The 2026 OASDI Trustees Report is expected to be issued in the near future. Last year, the 2025 report was released in June. Like we did last year, we will take a shot at predicting this year’s 75-year actuarial balance (deficit) before the report is issued.
In February, 2025, we estimated that Social Security’s long-range actuarial balance as of January 1, 2025 would be -3.65% of present value of taxable payrolls for the next 75 years (down from -3.50% in 2024), or a funded status (PV of Assets/PV of Liabilities for the next 75 years) of 79.1% (down from 79.8% the previous year). Our estimates turned out to be optimistic. The long-range actuarial balance as of January 1, 2025 determined by the Trustees was -3.82% of the present value of taxable payrolls for the next 75 years under the revised intermediate assumptions, or a funded status of about 78.3%.
Using different (some would argue more realistic), the Congressional Budget Office (CBO) calculated a 75-year long-range actuarial balance (deficit) of -4.9% of taxable payroll. Under the CBO’s more conservative assumptions, the system’s funded status (still measured over a 75-year period) would be about 72%, meaning that under the CBO assumptions the system has about $.72 in assets for each $1 in liabilities.
Under generally accepted actuarial practice, a system’s funded status is expected to remain unchanged from year to year if all assumptions about the future are realized during the year, assumptions are unchanged and the system’s benefits are unchanged. Unfortunately, this is not the case for the Social Security system. Because the projection period is limited to 75-years, deficits of projected outgo over projected income for periods after 75-years are ignored. This unrealistic assumption results in an increase in the system’s long-term actuarial deficit due to what Social Security actuaries refer to as “change in the valuation date.” We call this unrecognized increase “Valuation Date Creep.” Since 1983, Valuation Date Creep has been consistently about .05%-.06% of the present value of the system’s projected taxable payroll measured over the 75-year projection period. Last year, it was .06 and we expect it to be the same from 2025 to 2026.
We aren’t going to rant much about the Valuation Date Creep in this post. You can look at our older posts about Social Security financing for how we really feel about it. We advocate the use of the Sustainable Solvency measure as a better measure of the system’s financial status because it directly addresses the Valuation Date Creep problem and provides a better measure of the system’s long-range cost. The current 75-year measure overstates the system’s long-term funded status and understates its long-term cost. Unfortunately, neither the Social Security actuaries or the Trustees provide the sustainable solvency measure in their reports, and they do not project what the system’s long-range actuarial balance (deficit) is expected to grow to be in the future without legislative action.
Our prediction of the 2026 75-year Long-Range Actuarial Deficit
Subsequent to release of the 2025 Trustees Report, Congress passed the One Big Beautiful Bill Act. In a letter to Senator Ron Wyden, the Chief Actuary of Social Security estimated that passage of the act would increase the 2025 long-range actuarial deficit for the system to -3.98%.
We expect the one-year Valuation Date Creep will once again be -.06%
We also expect changes in assumptions and experience for 2025 to add another -10% to the deficit, about the same as in 2024. This estimate is consistent with bringing SSA and CBO assumptions more in line with each other.
This brings our estimate for the 2026 75-year long-range actuarial balance (deficit) to be -4.14%, or a funded status of about 76%.
Short-term cash flow problem
Of course, most people in the U.S. aren’t concerned with the long-term funding shortfall. They are mostly concerned about the short-term cash flow problem. Our guess is that the 2026 Trustees Report will confirm CBOs estimated OASI Trust Fund exhaustion year of 2032.
Conflating the long-term and short-term problems
We have been reading a great deal about Social Security’s financial problems and solutions for “fixing” the system. Many of the proposals we have read recently involve future benefit reductions. It is important to note that while future benefit reductions can help address the system’s long-term problems, they can do very little if current benefit levels are preserved for current beneficiaries and those currently eligible for benefits. If Congress “grandfathers” benefits for all current beneficiaries and currently eligible workers, the short-term cash flow problem can only be addressed with significantly higher system revenues, not benefit reductions. For example, limiting benefits to $50,000 per year (not indexed with inflation) will do almost nothing to address the trust fund exhaustion date issue.
OMG, is eliminating taxes on benefits still on the table?
We estimate eliminating taxes on Social Security benefits will drop the system’s funded status from the flawed SSA (not CBO) 2026 75-year estimate of 76% to about 71%. In addition, it would hasten the trust fund exhaustion date. And remember that 71% is an overstated estimate based on SSA assumptions (not CBO) and the flawed 75-year projection period problem.
Summary
Social Security’s funded status measured using a flawed optimistic measure hovers in the 75%-70% range, and is getting worse each year due to the Valuation Date Creep. As indicated in our previous post, it may make sense for households to target a funded status higher than 100% for their finances in retirement as a hedge against future experience less favorable than assumed. We don’t believe such a hedge is necessary for the nation’s retirement system, but we do caution that adopting reform that brings the flawed funded status back to 100% will not necessarily “fix” the system. For that reason, we advocate that future reform also includes automatic adjustment mechanisms that keep the system in long-range actuarial balance over time.
