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United States Government Accountability Office: 

A LOOK AT OUR FUTURE: Social Security and America's Long Term Fiscal 
Challenge: 

The Honorable David M. Walker: 
Comptroller General of the United States: 
US-UK Dialogue on Pensions: 
July 21, 2005: 

Composition of Federal Spending: 

[See PDF for image] - graphic text 

3 pie charts with 5 items each. 

1964: 
Defense: 46.0%. 
Social Security: 14.0%. 
Medicare & Medicaid: 0%. 
Net interest: 7.0%. 
All other spending: 33.0%. 

1984: 
Defense: 27.0%. 
Social Security: 21.0%. 
Medicare & Medicaid: 9.0%. 
Net interest: 13.0%. 
All other spending: 30.0%. 

2004: 
Defense: 20.0%. 
Social Security: 22.0%. 
Medicare & Medicaid: 29.0%. 
Net interest: 7.0%. 
All other spending: 32.0%. 

Source: Office of Management and Budget. 

[End of figure] 

Federal Spending for Mandatory and Discretionary Programs: 

[See PDF for image] - graphic text 

3 pie charts with 3 items each. 

1964: 
Discretionary: 67%; 
Mandatory: 26%; 
Net Interest: 7%. 

1984: 
Discretionary: 45%; 
Mandatory: 42%; 
Net Interest: 13%. 

2004*: 
Discretionary: 39%; 
Mandatory: 54%; 
Net Interest: 7%. 

Source: Office of Management and Budget. 

[End of figure]

Fiscal Year 2004 Deficit Numbers: 

On-Budget Deficit; 
-$567 Billion; 
-4.9% of GDP. 

Off-Budget Surplus; 
$155 Billion;* 
1.3% of GDP. 

Unified Deficit; 
-$412 Billion; 
-3.6% of GDP. 

* Includes the $151 billion Social Security surplus and a $4 billion 
surplus for the Postal Service. 

[End of table]

Surplus or Deficit as a Share of GDP: Fiscal Years 1962-2004: 

[See PDF for image] - graphic text: 

Line/Stacked Bar combo chart with 1 line (Unified) and 43 bars. 

Fiscal year: 1962; 
On-budget: -1%; 
Off-budget: -0.2%; 
Unified: -1.3%. 

Fiscal year: 1963; 
On-budget: -0.7%; 
Off-budget: -0.1%; 
Unified: -0.8%. 

Fiscal year: 1964; 
On-budget: -1%; 
Off-budget: 0.1%; 
Unified: -0.9%. 

Fiscal year: 1965; 
On-budget: -0.2%; 
Off-budget: No data; 
Unified: -0.2%. 

Fiscal year: 1966; 
On-budget: -0.4%; 
Off-budget: -0.1%; 
Unified: -0.5%. 

Fiscal year: 1967; 
On-budget: -1.6%; 
Off-budget: 0.5%; 
Unified: -1.1%. 

Fiscal year: 1968; 
On-budget: -3.2%; 
Off-budget: 0.3%; 
Unified: -2.9%. 

Fiscal year: 1969; 
On-budget: -0.1%; 
Off-budget: 0.4%; 
Unified: 0.3%. 

Fiscal year: 1970; 
On-budget: -0.9%; 
Off-budget: 0.6%; 
Unified: -0.3%. 

Fiscal year: 1971; 
On-budget: -2.4%; 
Off-budget: 0.3%; 
Unified: -2.1%. 

Fiscal year: 1972; 
On-budget: -2.2%; 
Off-budget: 0.3%; 
Unified: -2%. 

Fiscal year: 1973; 
On-budget: -1.2%; 
Off-budget: No data; 
Unified: -1.1%. 

Fiscal year: 1974; 
On-budget: -0.6%; 
Off-budget: 0.1%; 
Unified: -0.4%. 

Fiscal year: 1975; 
On-budget: -3.5%; 
Off-budget: 0.1%; 
Unified: -3.4%. 

Fiscal year: 1976; 
On-budget: -4.1%; 
Off-budget: -0.2%; 
Unified: -4.2%. 

Fiscal year: 1977; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1978; 
On-budget: -2.5%; 
Off-budget: -0.2%; 
Unified: -2.7%. 

Fiscal year: 1979; 
On-budget: -1.5%; 
Off-budget: -0.1%; 
Unified: -1.6%. 

Fiscal year: 1980; 
On-budget: -2.7%; 
Off-budget: No data; 
Unified: -2.7%. 

Fiscal year: 1981; 
On-budget: -2.4%; 
Off-budget: -0.2%; 
Unified: -2.6%. 

Fiscal year: 1982; 
On-budget: -3.7%; 
Off-budget: -0.2%; 
Unified: -4%. 

Fiscal year: 1983; 
On-budget: -6%; 
Off-budget: No data; 
Unified: -6%. 

Fiscal year: 1984; 
On-budget: -4.8%; 
Off-budget: No data; 
Unified: -4.8%. 

Fiscal year: 1985; 
On-budget: -5.3%; 
Off-budget: 0.2%; 
Unified: -5.1%. 

