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Report to Congressional Requesters:

United States General Accounting Office:

GAO:

July 2003:

Social Security Reform:

Analysis of a Trust Fund Exhaustion Scenario:

GAO-03-907:

GAO Highlights:

Highlights of GAO-03-907, a report to congressional requesters

Why GAO Did This Study:

Social Security is an important social insurance program affecting 
virtually every American family. It is the foundation of the nation’s 
retirement income system and also provides millions of Americans with 
disability insurance and survivors’ benefits. Over the long term, as 
the baby boom generation retires, Social Security’s financing 
shortfall presents a major solvency and sustainability challenge.

The Chairman of the Senate Special Committee on Aging and the Chairman 
of the Senate Committee on Finance asked GAO to use its analytic 
framework to evaluate an illustrative “Trust Fund Exhaustion” scenario 
under which benefits are reduced proportionately for all beneficiaries 
by the shortfall in revenues occurring upon exhaustion of the combined 
Old-Age and Survivors Insurance and Disability Insurance Trust Funds. 
The analytic framework consists of three basic criteria: (1) the 
extent to which the proposal achieves sustainable solvency and how it 
would affect the U.S. economy and the federal budget; (2) the balance 
struck between the twin goals of income adequacy and individual 
equity; and (3) how readily changes could be implemented, 
administered, and explained to the public. The Trust Fund Exhaustion 
scenario is intended as an analytic tool, not a legal determination.

What GAO Found:

The “Trust Fund Exhaustion” scenario underscores the need to take 
action sooner rather than later to address Social Security’s financing 
shortfall. In so doing, the scenario illustrates trade-offs between 
sustainable solvency and benefit adequacy and equity.

By definition this scenario would achieve sustainable solvency because 
after trust fund exhaustion, benefit payments would be adjusted each 
year to equal annual tax income. Before exhaustion, the scenario would 
have the same unified fiscal results as paying currently scheduled 
benefits with no policy changes. After exhaustion, fiscal results 
would be increasingly similar to funding currently scheduled benefits 
with a tax increase (tax increase benchmark) and a benefit reduction 
benchmark that incorporates gradual and progressive reductions.

Benefits would differ sharply over time. Before trust fund exhaustion, 
currently scheduled benefits would be paid in full. After, benefits 
for all would be reduced across the board by 27 percent (to 73 percent 
of currently scheduled levels). Additional reductions would need to be 
taken in successive years such that at the end of the 75-year 
projection period, benefits would be reduced by 33 percent (to 67 
percent of currently scheduled levels).

The Trust Fund Exhaustion scenario raises significant 
intergenerational equity issues. Specifically, a much greater burden 
would be placed on younger generations. Those born in 1955 would see 
no benefit reductions until age 83, while those born in 1985 would 
experience reduced benefits immediately upon retirement and benefits 
lower than under either GAO’s benefit reduction benchmark or tax 
increase benchmark in all years of retirement. Consequently, lifetime 
benefits would be reduced more for younger generations. Benefits would 
be adjusted proportionately for all recipients, increasing the 
likelihood of hardship for lower-income retirees and the disabled.

Assessing the Social Security Administration’s (SSA) administrative 
challenges under this scenario is difficult given a lack of historical 
precedent and legislative clarity on how SSA would proceed. A focus on 
cash management would be needed to calculate and implement the needed 
ongoing benefit adjustments.

www.gao.gov/cgi-bin/getrpt?GAO-03-907.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Barbara Bovbjerg at 
(202) 512-7215 or Susan Irving at (202) 512-9142.

[End of section]

Contents:

Letter:

Concluding Observations:

Agency Comments and Our Evaluation:

Appendix I: Briefing Slides:

Appendix II: Methodology:

Fiscal Model:

Benefit Model:

Table:

Table 1: Fiscal Model Assumption Summary:

Abbreviations:

GDP: gross domestic product:

GEMINI: Genuine Microsimulation of Social Security and Accounts:

MINT3: Modeling Income in the Near Term:

OASDI: Old-Age and Survivors Insurance and Disability Insurance:

PENSIM: Pension Simulator:

PSG: Policy Simulation Group:

SSA: Social Security Administration:

SSASIM: Social Security and Accounts Simulator:

United States General Accounting Office:

Washington, DC 20548:

July 29, 2003:

The Honorable Larry E. Craig 
Chairman 
Special Committee on Aging 
United States Senate:

The Honorable Charles Grassley 
Chairman 
Committee on Finance 
United States Senate:

This report responds to your request that we apply our criteria for 
assessing Social Security reform proposals to a "Trust Fund Exhaustion" 
scenario. As requested, this analysis assumes that once the combined 
Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust 
Funds are exhausted, monthly benefit checks will be reduced in 
proportion to the annual shortfall, effectively reducing everyone's 
benefits across-the-board.[Footnote 1]

As agreed with your offices, our report is based on the analytic 
framework we have previously used to evaluate Social Security reform 
proposals.[Footnote 2] This framework consists of three basic criteria:

* The extent to which the proposal achieves sustainable solvency and 
how it would affect the U.S. economy and the federal budget.

* The balance struck between the twin goals of income adequacy (level 
and certainty of benefits) and individual equity (rates of return on 
individual contributions).

* How readily changes could be implemented, administered, and explained 
to the public.

As in our evaluations of reform proposals, our assessment of the Trust 
Fund Exhaustion scenario uses a set of detailed questions that help 
describe potential effects of reform models on important policy and 
operational aspects of public concern. These questions are displayed in 
the report.

It is important to keep in mind that focusing on trust fund solvency 
alone is not sufficient. Solvency does not tell us whether the program 
is sustainable--that is, whether the government will have the capacity 
to pay future claims or what else will have to be squeezed to pay those 
claims.

Although the Trustees' 2003 intermediate estimates show that the 
combined Social Security Trust Funds will be solvent until 
2042,[Footnote 3] program spending will constitute a growing share of 
the budget and the economy well before that date. In 2008, the first 
baby boomers will become eligible for Social Security benefits, and in 
2009 Social Security's cash surplus--the difference between program tax 
income and the costs of paying scheduled benefits--will begin a 
permanent decline. By 2018, Social Security's tax income is projected 
to be insufficient to pay currently scheduled benefits. Importantly, 
neither the decline in the cash surpluses nor the cash deficit will 
affect the payment of benefits. However, the shift from positive to 
negative cash flow will place increased pressure on the federal budget 
to raise the resources necessary to meet the program's ongoing costs. 
If you look ahead in the federal budget, Social Security together with 
the rapidly growing health programs (Medicare and Medicaid) will 
dominate the federal government's future fiscal outlook. Absent reform, 
the nation will ultimately have to choose between persistent, 
escalating federal deficits, significant tax increases, and/or dramatic 
budget cuts of unprecedented magnitude.

In analyzing the Trust Fund Exhaustion scenario, we used estimates 
provided in a memorandum dated May 8, 2003, prepared by the Social 
Security Administration's (SSA) Office of the Chief Actuary. Under 
these estimates, the cost of OASDI benefits equals OASDI income once 
the combined trust funds are exhausted.[Footnote 4] The analyses 
presented in this report are based on the Trustees' best, or 
intermediate, estimates of the 2001 OASDI Trustees Report.[Footnote 5] 
Accordingly, our assessment uses the same framework as our January 15, 
2003, report to you on the reform models put forward by the President's 
Commission to Strengthen Social Security.[Footnote 6] This report 
follows the format of and uses the same economic assumptions as that 
report.

Although any proposal's ability to achieve and sustain solvency is 
sensitive to economic and budgetary assumptions, using a common 
framework can facilitate comparisons of alternative reform proposals. 
Our analysis of the Trust Fund Exhaustion scenario uses the same three 
benchmarks as did our January report:[Footnote 7]

* The "benefit reduction benchmark" assumes a gradual reduction in the 
currently scheduled Social Security defined benefit beginning with 
those newly eligible for retirement in 2005. Current tax rates are 
maintained.

* The "tax increase benchmark" assumes an increase in the OASDI payroll 
tax beginning in 2002 sufficient to achieve an actuarial balance over 
the 75-year period. Currently scheduled benefits are maintained.

* The "baseline extended" benchmark is a fiscal policy path developed 
in our earlier long-term model work that assumes payment in full of 
currently scheduled Social Security benefits throughout the simulation 
period and no other changes in current spending or tax 
policies.[Footnote 8]

As in other work assessing Social Security reform proposals, we used 
our long-term economic model in assessing the Trust Fund Exhaustion 
scenario against the first criterion, that of financing sustainable 
solvency.[Footnote 9] Our sustainable solvency standard encompasses 
several different ways of looking at the Social Security program's 
financing needs.

While 75-year actuarial balance is generally used in evaluating the 
long-term financial outlook of the Social Security program and reform 
proposals, it is not sufficient in gauging the program's solvency after 
the 75th year. For example, under the Trustees' intermediate 
assumptions, the 75-year actuarial period changes each year, and a year 
with a surplus is replaced by a new 75th year that has a significant 
deficit. As a result, changes made to restore trust fund solvency only 
for the 75-year period can result in future actuarial imbalances almost 
immediately. Reform plans that lead to sustainable solvency would be 
those that consider the broader issues of fiscal sustainability and 
affordability over the long term.[Footnote 10] In analyzing reform 
plans, the key fiscal and economic point is the ability of the 
government and society to afford the commitments when they come due. 
Our analysis addresses this key point by looking at the level and 
trends over 75 years in deficits, cash needs, and gross domestic 
product (GDP) consumed by the program.

To examine how the Trust Fund Exhaustion scenario balances adequacy and 
equity concerns, we used the Genuine Microsimulaion of Social Security 
and Accounts (GEMINI) model, a dynamic microsimulation model for 
analyzing the lifetime implications of Social Security policies for a 
large sample of people[Footnote 11] born in the same year. GEMINI can 
simulate different reform features for their effects on the level and 
distribution of benefits. To assess benefit adequacy over time, we 
display median monthly benefit levels for those born in 1955, 1970, and 
1985 ("birth cohorts") at different ages as well as their median 
lifetime benefits.

In analyzing reform proposals, we have stated that the use of our 
criteria to evaluate approaches to Social Security reform highlights 
the trade-offs that exist between efforts to achieve solvency for the 
combined OASDI Trust Funds and efforts to maintain adequate retirement 
income for current and future beneficiaries. For example, in our 
January report, we observed that the Commission reform models 
illustrate some of the options and trade-offs that will need to be 
considered as the nation debates how to reform Social Security. The 
Commission's proposals also illustrated the difficulty reform proposals 
face generally in balancing adequacy (level and certainty of benefits) 
and equity (rates of return on individual contributions) 
considerations.

The Trust Fund Exhaustion scenario illustrates the trade-offs between 
sustainable solvency and benefit adequacy and equity in a different 
way. By definition, this scenario would achieve sustainable solvency 
because once the combined trust funds have run out, benefit payments 
would be adjusted (i.e., reduced) each year to equal annual tax income. 
Under this scenario, shares of the federal budget and the economy 
devoted to Social Security would be lower compared to currently 
scheduled benefits. From a fiscal perspective, before exhaustion, the 
scenario would have the same unified fiscal results as paying currently 
scheduled benefits with no policy changes. Before 2038, the Trust Fund 
Exhaustion scenario would reduce unified surpluses and increase unified 
deficits compared to the tax increase benchmark by the same amounts as 
the baseline extended benchmark. Subsequently, the Trust Fund 
Exhaustion scenario would result in unified fiscal results increasingly 
similar to both the tax increase benchmark and the benefit reduction 
scenario over the 75-year period. Before 2038, the Trust Fund 
Exhaustion scenario would require the same amounts of cash as the tax 
increase or baseline extended benchmarks; subsequently, the Trust Fund 
Exhaustion scenario would require less cash each year than any of the 
three benchmarks.

Under the Trust Fund Exhaustion scenario, the effect on benefits would 
differ sharply before and after exhaustion took place. Before 
exhaustion, benefits would be the same as those currently scheduled, 
reflected in both the tax increase and baseline extended benchmarks. 
Once the combined trust funds run out, benefits for all would be 
reduced across the board and remain below currently scheduled levels. 
Accordingly, after trust fund exhaustion all those receiving benefits 
would experience a sharp drop in benefits compared to currently 
scheduled levels; under the Trustees' 2001 intermediate estimates, this 
drop is estimated at 27 percent (or 73 percent of currently scheduled 
levels) in 2039.[Footnote 12] Small further reductions would need to be 
taken in successive years such that by 2076 benefits would be one-third 
below currently scheduled benefits (i.e., to 67 percent of currently 
scheduled levels).

