2001 OASDI Trustees Report
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C. ASSUMPTIONS ABOUT THE FUTURE

The actual future income and expenditures of the OASI and DI Trust Funds will depend on many factors, including future demographic and economic conditions. These factors include the size and characteristics of the population receiving benefits, the level of monthly benefit amounts, the size and characteristics of the work force, and the level of workers' earnings. These factors will depend in turn upon future birth rates, death rates, immigration, marriage and divorce rates, retirement-age patterns, disability incidence and termination rates, productivity gains, wage increases, inflation, and many other economic, demographic, and program-related factors.

Assumptions regarding each of these variables must be made in order to project trust fund financing in the future. The assumptions selected vary, in most cases, from year to year during the first decade or more before reaching ultimate assumed values for the remainder of the 75-year projection period. This phasing-in process is particularly important if the projection period begins when a variable that has experienced distinct cycles in the past is at, or near, a cyclic extreme. An ultimate value for each variable is assumed for the long-range projection because any cycles in factors are assumed to average out at that ultimate value over the long range.

Any projection of the future is, of course, uncertain. The degree of uncertainty involved can be illustrated by imagining how difficult it would have been in 1925 to project the world of 1930, much less that of 2000. Three alternative sets of assumptions are used in this report to recognize this uncertainty and provide a range of possible future experience. The intermediate set of assumptions, designated as alternative II, reflects the Trustees' best estimates of future experience; the low cost alternative I is more optimistic and the high cost alternative III more pessimistic for the trust funds' future financial outlook.

While no assurance can be given that actual future experience will fall within the range provided by these sets of assumptions, there are factors that reduce the inherent uncertainty. For example, the number of beneficiaries over age 65 is subject to less uncertainty for the next several decades because all of these individuals are already born. In addition, the wage-indexing of many program provisions has reduced the sensitivity of projections to some economic factors, even in the long term. Thus, projections presented in this report can provide early notice of significant changes in future income and expenditures, as, for example, when the baby-boom generation retires during the period from 2010 to 2030. Also, the assumptions are reexamined each year in light of recent experience and new information that may influence future trends, and are revised when warranted. This careful review and updating of the assumptions on an annual basis helps ensure that they provide a reasonable range of future possibilities.

Table II.C1 summarizes the ultimate values assumed for the key demographic and economic elements underlying the projections shown in this report. These ultimate values generally apply after the first 10 years. Two exceptions are the ultimate fertility rate and the ultimate mortality annual rate of reduction, which are reached in 2025.

Table II.C1.- Ultimate Values of Key Economic and Demographic Assumptions
Ultimate assumptions
Intermediate
Low Cost
High Cost
Economic:
Annual percentage change in:
Average wage in covered employment
4.3
3.8
4.8
3.3
2.3
4.3
Real-wage differential (percent)
1.0
1.5
.5
Unemployment rate (percent)
5.5
4.5
6.5
Annual trust fund interest rate (percent)
6.3
6.0
6.5
Demographic:
Total fertility rate (children per woman)
1.95
2.2
1.7
Average annual percentage reduction in total age-sex-adjusted death rates from 2025 to 2075 1
.68
.31
1.20
Annual net immigration (in thousands)
900
1,210
655

1 Actual ultimate assumptions for reductions in death rates are specified in detail, by age group, sex, and cause of death.


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