Order Code RL32981
CRS Report for Congress
.Received through the CRS Web
Age Dependency Ratios and
Social Security Solvency
July 7, 2005
Laura B. Shrestha
Specialist in Demography
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Age Dependency Ratios and Social Security Solvency
Summary
The aging of the population of the United States, hastened by the impending
retirement of the huge baby-boom generation, has caused some policy-makers to
question whether the U.S. Social Security system can meet the demands for
retirement benefits in the future. The financial health of the system, which is largely
financed through taxes paid by current workers in a pay-as-you-go manner, is
sensitive to the ratio of dependents to workers — sometimes called the dependency
ratio or support ratio.
Trends and projections of age dependency ratios, including the relationship
between both older (years 65 and older) and younger (under age 20) dependents to
the working-age population in the United States are considered in the first section of
this report. If one considers the 130 year period from 1950-2080, the greatest
demographic “burden” — when the number of dependents (children plus the elderly)
most exceeds persons in the working-age population — is already in the past, having
reached its height in 1965 when there were 94.7 dependents per 100 persons of
working age. However, the composition of the dependency ratio is changing. The
number of children per worker has been falling since 1965; most of the anticipated
increase in the dependency ratio in the coming decades reflects a growing proportion
of older persons (ages 65 and older). Age-specific trends in the age dependency
ratios are not off-setting in terms of their federal budget implications. Programs
administered by the federal government (especially Social Security and Medicare)
focus much more heavily on assisting the elderly population whereas state and local
governments have historically provided substantial support for families with children
through spending on elementary and secondary education and other programs.
Next, the United States is compared to nine other nations. Seven of the
countries are members of the G8, a consultative grouping of leading industrial
democracies — Canada, France, Germany, Italy, Japan, Russia, the United Kingdom.
(The United States is the 8th member). In addition, China and India, the two most
populous countries globally, are included to highlight that population aging is
occurring even in nations that are less industrialized and have “younger” current age
structures. Population aging, which largely results from declining fertility rates and
increasing survival, is a global phenomenon. Today, the United States is the
“youngest” of the industrialized G8 nations. While the proportion of the U.S.
population that is aged 65 and older will continue to increase, aging in the United
States is still projected to be considerably slower than in any of the other
industrialized countries.
In the final section, policy implications of the changing dependent-to-worker
ratios are considered in the context of pay-as-you-go (paygo) social security systems.
This paper will be updated as needed.

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Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Age Dependency Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Older Dependents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Child Dependents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Some Take-Away Messages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Variability of Future Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
An International Comparison: Is the American Situation Unique? . . . . . . . . . . . 7
Implications for a Paygo Social Insurance Program . . . . . . . . . . . . . . . . . . . . . . 11
What is Paygo? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
What Made Paygo an Attractive Option for Financing Social
Security Systems? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Current Outlook for Paygo, Given Demographics and Other Factors . 12
List of Figures
Figure 1. Dependency Ratios: Number of Dependents per 100 Persons of
Working Age, United States, 1950-2080 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 2. Total Projected Dependency Ratio, 2005-2080, Under Three
Sets of Assumptions of Future Mortality, Fertility, and Immigration . . . . . . 7
Figure 3. Number of Older Dependents per 100 Persons of Working Age in
Selected Countries, 2002 and 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 4. Number of Child Dependents per 100 Persons of Working Age in
Selected Countries, 2002 and 2050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Appendix Figure 1. Number of Working Age Persons per 100 Dependents,
United States, 1950-2080 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
List of Tables
Appendix Table 1. Age Dependency Ratios, United States, 1950-2080 . . . . . . 14

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Age Dependency Ratios and Social Security
Solvency
Background
Social Security’s financing problems ... are very large and serious. People are
living longer, the first baby-boomers are nearing retirement, and the birth rate is
low. The result is that the worker-to-beneficiary ratio has fallen from 16.5-to-1
in 1950 to 3.3-to-1 today. Within 40 years it will be 2-to-1. At this ratio there
will not be enough workers to pay scheduled benefits at current tax rates.1
As highlighted by the Social Security Administration, the aging of the (United
States) population, hastened by the impending retirement of the huge baby-boom
generation,2 has caused policy-makers to question whether the U.S. Social Security
system can meet the demands for retirement benefits in the future. Because the
current system largely pays benefits through taxes paid by current workers,3 the
financial health of the system is sensitive to the ratio of dependents to workers —
sometimes called the dependency ratio or support ratio.4 Trends and projections of
age dependency ratios, including the relationship between both older (years 65 and
older) and younger (under age 20) dependents to the working-age population in the
United States are considered in the first section of this report. Next, the United States
is compared to nine other nations, including the seven other members of the G8.5 In
the final section, policy implications of the changing dependent-to-worker ratios are
considered in the context of pay-as-you-go (paygo) social security systems.
Age Dependency Ratios
This section summarizes information on trends and projections over time in the
ratio of working-age persons to persons in the dependent ages in the United States
for the period 1950-2080.
1 Social Security Administration, Social Security’s Future — FAQs, Frequently Asked
Questions About Social Security’s Future, at [http://www.ssa.gov/qa.htm], accessed May
10, 2005.
2 Americans born in years 1946 to 1964.
3 This is often referred to as a pay-as-you-go (or “paygo”) system.
4 Christine L. Himes, “Elderly Americans,” Population Bulletin, vol. 56, no. 4 (Dec. 2001).
5 The G8 is a consultative grouping of leading industrial democracies — Canada, France,
Germany, Italy, Japan, Russia, the United Kingdom, and the United States.

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CRS-2
Definitions
The age-dependency ratio relates the number of persons in “dependent” ages
(defined here as persons under the age of 20 and over age 64) to those in
“economically productive” ages (20-64 years) in the population. It addresses the
question of how many dependents are being supported per 100 persons of working
age.6 The age-dependency ratio is divided into old-age dependency (the ratio of
persons 65 years and older to those in the working ages 20-64) and child dependency
(the ratio of people under age 20 to those ages 20-64).7
Trends
Based on data contained in the 2005 Trustees Report (Social Security
Administration (SSA)),8 Figure 1 shows the estimated and projected trends in age-
dependency ratios for the period 1950-2080 in the United States. Ratios for years
1950-2003 are based on actual data; years 2004-2080 are projections which rely upon
assumptions about future trends in mortality, fertility, and immigration. A detailed
table with the underlying population data and age dependency ratios for years 1950-
2080 is provided in Appendix Table 1. Data in this section and in Appendix Table
1 reflect the Social Security actuaries’ intermediate assumptions (i.e., their best
guess) of future trends in the underlying assumptions. The impact of variability in
the assumptions used for the projections is considered later in this report (Figure 2).
As seen in Figure 1, there were 72.5 dependents per 100 persons of working age
in 1950 — of these, 58.7 dependents were children while 13.8 were older persons.
The total dependency ratio reached its height in 1965, just after the last of the Baby
Boom generation was born. In 1965, there were 94.7 (of which 76.5 were children
and 18.2 were older persons) dependents per 100 persons of working age. There
have been divergent trends for the child and old-age dependency ratios in recent
decades with the child ratio generally falling and that of older persons increasing.
Children continue to out-number older persons in their contribution to the total
dependency ratio in 2005 by a sizable margin — there are 46.3 child and 20.3 older
dependents per 100 persons of working age.
6 Alternatively, one could ask how many workers there are to support each dependent. A
graph of these trends, which is not analyzed in the text of this report, is provided in
Appendix Figure 1.
7 These age breaks are arbitrary. These are the age breaks used by the SSA in its reporting
of the status of the Social Security trust funds. The age at which a worker could receive full
Social Security benefits (the full retirement age, FRA) was, until recently, age 65. The FRA
will gradually rise from 65 to 67 years beginning with people who attained age 62 in 2000
(those born in 1938). See CRS Report 94-622, Social Security: Raising the Retirement Age
Background and Issues, by Geoffrey Kollmann.
8 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors
Insurance and Disability Funds, Mar. 23, 2005, available at [http://www.ssa.gov/
OACT/TR/TR05/index.html], accessed Mar. 29, 2005. (Hereafter cited as Trustees Report,
2005.)

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CRS-3
Figure 1. Dependency Ratios: Number of Dependents per 100 Persons of
Working Age, United States, 1950-2080
100.0
Baby
Boomers
90.0
Retire
80.0
70.0
All Dependents
es
g
A
Children
g
60.0
in
rk
o
Older Persons
f W
50.0
ons o
rs
e
40.0
r 100 P
e
P
30.0
20.0
10.0
<---Estimates: 1950-2003
Projections: 2004-2080 --->
0.0
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
Source: Congressional Research Service (CRS) analysis based on statistical tables in: 2005 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability
Funds, Mar. 23, 2005, available at [http://www.ssa.gov/OACT/TR/TR05/trLOT.html], accessed Mar.
29, 2005.
Notes: “Dependents” refers to the population under age 20 and age 65 and older; working age refers
to persons aged 20-64 inclusive. Ratios for years 1950-2003 are based on actual data; years 2004-
2080 are projections which rely upon assumptions about future trends in mortality, fertility, and
immigration. Projections use SSA’s intermediate assumptions.
Older Dependents. The old-age dependency ratio has generally been
increasing since 1950. The baby boom generation (persons born between 1946 and
1964) will accelerate the rate at which the old-age dependency ratio changes. Baby
boomers will begin to attain age 65 beginning in 2011 (for those born in 1946) and
continuing through 2029 (for those born in 1964). As highlighted in Figure 1, the
older age dependency ratio will quickly increase as a result of the aging of the baby
boom generation, from about 21.3 to 34.4 older dependents per 100 persons of
working age between 2011 and 2029. Population aging,9 however, will continue to
be one of the most important defining demographic characteristics of the U.S.
population, even after the youngest of the baby boom generation passes away. The
number of older dependents per 100 persons of working age will continue to
increase, albeit at a slower pace than will be experienced during the years in which
9 As measured by increases in the median age of the population and increases in the
proportion of the population aged 65 and older.