Fiscal year: 1986; 
On-budget: -5.4%; 
Off-budget: 0.4%; 
Unified: -5%. 

Fiscal year: 1987; 
On-budget: -3.6%; 
Off-budget: 0.4%; 
Unified: -3.2%. 

Fiscal year: 1988; 
On-budget: -3.9%; 
Off-budget: 0.8%; 
Unified: -3.1%. 

Fiscal year: 1989; 
On-budget: -3.8%; 
Off-budget: 1%; 
Unified: -2.8%. 

Fiscal year: 1990; 
On-budget: -4.8%; 
Off-budget: 1%; 
Unified: -3.9%. 

Fiscal year: 1991; 
On-budget: -5.4%; 
Off-budget: 0.9%; 
Unified: -4.5%. 

Fiscal year: 1992; 
On-budget: -5.5%; 
Off-budget: 0.8%; 
Unified: -4.7%. 

Fiscal year: 1993; 
On-budget: -4.6%; 
Off-budget: 0.7%; 
Unified: -3.9%. 

Fiscal year: 1994; 
On-budget: -3.7%; 
Off-budget: 0.8%; 
Unified: -2.9%. 

Fiscal year: 1995; 
On-budget: -3.1%; 
Off-budget: 0.9%; 
Unified: -2.2%. 

Fiscal year: 1996; 
On-budget: -2.3%; 
Off-budget: 0.9%; 
Unified: -1.4%. 

Fiscal year: 1997; 
On-budget: -1.3%; 
Off-budget: 1%; 
Unified: -0.3%. 

Fiscal year: 1998; 
On-budget: -0.3%; 
Off-budget: 1.1%; 
Unified: 0.8%. 

Fiscal year: 1999; 
On-budget: No data; 
Off-budget: 1.4%; 
Unified: 1.4%. 

Fiscal year: 2000; 
On-budget: 0.9%; 
Off-budget: 1.5%; 
Unified: 2.4%. 

Fiscal year: 2001; 
On-budget: -0.3%; 
Off-budget: 1.6%; 
Unified: 1.3%. 

Fiscal year: 2002; 
On-budget: -3.1%; 
Off-budget: 1.5%; 
Unified: -1.5%. 

Fiscal year: 2003; 
On-budget: -4.9%; 
Off-budget: 1.5%; 
Unified: -3.5%. 

Fiscal year: 2004; 
On-budget: -4.9%; 
Off-budget: 1.3%; 
Unified: -3.6%. 

Source: Office of Management and Budget and Congressional Budget 
Office. 

[End of figure]

Estimated Fiscal Exposures (in $ trillions): 

Explicit liabilities: Publicly held debt: $4.3; 
Explicit liabilities: Military & civilian pensions & retiree health: 
$3.1; 
Explicit liabilities: Other: $1.7; 
Explicit liabilities: Total: $9.1. 

Commitments & Contingencies (E.g., PBGC, undelivered orders): $0.9. 

Implicit exposures: Future Social Security Benefits: Obligations in 
excess of trust fund: $4.0; 
Implicit exposures: Future Social Security Benefits: Debt held by the 
trust fund: $1.7; 
Implicit exposures: Future Social Security Benefits: Total: $5.7. 

Implicit exposures: Future Medicare Part A benefits: Obligations in 
excess of trust fund: $8.6; 
Implicit exposures: Future Medicare Part A benefits: Debt held by the 
trust fund: $0.3; 
Implicit exposures: Future Medicare Part A benefits: Total: $8.8. 

Implicit exposures: Medicare Part B benefits: $12.4. 

Implicit exposures: Medicare Part D benefits: $8.7; 

Total: $45.6. 

Source: 2004 Financial Report of the U.S. Government and 2005 Social 
Security and Medicare Trustees reports. 

Note: Estimates for Social Security and Medicare are the intermediate 
75-year estimates of the Social Security and Medicare Trustees as of 
January 1, 2005. All other data are as of September 30, 2004. Totals 
may not add due to rounding. 

[End of table] 

Another Way to Think About These Numbers: 

* Debt held by the public: $4.3 trillion; 
* Trust fund debt [NOTE]: $3.1 trillion; =
* Gross debt: $7.4 trillion. 

* Gross debt per person-about $25,000. 

* The $46 trillion in fiscal exposures is: 

- a burden of more than $150,000 per person or more than $370,000 per 
full-time worker; 

- nearly 19 times the current annual federal spending and 4 times the 
current annual GDP; 

- almost equal to the estimated $48.5 trillion in total net worth, 
including home equity, for all Americans. 

NOTE: Includes all debt held by government accounts. 

Composition of Spending as a Share of GDP Under Baseline Extended: 

[See PDF for image] -graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.3%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 1.5%; 
Social Security: 4.6%; 
Medicare & Medicaid: 5.2%; 
All other spending: 7.6%; 
Revenue: 19.6%. 

2030; 
Net interest: 1.9%; 
Social Security: 6.4%; 
Medicare & Medicaid: 8%; 
All other spending: 7.6%; 
Revenue: 19.6%. 

