Age Dependency Ratios and Social Security Solvency







Prepared for Members and Committees of Congress



The aging of the population of the United States, hastened by the impending retirement of the
huge baby-boom generation, has caused some policy-makers to question whether the U.S. Social
Security system can meet the demands for retirement benefits in the future. The financial health
of the system, which is largely financed through payroll taxes paid by current workers in a pay-
as-you-go manner, is sensitive to the ratio of dependents to workers—sometimes called the age
dependency ratio or support ratio.
Trends and projections of dependency ratios, including the relationship between both older (years
65 and older) and younger (under age 20) dependents to the working-age population in the United
States are considered in the first section of this demographic report. If one considers the 130-year
period from 1950-2080, the greatest demographic “burden”—when the number of dependents
(children plus the elderly) most exceeds persons in the working-age population—is already in the
past, having reached its height in 1965 when there were 94.7 dependents per 100 persons of
working age. While the dependency ratio has generally been decreasing since that time, two
trends are evident. First, the ratio of dependents to workers will again reverse course beginning
around year 2013 with the retirement of a large number of baby boomers. Second, the
composition of the dependency ratio is changing. The number of children per worker has been
falling since 1965; most of the anticipated increase in the dependency ratio in the coming decades
reflects a growing proportion of older persons (ages 65 and older). Age-specific trends in the age
dependency ratios are not off-setting in terms of their federal budget implications. Programs
administered by the federal government (especially Social Security and Medicare) focus much
more heavily on assisting the elderly population whereas state and local governments have
historically provided substantial support for families with children through spending on
elementary and secondary education and other programs.
Next, the United States is compared to nine other nations. Seven of the countries are members of
the G8, a consultative grouping of leading industrial democracies: Canada, France, Germany, th
Italy, Japan, Russia, the United Kingdom. (The United States is the 8 member). In addition,
China and India, the two most populous countries globally, are included to highlight that
population aging is occurring even in nations that are less industrialized and have “younger”
current age structures. Population aging, which largely results from declining fertility rates and
increasing survival, is a global phenomenon. Today, the United States is the “youngest” of the
industrialized G8 nations. While the proportion of the U.S. population that is aged 65 and older
will continue to increase, aging in the United States is still projected to be considerably slower
than in any of the other industrialized countries.
In the final section, policy implications of the changing dependent-to-worker ratios are
considered in the context of pay-as-you-go (paygo) social security systems.
This report will be updated every two years.






Backgr ound ..................................................................................................................................... 1
Age Dependency Ratios..................................................................................................................1
Defini ti ons .................................................................................................................... ............. 1
Tr ends ......................................................................................................................... ............... 2
Older Dependents................................................................................................................3
Child Dependents................................................................................................................4
Some Take-Away Messages................................................................................................5
Variability of Future Projections...............................................................................................6
An International Comparison: Is the American Situation Unique?.................................................7
Implications for a Paygo Social Insurance Program......................................................................11
What is Paygo?.........................................................................................................................11
What Made Paygo an Attractive Option for Financing Social Security Systems?..................12
The Current Outlook for Paygo, Given Demographics and Other Factors.............................12
Figure 1. Dependency Ratios: Number of Dependents Per 100 Persons of Working Age,
United States: 1950-2080.............................................................................................................3
Figure 2. Total Projected Dependency Ratio, 2005-2080, Under Three Sets of
Assumptions of Future Mortality, Fertility, and Immigration......................................................7
Figure 3. Number of Older Dependents per 100 Persons of Working Age in Selected
Countries, 2002 and 2025.............................................................................................................8
Figure 4. Number of Child Dependents per 100 Persons of Working Age in Selected
Countries, 2002 and 2025...........................................................................................................10
Figure A-1. Number of Working Age Persons Per 100 Dependents, United States, 1950-
2080 ............................................................................................................................................ 18
Table A-1. Age Dependency Ratios, United States, 1950-2080....................................................14
Appendix. ...................................................................................................................... ................ 14
Author Contact Information..........................................................................................................19






Social Security’s financing problems ... are very large and serious. People are living longer,
the first baby-boomers are nearing retirement, and the birth rate is low. The result is that the
worker-to-beneficiary ratio has fallen from 16.5-to-1 in 1950 to 3.3-to-1 today. Within 40
years it will be 2-to-1. At this ratio there will not be enough workers to pay scheduled 1
benefits at current tax rates.
As highlighted by the Social Security Administration (SSA), the aging of the (United States) 2
population, hastened by the impending retirement of the huge baby-boom generation, has caused
policy-makers to question whether the U.S. Social Security system can meet the demands for
retirement benefits in the future. Because the current system largely pays benefits through taxes 3
paid by current workers, the financial health of the system is sensitive to the ratio of dependents
to workers—sometimes called the age dependency ratio or support ratio. Trends and projections
of dependency ratios, including the relationship between both older (years 65 and older) and
younger (under age 20) dependents to the working-age population in the United States are
considered in the first section of this demographic report. Next, the United States is compared to 4
nine other nations, including the seven other members of the G8. In the final section, policy
implications of the changing dependent-to-worker ratios are considered in the context of pay-as-
you-go (paygo) social security systems.

