Social Security Trends

Benefit terminations (not all these are by death)

Year-over-year percentage change in OASDI Trust Fund

Good stuff, thanks MPC.


I stumbled over this… would it be correct to replace the first “cut” with “eliminated”? Is that the distinction you’re trying to make? Because that’s an infuriating one that a lot of sources conflate.

What change was this? I thought it was the 1983 legislation that raised the retirement age :-?

Never mind, I see you corrected that piece.

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Yup, the original post was wrong about what reform occurred when. I was having trouble digging it up (hey! I was a kid back then!)

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Break out the party hats, popguns, panpoolers, pantookers, and drums!

With the 2022 Annual Reports recently released, the Social Security Trust Funds received fully-funded life extensions.

  • OAS is estimated to be able to pay full benefits until 2034 (+1 year)
  • DI is now estimated to be able to pay full benefits for 75+ years

Even Medicare Part A received an extension and is estimated to be fully-funded until 2028 (+2 years)

Is that because all the old folks died from Covid?

I recall wondering what the impact would be on SS/Medicare and Bruce thought for sure the loss of tax revenue would more than offset the reduction in benefits payable.

But maybe there was less revenue loss and/or more deaths than he anticipated at whatever point we had that discussion?

I don’t think the trustees attribute the improvement to COVID.

The projections presented include our best estimates of the effects of the COVID-19 pandemic. Economic recovery from the 2020 recession has been stronger and faster than assumed in last year's reports, with positive effects on the projected actuarial status of the trust funds in these reports.

The main reasons for the smaller deficit are a stronger than expected recovery from the pandemic-induced recession, higher expected levels of labor productivity, and lower future disability incidence rates that reflect recent experience.

I similarly recall Bruce’s thoughts on COVID’s impact on SS.

Here’s a related snipet from the executive summary:

At this time, there is no consensus among experts on the lasting effects of the COVID-19 pandemic. We currently assume that the pandemic will have no net effect on our long-range projections. In addition, the assumptions for this report were determined in mid-February 2022. Developments since then have added to the uncertainty regarding the path of the COVID-19 pandemic and the economy in the near-term. The Trustees will continue to monitor these and any future developments and modify the projections in later reports as appropriate.

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I miss that big thread on Actuarial Outpost about SS. I thought it was great discussion, and Bruce was often informative there.

Anyhow, since this thread is the closest match, I was interested in talking about what I have heard called “The Social Security Donut”. Specifically, the idea that the “Contribution and Benefit Base” - currently at 147,000 but indexed annually- may no longer be the only taxable base. There will be some sort of “hole” for which I have seen a proposed 253,000 that will not be taxed, but further income above the sum =(Contibution Base + Hole) will be taxed, with presumably no further benefit awarded.

Is this the only politically feasible manner to pass a OASDI tax increase?

I can’t imagine that the amount above the hole would go into the benefit calculation.

Bruce was a proponent of raising the tax across the board. I’m not sure how much extra revenue the donut scheme will bring in, given how few people will pay it. Pro athletes mostly, I assume. Maybe actors.

I checked AAA’s Social Security game. They don’t seem to have updated it for 5 years and they don’t give a donut option anyway. Which is too bad because people have been talking about a donut for a while.

If anyone on the AAA board is reading this: y’all should update your game with newer numbers and add in a donut option.

I agree. I think most everyone knows that if any increase in the tax base comes with an increase in the accrued benefit then there’s no real effect on the sustainability of the system as a whole. There has to be some sort of tax increase without a corresponding benefit increase.

Many (most) lay people who make less than 147,000 think that the tax should be applied without limit and the benefit capped based on the 147,000, which would help the system but is a draconian tax increase.

I think that the donut tax increase has a decent chance of getting passed because of the relatively small number of people it would affect, and the public that makes less than 400k per year will generally love the idea.

Not true at all… there’s a significant effect. Not as much as if the higher income doesn’t go into the benefit formula, of course. But the tax collected on income above the second bend point more than covers the benefits paid out on income above the second bend point.

It’s the lower incomes with the higher replacement rates where the tax collected is grossly insufficient to pay out the benefits accrued.

You can see this yourself on the Academy’s Social Security game. It’s based on data that’s 5 years old, but that part will be close enough to illustrate the point.

I don’t think the donut will get them much revenue.

Just increase federal taxes. Ta da. It’s all one big money pot. Maybe push the SALT cap down to 0.

No, it doesn’t fix the Trust Fund issue – it means Congress would have to deal with Social Security as part of their annual budgeting problems.

The whole point of the Trust Fund is so that it’s on automatic and is not part of the annual politicking… and people can pretend that it’s “nondiscretionary”, as opposed to it all being discretionary.

I agree, but since it’s being touted as a solution, it should be part of the game. The whole point of the game is to show how much impact various proposed solutions actually have. Obviously it will have some slight impact, so… quantify it.

And just for a review, the benefit formula is as follows:

  1. Index all Social Security wages to today’s dollars.

  2. Pick the highest 35 years of indexed earnings and calculate an average monthly wage. (Average in zeros if there are fewer than 35 years of earnings.) This is called the AIME, or Average Indexed Monthly Earnings.

  3. Benefit formula:
    90% of the first $1,024 of AIME +
    32% of the next $5,098 of AIME +
    15% of the rest of AIME.

Round the result to the nearest dime and that’s your monthly benefit.

The dollar amounts in the formula are indexed to inflation and called “bend points”. (Technically the bend points are 1024 and 6122, but I subtracted above.)

As you hit a bend point the amount of additional benefit you get for each additional dollar earned goes way down.

Look at 4 people:

  1. Averages $120,000 of indexed wages
  2. Averages $60,000 of indexed wages
  3. Averages $30,000 of indexed wages
  4. Averages $15,000 of indexed wages

AIME on the first guy is $10,000, so his benefit is

90% * 1024 +
32% * 5098 +
15% * 3878 = $3,134.70 (after rounding)

AIME on the second guy is $5,000, so his benefit is

90% * 1024 +
32% * 3,976 = $2,193.20 (after rounding)

Third guy’s AIME is $2,500 and benefit is $1,393.90

Fourth guy’s AIME is $1,250 and benefit is $993.90

So yeah, the higher income people do get more. But compared to the fourth guy, the wages & taxes are

  1. 800%
  2. 400%
  3. 200%

But the benefits are

  1. 315%
  2. 221%
  3. 140%

The top guy is paying 8 times the tax and only getting 3 times the benefit. That helps the solvency of the program.

The top guy probably has a longer life expectancy, so he’ll probably end up collecting more than triple what the bottom guy collects. But in aggregate not enough to counter the difference in replacement levels.

And there’s a provision for public-sector employees who are exempt from Social Security for part but not all of their wages, so there’s more nuance than I spelled out, but in a nutshell that’s how it works.

Now overlay the amount that the benefit gets paid back to the IRS.

The 3rd and 4th guy probably get to keep all of their benefit.

Guys 1 and 2, not so much.


i could see something where employer contributes to like 2x (so like $294K?) the employee max but not the employee. and benefit is based on the max alone (147K in today's ).

Yeah, it’s pretty hard to calculate where that would top out.

The simple (but wrong) answer would be to take the top marginal tax rate of 37% and multiply that by the highest amount of Social Security that could be taxed (85%) and conclude that no one would pay back more than 31.45%. But that ignores a crap ton of “gotchas” in the IRS code, and it could easily be significantly more than that. And of course there’s state income tax too.

let’s hear it for latex being built in and seeing my double $!

What are in the procedures for the indexation process?

If someone earned the contribution limit for 35 years, would the indexed average be 1/12th of the current year’s contribution limit?