2040; 
Net interest: 4.3%; 
Social Security: 6.8%; 
Medicare & Medicaid: 9.7%; 
All other spending: 7.6%; 
Revenue: 19.6%. 

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2015 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the AMT, and (3) increased revenue from 
tax-deferred retirement accounts. After 2015, revenue as a share of GDP 
is held constant. 

Source: GAO’s March 2005 analysis. 

[End of figure]

Composition of Spending as a Share of GDP Assuming Discretionary 
Spending Grows with GDP after 2005 and All Expiring Tax Provisions are 
Extended: 

[See PDF for image] -graphic text: 

Line/Stacked Bar combo chart with 4 groups, 1 line (Revenue) and 4 bars 
per group. 

2004; 
Net interest: 1.4%; 
Social Security: 4.3%; 
Medicare & Medicaid: 3.8%; 
All other spending: 10.4%; 
Revenue: 16.3%. 

2015; 
Net interest: 2.8%; 
Social Security: 4.7%; 
Medicare & Medicaid: 5.2%; 
All other spending: 9.7%; 
Revenue: 17.4. 

2030; 
Net interest: 7.7%; 
Social Security: 6.7%; 
Medicare & Medicaid: 8%; 
All other spending: 9.7%; 
Revenue: 17.4%. 

2040; 
Net interest: 15.7%; 
Social Security: 7.9%; 
Medicare & Medicaid: 9.7%; 
All other spending: 9.7%; 
Revenue: 17.4%. 

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2015 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2015, revenue as a share 
of GDP is held constant. 

Source: GAO’s March 2005 analysis. 

[End of figure]

Current Fiscal Policy Is Unsustainable: 

The "Status Quo" is Not an Option: 

* We face large and growing structural deficits largely due to known 
demographic trends and rising health care costs. 

* GAO's simulations show that balancing the budget in 2040 could 
require actions as large as: 

* Cutting total federal spending by 60 percent or: 

* Raising federal taxes to 2.5 times today's level: 

Faster Economic Growth Can Help, but It Cannot Solve the Problem: 

* Closing the current long-term fiscal gap based on reasonable 
assumptions would require real average annual economic growth in the 
double digit range every year for the next 75 years. 

* During the 1990s, the economy grew at an average 3.2 percent per 
year. 

* As a result, we cannot simply grow our way out of this problem. Tough 
choices will be required. 

The Sooner We Get Started, the Better: 

* Less change would be needed, and there would be more time to make 
adjustments. 

* The miracle of compounding would work with us rather than against us. 

* Our demographic changes will serve to make reform more difficult over 
time. 

The Way Forward: 

* Implement new accounting and reporting approaches and new budget 
control mechanisms for considering the impact of spending and tax 
policies and decisions over the long term. 

* Develop new metrics for measuring the impact of policies and 
decisions over the long term (e.g., key national indicators to measure 
our Nation's position and progress over time and in relation to other 
countries). 

* Reexamine the base question existing programs, policies and 
activities. 

21st Century Challenges Report: 

* Provides background, framework, and questions to assist in 
reexamining the base. 

* Covers entitlements & other mandatory spending, discretionary 
spending, and tax policies and programs. 

* Based on GAO's work for the Congress. 

* Issued February 16, 2005. 

Key Elements for Economic Security in Retirement: 

Adequate retirement income: 

* Social Security; 
* Pensions; 
* Savings; 
* Earnings from continued employment (e.g., part-time). 

Affordable health care: 

* Medicare; 
* Retiree health care. 

Long-term care (a hybrid). 

Major Players: 

* Employers; 
* Government; 
* Individuals; 
* Family; 
* Community. 

GAO Criteria for Evaluating Social Security Reform Proposals: 

Reform proposals should be evaluated as packages that strike a balance 
among individual reform elements and important interactive effects. 

Comprehensive proposals can be evaluated against three basic criteria: 

* Financing sustainable solvency; 

* Balancing adequacy and equity in the benefits structure; 

* Implementing and administering reforms. 

Social Security and Medicare’s Hospital Insurance Trust Funds Face Cash 
Deficits: 

[See PDF for image] –graphic text: 

Stacked Bar chart with 41 items. 

Billions of 2005 dollars. 

Year: 2000; 
Medicare HI cash flow: $27.20; 
Social Security cash flow: $99.10. 

Year: 2001; 
Medicare HI cash flow: $18.70; 
Social Security cash flow: $98.02. 

Year: 2002; 
Medicare HI cash flow: $11.80; 
Social Security cash flow: $90.98. 

Year: 2003; 
Medicare HI cash flow: $5.70; 
Social Security cash flow: $71.20. 

Year: 2004; 
Medicare HI cash flow: -$2.80; 
Social Security cash flow: $68.58. 

Medicare HI cash deficit: 2004. 

Year: 2005; 
Medicare HI cash flow: -$1.00; 
Social Security cash flow: $69.50. 

Year: 2006; 
Medicare HI cash flow: -$1.00; 
Social Security cash flow: $84.80. 

Year: 2007; 
Medicare HI cash flow: -$1.90; 
Social Security cash flow: $88.70. 

