drawbacks. It ignores the timing of the cash outlays and cash receipts, and it conceals trends in shortfalls. For example, the 2 percent average actuarial deficit downplays the fact that today’s cash flow surpluses are more than offset by even larger cash flow shortfalls in 75 years, shortfalls that will exceed 6 percent of taxable payroll. Another drawback is that the 75-year time horizon ignores what happens to system finances outside the valuation period. Moreover, the criterion of actuarial balance can be viewed as biased against any reforms that advance-fund the system with investments and that experience paybacks beyond the 75-year window. In summary, the 75-year actuarial balance is a useful measure for this study, but it is only one of the indicators needed to assess the program’s financial condition.

System Assets at the End of the Valuation Period

Scheduled benefits under present law will, in 75 years, leave Social Security short by about $3.157 trillion or about $21,000 per current worker (in present value). Accordingly, one way to evaluate any Social Security reform proposal would be to ask how much it would reduce the size of this shortfall.

Amount of General Revenue Transfer Needed

Currently, Social Security would require substantial additional revenue to pay scheduled benefits. If changes can reduce the need for these transfers, this would improve the program’s financial condition by this measure.

Actuarial Balance at the End of Valuation Period

As noted, the actuarial balance measure favored by OACT does not exclude the possibility that system finances could deteriorate rapidly at some time after the end of the specified valuation period. One way to test for this risk is by whether the actuarial balance is moving in the positive direction at the end of the valuation period. A drawback of this approach is that actuarial projections become more uncertain in the distant future. Still, achieving a stable or rising trust fund ratio—the ratio of assets to spending—at the end of the 75-year valuation period is therefore a useful supplementary test of the program’s long-term financial condition.

THE EARNINGS REPLACEMENT RATE FOR INDIVIDUAL WORKERS

Many of this report’s graphs and tables estimate Social Security retirement benefits as a percentage of individual illustrative workers’ preretire-



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