This section summarizes information on trends and projections over time in the ratio of working-
age persons to persons in the dependent ages in the United States for the period 1950-2080.
The age-dependency ratio relates the number of persons in “dependent” ages (defined here as
persons under the age of 20 and over age 64) to those in “economically productive” ages (20-64
years) in the population. It addresses the question of how many dependents are being supported 5
per 100 persons of working age. The age-dependency ratio is divided into old-age dependency
(the ratio of persons 65 years and older to those in the working ages 20-64) and child dependency 6
(the ratio of people under age 20 to those ages 20-64).

1 Social Security Administration, Social Securitys Future—FAQs, Frequently Asked Questions About Social Securitys
Future; Question: I hear that Social Security has a big financial problem. Why? at http://www.ssa.gov/qa.htm,
accessed Oct. 20, 2006.
2 Americans born in years 1946 to 1964.
3 This is often referred to as a pay-as-you-go (or “paygo”) system.
4 The G8 is a consultative grouping of leading industrial democracies—Canada, France, Germany, Italy, Japan, Russia,
the United Kingdom, and the United States.
5 Alternatively, one could ask how many workers there are to support each dependent. A graph of these trends, which is
not analyzed in the text of this report, is provided in Figure A-1.
6 These age breaks are arbitrary. These are the age breaks used by the SSA in its reporting of the status of the Social
Security trust funds. The age at which a worker could receive full Social Security benefits (the full retirement age,
FRA) was, until recently, age 65. The FRA will gradually rise from 65 to 67 years beginning with people who attained
(continued...)






Based on data contained in the Annual Report (2006) of the Federal Old-Age and Survivors 7
Insurance and Disability Insurance (“Social Security”) Trust Funds, Figure 1 shows the
estimated and projected trends in age-dependency ratios for the period 1950-2080 in the United 8
States. Ratios for years 1950-2005 are historical estimates based on actual data; years 2006-2080
are model-based projections that rely upon assumptions about future trends in mortality, fertility,
and immigration. A detailed table with the underlying population data and age dependency ratios
for years 1950-2080 is provided in Table A-1. Data in this section and in Table A-1 reflect the
Social Security actuaries’ intermediate assumptions (i.e., their best guess) of future trends in the
underlying assumptions. The impact of variability in the assumptions used for the projections is
considered later in this report (Figure 2).
As seen in Figure 1, there were 72.5 dependents per 100 persons of working age in 1950; of
these, 58.7 dependents were children while 13.8 were older persons. The total dependency ratio
reached its height in 1965, just after the last of the Baby Boom generation was born. In 1965,
there were 94.7 (of which 76.5 were children and 18.2 were older persons) dependents per 100
persons of working age. There have been divergent trends for the child and old-age dependency
ratios in recent decades with the child ratio generally falling and that of older persons increasing.
Children continue to out-number older persons in their contribution to the total dependency ratio
in 2006 by a sizable margin: there are 45.9 child and 20.3 older dependents per 100 persons of
working age.

(...continued)
age 62 in 2000 (those born in 1938). See CRS Report 94-622, Social Security: Raising the Retirement Age Background
and Issues, by Geoffrey C. Kollmann.
7 2006 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability
Insurance Trust Funds, May 1, 2006, available at http://www.ssa.gov/OACT/TR/TR05/tr06.pdf, accessed Oct. 20,
2006. (Hereafter cited as Trustees Report, 2006.)
8 Note that data for 2003, 2004, and 2005 are preliminary.






Figure 1. Dependency Ratios: Number of Dependents Per 100 Persons of Working
Age, United States: 1950-2080
Source: Congressional Research Service (CRS) analysis based on statistical tables in: 2006 Annual Report of the
Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, May 1, 2006,
available at http://www.ssa.gov/OACT/TR/TR06/tr06.pdf, accessed Oct. 20, 2006.
Notes: “Dependents” refers to the population under age 20 and age 65 and older; working age refers to
persons ages 20-64 inclusive. Ratios for years 1950-2005 are based on actual data; years 2006-2080 are
projections which rely upon assumptions about future trends in mortality, fertility, and immigration. Projections
use SSA’s intermediate assumptions.
The old-age dependency ratio has generally been increasing since 1950. The baby-boom
generation (persons born between 1946 and 1964) will accelerate the rate at which the old-age
dependency ratio changes. Baby boomers will begin to attain age 65 beginning in 2011 (for those
born in 1946) and continuing through 2029 (for those born in 1964). As highlighted in Figure 1,
the older age dependency ratio will quickly increase as a result of the aging of the baby-boom
generation, from about 21.2 to 34.3 older dependents per 100 persons of working age between 9
2011 and 2029. Population aging, however, will continue to be one of the most important
defining demographic characteristics of the U.S. population, even after the youngest of the baby-10
boom generation passes away. The number of older dependents per 100 persons of working age
will continue to increase, albeit at a slower pace than will be experienced during the years in
which the baby boomers retire. Based on the SSA Trustees’ current assumptions, there will, for
instance, be 42.1 older dependents per 100 workers in 2080.

9 As measured by increases in the median age of the population and increases in the proportion of the population aged
65 and older.
10 See CRS Report RL32701, The Changing Demographic Profile of the United States, by Laura B. Shrestha.
(Hereafter cited as CRS Report RL32701).






