WHAT IS 'Actuarial Balance'

Actuarial balance is the difference between future Social Security obligations and the income rate of the Social Security Trust Fund as of the present.

BREAKING DOWN 'Actuarial Balance'

Actuarial balance is calculated for 66 different valuation periods, beginning with the upcoming 10-year period and growing with each successive year up to the full 75-year projection. If at any point over the 75-year projection the anticipated costs of Social Security exceed the future value of the trust fund's income, that period would be deemed to be out of actuarial balance. The difference would theoretically be the difference in the tax rate of Social Security provided from FICA. The Social Security program would be said to be in actuarial balance if the summarized income rate is in line with the summarized cost rate of Social Security for any given valuation period. This commonly is referred to as the solvency of the Social Security System.

Social Security

Social Security is an important part of the Old-Age, Survivors, and Disability Insurance (OASDI) program. This is a social welfare and insurance plan managed by the U.S. federal government that pays benefits to retirees as well as to workers who become disabled and to survivors of deceased workers. Social Security's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year.

Based on year of birth, retirement benefits may begin as early as age 62 and as late as age 70. The amount of income received is based on  average indexed monthly earnings during the 35 years in which the individual earned the most.  Spouses are also eligible to receive Social Security benefits, even if they have limited or non-existent work histories. A divorced spouse can also receive spousal benefits, if the marriage lasted 10 years or longer. 

The original program was part of President Franklin D. Roosevelt's New Deal plan to lift the U.S. out of the Great Depression. Today, the program is funded through payroll taxes collected by employees and companies; monies are placed into the Social Security Trust Fund and payments are managed by the government along with the Federal Reserve Board. Social Security has faced serious solvency issues for many decades. Today's payments are made from current payroll contributions by workers who may not have money available for them when they retire. Social Security reform, whether through legislation, tax law changes, or privatization, has been a major political issue that draws strong opinions from different demographic segments. Social Security faces the real threat of becoming insolvent because of factors such as longer life expectancies, a large baby boomer population currently entering retirement age, and inflation.

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