Karen Glenn

Office of the Chief ActuarySocial Security Administra

Social Security Financing & Option

National Academy of Social Insurance

2018 Summer Intern Academy

August 1, 2018
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 Securit

Trustees

 The two funds are often looked at on a theoretical comb

– As of December 31, 2017, the trust funds hold about $2.89 trill

reserves
Social Security Trust Funds

 The combined funds have run surpluses since the early 

through 2017

 Beginning in 2018, combined asset reserves will start to 

until they are depleted in 2034

 The DI fund alone is projected to become depleted in 20 What happens then when the reserves are depleted? S

tuned...
Social Security Trust Funds

0%2%4%6%8%

10%12%14%16%18%20%

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

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 D

Depl
How Is Social Security Financed (Inc

 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 $128,400 in 2018

 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
Where Does the Money Go (Outgo)?

 Benefit payments

– About 62 million people getting benefits as of December 2017:

 45 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 0.7 percent of total expenditures in 2017
Income and Outgo

Calendar Year 2017

Combined 

OASI & DI 

Trust Funds

Payroll taxes

$874 billion

Benefits

$941 billion

Administrative e

$6 billion

Taxes on ben

$38 billio

Interest

$85 billio

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 

when current income alone is not enough

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

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 contin

payments 
Trust Fund Financing

 How is the future shortfall expressed? To make shortfalls comparable over years, they are ofte

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 $23.6 trillion in nominal $$– Income to the program is expected to be about $3.1 trillion, or 13.27 pe

taxable payroll

– The cost of the program is expected to be about $3.9 trillion, or 16.66 

taxable payroll

– So the shortfall is 3.39 percent (16.66 – 13.27)
Trust Fund Financing(as a percent of taxable payroll)

0%5%

10%15%20%25%

2005 2015 2025 2035 2045 2055 2065 2075 208

Calendar year

Cost: Scheduled and payable benefits

Non-interest Income

Payable benefits as percentof scheduled benefits:2017-33: 100%2034: 79%2092: 74%

Cost: Scheduled but not fully payable benefits

Expenditures: Payable benefits = inafter 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 one-fourth– Increase revenues by about one-third– Or some combination of approaches– Also consider benefit adequacy?
Ways to Lower Cost 

 Lower benefits for retirees—not disabled

– Increase normal retirement age (lowers OASDI cost, but increa– 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 t

requirements

25 
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 o

of consumers over age 62)

 Increase the number of years used in calculatio

(currently 35)

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

26 
Ways to Increase Revenue

 Raise tax rate on all earners

– Increasing rate from current 12.4 percent to 15.2 percent is proj

eliminate the long-range shortfall

 Raise tax on highest earners

– Increase taxable maximum amount– Some tax on all earnings above the maximum

27 
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

28 
Your Solution?

 Soon, you will hear more details about these an

policy options 

 Then you will come up with your own solution d

afternoon exercise
For More Information, Go To: 

http://www.ssa.gov/OACT

There you will find:

• The 2018 Trustees Report and all prior reports• Detailed single-year tables for recent reports• Our estimates for comprehensive proposals• Our estimates for individual policy provisions• Actuarial notes, including replacement rates• Actuarial studies• Extensive databases• Congressional testimonies• Presentations by OCACT employees