These trends reflect forecasts of continuing improved survival at the older ages and continuing 11
low fertility rates. Increasing rates of How Useful Are Dependency Ratios?
survival mean a greater number of older The standard definition of a support ratio is a simple
dependents (the numerator of the ratio), which ratio of the number of persons in broad age groups. The
in turn increases the old-age dependency ratio. ratios do not reflect whether the people of working age
Fewer (than current) births will mean fewer are actually economically productive or whether the
young dependents in the short-run, but will older person and children are economically dependent.
translate into fewer future workers in about For instance, many older persons are financially and physically independent whereas there are substantial
two decades. At that time, the net effect will portions of the working-age population who may not
be that the old-age dependency ratio will be earn incomes because they are unemployed, unable to
increasing (as the number of dependents will work, in school, in prison, or have opted out of the labor
be increasing in the numerator) while the force.
number of working age persons to support Although it is difficult to include factors such as intra-
them will be falling (in the denominator). family financial assistance in an overall measure of social
From the perspective of the Social Security support, it is feasible to consider employment characteristics of the populations in the relevant age
program, the old-age dependency ratio is the groups. Estimates of the “economically active population”
most critical of the dependency measures as it can be further adjusted to account for average
relates the number of potential Social Security retirement ages, levels of pension receipt,
beneficiaries ($ outlays) to the number of institutionalization, the prevalence of disabilities, and
projected payroll tax payers ($ income). Thus, other factors.
the lower the old-age dependency ratio, the This information has been adapted from K. Kinsella, and
lower the dollars paid out versus received, and D. R. Phillips, “Global Aging: The Challenge of Success,”
the better the finances of the Social Security Population Bulletin, vol. 60, no. 1, Mar. 2005.


program outlook.
Referring again to Figure 1 and Table A-1, the child dependency ratio increased from 58.7 to
76.5 child dependents per 100 working age adults between 1950 and 1965, largely reflecting the
birth of the baby-boom generation. Since 1965, the child dependency ratio has experienced a
mostly steady decline due to falling fertility rates in the United States. Nonetheless, in 2006, the
number of child dependents is more than double the number of older dependents—45.9 and 20.3
per 100 working age adults, respectively.
The SSA Trustees’ current projections assume that child dependency ratios will slowly decline
through year 2080 but that the rate of decline will be very slow. Child dependency ratios will stay
in the narrow range of 43.9 to 45.9 child dependents per 100 working age adults throughout this

75-year time span.


Note that, even with the pending retirement of the baby-boom generation, the number of child
dependents has and will continue to be greater than the number of older dependents in each of the
years of the time frame considered here.

11 Note that improved population survival and decreased fertility are the root causes of the aging boom though
immigration also contributes to trends in dependency ratios over time. Immigration is currently and is projected to
remain over-shadowed by the trends in mortality and fertility in the dependency ratios. See CRS Report RL32701, The
Changing Demographic Profile of the United States, by Laura B. Shrestha.




• If the Social Security population estimates and projections for the 130-year
period of 1950-2080 are correct, then the greatest demographic “burden”—when
the number of dependents (children plus the elderly) relative to the working-age
population—is already in the past, having reached its height in 1965 when there
were 94.7 dependents per 100 persons of working age.
• The total number of dependents per 100 persons of working age has generally
been decreasing since 1965 but is expected to reverse course beginning around
year 2013. The change coincides with the retirement of some early cohorts of the
baby-boom generation.
• The composition of the dependency ratio is changing. The number of children per
worker has been falling since 1965; most of the anticipated increase in the
dependency ratio in the coming decades reflects a growing proportion of older
persons (ages 65 and older). These age-specific trends in the age dependency
ratios are not, however, off-setting in terms of their federal budget implications.
Programs carried out by the federal government focus much more heavily on
assisting the elderly population. Based on estimates from the Congressional
Budget Office (CBO), the federal government spent a little over one-third of its
budget—about $615 billion—on transfer payments and services (with the Social
Security and Medicare entitlement programs being the biggest expenditures) for
people age 65 and older in FY2000. Federal spending on children was about
$148 billion, or $175 billion if payments to the children’s parents were 12
included. State and local governments have historically provided substantial
support for families with children through spending on elementary and secondary
education and other programs. Nevertheless, because federal spending dwarfs
state and local figures, total government spending for the average person 65 years 13
or older is still much greater than for the average child.
• Age dependency ratios, while providing a glimpse at how the age structure of the
population is changing, are nonetheless crude measures that do not take into
consideration whether persons of working age are actually working and
supporting the economy, nor whether dependents are truly economically
dependent and receiving transfers from working-age persons. Furthermore, as 14
noted by Friedland and Summer, “society’s future is not determined solely by
demographic changes. Focusing on the anticipated growth in population by age

12 Congressional Budget Office (CBO), Federal Spending on the Elderly and Children, July 2000, at
http://www.cbo.gov, accessed June 17, 2005. (Hereafter cited as CBO, Federal Spending on the Elderly and Children.)
See also: (1) CRS Report RS22008, Federal Spending for Older Americans, by April Grady and William Klunk
(hereafter cited as CRS Report RS22008); and (2) C. Eugene Steuerle, “The Incredible Shrinking Budget for Working
Families and Children, National Budget Issues, no. 1, Dec. 2003.
13 CBO, Federal Spending on the Elderly and Children. Note, however, that the increase in the ratio of older persons to
people under 65 also has important implications for state budgets because of the growth in Medicaid spending as a
share of total state government expenditures. Medicaid is the largest public source of spending on long-term care
(LTC), and this will strain state budgets because a substantial contributor to the rise in the old-age dependency ratio
will be due to increases in the number of people 85 and older who are disproportionately large consumers of LTC
services.
14 Robert B. Friedland and Laura Summer, Demography Is Not Destiny, Revisited, Commonwealth Fund Publication
789 (New York, Mar. 2005), p. v. (Hereafter cited as Friedland and Summer, Demography is Not Destiny.)






