CBO’s 2015 Long-Term Projections for Social Security ... · CBO’s 2015 Long-Term Projections for Social Security: Additional Information. Summary and Introduction. Social Security,

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Outlays

Tax Revenues

Actual Projected

1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085

Percentage of Gross Domestic Product

CONGRESS OF THE UNITED STATESCONGRESSIONAL BUDGET OFFICE

CBOCBO’s 2015 Long-Term

Projections for Social Security:

Additional Information

DECEMBER 2015

CBO

from 1 to

-Term Budget Outlook O had projected e Old-Age and n Budget Act of 2015 ber 2, 2015, revised

fied its projections to trust fund to the of several other et Office, cost estimate /50938.

www.cbo.gov/publication/51047

Notes

Unless otherwise indicated, the years referred to in this report are calendar years. Fiscal years run September 30 and are designated by the calendar year in which they end.

Numbers in the text and tables may not add up to totals because of rounding.

Additional data are posted with this report on CBO’s website.

The analysis presented in this report relies on and updates projections published in The 2015 Long(Congressional Budget Office, June 2015, www.cbo.gov/publication/50250). For that report, CBthat the Disability Insurance (DI) Trust Fund would be exhausted in fiscal year 2017 and that thSurvivors Insurance (OASI) Trust Fund would be exhausted in calendar year 2031. The Bipartisa(Public Law 114-74; www.congress.gov/bill/114th-congress/house-bill/1314), enacted on Novemthe allocation of the payroll tax between the two trust funds. Where appropriate, CBO has modiaccount for the resulting shift of a 0.57 percentage-point share of the payroll tax from the OASI DI trust fund for calendar years 2016 through 2018. This report does not account for the effectssmall changes to Social Security under the new law. For pertinent estimates, see Congressional Budgfor H.R. 1314, the Bipartisan Budget Act of 2015 (October 28, 2015), www.cbo.gov/publication

October

CBO

Summary and Introduction 1

Scheduled and Payable Bene 2

Quantifying Uncertainty 2

Changes in CBO’s Long-Term 3

Related CBO Analyses 4

The System’s Finances 5

Exhibits 6–13

The Distribution of Benefits 14

Exhibits 15–21

Appendix: CBO’s Projection 22

Definitions 24

About This Document 26

Contents

fits

Social Security Projections Since 2014

and Payroll Taxes

s of Demographic Variables

CBO

Exhibit Page

List of Exhibits

1. Social Security Tax Revenues and Outlays, With Scheduled Benefits 6

2. Social Security Tax Revenues and Outlays, With Scheduled Benefits, in Selected Years 7

3. Percentage of Simulations in Which Social Security Outlays Exceed Tax Revenues by Specified Percentages, With Scheduled Benefits 8

4. Social Security Tax Revenues and Outlays, With Scheduled and Payable Benefits 9

5. Reductions in Old-Age and Survivors Insurance Benefits and Disability Insurance Benefits Following Exhaustion of the Trust Funds, in Selected Years 10

6. Summarized Financial Measures for Social Security, With Scheduled Benefits 11

7. Combined Social Security Trust Funds’ Ratio 12

8. Percentage of Simulations That Show the Combined Social Security Trust Funds’ Exhaustion by a Particular Year 13

9. Mean Initial Benefits for Retired Workers, With Scheduled and Payable Benefits 15

10. Mean Initial Replacement Rates for Retired Workers, With Past Earnings Limited to the Last Five Years of Substantial Earnings, Adjusted for Growth in Prices 16

11. Mean Present Value of Lifetime Benefits Relative to Lifetime Earnings for Retired Workers, With Scheduled and Payable Benefits 17

12. Mean Initial Benefits, Replacement Rates, and Lifetime Benefit-to-Earnings Ratios for Disabled Workers, With Scheduled and Payable Benefits 18

13. Mean Lifetime Social Security Taxes and Benefits Relative to Lifetime Earnings, With Scheduled and Payable Benefits, by Birth Cohort 19

14. Mean Lifetime Social Security Benefit-to-Tax Ratios, With Scheduled and Payable Benefits, by Birth Cohort 20

15. Percentage of Simulations in Which Payable Benefits Exceed Specified Percentages of Scheduled Benefits 21

CBO

’s ecurity:

Summary ctSocial Securi itin 2015, is th rogovernment’s 72roughly 60 m o Social Securi irespouses and c thsurvivors of d ; alries receive p Ovors Insuranc mbeneficiaries kerand children abbenefits.

In fiscal year forefits totaled $ lmfederal spend enabout 84 per laymade up abo

Each year (m JunCongression e pterm project anfederal gover g

oday, 96 percent of that tax revenue he payroll tax—generally, 12.4 per-e’s earnings that are subject to the y tax. Workers and their employers ; self-employed people pay the entire nings up to a maximum annual w $118,500—are subject to the pay-remaining share of tax revenues for

about 4 percent—is collected from on Social Security benefits.4 The tax funded the program totaled in fiscal year 2015.5

1. For an over ityprogram’s f undBudget Off olic(December v/p

’s portion of the payroll tax was reduced by e points for 2011 and 2012 (as was the tax employed workers), and the reduction in was made up by reimbursements from the

eneral fund. In this report, Social Security include those reimbursements.

hakin and Kurt Seibert, “The Taxation of ity Benefits” (CBO Blog, February 12, 2015), v/publication/49948. A portion of income ial Security benefits is credited to the Medicare surance Trust Fund; in fiscal year 2015, that $20 billion.

t included $16 billion that the government as the employer’s share of the payroll tax for ers. Such funds are recorded as offsetting

her than as revenues, because they result from mental transfers.

CBO

and Introduty, which markede largest single p budget.1 Aboutillion people wh

ty benefits are rethildren, and anoeceased workers

ayments throughe (OASI). The reare disabled wor; they receive Dis

2015, spending 877 billion, or aing. OASI paymcent of those outut 16 percent.

ost recently in al Budget Officions of revenuesnment, includin

view of Social Securinancing and trust fice, Social Security P 2015), www.cbo.go

and a discussion of the s, see Congressional y Options, 2015 ublication/51011.

2089, matching the period used in Social Security Administration, The 2015 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (July 2015), www.ssa.gov/oact/TR/2015.

5. That amouncontributedfederal workreceipts, ratintragovern

er 10 percent are l of those beneficia-ld-Age and Survi-aining 18 percent of s or their spouses ility Insurance (DI)

Social Security ben-ost one-quarter of ts accounted for s, and DI payments

e 2015), the ublishes its long-d outlays for the

those for the Social

Security in the form of 15 exhibits that illustrate the program’s finances and the distribution of benefits paid to and payroll taxes collected from various groups of people. Any harm that rising debt would cause to the economy was not factored into the long-term projections published in this report. The appendix presents more information on CBO’s demographic projections. A list of defi-nitions of common terms appears at the end of the publication.

Social Security is funded by dedicated tax revenues from two sources: payroll taxes and income taxes

amount—noroll tax. The the program—income taxesrevenues that$786 billion

2. See Congressional Budget Office, The 2015 Long-Term Budget Outlook (June 2015), Chapter 3, www.cbo.gov/publication/50250. In the current report, the 75-year projection period consists of calendar years 2015 through

3. The worker2 percentagpaid by self-tax revenuesTreasury’s gtax revenues

4. See Joshua SSocial Securwww.cbo.gotaxes on SocHospital Inamount was

2015 Long-Term Projections for Social SAdditional Information

ions 80th anniversary gram in the federal percent of the

currently receive d workers or their

Security program.2 CBO’s projections generally reflect current law, following its 10-year baseline budget projections and then extending the baseline concept for the rest of the long-term projection period. This report presents additional information about CBO’s long-term projections for Social

on benefits. Tcomes from tcent of peoplSocial Securiteach pay halfamount.3 Ear

CBO

SCH OR SOCIAL SECURITY: ADDITIONAL INFORMATION 2

Soanfroanrevinthofunantivdesepcothe

Inthou(exOAhaou9 perathaanasslinprcen20

Acthe20enfuntru

l benefits as a percentage of past earn-er, on average, for workers who have

arnings.8 As another example, CBO people who were born in more recent pay more in taxes and receive more in use they typically will earn more over en after an adjustment for inflation.

and Payable Benefits es projections of Social Security bene-ould be paid under two scenarios. efits are full benefits as calculated

cial Security Act, without regard to ds’ balances. If, however, a fund’s insufficient to pay the full amounts, would receive payable benefits, of which would be reduced from the ounts such that annual outlays would

annual revenues.

g Uncertaintyterm projections for Social Security ally on its projections of key demo-conomic factors; all such long-term

re inherently uncertain. (See the appen-ation on CBO’s demographic projec-

antify the uncertainty, CBO estimated of outcomes from 500 simulations -term model. The values for most of t demographic and economic vari-model—for example, fertility rates, es, interest rates, and the rate of oductivity—were based on historical

ssional Budget Office, Is Social Security (December 2006), www.cbo.gov/publication/

21, the OASI trust fund will be exhausted in cal-dar year 2030, and the combined OASDI trust ds will be exhausted in calendar year 2029.6 If a st fund’s balance declined to zero and current

cCXcG. That report explains that it is unclear how payments would be reduced. In its analysis, CBO assumes that each year after the trust funds became exhausted, each recipient’s annual benefit would be reduced by the percentage necessary for outlays to match revenues.

