Social Security Financing and Benefits:

Myths vs Facts

Steve Goss

Chief Actuary

Social Security Administration

DePaul University

February 4 and 6, 2020
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Three Legged Stool: Basis for 

Retirement Planning

Common wisdom—aim for 75-80 percent replacement rate

Retirement Income

Social 

Security
First, A Few Facts...

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Social Security: What Does It Provide?

• Retirement and survivor monthly benefits started in 1940

– Never missed a payment!

• Eligibility age lowered from 65 to 62 in 1957 for women, 

1962 for men

– Full retirement age rises from 65 to 67 by 2022

• Disability benefits started in 1957

• Benefits rise with average wage across generations—

but with just CPI after eligibility

• Payroll taxes roughly pay-as-you go

– Rose from 2% to 12.4% as the system matured
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Social Security: Who Pays, Who Benefits

WHO PAYS?

• 95 percent of workers contribute—177 million in 2019

– 12.4% of earnings up to $132,900 (6 percent of workers earn more)

– 25% of State and local Govt employees are not in Social Security

WHO BENEFITS?

• 64 million retirement, survivor, disability beneficiaries in 2019

– 45 million retirees, plus another 3 million of their spouses and children

– Plus 6 million survivors

– Plus over 10 million disabled workers and their dependents

• And 155 million workers are insured against disability or death
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Eligibility for Social Security is “Earned”

Getting Insured

• Earn quarters of coverage (QCs)

– $1,360 earnings for a QC in 2019, maximum 4 earned in a year

– “Fully Insured” = earned 1 QC for each year since 22, minimum 6

• For Retirement, Fully Insured, meaning 40 QCs generally

• For Disability, Fully Insured, plus “recent attachment”

– earn 20 QC in last 5 years, or half the QCs since 22, minimum 6

• For Survivors, worker “fully insured” or “currently Insured”

– Earned 6 QCs of last 13 quarters
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How much is the Social Security Benefit?

First compute average indexed monthly earnings (AIME)

• Computation years—35 for retirees, less for disabled under 62

• Average highest years of wage indexed earnings

– Include zeros of necessary

– Wage index up to 2 years before eligibility, i.e., 60 for retiree

Second—Primary Insurance Amount (PIA)

• 90% of AIME up to $926, then 32% to $5,726, then 15%

• There is no maximum PIA, and now no special minimum

Third--% of PIA by Benefit type, and age start benefits

• Full PIA for workers and aged/disabled surviving spouse, half for 

dependents of workers, three fourths for other survivors

• Reduce for early start, increase for delayed start of benefits
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How much is the Social Security Benefit?

Retired worker benefit reduction, and increment for age

• Reduce 5/9%/month up to 36, then 5/12% if start early

– So, 70% of PIA if start benefit at 62, 80% at 64, with NRA 67

• Increase 8/12%/month if start after NRA

• Earnings test can reduce under NRA

Aged Spouse and Aded widow benefits

• Aged spouse slightly higher reduction for age, 25% at 64

• Aged widow, 71.5% at 60, and for disabled widow at 50-59

• Widows “inherit” reduction and delayed credit from worker

What is entitled to 2 benefits?

• Basically receive the higher of the 2, in total

• “Claiming strategies” now largely removed.
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Social Security Financing

• Basically “pay-as-you-go” 

– Current workers provide for current beneficiaries

– Social Security cannot borrow

– Trust Fund assets provide a “contingency reserve”

• Current OASDI reserves (excess income) = $2.9 trillion

– Available to augment tax income as needed

– About 3 times the annual cost of the program

• Reserves projected to deplete in 2035 under current law

• 2034 for OASI, and 2052 dfor DI

– Expect Congress to act—as it always has
Now, a Few Common Myths

1) Social Security is bankrupt, insolvent, running out 

of money

2) Increasing longevity and disability are the problem

3) The money in the trust funds has been spent

4) I should start benefits as soon as I can

5) My tax contributions have been saved up for me

6) Benefits scheduled in the law would be all I need

7) Social Security is responsible for Federal debt

8) “Fixing” the Social Security shortfall will be hard

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Myth 1: Social Security Is Bankrupt, 

Insolvent, Running Out of Money

Facts: 

a) Social Security cannot run out of money

b) Even if Congress allowed trust fund reserves to 

deplete...