Year: 2008; 
Medicare HI cash flow: -$2.80; 
Social Security cash flow: $90.20. 

Year: 2009; 
Medicare HI cash flow: -$6.30; 
Social Security cash flow: $84.00. 

Year: 2010; 
Medicare HI cash flow: -$7.90; 
Social Security cash flow: $80.20. 

Year: 2011; 
Medicare HI cash flow: -$10.20; 
Social Security cash flow: $75.60. 

Year: 2012; 
Medicare HI cash flow: -$14.10; 
Social Security cash flow: $65.30. 

Year: 2013; 
Medicare HI cash flow: -$18.60; 
Social Security cash flow: $52.90. 

Year: 2014; 
Medicare HI cash flow: -$23.60; 
Social Security cash flow: $38.50. 

Year: 2015; 
Medicare HI cash flow: -$29.80; 
Social Security cash flow: $24.30. 

Year: 2016; 
Medicare HI cash flow: -$36.40; 
Social Security cash flow: $8.20. 

Year: 2017; 
Medicare HI cash flow: -$43.40; 
Social Security cash flow: -$8.80. 

Social Security cash deficit: 2017. 

Year: 2018; 
Medicare HI cash flow: -$51.40; 
Social Security cash flow: -$26.40. 

Year: 2019; 
Medicare HI cash flow: -$60.30; 
Social Security cash flow: -$44.70. 

Year: 2020; 
Medicare HI cash flow: -$69.30; 
Social Security cash flow: -$64.20. 

Year: 2021; 
Medicare HI cash flow: -$79.70; 
Social Security cash flow: -$83.90. 

Year: 2022; 
Medicare HI cash flow: -$91.40; 
Social Security cash flow: -$103.80. 

Year: 2023; 
Medicare HI cash flow: -$103.00; 
Social Security cash flow: -$123.70. 

Year: 2024; 
Medicare HI cash flow: -$115.70; 
Social Security cash flow: -$143.90. 

Year: 2025; 
Medicare HI cash flow: -$129.40; 
Social Security cash flow: -$164.30. 

Year: 2026; 
Medicare HI cash flow: -$143.30; 
Social Security cash flow: -$184.90. 

Year: 2027; 
Medicare HI cash flow: -$157.00; 
Social Security cash flow: -$204.40. 

Year: 2028; 
Medicare HI cash flow: -$171.40; 
Social Security cash flow: -$222.70. 

Year: 2029; 
Medicare HI cash flow: -$186.50; 
Social Security cash flow: -$239.70. 

Year: 2030; 
Medicare HI cash flow: -$203.10; 
Social Security cash flow: -$255.90. 

Year: 2031; 
Medicare HI cash flow: -$219.70; 
Social Security cash flow: -$271.60. 

Year: 2032; 
Medicare HI cash flow: -$236.20; 
Social Security cash flow: -$286.00. 

Year: 2033; 
Medicare HI cash flow: -$253.00; 
Social Security cash flow: -$298.60. 

Year: 2034; 
Medicare HI cash flow: -$271.00; 
Social Security cash flow: -$309.30. 

Year: 2035; 
Medicare HI cash flow: -$289.60; 
Social Security cash flow: -$319.00. 

Year: 2036; 
Medicare HI cash flow: -$307.80; 
Social Security cash flow: -$327.80. 

Year: 2037; 
Medicare HI cash flow: -$325.30; 
Social Security cash flow: -$335.40. 

Year: 2038; 
Medicare HI cash flow: -$342.80; 
Social Security cash flow: -$341.80. 

Year: 2039; 
Medicare HI cash flow: -$360.60; 
Social Security cash flow: -$347.30. 

Year: 2040; 
Medicare HI cash flow: -$379.20; 
Social Security cash flow: -$352.50. 

Note: Projections based on the intermediate assumptions of the 2005 
Trustees’ Reports. 

Source: GAO analysis based on data from the Office of the Chief 
Actuary, Social Security Administration and Office of the Actuary, 
Centers for Medicare and Medicaid Services. 

[End of figure]

U.S. Elderly Dependency Ratio Expected to Continue to Increase: 

[See PDF for image] –graphic text: 

Line chart with one line and 5 items. 

Year: 1950; 
Elderly Dependency Ratio (in percent): 13%. 

Year: 1980; 
Elderly Dependency Ratio (in percent): 17%. 

Year: 2000; 
Elderly Dependency Ratio (in percent): 19%. 

Year: 2030; 
Elderly Dependency Ratio (in percent): 33%. 

Year: 2050; 
Elderly Dependency Ratio (in percent): 35%. 

Source: Population Division of the Department of Economic and Social 
Affairs of the United Nations Secretariat, World Population Prospects: 
2000 Revision and World Urbanization Prospects: 2001 Revision. 

[End of figure] 

U.S. Labor Force Growth Will Continue to Decline: 

U.S. Labor Force Growth Will Continue to Decline: 

[See PDF for image] –graphic text: 

Line chart with one line and 111 items. 

Year: 1970; 
Percentage change (5-year moving average): 2.38%. 

