2021 CCA Enrolled Actuaries Conference 1

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Session 2-D-3

Social Security Funded Status and Future Alternatives to Save It

Speakers:

Karen Glenn, FSA, EA, MAAA—Social Security Administration 

Jason Schultz, ASA, MAAA—Social Security Administration 

2021 CCA Enrolled Actuaries Conference | May 3, 5, & 7, 2021
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Social Security Basics
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Social Security Trust Funds

• Two legally distinct trust funds:

• OASI = Old-Age and Survivors Insurance

• DI = Disability Insurance

• The two funds are often looked at on a theoretical combined basis, and 

referred to as OASDI

• As of December 31, 2020, the trust funds hold about $2.91 trillion in reserves

• Financial operations are overseen by the Social Security Board of 

Trustees

• The Social Security Office of the Chief Actuary completes an annual 

valuation (the “Trustees Report”), working in conjunction with the 

Trustees and their representatives
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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 $142,800 in 2021

• Taxes on Social Security benefits

• Higher-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 (Cost)?

• Benefit payments

• About 65 million people getting benefits as of December 2020:

• 49 million retired workers and dependents of retired workers

• 6 million survivors of deceased workers

• 10 million disabled workers and dependents of disabled workers

• Administrative expenses

• Only about 0.6 percent of total program cost in 2020
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Financial Status:

2020 Trustees Report
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Key Results from the 2020 Trustees Report

• First, an important caveat—the projections in the 2020 Trustees 

Report, released in April 2020, do NOT reflect the potential 

implications of the COVID-19 pandemic

• The combined funds have run surpluses since the early 1980s and 

through calendar year 2019 (and 2020)

• Beginning in 2021, combined asset reserves are projected to decline 

until they are depleted in 2035

• The OASI fund alone is projected to be depleted in 2034; the DI fund 

alone in 2065
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SOLVENCY: 

OASDI Trust Fund 

Reserve Depletion 

in 2035 

(same year as in the 2019 Trustees Report)

OASDI reserve depletion date 

varied from 2029 to 2042 in 

reports over the past 30 years

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

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065

Calendar Year

Social Security Trust Fund Ratios

Assets as a Percent of Annual Cost

Trustees Report Intermediate Projections

2020 TR DI

2019 TR DI

2020 TR OASI

2019 TR OASI

2020 TR OASDI

2019 TR OASDI

Historical Projected

Tax Rate

Reallocation
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SOLVENCY: 

Annual Cost and 

Non-Interest 

Income as Percent 

of Taxable Payroll

Persistent negative annual 

cash-flow 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 in the 

2019 Trustees Report

0%

5%

10%

15%

20%

25%

2005 2015 2025 2035 2045 2055 2065 2075 2085 2095

Calendar Year

OASDI Non-Interest Income, Cost and Expenditures 

as Percentages of Taxable Payroll

Cost: Scheduled and 

payable benefits

Cost: Scheduled but not fully 

payable benefits

Non-interest Income Expenditures: Payable benefits = income 

after trust fund depletion in 2035

Payable benefits as percent 

of scheduled benefits:

2020-34: 100%

2035: 79%

2094: 73%

Historical Projected

Cost: Scheduled and 

payable benefits

Cost: Scheduled but not fully 

payable benefits

Non-interest Income Expenditures: Payable benefits = income 

after trust fund depletion in 2035

Payable benefits as percent 

of scheduled benefits:

2020-34: 100%

2035: 79%

2094: 73%

Historical Projected
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SUSTAINABILITY: 

Cost as percent of 

GDP

Rises 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

0%

1%

2%

3%

4%

5%

6%

7%

8%

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Calendar Year

OASDI Cost and Non-Interest Income as a Percentage of GDP

Historical Projected

Cost

Non-interest Income
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Aging: 

Change in Age 

Distribution

Mainly due to drop in birth 

rates

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 2020 TR

Population 65+/(20-64) 

