Order Code RS22139
May 6, 2005
CRS Report for Congress
Received through the CRS Web
Social Security: Summary of Program
Solvency and Projections
Gary Sidor
Information Research Specialist
Knowledge Services Group
Summary
On March 23, 2005, the Social Security Board of Trustees released its annual report
to Congress on the status of the Social Security trust funds. The Social Security trust
funds, under the latest forecast, continue to face long-range financing problems. On a
combined basis, the Old-Age, Survivors, and Disability Insurance (OASDI) trust funds
are projected to be depleted in 2041 (which is one year earlier than the projection in last
year’s report).1 At that point, annual tax revenue would cover only 74% of program
costs. Over the full 75-year projection period, the trust funds are projected to have an
actuarial deficit equal to 1.92% of taxable payroll (compared to 1.89% in last year’s
report), and program expenditures are projected to exceed income by an average of 14%.
This report will be updated annually, after the release of the annual report.
The Social Security Board of Trustees
Each year the Social Security Board of Trustees issues a report to Congress on the
operations and status of the Social Security trust funds. The six-member Board of
Trustees includes the Secretary of the Treasury, the Secretary of Labor, the Secretary of
Health and Human Services, the Commissioner of Social Security, and two public
representatives. Public Trustees are appointed by the President and confirmed by the
Senate for four-year terms. The Secretary of the Treasury serves as the Managing Trustee;
the Deputy Commissioner of the Social Security Administration is designated as the
secretary of the Board.
1 Any reference to the combined Social Security OASDI trust fund assumes the merged
operations of the separate federal Old-Age and Survivors Insurance (OASI) trust fund and the
federal Disability Insurance (DI) trust fund and treats them as if they were one collective
(OASDI) fund. In reality, the two trust funds have distinct dedicated primary revenue sources
in their respective portions of federal payroll taxes, and operate separately. The two trust funds
and their respective programs are closely linked, however, and collectively make up what is
commonly referred to as “Social Security.”
Congressional Research Service { The Library of Congress

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Short-Range and Long-Range Projections
The Trustees traditionally report on both the short-range (10-year) and long-range
(75-year) operations of the OASI and DI trust funds. Since there is uncertainty in long-
term projections, the Trustees provide estimates based on three alternative sets of
economic and demographic assumptions: low cost (alternative I); intermediate cost
(alternative II), and high cost (alternative III). The intermediate projections represent the
Trustees’ “best estimate.” These intermediate projections are the projections used in
assessing the short-range adequacy of social security financing. While the three sets of
long-range projections highlight that there is uncertainty in these estimates, this approach
does not provide any indication of the probability that the future financial status of the
trust fund are within or outside the range of these estimates.
The standard long-range projection methodology (low-cost, intermediate, and high-
cost projections) uses a deterministic model of outcomes where certain assumptions are
made regarding important demographic and economic factors affecting the trust fund
balance. The deterministic model uses separate, specified assumed values for each of the
assumptions. In recent years, the annual report has begun to provide stochastic
projections that attempt to model the probability of alternative trust fund outcomes. The
stochastic approach is built on thousands of independent simulations where the value of
the assumptions are allowed to vary. The distribution of these simulation outcomes are
then used to determine: the probability of solvency occurring within a range of years; or
the probability of key trust fund indicators falling within a particular numerical range.
While the trustees report provides these stochastic estimates, they are found in an
appendix of the report and the model is viewed as being in its early stages of
development.
Summarizing the trust fund operations over a 75-year period may lead to
misperceptions about program sustainability for even longer periods. The trustees’ report
now includes some measures of trust fund obligations beyond the 75-year period which
assume that most of the demographic and economic trends continue indefinitely.
Summary measures of program obligations through an infinite horizon are now a part of
the trustees’ report. However, the focus of discussion surrounding the trustees’ report
is on trust fund estimates for the 75-year period using the intermediate assumptions. The
remainder of this report will highlight the current report findings using these intermediate
assumptions.
Understanding Trust Fund Financing
In December of 2004, Social Security provided cash benefits for 48 million
Americans. Over 157 million Americans paid taxes in support of those benefits. The
combined OASDI trust funds receive income from the payroll taxes workers pay on their
wages and self-employment income. A smaller amount is financed by part of the income
tax some recipients pay on their Social Security benefits. In addition, the trust fund
receives interest from its current assets. This income is used to pay for current benefits
and program administration. Income in excess of outgo is credited to the trust fund.
These trust fund assets are a primary indicator of the program’s financial status. The
trustees’ report details these transactions and makes projections about future years’
transactions and the status of the trust funds. When assets at the beginning of any year