8. See CongreProgressive?18266.

e Social Security Amendments of 1983, annual tlays for the program exceeded annual revenues cluding interest) credited to the combined SDI trust funds. A gap between those amounts

s persisted since then, and in fiscal year 2015, tlays exceeded noninterest income by almost ercent. As more people in the baby-boom gen-tion retire over the next 10 years, CBO projects, t gap will widen. If current laws governing taxes

d spending stayed generally the same—an umption that underlies CBO’s extended base-e projections—outlays from the Social Security ogram would exceed revenues by almost 30 per-t in 2025 and by more than 40 percent in

40.

cording to CBO’s extended baseline projections, DI trust fund will be exhausted in fiscal year

beneficiariesthe amountsscheduled ambe limited to

QuantifyinCBO’s long-depend criticgraphic and eprojections adix for informtions.) To qua distributionusing its longthe importanables in that mortality ratgrowth in pr

6. CBO previously had projected that the DI trust fund would be exhausted in fiscal year 2017 and that the OASI trust fund would be exhausted in calendar year 2031. It revised those projections as a result of a provision in the Bipartisan Budget Act of 2015 that changed the allocation of the payroll tax between the two programs, granting a larger share to the DI trust fund for calendar years 2016 through 2018 and reducing by an equal amount the share allocated to the OASI trust fund for those years. Because total tax revenues would remain the same, CBO does not project a change from calendar year 2029 for the exhaustion of the combined OASDI trust funds.

7. Noah P. Meyerson, Social Security: What Would Happen If the Trust Funds Ran Out? Report for Congress RL33514 (Congressional Research Service, August 28, 2014), available from U.S. House of Representatives, Committee on Ways and Means, 2014 Green Book, Chapter 1: Social Security, “Social Security Congressional Research Service Reports” (accessed December 9, 2015), http://go.usa.gov/

EDULED AND PAYABLE BENEFITS CBO’S 2015 LONG-TERM PROJECTIONS F

cial Security retirement and disability benefits d the program’s administrative costs are paid m two trust funds—one for the OASI program d one for the DI program. In addition to the tax enues, the funds also receive intragovernmental erest payments on the Treasury securities they ld. In a given year, the receipts credited to a d, including the interest credited on its bal-

ces, minus spending for benefits and administra-e costs, constitute the trust fund’s surplus or ficit. Although the two trust funds are legally arate, in this report, CBO generally follows the

mmon analytical convention of considering m as combined.

2010, for the first time since the enactment of

revenues were insufficient to cover benefits speci-fied in law, the Social Security Administration would no longer be permitted to pay full benefits when they were due. In the years after a trust fund was exhausted, annual outlays would be limited to annual revenues: All receipts to the trust fund would be used, and the trust fund’s balance would remain essentially at zero.7

The amount of Social Security taxes paid by vari-ous groups of people differs, as do the benefits that different groups receive. For example, people with higher earnings pay more in Social Security payroll taxes than do lower-earning participants, and they also receive benefits that are larger. Because Social Security’s benefit formula is progressive, replacement

rates—annuaings—are lowhad higher eprojects thatdecades will benefits becaa lifetime, ev

ScheduledCBO preparfits as they wScheduled benunder the Sothe trust funbalance was

CBO

CHA SOCIAL SECURITY: ADDITIONAL INFORMATION 3

yein unEilieis

ThtioturInou5 pprvathewo

ions of taxable payroll account for f the increase in the actuarial defi-nticipates that wages will grow r high earners than it anticipated

se of this change, CBO projects that hare of earnings will be subject to rity payroll tax and that taxable pay-ller, resulting in an increase in the ed for any given amount of benefits rate is calculated as a percentage of . The change also led CBO to fit amounts that it projects will be eneficiaries, although that reduc- enough to fully offset the effect of taxable payroll. Smaller changes—

newer data, the effects of the one-the projection period, and changes ethods—are largely offsetting.

Revenues Measured oss Domestic Product

on of the 75-year actuarial deficit as has increased from 1.38 percent of r’s report to 1.45 percent in the . CBO’s current projection of the e is about 3 percent lower and ome rate is 5 percent lower than last cause of the assumption that, over s, a diminishing portion of earnings o the Social Security payroll tax.

ure of the Replacement Rate for y Benefits presented replacement rates as benefits as a percentage of average s, with those earnings adjusted h in wages or for growth in prices. workers approaching retirement re useful to know the extent to

9.

workers’ initial lifetime earningeither for growtHowever, oldermay find it mo

examines the budgetary effects of alternative average values for similar key demographic and economic factors over a 25-year projection period. The ranges of variation for those projections were based on the historical variation in 25-year averages and on consideration of possible future developments.

period, plus the trust funds’ initial balance, divided by the present value of taxable payroll or GDP over the same period. The cost rate is the present value of outlays for a period, plus the present value of a year’s worth of benefits at the end of the period, divided by the present value of taxable payroll or GDP over the same period.

uld be insufficient to pay scheduled benefits. cost rate is about 2 percent higher than last year’s projection.

About half of the increase in CBO’s projection of the 75-year actuarial deficit results from revised projections for various economic factors, primarily for lower interest rates. Lower interest rates raise the 75-year cost rate because spending on Social Security is increasing, and lower interest rates increase the importance of the later years in the present-value calculation.

year change in in estimating m

Spending andRelative to GrCBO’s projectia share of GDPGDP in last yeacurrent analysis75-year cost ratthe 75-year incyear’s, largely bethe next 75 yearwill be subject t

Revised MeasSocial SecuritCBO formerly

For more information, see Congressional Budget Office, Quantifying Uncertainty in the Analysis of Long-Term Social Security Projections (November 2005), www.cbo.gov/publication/17472. This report’s methodology differs slightly from the techniques described in that publication. This report’s analysis of uncertainty also differs from that described in Congressional Budget Office, The 2015 Long-Term Budget Outlook (June 2015), www.cbo.gov/publication/50250. Instead of presenting an analysis of the effects of year-to-year variations in key demographic and economic factors around the underlying projections, as in this report, The 2015 Long-Term Budget Outlook

10. See Congressional Budget Office, CBO’s 2014 Long-Term Projections for Social Security: Additional Information (December 2014), www.cbo.gov/publication/49795.

11. The income rate is the present value of tax revenues for a

NGES IN CBO’S LONG-TERM SOCIAL SECURITY PROJECTIONS SINCE 2014 CBO’S 2015 LONG-TERM PROJECTIONS FOR

ar-to-year variation.9 Several of the exhibits this report illustrate the 80 percent range of certainty implied by the model’s simulations: ghty percent of the time, the value in question s within a given range; for 10 percent, the value above the range; and for 10 percent, it is below.

e simulations show that uncertainty in projec-ns for key demographic and economic factors in n leads to uncertainty of budget projections.

2089, the 80 percent range of uncertainty for tlays for scheduled benefits extends from about ercent to almost 10 percent of gross domestic

oduct (GDP). Nevertheless, under a variety of lues for key economic and demographic factors, balances in the Social Security trust funds

Changes in CBO’s Long-Term Social Security Projections Since 2014 CBO currently projects shortfalls for Social Security that are larger than the projections it published in last year’s edition of this report.10

Spending and Revenues Measured Relative to Taxable PayrollAt 4.37 percent of taxable payroll, CBO’s projec-tion for the 75-year actuarial deficit (the differ-ence between the income and cost rates for the period) is higher than the agency’s 2014 projection of 3.97 percent.11 Because payroll taxes are a fixed share of taxable payroll, the projection for the 75-year income rate is about the same as the 2014 estimate. However, the projection for the 75-year

Revised projectthe other half ocit. CBO now amore quickly folast year. Becaua diminishing sthe Social Securoll will be smacost rate project(when the cost taxable payroll)reduce the benepaid to future btion is not largethe reduction inattributable to

CBO

REL CBO’S 2015 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 4

whmeThpeing(eaag62prlow(wgroto

nalyses s projections in CBO’s 2014 ns for Social Security: Additional ber 2014), www.cbo.gov/

; it includes analysis arising le economic and programmatic rojections of economic trends e changes in methodology and odels.

O used projections that it pub-Long-Term Budget Outlook (June v/publication/50250, which are with the 10-year baseline CBO ed Budget Projections: 2015 to ), www.cbo.gov/publication/opriate, CBO has modified account for the recently enacted ntage-point share of the payroll trust fund to the DI trust fund 016 through 2018.

The methodology used to develop the projections presented in this report is described in CBO’s Long-Term Model: An Overview (June 2009), www.cbo.gov/publication/20807. The values used for the demographic and economic variables underlying the projections are explained in The 2015 Long-Term Budget Outlook (June 2015), www.cbo.gov/publication/50250.

Various approaches to changing Social Security also are presented in Social Security Policy Options, 2015 (December 2015), www.cbo.gov/publication/51011, Policy Options for the Social Security Disability Insurance Program (July 2012), www.cbo.gov/ publication/43421, and Options for Reducing the Deficit: 2014 to 2023 (November 2013), www.cbo.gov/publication/44715.

A collection of CBO’s Social Security analyses can be found on the Social Security page of CBO’s website (www.cbo.gov/topics/social-security).

12.

49973. Where apprthose projections toshift of a 0.57 percetax from the OASI for calendar years 2

Social Security trustees report. See 2015 Technical Panel on Assumptions and Methods, Report to the Social Security Advisory Board (September 2015), p. 83, http://go.usa.gov/cTjxW (PDF, 3.4 MB). Lifetime replacement rates adjusted for growth in wages or in prices are available in the supplemental information accompanying this report, see www.cbo.gov/publication/51047.

ATED CBO ANALYSES

ich Social Security can replace their preretire-nt earnings rather than their lifetime earnings. is report presents workers’ initial benefits as a

rcentage of average late-career earnings, consist- of the last five years of substantial earnings rnings that are at least half of the worker’s aver-

e indexed earnings) before a worker reaches age .12 Those earnings are adjusted for growth in ices. Late-career replacement rates are slightly

er, on average, than lifetime replacement rates hen adjusted either for growth in wages or for wth in prices) because late-career earnings tend be higher than average earnings over a lifetime.