Actual and TR Intermediate

TFR remains at 3.0 after 1964

TFR remains at 3.3 after 1964

Historical Projected
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ADEQUACY: 

Replacement 

Rates Based on 

the 2020 Trustees 

Report

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

0

10

20

30

40

50

60

70

1940 1960 1980 2000 2020 2040 2060 2080

Calendar Year

Scheduled Monthly Benefit Levels as Percent of Career-Average 

Earnings by Year of Retirement at age 65

Low Earner ($25,039 for 2020; 24th percentile)

Medium Earner ($55,642 for 2020; 57th percentile)

High Earner ($89,027 for 2020; 81st percentile)

Max Earner ($137,700 for 2020; 100th percentile)

Historical Projected
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ADEQUACY: 

Payable Benefits 

Under the Law, 

After Trust Fund 

Reserves Are 

Depleted, Are Even 

Lower

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

0

10

20

30

40

50

60

70

1940 1960 1980 2000 2020 2040 2060 2080

Calendar Year

PAYABLE Monthly Benefit Levels as Percent of Career-Average 

Earnings by Year of Retirement at age 65

Low Earner ($25,039 for 2020; 24th percentile)

Medium Earner ($55,642 for 2020; 57th percentile)

High Earner ($89,027 for 2020; 81st percentile)

Max Earner ($137,700 for 2020; 100th percentile)

Historical Projected
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Critical Assumptions 

and Effects of COVID-19
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Updated Baseline / Subsequent Event

• PV dollar values consistent with the current Trustees Report are included in the 

SSA Agency Financial Report (AFR) each November

• Significant things that happen after Trustees Report numbers are developed but 

before the AFR is released are called “subsequent events” in auditor-speak

• So in September/October 2020, we developed modifications of the 2020 

Trustees Report assumptions to reflect COVID-19 effects

• A subsequent event disclosure was included as a paragraph in SSA’s FY 2020 

AFR (https://www.ssa.gov/finance/)

• We released a memo with some details on the assumptions and cost effects 

(https://www.ssa.gov/OACT/solvency/UpdatedBaseline_20201124.pdf)

• Importantly—we are using this updated baseline as the basis for scoring any 

new legislative proposals
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Our Thinking in Fall 2020 About Implications 

of COVID-19 on Social Security

• Over the 75-year long-range projection period, likely minor

• The pandemic itself, and the pandemic-induced recession, may be largely 

recovered by 2023 with little permanent effect

• Note that Trustees Reports have incorporated the likelihood of periodic negative 

events

• For example, we have assumed an ultimate annual improvement in death rates of around 

0.73 percent on average; others have persistently assumed 1.0 percent or higher with no 

deceleration

• The Trustees Reports have also assumed long-term unemployment rates will be higher on 

average than “forecasters”, reflecting occasional downturns

• However, there are near-term considerations due to the pandemic
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Fertility—Our Fall 2020 Thinking

• We assumed that the COVID-19 pandemic will affect birth rates in years 

2021 through 2025

• We assumed lower birth rates, resulting in a total fertility rate (TFR) of 

1.57 in 2021 (about 340K fewer births) and 1.65 (about 200K fewer 

births) in 2022

• We assumed that these low rates in 2021 and 2022 will be fully made up 

for by increased rates in 2023 through 2025, before returning to the “no 

pandemic” rates starting in 2026

• In other words, the pandemic will cause a number of women to defer 

childbearing from 2021-2022 to 2023-2025

• What do we know now? Not much more...
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Mortality—Our Fall 2020 Thinking

• Assuming that there would be only a modest increase in deaths above 

typical levels in the fall of 2020, we estimated that overall mortality rates 

for calendar year 2020 would be about 12 percent higher than projected 

last year, increased by the same percentage across all ages and causes of 

death; this means about 350K excess deaths for calendar year 2020

• For 2021 and 2022, we assumed temporary increases in the levels of 

deaths of about 6 percent and 2 percent, respectively, due to COVID-19 

effects

• For years after 2022, we assumed no significant net effect from COVID-19

• What do we know now? Assumed excess deaths for 2020 and 2021 were 

too low
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Mortality—Recent Data

