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

The 2016 Trustees Report contains no surprises. The program faces a 75-year deficit of 2.66 percent of taxable payrolls – virtually unchanged from last year – and the Old-Age, Survivors and Disability Insurance (OASDI) program trust funds continue to be scheduled for exhaustion in 2034. Largely because of the Bipartisan Budget Act of 2015, the life of the DI trust fund has been extended by seven years. As chair of the Social Security Advisory Board’s 2015 Technical Panel on Assumptions and Methods, I was particularly interested in the extent to which the Trustees adopted the Panel’s recommendations. They did reduce the long-run assumptions of inflation and real interest rates from last year and boosted the assumption on immigration, as the Panel recommended. Personally, I am delighted that the Trustees did not adopt our proposals on mortality improvement given the slowdown seen since 2009. This brief updates the numbers for 2016 and puts the current report in perspective. It also discusses the new mortality trends; the Bipartisan Budget Act of 2015; the growing enthusiasm for expanding Social Security; the importance of considering Social Security “legacy debt” separately when constructing financing packages; and the continuing absence of replacement rate data from the Trustees Report. The bottom line remains the same. 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.