what is Actuarial Balance?
Actuarial balance is defined as the difference between future Social Security obligations and income rate of the Social Security Trust Fund as of current.
The Social Security program would considered to be in actuarial balance if the summarized rate of income coincides with the summarized cost rate of Social Security for a given valuation era.
It is also termed as the “solvency” of the Social Security System.
Actuarial balance is computed for 66 diverse valuation periods, starting from the future 10th year period and increasing with each consecutive year up to the full 75 year projections. If at any point after the 75th year projection, the projected costs of Social Security go beyond/crosses the limited future value of the trust fund’s income, that period wont come under actuarial table.
Theoretically, the two essential fundamentals of Actuarial balance are:
• The summarized income rate
• And the summarized cost rate.
Both rates are written in terms of percentages of taxable payroll.
The actuarial balance for an XYZ period can be computed by taking the difference of present of tax income for a given period and the PV of the cost for that period and then dividing them by the PV of taxable payroll for all years lying under that period.