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CRS-4
the baby boomers retire. Based on the SSA Trustees’ current assumptions, there will,
for instance, be 43.1 older dependents per 100 workers in 2080.
These trends reflect
How Useful Are Dependency Ratios?
forecast s of cont i nuing
improved survival at the older
The standard definition of a support ratio is a
ages and continuing low fertility
simple ratio of the number of persons in broad age
rates.10 Increasing rates of
groups. The ratios do not reflect whether the
survival mean a greater number
people of working age are actually economically
of older dependents (the
productive or whether the older person and
numerator of the ratio), which
children are economically dependent. For instance,
in turn increases the old-age
many older persons are financially and physically
dependency ratio. Fewer (than
independent whereas there are substantial portions
current) births will mean fewer
of the working-age population who may not earn
incomes because they are unemployed, unable to
young dependents in the short-
work, in school, in prison, or have opted out of the
run, but will translate into fewer
labor force.
future workers in about two
decades. At that time, the net
Although it is difficult to include factors such as
effect will be that the old-age
intra-family financial assistance in an overall
dependency ratio will be
measure of social support, it is feasible to consider
increasing (as the number of
employment characteristics of the populations in
dependents will be increasing in
the relevant age groups. Estimates of the
the numerator) while the
“economically active population” can be further
number of working age persons
adjusted to account for average retirement ages,
levels of pension receipt, institutionalization, the
to support them will be falling
prevalence of disabilities, and other factors.
(in the denominator). From the
perspective of the Social
This information has been adapted from K. Kinsella, and
Security program, the old-age
D. R. Phillips, “Global Aging: The Challenge of
dependency ratio is the most
Success,” Population Bulletin, vol. 60, no. 1, Mar. 2005.
critical of the dependency
measures as it relates the
number of potential Social Security recipients ($ outlays) to the number of projected
payroll tax payers ($ income). Thus, the lower the old-age dependency ratio, the
lower the dollars paid out versus received, and the better the finances of the Social
Security program outlook.
Child Dependents. Referring again to Figure 1 and Appendix Table 1, the
child dependency ratio increased from 58.7 to 76.5 child dependents per 100 working
age adults between 1950 and 1965, largely reflecting the birth of the baby boom
generation. Since 1965, the child dependency ratio has experienced a mostly steady
decline due to falling fertility rates in the United States. Nonetheless, in 2005, the
number of child dependents is more than double the number of older dependents —
46.3 and 20.3 per 100 working age adults, respectively.
10 Note that improved survival and decreased fertility are the root causes of the aging boom
though immigration also contributes to trends in dependency ratios over time. Immigration
is currently and is projected to remain over-shadowed by the trends in mortality and fertility
in the dependency ratios. See CRS Report RL32701, The Changing Demographic Profile
of the United States, by Laura B. Shrestha.

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CRS-5
The SSA Trustees’ current projections assume that child dependency ratios will
slowly decline through year 2080 but that the rate of decline will be very slow. Child
dependency ratios will stay in the narrow range of 42.8 to 46.0 child dependents per
100 working age adults throughout this 75-year time span.
Note that, even with the pending retirement of the baby boom generation, the
number of child dependents will continue to be greater than the number of older
dependents for the majority of the time frame considered here. Based on the SSA
intermediate projections, the number of older dependents will first outpace child
dependents in 2078.
Some Take-Away Messages
! If the Social Security population estimates and projections for the
130-year period of 1950-2080 are correct, then the greatest
demographic “burden” — when the number of dependents (children
plus the elderly) relative to the working-age population — is already
in the past, having reached its height in 1965 when there were 94.7
dependents per 100 persons of working age.
! The composition of the dependency ratio is changing. The number
of children per worker has been falling since 1965; most of the
anticipated increase in the dependency ratio in the coming decades
reflects a growing proportion of older persons (ages 65 and older).
These age-specific trends in the age dependency ratios are not,
however, off-setting in terms of their federal budget implications.
Programs carried out by the federal government focus much more
heavily on assisting the elderly population. Based on estimates from
the Congressional Budget Office (CBO), the federal government
spent a little over one-third of its budget — about $615 billion — on
transfer payments and services (with the Social Security and
Medicare entitlement programs being the biggest expenditures) for
people age 65 and older in FY2000. Federal spending on children
was about $148 billion, or $175 billion if payments to the children’s
parents were included.11 State and local governments have
historically provided substantial support for families with children
through spending on elementary and secondary education and other
programs. Nevertheless, because federal spending dwarfs state and
local figures, total government spending for the average person 65
years or older is still much greater than for the average child.12
11 Congressional Budget Office (CBO), Federal Spending on the Elderly and Children, July
2000, at [http://www.cbo.gov], accessed June 17, 2005. (Hereafter cited as CBO, Federal
Spending on the Elderly and Children.) See also CRS Report RS22008, Federal Spending
for Older Americans, by April Grady, Bob Lyke, and Richard Rimkunas (hereafter cited as
CRS Report RS22008); and (2) C. Eugene Steuerle, “The Incredible Shrinking Budget for
Working Families and Children,” National Budget Issues, no. 1, Dec. 2003.
12 CBO, Federal Spending on the Elderly and Children.

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CRS-6
! Age dependency ratios, while providing a glimpse at how the age
structure of the population is changing, are nonetheless crude
measures that do not take into consideration whether persons of
working age are actually working and supporting the economy, nor
whether dependents are truly economically dependent and receiving
transfers from working-age persons. Furthermore, as noted by
Friedland and Summer,13 “society’s future is not determined solely
by demographic changes. Focusing on the anticipated growth in
population by age group is just too simplistic an approach. Rather,
the future is shaped by the choices made — or not made —
individually and collectively, bounded by the limits in resources and,
in particular, knowledge. Knowledge is at the heart of gains in
productivity, economic growth, and the advances in medical care,
agriculture, communication, transportation, and the environment.”
Variability of Future Projections
The ratios reported here are CRS compilations based on estimates and
projections from the SSA.14 The information for years 1950 (the earliest available
year) to 2003 are estimates that are based on actual data; the information for years
2004-2080 are projections, which rely upon assumptions about future mortality,
fertility, and immigration patterns.
To address the uncertainty that is inherent in all population projections, SSA
constructs several sets of projections which are based on different combinations of
assumptions. The data represented here uses the intermediate set of projections in
the Trustees Report, which represents the Board’s best estimate of the future course
of the population. The Trustees produce two additional sets of projections, the “high-
cost” and “low-cost” scenarios, which use differing assumptions about the future
courses of fertility, mortality, and immigration. Figure 2 highlights the possible
variation in the total dependency ratio through 2080 under these three different
scenarios. While SSA’s best guess of the total dependency ratio in year 2080 is 85.9
dependents per 100 persons of working age, the range of possible values varies from
81.9 to 94.8.
13 Robert B. Friedland and Laura Summer, Demography Is Not Destiny, Revisited,
Commonwealth Fund Publication 789 (New York, Mar. 2005), p. v. (Hereafter cited as
Friedland and Summer, Demography is Not Destiny.)
14 Trustees Report, 2005.

