Each year, in early spring, the trustees of Social Security release their report. As required by law, the

trustees present what can be described as their best guesses for three different scenarios for the future of

Social Security. In their annual report for 2004, the trustees project that Social Security will take in more

in income than it will pay out in expenditures until 2018. Between 2018 and 2028, interest income earned

on the trust fund assets is forecasted to make up the difference between income and expenditures. After

2028, Social Security is expected to draw down its trust funds to pay for the expenditures that are not

covered by income. Finally, in 2042, the trust fund assets are expected to be gone, and income is projected

to be less than expenditures. However, the trustees project that Social Security will still be able to

pay 74% of its promised benefits from 2042 to 2078, and those benefits would still be higher in real

(inflation-adjusted) terms than retirees are being paid today.

Social Security is not going broke.

The trustees instead project a financing shortfall that may happen

almost 40 years from now. The nonpartisan Congressional Budget Office doesn't project a shortfall until

2052. The trustees' projections are based on pessimistic assumptions. Real growth is expected to fall to

between 1.7% and 1.8% over the long-run, which has never been the case for an extended period of time

during the post-war years. Similarly, the trustees assume that in the long-run the economy will settle on an

average productivity growth rate of 1.6%, which is again too low by historical standards. Higher

productivity and consequently faster real wage growth -- which have both historically been about 2.0%-