Chris Chaplain and Jason Schultz

Office of the Chief Actuary

Social Security Administration

Social Security Financing and Options

National Pension Service Korea discussion

November 7, 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

2
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...

3
Social Security Trust Funds

4

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

Asset Reserves 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

5
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

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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
SOCIAL SECURITY: 

HOW BIG IS THE FINANCING 

CHALLENGE?

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SOLVENCY: OASDI Trust Fund Reserve Depletion 2034 (same as last year)

o Reserve depletion date varied from 2029 to 2042 in reports over the past 25 years (1992-2017) 

o DI Trust Fund — reserve depletion in 2028, five years later than last year

o Due largely to lower recent and near-term disability applications and incidence rate 

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0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Social Security Trust Fund Ratios

Assets as Percent of Annual Cost

Trustees Report Intermediate Projections

OASDI 2017TR

OASI 2017TR

DI 2017TR

OASDI 2016TR

OASI 2016TR

DI 2016TR

Historical

Tax Rate

Reallocation

DI

OASDI

OASI
Disability Incidence Rate Falls to Historic Lows

DI disabled worker incidence rate rose sharply in the recession, and has 

declined since the peak in 2010 to an extraordinarily low level for 2016

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4

4.5

5

5.5

6

6.5

1990 1995 2000 2005 2010 2015 2020 2025 2030

DI Age-Sex-Adjusted Incidence Rates:

Historical and Intermediate Assumptions for 2012 through 2017 Trustees Reports

2012TR

2017TR

2016TR

2015TR

2014TR

2013TR

Average 1990-2016 5.27

Ultimate Assumption 5.40
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OASDI Annual Cost and Non-Interest Income as Percent of Taxable Payroll 

Persistent Negative Annual Cash-Flow Balance Starting in 2010 

77% of scheduled benefits still payable at trust fund reserve depletion

Annual deficit in 2091: 4.48 percent of 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
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OASDI Beneficiaries per 100 Workers

0

10

20

30

40

50

60

70

80

90

100

1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Calendar year

Historical Estimated
Aging (change in age distribution)

Mainly due to drop in birth rates

16

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Aged Dependency Ratio 2017 TR

Population 65+/(20-64) 

Actual and TR Intermediate

TFR remains at 3.0 after 1964

TFR remains at 3.3 after 1964
Changing Age Distribution Over Last 20 and Next 20 

Years Mainly Due to Macro Aging—permanent level shifts

17

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Percent of Population at Ages 25+

Age Distribution of the Population Age 25+, 1940 to 2100 (2017TR)

25-44

45-64

65-84

85+

Boomers 

become 

25-44

Boomers 

become 

45-64

Boomers 

become 

65-84
Mortality Experience: All Ages

Reductions continue to fall short of expectations

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700

750

800

850

900

950

1,000

1,050

1,100

1990 1995 2000 2005 2010 2015 2020

Age-Sex-Adjusted Death Rates

(Total, All Ages)

2015TR 2016TR 2017TR Actual
Mortality Experience: Ages 65 and Older

Reductions since 2009 continue to fall short of expectations

19

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

5,800

6,000

1990 1995 2000 2005 2010 2015 2020

Age-Sex-Adjusted Death Rates

(Ages 65 and Older)

2015TR 2016TR 2017TR Actual
Replacement Rates Based on the 2017 TR

Source: Annual Recurring Actuarial Note #9 at www.ssa.gov/oact/NOTES/ran9/index.html

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0

10

20

30

40

50

60

70

1940 1960 1980 2000 2020 2040 2060 2080

Scheduled Monthly Benefit Levels as Percent of Career-Average Earnings 

by Year of Retirement at age 65

Low Earner ($23,091 for 2017; 25th percentile)

Medium Earner ($51,314 for 2017; 57th percentile)

High Earner ($82,103 for 2017; 82nd percentile)

Max Earner ($127,200 for 2017; 100th percentile)
How About at Age 62, Where Most Start Benefits?

Source: Annual Recurring Actuarial Note #9 at www.ssa.gov/oact/NOTES/ran9/index.html

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0

10

20

30

40

50

60

70

1960 1980 2000 2020 2040 2060 2080

Scheduled Monthly Benefit Levels as Percent of Career-Average Earnings 

by Year of Retirement at age 62

Low Earner ($23,091 in 2017; 25th percentile)

Medium Earner ($51,314 in 2017; 57th percentile)

High Earner ($82,103 in 2017; 82nd percentile)

Max Earner ($127,200 in 2017; 100th percentile)
Payable Benefits Under the Law, After Trust 

Fund Reserves Are Depleted, Are Even Lower

Source: Annual Recurring Actuarial Note #9 at www.ssa.gov/oact/NOTES/ran9/index.html

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0

10

20

30

40

50

60

70

1960 1980 2000 2020 2040 2060 2080

PAYABLE Monthly Benefit Levels as Percent of Career-Average Earnings by Year 

of Retirement at age 62

Low Earner ($23,091 in 2017; 25th percentile)

Medium Earner ($51,314 in 2017; 57th percentile)

High Earner ($82,103 in 2017; 82nd percentile)

Max Earner ($127,200 in 2017; 100th percentile)
How to Fix Social Security Long-Term

Make choices addressing OASDI deficits 2034-2091:

• Raise scheduled revenue after 2033 by about 33%: 

increase revenue from 4.6 to 6.1% of GDP

• Reduce scheduled benefits after 2033 by about 25%: 

lower benefits from 6.1 to 4.6% of GDP

• Or some combination of the two

• Invest trust funds for higher return? 

 Limited help—it is a PAYGO world

 So invest in coming generations of workers

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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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Additional Resources 

http://www.ssa.gov/OACT

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