Related CBO AThis report updateLong-Term ProjectioInformation (Decempublication/49795from newly availabdata and updated pas well as from somimprovements in m

For this analysis, CBlished in The 2015 2015), www.cbo.gogenerally consistentpublished in Updat2025 (March 2015

The 2015 Technical Panel on Assumptions and Methods recommended that such a measure be added to the annual

CBO

The first several vantage points. T nual tax revenues and outlays. gle numbers. The system’s fund at the beginning of a year

The System’s Finances

part of this report (Exhibits 1 through 8) examines Social Security’s financial status fromhe fullest perspective is provided through projections of the streams of the program’s an

A more succinct analysis is given in measures that summarize those annual streams as sinfinances also are described in projections of the trust fund ratio—the amount in a trust divided by outlays in that year.

CBO

THE OCIAL SECURITY: ADDITIONAL INFORMATION 6

Ex

SoPer

So

No range of ts are

a.

b.

0

2

4

6

8

10

1 2085

ar 2014, Social Security’s total d 4.9 percent of the country’s product: 4.1 percent in pay-e OASI trust fund and 0.8 per-DI trust fund. Tax revenues e program equaled 4.5 percent ercent credited to the OASI 0.6 percent credited to the Most of the tax revenue was axes, although about 4 percent ome taxes on benefits.

xt few decades, the number of aries will increase as members of generation retire. As a result, in

urrent law, spending for OASI will be 5.4 percent of GDP if scheduled bene-fits are paid, CBO estimates. In the decade after that, OASI spending with scheduled ben-efits is projected to decline slightly, relative to the size of the economy, as people in the baby-boom generation die. Demographers generally predict increasing life expectancy but stable birth rates, so scheduled benefits are projected to resume their upward trajectory in the mid-2050s, boosting OASI outlays to 5.6 percent of GDP in 2089. Under current law and with scheduled benefits, outlays for DI will reach 0.8 percent of GDP in 2039, rise to 0.9 per-cent by 2064, and remain at about that level thereafter, CBO projects.

CBO projects that Social Security revenues rel-ative to GDP will be stable over the next few decades. With the continuing widening of the earnings distribution that has been observed in past decades, taxable earnings are projected to decline as a share of GDP. Because Social Security’s payroll taxes are a fixed share of

(continued)

urce: Congressional Budget Office.

te: The dark lines indicate CBO’s projections of expected outcomes; the shaded areas indicate the 80 percent uncertainty around those projections from 500 simulations from CBO’s long-term model. Scheduled benefibenefits as calculated under the Social Security Act, regardless of the balances in the trust funds.

Tax revenues consist of payroll taxes, income taxes on benefits, and, in 2011 and 2012, reimbursements from theTreasury’s general fund to make up for reductions in payroll taxes in those years.

Outlays consist of scheduled benefits and administrative costs.

985 1995 2005 2015 2025 2035 2045 2055 2065 2075

SYSTEM’S FINANCES CBO’S 2015 LONG-TERM PROJECTIONS FOR S

hibit 1.

cial Security Tax Revenues and Outlays, With Scheduled Benefitscentage of Gross Domestic Product

Outlaysb

Tax Revenuesa

Actual Projected

In calendar yeoutlays equalegross domesticments from thcent from the dedicated to thof GDP: 3.9 ptrust fund andDI trust fund.from payroll tcame from inc

During the neOASI beneficithe baby-boom2039, under c

CBO

THE CTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 7

Ex

SoPer

So

No

a.

Old

Dis

CoIns

CoIns

(continued)

able earnings, CBO anticipates that, under rent law, payroll tax receipts will decline percentage of GDP—from 4.3 percent 014 to 4.1 percent in 2039. However, ause CBO expects that both the number of ipients whose benefits are subject to taxa- and their average tax rates will increase,

agency projects a rise in income taxes on ial Security benefits from about 0.2 percent DP today to about 0.3 percent in 2039.

e decrease in payroll tax receipts and the rease in income taxes will offset each other, O projects, so the amount of tax revenues dited to the trust funds is expected to stay ghly constant as a percentage of GDP.

der current law, Social Security tax revenues ll equal 4.4 percent of GDP and outlays will ual 6.2 percent of GDP in 2039, by CBO’s imate. In 80 percent of CBO’s simulations, jected tax revenues are between 4.3 percent

d 4.6 percent of GDP. The range of uncer-nty is much wider for outlays: In 80 percent CBO’s simulations, projected outlays range tween 5.3 percent and 7.7 percent of GDP. ith outlays likely to increase sharply and tax enues expected to remain roughly stable th relative to GDP), the difference between m is projected to increase from 0.5 percent GDP in 2014 to 1.8 percent in 2039. That p is projected to narrow slightly until the ly 2050s (because of a drop in outlays as baby-boom population shrinks) but then widen again, reaching 2.1 percent of GDP 2089.

urce: Congressional Budget Office.

te: Tax revenues consist of payroll taxes and income taxes on benefits in the specified year. Outlays consist of scheduled benefits and administrative costs. Scheduled benefits are benefits as calculated under the Social Security Act, regardless of the balances in the trust funds.

Each range spans the outcomes of 80 percent of 500 simulations from CBO’s long-term model. The range for the difference may not equal the difference between outlays and revenues because each value is drawn from a separate simulation.

mbined Old-Age and Survivorsurance and Disability InsuranceTax Revenues 4.50 4.37 4.38 4.40Outlays 4.95 6.20 6.12 6.46Difference -0.46 -1.83 -1.73 -2.06

mbined Old-Age and Survivorsurance and Disability InsuranceTax RevenuesOutlaysDifference

80 Percent Range of Uncertaintya

4.3 to 4.64.8 to 8.2

-3.6 to -0.5

4.2 to 4.74.3 to 4.65.3 to 7.7

-3.2 to -1.04.9 to 9.5

-4.9 to -0.7

rou

Unwieqestproantaiof beWrev(botheof gaeartheto in

SYSTEM’S FINANCES CBO’S 2015 LONG-TERM PROJE

hibit 2.

cial Security Tax Revenues and Outlays, With Scheduled Benefits, in Selected Yearscentage of Gross Domestic Product

-Age and Survivors InsuranceTax Revenues 3.86 3.77 3.78 3.81Outlays 4.11 5.41 5.23 5.60Difference -0.25 -1.64 -1.45 -1.79

ability InsuranceTax Revenues 0.64 0.60 0.60 0.59Outlays 0.84 0.79 0.88 0.86Difference -0.20 -0.19 -0.28 -0.27

2014Actual,

2039 2064 2089Projected

CBO's Projections

taxcuras ain 2becrectiontheSocof GThincCBcre

CBO

THE TIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 8

Ex

PeSpPer

So

No onsist of payroll taxes and income taxes under the Social Security Act, regardless rom CBO’s long-term model.

20202020202020

her way to assess uncertainty in projections cial Security’s finances is to consider the ntage of simulations from CBO’s long- model in which total outlays exceed tax ues by a given amount in a particular year.

st values for the model’s demographic and omic variables are based on historical year-ar variation.) In all 500 simulations for , for example, outlays equaled or exceeded

evenues; in 87 percent, that difference nted to at least 1 percent of GDP. In

ercent of the simulations, the difference t least 2 percent of GDP. Uncertainty ased somewhat for projections for later des: In 97 percent of the simulations for

2080, outlays equaled or exceeded tax revenues, and more than half the time, the difference was at least 2 percent of GDP.

Uncertainty in projections of outlays and tax revenues stems largely from uncertainty in pro-jections of mortality rates and productivity growth. Mortality rates affect outlays because people who live longer receive benefits for a longer time, on average. Productivity growth affects total earnings and, hence, tax revenues, benefits, and GDP. Nevertheless, in CBO’s projections, the ratio of tax revenues to GDP does not change much even with productivity changes because earnings are estimated to be a relatively constant share of GDP and payroll taxes are estimated to be a constant share of earnings. Earnings growth at any time affects benefits in the future, so uncertainty about that growth has a greater effect on projections of future ratios of outlays to GDP than of tax revenues to GDP.

tes: Outlays consist of scheduled benefits and administrative costs. Tax revenues con benefits in the specified year. Scheduled benefits are benefits as calculatedof the balances in the trust funds. This analysis is based on 500 simulations f

GDP = gross domestic product.

SYSTEM’S FINANCES CBO’S 2015 LONG-TERM PROJEC

hibit 3.

rcentage of Simulations in Which Social Security Outlays Exceed Tax Revenues by ecified Percentages, With Scheduled Benefitscent

urce: Congressional Budget Office.

20 98 35 1 0 0 030 100 87 37 7 1 040 100 89 44 13 2 050 98 76 35 11 1 060 97 76 42 16 4 170 96 80 51 23 10 480 97 78 51 29 14 7

By 3 Percent of GDP or More

By 4 Percent of GDP or More

By 5 Percent of GDP or More

By 0 Percent of GDP or More

By 1 Percent of GDP or More

By 2 Percent of GDP or More

Anotof Sopercetermreven(Moeconto-ye2030tax ramou37 pwas aincredeca

CBO

THE ERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 9

Ex

SoPer

So

a.

b.

c.

d.

190

1

2

3

4

5

6

7

If the gap between outlays and revenues occurs as CBO projects, the balance in the trust funds will decline to zero and the Social Security Administration will no longer be permitted to pay full benefits when they are due. In the years after the trust funds’ exhaustion, annual out-lays would thus be limited to annual revenues (although the method of payment reduction is not prescribed under current law).

