Social Security: Actuarial Wor

Steve Goss, Chief Actuary, 

Social Security Administration

Illinois State University Actuarial Club

February 17, 2021
Three Legged Stool: Basis for Retireme

Planning

Common Wisdom—Aim for 75-80 Percent Replacement Rate
What We Do—Office of the Chief Act

1) Baseline projections of OASDI and SSI cost an

revenue under current law

a) For the Trustees Reports and SSA Reports b) For the President’s Budgetc) SSA and Consolidated Financial Statements

2) Estimates for proposals to change law, regulat

and policy, for Congress, the Administration, aothers

3) Actuarial notes and studies
Defined Benefit Plans Replaced by DC Pla

And Lump Sum Options Increasing for DB P

0%

10%20%30%40%50%60%

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Private-Sector Workers Participating in Employment-Based Retirement 

Plans, by Plan Type, 1979-2014

Defined Benefit Total Defined Contribution TotalBoth 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.
Income Security: Public vs Privat

• Public Insurance (Social Security and Medicare) bas

on becoming vested, much like Private Insurance

– Supplemental Security Income (SSI) based on need

• Social Security covers essentially all workers in the 

– All but 25% of State and Local Govt Employees– Private Insurance is optional and underwritten 

• Retirement, disability, and survivors protection• Extremely low admin costs, about 0.6% of benefits

– Compared to “loss ratios” for private insurance
Income Security: OASDI and SSI

• We project the entire “Social Security Area” Populat

– Including outlying areas like Puerto Rico, Guam, etc, and military abro

• We project the workforce, earned income, GDP

– Earnings up to taxable maximum subject to payroll tax. 

• Work with Census, DHS and most other Agencies• Massive internal data at SSA and CMS• Models: Demographic/Economic/Beneficiaries/Bene

Levels/Aggregate annual cost and income and TrusFund Operations
Social Security: What Does It Provid

• Retirement and survivor monthly benefits started 19

– Never missed a payment!

• Eligible age lowered from 65 to 62 in 1957 for wome

and 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 with CPI after eligibili

• Payroll taxes roughly pay-as-you go

– Rose from 2% to 12.4% as system matured
Social Security Financing

• Basically “pay-as-you-go” 

– Current workers provide for current beneficiaries– Trust Funds are “contingency reserve” because CANNOT borrow– Total spending to date cannot exceed income to date

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

– Available to augment tax income as needed

• Reserves projected to deplete in 2034* under curre

– Expect Congress to act—as it always has

* Per OCACT update of 2020 Trustees’ baseline (11/24/20)
What We Do–Annual Trustees Repo

1) Trust Fund operations of the past year and the 

next five years

2) Actuarial status of the trust funds

– This means the ability to meet the cost of schedule

benefits with scheduled revenue and trust fund reserves

– And the extent to which scheduled revenue will fal

short, forcing cuts or delays in benefits in the abseof legislative change

3) Results used for SOSI in Financial Statements
Full Scope Audit of the 75-year Projec

1) Statement of Social Insurance and Statement of 

Changes in Social Insurance Amounts, in the Agen

Financial Statement and in the consolidated FinancStatement of the U.S. Government

2) Mandated by the FASAB

– For the 2020 audit, GT and GAO actuaries, economists, 

accountants!

– We received a clean opinion—again! CEAR award #23!

3) Audit starts after Trustees Report release through 

September

– Huge learning experience for all 
Full Scope Audit of the 75-year Projec

1) Audit covers all aspects of the Financial Statement2) We review all assumptions and methods, and all 

changes

3) Review more than replication due to complexities4) Extensive review of internal controls5) Reasonableness of assumptions—as per attestatio

the Chief Actuary

6) Sensitivity analysis7) Subsequent events—where applicable
For 2020, Subsequent Event Unprecede

1) COVID-19 not reflected in the 2020 Trustees Repo

– Report issued in April, but assumptions were determined befor

pandemic was declared by the WHO in March

2) OCACT developed modifications to the 2020 TR 

assumptions in September/October per requirementhe auditors

3) Reflected experience and expectations at that time4) Significant effects that caused us to indicate that 

evaluation of “solvency” proposals prior to the 2021 would be evaluated on the basis of the updated bas

https://www.ssa.gov/OACT/solvency/UpdatedBaseline_20201124.pd
Characteristics of COVID-19

• Highly communicable• Transmissible prior to symptoms

– Many never show symptoms

• Immunity after infection may be limited

– Less than 12 months?; implications for “herd immunity”– Potential for repeated reinfection?

