Social Security’s Deterioration and Implications for Future Reform

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The Social Security Amendments of 1983 was signed into law by President Ronald Reagan. It placed the system into long-range actuarial balance based on the trustees’ best-estimate assumptions. In that 1983 snapshot, long-range actuarial balance meant that the present value of future system revenues was projected to be equal to the present value of projected system benefit liabilities for the next 75 years. The system’s emerging trust fund plus future system revenues was projected to be sufficient to pay out the benefits anticipated under the amended law for at least the next 75 years.

Fast-forward to 2023. There have been no significant changes in the law as amended in 1983, but the January 1, 2023 snapshot actuarial balance calculation under the trustees’ then-current best-estimate assumptions showed a long-range actuarial deficit of 3.61% of taxable payroll over the next 75 years, or a funded status of about 79.3% if system assets (including the present value of projected system revenues) were simply divided by system liabilities and not expressed as a percentage of the present values of future taxable payrolls.

What caused the system’s measured funded status to deteriorate from 100% to 79.3% over the past 40 years? And more importantly, what actions will Congress take to reform the system to address its current actuarial imbalance and increase the program’s sustainability?

The answers to those questions are critically important to current and future retirees in the United States and are, therefore, important to advisors who are frequently tasked with planning for their clients. Before discussing the causes of the system’s financial deterioration and their implications for future reform, let’s take a quick look at the system’s financial picture.