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are equal to or in excess of expected expenditures, the trust fund is thought to have an
‘adequate’ balance. If this ratio of assets to expected expenditures reaches zero, the trust
fund is said to be insolvent. This means that fully-scheduled current law social security
benefits could not be provided without some infusion of additional revenues.2
Solvency
Under the intermediate forecast, the trustees project that, on a combined basis, the
balance of the Social Security trust funds will peak in 2026 but will be depleted in 2041,
one year earlier than estimated in last year’s report. Figure 1 illustrates the projected and
eventual decrease in Social Security holdings. Table 1 shows other important dates
related to trust fund financing under the intermediate projections. The DI trust fund by
itself is projected to become insolvent in 2027 and the OASI trust fund by itself is
projected to become insolvent in 2043. Because the OASI trust fund, as measured by
income, outgo and balances, is much larger than the DI trust fund — when all combined
(OASDI) operations are considered — the year of exhaustion converges at 2041.
Figure 1. Projected Balances of the Social Security Trust Funds,
Intermediate Projections, Calendar Years 2005-2040
($ in billions)
$7,000
$6,000
$5,000
$4,000
$3,000
Balances peak at $6.0 trillion in 2026
*Trust funds depleted in 2041
$2,000
$1,000
*
$0
2005
2010
2015
2020
2025
2030
2035
2040
Source: The 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance
and Disability Insurance Trust Funds.
2 For a discussion of the legal rights of beneficiaries to full current law benefits when there is
trust fund exhaustion, see CRS Report RL32822, Social Security Reform: Legal Analysis of
Social Security Benefit Entitlement Issues
, Kathleen Swendimen and Thomas Nicola.

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Table 1. Important Trust Fund Related Dates
2017
OASDI outgo exceeds tax income a
2027
OASDI outgo exceeds tax income + interest income a
2027
DI trust fund is exhausted
2041
OASDI trust funds are exhausted
2043
OASI trust fund is exhausted
Source: The 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance
and Disability Insurance Trust Funds.
a. Tax income (Social Security payroll tax and the income tax on benefits) is revenue from sources outside
the government. Interest income (interest earned on assets held by the trust funds) is paid by the
government to the government (that is, a transfer of funds from one government account to another).
Beginning in 2017, money will have to be drawn from the general fund of the Treasury to meet benefit
payments and administrative costs.
Under the intermediate forecast, the combined trust funds would see assets grow
through 2026, bringing their balance to slightly over $6 trillion. Trust fund assets
continue to grow, even though expenditures exceed tax revenues in 2017, as shown in
Figure 2.
Figure 2. Projected Income (Excluding Interest) and Outgo of the
Social Security Trust Funds, Intermediate Projections,
Calendar Years 2005-2040
($ in billions)
$4,000
$3,500
$3,000
$2,500
Outgo
Outgo exceeds tax income
$2,000
beginning in 2017
Income excluding interest
$1,500
$1,000
$500
$0
2005
2010
2015
2020
2025
2030
2035
2040
Source: The 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance
and Disability Insurance Trust Funds.

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This increase is the result of continued growth in the trust fund’s net interest. In
2027 and thereafter, the reserve balance would begin to be drawn down until the trust
funds assets do not fully cover expected costs in 2041. At that point, annual tax revenue
would be sufficient to cover only about 74% of program costs. Under the current law
projection, expected tax revenues would continue to decline as a share of program costs
such that at the end of the 75-year projection period, 2080, these revenues would equal
68% of costs.
Over the full 75-year projection period, on average, trust fund expenditures are
projected to exceed income by 14%. Expressed another way, the long-range trust fund
deficit is projected to be 1.92% of taxable payroll (compared to 1.89% of taxable payroll
as projected in the 2004 report). The system’s long-range financing problems reflect
projected costs associated with the aging of the population (the first members of the baby
boom generation will reach early retirement age in 2008) and with projected increases in
life expectancy and decreases in birth rates. Over the next 25 years, the number of people
age 65 and older is projected to increase by 90%. In contrast, the number of workers
whose taxes will finance future benefits is projected to increase by only 14%. As a result,
the number of workers supporting each recipient is projected to decline from 3.3 today
to 2.2 in 2030. After 2030, the ratio gradually declines even further.
An additional way in which the trustees express the long-term concerns for the
program is by providing an estimation of how large a cash infusion would be needed to
retain solvency, in lieu of other reform options comprising of revenue increases or benefit
reductions. In the 2005 report, the trustees estimate that the present value of future
infusions necessary to keep the system solvent beyond 2041 to the end of the 75-year
long-range projection period would be $4.0 trillion. To sustain solvency for the infinite
horizon, the present value of future revenue infusions is much higher, $11.1 trillion.3
3 The present value calculations used to determine the size of the unfunded obligation of the trust
funds can be thought of as the lump-sum amount that, if invested today, given an assumed rate
of return, would grow to cover the program’s costs at the end of the projection period. These
types of measure attempt to account for the time value of money (interest earned) and are
dependent on the assumptions used in their calculation (i.e., the interest assumptions). It is not
a simple measure of the cumulative gap between trust fund income and outgo.