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CRS-7
Figure 2. Total Projected Dependency Ratio, 2005-2080, Under
Three Sets of Assumptions of Future Mortality, Fertility,
and Immigration
100
90
80
e
g
70
g A
High-cost
in
rk
Intermediate
60
o
Low-cost
f W
o
50
ons
rs
40
e
P
0
0
30
r 1
e
P
20
10
0
2005
2015
2025
2035
2045
2055
2065
2075
Source: Congressional Research Service (CRS) analysis based on statistical tables in: 2005 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivor’s Insurance and Disability
Funds, Mar. 23, 2005, available at [http://www.ssa.gov/OACT/TR/TR05/trLOT.html].
An International Comparison:
Is the American Situation Unique?
Figure 3 presents statistics on the number of older persons supported per 100
persons of working age in 2002 in 10 countries.15 Eight of the countries are members
of the G8, a consultative grouping of leading industrial democracies — Canada,
France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States.
In addition, China and India, the two most populous countries globally, are included
to highlight that population aging is occurring even in nations that are less
industrialized and have “younger” current age structures.
15 CRS compilation based on U.S. Census Bureau, International Population Reports WP/02,
Global Population Profile, 2002 (Washington, DC: GPO, 2004).

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CRS-8
Figure 3. Number of Older Dependents per 100 Persons of Working Age
in Selected Countries, 2002 and 2025
60
50
2002
2025
e
g 40
A
g
in
rk
o
f W
o 30
s
n
o
rs
e
P
0
0
r 1 20
e
P
10
0
Italy
Japan
Germany
France
United
Russia
Canada
United
China
India
Kingdom
States
Source: Congressional Research Service (CRS) compilation based on U.S. Census Bureau,
International Population Reports WP/02, Global Population Profile, 2002 (Washington, DC: GPO,
2004).
Notes: Figures for China exclude Taiwan, Hong Kong S.A.R., and Macau S.A.R. Countries are
sorted by highest old-age dependent-to-worker ratio in 2002. Estimates relate the number of persons
age 65 and older per 100 persons of working age (20-64) regardless of the usual age of retirement or
age at entry into the work force in each of these countries.
Of the 10 countries included in the comparison, Italy ranked first, with Japan
close behind, in terms of the number of older persons being supported per 100
workers in 2002 — 29.6 and 29.5, respectively. Among the G8 countries, Canada
and the United States were tied for last place at 20.816 older persons per 100 persons
of working age — indicating that the Canadian and American “burdens” are less than
that of the other G8 countries.17 Not coincidentally, the proportions of their
population aged 65 and older — 13% and 12% respectively in 2000 — are also the
lowest of the G8 nations. In India, with its young age structure, there were only 9.0
older persons per 100 persons of working age. The total age dependency ratio (not
shown in graph) is, however, greatest for India among the 10 countries — there are
90.5 dependents (mostly children) per 100 persons of working age.
16 Note that the Census Bureau’s estimate of the old-age dependency ratio for the United
States in 2002 was 20.8, which is slightly higher than Social Security’s estimate of 20.6 for
the same year (as seen in Figure 1 and Appendix Table 1).
17 Note, however, that the total dependency ratio is greater in the United States than in
Canada since Americans are supporting a higher number of children.

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CRS-9
Figure 3 also highlights that population aging is a global phenomena — the
number of older dependents per 100 persons of working age is projected to increase
through 2025 in all 10 of the countries considered here. The projected increase in
Japan, where the ratio will reach 51.1, is especially notable. Italy and Germany will
each have over 40 older dependents per 100 persons of working age. Increases are
also expected in both China and India. In fact, the old-age dependency ratio in 2025
in China18 will exceed the level observed in the United States, Canada, and Russia
today.
Figure 4 shows the number of child dependents per 100 persons of working
ages. India had the highest child dependency ratio in 2002 at 81.5. Of the G8
countries considered, the United States was the leader, largely reflecting the fact that
the American fertility rate, while currently hovering around the replacement level,19
has not fallen as far as in the other G8 nations. For instance, the total fertility rate in
Italy was 1.2 in 2002 compared to 2.1 in the United States in the same year. The
estimates for India and China, and to a lesser extent the Russian Federation, are also
affected by differential (higher) rates of infant and childhood mortality.
Unlike the increasing old-age dependency ratios highlighted in Figure 3, the
child dependency ratios are projected to fall through 2025 in most of the countries
considered. The notable exception is the United States where it is projected that
there will be 47.4 child dependents in 2025, as there had been in 2002.
18 China’s age structure is quickly transforming from that of a “young” population to that
of an older one, as measured by the mean age of the population and proportions in the
relevant young and old age groups. The speed of population aging in China is also
significantly faster than had been observed in the G8 countries. In China, it is expected that
26 years (from 2000-2026) will be required for the percent of the population age 65 or older
to rise from 7% to 14%. In comparison, 115 years (from 1855-1980) were required in
France; 69 years in the United States (1944-2013); and 65 years (1944-2009) in Canada.
See Kevin Kinsella and David R. Phillips, “Global Aging: The Challenge of Success,”
Population Bulletin, vol. 60, no. 1, Mar. 2005.
19 The level of fertility and mortality in a population at which women will replace
themselves in a generation, in the absence of migration. It corresponds to a total fertility
rate (the average number of children a cohort of women would have by the end of their
childbearing years) in the range of 2.04 to 2.10.

