After enactment of the Social Security Reform Act of 1983, Social Security actuaries determined OASDI’s (Social Security’s or the system’s) long-range actuarial balance (LRAB) to be .02%, meaning that the system was considered to be in actuarial balance for the “long-range,” which the actuaries defined as the next 75 years. Being in long-range actuarial balance in 1983 was an important consideration for congress in crafting the provisions of the new law, and some members of congress were not terribly happy with the actuaries back then when, just before passage of the new law, they increased the LRAB from -1.82% in 1982 to -2.09% to reflect passage of the Tax Reform Act of 1982.
After passage of the 1983 law adopting, among other things, a level tax rate after 1990, the Social Security actuaries prepared the 1983 OASDI Trustees Report which included a projection of expected trust fund assets over the next 75 years under best estimate assumptions. Some in congress were surprised that the 1983 report projected accumulation of a large trust fund during the first half of the 75-year projection period to be followed by gradual depletion of the trust fund and eventual exhaustion a little after the end of the 75-year projection period. The report showed that expected system costs at the end of the projection period significantly exceeded expected system revenues, but over the entire 75-year projection period, the system was in actuarial balance in 1983 under the best estimate assumptions selected by the actuaries.
Because each subsequent year’s valuation of the LRAB includes a new “deficit” year ignored in the previous year, the system soon fell out of LRAB. In addition, actual system experience has not been quite as favorable as assumed in 1983. The LRAB determined in the 2025 Trustees’ Report was -3.82%. Note that the LRAB is approximately the amount that the current tax rate of 12.4% would have to be increased to bring the system back into long-range actuarial balance over the next 75 years.
SSA Actuarial Note 2025.8 clearly summarizes the annual changes in the LRAB since 1983 and disaggregates the total annual change in LRAB by primary assumption type. This actuarial note is very similar conceptually to a gain and loss analysis for a defined benefit pension plan. This year’s actuarial note shows that almost 2/3rds of the total increase in the LRAB since 1983 (2.44%) was attributable to changes in the valuation date discussed above (what we call Valuation Date Creep) and the remaining 1/3 (about 1.4%) was approximately attributable to assumption changes and experience since 1983 less favorable than assumed. Notably, only .07% is attributable to demographic data and assumptions, often cited as the prime reason for the system’s financial decline.
As discussed in our post of August 13, 2025, subsequent to the release of the 2025 report, the new chief actuary of Social Security issued a letter to Senator Ron Wyden adjusting the baseline long-range actuarial balance from -3.82% to -3.98% for passage of OBBBA. In that post, we also indicated that we expect the 2026 and subsequent years LRAB to be less than -4%, even if all assumptions are realized, as a result of continued use of a 75-year projection period in the LRAB calculation and expected continuation of the Valuation Date Creep.
The Congressional Budget Office (CBO) also performs projections for the system using slightly different assumptions. Their 2025 LRAB was -4.9% (61492—Long-Term Social Security Projections Tab 7). Again, this calculation ignores shortfalls after the 75-year projection period and would be expected to deteriorate in future years due to the Valuation Date Creep, all things being equal.
Although it would be relatively easy to do, neither the SSA (Trustees Report) nor the CBO communications include projections of future expected LRABs. Those unaware of the Valuation Date Creep might assume that if the assumptions are realized in the future, the LRAB would remain unchanged from year to year. Unfortunately, this is an incorrect assumption and somewhat of a dirty little secret in the actuarial profession. It is also inconsistent with generally accepted actuarial practice for most other actuarial services.
The 1994-96 Advisory Council Report cited four major concerns about Social Security. The first was that the LTAB in 1995 was -2.17%! The second was:
“The second major problem with Social Security financing is the deterioration in the program's long-range balance that occurs solely because of the passage of time. Because of the aging of the U.S. population, whenever the program is brought into 75-year balance under a stable tax rate, it can be reasonably forecast that, without any changes in assumptions or experience, the simple passage of time will put the system into deficit. The reason is that expensive years previously beyond the forecasting horizon, with more beneficiaries getting higher real benefits, are then brought into the forecast period. There is no simple answer to the question of how much higher the long-term actuarial deficit is above the 2.17 percent to bring Social Security into balance beyond the 75-year horizon, but there could be a significant increase . All members of the Council agree that it is an unsatisfactory situation to have the passage of time alone put the system into long-run actuarial deficit, though there are again differences on how the problem should be corrected.”
