According to the 2011 annual report by the Social Security Board of Trustees, under the long-range intermediate assumptions, annual cost for the Social Security program is projected to exceed non-interest income in 2011 and remain higher throughout the remainder of the long-range period. The combined OASI and DI Trust Funds are projected to increase through 2022, and then to decline and become exhausted and unable to pay scheduled benefits in full on a timely basis in 2036.
However, the DI Trust Fund is projected to become exhausted in 2018, so the agency said legislative action will be needed as soon as possible. At a minimum, a reallocation of the payroll tax rate between OASI and DI would be necessary, as was done in 1994, the report suggested.
For the combined OASDI Trust Funds to remain solvent throughout the 75-year projection period, the report says, combined payroll tax rate could be increased during the period in a manner equivalent to an immediate and permanent increase of 2.15 percentage points, scheduled benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 13.8%, or some combination of these approaches could be adopted. Significantly larger changes would be required if current beneficiaries and those close to retirement age were to be held harmless, or if trust fund asset levels were to be stabilized at the end of the 75-year projection period.“The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers and beneficiaries can be given time to adjust to them. Implementing changes sooner would allow the needed revenue increases or benefit reductions to be spread over more generations,” the report suggested.
According to the 2011 annual report by the Social Security Board of Trustees, the combined assets of the OASI and DI Trust Funds are projected to grow throughout the short-range period, from $2,609 billion at the beginning of 2011, or 353% of annual cost, to $3,526 billion at the beginning of 2020, or 284% of annual cost, under the intermediate assumptions.
This increase in assets indicates that annual cost is less than total income throughout the short-range period. However, annual cost exceeds non-interest income in 2011 and remains higher throughout the remainder of the short-range period. For last year’s report, combined assets were projected to be 353% of annual cost at the beginning of 2011 and 299% at the beginning of 2020.
Under the intermediate assumptions, OASDI cost generally increases more rapidly than non-interest income through 2035 because the retirement of the baby-boom generation increases the number of beneficiaries much faster than subsequent lower-birth-rate generations increase the labor force. 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 generally cause OASDI cost to increase relative to non-interest income, but more slowly than prior to 2035.
Annual cost is projected to exceed non-interest income in 2011 and remain higher throughout the remainder of the long-range period. However, total income, including interest earnings on trust fund assets, will be sufficient to cover annual cost until 2023. The dollar level of the combined trust funds is projected to be drawn down beginning in 2023 until assets are exhausted in 2036. Individually, the DI Trust Fund is projected to be exhausted in 2018 and the OASI Trust Fund in 2038.
The OASDI annual cost rate is projected to increase from 13.35% of taxable payroll in 2011 to 17.01% in 2035 and to 17.56% in 2085, a level that is 4.24% of taxable payroll more than the projected income rate for 2085. For last year’s report, the OASDI cost for 2085 was estimated at 17.47%, or 4.16% 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% of GDP to about 6.2% in 2035, then to decline to 6% by 2050, and to remain between 5.9% and 6% through 2085.
For the 75-year projection period, the actuarial deficit is 2.22% 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 $6.5 trillion in present value and is $1.1 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 $5.8 trillion due to the change in the valuation date.The report is at http://www.ssa.gov/oact/tr/2011/tr2011.pdf.