group is just too simplistic an approach. Rather, the future is shaped by the
choices made—or not made—individually and collectively, bounded by the
limits in resources and, in particular, knowledge. Knowledge is at the heart of
gains in productivity, economic growth, and the advances in medical care,
agriculture, communication, transportation, and the environment.”
The ratios reported here are CRS compilations based on estimates and projections from the 15
SSA. The information for years 1950 (the earliest available year) to 2005 are estimates that are 16
based on actual data; the information for years 2004-2080 are projections, which rely upon
assumptions about future mortality, fertility, and immigration patterns.
To address the uncertainty that is inherent in all population projections, SSA constructs several
sets of projections which are based on different combinations of assumptions. The data
represented here uses the intermediate set of projections in the Trustees Report, which represents
the Board’s best estimate of the future course of the population. The Trustees produce two
additional sets of projections, the “high-cost” and “low-cost” scenarios, which use differing
assumptions about the future courses of fertility, mortality, and immigration. Figure 2 highlights
the possible variation in the total dependency ratio through 2080 under these three different
scenarios. While SSA’s best guess of the total dependency ratio in year 2080 is 86.1 dependents
per 100 persons of working age, the range of possible values varies from 83.1 to 94.5.

15 Trustees Report, 2006.
16 Note that the data for years 2003, 2004, and 2005 are preliminary.






Figure 2. Total Projected Dependency Ratio, 2005-2080, Under Three Sets of
Assumptions of Future Mortality, Fertility, and Immigration
Source: Congressional Research Service (CRS) analysis based on statistical tables in: 2006 Annual Report of the
Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, May 1, 2006,
available at http://www.ssa.gov/OACT/TR/TR06/tr06.pdf, accessed Oct. 20, 2006.


Figure 3 presents statistics on the number of older persons supported per 100 persons of working 17
age in 2002 in 10 countries. Eight of the countries are members of the G8, a consultative
grouping of leading industrial democracies: Canada, France, Germany, Italy, Japan, Russia, the
United Kingdom, and the United States. In addition, China and India, the two most populous
countries globally, are included to highlight that population aging is occurring even in nations that
are less industrialized and have “younger” current age structures.

17 CRS compilation based on U.S. Census Bureau, International Population Reports WP/02, Global Population Profile,
2002 (Washington, DC: GPO, 2004).






Figure 3. Number of Older Dependents per 100 Persons of Working Age in Selected
Countries, 2002 and 2025
Source: Congressional Research Service (CRS) compilation based on U.S. Census Bureau, International
Population Reports WP/02, Global Population Profile, 2002 (Washington, DC: GPO, 2004).
Notes: Figures for China exclude Taiwan, Hong Kong S.A.R., and Macau S.A.R. Countries are sorted by highest
old-age dependent-to-worker ratio in 2002. Estimates relate the number of persons age 65 and older per 100
persons of working age (20-64) regardless of the usual age of retirement or age at entry into the work force in
each of these countries.
Of the 10 countries included in the comparison, Italy ranked first, with Japan close behind, in
terms of the number of older persons being supported per 100 workers in 2002—29.6 and 29.5,
respectively. Among the G8 countries, Canada and the United States were tied for last place at 18

20.8 older persons per 100 persons of working age—indicating that the Canadian and American 19


“burdens” are less than those of the other G8 countries. Not coincidentally, the proportions of
their population aged 65 and older—13% and 12% respectively in 2000—are also the lowest of
the G8 nations. In India, with its young age structure, there were only 9.0 older persons per 100
persons of working age. The total age dependency ratio (not shown in graph) is, however, greatest
for India among the 10 countries—there are 90.5 dependents (mostly children) per 100 persons of
working age.
Figure 3 also highlights that population aging is a global phenomena—the number of older
dependents per 100 persons of working age is projected to increase through 2025 in all 10 of the
countries considered here. The projected increase in Japan, where the ratio will reach 51.1, is
especially notable. Italy and Germany will each have over 40 older dependents per 100 persons of

18 Note that the Census Bureau’s estimate of the old-age dependency ratio for the United States in 2002 was 20.8,
which is slightly higher than Social Security’s estimate of 20.6 for the same year (as seen in Figure 1 and Table A-1).
19 Note, however, that the total dependency ratio is greater in the United States than in Canada since Americans are
supporting a higher number of children.






working age. Increases are also expected in both China and India. In fact, the old-age dependency 20
ratio in 2025 in China will exceed the level observed in the United States, Canada, and Russia
today.
Figure 4 shows the number of child dependents per 100 persons of working ages. India had the
highest child dependency ratio in 2002 at 81.5. Of the G8 countries considered, the United States
was the leader, largely reflecting the fact that the American fertility rate, while currently hovering 21
around the replacement level, has not fallen as far as in the other G8 nations. For instance, the
total fertility rate in Italy was 1.2 in 2002 compared to 2.1 in the United States in the same year.
The estimates for India and China, and to a lesser extent the Russian Federation, are also affected
by differential (higher) rates of infant and childhood mortality.

