Fiscal Check-Up

The Health And Well Being Of Our Retirement

Social security faces serious financial challenges

American Academy of Actuaries provides assessment of Social Security’s financial condition based on 2020 Trustees Report. Access the report here.

WASHINGTON—A new issue brief from the American Academy of Actuaries, An Actuarial Perspective on the 2020 Social Security Trustees Report, provides policymakers and the public with an actuarially informed overview of Social Security’s financial condition and projections of its condition.

“The 2020 trustees report shows that, even before accounting for any effects of the COVID-19 pandemic which is expected to result in lower tax income to Social Security, Social Security faces serious financial challenges based on an objective actuarial analysis of how demographic and economic trends are projected to play out under the current program design,” said Linda K. Stone, the Academy’s senior pension fellow. “Congress will have a wider range of options, with the potential for a more gradual approach to benefits or revenue changes, the sooner that it addresses Social Security’s long-term solvency issues.”

The 2020 trustees report, which does not factor in effects of the COVID-19 pandemic, projects that Social Security’s combined trust funds’ reserves will be depleted during 2035—the same year as projected in last year’s report. Since the release of the 2019 trustees report, Social Security’s actuarial deficit increased from 2.78% of taxable payroll to 3.21% of taxable payroll, due to a change in assumptions caused by lower inflation, lower interest rates, lower fertility, and the repeal of the Affordable Care Act excise tax on high-cost employer-sponsored group health insurance plans. If changes to the program are not implemented before 2035, only 79 percent of scheduled benefits would be payable in 2035, declining to 73 percent by 2094.

Excerpts from ‘An Actuarial Perspective on the 2020 Social Security Trustees Report

Social Security Out of Balance
Sooner than Originally Projected The last substantive changes made to the Social Security system occurred in 1983. At that time, the trustees projected that all scheduled benefits would be payable through 2057, the end of the 75-year projection period. That projection was based upon demographic assumptions regarding longevity, birth rates (fertility), immigration, and disability incidence as well as economic assumptions regarding interest rates, wage growth, inflation, and productivity gains. The trustees anticipated the increased longevity of the baby boom generation and the drop in fertility in subsequent generations. Their 1983 population forecasts have stood the test of time.

The economic experience of the country, however, has varied considerably from what anyone in 1983 could have anticipated. In order to support the future benefits detailed in the 1983 amendment, including the ability to pay the baby boom generation in retirement, more money was accumulated in the OASDI trust funds than was required to pay immediate benefits. At the end of 2019, the amount in the trust funds was $2.9 trillion. As we have known for many years, this amount in concert with taxes and trust fund earnings will likely not support benefits through 2057. The trustees project that full benefits will only be sustainable until 2035— the date the trust fund is expected to be depleted. Benefits will continue to be payable after that date but not fully unless legislative action is taken.

Demographic Issues
The projected imbalance in the system is essentially a story of demographics and wages. We first look at demographic issues. Wage and other economic issues are discussed later in this brief. The series of pie charts below show the current and forecasted ratio between working-age adults and non-working-age adults in the United States. In rough terms, the population in the 20-64 age group comprise the workers paying taxes into the Social Security system to provide benefits generally to those in the age 65+ group. The projected system imbalance is a result of the taxpayer group becoming a smaller percentage of the overall population and thus not providing enough income to the system to pay all projected benefits to a relatively larger beneficiary group.

The 2020 trustees report, which does not factor in effects of the COVID-19 pandemic, projects that Social Security’s combined trust funds’ reserves will be depleted during 2035—the same year as projected in last year’s report...

Cost Rates
Today’s Social Security tax rate (6.2% of earnings up to the wage base for both employees and employers) has been in place since 1990. During the period when the ratio of workers per beneficiary was higher than it is now, this rate allowed the system to build a $2.9 trillion reserve. However, the tax rate is not sufficient to support projected benefits beyond the middle of next decade. As the number of workers per beneficiary decreases, the taxes paid by those workers along with other system income cannot keep pace with the projected increase in benefit payments. Without any amendment, the cost of paying full benefits is projected to exceed income as soon as soon as 2021. Once the reserves are depleted, incoming tax revenue will only be able to support 79% of the projected benefits. The trustees define the annual cost rate of the system to be the projected cost of benefits divided by the projected taxable payroll. Looking at the likely path of the future annual cost rate in Chart 4 is yet another way to see how the aging of the U.S. population affects Social Security finances.

Rebalancing Social Security
Restoring balance to the Social Security system involves raising taxes, changing benefits, or finding a combination of these two approaches. Focusing on taxes alone, the table below shows that under the intermediate assumption set, an immediate combined employee/employer tax rate increase of 3.14% of taxable payroll (on top of the current 12.6% rate) is projected to be necessary to support all projected benefits under the current system over the next 75 years. [We see] an immediate 19% cut in benefits for all current and future beneficiaries is necessary to balance the system over the next 75 years if taxes remain unchanged. The trustees note that lawmakers have a broad continuum of policy options regarding changes to the system, many of which combine changes to tax rates and benefits. It is important to note that changes in tax rates can be
applied to all workers or a subset of workers. Likewise, changes to benefits can be applied to all beneficiaries or to a subset of beneficiaries.

Readers may be interested in the Social Security game available on the American Academy of Actuaries website (“Try Your Hand at Social Security Reform”) to see how various policy options can be
combined to restore balance to the system.

Read the issue brief, developed by the Academy’s Social Security Committee, and learn more about the Academy’s pension policy work online under the public policy tab at




About the American Academy of Actuaries
The American Academy of Actuaries is a 19,500-member professional association whose mission is to serve the public and the U.S. actuarial profession. For more than 50 years, the Academy has assisted public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States.