2017 OASDI Trustees Report

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V. ASSUMPTIONS AND METHODS UNDERLYING
ACTUARIAL ESTIMATES
The future income and cost of the OASDI program will depend on many demographic, economic, and program-specific factors. Trust fund income will depend on how these factors affect the size and composition of the working population as well as the level and distribution of earnings. Similarly, program cost will depend on how these factors affect the size and composition of the beneficiary population as well as the general level of benefits.
The Trustees make basic assumptions for several of these factors based on analysis of historical trends, historical conditions, and expected future conditions. These factors include fertility, mortality, immigration, marriage, divorce, productivity, inflation, average earnings, unemployment, real interest rates, and disability incidence and termination. Other factors depend on these basic assumptions. These other, often interdependent, factors include total population, life expectancy, labor force participation, gross domestic product, and program-specific factors. Each year the Trustees reexamine these assumptions and methods in light of new information and make appropriate revisions. The assumptions for this report were established by the middle of January 2017, and have been accepted by the current members of the Board.
Future levels of these factors and their interrelationships are inherently uncertain. To address these uncertainties, this report uses three sets of assumptions, designated as intermediate (alternative II), low-cost (alternative I), and high-cost (alternative III). The intermediate set represents the Trustees’ best estimate of the future course of the population and the economy. With regard to the net effect on the actuarial status of the OASDI program, the low-cost set is more optimistic and the high-cost set is more pessimistic. The low-cost and high-cost sets of assumptions reflect significant potential changes in the interrelationships among factors, as well as changes in the values for individual factors.
While it is unlikely that all of the factors and interactions will differ in the specified directions from the intermediate values, many combinations of individual differences in the factors could have a similar overall effect. Outcomes with overall long-range cost as low as the low-cost scenario or as high as the high-cost scenario are very unlikely. This report also includes sensitivity analysis, where factors are changed one at a time (see appendix D), and a stochastic projection, which provides a probability distribution of possible future outcomes, with each input assumption centered around the intermediate alternative (see appendix E).
Readers should interpret with care the estimates based on the three sets of alternative assumptions. These estimates are not specific predictions of the future financial status of the OASDI program. Rather, they provide a reasonable range of future income and cost bounded by two plausible, albeit very unlikely, demographic and economic scenarios.
The Trustees assume that values for each of the demographic, economic, and program-specific factors change toward long-range ultimate values from recent levels or trends within the next 25 years. For extrapolations beyond the 75‑year long-range period, the ultimate levels or trends reached by the end of the 75‑year period remain unchanged. The assumed ultimate values represent average annual experience or growth rates. Actual future values will exhibit fluctuations or cyclical patterns, as in the past.
The following sections briefly discuss the various assumptions and methods required to make the estimates of trust fund financial status, which are the heart of this report.1 There are, of course, many interrelationships among these factors that are important but are beyond the scope of this discussion.
A. DEMOGRAPHIC ASSUMPTIONS AND METHODS
This section of the report provides a brief overview of the demographic historical data and the assumptions used for the projections.
1. Fertility Assumptions
Birth rates by single year of age, for women aged 14 to 49,2 are the basis for the fertility assumptions. These rates apply to the total number of women, across all marital statuses, in the midyear population at each age. Table V.A1 displays the historical and projected total fertility rates.3
Historically, birth rates in the United States have fluctuated widely. The total fertility rate decreased from 3.31 children per woman at the end of World War I (1918) to 2.15 during the Great Depression (1936). After 1936, the total fertility rate rose to 3.68 in 1957 and then fell to 1.74 by 1976. After 1976, the total fertility rate rose above 2.00 by 1990, where it generally remained through 2009, but dropped below 1.90 for 2011 through 2015. The recession and slow recovery in employment opportunity are likely contributing reasons for this recent low level.
These variations in the total fertility rate resulted from changes in many factors, including social attitudes, economic conditions, birth-control practices, and the racial/ethnic composition of the population. The Trustees expect future total fertility rates to remain relatively close to recent levels. Certain population characteristics, such as the higher percentages of women who have never married, of women who are divorced, and of young women who are in the labor force, are consistent with continued lower total fertility rates than those experienced during the baby-boom era (1946-65). Based on consideration of these factors, the Trustees assume ultimate total fertility rates of 2.20, 2.00, and 1.80 children per woman for the low-cost, intermediate, and high-cost assumptions, respectively. These ultimate rates are unchanged from last year’s report.