Source: Ahmad FB, Cisewski JA, Miniño A, Anderson RN. Provisional Mortality Data — United States, 2020. MMWR Morb Mortal Wkly Rep 2021;70:519–522. DOI: 

http://dx.doi.org/10.15585/mmwr.mm7014e1
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Mortality—Recent Data

Source: Ahmad FB, Anderson RN. The Leading Causes of Death in the US for 2020. JAMA. Published online March 31, 2021. DOI: http://dx.doi.org/10.1001/jama.2021.5469
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Immigration—Our Fall 2020 Thinking

• We assumed reduced levels of immigration for 2020 and 2021, with 

offsetting increases in 2022 through 2024, reflecting deferred entry into 

the United States

• These assumptions reflected travel restrictions due to the pandemic, 

decreased economic opportunity, and President Trump’s measures to 

restrict both immigrant and nonimmigrant entry into the US

• What do we know now? Change in administration, DACA extension, 

additional data
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Earnings and Payroll Tax Revenue–Our Fall 2020 Thinking

• Projections of wages and 

salaries (in billions)

• What were the Trustees 

and other forecasters 

projecting before COVID 

(solid lines)?

• What about after COVID 

(dashed lines)?

• Lower earnings means 

lower payroll tax revenue 

for the trust funds

• What do we know now? 

Stronger recovery in 

2020Q3 through 2021Q1
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COVID Effects: Timing of Benefit Applications

• There has been speculation in the 

press and elsewhere that the COVIDinduced recession will cause workers 

to apply for retirement benefits earlier 

than they would have otherwise

• We aren’t seeing this in the data—yet

• Similarly, we aren’t yet seeing 

evidence of increased DI or SSI 

applications

• Speculation is that folks have been 

relying on extended unemployment 

benefits

Disabled worker data through December 2020 (numbers in thousands)

Source: https://www.ssa.gov/oact/STATS/dibGraphs.html
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Putting it All 

Together: Year of 

Reserve Depletion 

(November 2020 

Updated Baseline)

Under the updated baseline, 

OASDI and OASI reserves are 

projected to become depleted 

in 2034 and 2033, respectively, 

one year earlier than in the 

2020 Trustees Report

DI reserves are projected to 

become depleted in 2059, six 

years earlier than in the 2020 

Trustees Report
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Putting It All 

Together: OASDI 

Annual Cost and 

Non-Interest Income 

as Percent of 

Taxable Payroll 

(November 2020 

Updated Baseline)

Both the cost and income rates are 

higher under the updated baseline 

in 2020, ONLY because of lower 

payroll (denominator is lower)
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Possible Legislative Changes 

to Address Solvency
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Why Do These Actuarial Projections Matter?

• Long-term projections provide information to assess solvency and 

changes needed to eliminate shortfalls

• If trust fund reserves were to become depleted:

• Full benefits could not be paid timely

• NO pressure on the budget or Federal debt

• So Congress must act, as it always has

• Straightforward solutions:

• Add revenue and/or lower cost for OASDI

• Comprehensive changes implemented by 2034
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How to Eliminate the Long-Term Actuarial Deficit

• Make choices addressing OASDI deficits 2034-2094:

• Raise scheduled revenue after 2033 by about one-third

• Reduce scheduled benefits after 2033 by about one-fourth

• 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 OASI 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)

• Especially hurts those who haven’t been in the workforce for more than 35 

years
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Ways to Increase Revenue

• Raise tax rate on all earners

• Increasing rate immediately from current 12.4 percent to about 15.6 percent is 

projected to eliminate the long-range shortfall

• Raise tax on highest earners

• Increase taxable maximum amount ($142,800 in 2021) or remove it completely

• 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?

• Or potentially a wealth tax?