The Trust Fund Exhaustion scenario raises significant intergenerational 
issues. Specifically, due to the timing of the reductions under the 
Trust Fund Exhaustion scenario, younger generations would bear much 
greater benefit reductions. Those born in 1955 would see no benefit 
reductions until they reached age 83,[Footnote 13] while those born in 
1985 would receive lower benefits than under either GAO's benefit 
reduction or tax increase benchmarks in all years of retirement. 
Consequently, lifetime benefits would be reduced more for younger 
generations. Under the Trust Fund Exhaustion scenario that we used, 
benefits would be adjusted proportionately for all recipients, 
increasing the likelihood of hardship for lower-income retirees and the 
disabled, especially those who rely on Social Security as their primary 
or sole source of retirement income.

The nature and scope of SSA's administrative challenges under the Trust 
Fund Exhaustion scenario are difficult to describe or assess given a 
lack of historical precedent and legislative clarity on how SSA would 
proceed. At a minimum, a focus on cash management would be needed for 
SSA to calculate and implement the ongoing benefit adjustments required 
under the scenario.

Concluding Observations:

The use of our criteria to evaluate approaches to Social Security 
reform highlights the trade-offs that exist between efforts to achieve 
sustainable solvency and to maintain adequate retirement income for 
current and future beneficiaries. These trade-offs can be described as 
differences in the nature and extent of the risks for individuals and 
the nation as a whole.

At the same time, the defined benefit under the current Social Security 
system is also uncertain. The primary risk is that a funding gap exists 
between currently scheduled and funded benefits which, although it will 
not occur for a number of years, is significant and will grow over 
time. Other risks stem from uncertainty in, for example, future levels 
of productivity growth, real wage growth, and demographics. Congress 
has revised Social Security many times in the past, and future 
Congresses could decide to revise benefits in ways that leave those 
affected little time to adjust. As Congress deliberates approaches to 
Social Security, the national debate also needs to include discussion 
of the various options for reform and the timing in which it should 
occur.

Early action to change Social Security would yield the highest fiscal 
dividends for the federal budget and would provide a longer period for 
prospective beneficiaries to make adjustments in their own planning. 
Waiting to build economic resources and reform future claims entails 
risks. First, we lose an important window where today's relatively 
large workforce can increase saving and enhance productivity, two 
elements critical to economic growth. We also lose the opportunity to 
reduce the burden of interest payments, thereby creating a legacy of 
higher debt as well as elderly entitlement spending for the relatively 
smaller workforce of the future. Most critically, we risk losing the 
opportunity to phase in changes gradually so that all can make the 
adjustments needed in private and public plans to accommodate this 
historic shift. Unfortunately, the window of opportunity to address the 
entitlement challenge is narrowing. As the baby boom generation retires 
and the numbers of those entitled to these retirement benefits grow, 
the difficulties of reform will be compounded. Accordingly, it remains 
more important than ever to deal with these issues over the next 
several years.

Agency Comments and Our Evaluation:

We provided a draft of this report to SSA. SSA provided informal 
technical comments, which we have incorporated where appropriate.

We are sending copies of this report to Senator John Breaux, Ranking 
Minority Member, Senate Special Committee on Aging; Senator Max S. 
Baucus, Ranking Minority Member, Senate Committee on Finance; the 
Honorable William M. Thomas, Chairman, and the Honorable Charles B. 
Rangel, Ranking Minority Member, House Committee on Ways and Means; the 
Honorable E. Clay Shaw, Chairman, and the Honorable Bob Matsui, Ranking 
Minority Member, Subcommittee on Social Security, House Committee on 
Ways and Means; and the Honorable Jo Ann B. Barnhart, Commissioner, 
Social Security Administration. We will also make copies available to 
others on request. In addition, the report will be available at no 
charge on GAO's Web site at http://www.gao.gov.

If you or your offices have any questions about this report, please 
contact Barbara D. Bovbjerg, Director, Education, Workforce, and Income 
Security Issues, on (202) 512-7215, or Susan Irving, Director, 
Strategic Issues, on (202) 512-9142.

David M. Walker 
Comptroller General of the United States:

Signed by David M. Walker: 

[End of section]

Appendix I Briefing Slides:

[See PDF for image]

[End of section]

Appendix II Methodology:

Fiscal Model:

The model simulates the interrelationships between the budget and the 
economy over the long term and does not reflect their interaction 
during short-term business cycles. Long-term simulations provide 
illustrations--not precise forecasts--of the relative fiscal and 
economic outcomes associated with alternative policy paths. They are 
useful for comparing the potential outcomes of alternative policies 
within a common economic framework over the long term. Recognizing 
their inherent uncertainties, we have generally chosen conservative 
assumptions, such as holding interest rates and total factor 
productivity growth constant. Variations in these assumptions generally 
would not affect the relative outcomes of alternative policies.

