions account for about half of the estimated reduction in the program’s actuarial balance relative to last year’s report. The effect of the recession on the actuarial balance would be smaller than projected in this report if the recovery were such that economic output substantially overshoots the projected sustainable path, a phenomenon observed in some past business cycles.
The projected trust fund deficits should be addressed in a timely way so that necessary changes can be phased in gradually and workers can be given time to plan for them. Implementing changes sooner will allow their effects to be spread over more generations. Social Security plays a critical role in the lives of 52 million beneficiaries and 160 million
covered workers and their families in 2009. With informed discussion, creative thinking, and timely legislative action, present and future Congresses and Presidents can ensure that Social Security continues to protect future generations.