For the intermediate assumptions, the projected total fertility rate rises until it reaches 2.05 for 2023. This reflects the assumption that the drop in the total fertility rate below 2.0 children per woman during the recent economic downturn was in part a deferral in childbearing that will be partially offset with full economic recovery. Thereafter, the total fertility rate follows a linear trend toward the ultimate level in 2027. The assumed low-cost and high-cost total fertility rates trend away from the intermediate path and reach the ultimate values in 2024 and 2032, respectively.
2. Mortality Assumptions
For the projections in this year’s report, ultimate average annual percentage reductions in future mortality rates were assumed by age group and cause of death. These assumptions were then used to estimate future central death rates by age group, sex, and cause of death. From these estimated central death rates, probabilities of death by single year of age and sex were calculated.
Historical death rates are calculated for years 1900 through 2014 for ages below 65 (and for all ages for years prior to 1968) using data from the National Center for Health Statistics (NCHS).4 For ages 65 and over, final Medicare data on deaths and enrollments for years 1968 through 2013 and preliminary data for 2014 are used. Death rates by cause of death are produced for all ages for years 1979‑2014 using data from the NCHS.
The total age-sex-adjusted death rate5 declined at an average annual rate of 1.05 percent between 1900 and 2014. Between 1979 and 2014, the period for which death rates were analyzed by cause, the total age-sex-adjusted death rate, for all causes combined, declined at an average rate of 0.93 percent per year.
Death rates have declined substantially in the U.S. since 1900, with rapid declines over some periods and slow or no improvement over the other periods. Many factors are responsible for historical reductions in death rates, including medical advances, increased availability of health-care services, and improvements in sanitation and nutrition. Historical death rates generally declined more slowly for older ages and more rapidly for children and infants than for the rest of the population. Between 1900 and 2014, the age-sex-adjusted death rate for ages 65 and over declined at an average rate of 0.79 percent per year, while declining at an average rate of 3.07 percent per year for ages under 15.
Mortality assumptions differ for the low-cost, intermediate, and high-cost scenarios. Throughout the projection, the low-cost scenario contains annual percentage reductions that are smaller than those in the intermediate scenario, while those in the high-cost scenario are larger. The ultimate annual percentage reductions are the same as those in last year’s report.
The trends in the annual reductions in central death rates are calculated for the period from 2004 to 2014 by age group, sex, and cause of death. These trends are the starting reductions for alternative II. For alternatives I and III, 50 and 150 percent of the starting reductions are used, respectively. These annual reductions, by alternative, are assumed to transition rapidly from the starting reductions until they reach the ultimate annual percentage reductions assumed for 2041 and later.
Table V.A1 contains historical and projected age-sex-adjusted death rates for the total population (all ages), for ages under 65, and for ages 65 and over. Age-sex adjustment eliminates the effect of a changing distribution of population by age and sex, allowing the pure effects of changes in death rates to be observed. Under the intermediate assumptions, projected age-sex-adjusted death rates are, in general, slightly higher than the death rates in last year’s report for both the age group under 65 and the age group 65 and over. These changes primarily result from incorporating more recent historical data.
The projected average annual rate of decline for the total age-sex-adjusted death rate is about 0.42 percent, 0.77 percent, and 1.16 percent between 2016 and 2091 for alternatives I, II, and III, respectively. In keeping with the patterns observed in the historical data, the assumed future rates of decline are greater for younger ages than for older ages, but to a substantially lesser degree than in the past. Accordingly, the projected age-sex-adjusted death rates for ages 65 and over decline at average annual rates of about 0.37 percent, 0.68 percent, and 1.01 percent between 2016 and 2091 for alternatives I, II, and III, respectively. The projected age-sex-adjusted death rates for ages under 15 decline at average annual rates of about 0.81 percent, 1.60 percent, and 2.60 percent between 2016 and 2091 for alternatives I, II, and III, respectively.
Demographers express a wide range of views on the likely rate of future decline in death rates. For example, some believe that the long-standing historical tendency for mortality to decline more slowly at the highest ages will cease in the future. Others believe that biological factors, social factors, and limitations on health care spending may slow future rates of decline in mortality.6
The Trustees periodically revise the assumed ultimate rates of decline in mortality based on experience, new conditions, and expert opinion. Evolving trends in health care and lifestyle will determine what modifications to the assumed ultimate rates of decline in mortality will be warranted for future reports.
.
Table V.A1.—Fertility and Mortality Assumptions,a
Calendar Years 1940-2095 
Total fertility rateb
Age-sex-adjusted death ratec
per 100,000, by age
d805.4
d4,501.1
e787.9
e243.2
e4,419.6
e1.87
e779.8
e240.8
e4,373.7

