Social Security reform is an issue of interest to policy makers that arises in various contexts, from improving retirement security to reducing federal budget deficits. In 2011, for example, Social Security program changes were discussed by the Joint Select Committee on Deficit Reduction established by the Budget Control Act of 2011 ( P.L. 112-25 ). The Joint Committee was tasked with recommending ways to reduce federal budget deficits by at least $1.5 trillion over the fiscal year period 2012 to 2021. Social Security program changes were among the measures considered by the Joint Committee; however, no agreement was reached on a legislative proposal by the statutory deadline. Social Security program changes could be considered in the future as part of broad deficit reduction legislation or as a stand-alone measure. The Social Security reform debate reflects different approaches to reform. Some policy makers support restructuring the program through the creation of individual accounts (i.e., a pre-funded system in which benefits would be based increasingly on personal savings and investments). Supporters of individual accounts point to the system's projected long-range funding shortfall as a driver for change in conjunction with creating a system that would give workers a sense of "ownership" of their retirement savings. Other policy makers support maintaining the current structure of the program (i.e., a defined benefit system funded on a pay-as-you-go basis), pointing to the system's projected long-range financial outlook to support their view that the system is not in immediate "crisis" and that only modest program changes may be needed to extend trust fund solvency and provide for a potential increase in benefits. Proponents of the fundamentally different approaches to reform (ranging from relatively minor changes to the current pay-as-you-go social insurance system to the creation of a "modernized" program based on personal savings and investments modeled after IRAs and 401(k)s) cite varying policy objectives that go beyond simply restoring long-term financial stability to the system. They cite objectives that focus on improving the adequacy and equity of benefits, as well as those that reflect different philosophical views about the role of the Social Security program and the federal government in providing retirement income. However, the system's projected long-range financial outlook provides a backdrop for much of the Social Security reform debate in terms of the timing and degree of recommended program changes. For example, one of the key criteria used to evaluate any reform proposal is its projected impact on the Social Security trust funds. To place the discussion of Social Security reform issues into context, the report first looks at Social Security program financing and the long-range projections for the Social Security trust funds as reported by the Social Security Board of Trustees. The report then looks at the various objectives and proposals for reform. Social Security, one of the largest federal programs, is a social insurance system that pays benefits to retired or disabled workers, their family members, and to the family members of deceased workers. There are 57.9 million Social Security beneficiaries. Approximately 65% of beneficiaries are retired workers and 15% are disabled workers. The remaining beneficiaries are survivors, or the spouses and children of retired or disabled workers. Social Security covers an estimated 164.9 million workers. The Social Security program is funded by payroll taxes paid by covered workers and their employers, federal income taxes paid by some beneficiaries on a portion of their benefits, and interest income from the Social Security trust fund investments. Social Security tax revenues are invested in interest-bearing federal government securities (special issues) held by the Old-Age, Survivors, and Disability Insurance (OASDI) trust funds maintained by the U.S. Treasury Department. The revenues exchanged for the federal government securities are deposited into the Treasury's general fund and are indistinguishable from revenues in the general fund that come from other sources. Funds needed to pay Social Security benefits and administrative expenses come from the redemption or sale of federal government securities held by the trust funds. To place Social Security's finances into perspective, in 2012, the Social Security trust funds had receipts totaling $840 billion, expenditures totaling $786 billion, and a total surplus (a surplus including interest income) of $54 billion. The trust funds had a cash flow deficit (a deficit excluding interest income) of $55 billion. At the end of 2012, the Social Security trust funds held assets totaling $2.7 trillion. Because the assets held by the trust funds are federal government securities, the trust fund balance ($2.7 trillion in 2012) represents the amount of money owed to the Social Security trust funds by the general fund of the U.S. Treasury. From 1984 to 2009, Social Security generated surplus tax revenues. Surplus tax revenues and interest income credited to the trust funds in the form of federal government securities contributed to a growing trust fund balance. Table 1 shows the amount of annual surplus Social Security tax revenues collected by the federal government and used for other (non-Social