Year: 1971; 
Percentage change (5-year moving average): 2.56%. 

Year: 1972; 
Percentage change (5-year moving average): 2.64%. 

Year: 1973; 
Percentage change (5-year moving average): 2.52%. 

Year: 1974; 
Percentage change (5-year moving average): 2.64%. 

Year: 1975; 
Percentage change (5-year moving average): 2.6%. 

Year: 1976; 
Percentage change (5-year moving average): 2.72%. 

Year: 1977; 
Percentage change (5-year moving average): 2.68%. 

Year: 1978; 
Percentage change (5-year moving average): 2.66%. 

Year: 1979; 
Percentage change (5-year moving average): 2.48%. 

Year: 1980; 
Percentage change (5-year moving average): 2.18%. 

Year: 1981; 
Percentage change (5-year moving average): 1.76%. 

Year: 1982; 
Percentage change (5-year moving average): 1.58%. 

Year: 1983; 
Percentage change (5-year moving average): 1.54%. 

Year: 1984; 
Percentage change (5-year moving average): 1.64%. 

Year: 1985; 
Percentage change (5-year moving average): 1.7%. 

Year: 1986; 
Percentage change (5-year moving average): 1.76%. 

Year: 1987; 
Percentage change (5-year moving average): 1.76%. 

Year: 1988; 
Percentage change (5-year moving average): 1.74%. 

Year: 1989; 
Percentage change (5-year moving average): 1.4%. 

Year: 1990; 
Percentage change (5-year moving average): 1.34%. 

Year: 1991; 
Percentage change (5-year moving average): 1.2%. 

Year: 1992; 
Percentage change (5-year moving average): 1.12%. 

Year: 1993; 
Percentage change (5-year moving average): 1%. 

Year: 1994; 
Percentage change (5-year moving average): 1.16%. 

Year: 1995; 
Percentage change (5-year moving average): 1.24%. 

Year: 1996; 
Percentage change (5-year moving average): 1.28%. 

Year: 1997; 
Percentage change (5-year moving average): 1.24%. 

Year: 1998; 
Percentage change (5-year moving average): 1.5%. 

Year: 1999; 
Percentage change (5-year moving average): 1.42%. 

Year: 2000; 
Percentage change (5-year moving average): 1.22%. 

Year: 2001; 
Percentage change (5-year moving average): 1.26%. 

Year: 2002; 
Percentage change (5-year moving average): 1.28%. 

Year: 2003; 
Percentage change (5-year moving average): 1.14%. 

Year: 2004; 
Percentage change (5-year moving average): 1.24%. 

Year: 2005; 
Percentage change (5-year moving average): 1.3%. 

Year: 2006; 
Percentage change (5-year moving average): 1.26%. 

Year: 2007; 
Percentage change (5-year moving average): 1.18%. 

Year: 2008; 
Percentage change (5-year moving average): 1.02%. 

Year: 2009; 
Percentage change (5-year moving average): 0.92%. 

Year: 2010; 
Percentage change (5-year moving average): 0.82%. 

Year: 2011; 
Percentage change (5-year moving average): 0.74%. 

Year: 2012; 
Percentage change (5-year moving average): 0.66%. 

Year: 2013; 
Percentage change (5-year moving average): 0.6%. 

Year: 2014; 
Percentage change (5-year moving average): 0.52%. 

Year: 2015; 
Percentage change (5-year moving average): 0.48%. 

Year: 2016; 
Percentage change (5-year moving average): 0.44%. 

Year: 2017; 
Percentage change (5-year moving average): 0.42%. 

Year: 2018; 
Percentage change (5-year moving average): 0.38%. 

Year: 2019; 
Percentage change (5-year moving average): 0.36%. 

Year: 2020; 
Percentage change (5-year moving average): 0.34%. 

Year: 2021; 
Percentage change (5-year moving average): 0.3%. 

Year: 2022; 
Percentage change (5-year moving average): 0.26%. 

Year: 2023; 
Percentage change (5-year moving average): 0.24%. 

Year: 2024; 
Percentage change (5-year moving average): 0.22%. 

Year: 2025; 
Percentage change (5-year moving average): 0.2%. 

Year: 2026; 
Percentage change (5-year moving average): 0.2%. 

Year: 2027; 
Percentage change (5-year moving average): 0.2%. 

Year: 2028; 
Percentage change (5-year moving average): 0.2%. 

Year: 2029; 
Percentage change (5-year moving average): 0.22%. 

Year: 2030; 
Percentage change (5-year moving average): 0.24%. 

Year: 2031; 
Percentage change (5-year moving average): 0.26%. 

Year: 2032; 
Percentage change (5-year moving average): 0.28%. 

Year: 2033; 
Percentage change (5-year moving average): 0.3%. 

Year: 2034; 
Percentage change (5-year moving average): 0.3%. 

Year: 2035; 
Percentage change (5-year moving average): 0.3%. 

Year: 2036; 
Percentage change (5-year moving average): 0.3%. 

Year: 2037; 
Percentage change (5-year moving average): 0.3%. 

Year: 2038; 
Percentage change (5-year moving average): 0.3%. 