a
This table contains basic assumptions along with key summary values that are derived from basic assumptions.

b
The total fertility rate for any year is the average number of children that would be born to a woman in her lifetime if she were to experience, at each age of her life, the birth rate observed in, or assumed for, the selected year, and if she were to survive the entire childbearing period.

c
Based on the enumerated total population as of April 1, 2010, if that population were to experience the death rates by age and sex observed in, or assumed for, the selected year.

d
Estimated.

e
Estimated, intermediate alternative.

3. Immigration Assumptions
Projections of the total Social Security area population reflect assumptions for annual legal immigration, legal emigration, “other immigration,” and “other emigration.” Legal immigration consists of persons who are granted legal permanent resident status. Legal emigration consists of legal permanent residents and citizens who leave the Social Security area population. Net legal immigration is the difference between legal immigration and legal emigration. “Other immigration” consists of immigrants who enter the Social Security area in a given year and stay to the end of that year without having legal permanent resident status, such as undocumented immigrants and temporary foreign workers and students. “Other emigration” consists of other immigrants who leave the Social Security area population or who adjust their status to become legal permanent residents. Net other immigration is the difference between other immigration and other emigration. Net immigration refers to the sum of net legal immigration and net other immigration.
Immigration assumptions differ for the low-cost, intermediate, and high-cost scenarios. The low-cost scenario includes higher annual net immigration and the high-cost scenario includes lower annual net immigration. Table V.A2 contains historical and projected levels of various immigration flows.
Legal immigration has increased significantly since World War II, due to various events and legislative changes, including the Immigration Act of 1965 and the Immigration Act of 1990.
The intermediate alternative assumes that annual legal immigration, including those who adjust their status to become legal permanent residents, will be 1,060,000 persons for 2016 and later. Alternatives I and III assume that ultimate annual legal immigration will be 1,260,000 persons and 860,000 persons, respectively, for 2017 and later. The ultimate levels of legal immigration are unchanged from last year’s report.
The assumed ratios of annual legal emigration to legal immigration are 20, 25, and 30 percent for alternatives I, II, and III, respectively. This range is consistent with the limited historical data for legal emigration from the Social Security area. These ratios are unchanged from last year’s report. Under the intermediate alternative, by combining the ultimate annual legal immigration and emigration assumptions, ultimate annual net legal immigration is 795,000 persons. For the low-cost and high-cost scenarios, ultimate annual net legal immigration is about 1,008,000 persons and 602,000 persons, respectively.
The estimated number of other immigrants residing in the Social Security area and the annual level of other immigration have been affected significantly by the recent recession. Net other immigration was greatly reduced during the economic downturn. Under the intermediate assumptions, annual other immigration is expected to increase from recent levels, reflecting a continued recovery from levels experienced during the recession. The ultimate levels of other immigration are unchanged from last year’s report: 1,350,000 persons for alternative II, 1,650,000 persons for alternative I, and 1,050,000 persons for alternative III.
Emigration from the other-immigrant population includes those who leave the Social Security area and those who adjust their status to become legal permanent residents. This other-immigrant population is highly mobile and far more likely to leave the Social Security area than is the citizen or legal permanent resident population. As individuals from this population reside in the country for extended periods of time, they generally become less likely to leave the country.
Under the intermediate assumptions, the total annual number of other emigrants who leave the Social Security area averages about 418,000 through the 75‑year projection period. In addition, the ultimate annual number of other immigrants who adjust status to become legal permanent residents is assumed to be 450,000 for the intermediate assumptions. This is one-third of the assumed ultimate annual number of other immigrants entering the Social Security area. For the low-cost and high-cost scenarios, the total annual number of other emigrants averages about 495,000 and 327,000, respectively, through the 75‑year projection period. The ultimate annual number of people adjusting status to legal permanent resident status is assumed to be 550,000 persons and 350,000 persons, for the low-cost and high-cost scenarios, respectively. The ultimate annual number of people adjusting status to become legal permanent residents is unchanged from last year’s report.
Under the assumptions and methods described above, the projected size of the other-immigrant population grows substantially. This growth reflects the excess of annual other immigration over the combined annual numbers of emigrants and deaths that occur within the other-immigrant population.
Under the intermediate assumptions, projected net other immigration reaches a peak in 2018, reflecting the recovering economy, then sharply decreases over the next few years, primarily due to the decline in the number of other immigrants entering the country, to a stable long-term level. This is followed by a gradual decrease in net other immigration after 2022, due to the increasing number of other immigrants residing in the Social Security area. Because the number of other immigrants leaving the Social Security area is based on rates of departure, an increase in the number of other immigrants residing in the Social Security area results in an increase in the number who emigrate out of the area. All other components of other immigration and emigration are assumed to be stable after 2022, and thus do not contribute toward any change in net other immigration. Under the intermediate assumptions, the projected average annual level of net other immigration over the 75-year projection period is about 491,000 persons. For the low-cost and high-cost assumptions, projected average annual net other immigration is about 615,000 persons and 359,000 persons, respectively.
The projected average total level of net immigration (legal and other, combined) is about 1,286,000 persons per year during the 75-year projection period under the intermediate assumptions. For the low-cost and high-cost assumptions, projected average annual total net immigration is about 1,623,000 persons and 961,000 persons, respectively.
Demographers express a wide range of views about the future course of immigration for the United States. Some believe that net immigration will increase substantially in the future. Others believe that potential immigrants may be increasingly attracted to other countries, that the number of potential immigrants may be lower due to lower birth rates in many countries, or that changes in the law or enforcement of the law could reduce immigration. The average of the 2015 Technical Panel’s recommended annual levels of total net immigration for the 75-year projection period is very close to the average projected in this year’s report.
Table V.A2.—Immigration Assumptions,a Calendar Years 1940-2095 
Other-than-legal immigrationb
Adjustments of statusc d
2015 5
2016 6

