2010 OASDI Trustees Report

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Short-Range Actuarial Estimates
For the short range (2010-2019), the Trustees measure financial adequacy by comparing projected assets at the beginning of each year to projected program cost for that year under the intermediate set of assumptions. A trust fund ratio of 100 percent or more — that is, assets at the beginning of each year at least equal to projected cost for the year — is a good indication of a trust fund’s ability to cover most short-term contingencies. The projected trust fund ratios for OASI alone, and for OASI and DI combined, under the intermediate assumptions exceed 100 percent throughout the short-range period and therefore OASI and OASDI satisfy the Trustees’ short-term test of financial adequacy. However, the DI Trust Fund fails the Trustees’ short-term test of financial adequacy. Its trust fund ratio is projected to fall below the 100 percent level by the beginning of 2013. After 2013, the DI trust fund ratio continues to decline until the trust fund is exhausted in 2018. Figure II.D1 below shows that the trust fund ratios for the combined OASI and DI Trust Funds decline gradually after 2010.
Long-Range Actuarial Estimates
The actuarial status of the program over the next 75 years is measured in terms of annual cost and income as a percentage of taxable payroll, trust fund ratios, the actuarial balance (also as a percentage of taxable payroll), and the open group unfunded obligation (expressed in present-value dollars and as percentages of taxable payroll and gross domestic product (GDP)). Considering Social Security’s annual cost and income as a percentage of the total U.S. economic output or GDP provides an additional important perspective.
The year-by-year relationship among income (excluding interest), cost (including scheduled benefits), and expenditures (including payable benefits) for the OASDI program is illustrated in figure II.D2 for the full 75-year period. All values are expressed as percentages of taxable payroll and, in the case of income and cost, are referred to as the income rate and the cost rate, respectively. Under the intermediate assumptions, the OASDI cost rate is projected to remain relatively stable for the next 5 years, and then to increase rapidly before leveling off starting in about 2035. The projected income rate is stable at about 13 percent throughout the 75-year period except for a dip in 2010 due to the economic recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the Trust Funds in earlier years. The cost rate is projected to exceed the income rate in 2010 and 2011 because of the severity of the recent recession. The cost rate falls below the income rate in 2012 through 2014 as the economy recovers, then rises above the income rate again beginning in 2015. After 2015, the difference between the cost rate and the income rate grows rapidly through 2035.
For 2010 through 2024, trust fund income, including interest income, is more than is needed to cover costs, so trust fund assets will continue to grow. Beginning in 2025, trust fund assets will diminish until they become exhausted in 2037. Tax revenues are projected to be sufficient to support expenditures at a level of 78 percent of scheduled benefits after trust fund exhaustion in 2037, declining to 75 percent of scheduled benefits in 2084.
The estimated number of workers per beneficiary is shown in figure II.D3. There were about 3.0 workers for every OASDI beneficiary in 2009. This ratio had been extremely stable, remaining between 3.2 and 3.4 from 1974 through 2008, and is lower for 2009 due to the economic recession. The projected future increase in the cost rate reflects a projected decline in the number of covered workers per beneficiary. The ratio of workers to beneficiaries is projected to decline, even as the economy recovers, because the workers of the baby-boom generation are being replaced in the workforce by relatively low-birth-rate generations. This ratio reaches 2.1 by 2035 when the baby-boom generation will have largely retired, with a further gradual decline thereafter due to increasing longevity.
Figure II.D3.—Number of Covered Workers Per OASDI Beneficiary
The maximum projected trust fund ratios for the OASI, DI, and combined funds appear in table II.D1. The year in which the maximum projected trust fund ratio is attained and the year in which the assets are projected to be exhausted are shown as well.
Table II.D1.—Projected Maximum Trust Fund Ratios Attained
and Trust Fund Exhaustion Dates
Year of trust fund exhaustion
The actuarial balance is a measure of the program’s financial status for the 75-year valuation period as a whole. It is essentially the difference between income and cost of the program expressed as a percentage of taxable payroll over the valuation period. When the actuarial balance is negative, the actuarial deficit can be interpreted as the percentage that could be added to the current-law income rate for each of the next 75 years, or subtracted from the cost rate for each year, to bring the funds into actuarial balance. This measure should be viewed only as a rough indication of the amount of change that is needed over the 75‑year period as a whole, because the effects of future changes are unlikely to follow this pattern. In this report, the actuarial balance under the intermediate assumptions is a deficit of 1.92 percent of taxable payroll for the combined OASI and DI Trust Funds. The actuarial deficit was 2.00 percent in the 2009 report and has been in the range of 1.70 percent to 2.23 percent for the prior 15 reports. If the assumptions, methods, starting values, and the law had all remained unchanged from last year, the actuarial deficit in this report would have increased to 2.06 percent of payroll.
Another way to illustrate the financial shortfall of the OASDI program is to examine the cumulative value of income less cost, in present value. Figure II.D4 shows the present value of cumulative OASDI income less cost from the inception of the program through each of the next 75 years. The balance of the combined trust funds is $2.5 trillion in 2010. This cumulative amount declines after 2010 in present value, but continues to be positive, indicating trust fund assets, or reserves, through 2036. However, after 2036 this cumulative amount becomes negative, which means that the OASDI Trust Funds have a net unfunded obligation through each year after 2036. Through the end of 2084, the combined funds have a present-value unfunded obligation of $5.4 trillion. This unfunded obligation represents 1.8 percent of future taxable payroll and 0.6 percent of future GDP through the end of the 75-year projection period. The 0.14 percentage point difference between the unfunded obligation as a share of taxable payroll (1.78 percent) and the actuarial balance (1.92 percent) reflects the additional requirement of an ending trust fund balance equal to one year’s cost for the actuarial balance measure.
Figure II.D4.—Cumulative OASDI Income Less Cost,
Based on Present Law Tax Rates and Scheduled Benefits
Another important way to look at Social Security’s future is to view its annual cost and tax income as a share of U.S. economic output. Figure II.D5 shows that Social Security’s cost as a percentage of GDP is projected to grow from 4.8 percent in 2010 to about 6.1 percent in 2035, then to decline to 5.9 percent by 2050, and to remain between 5.9 and 6.0 percent through 2084. Social Security’s scheduled tax revenue is projected to increase from its current level of about 4.6 percent of GDP to about 4.9 percent of GDP for 2019, as the economy recovers. Thereafter, tax income as a percent of GDP declines gradually, reaching about 4.6 percent by 2084. Income from payroll taxes declines generally in relation to GDP in the future because an increasing share of employee compensation is assumed to be provided in fringe benefits, especially for health care, making wages a declining share of GDP.
Figures II.D2, II.D4, and II.D5 show that the program’s financial condition is worsening at the end of the projection period. Overemphasis on summary measures alone for a 75‑year period can lead to incorrect perceptions and to policy prescriptions that do not achieve sustainable solvency. Thus, careful consideration of the trends in annual deficits and unfunded obligations toward the end of the 75-year period is important. In addition, summary measures for a time period that extends to the infinite horizon are included in this report. These measures provide an additional indication of Social Security’s very long-run financial condition, but are subject to much greater uncertainty. These calculations show that extending the horizon beyond 75 years increases the unfunded obligation. Over the infinite horizon, the shortfall (unfunded obligation) amounts to $16.1 trillion in present value, 3.3 percent of future taxable payroll, or 1.2 percent of future GDP. These calculations of the shortfall indicate that much larger changes may be required to achieve solvency beyond the 75-year period as compared to changes needed to balance 75-year period summary measures. The measured unfunded obligation over the infinite horizon is increased from $15.1 trillion in last year’s report. If the assumptions, methods, starting values, and the law had all remained unchanged, the unfunded obligation over the infinite horizon would have risen to $15.9 trillion due to the change in the valuation date. Expressed as a percentage of taxable payroll, the measured unfunded obligation over the infinite horizon decreased from 3.4 percent in last year’s report to 3.3 percent for this year’s report. As a percentage of GDP, the measured unfunded obligation over the infinite horizon is the same as was estimated for last year’s report, at 1.2 percent.