Historically, the Social Security Trustees, the SSA actuaries and the actuarial profession have encouraged congressional action when the LRAB becomes sufficiently negative. For instance, the Trustees reports have encouraged congress to act to take action to address the LRAB shortfall for over 30 years now. In addition, in 2013, the Social Security Trustees and SSA actuaries with full support from the actuarial profession adopted a new test of long-range close actuarial balance (also referred to as the sustainable solvency test) to address the Valuation Date Creep problem. The test is described in the annual trustees report as follows:
“If the projected trust fund ratio is positive throughout the period and is either level or increasing at the end of the period, the projected adequacy for the long-range period is likely to continue for subsequent reports. Under these conditions, the program has achieved sustainable solvency.”
Sustainable solvency is a reasonably good effort to address the Valuation Date Creep problem, but it doesn’t get much publicity. It is also much closer to what Canada does for the Canada Pension Plan.
New Story Re: The Decline in Financial Status
Recently, the U.S. actuarial profession has developed a new story attempting to explain Social Security’s financial decline since 1983 and implications for future reform. Rather than discussing the decline in the LTAB as so clearly summarized in Actuarial Note 2025.8, proposing fixes to the Valuation Date Creep problem and supporting sustainable solvency for the system, actuaries at the American Academy of Actuaries and others have fairly recently determined that the real purpose of the 1983 Amendments was to advance fund Baby Boomer benefits with reversion of the system to current cost funding after the projected trust fund exhaustion. Unfortunately, the economic experience (explaining no more than one-third of the decrease in the LRAB since 1983) was not as robust as assumed in the 1983 valuation, and the expected trust fund exhaustion date is now expected to be much earlier. See “Why Didn’t the 1983 Social Security Reform Work Out as Expected” section of the recently released Academy policy paper entitled, “An Actuarial Perspective on the 2025 Social Security Trustees Report” for more discussion of this new story.
Either way one tells the story of the decline in the system’s financial status since 1983, we are now looking at either a 33% increase in system revenues, a 25% cut in system benefits or some combination of revenue increases and benefit cuts to bring the system back into LRAB. Let’s hope that when these changes are enacted the system meets the requirements for sustainable solvency and also adopts automatic changes to keep the system sustainably solvent in the future.
The Academy story doesn’t add up to me (0% LRAB in 1983 plus a little more than 1% decrease in LRAB due to poorer than expected economic assumptions does not add up to the 4% LRAB we have today). But the actuaries at the Academy don’t appear to be bothered by this math. The actuarial organization whose byline is “Helping Ensure America’s Financial Security” just shrugs its shoulders and says (in the Issue Brief Significance of the Social Security Trust Fund):
“under current projections, the trust fund provides only a temporary buffer against future increases in the cost of Social Security—benefit cuts and/or tax increases will become necessary if the program is to remain solvent.... Society has to decide how to allocate its resources, including trade-offs between workers and retirees, which affect both tangible and intangible standards of living for both societal groups”
So, I guess after the baby boomers get the bulk of their benefits, it will be up to “society” to determine benefits for future generations of retirees.
Summary
Using the 75-year projection period understates the system’s financial status if system revenues are expected to exceed system expenditures in years after the 75-year projection period. Because this was the approach used in 1983, the system benefits paid during last 42 years have been higher than actuarially supportable levels, system revenues should have been increased to support these benefits or some combination of lower benefits and higher revenues should have been adopted. It looks like future generations of beneficiaries and taxpayers will likely pay for this mistake. For discussion of my reform suggestions, read my Advisor Perspective article, Social Security’s Deterioration and Implications for Future Reform.