a
This table contains basic assumptions along with key summary values that are derived from basic assumptions.

b
Historical other immigration and emigration estimates depend on a residual method, using Department of Homeland Security (DHS) January 1 stock estimates for 2005 through 2012, and internally developed January 1 stock estimates based on DHS methods for 2013 through 2015.

c
Estimates do not include persons who attained legal permanent resident status under the special one-time provisions of the Immigration Reform and Control Act of 1986.

d
Adjustments of status are a positive for net legal immigration and a negative for net other immigration.

e
Estimated.

f
Estimated, intermediate alternative.
Note: Totals do not necessarily equal the sums of rounded components.

4. Total Population Estimates
The starting Social Security area population for December 31, 2014, is derived from the Census Bureau’s estimate of the residents of the 50 States and D.C. and U.S. Armed Forces overseas. Adjustments are made to reflect mortality assumptions for the aged population since 2010 that are consistent with Medicare and Social Security data, net immigration assumptions for the aged population since 2010, estimates of the net undercount in the 2010 census, inclusion of U.S. citizens living abroad (including residents of U.S. territories), and inclusion of non-citizens living abroad who are insured for Social Security benefits. The Office of the Chief Actuary projects the population in the Social Security area by age, sex, and marital status for December 31 of each year from 2015 through 2095 by combining the assumptions for future fertility, mortality, and immigration with assumptions for marriage and divorce. Previous sections of this chapter present the assumptions for future fertility, mortality, and immigration. Assumptions for future rates of marriage and divorce reflect historical data from the National Center for Health Statistics, the Census Bureau, and selected individual States.
This report presents a July 1 (i.e., midyear) population for each year, which is derived from surrounding December populations. Table V.A3 shows the historical and projected population for July 1 by broad age group, for the three alternatives. It also shows the aged and total dependency ratios (see table footnotes for definitions).
Ageda
Totalb
2015c
2016  c

a
Ratio of the population at ages 65 and over to the population at ages 20-64.

b
Ratio of the population at ages 65 and over and the population under age 20 to the population at ages 20‑64.

c
Estimated, intermediate alternative.

