October 15, 2021
Social Security Financial Status: How the 2021 Annual Report
Addressed the Impact of the COVID-19 Pandemic
Background
Revenues, Cost, and the Trust Funds
Social Security is a self-financing program that in 2021
Revenues for Social Security are generated primarily
covers approximately 176 million workers and provides
through taxes. In 2020, 93.2% of total income was from
monthly cash benefits to over 65 million beneficiaries. It is
dedicated tax revenue: (1) payroll taxes paid by employers,
the federal government’s largest program in terms of both
employees, and self-employed individuals and (2) federal
the number of people affected (i.e., covered workers and
income taxes paid by about half of beneficiaries on a
beneficiaries) and its finances. Social Security is composed
portion of their benefits. The remainder of the program’s
of Old-Age and Survivors Insurance (OASI) and Disability
income came in the form on interest earned by assets held
Insurance (DI), referred to collectively as OASDI.
in the trust funds. Costs for Social Security primarily
consist of benefit payments. In 2020, 99.0% of total costs
The financial status of Social Security helps to determine
went toward monthly retired-worker, disabled-worker, and
the program’s ability to pay fully scheduled benefits on
dependent benefit payments.
time—that is, the ability to provide monthly payments to
current and future beneficiaries. At a basic level, the
The Social Security trust funds are an accounting
financial status of Social Security is simply the relationship
mechanism used to track revenues and cost. The trust funds
among revenues, cost, and the holdings in trust funds.
also provide a means to hold any accumulated assets
(holdings). Currently, the combined Social Security trust
COVID-19
funds hold about $2.9 trillion in asset reserves that are
News articles during the Coronavirus Disease 2019
available for future program spending. If, in any year, costs
(COVID-19) outbreak and the ensuing recession
are greater than revenues, the cash-flow deficit is offset by
highlighted potential ways that Social Security and its
selling some of the accumulated holdings of the trust funds
beneficiaries could be adversely affected. If the totality of
to help pay benefits.
pandemic-related events were to result in a worse-than-
expected relationship between program revenues and cost,
Changes that increase revenues, increase the trust funds, or
it would likely result in a sooner-than-anticipated date for
decrease costs have a beneficial effect on the financial
trust fund reserve depletion (i.e., the date at which the
status. Changes that decrease revenues, decrease the trust
program could not support full and on-time payment of
funds, or increase costs have a negative effect on the
scheduled benefits). Furthermore, conditions that negatively
financial status.
impact economic and demographic factors in the future
could also result in a lower percentage of payable benefits
Long-Term Projected Shortfall
(i.e., incoming revenues could support lower benefit levels
Over the long term, Social Security has an unfavorable
than pre-pandemic conditions). Changes in other economic
relationship between projected revenues and projected cost.
factors such as inflation—and changes in demographic and
Costs are projected to increase faster than revenues, leading
program factors—could have additional effects on program
to projected cash-flow deficits starting indefinitely in 2021.
revenues, program costs, and the trust funds.
The accumulated assets held in the trust funds can be used
to augment revenues until 2034—the projected date of
The Board of Trustees 2021 Annual Report acknowledges
depletion for the trust funds. That is, trust fund reserves are
the continuing uncertainty regarding the long-term (75-
projected to decline steadily from their current peak—$2.9
year) impacts of the COVID-19 pandemic. Although the
trillion—to zero in 2034. At the time of depletion, incoming
trustees assumed that “the pandemic will have no net effect
revenues would be insufficient to fully pay scheduled
on the individual long-range ultimate assumptions,” they
benefits.
further acknowledged their intent to “monitor developments
and modify projections in later reports.”
The 2020 Annual Report (April 2020)
The trustees released the 2020 Annual Report on April 22,
The 2021 report did discuss many changes to the near-term
2020, which reflected the trustees’ understanding of the
(10-year) assumptions that were necessary to incorporate
Social Security program at the beginning of 2020. Thus, it
the potential effects of the COVID-19 pandemic. This
did not incorporate any potential effects of the COVID-19
report reviews how the most recent near-term projections—
pandemic. The trustees stated: “Given the uncertainty
under the intermediate assumptions in Board of Trustees
associated with these impacts, the Trustees believe that it is
2021 Annual Report—addressed the impacts of the
not possible to adjust their estimates accurately at this
COVID-19 pandemic on the financial status and how
time.” The trustees went on to write that the magnitude of
COVID-19-related projections have changed from previous
both near-term and long-range effects on the population and
reports and guidance.
the economy was still too unclear.
https://crsreports.congress.gov