20 Chinas age structure is quickly transforming from that of a “young population to that of an older one, as measured
by the mean age of the population and proportions in the relevant young and old age groups. The speed of population
aging in China is also significantly faster than had been observed in the G8 countries. In China, it is expected that 26
years (from 2000-2026) will be required for the percent of the population age 65 or older to rise from 7% to 14%. In
comparison, 115 years (from 1855-1980) were required in France; 69 years in the United States (1944-2013); and 65
years (1944-2009) in Canada. See Kevin Kinsella and David R. Phillips,Global Aging: The Challenge of Success,
Population Bulletin, vol. 60, no. 1, Mar. 2005.
21 The level of fertility and mortality in a population at which women will replace themselves in a generation, in the
absence of migration. It corresponds to a total fertility rate (the average number of children a cohort of women would
have by the end of their childbearing years) in the range of 2.04 to 2.10.






Figure 4. Number of Child Dependents per 100 Persons of Working Age in Selected
Countries, 2002 and 2025
Source: The Congressional Research Service (CRS) compilation based on U.S. Census Bureau, International
Population Reports WP/02, Global Population Profile, 2002 (Washington, DC: GPO, 2004).
Notes: Figures for China exclude Taiwan, Hong Kong S.A.R., and Macau S.A.R. Countries are sorted by highest
child dependent-to-worker ratio in 2002. Estimates relate the number of children age under 20 years per 100
persons of working age (20-64) regardless of the usual age at entry into the work force in each of these
countries.
Unlike the increasing old-age dependency ratios highlighted in Figure 3, the child dependency
ratios are projected to fall through 2025 in most of the countries considered. The notable
exception is the United States where it is projected that there will be 47.4 child dependents in

2025, as there had been in 2002.


In summary, population aging, which results primarily from declining fertility rates and
increasing survival, is a global phenomenon. Today, the United States is the “youngest” of the
industrialized G8 nations. While the proportion of the U.S. population that is aged 65 and older
will continue to increase, aging in the United States is still projected to be considerably slower 22
than in any of the other industrialized countries. In addition to reflecting the fact that the
American fertility rate, which is currently hovering around the replacement level, has not fallen
(nor is it projected to) as far as the other G8 nations, the “U.S. is leading the way in adapting to 23
the changing balance ... by encouraging immigration.” The SSA estimates that net legal

22 Friedland and Summer, Demography is Not Destiny.
23 David E. Bloom, A. K. Nandakumar, and Manjiri Bhawalkar, The Demography of Aging in Japan and in the United
(continued...)






immigration and net other immigration were about 675,000 persons and 400,000 persons,
respectively, in 2005. For its future projections, SSA assumes the total level of net immigration
(legal and other, combined) under the intermediate projection to be 1 million persons annually in
the 2010s, 950,000 annually in the 2020s, and 900,000 annually in 2030 and each year thereafter 24
through 2080. While these comparatively high levels of immigration differentiate the United
States from the other G8 nations, they have a small effect on the median age of U.S. residents and
on the total dependency ratio as immigrants are mostly young people who have children (and also
higher fertility rates than the U.S.-born population). Immigration nudges the worker-elderly ratio
a little higher, meaning that there are more people of working age per person age 65 or older. The
more dramatic effect, however, is at the younger ages. Immigration after 2000 is projected to add
about 15 million more children under age 18 than there would be without any post-2000
immigration. Continued immigration will lower the worker-child ratio and increase the child 25
component of the dependency ratio.

Most Western industrialized nations, including the United States, have systems in place providing
significant social security benefits, and virtually all of these plans originated with pay-as-you-go 26
(paygo) or quasi-paygo funding schemes. In the United States, payroll or self-employment tax
contributions by current workers (and their employers) are transferred to current beneficiaries.
The majority of Social Security taxes paid by today’s workers are not put into a special account to
pay for their future benefits. Rather, they are used to pay benefits for persons receiving benefits
today, just as the future benefits for today’s workers will be paid by future generations of workers.
In general, a low ratio of retirees to workers (the system’s old age dependency ratio) and a high
rate of productivity and real wages would permit a paygo social security system with high 27
benefits or low contributions.

(...continued)
States, in Gail B. Hedges, ed., “Aging and Health: Environment, Work and Behavior, Harvard Printing and
Publications, 2003.
24 Trustees Report, 2006.
25 Philip Martin and Elizabeth Midgley, Immigration: Shaping and Reshaping America,Population Bulletin, vol. 58,
no. 2, June 2003.
26 Robert L. Brown, “Paygo Funding Stability and Intergenerational Equity,” Transactions of Society of Actuaries, vol.
47, 1995. (Hereafter cited as Brown, Paygo Funding Stability.) Note that significant modifications have been made to
the original designs of the systems over time.
27 Estelle James, Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth, World Bank Policy
Research Report, 1994. (Hereafter cited as James, Averting the Old Age Crisis.)