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CRS-10
Figure 4. Number of Child Dependents per 100 Persons of Working
Age in Selected Countries, 2002 and 2050
90
80
70
2002
2025
60
ing Age
k
50
of Wor
ons 40
rs
e
P
0
0 30
r 1
e
P
20
10
0
India
China
United
France
United
Canada
Russia
Germany
Japan
Italy
States
Kingdom
Source: The Congressional Research Service (CRS) compilation based on U.S. Census Bureau,
International Population Reports WP/02, Global Population Profile, 2002 (Washington, DC: GPO,
2004).
Notes: Figures for China exclude Taiwan, Hong Kong S.A.R., and Macau S.A.R. Countries are
sorted by highest child dependent-to-worker ratio in 2002. Estimates relate the number of children
age under 20 years per 100 persons of working age (20-64) regardless of the usual age at entry into
the work force in each of these countries.
In summary, population aging, which results primarily from declining fertility
rates and increasing survival, is a global phenomenon. Today, the United States is
the “youngest” of the industrialized G8 nations. While the proportion of the U.S.
population that is aged 65 and older will continue to increase, aging in the United
States is still projected to be considerably slower than in any of the other
industrialized countries.20 In addition to reflecting the fact that the American fertility
rate, which is currently hovering around the replacement level, has not fallen (nor is
it projected to) as far as the other G8 nations, the “U.S. is leading the way in adapting
to the changing balance ... by encouraging immigration.”21 The SSA estimates that
20 Friedland and Summer, Demography is Not Destiny.
21 David E. Bloom, A. K. Nandakumar, and Manjiri Bhawalkar, “The Demography of Aging
in Japan in the United States,” revised version of paper originally presented at a conference
(continued...)

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CRS-11
net legal immigration and net other immigration were about 530,000 persons and
400,000 persons, respectively, in 2003. For its future projections, SSA assumes the
total level of net immigration (legal and other, combined) under the intermediate
projection to be 1,075,000 persons in 2005 and 900,000 persons in 2025 and each
year afterward.22 While these comparatively high levels of immigration differentiate
the United States from the other G8 nations, they have a small effect on the median
age of U.S. residents and on the total dependency ratio as immigrants are mostly
young people who have children (and also higher fertility rates than the U.S.-born
population). Immigration nudges the worker-elderly ratio a little higher, meaning
that there are more people of working age per person age 65 or older. The more
dramatic effect, however, is at the younger ages. Immigration after 2000 is projected
to add about 15 million more children under age 18 than there would be without any
post-2000 immigration. Continued immigration will lower the worker-child ratio and
increase the child component of the dependency ratio.23
Implications for a Paygo Social Insurance Program
What is Paygo?
Most Western industrialized nations, including the United States, have systems
in place providing significant social security benefits, and virtually all of these plans
originated with pay-as-you-go (paygo) or quasi-paygo funding schemes.24 In the
United States, payroll or self-employment tax contributions by current workers (and
their employers) are transferred to current beneficiaries. The majority of Social
Security taxes paid by today’s workers are not put into a special account to pay for
their future benefits. Rather, they are used to pay benefits for persons receiving
benefits today, just as the future benefits for today’s workers will be paid by future
generations of workers. In general, a low ratio of retirees to workers (the system’s
old age dependency ratio) and a high rate of productivity and real wages would
permit a paygo social security system with high benefits or low contributions.25
21 (...continued)
on “Aging and Health: Environment, Work, and Behavior” (Cambridge, MA: American
Academy of Arts and Sciences, Sept. 2000). Available at [http://www.riverpath.com/
library/ documents/demography_of_aging_in_japan_and.htm], accessed July 1, 2005.
22 Trustees Report, 2005.
23 Philip Martin and Elizabeth Midgley, “Immigration: Shaping and Reshaping America,”
Population Bulletin, vol. 58, no. 2, June 2003.
24 Robert L. Brown, “Paygo Funding Stability and Intergenerational Equity,” Transactions
of Society of Actuaries, vol. 47, 1995. (Hereafter cited as Brown, Paygo Funding Stability.)
Note that significant modifications have been made to the original designs of the systems
over time.
25 Estelle James, Averting the Old Age Crisis: Policies to Protect the Old and Promote
Growth, World Bank Policy Research Report, 1994. (Hereafter cited as James, Averting the
Old Age Crisis.)

