2011 OASDI Trustees Report

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Short-Range Actuarial Estimates
For the short range (2011-20), 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.
For 2010 and throughout the remainder of the short-range period, cost will exceed non-interest income but will be less than total income, including interest earned on trust fund assets. Trust fund assets are projected to grow more slowly than cost, which causes the trust fund ratio to decline, as shown in figure II.D1.
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, as a percentage of taxable payroll, and as a percentage of gross domestic product (GDP)). Consideration of 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, demographic factors would by themselves cause the cost rate to rise rapidly for about the next two decades before leveling off in about 2035. For the next 5 years, this effect will be obscured by the sharp increase in the cost rate that occurred when the recent recession led to a reduction in the tax base and a surge in beneficiaries. The projected income rate is stable at about 13 percent throughout the 75-year period except for a dip in 2011 due to an expected $10 billion downward adjustment to 2011 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years.
Annual cost exceeded non-interest income in 2010 and is projected to continue to be larger throughout the remainder of the 75-year valuation period. Nevertheless, from 2010 through 2022, total trust fund income, including interest income, is more than is necessary to cover costs, so trust fund assets will continue to grow during that time period. Beginning in 2023, trust fund assets will diminish until they become exhausted in 2036. Non-interest income is projected to be sufficient to support expenditures at a level of 77 percent of scheduled benefits after trust fund exhaustion in 2036, and then to decline to 74 percent of scheduled benefits in 2085.
The estimated number of workers per beneficiary is shown in figure II.D3. There were about 2.9 workers for every OASDI beneficiary in 2010. This ratio had been extremely stable, remaining between 3.2 and 3.4 from 1974 through 2008, and is lower for 2009 and 2010 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 lower-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 projected maximum trust fund ratios during the long-range period for the OASI, DI, and combined funds appear in table II.D1. The table also shows the year in which the maximum projected trust fund ratio is attained and the year in which the assets are projected to be exhausted.
Table II.D1.—Projected Maximum Trust Fund Ratios During the Long-Range Period
and Trust Fund Exhaustion Dates
The actuarial balance is a summary measure of the program’s financial status through the end of the 75-year valuation period. It is essentially the difference, expressed as a percentage of taxable payroll during the valuation period, between income and cost of the program from 1937 through the end of 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. More generally, this measure is the average amount of change in income or cost that is needed over the valuation period in order to achieve actuarial balance. In this report, the actuarial balance under the intermediate assumptions is a deficit of 2.22 percent of taxable payroll for the combined OASI and DI Trust Funds. The actuarial deficit was 1.92 percent in the 2010 report and has been in the range of 1.70 percent to 2.23 percent for every year beginning with the 1994 report. 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 1.97 percent of payroll due to adding one year to the projection period.
Another way to illustrate the financial shortfall of the OASDI program is to examine the cumulative present value of scheduled income less cost. Figure II.D4 shows the present value of cumulative OASDI income less cost from the inception of the program through 2010 and through each of the next 75 years. A positive cumulative value represents the level of trust fund assets through the end of the selected year. A negative value is referred to as the unfunded obligation through the selected year. The balance of the combined trust funds is $2.6 trillion at the end of 2010. This cumulative amount declines after 2010 in present value, but continues to be positive through 2035. However, after 2035 this cumulative amount becomes negative, which means that the OASDI Trust Funds have a net unfunded obligation through each year after 2035. Through the end of 2085, the combined funds have a present-value unfunded obligation of $6.5 trillion. This unfunded obligation represents 2.1 percent of taxable payroll and 0.7 percent of GDP during the 75-year valuation period. The 0.14 percentage point difference between the unfunded obligation as a share of taxable payroll (2.08 percent) and the actuarial deficit (2.22 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 Scheduled OASDI Income Less Cost,
From 1937 Through Selected Years
Another important way to look at Social Security’s future is to view its annual cost and non-interest 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 continue growing from 4.4 percent in 2008 to about 6.2 percent in 2035, then to decline to 6.0 percent by 2050, and to remain between 5.9 and 6.0 percent through 2085. As the economy recovers, Social Security’s non-interest income, which reflects scheduled tax rates, is projected to increase from its current level of about 4.5 percent of GDP to about 4.9 percent of GDP for 2020. Thereafter, non-interest income as a percent of GDP declines gradually, until it reaches about 4.6 percent by 2085. Future non-interest income declines generally in relation to GDP because the share of employee compensation provided in fringe benefits is projected to increase gradually, which will make 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. Trends in annual balances and cumulative values toward the end of the 75-year period provide an indication of the program’s ability to maintain solvency beyond 75 years. Consideration of summary measures alone for a 75‑year period can lead to incorrect perceptions and to policy prescriptions that do not achieve sustainable solvency.
Summary measures for a time period that extends over the infinite horizon are also 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 $17.9 trillion in present value, 3.6 percent of future taxable payroll, or 1.2 percent of future GDP. The summarized shortfalls for the 75-year period and the infinite horizon both reflect annual shortfalls only for years after trust fund exhaustion. The annual shortfalls after trust fund exhaustion rise slowly and reflect increases in life expectancy after 2036. The summarized shortfalls for the 75-year period, as percentages of taxable payroll and GDP, are lower than those for the infinite horizon principally because only about two-thirds of the years in the 75-year period have unfunded annual shortfalls.
The measured unfunded obligation over the infinite horizon is increased from $16.1 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 $16.9 trillion due to the change in the valuation date. Expressed as a percentage of taxable payroll, the measured unfunded obligation over the infinite horizon increased from 3.3 percent in last year’s report to 3.6 percent for this year’s report. As a percentage of GDP, the measured unfunded obligation over the infinite horizon of 1.2 percent is the same as it was in last year’s report.
Uncertainty of the Projections
Significant uncertainty surrounds the intermediate assumptions. The Trustees use several methods to help illustrate that uncertainty. One approach is the use of low-cost (alternative I) and high-cost (alternative III) sets of 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 very 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.
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 by mid-century (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.
Changes From Last Year’s Report
The long-range OASDI actuarial deficit of 2.22 percent of taxable payroll for this year’s report is larger than the deficit of 1.92 percent of taxable payroll shown in last year’s report under intermediate assumptions. Changes in mortality projections, due to new starting values and revised methods, are the most significant of several factors contributing to the increase in the deficit. These mortality changes resulted in lower death rates for the population age 65 and over. Adding to this negative effect are near-term lower levels of net other immigration and real earnings than assumed in last year’s report. For a detailed description of the specific changes identified in table II.D2 below, see section IV.B.7 on page 72.
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 2010-84, to the valuation period of this report, 2011-85, the relatively large negative annual balance for 2085 is included. This change in the valuation period results in a larger long-range actuarial deficit. The fund balance at the end of 2010, 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 $5.4 trillion (present discounted value as of January 1, 2010) to $6.5 trillion (present discounted value as of January 1, 2011). 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 2085. Legislative changes, changes in methods, revisions in assumptions, and updated data increased the measured unfunded obligation by about $0.7 trillion.
This year’s projections of annual balances (non-interest income minus cost) are lower than those in last year’s report throughout the 75-year projection period. See figure II.D8.

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