Skip to content
CRR logo
Submit Search
Join E-mail List | Contact Us
  • Topics
  • Publications
  • Initiatives
  • Data
  • Sponsors
  • Opportunities
  • About Us
  • Search

The 2016 Social Security Trustees Report Contains No Surprises   

June 27, 2016
Share
Mobile Share Email Facebook Bluesky Twitter LinkedIn

MarketWatch Blog by Alicia H. Munnell

Headshot of Alicia H. Munnell

Alicia H. Munnell is a columnist for MarketWatch and senior advisor of the Center for Retirement Research at Boston College.

Outlook virtually unchanged from last year.

The Social Security program faces a 75-year deficit of 2.66 percent of taxable payrolls – virtually unchanged from last year.  Largely because of the Bipartisan Budget Act of 2015, the life of the Disability Insurance trust fund – which was scheduled for exhaustion in 2016 – has been extended by seven years.  The combined Old-Age, Survivors and Disability Insurance (OASDI) trust funds continue to be scheduled for exhaustion in 2034.  

What does a deficit of 2.66 percent of taxable payrolls mean?  That figure means that if payroll taxes were raised immediately by 2.66 percentage points – 1.33 percentage points each for the employee and the employer – the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2090.  Any package, however, that restores balance only for the next 75 years will show a deficit in the following year, as the projection period picks up a year with a large negative balance.  Realistically, eliminating the 75-year shortfall should probably be viewed as the first step toward long-run solvency.

What does exhaustion of the trust funds mean?  It does not mean that Social Security is “bankrupt.”  Payroll tax revenues keep rolling in and can cover about 75 percent of currently legislated benefits over the remainder of the projection period.  Relying on only current tax revenues, however, means that the replacement rate – benefits relative to pre-retirement earnings – for the typical age-65 worker would drop by 25 percent.

How did we get to a projected deficit in 2016 from a projected 75-year surplus in 1983 when Congress enacted the recommendations of the so-called Greenspan Commission?  In fact, deficits appeared almost immediately after the 1983 legislation and increased markedly in the early 1990s (see Figure).

Bar graph showing Social Security’s 75-Year Deficit as a Percentage of Taxable Payroll, 1983-2016

The reasons for the emerging deficits are shown in the Table.  Leading the list is the impact of changing the valuation period.  That is, the 1983 Report looked at the system’s finances over the period 1983-2057; the projection period for the 2016 Report is 2016-2090.  As noted, each time the valuation period moves out one year, it picks up a year with a large negative balance.  In addition, a worsening of economic assumptions – primarily a decline in assumed productivity growth and the impact of the Great Recession – has also contributed to the increase in the deficit.  Another contributor has been increases in disability rolls.

Offsetting the negative factors has been a reduction in the actuarial deficit due to changes in demographic assumptions – primarily higher mortality for women – and methodological changes.  Legislative and regulatory changes have also had a positive impact on the system’s finances.  For example, the Affordable Care Act of 2010 was assumed to reduce Social Security’s 75-year deficit through an expected increase in taxable wages as a number of provisions slow the rate of growth in the cost of employer-sponsored group health insurance. 

Table showing the Reasons for Change in Social Security’s Actuarial Deficit, 1983-2016

Regardless of how we got here; we are where we are.  The bottom line is that Social Security faces a manageable financing shortfall over the next 75 years, which should be addressed soon to share the burden more equitably across cohorts, to restore confidence in the nation’s major retirement program, and to give people time to adjust to needed changes.

businessman using tablet with laptop and document on desk in modern office with virtual interface graphic icons network diagram
businessman using tablet with laptop and document on desk in modern office with virtual interface graphic icons network diagram
Downloads
PDF Version
Related Content

Read on MarketWatch

Topics
Social Security
Publication Type
MarketWatch Blog
Related Articles
Social Security sign in a garden

Social Security’s Financial Outlook: The 2016 Update in Perspective

Issue Brief by Alicia H. Munnell

June 28, 2016
Man touching a choice concept

Solving Social Security’s Funding Shortfall Requires Acknowledging Uncertainty

MarketWatch Blog by Alicia H. Munnell

July 25, 2024
Social Security Administration sign with logo and website URL

Social Security’s 75-year Deficit Is Not Surprising

MarketWatch Blog by Alicia H. Munnell

June 11, 2024

Support timely research that informs real-world solutions.

About us
Contact
Join e-mail list
Facebook Bluesky Twitter LinkedIn Instagram YouTube RSS

© 2025 Trustees of Boston College, Center for Retirement Research|Terms of Use|Privacy Policy|Accessibility

This website uses cookies to improve your experience. We also use IP addresses, domain information and other access statistics to administer the site and analyze usage trends. If you prefer to opt out, you can select Update settings. Read our Privacy Policy. Accept
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT