2026 Trustees Report Issued — Once Again, Results Are Worse Than We Predicted

The
2026 OASDI Trustees Report was released today. Last month, we estimated
that Social Security’s long‑range actuarial balance as of January 1,
2026 would be –4.14% of the present value of taxable payroll over the next 75 years (down from –3.82% in 2025), corresponding to a funded status of roughly 76%. Our estimate turned out to be optimistic.Under the Trustees’ revised intermediate assumptions, the actual long‑range actuarial balance as of January 1, 2026 is –4.42% of taxable payroll, implying a funded status of 75.6%.Most of the difference between our estimate and the Trustees’ result reflects changes in assumptions,
including more conservative fertility and immigration assumptions,
partially offset by more optimistic near‑term economic assumptions.Using
different assumptions—some would argue more realistic—the Congressional
Budget Office (CBO) calculated a 75‑year actuarial balance (deficit) as
of January 1, 2025 of –4.9% of taxable payroll. Under the CBO’s more conservative assumptions, the system’s funded status would be about 72%, meaning the system has roughly $0.72 in assets for each $1 in liabilities.The Valuation Date ProblemUnder generally accepted actuarial practice, a system’s funded status should remain unchanged from year to year if:all assumptions are realized,assumptions remain unchanged, andbenefits remain unchanged.Unfortunately, this is not the case for Social Security. Because the projection period is limited to 75 years,
deficits beyond the 75‑year window are ignored. Each year, the
valuation drops a relatively low‑cost year at the beginning of the
window and adds a high‑cost year at the end. This mechanical shift
increases the long‑term deficit even if nothing else changes.Social Security actuaries refer to this as the “change in the valuation date.” We call it Valuation Date Creep.Since 1983, Valuation Date Creep has consistently added about 0.05%–0.06% of taxable payroll to the long‑range deficit each year. Last year it was 0.07%, and we expect similar values going forward until the system is reformed.We
won’t rant about Valuation Date Creep here—you can find plenty of that
in our earlier posts. Instead, we reiterate our view that Sustainable Solvency
is a far better measure of the system’s financial condition because it
directly addresses the valuation‑date problem and provides a more
realistic assessment of long‑range cost. The current 75‑year measure overstates the system’s funded status and understates its long‑term cost.Unfortunately,
neither the Social Security actuaries nor the Trustees publish the
sustainable solvency measure, nor do they project how the 75‑year
actuarial balance is expected to deteriorate in future years absent
legislative action.Short‑Term Cash Flow ProblemMost Americans are less concerned with the long‑term imbalance and more focused on the short‑term cash flow problem. This year’s report projects:OASI trust fund depletion in 2032, andcombined OASDI depletion in 2034,both under the intermediate assumptions.Conflating the Long‑Term and Short‑Term ProblemsWe have seen many recent proposals to “fix” Social Security that rely heavily on future benefit reductions. While such reductions can help address the long‑term imbalance, they do very little
to address the short‑term cash flow problem if current benefit levels
are preserved for current beneficiaries and those already eligible.If
Congress “grandfathers” benefits for all current beneficiaries and
currently eligible workers, the short‑term cash flow problem can only be
addressed through significantly higher revenues, not
benefit reductions. For example, limiting benefits to $50,000 per year
(not indexed for inflation) would do almost nothing to change the
projected trust fund exhaustion dates.Really—Is Eliminating Taxes on Benefits Still on the Table?We
estimate that eliminating taxes on Social Security benefits would
reduce the system’s funded status from the Trustees’ 2026 estimate of 75.6% to about 71%. It would also hasten the projected trust fund exhaustion date. And remember: 71% is still an overstated figure
because it is based on SSA assumptions (which still may be optimistic)
and the flawed 75‑year projection period discussed above.SummarySocial Security’s funded status—measured using a flawed and possibly optimistic long‑term metric—remains in the 70%–75% range and is deteriorating each year due to Valuation Date Creep.We encourage Congress to adopt reforms that will bring the system into sustainable solvency and include automatic adjustment mechanisms to help maintain that status over time.