---

CRS-12
What Made Paygo an Attractive Option for Financing Social
Security Systems?
Advantages of government-sponsored paygo schemes relative to fully funded
systems include:26
! The entire working population can be covered relatively easily;
! The benefits can serve as social insurance against the (income) risks
associated with old-age and disability;
! Benefits can be immediately vested and are fully portable, an
important feature for a mobile work force;
! Administrative costs are usually very low.
Given these advantages, paygo systems looked very attractive in the immediate
post-World War II years. Projections of labor force growth, coupled with forecasts
of real wage growth, implied a potential total annual return near 5% for a fully
mature paygo system. In contrast, the common view of a funded system involved
investing contributions in government securities with a return of 1% or less. In the
aftermath of the Great Depression, the market for equities seemed far too risky, and
many countries lacked private bond markets. Furthermore, most countries instituting
a new pension system were unwilling to delay initial benefit payments for several
decades, as would have been required under a funded system. There was a desire to
address the immediate problem of high poverty among the elderly, and most
countries provided benefits to an older generation of workers which had not
contributed fully to the system.27 Also, to many at that time, a high rate of population
growth (and subsequent work force growth) seemed inevitable, in which case pay-as-
you-go seemed a good way to finance an old age pension program.28
The Current Outlook for Paygo, Given Demographics and
Other Factors
The current outlook is much different. Birth rates have fallen considerably
while the life expectancy at the older ages has increased significantly, resulting in
less favorable old-age dependency ratios (as shown in Figures 1 and 2). While the
old-age dependency ratio had already been increasing since 1950, the upcoming
retirement of the baby boom generation will accelerate the rate at which it grows.
However, even after the youngest of the baby boom generation has passed away, the
number of older dependents per 100 persons of working age will still continue to
increase, albeit at a slower pace than will be experienced during the years in which
the baby boomers retire.
26 See, for instance, Brown, Paygo Funding Stability.
27 Barry Bosworth and Gary Burtless, “Pension Reform and Saving” (Washington, DC:
Brookings Institution). Paper prepared for a conference of the International Forum of the
Collaboration Projects, held in Tokyo, Japan, Feb. 17-19, 2003. (Hereafter cited as
Bosworth, Pension Reform and Saving.).
28 James, Averting the Old Age Crisis.

---

CRS-13
Concurrent with these demographic trends, the Congressional Budget Office
(CBO) projects that federal spending for Social Security, adjusted for inflation, will
rise substantially — from $483 billion in 2003 to $2.5 trillion in 2075.29 The
projected rise in Social Security spending is due, in part, to the demographics of an
aging society — CBO estimates that approximately 55% of the higher spending is
due to the expected increase in the number of beneficiaries, as the number of new
claimants grows and as life expectancy rises. The remaining 45% of the rise is due
to a projected increase in the real value of Social Security benefit checks.
Specifically, they note that, under rules put into effect in 1979, benefits of newly
eligible recipients are based on a formula and earnings records that are adjusted for
wage growth. Those adjustments, referred to as wage indexing, are designed to keep
the ratio of initial benefits to pre-retirement earnings — that is, replacement rates —
approximately the same from one generation of new recipients to the next. Wages
tend to rise along with productivity in the economy, at a faster pace than prices and,
over the long run, a system pegged to wage growth will gradually afford greater
purchasing power.30
As both CBO and the Government Accountability Office (GAO) are warning,
current spending policies are likely to be unsustainable.31 The policy implication is
that, unless there are large offsetting productivity gains in the U.S. economy,
contribution rates by current workers (e.g., tax rates) must markedly rise or benefit
levels must fall under Social Security’s paygo system. Alternatively, the structure of
the underlying paygo system could be modified such that part or all of the scheme is
fully funded. This, however, raises the same issues that caused most countries to
originally select paygo systems — reduction of (investment) risk and the need to pay
benefits for the current generation of beneficiaries.
29 Congressional Budget Office, The Future Growth of Social Security: It’s Not Just
Society’s Aging, An Issue Summary from CBO, no. 9, July 2003, at [http://www.cbo.gov].
30 Ibid. See also CRS Report RL32900, Indexing Social Security Benefits: The Effects of
Wage and Price Indexes, by Patrick Purcell, Laura Haltzel, and Neela Ranade.
31 See CRS Report RS22008.