Security) purposes from 1984 to 2009. Surplus Social Security tax revenues totaled $1.21 trillion (in nominal dollars) from 1984 to 2009. Table 1 also shows total annual Social Security surpluses (including interest income) from 1984 to 2009. At the end of 2012, the trust funds were credited with assets totaling $2.7 trillion. Under the intermediate assumptions of the 2013 trustees report, the trust fund balance is projected to continue to increase, peaking at $2.9 trillion (in nominal dollars) at the end of 2020 ($2.4 trillion in constant 2013 dollars). Beginning in 2021, however, program expenditures are projected to exceed total income (tax revenues plus interest income) and trust fund assets will begin to be drawn down to help pay benefits and administrative expenses. The trustees project that the trust funds will continue to have a positive balance until 2033, allowing benefits scheduled under current law to be paid in full until that time. After the trust funds are exhausted, which is projected to occur in 2033, the program would operate using current Social Security tax revenues, which would be sufficient to pay an estimated 77% of benefit payments scheduled under current law in 2033 and an estimated 72% of scheduled benefits in 2087. (See Table 2 and Figure 1 .) In 2010, Social Security began operating with an annual cash flow deficit (i.e., income excluding interest is less than expenditures). The trustees project that Social Security will operate with an annual cash flow deficit in each year of the 75-year projection period (2013-2087). When Social Security operates with a cash flow deficit, the program cashes in federal government securities to supplement current Social Security tax revenues. General revenues are used to redeem the federal government securities held by the trust funds. When there are no surplus governmental receipts, the increased spending for Social Security from the general fund can only be paid for by the federal government raising taxes or other income, reducing other spending, and/or borrowing from the public (i.e., replacing bonds held by the trust funds with bonds held by the public). When total trust fund income (income including interest) is taken into account, the trustees project that Social Security will have a total surplus each year from 2013 to 2020. Stated another way, the emergence of annual cash flow deficits means that the program begins to rely on interest credited to the trust funds to meet annual program costs (to help pay benefits and administrative expenses). Interest is credited to the trust funds in the form of new special issue securities; it does not represent a financial resource for the federal government from outside sources. As previously noted, general revenues are used to redeem the federal government securities held by the Social Security trust funds to cover the difference between Social Security tax revenues and program costs. In the 2013 trustees report, the trustees project that the program's reliance on general revenues will be $95.4 billion in 2020 (in constant 2013 dollars). The program's reliance on general revenues will increase as the trust fund balance begins to be drawn down (starting in 2021 when program costs exceed total income). For example, the program's reliance on general revenues is projected to be $291.6 billion in 2030 (in constant 2013 dollars). Projected total Social Security surpluses and deficits, as well as projected cash flow deficits, for each year from 2013 to 2032 are shown in Table 2 and Figure 2 . With respect to the program's reliance on general revenues, the program is relying on tax revenues collected for Social Security purposes in previous years (plus interest) that were used by the federal government at the time for other (non-Social Security) spending needs. The Social Security program draws on those previously collected Social Security tax revenues and interest income (accumulated trust fund assets) when current Social Security tax revenues fall below current program expenditures. The trustees project that the Social Security trust funds will be exhausted in 2033, at which point incoming receipts will cover an estimated 77% of scheduled annual benefits. The trustees also project that Social Security expenditures will exceed income by almost 20% on average over the next 75 years (2013-2087). Demographic changes are among the primary reasons for the system's projected funding shortfall. The first wave of the post-World War II baby boom generation began retiring in 2008, fertility rates continue to be lower than those experienced during the baby boom era (1946-1965), and life expectancy is projected to increase, factors that contribute to an older society. Between 2015 and 2035, the number of people aged 65 and older is projected to increase by about 65%, whereas the number of workers whose taxes will finance future benefits (people aged 20-64) is projected to increase by about 6%. As a result, the number of workers supporting each Social Security beneficiary is projected to decline from 2.7 in 2015 to 2.1 in 2035. In addition, program design features contribute to the projected growth in program spending. For example, elements of the Social Security benefit formula are indexed to average wage growth, resulting in a projected increase in the value of initial monthly benefits for future retirees.