• Continuing income would cover 80% of scheduled benefits in 2035

• And 75% of scheduled benefits in 2093

c) Over 84 years, Congress has always acted timely

• Scheduled benefits have always been paid in full

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SOLVENCY: OASDI Trust Fund Reserve Depletion in 2035 (one year later than last year)

o Reserve depletion date varied from 2029 to 2042 in reports over the past 27 years (1992-2019) 

o DI Trust Fund — reserve depletion in 2052, twenty years later than last year

o Due largely to lower recent and near-term disability applications and awards. 

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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 2045 2050 2055

Social Security Trust Fund Ratios

Assets as Percent of Annual Cost

Trustees Report Intermediate Projections

OASDI 2019TR

OASI 2019TR

DI 2019TR

OASDI 2018TR

OASI 2018TR

DI 2018TR

Historical

DI

OASDI

OASI

Tax Rate

Reallocation

Estimated
Myth 2: Increasing Longevity and 

Disability Are the Problem

Facts: 

a) The age distribution of the population is the most 

important factor in Social Security cost

b) Population “aging” over the next 20 years is due to 

birth rates 

c) Disability costs have matured, and are dropping

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Social Security Cost as Percent of GDP Rises thru 2039 

Rises from a 4.2-percent average in 1990-2008, to about 5.9% by 2039, then 

declines to 5.8% by 2052, and generally increases to 6.0% by 2093

0%

2%

4%

6%

8%

10%

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Calendar year

Non-interest Income

Historical Estimated

Cost
Aging (Change in Age Distribution) Is the Cause

Mainly due to drop in birth rates

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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 2019 TR

Population 65+/(20-64) 

Actual and TR Intermediate

TFR remains at 3.0 after 1964

TFR remains at 3.3 after 1964
Birth Rates Have Dropped: Malthus Was Wrong

Average Total Fertility Rate falls from 3 to 2

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0

1

2

3

4

5

6

1865 1875 1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015

U.S. Total Fertility Rate: With and Without Adjustment for Survival to Age 10 

TFR Adjusted TFR

Notes: TFRs prior to 1917 are for whites only and survival rates prior to 1900 use Massachusetts 

1865-1895 4.44 3.09

1896-1925 3.36 2.80

1926-1965 2.86 2.71

1966-1990 1.99 1.95

1991-2017 1.98 1.96

Average Average

TFR Adjusted TFR 
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 extraordinarily low levels for 2016, 2017 and 2018

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4.0

4.5

5.0

5.5

6.0

6.5

1990 1995 2000 2005 2010 2015 2020 2025 2030

DI Age-Sex-Adjusted Incidence Rates:

Historical and Intermediate Assumptions for 2012 through 2019 Trustees 

Report

2012TR

2013TR

2014TR

2015TR

2016TR

2017TR

Average 1990-2018 5.19

Ultimate Assumption 5.20

2018TR

2019TR
So, Disability Prevalence Is Dropping Remarkably

Fewer now and in near term based on recent applications and incidence rates

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6,000

7,000

8,000

9,000

10,000

11,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Disabled Worker Beneficiaries

In Current Payment Status at End of Year (in thousands)

2008 TR (no recession)

2019 TR

2018 TR
Myth 3: The Money in the Trust Funds 

Has Been Spent

Facts: 

a) Every dollar of income is invested by law in interestbearing securities backed by the full faith and 

credit of the United States

• These are not “worthless IOUs”!

b) Securities are issued at market yield rates

c) Securities held by the Trust Funds have always been 

honored, as have all other Treasury issues

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Myth 4: I Should Start Benefits As Soon 

As I Can

Facts: 

a) Social Security retirement benefits are designed to 

provide about the same lifetime value regardless of 

when you start, on average

b) When to start is personal—you might want to wait if 

you are in average or better health

c) If you delay by working or using other assets, Social 

Security increases your life annuity at terms available 

nowhere else

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Myth 5: My Tax Contributions Have 