---

CRS-14
Appendix Table 1. Age Dependency Ratios, United States,
1950-2080
(Number of dependents per 100 persons of working age)
Dependency ratio
Population
(number of dependents per 100
(in thousands)
persons of working age)
Working
Older
Older
Children
age
persons
All
Children
persons
Year
Total
(0-19)
(20-64)
(65-65+)
dependents
(0-19)
(65-65+)
1950
160,118
54,466
92,841
12,811
72.5
58.7
13.8
1951
163,808
56,419
94,102
13,287
74.1
60.0
14.1
1952
166,368
57,923
94,727
13,719
75.6
61.1
14.5
1953
168,978
59,600
95,209
14,168
77.5
62.6
14.9
1954
171,687
61,398
95,656
14,632
79.5
64.2
15.3
1955
174,510
63,261
96,176
15,073
81.4
65.8
15.7
1956
177,878
65,313
97,075
15,490
83.2
67.3
16.0
1957
181,324
67,401
97,992
15,931
85.0
68.8
16.3
1958
184,305
69,374
98,538
16,393
87.0
70.4
16.6
1959
187,236
71,256
99,129
16,851
88.9
71.9
17.0
1960
190,172
73,076
99,818
17,278
90.5
73.2
17.3
1961
193,151
74,858
100,614
17,679
92.0
74.4
17.6
1962
196,082
76,444
101,576
18,062
93.0
75.3
17.8
1963
198,876
77,766
102,703
18,407
93.6
75.7
17.9
1964
201,540
78,997
103,796
18,746
94.2
76.1
18.1
1965
204,018
80,132
104,795
19,091
94.7
76.5
18.2
1966
206,281
80,743
106,116
19,422
94.4
76.1
18.3
1967
208,421
80,724
107,932
19,766
93.1
74.8
18.3
1968
210,494
80,616
109,755
20,123
91.8
73.5
18.3
1969
212,547
80,571
111,477
20,499
90.7
72.3
18.4
1970
214,765
80,684
113,158
20,923
89.8
71.3
18.5
1971
217,039
80,755
114,913
21,371
88.9
70.3
18.6
1972
219,105
80,502
116,784
21,819
87.6
68.9
18.7
1973
220,955
79,961
118,718
22,276
86.1
67.4
18.8
1974
222,755
79,247
120,742
22,767
84.5
65.6
18.9
1975
224,599
78,437
122,857
23,305
82.8
63.8
19.0
1976
226,501
77,576
125,054
23,871
81.1
62.0
19.1
1977
228,524
76,700
127,366
24,457
79.4
60.2
19.2
1978
230,687
75,884
129,750
25,053
77.8
58.5
19.3
1979
232,932
75,161
132,117
25,653
76.3
56.9
19.4
1980
235,233
74,568
134,428
26,237
75.0
55.5
19.5
1981
237,627
74,126
136,693
26,808
73.8
54.2
19.6
1982
240,104
73,788
138,891
27,425
72.9
53.1
19.7
1983
242,541
73,493
141,028
28,020
72.0
52.1
19.9
1984
244,922
73,249
143,096
28,578
71.2
51.2
20.0
1985
247,335
73,211
144,957
29,167
70.6
50.5
20.1
1986
249,800
73,393
146,603
29,805
70.4
50.1
20.3
1987
252,313
73,703
148,197
30,413
70.3
49.7
20.5
1988
254,892
74,099
149,840
30,954
70.1
49.5
20.7
1989
257,608
74,545
151,581
31,483
69.9
49.2
20.8
1990
260,458
75,060
153,368
32,029
69.8
48.9
20.9
1991
263,372
75,749
155,036
32,587
69.9
48.9
21.0
1992
266,342
76,690
156,522
33,130
70.2
49.0
21.2
1993
269,273
77,751
157,931
33,591
70.5
49.2
21.3
1994
272,081
78,740
159,370
33,971
70.7
49.4
21.3

---

CRS-15
Dependency ratio
Population
(number of dependents per 100
(in thousands)
persons of working age)
Working
Older
Older
Children
age
persons
All
Children
persons
Year
Total
(0-19)
(20-64)
(65-65+)
dependents
(0-19)
(65-65+)
1995
274,786
79,621
160,844
34,322
70.8
49.5
21.3
1996
277,511
80,433
162,457
34,620
70.8
49.5
21.3
1997
280,248
81,123
164,267
34,858
70.6
49.4
21.2
1998
282,898
81,710
166,161
35,027
70.3
49.2
21.1
1999
285,517
82,192
168,149
35,176
69.8
48.9
20.9
2000
288,255
82,557
170,274
35,423
69.3
48.5
20.8
2001
291,193
82,856
172,607
35,731
68.7
48.0
20.7
2002
294,164
83,138
175,009
36,017
68.1
47.5
20.6
2003
296,800
83,388
177,162
36,250
67.5
47.1
20.5
2004
299,207
83,623
179,092
36,493
67.1
46.7
20.4
2005
301,673
83,859
181,017
36,798
66.7
46.3
20.3
2006
304,170
84,093
182,875
37,202
66.3
46.0
20.3
2007
306,628
84,317
184,569
37,742
66.1
45.7
20.4
2008
309,050
84,490
186,177
38,383
66.0
45.4
20.6
2009
311,477
84,571
187,850
39,056
65.8
45.0
20.8
2010
313,912
84,579
189,544
39,788
65.6
44.6
21.0
2011
316,352
84,587
191,039
40,725
65.6
44.3
21.3
2012
318,795
84,647
192,230
41,918
65.8
44.0
21.8
2013
321,238
84,760
193,258
43,220
66.2
43.9
22.4
2014
323,677
84,915
194,215
44,547
66.7
43.7
22.9
2015
326,084
85,101
195,071
45,912
67.2
43.6
23.5
2016
328,455
85,333
195,826
47,296
67.7
43.6
24.2
2017
330,812
85,622
196,474
48,716
68.4
43.6
24.8
2018
333,152
85,934
197,001
50,217
69.1
43.6
25.5
2019
335,473
86,220
197,418
51,835
69.9
43.7
26.3
2020
337,774
86,412
197,819
53,542
70.7
43.7
27.1
2021
340,048
86,496
198,285
55,267
71.5
43.6
27.9
2022
342,289
86,544
198,746
57,000
72.2
43.5
28.7
2023
344,490
86,722
199,016
58,752
73.1
43.6
29.5
2024
346,646
87,028
199,087
60,532
74.1
43.7
30.4
2025
348,728
87,319
199,091
62,318
75.2
43.9
31.3
2026
350,729
87,590
199,118
64,022
76.1
44.0
32.2
2027
352,673
87,844
199,222
65,606
77.0
44.1
32.9
2028
354,554
88,078
199,361
67,115
77.8
44.2
33.7
2029
356,374
88,288
199,511
68,574
78.6
44.3
34.4
2030
358,133
88,477
199,758
69,897
79.3
44.3
35.0
2031
359,835
88,649
200,209
70,977
79.7
44.3
35.5
2032
361,481
88,806
200,821
71,854
80.0
44.2
35.8
2033
363,069
88,950
201,452
72,668
80.2
44.2
36.1
2034
364,601
89,082
201,977
73,542
80.5
44.1
36.4
2035
366,077
89,203
202,410
74,464
80.9
44.1
36.8
2036
367,500
89,317
202,910
75,273
81.1
44.0
37.1
2037
368,872
89,425
203,592
75,855
81.2
43.9
37.3
2038
370,196
89,528
204,415
76,254
81.1
43.8
37.3
2039
371,476
89,625
205,271
76,580
81.0
43.7
37.3
2040
372,715
89,718
206,118
76,880
80.8
43.5
37.3
2041
373,917
89,809
206,966
77,142
80.7
43.4
37.3
2042
375,086
89,904
207,782
77,400
80.5
43.3
37.3
2043
376,227
90,005
208,502
77,720
80.4
43.2
37.3

