Social Security continues to face “significant financing issues,” says the Board of Trustees of the federal Old-Age and Survivors Insurance and Disability Insurance (OASDI)Trust Funds in its annual report to Congress. It notes that it has arrived at that finding in prior years.
The Board calls on lawmakers to “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.”
At the end of 2022, says the report, the OASDI program was providing benefit payments to about 66 million people:
- 51 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 2022, an estimated 181 million people had earnings covered by Social Security and paid payroll taxes on those earnings. The total cost of the program last year was $1.244 trillion. Total income was $1.222 trillion, which consisted of $1.155 trillion in non-interest income and $66 billion in interest earnings. Asset reserves held in special issue U.S. Treasury securities declined from $2.852 trillion at the beginning of the year to $2.830 trillion at the end of 2022.
Short Range Projections
Total costs of the Social Security program began to be higher than total income in 2021, and its cost has exceeded its non-interest income since 2010. Expect more of the same, if the Board is correct.
Under the Trustees’ intermediate assumptions, in 2023, Social Security’s total cost is projected to be higher than its total income — and in all later years.
The reserves of the combined OASI and DI Trust Funds along with projected program income are sufficient to cover projected program cost over the next 10 years under intermediate assumptions, says the report. However, it adds, the ratio of reserves to annual cost is projected to decline from 204% at the beginning of 2023 to 96% at the beginning of 2029 — and remain below 100% for the remainder of the 10-year short-range period. Because this ratio falls below 100% by the end of the 10th projection year, the combined OASI and DI Trust Funds fail the Trustees’ test of short-range financial adequacy.
OASDI costs have been generally increasing much more rapidly than non-interest income since 2008 and are projected to continue to do so through about 2040.
In this period, says the report, the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the increase in the number of covered workers, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages.
Between about 2040 and 2055, OASDI costs and non-interest income are projected to generally increase at more similar rates as the cost rate (the ratio of program cost to taxable payroll) roughly stabilizes, reflecting the return to birth rates above two children per woman between 1990 and 2008.
Between 2055 and 2078, OASDI costs are projected to grow significantly faster than income because of the period of historically low birth rates starting with the recession of 2007-09. From 2078 to 2097, costs are projected to grow somewhat more slowly than income, as birth rates are assumed to return to a level of two children per woman for 2056 and thereafter.
Over the 75-year long-range period 2023-97, the projected OASDI annual cost rate increases from 14.53% of taxable payroll for 2023 to 18.50% for 2078, and then decreases generally to 17.75% for 2097. The projected cost rate for 2097 is 4.35% of taxable payroll more than the projected income rate (the ratio of non-interest income to taxable payroll) for 2097. Expressed in relation to the projected gross domestic product (GDP), OASDI cost generally rises from 5.2% of GDP for 2023 to a peak of about 6.3% for 2076, and then declines to 6% by 2097.
Under intermediate assumptions, the report says that projected hypothetical combined OASI and DI Trust Fund asset reserves will be depleted and unable to pay scheduled benefits in full on a timely basis in 2034. When that happens, the Board says, income continuing to come in to the combined trust funds would be sufficient to pay 80% of scheduled benefits.
Call to Action
“The Trustees continue to recommend that Congress address the projected trust fund shortfalls in a timely fashion to phase in necessary changes gradually,” says Kilolo Kijakazi, Acting Commissioner of Social Security, in a press release concerning the report.
Since last year’s reports, the Treasury says in a fact sheet on the report, projected long-term finances of the OASI and the OASDI Trust Funds worsened due to the Trustees revising down the expected levels of gross domestic product (GDP) and labor productivity by about 3% over the projection window. The Trustees, it says, made this change as they reassessed their expectations for the economy in light of recent developments, including updated data on inflation and U.S. economic output.
“Implementing changes sooner rather than later,” says the Board, “would allow more generations to share in the needed revenue increases or reductions in scheduled benefits.” They add, “Social Security will play a critical role in the lives of 67 million beneficiaries and 180 million covered workers and their families during 2023. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”
About the Board
The Secretaries of the Treasury, Labor, and Health and Human Services, the Commissioner of Social Security and two other members appointed by the president and approved by the Senate comprise the Board. The Social Security Act requires that body to report annually to Congress on the actuarial status and financial operations of the OASDI program, which is composed of the federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
Finding Out More
The report, “The 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,” is available here: https://www.ssa.gov/oact/TR/2023/tr2023.pdf
A fact sheet about the 2023 Social Security and Medicare Trustees Reports is available here: https://home.treasury.gov/system/files/136/TR-2023-Fact-Sheet.pdf