Advantages of government-sponsored paygo schemes relative to fully funded systems include the 28
following:
• The entire working population can be covered relatively easily.
• The benefits can serve as social insurance against the (income) risks associated
with old-age and disability.
• Benefits can be immediately vested and are fully portable, an important feature
for a mobile work force.
• Administrative costs are usually very low.
Given these advantages, paygo systems looked very attractive in the immediate post-World War II
years. Projections of labor force growth, coupled with forecasts of real wage growth, implied a
potential total annual return near 5% for a fully mature paygo system. In contrast, the common
view of a funded system involved investing contributions in government securities with a return
of 1% or less. In the aftermath of the Great Depression, the market for equities seemed far too
risky, and many countries lacked private bond markets. Furthermore, most countries instituting a
new pension system were unwilling to delay initial benefit payments for several decades, as
would have been required under a funded system. There was a desire to address the immediate
problem of high poverty among the elderly, and most countries provided benefits to an older 29
generation of workers which had not contributed fully to the system. Also, to many at that time,
a high rate of population growth (and subsequent work force growth) seemed inevitable, in which 30
case pay-as-you-go seemed a good way to finance an old age pension program.
The current outlook is much different. Birth rates have fallen considerably while the life
expectancy at the older ages has increased significantly, resulting in less favorable old-age
dependency ratios (as shown in Figures 1 and 2). While the old-age dependency ratio had
already been increasing since 1950, the upcoming retirement of the baby-boom generation will
accelerate the rate at which it grows. However, even after the youngest of the baby-boom
generation has passed away, the number of older dependents per 100 persons of working age will
still continue to increase, albeit at a slower pace than will be experienced during the years in
which the baby boomers retire.
Concurrent with these demographic trends, the Congressional Budget Office (CBO) projects that
federal spending for Social Security, adjusted for inflation, will rise substantially—from $483

28 See, for instance, Brown, Paygo Funding Stability.
29 Barry Bosworth and Gary Burtless,Pension Reform and Saving (Washington, DC: Brookings Institution). Paper
prepared for a conference of the International Forum of the Collaboration Projects, held in Tokyo, Japan, Feb. 17-19,
2003. (Hereafter cited as Bosworth, Pension Reform and Saving.).
30 James, Averting the Old Age Crisis.






billion in 2003 to $2.5 trillion in 2075.31 The projected rise in Social Security spending is due, in
part, to the demographics of an aging society; CBO estimates that approximately 55% of the
higher spending is due to the expected increase in the number of beneficiaries, as the number of
new claimants grows and as life expectancy rises. The remaining 45% of the rise is due to a
projected increase in the real value of Social Security benefit checks. Specifically, they note that,
under rules put into effect in 1979, benefits of newly eligible recipients are based on a formula
and earnings records that are adjusted for wage growth. Those adjustments, referred to as wage
indexing, are designed to keep the ratio of initial benefits to pre-retirement earnings—that is,
replacement rates—approximately the same from one generation of new recipients to the next.
Wages tend to rise along with productivity in the economy, at a faster pace than prices and, over 32
the long run, a system pegged to wage growth will gradually afford greater purchasing power.
As both CBO and the Government Accountability Office (GAO) are warning, current spending 33
policies are likely to be unsustainable. The policy implication is that, unless there are large
offsetting productivity gains in the U.S. economy, contribution rates by current workers (e.g., tax
rates) must markedly rise or benefit levels must fall under Social Security’s paygo system.
Alternatively, the structure of the underlying paygo system could be modified such that part or all
of the scheme is fully funded. This, however, raises the same issues that caused most countries to
originally select paygo systems: reduction of (investment) risk and the need to pay benefits for
the current generation of beneficiaries.

31 Congressional Budget Office, The Future Growth of Social Security: It’s Not Just Society’s Aging, An Issue
Summary from CBO, no. 9, July 2003, at http://www.cbo.gov.
32 Ibid. See also CRS Report RL32900, Indexing Social Security Benefits: The Effects of Price and Wage Indexes, by
Patrick Purcell, Laura Haltzel, and Neela K. Ranade.
33 See CRS Report RS22008, Federal Spending for Older Americans.







Table A-1. Age Dependency Ratios, United States, 1950-2080
(Number of dependents per 100 persons of working age)
Dependency Ratio
Population (number of dependents
(in thousands) per 100 persons of working age)
Working Older Older
Children Age Persons (65-All Children Persons (65-
Year Total (0-19) (20-64) 65+) Dependents (0-19) 65+)
1950 160,118 54,466 92,841 12,811 72.5 58.7 13.8
1951 163,808 56,419 94,102 13,287 74.1 60.0 14.1
1952 166,369 57,923 94,727 13,719 75.6 61.1 14.5
1953 168,977 59,600 95,209 14,168 77.5 62.6 14.9
1954 171,686 61,398 95,656 14,632 79.5 64.2 15.3
1955 174,510 63,261 96,176 15,073 81.4 65.8 15.7
1956 177,878 65,313 97,075 15,490 83.2 67.3 16.0
1957 181,324 67,401 97,992 15,931 85.0 68.8 16.3
1958 184,305 69,374 98,538 16,393 87.0 70.4 16.6
1959 187,236 71,256 99,129 16,851 88.9 71.9 17.0
1960 190,172 73,076 99,818 17,278 90.5 73.2 17.3
1961 193,151 74,858 100,614 17,679 92.0 74.4 17.6
1962 196,082 76,444 101,576 18,062 93.0 75.3 17.8
1963 198,876 77,766 102,703 18,407 93.6 75.7 17.9
1964 201,539 78,997 103,796 18,746 94.2 76.1 18.1
1965 204,018 80,132 104,795 19,091 94.7 76.5 18.2
1966 206,281 80,743 106,116 19,422 94.4 76.1 18.3
1967 208,421 80,723 107,932 19,766 93.1 74.8 18.3
1968 210,494 80,616 109,755 20,123 91.8 73.5 18.3
1969 212,547 80,571 111,477 20,499 90.7 72.3 18.4
1970 214,765 80,684 113,158 20,923 89.8 71.3 18.5
1971 217,039 80,755 114,913 21,371 88.9 70.3 18.6
1972 219,105 80,502 116,784 21,819 87.6 68.9 18.7
1973 220,955 79,961 118,718 22,276 86.1 67.4 18.8
1974 222,756 79,247 120,742 22,767 84.5 65.6 18.9
1975 224,599 78,437 122,857 23,305 82.8 63.8 19.0
1976 226,501 77,576 125,054 23,871 81.1 62.0 19.1
1977 228,523 76,700 127,366 24,457 79.4 60.2 19.2
1978 230,687 75,884 129,750 25,053 77.8 58.5 19.3






