3 possible scenarios from the social security administration.

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Internal rates of return are presented in tables 1 through 6 for hypothetical scaled workers who differ by year of birth, earnings level, and family grouping. The rates of return in tables 1 and 4 are based on the contributions and benefits scheduled in present law. This scenario is referred to as Present Law Scheduled. Because scheduled income is not projected to be sufficient to fully finance scheduled benefits for the OASDI program after 2041, two additional scenarios are included and are described below.

Increased Payroll Tax-Payroll-tax rates are increased above those scheduled in current law for each year after 2041. The amount of increase would be the amount needed such that total program income would fully finance the benefits scheduled in present law2. The internal rates of return for this scenario are presented in tables 2 and 5.

Payable Benefits-Benefits scheduled in present law are reduced by an annual percentage for each year after 2041. The annual percentage reduction would be the amount needed such that present-law tax and other program income would be sufficient to pay the resulting benefits2. The internal rates of return for this scenario are presented in tables 3 and 6.

Because the Social Security program has operated on a largely pay-as-you-go (PAYGO) basis, the level of contributions of each generation of workers is not directly related to the benefits they will receive. Under a PAYGO plan, benefits are not based on the accumulation of individual contributions, as in a defined contribution plan, nor are annual contributions determined based on scheduled future benefits of current workers and beneficiaries, as in an advance-funded defined benefit plan. Rather, the combined amount of contributions from workers and employers needed to fund the system at any time has been largely determined by the total amount of benefits to be paid at that time. The internal rates of return depend on the contribution tax rates and Social Security benefit levels set by Congress. They do not in any significant way reflect the rate of interest on assets invested in the OASI and DI Trust Funds.

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For this note, internal rates of return were determined for three scenarios of the OASDI program, Present Law Scheduled, Increased Payroll Tax, and Payable Benefits. The Present Law Scheduled scenario is based on the taxes and benefits specified in present law, even though the program income and assets under present law are projected to be inadequate to fully pay all benefits through the 75-year projection period.

Under the Increased Payroll Tax scenario, payroll-tax rates are assumed to be increased as needed beginning in the year of trust-fund exhaustion so that present-law scheduled benefits would always be payable in each year. The payroll-tax rate would begin to increase from the present law amount of 12.4 percent beginning in 2042. The payroll-tax rate increases to 17.01 percent in 2043 and continues to increase year-by-year until reaching 18.32 percent in 2078. It is expected that, under this scenario, further increases in the payroll tax rate would be needed after 2078 due to continuing increases in life expectancy.

The third scenario, Payable Benefits, assumes that benefits are reduced to a level that could be paid using tax rates scheduled in present law. The reductions from scheduled levels would apply to all types of benefits paid during the year. Under the intermediate projections of the 2004 Trustees Report, full scheduled benefits under present law cannot be paid in 2042 and later. Thus, for this scenario, annual reductions would begin in 2042 and would increase each year thereafter. Program income using present-law tax rates is estimated to be sufficient to pay 73.1 percent of scheduled benefits in 2043 and 67.6 percent of scheduled benefits in 2078. It is expected that, under this scenario, annual reductions in the benefits would continue to increase after 2078 due to continuing increases in life expectancy.

http://www.ssa.gov/OACT/NOTES/ran5/an2004-5.html

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1. Also the SS surplus has been revised to exhaust in 2037.

http://www.msnbc.msn.com/id/41293592/ns/politics-more_politics/t/social-security-fund-will-be-drained/

WASHINGTON — Social Security's finances are getting worse as the economy struggles to recover and millions of baby boomers stand at the brink of retirement.
New congressional projections show Social Security running deficits every year until its trust funds are eventually drained in about 2037.

This year alone, Social Security is projected to collect $45 billion less in payroll taxes than it pays out in retirement, disability and survivor benefits, the nonpartisan Congressional Budget Office said Wednesday. That figure swells to $130 billion when a new one-year cut in payroll taxes is included, though Congress has promised to repay any lost revenue from the tax cut.