Uncertainty of the Projections
Significant uncertainty surrounds the intermediate assumptions. The Trustees utilize several methods to help illustrate that uncertainty. One approach is the use of low-cost (alternative I) and high-cost (alternative III) assumptions. Figure II.D6 shows the projected trust fund ratios for the combined OASI and DI Trust Funds under the intermediate, low-cost, and high-cost assumptions. The low-cost alternative reflects a set of assumptions that improves the projected financial status of the trust funds relative to the financial status under the intermediate set of assumptions. The low-cost alternative includes a higher ultimate total fertility rate, slower improvement in mortality, a higher real-wage differential, and lower unemployment. The high-cost alternative, in contrast, includes a lower ultimate total fertility rate, more rapid improvement in mortality, a lower real-wage differential, and higher unemployment. These alternatives are not intended to suggest that all parameters would be likely to differ from the intermediate values in the same direction, but are intended to illustrate the effect of clearly defined scenarios that are, on balance, very favorable or unfavorable for the program’s financial status. The actual outcome for future costs is unlikely to be as extreme as either of the outcomes portrayed by the low- and high-cost projections. The method for constructing these low- and high-cost projections does not provide an estimate of the probability that actual experience will lie within or outside the range they define.
In Appendix D, this report also provides long-range sensitivity analysis for the OASDI program, by varying one parameter at a time. These estimates provide further illustrations of the uncertainty surrounding projections into the future, but do not provide any measure of the probability that future outcomes will fall within or outside the ranges shown.
A third approach that measures uncertainty uses stochastic simulations to develop a range of projections and provides estimates of the probability that future outcomes will fall within or outside a given range. The results of the stochastic simulations, discussed in more detail in Appendix E, suggest that trust fund exhaustion is highly probable before the end of the 75-year period (see figure II.D7).
The stochastic results suggest that outcomes as good as the low-cost alternative or as bad as the high-cost alternative are unlikely. However, the relationship between the stochastic results and the low- and high-cost alternatives may change as the methodology for the stochastic simulations is further developed. As noted in Appendix E, future improvements and refinements are expected to be more likely to expand rather than reduce the indicated range of uncertainty.
Figure II.D7.—Annual Trust Fund Ratios
Changes From Last Year’s Report
The long-range OASDI actuarial deficit of 1.92 percent of taxable payroll for this year’s report is smaller than the deficit of 2.00 percent of taxable payroll shown in last year’s report under intermediate assumptions. Legislative changes, in particular the estimated effects of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, are the main reason for the decrease in the deficit. This effect for legislative changes is partially offset by the change in the valuation period. Finally, changes in several assumptions, methods, and recent data had largely offsetting effects. For example, the negative effects of lower historical and projected levels of death rates and near-term higher disability prevalence roughly offset the positive effects that resulted from updating the samples used to project future average benefit levels and the model used to project labor force participation rates. Also, the near-term negative effects on employment of the slightly deeper recession than assumed last year are offset by higher than expected real growth in the average earnings level. For a detailed description of the specific changes identified in table II.D2 below, see section IV.B7 on page 71.
Table II.D2.—Reasons for Change in the 75-Year Actuarial Balance,
Based on Intermediate Assumptions 

In changing from the valuation period of last year’s report, which was 2009-83, to the valuation period of this report, 2010-84, the relatively large negative annual balance for 2084 is included. This change in the valuation period results in a larger long-range actuarial deficit. The fund balance at the end of 2009, i.e., at the beginning of the projection period, is included in the 75-year actuarial balance.

Note: Totals do not necessarily equal the sums of rounded components.
The open group unfunded obligation over the 75-year projection period has increased from $5.3 trillion (present discounted value as of January 1, 2009) to $5.4 trillion (present discounted value as of January 1, 2010). The measured unfunded obligation would be expected to increase by about $0.4 trillion due to advancing the valuation date by 1 year and including the additional year 2084. Legislative changes, changes in methods, revisions in assumptions, and updated data decreased the measured unfunded obligation by about $0.3 trillion.
This year’s projections of annual balances (noninterest income minus cost) are lower than those in last year’s report through 2015 and then become higher throughout the remainder of the 75-year projection period. See figure II.D8.

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