Dependency Ratio
Population (number of dependents
(in thousands) per 100 persons of working age)
Working Older Older
Children Age Persons (65-All Children Persons (65-
Year Total (0-19) (20-64) 65+) Dependents (0-19) 65+)
1979 232,931 75,161 132,117 25,653 76.3 56.9 19.4
1980 235,233 74,568 134,428 26,237 75.0 55.5 19.5
1981 237,627 74,126 136,693 26,808 73.8 54.2 19.6
1982 240,104 73,788 138,891 27,425 72.9 53.1 19.7
1983 242,541 73,493 141,028 28,020 72.0 52.1 19.9
1984 244,923 73,249 143,096 28,578 71.2 51.2 20.0
1985 247,335 73,211 144,957 29,167 70.6 50.5 20.1
1986 249,801 73,393 146,603 29,805 70.4 50.1 20.3
1987 252,313 73,703 148,197 30,413 70.3 49.7 20.5
1988 254,893 74,099 149,840 30,954 70.1 49.5 20.7
1989 257,609 74,545 151,581 31,483 69.9 49.2 20.8
1990 260,457 75,060 153,368 32,029 69.8 48.9 20.9
1991 263,372 75,749 155,036 32,587 69.9 48.9 21.0
1992 266,342 76,690 156,522 33,130 70.2 49.0 21.2
1993 269,273 77,751 157,931 33,591 70.5 49.2 21.3
1994 272,081 78,740 159,370 33,971 70.7 49.4 21.3
1995 274,787 79,621 160,844 34,322 70.8 49.5 21.3
1996 277,511 80,433 162,458 34,620 70.8 49.5 21.3
1997 280,248 81,123 164,267 34,858 70.6 49.4 21.2
1998 282,898 81,710 166,161 35,027 70.3 49.2 21.1
1999 285,517 82,192 168,149 35,176 69.8 48.9 20.9
2000 288,279 82,581 170,275 35,423 69.3 48.5 20.8
2001 291,250 82,906 172,613 35,731 68.7 48.0 20.7
2002 294,223 83,172 175,034 36,017 68.1 47.5 20.6
2003 297,001 83,432 177,319 36,250 67.5 47.1 20.4
2004 299,645 83,705 179,447 36,493 67.0 46.6 20.3
2005 302,322 83,963 181,457 36,902 66.6 46.3 20.3
2006 304,849 84,218 183,364 37,267 66.3 45.9 20.3
2007 307,340 84,472 185,082 37,786 66.1 45.6 20.4
2008 309,798 84,697 186,659 38,442 66.0 45.4 20.6
2009 312,264 84,838 188,316 39,110 65.8 45.1 20.8
2010 314,740 84,895 190,083 39,762 65.6 44.7 20.9
2011 317,226 84,959 191,627 40,640 65.5 44.3 21.2






Dependency Ratio
Population (number of dependents
(in thousands) per 100 persons of working age)
Working Older Older
Children Age Persons (65-All Children Persons (65-
Year Total (0-19) (20-64) 65+) Dependents (0-19) 65+)
2012 319,718 85,087 192,733 41,898 65.9 44.1 21.7
2013 322,215 85,283 193,681 43,251 66.4 44.0 22.3
2014 324,710 85,525 194,629 44,556 66.8 43.9 22.9
2015 327,202 85,796 195,496 45,910 67.4 43.9 23.5
2016 329,662 86,106 196,245 47,311 68.0 43.9 24.1
2017 332,086 86,466 196,874 48,746 68.7 43.9 24.8
2018 334,497 86,859 197,405 50,233 69.4 44.0 25.4
2019 336,892 87,247 197,826 51,819 70.3 44.1 26.2
2020 339,270 87,547 198,213 53,510 71.2 44.2 27.0
2021 341,626 87,736 198,642 55,248 72.0 44.2 27.8
2022 343,958 87,883 199,059 57,016 72.8 44.1 28.6
2023 346,255 88,003 199,475 58,777 73.6 44.1 29.5
2024 348,514 88,233 199,736 60,545 74.5 44.2 30.3
2025 350,729 88,597 199,789 62,343 75.5 44.3 31.2
2026 352,871 88,942 199,847 64,082 76.6 44.5 32.1
2027 354,936 89,266 199,965 65,705 77.5 44.6 32.9
2028 356,946 89,574 200,139 67,233 78.3 44.8 33.6
2029 358,898 89,863 200,347 68,688 79.1 44.9 34.3
2030 360,794 90,133 200,644 70,017 79.8 44.9 34.9
2031 362,633 90,385 201,120 71,128 80.3 44.9 35.4
2032 364,418 90,625 201,748 72,045 80.6 44.9 35.7
2033 366,150 90,855 202,431 72,864 80.9 44.9 36.0
2034 367,828 91,076 203,037 73,715 81.2 44.9 36.3
2035 369,451 91,288 203,518 74,645 81.5 44.9 36.7
2036 371,024 91,494 204,028 75,502 81.8 44.8 37.0
2037 372,547 91,694 204,721 76,132 82.0 44.8 37.2
2038 374,025 91,890 205,594 76,541 81.9 44.7 37.2
2039 375,461 92,082 206,520 76,859 81.8 44.6 37.2
2040 376,856 92,268 207,416 77,172 81.7 44.5 37.2
2041 378,215 92,449 208,311 77,455 81.6 44.4 37.2
2042 379,543 92,629 209,180 77,734 81.4 44.3 37.2
2043 380,845 92,813 209,977 78,055 81.4 44.2 37.2
2044 382,121 93,002 210,647 78,472 81.4 44.2 37.3