In its projections of outlays with payable bene-fits, CBO assumed that in each year after the combined OASDI trust funds’ exhaustion, recipients’ annual benefit amounts would be reduced by the percentage needed to make total outlays match total revenues. Payable benefits would equal scheduled benefits until the combined trust funds were exhausted; after that, they would be the same as the program’s annual revenues.

According to CBO’s projections, under current law the DI trust fund will be exhausted in fiscal year 2021, the OASI trust fund will be exhausted in calendar year 2030, and the com-bined OASDI trust funds will be exhausted in calendar year 2029. In 2030, when revenues are projected to equal 71 percent of scheduled out-lays, payable benefits thus would be 29 percent below scheduled benefits. The projected gap between scheduled and payable benefits then would close slightly, reaching 27 percent in 2050 before widening again, to 34 percent, by 2089.

urce: Congressional Budget Office.

Tax revenues consist of payroll taxes, income taxes on benefits, and, for 2011 and 2012, reimbursements from the general fund of the Treasury to make up for reductions in payroll tax rates in those years. Tax revenues do not include interest credited to the Social Security trust funds. Tax revenues shown are consistent with payable benefits; they would be slightly higher if scheduled benefits were paid because revenues from income taxes paid on those benefits would be higher.

Outlays consist of benefits and administrative costs.

Scheduled benefits are benefits as calculated under the provisions of the Social Security Act, regardless of balances in the Social Security trust funds.

Payable benefits are benefits as calculated under the provisions of the Social Security Act, reduced as necessary to ensure that outlays do not exceed the Social Security system’s revenues once the balances in the Social Security trust funds are exhausted. If a trust fund’s balance declined to zero and current revenues were insufficient to cover benefits specified in law, the Social Security Administration would no longer be permitted to pay full benefits when they were due. In the years after a trust fund was exhausted, annual outlays would be limited to annual revenues.

85 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085

SYSTEM’S FINANCES CBO’S 2015 LONG-T

hibit 4.

cial Security Tax Revenues and Outlays, With Scheduled and Payable Benefitscentage of Gross Domestic Product

Tax Revenuesa

Actual Projected

Outlaysb

Outlays With Scheduled Benefitsc

Outlays With Payable Benefitsd

In 2029, the trust funds will be

exhausted, requiring a 29 percent

reduction in benefits payable in 2030.

CBO

THE S 2015 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 10

Ex

Re ce BePer

So

No

a.

b. Trust Fund.

Ol 32Di 33

2080

CBO projects that, under current law, the OASI trust fund will be exhausted in 2030. In 2031, therefore, benefits would need to be reduced by 31 percent from scheduled amounts if outlays were limited to revenues credited to the trust fund. After increasing for several years, however, the required reduction would abate as people in the baby-boom gen-eration died: In 2060, CBO projects, payable benefits would need to be 29 percent lower than scheduled benefits. And because life expectancy is anticipated to continue to rise, by 2080, they would need to be 32 percent lower.

CBO projects that, under current law, the DI trust fund will be exhausted in fiscal year 2021. If the program’s outlays were limited thereafter to revenues credited to the trust fund and if the Social Security Administration reduced DI benefits, payments to beneficiaries in fiscal year 2022 would be 21 percent below the amounts scheduled under current law, CBO projects. Moreover, because of the requirement to keep the trust fund in balance, the government would need to continue to reduce benefits: In 2040, payable DI benefits would be 24 percent lower than scheduled ben-efits, and by 2080, they would be 33 percent lower.

SYSTEM’S FINANCES CBO’

hibit 5.

ductions in Old-Age and Survivors Insurance Benefits and Disability Insurannefits Following Exhaustion of the Trust Funds, in Selected Yearscentage Reduction in Benefits

urce: Congressional Budget Office.

te: n.a. = not applicable.

Fiscal year 2022 is the first year after the projected exhaustion in 2021 of the Disability Insurance Trust Fund.

Calendar year 2031 is the first year after the projected exhaustion in 2030 of the Old-Age and Survivors Insurance

d-Age and Survivors Insurance n.a. 31 32 29sability Insurance 21 26 24 31

2022a 2031b 20602040

CBO

THE NS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 11

Ex

Su

So

No

a.

Ol

Di

CoIn

CoIn

tuarial balance—a summary measure of ancial status of the trust funds—is the ce between two other financial mea-

he income rate (a measure of tax reve-er time) and the cost rate (a measure of over time).

stimates that, under current law, the r actuarial balance for the combined nds will be –4.37 percent of taxable . Thus, if the payroll tax rate was ed immediately and permanently by ercentage points (from the current percent to 16.77 percent, an increase of han one-third) or if scheduled benefits duced equivalently, at the end of 2089,

lance would equal the out-2090. This analysis does not edback to the economy h a change. The actuarial oticeably larger or smaller ly projects, however. Because etween outlays and revenues

the actuarial balance is pro-negative over 75 years than it 50-year periods.

rojects that under current law, ial balance for the OASI trust percent of taxable payroll. payroll tax rate was increased points, or if a matching cut its, at the end of 2089 the SI trust fund would equal or 2090. Similarly, if the DI sed by 0.67 percentage points balance would, at the end of ted outlays for 2090.

urce: Congressional Budget Office.

te: Scheduled benefits are benefits as calculated under the Social Security Act, regardless of the balances in the trust funds. Over the relevant periods, the income rate is the present value of annual tax revenues plus the initial trust fund balance, and the cost rate is the present value of annual outlays plus the present value of a year’s worth of benefits as a reserve at the end of the period, each divided by the present value of gross domestic product or taxable payroll. Present value is a single number that expresses a flow of current and future income or payments in terms of an equivalent lump sum received or paid at a specific time. The actuarial balance is the difference between the income and cost rates.

Each range spans the outcomes of 80 percent of 500 simulations from CBO’s long-term model. The range for the differences may not equal the difference between the individual income and cost rates because each value is drawn from a separate simulation.

75 years (2015–2089) 0.62 0.84 -0.22 1.87 2.54 -0.67

25 years (2015–2039) 5.04 5.98 -0.94 14.94 17.73 -2.8050 years (2015–2064) 4.73 5.99 -1.26 14.16 17.93 -3.7775 years (2015–2089) 4.63 6.07 -1.45 13.97 18.33 -4.37

25 years (2015–2039)50 years (2015–2064)75 years (2015–2089)

mbined Old-Age and Survivors surance and Disability Insurance

-5.8 to -2.2-6.7 to -2.5-2.2 to -0.8

14.6 to 15.413.8 to 14.713.7 to 14.5 16.3 to 21.1

16.1 to 20.316.2 to 19.8 -4.5 to -1.5-1.5 to -0.5

-1.9 to -0.7

mbined Old-Age and Survivors surance and Disability Insurance

80 Percent Range of Uncertaintya

4.9 to 5.24.6 to 4.94.5 to 4.9

5.4 to 6.75.3 to 6.85.3 to 7.1

the trust funds’ balays projected for account for any feresulting from sucbalance could be nthan CBO currentthe projected gap bwidens over time, jected to be more is over the 25- or

Separately, CBO pthe 75-year actuarfund will be –3.70Thus, if the OASIby 3.70 percentagewas made to benefbalance in the OAprojected outlays ftax rate was increathe DI trust fund 2089, equal projec

SYSTEM’S FINANCES CBO’S 2015 LONG-TERM PROJECTIO

hibit 6.

mmarized Financial Measures for Social Security, With Scheduled Benefits

d-Age and Survivors Insurance25 years (2015–2039) 4.39 5.15 -0.76 13.00 15.27 -2.2750 years (2015–2064) 4.10 5.15 -1.06 12.27 15.43 -3.1675 years (2015–2089) 4.01 5.23 -1.23 12.10 15.79 -3.70

sability Insurance25 years (2015–2039) 0.65 0.83 -0.18 1.94 2.46 -0.5350 years (2015–2064) 0.63 0.84 -0.20 1.89 2.50 -0.61

As a Percentage of Taxable Payroll

Balance Income Cost BalanceActuarial

As a Percentage ofGross Domestic Product

Actuarial

(Difference) Rate Rate (Difference)

CBO's Projections

Income Rate

CostRate

The acthe findifferensures: tnues ovoutlays

CBO e75-yeatrust fupayrollincreas4.37 p12.40 more twere re

CBO

THE CBO’S 2015 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 12

Ex

Co

So

No ed by outlays zero. Under

ent range of

19 30 20350

1

2

3

4

The trust funds’ ratio indicates how much of a year’s Social Security benefits could be paid from the balances in the trust funds at the beginning of a year. CBO estimates that the ratio was 3.1 at the beginning of 2015; that is, the trust funds’ balances were about three times the projected benefit payments for the year. Under current law, the last year that the ratio is expected to be positive is 2029. That is, the balance in the combined OASDI trust funds will be exhausted by the end of 2029, and payments to beneficiaries would need to be reduced to make outlays equal revenues.

That timing could differ from CBO’s estimate, however. To examine the possibilities, the agency simulated alternative outcomes by varying most of its long-term model’s key demographic and economic factors on the basis of historical experience. The shaded area illustrates the model’s 80 percent range of uncertainty around the expected outcomes. In 80 percent of simulations, the trust funds’ ratio is last positive between 2026 and 2033. It is most likely, therefore, that the combined trust funds would be exhausted between those two years.

urce: Congressional Budget Office.

tes: The trust funds’ ratio is the balance in the Social Security trust funds at the beginning of the year, divid(benefits and administrative costs) for that year. The trust funds are exhausted when the ratio reachescurrent law, the trust funds cannot incur negative balances.

The dark line indicates CBO’s projections of expected outcomes; the shaded area indicates the 80 percuncertainty around those projections from 500 simulations from CBO’s long-term model.

