CRFB Analyzes The Social Security Trustees Report

The Social Security and Medicare Trustees reports provide a detailed projection of each program's finances over the next 75 years. In response, we have condensed the 250-page Social Security report into a concise, 6-page analysis. While Social Security's projections are similar to last year's report -- with the program's finances deteriorating slightly -- this just reinforces the need for lawmakers to make Social Security financially sound for current and future generations.

Alarmingly, the Social Security Disability Insurance (DI) trust fund is projected to be exhausted in 2016, just two years from today, while the Old Age and Survivors' Insurance (OASI) trust fund is projected to run out in 2034. On a combined basis, the two trust funds (OASDI) will be exhausted by 2033, meaning that if reallocation or interfund borrowing between OASI and DI is legislated, the life of the OASI trust fund will be shortened by one year.

Social Security Trust Fund Asset Ratio (Percent of Benefits)

Source: Social Security Administration

The long term outlook for Social Security is similar to last year's, although it has worsened somewhat. The 75-year shortfall has increased from 2.72 percent of payroll (0.98 percent of GDP) to 2.88 percent of payroll (1.02 percent of GDP). The shortfall at the end of the 75th year (2088) has grown from 4.8 percent of payroll to 4.9 percent (both 1.7 percent of GDP).

Both funds continue to face large and growing shortfalls over the 75-year projection window, with revenues failing to keep up with growing outlays. The gap between Social Security spending and revenues is projected to grow from 1.3 percent of payroll (0.45 percent of GDP) this year to 3.9 percent of payroll (1.4 percent of GDP) by 2035 and 4.9 percent of payroll (1.7 percent of GDP) in 2088.

Social Security Revenue and Benefits (Percent of Payroll)

Source: Social Security Administration

The Social Security Trustees report makes it clear that reforms are urgently needed. The good news is that these reforms don't have to mean dramatic tax increases or benefit cuts, as long as policymakers don't sit on their hands. As we conclude in our paper:

If lawmakers are willing to take action soon, they can design a plan that strengthens the program’s finances while phasing in changes gradually to give workers time to plan, protects vulnerable beneficiaries, improves the program for much of the disabled population, and promotes long-term economic growth. The ability to make targeted and gradual changes will dwindle over time, however...

Policymakers should not waste the opportunity they have now to make thoughtful changes well in advance of the insolvency date. The luxury of time is still on our side, but just barely.

See our paper for a more detailed discussion of these issues, including projections for the old age and disability insurance trust funds, the drivers behind the shortfalls, comparisons to last year's report, and the costs of inaction.

For further insight into the Trustees report, check out our event "Decoding the 2014 Social Security Trustees Report", which will be held tomorrow at 8:15 AM Eastern time. Also, stay tuned for further analysis of the Social Security and Medicare reports.

Click here to read the paper.