Table 1: Fiscal Model Assumption Summary:

Model Inputs: Social Security spending (OASDI); Assumptions: 2001 
Social Security Trustees' intermediate projections.

Model Inputs: Medicare spending (HI and SMI); Assumptions: 2001 
Medicare Trustees' intermediate assumption that per enrollee Medicare 
spending grows with GDP per capita plus 1 percentage point.

Model Inputs: Medicaid spending; Assumptions: CBO's July 2002 long-term 
assumption that per enrollee Medicaid spending grows with GDP per 
capita plus 1 percentage point.

Model Inputs: Other mandatory spending; Assumptions: CBO's August 2002 
baseline through 2012; thereafter increases at the rate of economic 
growth (i.e., remains constant as a share of GDP).

Model Inputs: Discretionary spending; Assumptions: CBO's August 2002 
baseline through 2012, adjusted for the 2001 Social Security Trustees' 
inflation assumptions; thereafter increases at the rate of economic 
growth.

Model Inputs: Revenue; Assumptions: CBO's August 2002 baseline through 
2012; thereafter remains constant at 20.5 percent of GDP (CBO's 
projection in 2012).

Model Inputs: Nonfederal saving (percent of GDP): gross saving of the 
private sector and state and local government sector; Assumptions: 
Increases gradually over the first 10 years to 17.5 percent of GDP (the 
average nonfederal saving rate from 1992-2001).

Model Inputs: Net foreign investment (percent of GDP); Assumptions: 
Increases (or decreases) from 2002 share of GDP by one-third of any 
increase (or decrease) in gross national saving through 2012; 
thereafter increases (or decreases) from 2012 nominal dollar level by 
one-third of any increase (or decrease) in gross national saving.

Model Inputs: Labor: growth in hours worked; Assumptions: 2001 Social 
Security Trustees' intermediate projections.

Model Inputs: Total factor productivity growth; Assumptions: Consistent 
with labor productivity growth in 2001 Social Security Trustees' 
intermediate projections.

Model Inputs: Inflation (GDP price index and CPI); Assumptions: 2001 
Social Security Trustees' intermediate projections.

Model Inputs: Interest rate (average on the national debt); 
Assumptions: CBO's August 2002 implied real average interest rate 
through 2011 adjusted for the 2001 Social Security Trustees' 
intermediate inflation assumptions; 6.3 percent thereafter.

Source: GAO.

[End of table]

Benefit Model:

Genuine Microsimulation of Social Security and Accounts (GEMINI) is a 
microsimulation model developed by the Policy Simulation Group (PSG). 
GEMINI is linked with two other PSG models, the Social Security and 
Accounts Simulator (SSASIM), which has been used in numerous GAO 
reports, and the Pension Simulator (PENSIM), which has been developed 
for the Department of Labor. For our report, we used SSASIM to produce 
Social Security policy regimes consistent with the benefit reduction 
benchmark, the tax increase benchmark, and the Trust Fund Exhaustion 
scenario. PENSIM produced simulated samples, sometimes called synthetic 
samples, of lifetime histories, including earnings, educational 
attainment, marriage, disability, and death, for the cohorts born in 
1955, 1970, and 1985. The lifetime histories were validated against 
data from the Survey of Income and Program Participation, the Current 
Population Survey, Modeling Income in the Near Term (MINT3),[Footnote 
14] and the Panel Study of Income Dynamics. Additionally, any projected 
statistics (such as life expectancy, educational attainment, employment 
patterns, and marital status at age 60) are, where possible, consistent 
with intermediate-cost projections from SSA's Office of the Chief 
Actuary. Because PENSIM cannot yet stochastically determine the age at 
which a member of the sample applies for benefits, we assumed that all 
retired worker beneficiaries claim benefits at age 65. GEMINI used the 
lifetime histories produced by PENSIM and the policy regimes produced 
by SSASIM to simulate Social Security benefits for retired and disabled 
workers and auxiliary benefits paid to spouses, widows, and children.

Additional information about GEMINI may be found in three previous GAO 
reports that used the model: Retirement Income: Intergenerational 
Comparisons of Wealth and Future Income, GAO-03-429 (Washington, D.C.: 
Apr. 25, 2003); Social Security Reform: Analysis of Reform Models 
Developed by the President's Commission to Strengthen Social 
Security, GAO-03-310 (Washington, D.C.: Jan. 15, 2003); and Social 
Security: Program's Role in Helping Ensure Income Adequacy, GAO-02-
62 (Washington, D.C.: Nov. 30, 2001).