85 1990 1995 2000 2005 2010 2015 2020 2025 20

SYSTEM’S FINANCES

hibit 7.

mbined Social Security Trust Funds’ Ratio

Actual Projected

CBO

THE CBO’S 2015 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 13

Ex

Pe ned Social Security Trust Funds’ Ex

So

No

2085

2

4

6

8

10

Another way to assess the uncertainty of the trust funds’ exhaustion dates is to examine the percentage of simulations, using CBO’s long-term model, that show the funds’ exhaustion by a specific year. For this analysis, CBO estimated a distribution of outcomes from 500 simulations. The values for most of the key demographic and economic variables in that model were based on historical year-to-year variation. In 10 percent of the simulations, the combined OASDI funds were exhausted by 2026; in almost 60 percent, they were exhausted by 2029. In 95 percent, exhaustion occurred by 2035, and in 99 percent it occurred by 2040. CBO’s best estimate is that, under current law, the combined OASDI trust funds will be exhausted in 2029.

urce: Congressional Budget Office.

te: Analysis is based on 500 simulations from CBO’s long-term model.

2015 2025 2035 2045 2055 2065 20750

0

SYSTEM’S FINANCES

hibit 8.

rcentage of Simulations That Show the Combihaustion by a Particular Year

0

0

0

0

CBO

istr ayroll Taxes

The second part of this repor s 9 through 15) examines Social S enefits andtaxes distributed to and paid pants grouped by birth year and life sehold income (a household can con ngle per-son or a married couple). CB people into 10-year birth cohorts (by e of birthand, for each person who live o age 45,into quintiles of lifetime hou nings (thelowest, middle, and highest f own in the exhibits). In this analysis, ne who isingle in all years, lifetime ear al the present value at age 65 of that pe (inflationadjusted) earnings over a lifet y year inwhich someone is married, th s measure

al es e

re

its 9

through 12 present measures of those benefits that do not include benefits received by depen-dents or survivors who are entitled to receive payments on the basis of another person’s work history. Exhibits 13 and 14 present a more com-prehensive perspective on the distribution of Social Security benefits. They show measures of the total that each participant pays in payroll taxes over his or her lifetime and each partici-pant’s total lifetime benefits—including depen-dents’ and survivors’ benefits. Exhibit 15 shows the percentage of the 500 simulations in which payable benefits exceeded specified percentages of scheduled benefits for people grouped by birth cohort.

The D

t (Exhibitecurity b

by particitime housist of a siO divided the decads at least tsehold earifths are sh for someonings equrson’s realime. In ane earning

)

s --

equals the couple’s total earnings, adjusted for economies of scale in household consumption.

The discount rate that CBO used to compute present values in its Social Security distributionanalyses is equal to the effective interest rate onfederal debt. CBO’s modeling approach producestimates for individuals; household earnings arused only to place individuals into groups. CBOcalculated benefits net of income taxes paid by some recipients on their benefits. Mean values aestimated for each earnings group and birth cohort.

Most retired and disabled workers receive benefon the basis of their own work history. Exhibits

ibution of Benefits and P

CBO

THE ONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 15

Ex

MTho

So

No

t, in

10Bir

194196198200

194196198200

194196198200

the anticipated growth in average earn-ocial Security recipients are expected to higher real initial scheduled benefits in

ture than beneficiaries do today. CBO ered a hypothetical benefit: the mean

amount workers would receive based on gs through age 61 if everyone claimed ts at age 65. That benefit would grow me, although the growth would be offset for some birth cohorts because of eduled rise in the full retirement age 5 (for people born before 1938) to 67 ople born after 1959). The effect is lent to a reduction in benefits at any age ch benefits are claimed.

Measured in 2015 dollars, average initial sched-uled benefits for people born in the 2000s are projected to be roughly twice the initial benefits received by those born in the 1940s. The pro-portionate increase is greater for women than for men.

In CBO’s projections, payable benefits decline sharply when the trust funds are first exhausted but then gradually rise because of growth in earnings and in tax revenues. For people who were born in or after the late 1960s, initial pay-able benefits are lower than initial scheduled benefits.

Benefits are projected to be generally 20 per-cent to 30 percent lower for women than for men in all birth cohorts because women have lower average earnings, although the gap nar-rows (as a share of men’s benefits) for later cohorts as men’s and women’s earnings become more equal.

urce: Congressional Budget Office.

te: Initial annual benefits are computed for all people who are eligible to claim retirement benefits at age 62 and whohave not yet claimed any other Social Security benefits. All workers are assumed to claim benefits at age 65. All amounts are net of income taxes paid on benefits. Scheduled benefits are benefits as calculated under the Social Security Act, regardless of the balances in the trust funds. Payable benefits are benefits as calculated under that acreduced as necessary to ensure that outlays do not exceed the Social Security system’s revenues once the balancesthe Social Security trust funds are exhausted.

0s 27 20 13 9 26 19 40 300s 39 27 20 13 39 27 57 40

0s 14 14 8 8 14 14 19 190s 17 14 10 8 17 15 23 200s 21 16 12 9 21 15 31 230s 32 22 18 12 32 22 46 32

Women

DISTRIBUTION OF BENEFITS AND PAYROLL TAXES CBO’S 2015 LONG-TERM PROJECTI

hibit 9.

ean Initial Benefits for Retired Workers, With Scheduled and Payable Benefitsusands of 2015 Dollars

-Yearth Cohort

0s 17 17 9 9 18 18 24 240s 19 16 10 9 19 17 27 230s 24 18 12 9 24 17 36 260s 35 25 19 13 35 24 52 36

0s 20 20 11 11 22 22 26 260s 21 18 11 9 22 19 30 26

Scheduled Payable Scheduled Payable Scheduled Payable Scheduled Payable

Highest Quintile of

Household Earnings

Middle Quintile of

Household Earnings

Lowest Quintile ofLifetime Lifetime Lifetime

Men

Household EarningsAll Retired Workers

All

Givenings, Sreceivethe fuconsidinitialearninbenefiover tipartlythe schfrom 6(for peequivaat whi

CBO

THE ONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 16

Ex

MthPer

So

No e last rker’s nefits

are

10Bir

194196198200

194196198200 4

194 3196 9198 4200 3

exhibit, initial replacement rates are benefits as a percentage of workers’ pre-

ent earnings—specifically, the average last five years of substantial earnings age 62.

l patterns are worth noting. First, replace-rates are much higher for workers with earnings, in part because of the progres-ture of Social Security’s benefit formula part because their late-career earnings o be lower than their lifetime earnings. me earnings determine benefits.) Second, ayable benefits, replacement rates would oticeably for people in the cohorts that ceived benefits after the trust funds were

exhausted.

Third, scheduled replacement rates for people born in the 1960s are lower than the rates for the 1940s cohort because late-career earnings are projected to be higher relative to lifetime earnings for people in the 1960s cohort. Those rates are higher for people in the 1980s and 2000s cohorts, however, because benefits are projected to increase more than late-career earnings for those groups.

Finally, although replacement rates are similar for men and women, they are higher, on aver-age, for men in the lowest household earnings quintile because late-career earnings are lower for men than for women in that group, relative to either sex’s lifetime earnings. By contrast, replacement rates are noticeably higher for women than for men in the highest quintile because, in that group, women’s late-career earnings are below those of men.

urce: Congressional Budget Office.

te: Initial replacement rates are computed as a percentage of preretirement earnings—specifically, the average of thfive years of substantial earnings before age 62. Earnings are “substantial” if they amount to at least half of a woaverage indexed earnings. Replacement rates are computed for all people who are eligible to claim retirement beat age 62 and who have not yet claimed any other Social Security benefits. Workers with fewer than 20 years of earnings above 10 percent of the average wage index in each year were excluded from the analysis. All workers assumed to claim benefits at age 65. All values are net of income taxes paid on benefits.

0s 66 46 137 93 61 43 21 1

0s 62 62 91 91 63 63 43 40s 56 49 89 77 56 49 33 20s 61 45 108 80 57 41 33 20s 63 44 119 84 56 39 33 2

Women

DISTRIBUTION OF BENEFITS AND PAYROLL TAXES CBO’S 2015 LONG-TERM PROJECTI

hibit 10.

ean Initial Replacement Rates for Retired Workers, With Past Earnings Limited to e Last Five Years of Substantial Earnings, Adjusted for Growth in Pricescent

-Yearth Cohort

0s 60 60 96 96 63 63 33 330s 55 48 95 82 56 49 26 230s 63 46 118 86 59 44 27 200s 64 45 128 89 59 41 27 18

0s 59 59 101 101 60 60 26 260s 55 48 100 87 55 48 21 180s 65 47 125 91 62 45 22 16

Lifetime Household EarningsAll Retired Workers Lowest Quintile Middle Quintile Highest Quintile

Scheduled Payable

All

Men

Scheduled Payable Scheduled Payable Scheduled Payable

In thisinitialretiremof thebefore

Severament lower sive naand intend t(Lifetiwith pdrop nfirst re

CBO

THE OR SOCIAL SECURITY: ADDITIONAL INFORMATION 17

Ex

MRePer

So

No

10Bir

194196198200

194196198200

194196198200

lates lifetime retirement benefits ent value of all such benefits that a eives from the program, and it mea- benefits relative to the present value earnings, with all values adjusted for caling by lifetime earnings accounts ic growth over time and provides benefit amounts. CBO estimates the exception of the highest earn-le—each birth cohort’s real, average eduled benefits relative to lifetime

ill be greater than those for the cohort.

ted trends in lifetime retirement ben-e to lifetime earnings differ from the

trends in initial replacement rates, for two rea-sons. First, as life expectancy increases, people will collect benefits for longer periods, so the amount of lifetime scheduled benefits will grow faster than initial scheduled benefits. Second, although people in cohorts that begin to receive benefits before the trust funds’ projected exhaustion dates will collect their initial sched-uled benefits, some people in those cohorts will still be receiving benefits when the trust funds are exhausted. At that point, payable benefits will be less than scheduled benefits, and lifetime payable benefits for those recipients will be less than lifetime scheduled benefits.