---

CRS-16
Dependency ratio
Population
(number of dependents per 100
(in thousands)
persons of working age)
Working
Older
Older
Children
age
persons
All
Children
persons
Year
Total
(0-19)
(20-64)
(65-65+)
dependents
(0-19)
(65-65+)
2044
377,342
90,115
209,074
78,152
80.5
43.1
37.4
2045
378,435
90,236
209,519
78,680
80.6
43.1
37.6
2046
379,510
90,369
209,933
79,208
80.8
43.0
37.7
2047
380,571
90,514
210,397
79,660
80.9
43.0
37.9
2048
381,621
90,672
210,907
80,042
80.9
43.0
38.0
2049
382,663
90,842
211,415
80,407
81.0
43.0
38.0
2050
383,701
91,018
211,891
80,791
81.1
43.0
38.1
2051
384,736
91,197
212,352
81,188
81.2
42.9
38.2
2052
385,773
91,375
212,804
81,594
81.3
42.9
38.3
2053
386,811
91,553
213,208
82,050
81.4
42.9
38.5
2054
387,854
91,731
213,518
82,604
81.6
43.0
38.7
2055
388,902
91,909
213,749
83,244
81.9
43.0
38.9
2056
389,955
92,084
213,968
83,904
82.2
43.0
39.2
2057
391,015
92,256
214,223
84,536
82.5
43.1
39.5
2058
392,082
92,425
214,517
85,140
82.8
43.1
39.7
2059
393,155
92,589
214,843
85,724
83.0
43.1
39.9
2060
394,235
92,749
215,201
86,285
83.2
43.1
40.1
2061
395,320
92,904
215,603
86,812
83.4
43.1
40.3
2062
396,408
93,054
216,054
87,300
83.5
43.1
40.4
2063
397,499
93,199
216,523
87,777
83.6
43.0
40.5
2064
398,590
93,340
216,965
88,285
83.7
43.0
40.7
2065
399,680
93,477
217,322
88,881
83.9
43.0
40.9
2066
400,766
93,611
217,581
89,573
84.2
43.0
41.2
2067
401,847
93,743
217,813
90,291
84.5
43.0
41.5
2068
402,923
93,873
218,171
90,879
84.7
43.0
41.7
2069
403,993
94,003
218,650
91,341
84.8
43.0
41.8
2070
405,056
94,133
219,132
91,792
84.8
43.0
41.9
2071
406,112
94,264
219,612
92,236
84.9
42.9
42.0
2072
407,158
94,397
220,085
92,676
85.0
42.9
42.1
2073
408,195
94,531
220,547
93,117
85.1
42.9
42.2
2074
409,223
94,669
220,995
93,559
85.2
42.8
42.3
2075
410,242
94,809
221,426
94,006
85.3
42.8
42.5
2076
411,252
94,953
221,841
94,458
85.4
42.8
42.6
2077
412,252
95,099
222,240
94,913
85.5
42.8
42.7
2078
413,244
95,248
222,625
95,371
85.6
42.8
42.8
2079
414,229
95,400
222,998
95,831
85.8
42.8
43.0
2080
415,208
95,554
223,359
96,295
85.9
42.8
43.1
Source: Congressional Research Service (CRS) analysis based on statistical tables in: 2005 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivor’s Insurance and Disability
Funds (Mar. 23, 2005), available at [http://www.ssa.gov/OACT/TR/TR05/trLOT.html], accessed Mar.
29, 2005.

---

CRS-17
Appendix Figure 1. Number of Working Age Persons per 100
Dependents, United States, 1950-2080
800
Baby
Boomers
700
Retire

ts
n
e 600
d
n
Older persons
e
p
Children
500
De
All dependents
o
t
e
400
Ag
g
in
rk
o 300
. W
: No 200
tio
Ra
100
<---Estimates: 1950-2003
Projections: 2004-2080 --->
0
1950
1960 1970
1980 1990
2000 2010 2020 2030 2040 2050 2060 2070
2080
Source: Congressional Research Service (CRS) analysis based on statistical tables in: 2005 Annual
Report of the Board of Trustees of the Federal Old-Age and Survivor’s Insurance and Disability
Funds (Mar. 23, 2005), available at [http://www.ssa.gov/OACT/TR/TR05/trLOT.html], accessed Mar.
29, 2005.
Notes: This figure relates the number of workers (numerator) to the number of dependents
(denominator). For example, in 1950, there were 725 workers to support every 100 persons age 65
and older. Figure 1 in the main body of the text showed dependency ratios which relate the number
of dependents (numerator) to the number of workers (denominator). In 1950, there were 13.8 older
dependents per 100 workers.

---