Year: 2039; 
Percentage change (5-year moving average): 0.3%. 

Year: 2040; 
Percentage change (5-year moving average): 0.3%. 

Year: 2041; 
Percentage change (5-year moving average): 0.3%. 

Year: 2042; 
Percentage change (5-year moving average): 0.3%. 

Year: 2043; 
Percentage change (5-year moving average): 0.3%. 

Year: 2044; 
Percentage change (5-year moving average): 0.3%. 

Year: 2045; 
Percentage change (5-year moving average): 0.3%. 

Year: 2046; 
Percentage change (5-year moving average): 0.28%. 

Year: 2047; 
Percentage change (5-year moving average): 0.26%. 

Year: 2048; 
Percentage change (5-year moving average): 0.24%. 

Year: 2049; 
Percentage change (5-year moving average): 0.22%. 

Year: 2050; 
Percentage change (5-year moving average): 0.2%. 

Year: 2051; 
Percentage change (5-year moving average): 0.2%. 

Year: 2052; 
Percentage change (5-year moving average): 0.2%. 

Year: 2053; 
Percentage change (5-year moving average): 0.2%. 

Year: 2054; 
Percentage change (5-year moving average): 0.2%. 

Year: 2055; 
Percentage change (5-year moving average): 0.2%. 

Year: 2056; 
Percentage change (5-year moving average): 0.2%. 

Year: 2057; 
Percentage change (5-year moving average): 0.2%. 

Year: 2058; 
Percentage change (5-year moving average): 0.2%. 

Year: 2059; 
Percentage change (5-year moving average): 0.2%. 

Year: 2060; 
Percentage change (5-year moving average): 0.2%. 

Year: 2061; 
Percentage change (5-year moving average): 0.2%. 

Year: 2062; 
Percentage change (5-year moving average): 0.2%. 

Year: 2063; 
Percentage change (5-year moving average): 0.2%. 

Year: 2064; 
Percentage change (5-year moving average): 0.2%. 

Year: 2065; 
Percentage change (5-year moving average): 0.2%. 

Year: 2066; 
Percentage change (5-year moving average): 0.2%. 

Year: 2067; 
Percentage change (5-year moving average): 0.2%. 

Year: 2068; 
Percentage change (5-year moving average): 0.2%. 

Year: 2069; 
Percentage change (5-year moving average): 0.2%. 

Year: 2070; 
Percentage change (5-year moving average): 0.2%. 

Year: 2071; 
Percentage change (5-year moving average): 0.2%. 

Year: 2072; 
Percentage change (5-year moving average): 0.2%. 

Year: 2073; 
Percentage change (5-year moving average): 0.2%. 

Year: 2074; 
Percentage change (5-year moving average): 0.2%. 

Year: 2075; 
Percentage change (5-year moving average): 0.2%. 

Year: 2076; 
Percentage change (5-year moving average): 0.2%. 

Year: 2077; 
Percentage change (5-year moving average): 0.2%. 

Year: 2078; 
Percentage change (5-year moving average): 0.2%. 

Year: 2079; 
Percentage change (5-year moving average): 0.2%. 

Year: 2080; 
Percentage change (5-year moving average): 0.2%. 

Note: Percentage change is calculated as a centered 5-yr moving average 
of projections based on the intermediate assumptions of the 2005 
Trustees Reports. 

Source: GAO analysis of data from the Office of the Chief Actuary, 
Social Security Administration. 

[End of figure]

Key Dates Highlight Long Term Challenges of the Social Security System: 

Date: 2009; 
Event: Social Security cash surplus begins to decline. 

Date: 2017; 
Event: Annual benefit costs exceed cash revenue from taxes. 

Date: 2027; 
Event: Trust fund ceases to grow because even taxes plus interest fall 
short of benefits. 

Dates: 2041 (SSA), 2052 (CBO); 
Event: Trust fund exhausted, annual revenues sufficient to pay about 
74% - 78% of promised benefits. 

Sources: Social Security Administration, The 2005 Annual Report of the 
Board of Trustees of the Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds. Washington, DC, March 2005. 
Congressional Budget Office, The Outlook for Social Security. Potential 
Range of Social Security Outlays and Revenues Under Current Law. 
Washington, DC, June 2004 (updated April 2005). 

[End of table]

Different Measures, Same Challenge: 

* 75-year projection of funding shortfall: 
- $4.0 trillion in present value; 
- 0.6% of GDP; 
- 1.8% of taxable payroll. 

* Infinite horizon projection of funding shortfall:
- $11.1 trillion in present value; 
- 1.2% of GDP; 
- 3.5% of taxable payroll. 

Source: Social Security Administration, The 2005 Annual Report of the 
Board of Trustees of the Federal Old-Age and Survivors Insurance and 
Disability Insurance Trust Funds (Washington D.C.: March 2005). 

Personal Saving Rate Has Declined: 

[See PDF for image] --graphic text: 

Line graph with 45 items. 

Percent of disposable personal income: 

Year: 1960; 
Personal saving rate: 7.3%. 

Year: 1961; 
Personal saving rate: 8.4%. 

