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The Financial Status Of The Social Security Trust Funds

Each year the Trustees of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds (OASDI) report on the financial status of the Social Security trust funds. The report is a snapshot of the health of the funds in the short range (10 years) and in the long range (75 years). With the help of the Social Security Administration actuaries, the Trustees estimate the income and expenditures of the fund taking into account projections of both demographic and economic factors.

The Social Security trust funds are considered to be in long-range balance when the income to the funds exceeds the expenditures over 75 years. When income does not meet expenditures in the long run, there is a shortfall or deficit. Income, expenditures and balances are expressed in both dollars and as a “percent of payroll,” meaning the percent of all wages or self-employment income subject to taxation.

When working Americans pay their Social Security payroll taxes to the U. S. Treasury, those taxes are credited to the Social Security Trust Funds. Some of those taxes are paid out monthly in Social Security benefits. If income to the trust funds exceeds the value of benefits paid, then the Social Security Trust Funds are credited with the excess income. The income is used to purchase special issue U. S. government securities that earn a rate of return similar to that earned by other long-term U.S. securities. When an excess of annual income over expenditures results in an accumulation of assets, those assets earn interest and further increase the funds. These accumulated assets are commonly referred to as the Social Security “surplus.”

Findings of the 2004 Annual Report of the
Social Security Trustees

The long-range financial outlook for Social Security improved slightly from the 2003 Trustees Report.

• The Social Security Trust Funds are solvent through the year 2042 as in the previous year's report.
• The Social Security deficit—measured as a percent of taxable payroll over the traditional 75-year period—declined from 1.92 percent in last year's report, to 1.89 percent of payroll in this year's report.

Income exceeded expenditures and the surplus continued to grow.

• The sizeable annual tax income surpluses the Social Security Trust Funds experienced in recent years continued in 2003, with non-interest (tax) income exceeding outgo in the combined Social Security (OASDI) Trust Funds by $68 billion.
• Total income in 2003 was $632 billion and benefits paid were $471 billion. Total assets held in Social Security's special issue U.S. Treasury securities at the end of 2003 totaled $1.53 trillion, or 306% of annual expenditures.

Social Security remains strong for many years.

• Assets of the trust funds provide a reserve to pay benefits whenever expenditures exceed income. Assets increased by $152.8 billion in 2003 because income to each fund exceeded expenditures.
• At the end of 2003, the combined assets of the OASI and the DI Trust Funds were 306 % of estimated expenditures for 2004.
• Total assets are expected to reach $3.58 trillion in 2013, or 442% of annual expenditures in that year.
• Projected OASDI tax income will begin to fall short of outlays in 2018 and will be sufficient to finance only 73 % of scheduled annual benefits by 2042.
• Compared to the results shown in last year's report, projected annual balances for the Social Security program (income minus costs) are somewhat improved for that portion of the projected period beyond 2045.

As the baby boom generation ages, Social Security expenditures grow as a proportion of the economy but they remain quite manageable.

• In relation to gross domestic product (GDP), Social Security outgo amounted to 4.3 % of GDP in 2003 and is projected to increase by just over one-half to 6.6 percent of GDP in 2078.
• The OASDI annual cost rate is projected to increase from 11.07 % of taxable payroll in 2004, to 16.83 % in 2030, and to 19.29 % in 2078.

New “Infinite Horizon” Measure of Trust Fund Adequacy

A new measure of Trust Fund adequacy was added to this year's report by the Social Security trustees. It is know as the “infinite horizon” measure. The National Committee to Preserve Social Security and Medicare believes that this infinite horizon measure is not an appropriate replacement for the current 75-year long-range projections.

• In a letter to the Social Security trustees in December 2003, the American Academy of Actuaries, the leading professional organization of actuaries, warned that infinite-horizon projections “provide little if any useful information about the program's long-term finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic, and actuarial aspects of the program's finances into believing that the program is in far worse financial shape than is actually indicated”.
• Economic projections decades into the future can fluctuate dramatically in response to small changes in assumptions about economic growth, demographic predictions or technological changes. Expanding these projections to an “infinite horizon” greatly exacerbates the impact of these small errors in predicting the future.

NCPSSM Policy & Research, Oct 2004

The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.