• Maintain larger trust fund reserves

• Could do this by investing some portion of reserves in equities

• Added interest/yield can lower needed taxes
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Many Comprehensive Proposals Scored

Example 1: Representative John Larson (D-CT) and others, September 2019

• Make PIA formula slightly more generous, more “progressive” (shortfall ↑9%)

• Increase the COLA (↑15%) – Based on CPI-E for all beneficiaries; 0.2pp higher on average

– Index designed to better reflect the purchases of the elderly

• Improve the minimum benefit (↑5%)

• Lower taxation of OASDI benefits slightly (↑5%)

• Tax earnings above $400K (not indexed) with small benefit credit (↓69%)

• Increase payroll tax rate gradually from 12.4 percent to 14.8 percent (↓67%)

• Would produce “sustainable solvency” (shortfall ↓114%)

Go to: https://www.ssa.gov/OACT/solvency/LarsonBlumenthalVanHollen_20190918.pdf
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Many Comprehensive Proposals Scored

Example 2: Former Representative Sam Johnson (R-TX), December 2016

• Make PIA formula less generous but more “progressive” (shortfall ↓32%)

• Change to mini-PIA approach (↓13%)

• Raise the Normal Retirement Age to age 69 soon (8-year phase-in) (↓32%)

• Lower the COLA (↓47%)

– Based on chain-weighted CPI for most beneficiaries; 0.3pp lower on average

– No COLA if prior year’s MAGI is above certain thresholds

• Add a new minimum benefit (↑9%)

• Eliminate taxation of OASDI benefits in 2054 and later (↑15%)

• Would produce “sustainable solvency” (shortfall ↓100%)

Go to: https://www.ssa.gov/OACT/solvency/SJohnson_20161208.pdf
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Many Comprehensive Proposals Scored

Example 3: Bipartisan Policy Center, October 2016

• Change to mini-PIA approach for OASI beneficiaries only (shortfall ↓9%)

• Increase the taxable maximum (↓21%) – To $203,700 in 2021, indexed by AWI plus 0.5 percent thereafter

– With benefit credit 

• Increase payroll tax rate gradually from 12.4 percent to 13.4 percent (↓33%)

• Raise the Normal Retirement Age to age 69 gradually (49-year phase-in) (↓19%)

• Lower the COLA for OASI beneficiaries only (↓18%) – Based on chain-weighted CPI; 0.3pp lower on average

• Add a new minimum benefit (↑7%)

• Would produce “sustainable solvency” (shortfall ↓104%)

Go to: https://www.ssa.gov/OACT/solvency/BPCCRSPS_20161011.pdf
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Timing for Changes

• Historically, Congress has waited until reserve depletion is 

imminent 

• Difficult to lower benefits or raise taxes until necessary

• Enacting sooner allows more options, more gradual 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 due to COVID-19

• The date has varied between 2029 and 2042 over the past 30 years
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For More Information, Go To 

https://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 and individual provisions

• Actuarial notes; including replacement rates

• Actuarial studies

• Extensive databases about the trust funds and program beneficiaries

• Congressional testimonies

• Presentations by OCACT employees
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Appendix
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Average Wage Index (AWI): “Notch” and “Boost”

• The AWI declined in 2009 by 1.5%; every other year it has increased

• If the AWI declines for 2020 then ALL beneficiaries becoming newly eligible in 2022 

(retirees, disabled, survivors) would have benefits permanently lower than those who 

became eligible a year earlier (“notch”)

• But for those becoming eligible after 2022 who had earnings in 2020, the indexed value 

of their 2020 earnings will be increased (“boost”)

• For the updated baseline, we assumed the AWI would decrease by about 4%

• The net effect on actuarial status would be small regardless—but based on current 

data, it is unlikely there will be a substantial decrease

• Two bills have been introduced to address possibility of a decline in the 2020 AWI, and 

for the possibility of declines in the future; see testimony at 

https://www.ssa.gov/oact/testimony/HouseWM_20200717.pdf