Year: 1962; 
Personal saving rate: 8.3%. 

Year: 1963; 
Personal saving rate: 7.8%. 

Year: 1964; 
Personal saving rate: 8.8%. 

Year: 1965; 
Personal saving rate: 8.6%. 

Year: 1966; 
Personal saving rate: 8.3%. 

Year: 1967; 
Personal saving rate: 9.5%. 

Year: 1968; 
Personal saving rate: 8.4%. 

Year: 1969; 
Personal saving rate: 7.8%. 

Year: 1970; 
Personal saving rate: 9.4%. 

Year: 1971; 
Personal saving rate: 10.1%. 

Year: 1972; 
Personal saving rate: 8.9%. 

Year: 1973; 
Personal saving rate: 10.5%. 

Year: 1974; 
Personal saving rate: 10.6%. 

Year: 1975; 
Personal saving rate: 10.6%. 

Year: 1976; 
Personal saving rate: 9.4%. 

Year: 1977; 
Personal saving rate: 8.7%. 

Year: 1978; 
Personal saving rate: 8.9%. 

Year: 1979; 
Personal saving rate: 8.9%. 

Year: 1980; 
Personal saving rate: 10%. 

Year: 1981; 
Personal saving rate: 10.9%. 

Year: 1982; 
Personal saving rate: 11.2%. 

Year: 1983; 
Personal saving rate: 9%. 

Year: 1984; 
Personal saving rate: 10.8%. 

Year: 1985; 
Personal saving rate: 9%. 

Year: 1986; 
Personal saving rate: 8.2%. 

Year: 1987; 
Personal saving rate: 7%. 

Year: 1988; 
Personal saving rate: 7.3%. 

Year: 1989; 
Personal saving rate: 7.1%. 

Year: 1990; 
Personal saving rate: 7%. 

Year: 1991; 
Personal saving rate: 7.3%. 

Year: 1992; 
Personal saving rate: 7.7%. 

Year: 1993; 
Personal saving rate: 5.8%. 

Year: 1994; 
Personal saving rate: 4.8%. 

Year: 1995; 
Personal saving rate: 4.6%. 

Year: 1996; 
Personal saving rate: 4%. 

Year: 1997; 
Personal saving rate: 3.6%. 

Year: 1998; 
Personal saving rate: 4.3%. 

Year: 1999; 
Personal saving rate: 2.4%. 

Year: 2000; 
Personal saving rate: 2.3%. 

Year: 2001; 
Personal saving rate: 1.8%. 

Year: 2002; 
Personal saving rate: 2%. 

Year: 2003; 
Personal saving rate: 1.4%. 

Year: 2004; 
Personal saving rate: 1.2%. 

Source: Bureau of Economic Analysis, Department of Commerce. 

[End of figure] 

Pension System Faces Variety of Challenges: 

Significant coverage gaps and pre-retirement leakage. 

Long term decline in the number of DB plans and active participants and 
change in the nature of DB plans. 

Recent and prospective large plan terminations by bankrupt sponsors 
have placed Pension Benefit Guaranty Corporation (PBGC), the federal 
agency insuring benefits, in financial jeopardy: 

* Stock market, interest rate declines this decade have worsened 
overall plan funding; 

* Demographics, global competition (Steel, auto) industry deregulation 
restructuring (airlines) have contributed to both plan and corporate 
weakness. 

Plan funding rules have proven to be inadequate. 

Certain PBGC premium insurance issues need to be reviewed. 

Selected other issues also require attention (e.g., lump sums, 
bankruptcy laws). 

Participation Rates in Employment-Based Retirement Plans Are Converging 
for Men and Women, but Only about Half Have Coverage: 

[See PDF for image] --graphic text: 

Line chart with two lines with 17 items each. 

Year: 1987; 
Men: 51%; 
Women: 40.7%. 

Year: 1988; 
Men: 51%; 
Women: 40.8%. 

Year: 1989; 
Men: 51%; 
Women: 42.9%. 

Year: 1990; 
Men: 52%; 
Women: 42.9%. 

Year: 1991; 
Men: 50%; 
Women: 43.2%. 

Year: 1992; 
Men: 49%; 
Women: 43.9%. 

Year: 1993; 
Men: 48%; 
Women: 43.6%. 

Year: 1994; 
Men: 51%; 
Women: 45.2%. 

Year: 1995; 
Men: 50%; 
Women: 45%. 

Year: 1996; 
Men: 51%; 
Women: 45.8%. 

Year: 1997; 
Men: 52%; 
Women: 46.4%. 

Year: 1998; 
Men: 54%; 
Women: 48.1%. 

Year: 1999; 
Men: 54%; 
Women: 48.5%. 

Year: 2000; 
Men: 54%; 
Women: 49.3%. 

Year: 2001; 
Men: 52%; 
Women: 47.6%. 

Year: 2002; 
Men: 50%; 
Women: 46.6%. 

Year: 2003; 
Men: 50%; 
Women: 47.1%. 

Source: Employee Benefit Research Institute estimates from the 1988-
2004 March Current Population Surveys. 