Within a birth cohort, the ratio of lifetime ben-efits to lifetime earnings is higher for workers with lower earnings than for workers with higher earnings because of the progressive nature of the Social Security benefit formula and the difference in mean lifetime earnings. Those effects are partially offset by the longer average life expectancy of higher earners. Within each birth cohort, the ratio is higher for women than for men.

urce: Congressional Budget Office.

te: Benefits are measured as the present value of all retired-worker benefits received. Benefits are computed for all people who claim retired-worker benefits on the basis of their own earnings and have not yet claimed any other Social Security benefits. To calculate present value, benefits are adjusted for inflation (to produce constant dollars) and discounted to age 65. All values are net of income taxes paid on benefits. Scheduled benefits are benefits as calculated under the Social Security Act, regardless of the balances in the trust funds. Payable benefits are benefits as calculated under that act, reduced as necessary to ensure that outlays do not exceed the Social Security system’s revenues once the balances in the Social Security trust funds are exhausted.

0s 9 7 26 19 16 12 6 40s 9 6 27 18 16 11 6 4

0s 13 12 18 18 14 14 12 110s 13 10 24 18 17 12 9 70s 15 10 29 21 20 14 10 70s 14 10 30 20 20 13 10 7

Women

DISTRIBUTION OF BENEFITS AND PAYROLL TAXES CBO’S 2015 LONG-TERM PROJECTIONS F

hibit 11.

ean Present Value of Lifetime Benefits Relative to Lifetime Earnings for tired Workers, With Scheduled and Payable Benefits

cent

-Yearth Cohort

0s 9 9 16 16 11 10 7 70s 10 7 22 17 15 11 6 50s 11 8 28 20 18 13 7 50s 11 8 28 19 18 12 7 5

0s 7 7 14 13 9 9 6 50s 8 6 20 15 13 10 5 4

Lifetime Household Earnings

All

All Retired Workers Lowest Quintile Middle Quintile Highest QuintileScheduled

Men

Payable Scheduled Payable Scheduled Payable Scheduled Payable

CBO calcuas the presworker recsures thoseof lifetime inflation. Sfor economcontext forthat—withings quintilifetime schearnings wpreceding

The projecefits relativ

CBO

THE 2015 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 18

Ex

M ios for Di

So

No

a.

b.

10Bi

19 .a.19 1719 1720 16

19 .a.191920

19191920

19191920

yable

Benefitsningsb

The trends projected for initial benefits for dis-abled workers are similar to those for retired workers (see Exhibit 9): DI beneficiaries are expected to receive higher real initial benefits in the future than beneficiaries receive today.

For this analysis, replacement rates for disabled workers were computed using the last five years of substantial earnings, adjusted for growth in prices. Replacement rates are higher for younger workers than for older ones and for disabled workers than for retired ones (see Exhibit 10) because the earnings of younger disabled workers tend to be lower overall.

The mean present value of lifetime payments to s relative to their lifetime

g the retirement benefits aching the full retirement the equivalent ratio for Exhibit 11). That occurs neficiaries are younger collect benefits, so they a longer period, on average, s do and because their life-wer than those of retired ects that real lifetime dis-tive to lifetime earnings reater for each birth cohort ing cohort if scheduled

urce: Congressional Budget Office.

tes: Initial annual benefits and replacement rates are computed for all people who are projected to receive Disability Insurance benefits. All values are net of income taxes paid on benefits.

n.a. = not available. No data are available for people who died before 1984.

Initial annual benefits as a percentage of the average of the last five years of substantial earnings before being awarded benefits, adjusted for growth in prices. Earnings are “substantial” if they amount to at least half of a worker’s average indexed earnings.

All disability benefits received plus retired-worker benefits received after the full retirement age. To calculate present value, benefits are adjusted for inflation (to produce constant dollars) and discounted to age 65. To compute lifetime earnings, past earnings are adjusted for average growth in prices.

60s 10 10 75 75 76 7280s 12 12 77 77 70 5800s 18 14 91 66 82 57

40s n.a. n.a. n.a. n.a. n.a. n.a.60s 15 15 84 84 27 2480s 19 14 78 60 32 2300s 28 20 84 61 33 23

40s 16 16 61 61 11 1060s 20 19 67 65 15 1280s 26 19 70 50 17 1200s 38 27 72 51 17 12

Workers Whose Disability Begins Between Ages 40 and 54

Workers Whose Disability Begins Between Age 55 and the Full Retirement Age

disabled beneficiarieearnings—includinthey receive after reage—is greater thanretired workers (seebecause disabled bewhen they begin toreceive benefits for than retired workertime earnings are loworkers. CBO projability benefits relawill, in general, be gthan for the precedbenefits are paid.

DISTRIBUTION OF BENEFITS AND PAYROLL TAXES CBO’S

hibit 12.

ean Initial Benefits, Replacement Rates, and Lifetime Benefit-to-Earnings Ratsabled Workers, With Scheduled and Payable Benefits

-Yearrth Cohort

40s n.a. n.a. n.a. n.a. n.a. n60s 17 16 74 73 2080s 22 16 74 57 2300s 32 23 79 56 24

40s n.a. n.a. n.a. n.a. n.a. n

All Disabled Workers

Workers Whose Disability Begins Before Age 40

Pa

Present Value of LifetimeInitial Benefits Initial Replacement Ratea Relative to Lifetime Ear

(Thousands of 2015 Dollars) (Percent) (Percent)Scheduled Payable Scheduled Payable Scheduled

CBO

THE ERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 19

Ex

MWPer

So

No

0

10

20

30

40

0

10

20

30

40

0

10

20

30

40

People in lower earnings quintiles receive more in Social Security benefits, relative to their life-time earnings, than do people with higher earnings. In contrast, benefits paid are substan-tially higher, in dollar terms, for people in groups with higher lifetime earnings.

In contrast to Exhibit 11, the scheduled and payable benefits shown here include benefits paid not only to retired workers but also to dis-abled workers as well as to the dependents and survivors of both groups of workers. Benefits shown are net of the income taxes that some recipients pay on their benefits.

Changes in the proportion of wages going to erent quintiles and in projected fe expectancy lead to larger al lifetime Social Security bene-etime earnings. For example, ere born in the 1940s and who est quintile of household earn-cted to receive lifetime benefits 20 percent of lifetime earnings, le in that same quintile but born re projected to receive scheduled re equal to 36 percent of their gs. For people in the highest hom earnings growth is faster s, that ratio is 7 percent for peo-e 1940s and 8 percent for people 80s. Lifetime payable benefits scheduled benefits but follow a across quintiles.

urce: Congressional Budget Office.

tes: Lifetime Social Security taxes consist of the present value of the employer’s and employee’s payroll taxes combined. Lifetime benefits include the present value of all Social Security benefits except those received by young widows and children, which are excluded from this measure because of insufficient data for years before 1984.

Scheduled benefits are benefits as calculated under the Social Security Act, regardless of the balances in the trust funds. Payable benefits are benefits as calculated under that act, reduced as necessary to ensure that outlays do not exceed the Social Security system’s revenues once the balances in the Social Security trust funds are exhausted.

To calculate present value, amounts are adjusted for inflation (to produce constant dollars) and discounted to age 65.

1940s 1960s 1980s 2000sBirth Cohort

Highest Quintile of Lifetime Household Earnings

earners in diffincreases in liincreases in refits than in lifpeople who ware in the lowings are projethat are aboutwhereas peopin the 1980s abenefits that alifetime earninquintile, for wthan for otherple born in thborn in the 19are lower thansimilar pattern

DISTRIBUTION OF BENEFITS AND PAYROLL TAXES CBO’S 2015 LONG-T

hibit 13.

ean Lifetime Social Security Taxes and Benefits Relative to Lifetime Earnings, ith Scheduled and Payable Benefits, by Birth Cohortcent

PayrollTaxes

ScheduledBenefits

PayableBenefits

Middle Quintile of Lifetime Household Earnings

Lowest Quintile of Lifetime Household Earnings

CBO

THE ’S 2015 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 20

Ex

MPaRat

So

No

0

1

2

3

0

1

2

3

0

1

2

3

If benefits are paid as scheduled, Social Security participants will receive more in benefits than they pay in taxes, on average. (In this exhibit, that occurs when a bar is above the horizontal line, which denotes a 1:1 ratio.) For people with lower lifetime earnings, the present value of scheduled benefits will exceed the present value of taxes paid. However, for people with house-hold earnings in the top quintile, the present value of scheduled benefits received will be less than or equal to the present value of taxes paid.

Benefit-to-tax ratios are higher for people with lower household earnings, in part because the benefit formula is progressive and in part because people with lower earnings are more

isability benefits, dependent . Increases in life expectancy tax ratios for later cohorts.

t if the combined trust funds e taxes collected will be insuffi-uled benefits, and benefit-to-ble benefits will be lower than

ed benefits for all categories of rogram to be self-supporting, e participants would need to all together than they receive et the larger benefit-to-tax ram’s oldest participants.

urce: Congressional Budget Office.

tes: The benefit-to-tax ratio is a comparison of the present values of benefits received over a lifetime—net of income taxes that some recipients pay on their benefits—and of payroll taxes paid. To calculate present values, amounts are adjusted for inflation (to produce constant dollars) and discounted to age 65. Payroll taxes consist of the employer’s and employee’s shares combined.

