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CCH® PENSION AND BENEFITS — 05/22/09

Social Security Reserves To Be Exhausted In 2037

from Spencer’s Benefits Reports: The board of trustees of the Social Security programs has released its annual report detailing the financial condition of the Social Security trust funds.

According to the trustees, projected long-term program costs are not sustainable under current program parameters: “Social Security’s annual surpluses of tax income over expenditures are expected to fall sharply this year and to stay about constant in 2010 because of the economic recession, and to rise only briefly before declining and turning to cash flow deficits beginning in 2016 that grow as the baby boom generation retires. The deficits will be made up by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about three-fourths of scheduled benefits through 2083.”

According to the trustees, “The annual cost of Social Security benefits represented 4.4% of GDP in 2008 and is projected to increase to 6.2% of GDP in 2034, and then decline to about 5.8% of GDP by 2050 and remain at about that level. The projected 75-year actuarial deficit in the combined old-age and survivors and disability insurance (OASDI) trust fund is 2.00% of taxable payroll, up from 1.70% projected in last year’s report. This increase is due primarily to the recession, slightly lower estimates for real GDP after the economy recovers in 2015, and faster reductions in mortality rates.

“Although the combined OASDI program passes our short-range test of financial adequacy, the disability insurance trust fund does not; DI program costs have exceeded tax revenue since 2005, and trust fund exhaustion is projected for 2020. In addition, OASDI continues to fail our long-range test of close actuarial balance by a wide margin. Projected OASDI tax income will begin to fall short of outlays in 2016, and will be sufficient to finance 76% of scheduled annual benefits in 2037, after the combined OASDI trust fund is projected to be exhausted.

“Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16% increase in the payroll tax (from a rate of 12.4% to 14.4%) or an immediate reduction in benefits of 13% or some combination of the two. Ensuring that the system remains solvent on a sustainable basis beyond the next 75 years would require larger changes because increasing longevity will result in people receiving benefits for ever longer periods of retirement.”

The Social Security report, The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, is available at http://www.ssa.gov/OACT/TR/2009/tr09.pdf.

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