Dependency Ratio
Population (number of dependents
(in thousands) per 100 persons of working age)
Working Older Older
Children Age Persons (65-All Children Persons (65-
Year Total (0-19) (20-64) 65+) Dependents (0-19) 65+)
2045 383,379 93,199 211,166 79,014 81.6 44.1 37.4
2046 384,621 93,404 211,628 79,589 81.7 44.1 37.6
2047 385,852 93,619 212,130 80,103 81.9 44.1 37.8
2048 387,074 93,843 212,709 80,522 82.0 44.1 37.9
2049 388,293 94,077 213,334 80,882 82.0 44.1 37.9
2050 389,510 94,318 213,935 81,257 82.1 44.1 38.0
2051 390,730 94,563 214,511 81,656 82.1 44.1 38.1
2052 391,954 94,810 215,085 82,059 82.2 44.1 38.2
2053 393,186 95,057 215,634 82,495 82.3 44.1 38.3
2054 394,425 95,303 216,097 83,025 82.5 44.1 38.4
2055 395,675 95,550 216,474 83,651 82.8 44.1 38.6
2056 396,934 95,796 216,845 84,293 83.0 44.2 38.9
2057 398,204 96,040 217,265 84,899 83.3 44.2 39.1
2058 399,485 96,283 217,737 85,465 83.5 44.2 39.3
2059 400,777 96,522 218,247 86,008 83.6 44.2 39.4
2060 402,080 96,760 218,777 86,543 83.8 44.2 39.6
2061 403,391 96,994 219,348 87,049 83.9 44.2 39.7
2062 404,710 97,225 219,969 87,516 84.0 44.2 39.8
2063 406,034 97,452 220,617 87,965 84.0 44.2 39.9
2064 407,362 97,676 221,257 88,429 84.1 44.1 40.0
2065 408,693 97,897 221,816 88,980 84.2 44.1 40.1
2066 410,022 98,115 222,274 89,633 84.5 44.1 40.3
2067 411,350 98,330 222,696 90,324 84.7 44.2 40.6
2068 412,675 98,544 223,098 91,033 85.0 44.2 40.8
2069 413,997 98,756 223,608 91,633 85.1 44.2 41.0
2070 415,315 98,968 224,244 92,103 85.2 44.1 41.1
2071 416,629 99,180 224,879 92,570 85.3 44.1 41.2
2072 417,937 99,392 225,509 93,036 85.3 44.1 41.3
2073 419,239 99,606 226,130 93,503 85.4 44.0 41.3
2074 420,535 99,821 226,740 93,974 85.5 44.0 41.4
2075 421,827 100,039 227,337 94,451 85.6 44.0 41.5
2076 423,113 100,258 227,920 94,935 85.6 44.0 41.7
2077 424,394 100,480 228,490 95,424 85.7 44.0 41.8






Dependency Ratio
Population (number of dependents
(in thousands) per 100 persons of working age)
Working Older Older
Children Age Persons (65-All Children Persons (65-
Year Total (0-19) (20-64) 65+) Dependents (0-19) 65+)
2078 425,669 100,704 229,048 95,917 85.8 44.0 41.9
2079 426,942 100,930 229,597 96,415 86.0 44.0 42.0
2080 428,214 101,159 230,137 96,918 86.1 44.0 42.1
Source: Congressional Research Service (CRS) analysis based on statistical tables in: 2006 Annual Report of the
Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, May 1, 2006,
available at http://www.ssa.gov/OACT/TR/TR06/tr06.pdf, accessed Oct. 20, 2006.
Figure A-1. Number of Working Age Persons Per 100 Dependents, United States,
1950-2080
Source: Congressional Research Service (CRS) analysis based on statistical tables in: 2006 Annual Report of the
Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, May 1, 2006,
available at http://www.ssa.gov/OACT/TR/TR06/tr06.pdf, accessed Oct. 20, 2006.
Notes: This figure relates the number of workers (numerator) to the number of dependents (denominator). For
example, in 1950, there were 725 workers to support every 100 persons age 65 and older. Figure 1 in the main
body of the text showed dependency ratios which relate the number of dependents (numerator) to the number
of workers (denominator). In 1950, there were 13.8 older dependents per 100 workers.






Laura B. Shrestha
Specialist in Domestic Social Policy
lshrestha@crs.loc.gov, 7-7046