[End of figure] 

Total Underfunding among All PBGC-Insured Single-Employer DB Plans: 

[See PDF for image] --graphic text: 

Bar graph with twelve items. 

Dollars in billions. 

Year: 1993; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$109.3. 

Year: 1994; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$61.7. 

Year: 1995; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$94.5. 

Year: 1996; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$99.6. 

Year: 1997; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$87.8. 

Year: 1998; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$104.7. 

Year: 1999; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$22.8. 

Year: 2000; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$39.4. 

Year: 2001; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$163.9. 

Year: 2002; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$400. 

Year: 2003; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$450. 

Year: 2004; 
Total underfunding among all PBGC-insured single-employer DB plans: 
$450. 

Source: PBGC. 

[End of figure] 

PBGC's Net Accumulated Deficit Topped $23 Billion in 2004: 

[See PDF for image] --graphic text: 

Line graph with two lines with 25 items each. 

Dollars in billions. 

Year: 1980; 
Accumulated surplus/deficit: -$0.10; 
Annual net gain/loss: -$0.09. 

Year: 1981; 
Accumulated surplus/deficit: -$0.19; 
Annual net gain/loss: -$0.14. 

Year: 1982; 
Accumulated surplus/deficit: -$0.33; 
Annual net gain/loss: -$0.19. 

Year: 1983; 
Accumulated surplus/deficit: -$0.52; 
Annual net gain/loss: -$0.06. 

Year: 1984; 
Accumulated surplus/deficit: -$0.46; 
Annual net gain/loss: -$0.86. 

Year: 1985; 
Accumulated surplus/deficit: -$1.33; 
Annual net gain/loss: -$0.70. 

Year: 1986; 
Accumulated surplus/deficit: -$2.03; 
Annual net gain/loss: $0.48. 

Year: 1987; 
Accumulated surplus/deficit: -$1.55; 
Annual net gain/loss: $0.48. 

Year: 1988; 
Accumulated surplus/deficit: -$1.54; 
Annual net gain/loss: $0.01. 

Year: 1989; 
Accumulated surplus/deficit: -$1.12; 
Annual net gain/loss: $0.42. 

Year: 1990; 
Accumulated surplus/deficit: -$1.91; 
Annual net gain/loss: -$0.79. 

Year: 1991; 
Accumulated surplus/deficit: -$2.50; 
Annual net gain/loss: -$0.59. 

Year: 1992; 
Accumulated surplus/deficit: -$2.74; 
Annual net gain/loss: -$0.23. 

Year: 1993; 
Accumulated surplus/deficit: -$2.90; 
Annual net gain/loss: -$0.16. 

Year: 1994; 
Accumulated surplus/deficit: -$1.24; 
Annual net gain/loss: $1.66. 

Year: 1995; 
Accumulated surplus/deficit: -$0.32; 
Annual net gain/loss: $0.93. 

Year: 1996; 
Accumulated surplus/deficit: $0.87; 
Annual net gain/loss: $1.18. 

Year: 1997; 
Accumulated surplus/deficit: $3.48; 
Annual net gain/loss: $2.61. 

Year: 1998; 
Accumulated surplus/deficit: $5.01; 
Annual net gain/loss: $1.53. 

Year: 1999; 
Accumulated surplus/deficit: $7.04; 
Annual net gain/loss: $2.03. 

Year: 2000; 
Accumulated surplus/deficit: $9.70; 
Annual net gain/loss: $2.67. 

Year: 2001; 
Accumulated surplus/deficit: $7.73; 
Annual net gain/loss: -$1.97. 

Year: 2002; 
Accumulated surplus/deficit: -$3.64; 
Annual net gain/loss: -$11.37. 

Year: 2003; 
Accumulated surplus/deficit: -$11.24; 
Annual net gain/loss: -$7.60. 

Year: 2004; 
Accumulated surplus/deficit: -$23.30; 
Annual net gain/loss: -$12.06. 

Source: The Pension Benefit Guaranty Corporation. 

[End of figure] 

DB System Weaknesses Have Serious Implications for National Retirement 
Policy: 

* Current Issue:
- Protect the benefits of workers affected by terminated plans; 
- Address PBGC financial exposure; 
- Improve funding of DB plans generally. 

* Broader Issue: 

What is Role of DB Plans in Ensuring Retirement Security?

- Revitalized DB system vs smoother transition to all DC world; 
- Impact of Social Security reform on the private DB and DC system and 
personal savings arrangements. 

Several Reforms Might Improve Plan Funding and Reduce the Risks to 
PBGC's Long-term Viability: 

* Strengthen funding rules applicable to poorly funded plans Consider 
additional tax deductible funding flexibility; 
* Limit lump sums in underfunded plans; 
* Modify program guarantees (e.g., phase-in rules); 
* Raise and modify pension premiums (e.g., nature of risk related 
premiums); 
* Eliminate floor/offset arrangements with significant investment 
concentrations in employer securities; 
* Increase transparency of current plan funding information; 
* Modify bankruptcy laws; 
* Address issues surrounding certain hybrid plans (e.g., cash balance 
plans). 

[End of slide presentation]