Scheduled benefits are benefits as calculated under the Social Security Act, regardless of the balances in the trust funds. Payable benefits are benefits as calculated under that act, reduced as necessary to ensure that outlays do not exceed the Social Security system’s revenues once the balances in the Social Security trust funds are exhausted.

1940s 1960s 1980s 2000sBirth Cohort

Highest Quintile of Lifetime Household Earnings

likely to receive dbenefits, or bothboost benefit-to-

CBO projects thaare exhausted, thcient to pay schedtax ratios for payathose for schedulpeople. For the pcurrent and futurpay more in taxesin benefits to offsratios of the prog

DISTRIBUTION OF BENEFITS AND PAYROLL TAXES CBO

hibit 14.

ean Lifetime Social Security Benefit-to-Tax Ratios, With Scheduled and yable Benefits, by Birth Cohortio

ScheduledBenefits

PayableBenefits

Middle Quintile of Lifetime Household Earnings

Lowest Quintile of Lifetime Household Earnings

CBO

THE PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 21

Ex

PeScPer

So

No

a. or everyone in nsure that s are funds.

10Bir

19191920

1919 10019 9820 85

Under current law, initial payable benefits will be more likely to fall short of initial scheduled benefits for people in later than in earlier birth cohorts. For example, in each of 500 simula-tions, the 1940s birth cohort received initial payable benefits that were at least 99 percent of the amount of initial scheduled benefits; the 1960s cohort, by contrast, did so in only 9 per-cent of the simulations. In 83 percent of the simulations, the 1960s cohort received initial payable benefits that were at least 75 percent of the amount of initial scheduled benefits; that percentage was only 33 percent for the 2000s cohort. For this exercise, CBO varied most of the underlying key demographic and economic factors on the basis of historical experience.

In CBO’s simulations, it was possible for the exhaustion of the trust funds to occur after a group had begun to collect benefits, so the odds that a beneficiary’s lifetime payable bene-fits would be as large as—or nearly as large as—his or her lifetime scheduled benefits were generally lower than the corresponding odds for initial benefits. Thus, although initial pay-able benefits equaled at least 99 percent of ini-tial scheduled benefits in every simulation for the 1940s cohort, in only 4 percent of the sim-ulations did the same occur for lifetime bene-fits. Yet in 94 percent of the simulations, the 1940s cohort received lifetime payable benefits that equaled at least 90 percent of lifetime scheduled benefits; that was true for the 1960s, 1980s, and 2000s cohorts in only 4 percent or 5 percent of the simulations.

urce: Congressional Budget Office.

te: Analysis is based on a distribution of 500 simulations from CBO’s long-term model.

The sum of all payable benefits for everyone in a 10-year birth cohort divided by the sum of scheduled benefits fthat cohort. Payable benefits are benefits as calculated under the Social Security Act, reduced as necessary to eoutlays do not exceed the Social Security system’s revenues once the balances in the Social Security trust fundexhausted. Scheduled benefits are benefits as calculated under that act, regardless of the balances in the trust

60s 1 2 5 14 32 57 79 95 9980s 0 2 5 11 23 41 57 74 9000s 0 1 4 9 16 28 40 57 72

DISTRIBUTION OF BENEFITS AND PAYROLL TAXES CBO’S 2015 LONG-TERM

hibit 15.

rcentage of Simulations in Which Payable Benefits Exceed Specified Percentages of heduled Benefitscent

-Yearth Cohort

40s 100 100 100 100 100 100 100 100 100 10060s 9 19 34 55 71 83 92 98 99 10080s 2 3 7 14 25 42 56 73 86 9600s 3 5 8 13 21 33 45 57 71 83

40s 4 50 94 100 100 100 100 100 100 100

Payable Benefits as a Percentage of Scheduled Benefitsa

Initial Benefits

Lifetime Benefits

More99 or

More More More More More More More More More95 or 90 or 85 or 80 or 75 or 70 or 65 or 60 or 55 or

CBO

les

Social Securi othe size and heand the Con t Ooutlay projec grprojections o s oand immigra renused projecti thAdministrati tesown projecti aAll told, CBO opfrom 325 mi 4 The agency a d tpeople will q SeInsurance pr g d

FertilityCBO has ad edestimates of t tAdministrati 20

of 79.2 years for someone born in 2015. BO projects that life expectancy at age 65 l be 21.8 years, on average, or 2.4 years life expectancy at age 65 in 2015. Those esent averages for all people of a given years.

jections also incorporate differences in n the basis of age, sex, marital status, and lifetime household earnings. (For er 30, the mortality projections reflect d sex.) CBO anticipates that future life expectancy will be larger for people r lifetime earnings than for those with ngs—an assessment that is consistent ns of past increases.3 Today, on average,

1. See Social S ionReport of th f thSurvivors In DiFunds (July v/oprojected v ononext 75 yea e sfor this rep ble(www.cbo.g 47

information on mortality differentials among ith different earnings, see National Academy of Engineering, and Medicine, The Growing Gap in tancy by Income: Implications for Federal Programs

y Responses (National Academies Press, 2015), yurl.com/pp74v49; Hillary Waldron, “Mortality ials by Lifetime Earnings Decile,” Social Security vol. 73, no. 1 (February 2013), pp. 1–37, gov/policy/docs/ssb/v73n1/v73n1p1.html; n P. Cristia, The Empirical Relationship Between arnings and Mortality, Working Paper 2007-11

sional Budget Office, August 2007), .gov/publication/19096.

ty’s revenues andcomposition of tgressional Budgetions for the prof the nation’s ratetion. For the curons published byon for fertility raons for mortality

projects, the pllion today to 39lso has projecteualify for Socialogram in comin

opted the intermfertility rates thaon published in

ecurity Administrate Board of Trustees osurance and Federal 2014), www.ssa.goalues for selected ecrs are included in thort, which are availaov/publication/510

mic variables for the upplemental data on CBO’s website ).

Security Mortality Projections, Working Paper for the 2003 Technical Panel on Assumptions and Methods (Social Security Advisory Board, May 2005), http://go.usa.gov/3efkh (PDF, 490 KB).

and JuliaLifetime E(Congreswww.cbo

e Social Security but produced its nd immigration.1 ulation will grow million in 2040. he rate at which curity’s Disability ecades.

iate (midrange) he Social Security 14. Those values

she survived her entire childbearing period.)

MortalityCBO projects that U.S. mortality rates will con-tinue to decline as they did between 1950 and 2010: that is, at an average rate of 1.2 percent per year.2 That extrapolation of past trends suggests that the average life expectancy at birth in 2040 will be 82.6 years; CBO estimates an average life

CBO’s promortality oeducation, people undonly age anincreases inwith highelower earniwith patter

, The 2014 Annual e Federal Old-Age and sability Insurance Trust act/tr/2014. Annual

2. Because of uncertainty about the possible effects of changes in other factors as disparate as the population increase in obesity and improvements in medical technology, CBO has based its mortality projections on a simple extrapolation of past trends. For further discussion on the topic, see Hilary Waldron, “Literature Review of Long-Term Mortality Projections,” Social Security Bulletin, vol. 66, no. 1 (September 2005), pp. 16–50, http://go.usa.gov/XKGk; and John R. Wilmoth, Overview and Discussion of the Social

3. For moregroups wSciences,Life Expecand Polichttp://tinDifferentBulletin, www.ssa.

Appendix:CBO’s Projections of Demographic Variab

utlays depend on U.S. population, ffice’s revenue and

am in turn rely on f fertility, mortality, t analysis, CBO

imply an average fertility rate of 2.0 children per woman between 2015 and 2040. (The Social Security trustees define fertility rate as the average number of children that a woman would have in her life-time if at each age of her life she experienced the birth rate observed or assumed for that year and if

expectancySimilarly, Cin 2040 willonger thanfigures reprage in those

CBO

APP CBO’S 2015 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 23

a 6qulivthathethCBthmohothealm

ImCBtiotheeverat

turies.4 On that basis, CBO projects

ual immigration to the United States t to 1.2 million people in 2026 and in 2040. Estimates of authorized and d immigration over the long term are great deal of uncertainty, however, and of immigrants could be higher or

BO projects. Over the past 50 years, mmigration (averaged over five-year

periods) has varied from almost 7 per 1,000 to fewer than 2 per 1,000 members of the U.S. population.5

DisabilityAnother demographic variable that affects the federal budget is the rate of disability incidence—the rate at which people will claim Social Security’s Disability Insurance benefits. CBO projects that, on average, in every year after 2025, 5.6 people out of every 1,000 insured people (those who have met the work requirements for disabled workers’ bene-fits but are not yet receiving benefits) will qualify for that program (adjusted for changes in the age and sex makeup of the population, relative to its composition in 2000).

equals the estimated average net flow of immi-ween 1821 and 2002; see 2003 Technical Panel ptions and Methods, Report to the Social Security oard (October 2003), p. 28, http://go.usa.gov/F, 596 KB). That ratio also was published in

nical Panel on Assumptions and Methods, he Social Security Advisory Board (September p://go.usa.gov/3efBm (PDF, 6.3 MB). For more migration, see Congressional Budget Office, A of the Immigrant Population—2013 Update

3), www.cbo.gov/publication/44134.