The GEMINI, PENSIM, and SSASIM models are updated to reflect changes in 
information sources. Notable changes from recent reports include 
updated mortality and disability patterns to reflect new information 
from SSA's Office of the Chief Actuary. For more information on the 
models, see the PSG Web site at www.polsim.com.

FOOTNOTES

[1] As presented in this report, the Trust Fund Exhaustion scenario 
illustrates potential outcomes, assuming that (a) the exhaustion of the 
combined OASDI Trust Funds in 2038 under the intermediate assumptions 
of the 2001 OASDI Trustees Report, (b) future program income and costs 
follow projections made by the Office of Chief Actuary at the Social 
Security Administration, and (c) only payroll taxes and taxes on 
benefits flow into the trust fund. The scenario is intended as an 
analytic tool, not a legal determination. 

[2] See U.S. General Accounting Office, Social Security: Evaluating 
Reform Proposals, GAO/AIMD/HEHS-00-29 (Washington, D.C.: Nov. 4, 1999) 
and Social Security Reform: Information on the Archer-Shaw Proposal, 
GAO/AIMD/HEHS-00-56 (Washington, D.C.: Jan. 18, 2000).

[3] Separately, the Disability Insurance (DI) Trust Fund is projected 
to be exhausted in 2028 and the Old-Age and Survivors Insurance (OASI) 
Trust Fund in 2044. 

[4] Income is defined as income from scheduled payroll-tax 
contributions and a portion of the income from taxation of scheduled 
benefits. The latter was adjusted to reflect the lower expected 
revenues from benefit taxation.

[5] Under the 2001 Trustees' intermediate estimates, the combined OASDI 
Trust Funds are projected to reach exhaustion in 2038. Under the 2003 
Trustees' intermediate estimates, the projected exhaustion date is 
2042.

[6] See U.S. General Accounting Office, Social Security Reform: 
Analysis of Reform Models Developed by the President's Commission to 
Strengthen Social Security, GAO-03-310 (Washington, D.C.: Jan. 15, 
2003).

[7] From the perspective of analyzing benefit adequacy, the tax 
increase and baseline extended benchmarks are identical because both 
assume payment in full of scheduled Social Security benefits over the 
75-year simulation period. Our benchmarks are solvent for the 75-year 
projection period commonly used by SSA's Office of the Chief Actuary, 
but they do not achieve sustainable solvency. Both the benefit 
reduction and tax increase benchmarks are explicitly fully funded, and 
we worked closely with SSA's Office of the Chief Actuary in its design. 


[8] Implicitly, therefore, after exhaustion benefits are paid in part 
by increased borrowing from the public.

[9] For this analysis, consistent with SSA's scoring of the Commission 
reform models, our long-term economic model incorporates the 2001 
Trustees' best, or intermediate, assumptions.

[10] The Trustees have used the term "sustainable solvency" to mean 
maintaining a trust fund balance that is positive and either level or 
increasing as a percent of the annual cost of the program at the end of 
the 75-year period. GAO's definition of sustainable solvency seeks to 
gain a more complete perspective of a proposal's likely effects on the 
program, the federal budget, and the economy.

[11] The GEMINI cohorts consist of simulated samples of 100,000 
individuals, sometimes called synthetic samples. These samples were 
validated against data from the Social Security Administration's Annual 
Statistical Supplement, the Survey of Income and Program Participation, 
the Current Population Survey, Modeling Income in the Near Term, and 
the Panel Survey of Income Dynamics.

[12] In 2038, the year the trust fund is exhausted, the benefit 
reduction would be about 7 percent because trust fund assets would be 
available for part of the year to pay benefits. In 2039, the first full 
year after the trust fund is exhausted, benefits would fall sharply, to 
about 27 percent below currently scheduled levels. Under the Trustees 
2003 intermediate estimates, the overall drop is approximately the 
same.

[13] Assuming individuals are born on January 1st.

[14] MINT3 is a detailed microsimulation model developed jointly by the 
Social Security Administration, the Brookings Institution, RAND, and 
the Urban Institute to project the distribution of income in retirement 
for the 1931 to 1960 birth cohorts.

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