---

Social Security Financial Status: How the 2021 Annual Report Addressed the Impact of the COVID-19 Pandemic
Under the 2020 intermediate assumptions, the trustees
In addition to these economic assumptions, the trustees
projected a depletion date for the combined reserves held in
discussed changes to demographic assumptions. Some of
the trust funds to be 2035. The actuarial deficit—the
the demographic changes are discussed below.
amount by which the payroll tax rate would have to be
increased to support the level of benefits scheduled under
Near-Term Fertility Assumptions
current law throughout the 75-year projection period—was
The trustees project lower fertility rates in 2021 and 2022
projected to be 3.21% of taxable payroll.
but that in 2023, fertility would increase to the rate that
would have been projected absent the COVID-19
Updated Baseline for Actuarial Status
pandemic. From 2024 to 2026, elevated birth rates would
(November 2020)
make up for the previous years’ lower rates before once
A memorandum released on November 24, 2020, by the
again returning to rates that were projected to have been
Social Security Administration’s Office of the Chief
observed before the COVID-19 pandemic in 2027.
Actuary presented an updated baseline for estimates of the
effects of the pandemic and pandemic-induced recession on
Near-Term Immigration Assumptions
the program’s projected financial status at the time.
Similar to delays in birth rates, the trustees project delays in
immigration. Specifically, they project a decrease in total
The update presented several new assumptions for the near
net immigration in 2021, while for 2022 they project no
term. With regard to demographic assumptions, the new
change from what would have been estimated absent the
baseline assumed lower fertility, lower immigration, and
pandemic. Immigration for 2023-2025 is estimated to be
higher mortality. For economic assumptions, the new
higher and have an offsetting effect on the COVID-19-
baseline assumed lower productivity, lower average wages,
reduced immigration in earlier years.
and higher unemployment, among other changes. The new
baseline also assumed higher average disability incidence
Near-Term Mortality Assumptions
(i.e., new beneficiaries awarded benefits) and higher
The trustees project increased mortality through 2023. For
disability termination (i.e., beneficiaries no longer collected
those 15 and older, the trustees estimate higher death rates
disability benefits due to recovery, age, or death). These
through 2023 by about 7% more than what would have
updated assumptions combined to bring the project
been estimated absent the pandemic. Death rates for those
depletion date of the combined trust funds to 2034 (one
under 15 are estimated to decrease but to a lesser degree
year earlier than under the intermediate assumptions of the
than the increase for those 15 and older. That is, the change
2020 Annual Report). The updated assumptions also
in projected death rates between age groups do not offset
increased the actuarial deficit to 3.28% of taxable payroll.
each other. After 2023, death rates are assumed to return to
levels estimated pre-pandemic.
The 2021 Annual Report (August 2021)
The trustees released the 2021 Annual Report on August
COVID-19-Related Effects on the Financial Status
31, 2021. In their report, the trustees noted that the
As stated in the 2021 Annual Report: “Taken together,
“projections presented include the Trustees’ best estimates
these data and assumptions cause the reserve depletion date
of the effects of the COVID-19 pandemic and the ensuing
for the combined OASI and DI Trust Funds under the
recession, which were not reflected in last year’s report.”
intermediate assumptions to change from 2035, shown in
Further, the trustees stated, “The pandemic and precipitous
the 2020 report, to 2034 for this report. These changes also
recession have clearly had significant effects on the
result in a small but significant reduction in the actuarial
actuarial status of the OASI and DI Trust Funds, and the
balance for the OASDI program.”
future course of the pandemic is still uncertain.”
The 75-year actuarial deficit projected in the 2021 Annual
Immediate Economic Effects
Report increased to 3.54% of taxable payroll. In the 2020
The 2021 Annual Report acknowledged that the
report, the actuarial deficit was projected to be 3.21% of
“substantial” drop in employment, earnings, interest rates,
taxable payroll. (The updated November 2020 baseline
and gross domestic product (GDP) that occurred in 2020
estimated the actuarial deficit to be 3.28% of taxable
had a significant effect on the actuarial status of the trust
payroll.) Thus, projections for the short-term effects of
funds. The trustees project that each of these factors will
COVID-19 contributed to a sooner-than-anticipated
rise gradually until full recovery in 2023.
depletion date and larger actuarial deficit.
The trustees project “sustained moderate” economic growth
Additional Resources
(i.e., positive) after completion of the recovery (in 2023)
CRS In Focus IF10522, Social Security’s Funding Shortfall
from the COVID-19-induced recession. The trustees also
project a permanent decrease of 1% in the level of worker
CRS Report RL33514, Social Security: What Would
productivity. Consequently, as worker productivity is an
Happen If the Trust Funds Ran Out?
input of GDP, a permanent decrease of 1% is assumed for
GDP as well. Thus, assuming a return to pre-COVID-19-
Barry F. Huston, Analyst in Social Policy
pandemic trends in economic data, the trustees still project
a permanently decreased GDP.
IF11946


https://crsreports.congress.gov

---

Social Security Financial Status: How the 2021 Annual Report Addressed the Impact of the COVID-19 Pandemic


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF11946 · VERSION 1 · NEW

---