5. 2011 Technical Panel on Assumptions and Methods, Report to the Social Security Advisory Board (September 2011), p. 70, http://go.usa.gov/3efBm (PDF, 6.3 MB).

n (the net result of people leaving and entering United States) will equal 3.2 immigrants for ry 1,000 members of the U.S. population, a io that is consistent with data for most of the

2011), htton U.S. imDescription(May 201

ENDIX

5-year-old man whose household is in the highest intile of the distribution of lifetime earnings will e more than three years longer, CBO projects, n a man of the same age whose household is in lowest quintile of lifetime earnings; for women,

at difference in life span is more than a year. O projects that by 2040, men in households in

e highest quintile of lifetime earnings will live re than five years longer than men in house-

lds in the lowest quintile of lifetime earnings; corresponding difference for women will be ost three years.

migrationO projects that after 2025, net annual immigra-

past two centhat net annwill amoun1.3 million unauthorizesubject to athe numberlower than Cnet annual i

4. The ratio grants beton AssumAdvisory BcBRxk (PD2011 TechReport to t

CBO

actuarial bal difund’s incom its

average inde gsannual earni lifeindexed mon gs

average inde ly sure of taxab ovis used to set rita retired-wor iarrecipient’s 35 thto Social Secu ll tbefore age 60 d wages; earnin 0 atations at the amearnings (afte ) bplied by 12 m ldsworker. For a orof earnings in thethe age at wh rsodisability ben bleited more tha s bcomputation d twages; earnin twoinitial benefit ionat their nomi ts.35 years is us IMworker who c edhaving previo ed then recovere the

d 1954, and then, starting with 955, it increases by two months ve birth year, until it reaches age rn in or after 1960. For people 15 the full retirement age is 66. It rease again for people turning 62 ill reach age 67 for those turning

e present value of tax revenues for e trust funds’ initial balance, resent value of taxable payroll or roduct over the same period.

For retired workers, benefits that d by workers eligible to claim ce benefits who have not yet r Social Security benefits (such as s or survivors’ benefits). For this ulated benefits under the simplify-hat all workers would claim bene-e initial benefit amount is based n earnings only through age 61 ome taxes paid on those benefits. eficiaries, initial benefits are bene-f initial benefit receipt, net of any d on those benefits.

The present value at age 65 of ben-r a lifetime for a person who lives at et of income taxes paid on those benefits include retired-worker

ance: Thee rate and

xed earninngs over a thly earnin

xed monthle earningsSocial Secuker benefic years withrity payro are indexegs at age 6ir nominalr indexingonths) yie

disabled wcluded in ich that peefits. Taxan two year are indexegs for the computatnal amouned in the Alaims retirusly claimd and left

E calculation for a -worker benefits after disability benefits but disability rolls.

that age is 65. For workers born between 1938 and 1943, the full retirement age increases by by two months for each successive birth year, until it reaches age 66 for people born in 1943. The full retirement remains at age 66 for workers born

lifetime benefits:efits received oveleast to age 45, nbenefits. Lifetime

y benefits. The AIME for y is calculated from the e highest earnings subject axes. Taxable earnings to growth in average nd later enter the compu-ounts. Dividing the total

y 420 (35 years multi- the AIME for a retired ker, the number of years calculation depends on n becomes eligible for earnings that were cred-efore the initial benefit o growth in average years that precede the enter the computations

A period of less than

at the end of the period, divided by the present value of gross domestic product or taxable payroll over the same period.

Disability Insurance Trust Fund: One of two Social Security trust funds, it finances the activities of the Disability Insurance program.

eighty percent range of uncertainty: A range of uncertainty based on 500 simulations using CBO’s long-term model. Outcomes were above the range in 10 percent of the simulations, below the range in 10 percent, and within the range in 80 percent.

full retirement age: The age at which a person becomes entitled to claim full retirement benefits; also called the normal retirement age. That age is set according to the year in which a person was born. Under current law, for workers born before 1938,

income rate: Tha period, plus thdivided by the pgross domestic p

initial benefits: would be receiveOld-Age Insuranclaimed any othedisability benefitstudy, CBO calcing assumption tfits at age 65. Thon a worker’s owand is net of incFor disabled benfits at the time oincome taxes pai

Definitions

fference between a trust cost rate.

. A measure of average time, equal to average multiplied by 12.

earnings (AIME): A mea-er a person’s lifetime that

average wage index: An index that measures the average amount of total wages in the United States in a calendar year, including earnings in employ-ment not covered by Social Security. Several auto-matic adjustments under Social Security law are based on this index.

cost rate: The present value of outlays for a period, plus the present value of a year’s worth of benefits

between 1943 anpeople born in 1for each successi67 for people boturning 62 in 20will begin to incin 2017, and it w62 in 2022.

CBO

DEF OR SOCIAL SECURITY: ADDITIONAL INFORMATION 25

beto theyobewoth

lifinfearwh

lifsininfearwhearadin

Olof actpr

parenlimfunnulawlonweredCBanex

aximum does not decrease when s decline.

ll: The total earnings (wages and self-income) for employment covered by y that is below the applicable annual um.

he accounts to which Social Security ited and from which benefits are paid. e funds’ balances also is credited to s, and administrative expenses are

om them. The two trust funds dis- report are the Old-Age and Survivors ASI) Trust Fund and the Disability I) Trust Fund. Although they are te, in this report, CBO generally fol-mon analytical convention of consid- combined and refers to them as the OASDI, trust funds.

lance: At any given time, the balance s trust fund is an indicator of the his-nship between receipts and expendi-nds have an important legal meaning alances are a measure of the amounts

rnment is permitted to spend for cer- under current law. In a given year, redited to a trust fund, along with redited on previous balances, minus benefits and administrative costs surplus or deficit.

haustion date: The year in which a alance will reach zero.

io: The balance in the Social Security the beginning of the year divided by lays for that year.

uced is not specified in law. For this report, O assumed that Old-Age and Survivors Insur-

ce and Disability Insurance benefits paid to isting beneficiaries and to new beneficiaries

(now $118,500). The taxable maximum increases annually with average earnings; in years without a cost-of-living adjustment (as in 2010, 2011, and 2016), the taxable maximum does not increase.

trust fund rattrust funds atprojected out

nings above the taxable maximum. In any year in ich a person is married, lifetime household nings consists of the couple’s total inflation-justed earnings (adjusted for economies of scale household consumption).

d-Age and Survivors Insurance Trust Fund: One two Social Security trust funds, it finances the ivities of the Old-Age and Survivors Insurance

ogram.

yable benefits: Benefits as calculated under cur-t law, reduced as necessary to conform to the its imposed by a trust fund’s balance. If a trust d’s balance declined to zero and current reve-

es were insufficient to cover benefits specified in , the Social Security Administration would no ger be permitted to pay full benefits when they re due. The manner in which outlays would be

ments (in benefits) in terms of an equivalent lump sum received or paid at a specific time. The value depends on the rate of interest, known as the dis-count rate, used to translate past and future cash flows into dollars at that time.

quintile: One of five equal groups into which a population can be divided according to the distri-bution of a particular variable; in this report, the distribution is in lifetime household earnings.

replacement rate: The ratio of a Social Security recip-ient’s benefit payments to his or her past earnings.

scheduled benefits: Full benefits as calculated under current law, regardless of the amounts available in the Social Security trust funds.

taxable maximum: The maximum amount of annual earnings to which the payroll tax is applied

legally separalows the comering them ascombined, or

trust fund bain a program’torical relatiotures. Trust fuin that their bthat the govetain purposesthe receipts cany interest cspending for constitute its

trust fund extrust fund’s b

INITIONS CBO’S 2015 LONG-TERM PROJECTIONS F

nefits, disabled-worker benefits, and benefits paid dependents and survivors of workers. Because re are insufficient data on benefits received by

ung widows and children for years before 1984, nefits paid to young widows, spouses of disabled rkers, and child beneficiaries are excluded from

is measure.

etime earnings: The present value at age 65 of lation-adjusted earnings over a lifetime, including nings above the taxable maximum, for a person o lives at least to age 45.

etime household earnings: For someone who is gle in all years, the present value of his or her lation-adjusted earnings over a lifetime, including

would be reduced by the percentage necessary to make the program’s total annual outlays equal its total available revenues once the combined trust funds were exhausted.

payroll tax: A tax on people’s earnings that is cred-ited to the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. Under current law, 12.4 percent of people’s earn-ings up to a maximum amount each year—now $118,500—are subject to the payroll tax. Workers and their employers each pay half; self-employed people pay the entire amount.

present value: A single number that expresses a flow of current and future income (in taxes) or pay-

The taxable maverage wage

taxable payroemployment Social Securittaxable maxim

trust funds: Ttaxes are credInterest on ththe trust fundwithdrawn frcussed in thisInsurance (OInsurance (D

CBO

About This Document

ections of the 015). Those ared last year and

h CBO’s mandate

arles Pineles-Mark, Linda Bilheimer. the fact-checking.

n Costantino and supplemental data

This Congressional Budget Office publication provides additional information about long-term projSocial Security program’s finances that were included in The 2015 Long-Term Budget Outlook (June 2projections and the additional information presented in this document update projections CBO prepreported in CBO’s 2014 Long-Term Projections for Social Security: Additional Information. In keeping witto provide objective, impartial analysis, this report makes no recommendations.

The analysis was prepared by Stephanie Hugie Barello, Geena Kim, Marina Kutyavina, Xiaotong Niu, Chand Michael Simpson of CBO’s Long-Term Analysis Unit, with guidance from Julie Topoleski andNoah Meyerson and David Weiner provided comments on the report, and Kyle Redfield provided

Jeffrey Kling and Robert Sunshine reviewed the report. Kate Kelly edited the document, and MaureeJeanine Rees prepared it for publication. Stephanie Hugie Barello and Michael Simpson prepared the with assistance from Jeanine Rees.

The report is available on the agency’s website (www.cbo.gov/publication/51047).

Keith Hall Director

December 2015