Been Saved Up for ME

Facts: 

a) Social Security is a “social contract”

b) Basically, benefits paid today are financed from 

contributions by recent workers

c) This is why the age distribution of the population is 

fundamental–the workers of the day share with the 

retirees, survivors, and disabled of the day

d) This is true for advance funded systems as well

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Myth 6: Benefits Scheduled in the Law 

Would Be All I Need

Facts: 

a) Recall the 3-legged stool: 75-80% in retirement

b) Social Security provides about 40% of careeraverage earnings (varies from 25% to over 80%)

c) So the other legs of the stool—personal savings and 

private pensions—are needed

d) But increasingly, Social Security is the primary source 

of lifetime income

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Replacement Rates Based on the 2019TR

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 ($24,239 for 2019; 25th percentile)

Medium Earner ($53,864 for 2019; 56th percentile)

High Earner ($86,182 for 2019; 82nd percentile)

Max Earner ($132,900 for 2019; 100th percentile)
How About at Age 62, Where Almost 1 in 4 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 ($24,239 in 2019; 25th percentile)

Medium Earner ($53,864 in 2019; 56th percentile)

High Earner ($86,182 in 2019; 82nd percentile)

Max Earner ($132,900 in 2019; 100th percentile)
Defined Benefit Plans Replaced by DC Plans 

And lump sum options increasing for DB plans

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0%

10%

20%

30%

40%

50%

60%

197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014

Private-Sector Workers Participating in Employment-Based Retirement 

Plans, by Plan Type, 1979-2014

Defined Benefit Total Defined Contribution Total

Both Either

Source: U.S. Department of Labor Form 5500 Summaries 1979-1998, Pension Benefit Guaranty Corporation,

Current Population Survey 1999-2013, EBRI estimates 1999-2014.
Myth 7: Social Security Is Responsible 

for Federal Debt

Facts: 

a) OASI, DI, HI Trust Funds do not add to the debt

b) In fact, these trust funds finance part of the debt

c) If trust fund reserves ever depleted, the programs 

cannot borrow

d) Thus, the common “budget scoring convention” is 

misleading and inconsistent with the law

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So—What If We Project Federal Debt Consistent 

With the Law? Projection to 2090 Back in 2015

0

20

40

60

80

100

120

140

160

180

200

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Publicly Held Debt as a Percentage of GDP

Projected Federal Debt Held by the Public: CBO Baseline (Assuming OASDI 

& HI Unfunded Obligations Are Paid by Borrowing From the Public) vs. 

Assuming Current Law 

CBO Baseline July 2015

Less OASDI Unfunded Obligations (CBO Dec 2015)

Less OASDI (CBO Dec 2015) and HI (Trustees 2015)

Unfunded Obligations
Myth 8: “Fixing” the Social Security 

Shortfall Will Be Hard

Facts: 

a) Need to adjust the benefits or revenue given the shift 

in the age distribution

b) By 2035, lower scheduled benefits by 23%, or raise 

revenue by 29%, or some combination

c) Question: what do the American people want?

d) Many options are already under consideration

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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 

80% of scheduled benefits still payable at trust fund reserve depletion

Annual deficit in 2093: 4.11 percent of payroll — 0.25 percent smaller than last year

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:

2018-34: 100%

2035: 80%

2093: 75%

Cost: Scheduled but not 

fully payable benefits

Expenditures: Payable benefits = income 

after trust fund depletion in 2035

Historical Estimated
Some 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

• Lower benefits mainly for the oldest old?

– Reduce the COLA

– But, some say increase it with the CPI-E (based on purchases of 

consumers over age 62)

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Some Ways to Increase Revenue

• Raise the 12.4 percent OASDI payroll tax rate?

• Raise tax on highest earners?

– Increase taxable maximum amount

– Some tax on all earnings above the maximum

• Tax employer group health insurance premiums?

– Affects only middle class if taxable maximum remains

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For More Information Go To

http://www.ssa.gov/oact/

• There you will find:

– All OASDI Trustees Reports: 1941-2019

– Detailed single-year tables for recent reports

– Our estimates for comprehensive proposals

– Our estimates for the individual provisions

– Actuarial notes; including replacement rates

– Actuarial studies 

– Extensive databases

– Congressional testimonies

– Presentations by OCACT employees

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