In the Social Security Board of Trustees annual report issued April 22, 2019, the Trustees indicated that Social Security costs are projected to exceed Social Security income beginning in 2020 for the first time since 1982

As shown in the figure below, this means that, beginning in 2020, the Social Security system will begin to deplete the asset reserves held within its trust funds. Moreover, trust fund asset reserves are projected to decline until the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds are depleted in 2035.

Social Security costs are projected to grow faster than Social Security income over the 75-year period examined because of:

• Aging of the overall population. As the baby boom generation ages and is replaced with generations with a lower birth rate, the number of beneficiaries will grow faster than the number of workers paying taxes into the Social Security trust funds.
• Increases in life expectancy. Social Security costs also continue to grow over time due to projected increases in life expectancy. For example, the estimated life expectancy for males and females increased 6.8 and 4.5 years, respectively, for individuals born in 2000 as compared to 1970.

Note: Figure reports the intermediate assumptions scenario. Under current law, the OASI and DI trust funds are separate entities. This figure assumes that asset reserves for the OASI and DI trust funds are combined. When considered separately, the OASI trust fund is projected to be fully depleted in 2034, while the DI trust fund is project to be fully depleted in 2052.

Source: The Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, The 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, April 22, 2019.

Implications

The insolvency of the Social Security system, along with the growth in Medicare costs, is a major contributor to rising deficits and the federal government's long-term fiscal imbalance. The report includes fiscal policy options to illustrate what it would take to return the Social Security system to solvency for a 75-year period. Those options include: (1) an immediate and permanent 2.7 percentage-point payroll tax rate increase, and (2) an immediate and permanent 17% reduction in scheduled benefits to current and future beneficiaries.

Identifying practical and politically acceptable solutions to the imbalance, which may involve some combination of tax increases and benefit reductions, has remained elusive to policy makers, but can be expected to remain a driving force for major changes in fiscal policy.

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