Karen Glenn

Office of the Chief Actuary

Social Security Administration

Social Security Financing & Options 101

NASI 2017 Summer Academy for Interns

August 10, 2017
Social Security Trust Funds

 Two legally distinct trust funds:

– OASI = Old-Age and Survivors Insurance

– DI = Disability Insurance

 Financial operations are overseen by the Social 

Security Board of Trustees

 The two funds are often looked at on a theoretical 

combined basis

– As of December 31, 2016, the trust funds hold about 

$2.85 trillion in asset reserves

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Social Security Trust Funds

 The combined funds have run surpluses since the 

early 1980s and are expected to do so through 2021

 Beginning in 2022, combined asset reserves will start 

to decline until they are depleted in 2034

 The DI fund alone is projected to become depleted in 

2028

 What happens then when the reserves are depleted? 

Stay tuned...

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Social Security Trust Funds

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0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Percent of GDP

Calendar Year

Social Security Trust Fund Asset Reserves (end of year) 

as a Percent of GDP, 1970-2034

1983 

Amendments

AssetReserves Build

Reserves Decline 

until Depletion
How Is Social Security Financed 

(Income)?

 Payroll taxes

– Employees and employers each pay 6.2% of covered earnings

– The self-employed pay 12.4% of covered earnings

– On earnings up to $127,200 in 2017

 Taxes on Social Security benefits

– High-income beneficiaries pay federal income tax on their benefits

 Interest on trust fund reserves

– Invested in interest-bearing securities of the US government

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Where Does the Money Go 

(Outgo)?

 Benefit payments

– About 61 million people getting benefits as of December 

2016:

 44 million retired workers and dependents of retired workers

 6 million survivors of deceased workers

 11 million disabled workers and dependents of disabled 

workers

 Administrative expenses

– Only about 0.7 percent of total expenditures in 2016

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Income and Outgo

Calendar Year 2016

Combined 

OASI & DI 

Trust Funds

Payroll taxes

$836 billion

Benefits

$911 billion

Administrative expenses

$6 billion

Taxes on benefits

$33 billion

Interest

$88 billion

7 Railroad exchange

$5 billion
Social Security Trust Funds

 Why do we have trust funds?

– The trust funds provide an essential reserve so benefits can 

be paid even when current income alone is not enough

– Social Security (OASI and DI) cannot borrow; can only spend 

what has been collected

 Are the trust funds “real”?

– If reserves deplete, full benefits cannot be paid

– The trust funds force Congress to act in order to maintain 

continuous benefit payments 

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Trust Fund Financing

 How is the future shortfall expressed?

 To make shortfalls comparable over years, they are 

often scaled as a percent of taxable payroll

– The amount of earnings taxable by the program for a time period

 For example, in 2045:

– Taxable payroll is expected to be about $24.1 trillion in nominal $$

– Income to the program is expected to be about $3.2 trillion, or 

13.24 percent of taxable payroll

– The cost of the program is expected to be about $4.0 trillion, or 

16.72 percent of taxable payroll

– So the shortfall is 3.48 percent (16.72 – 13.24)

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10

Trust Fund Financing

(as a percent of taxable payroll)

0%

5%

10%

15%

20%

25%

2005 2015 2025 2035 2045 2055 2065 2075 2085 2095

Calendar year

Cost: Scheduled and 

payable benefits

Non-interest Income

Payable benefits as percent

of scheduled benefits:

2016-33: 100%

2034: 77%

2091: 73%

Cost: Scheduled but not 

fully payable benefits

Expenditures: Payable benefits = income 

after trust fund depletion in 2034
How to Fix Social Security Long-Term

 How can the financing shortfalls be covered?

– Lower cost (reduce benefits) by about 25%

– Increase revenues by about 33%

– Or some combination of approaches

– Also consider benefit adequacy?

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Ways to Lower Cost 

 Lower benefits for retirees—not disabled

– Increase normal retirement age (lowers OASDI cost, but 

increases DI cost)

– Can exempt long-career low earners

 Lower benefits mainly for high earners

– Reduce PIA above some level

– Often combined with increasing PIA below some level, 

subject to work year requirements

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Ways to Lower Cost (continued)

 Lower benefits mainly for the oldest old

– Reduce the COLA by using a chained version of the CPI

– Some say instead raise the COLA by using the CPI-E 

(based on purchases of consumers over age 62)

 Increase the number of years used in 

calculation (currently 35)

– Hurts those who haven’t been in the workforce for 35 years

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Ways to Increase Revenue

 Raise tax rate on all earners

– Increasing rate from current 12.4 percent to 15.2 percent 

is projected to eliminate the long-range shortfall

 Raise tax on highest earners

– Increase taxable maximum amount

– Some tax on all earnings above the maximum

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Ways to Increase Revenue (continued) 

 Tax employer group health insurance 

premiums

– Affects only middle class if taxable maximum remains the 

same

 Tax certain investment income

– Consistent with ACA approach?

 Maintain larger trust fund reserves

– Added interest/yield can lower needed taxes

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Your Solution?

 Soon, you will hear more details about these 

and other policy options 

 Then you will come up with your own solution 

during the afternoon exercise

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Additional Resources 

http://www.ssa.gov/OACT

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