The 2005 Annual Report of the Social Security Trustees is now available on the Social Security Administration's Web site. In addition to summarizing the program's operations over the past year, the annual report makes short- and long-range estimates of Social Security's future financial status.

Highlights from this year's report include:

• Promised benefits will exceed income starting in 2017, one year earlier than previously expected. At that point, the reserves now accumulating in Social Security's trust fund will be sufficient to cover promised benefits for two more decades.
  
• In 2041, the trust fund will be exhausted, also one year earlier than last year's report projected.
  
• If nothing is done, after 2041 the program will still be able to pay 74 percent of promised benefits.
• Increasing the payroll tax (currently 12.4 percent of taxable wages, half from workers and half from employers) to 14.32 percent each year would be sufficient to completely make up for the long-term shortfall.
• Under slightly more optimistic estimates, the trustees predict that no shortfall will occur, and the program will continue paying benefits indefinitely.

• For more analysis on the report, its projections, and changes since 2004, read analysis from: the Center for Economic and Policy Research (PDF), the Center on Budget and Policy Priorities, the National Academy of Social Insurance (PDF), the Center for Retirement Research (PDF), and the Center for American Progress.
• The nonpartisan Congressional Budget Office offers an independent official perspective on Social Security's long-term financial outlook. Their analysis, which some experts consider more accurate than the trustees' report, sets the date for trust fund exhaustion more than a decade later, in 2053.
  

It is important to remember that the trustees' projections are based on a complex series of assumptions about what the U.S. population and economy will look like decades down the road. Needless to say, predicting the future is nearly impossible, and our assumptions become less reliable as we project further from the present. While these estimates represent our best guess about how future conditions will affect Social Security, they are inherently uncertain.

Recognizing this uncertainty, the trustees produce not only an "Intermediate" forecast (most commonly referred to), but a "Low Cost" and a "High Cost" forecast as well. Each of these has plausible assumptions but different consequences. In 2004, the outlook for Social Security improved to the point that the Low Cost forecast no longer projects depletion of the reserves, which is also true for the 2005 report. As the figure below demonstrates, the moderately optimistic Low Cost forecast has reserves growing larger and larger, long after the Intermediate forecast has reserves depleted. That is to say, if the assumptions in the optimistic forecast turn out to be correct, the Social Security crisis simply never happens.

Indeed, the forecasts in the annual trustees' reports have been steadily improving for a number of years (see table below). Compare the 2041 exhaustion date in this year's report to the 1997 projections, when the trust fund was scheduled to run out 13 years earlier, in 2029. (See Bob Greenstein, CBPP, What the Trustees' Report Indicates about the Financial Status of Social Security, March 2004)

The fact is, very small modifications in assumptions generate huge differences from year to year and between the different forecasts. A few tenths of a percent difference in average annual GDP growth or the rate of immigration can make all the difference between a forecast where the system runs short of funds, and a scenario where the system is solvent forever. Indeed, many analysts have argued that the assumptions used in the Intermediate forecast are actually too pessimistic. (See Bernard Wasow, Scare Tactics: Why Social Security is Not in Crisis)