Notes:
1. Historical data are subject to revision.
2. Totals do not necessarily equal the sums of rounded components.
5. Life Expectancy Estimates
Life expectancy, or the average remaining number of years expected prior to death, is an additional way to summarize the Trustees’ mortality assumptions. This report includes life expectancy in two different forms (period and cohort) for two separate purposes.
Cohort life expectancy does not use death rates for a single year, but for the series of years in which the individual will actually reach each succeeding age if he or she survives. Cohort life expectancy provides an individual’s expected average remaining lifetime at a selected age in a given year, using actual or expected future changes in death rates. Table V.A5 presents historical and projected life expectancy calculated on a cohort basis. Cohort life expectancy is somewhat greater than period life expectancy for a given year because: (1) death rates at any age tend to decline over time; and (2) cohort life expectancy uses death rates from future years, while period life expectancy uses death rates only from the given year.
Life expectancy at a given age reflects death rates at that and all older ages. Period life expectancy is somewhat related to the age-sex-adjusted death rate discussed in section V.A.2. However, life expectancy places far greater weight on death rates at lower ages than at higher ages. Therefore, changes in death rates at lower ages have far greater effects in changing life expectancy over time. It is important to keep this concept in mind when considering trends in life expectancy.
2015c

a
The period life expectancy at a given age for a given year is the average remaining number of years expected prior to death for a person at that exact age, born on January 1, using the mortality rates for that year over the course of his or her remaining life.

b
Estimated.

c
Estimated, intermediate alternative.

At birthb
At age 65c

a
The cohort life expectancy at a given age for a given year is the average remaining number of years expected prior to death for a person at that exact age, born on January 1, using the mortality rates for the series of years in which the individual will actually reach each succeeding age if he or she survives.

b
Cohort life expectancy at birth for those born in the calendar year is based on a combination of actual, estimated, and projected death rates for birth years 1940 through 2014. For birth years after 2014, these values depend on estimated and projected death rates.

c
Age 65 cohort life expectancy for those attaining age 65 in calendar years 1940 though 2013 depends on actual death rates or on a combination of actual, estimated, and projected death rates. After 2013, these values depend on estimated and projected death rates.


1
Actuarial Studies published by the Office of the Chief Actuary, Social Security Administration, contain further details about the assumptions, methods, and actuarial estimates. A complete list of available studies may be found at www.ssa.gov/OACT/NOTES/actstud.html. To obtain copies of such studies or of this report, please submit a request at www.ssa.gov/OACT/request.html or write to: Office of the Chief Actuary, 700 Altmeyer Building, 6401 Security Boulevard, Baltimore, MD 21235. This entire report, along with supplemental year-by-year tables and additional documentation on assumptions and methods, may be found at www.ssa.gov/OACT/TR/2017/.

2
Birth rates at age 14 include births to women aged 14 and under, and birth rates at age 49 include births to women aged 49 and over.

3
The total fertility rate may be interpreted as the average number of children that would be born to a woman in her lifetime if she were to experience, at each age of her life, the birth rate observed in, or assumed for, a specified year, and if she were to survive the entire childbearing period. A rate of about 2.1 would ultimately result in a nearly constant population if immigration and emigration were both zero, and if death rates were to remain at current levels.

4
These rates reflect NCHS data on deaths and Census estimates of population.

5
Based on the enumerated total population as of April 1, 2010, if that population were to experience the death rates by age and sex for the selected year.

6
The 2015 Technical Panel on Assumptions and Methods, appointed by the Social Security Advisory Board, recommended retaining ultimate rates of improvement that vary by age and cause of death as assumed by the Trustees, but with an overall rate of improvement on an age-sex-adjusted basis of 1.00 percent.


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