• Death rate overall 0.4% to 1%: proportionate increase across 

ages 25 and over

• Compromise for survivors?• Increasing mutations—vaccine or therapy? How effective?
Potential Path Going Forward

1918: worst case scenario? Will we do much better in 2

• Will we avert a substant

additional wave in 2021so, we may be able to return to “normal” by the end of the year

Source: The Spanish Flu and the Stock Market: The Pandemic of 1919 by Bryan Taylor | Feb 27, 2020 | Economics, Historical, Insights 

Figure 1. Death Rates of the Spanish Flu, June 1918 to May 1919
Current Actuarial Status

• Projections from the 2020 Trustees Repo• And the Subsequent Event Update!
Solvency: OASDI 

Trust Fund Reserve Depletion in 2035 (same as last year)Reserve depletion date varied from 2029 to 2042 in reports over the past 30 years (1991-2020).DI Trust Fund – reserve depletion in 2065, thirteen years later than last year.Due largely to low recent and near-term disability applications and awards, and an assumed lower ultimate disability incidence rate. 
OASDI Annual 

Cost and NonInterest Income as Percent of Taxable Payroll

Persistent negative annual balance starting in 2010.79 percent of scheduled benefits still payable at trust fund reserve depletion.Annual Deficit in 2094: 4.51 percent of payroll – 0.36 percent larger than last year
SUSTAINABILITY: 

Cost as percent of GDP Under 2020 Trustees ReportRises from a 4.2 percent average in 1990-2008, to about 5.9 percent by 2038, then declines to 5.8 percent by 2053, and generally increases to 5.9 percent by 2094.
From the 2020 TR...

Why Cost Rises Between 2008 and 2035 as Percent of Payroll and GDP:Aging—Change in Age DistributionMainly due to drop in birth rates
Applications for 

Disability Benefits Remain Historically Low: Even Lower in 2020At the peak of the last economic cycle in 2007, applications were low, but increased rapidly in the recession from 1.5 million in 2007 to 1.9 million in 2010.In 2016 through 2020, applications have dropped below the 2007 level.
Implications of COVID-19 for Changes in OA

• Over the long-range period, likely minor

– The pandemic-induced recession may be largely recovered by 

with little permanent effect

– Note that Trustees Reports have incorporated the likelihood of 

periodic negative events

• Specifically, Trustees Report ultimate mortality decline has been assum

at around 0.73 percent on average; others have persistently assumed 1percent or higher in the long term with no deceleration

• The Trustees Reports have also assumed long-term unemployment rat

be higher than “forecasters”

• However, there are near-term considerations
Some Ways to Lower Cost

• Lower benefits for retirees–not disabled?

• Increase normal retirement age (lowers OASDI cost, but increases D• Can exempt long-career low earners (Simpson Bowles 2010)

• Lower benefits mainly for high earners?

• Reduce PIA above some level• Noting that higher earners generally live longer

• Lower benefits mainly for the oldest old?

• Reduce the COLA• Others say increase it with the CPI-E (based on purchases of consu

over age 62)
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

• Tax investment income?

• Or potentially a wealth tax?
Finally, Timing for Changes

• Historically, Congress has waited until reserve deple

is imminent 

• Given uncertainties, difficult to lower benefits or raise taxes until nec

• Enacting “sooner” allows more options, more gradua

phase in, and more advance notice

• Best example: 17-year delay in implementing NRA increase in 1983 

amendments

• OASDI reserve depletion now projected for 2034

• One year sooner in update due to COVID-19• The date has varied between 2029 and 2042 over the past 30 years
For More Information Go to 

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

• There you will find:

• The 2020 and all prior OASDI Trustees Reports• Detailed single-year tables for recent reports• Our estimates for comprehensive proposals• Actuarial notes; including replacement rates• Actuarial studies; including stochastic• Extensive databases• Congressional testimonies• Presentations by OCACT employees