2001 OASDI Trustees Report
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C. PROGRAM SPECIFIC ASSUMPTIONS AND METHODS

The demographic and economic assumptions and methods described in the previous section are input to the set of models used to project future income and outgo under the OASDI program. In some cases, the economic assumptions result in the direct calculation of program parameters as described in the following subsection. These parameters affect the level of payroll taxes collected and the level of benefits paid and are calculated using formulas described explicitly in the Social Security Act. In other cases, the combination of demographic and economic assumptions are used indirectly to drive more complicated models that project the numbers of future workers covered under OASDI and the levels of their covered earnings, and the numbers of future beneficiaries and the expected levels of their benefits. The following subsections provide brief descriptions of the derivations of these program specific factors.

1. Automatically Adjusted Program Amounts

The Social Security Act specifies that certain program amounts affecting the determination of OASDI benefits are to be adjusted annually, in general, to reflect changes in the economy. The law prescribes specific formulas that, when applied to reported statistics, produce automatic revisions in these program amounts and hence in the benefitcomputation procedures. These automatic adjustments are based upon measured changes in the national average wage index and the CPI.1 In this section, values are shown for program amounts that are subject to automatic adjustment, from the time that such adjustments became effective through 2010. Projected values for future years are based on the economic assumptions described in the preceding section of this report.

The following two tables present the historical and projected values of the CPI-based benefit increases, as well as the average wage index series and the values of many of the wage-indexed program amounts. In each table, the projections are shown under the three alternative sets of economic assumptions described in the previous section. Table V.C1 includes:

Other wage-indexed amounts are shown in table V.C2. The table provides historical values from 1978, when the amount of earnings required for a quarter of coverage was first indexed, through 2001, and also shows projected amounts through 2010. These other wage-indexed program amounts are:

 

In addition to the program amounts affecting the determination of OASDI benefits that reflect changes in the economy, there are certain legislated changes that have affected, and will affect, benefits. Two such changes are the scheduled increases in the normal retirement age and in the delayed retirement credits. Table V.C3 shows the scheduled changes in these two important items and their effect on benefits expressed as a percentage of PIA.

Table V.C3.- Legislated Changes in Normal Retirement Age and Delayed Retirement Credits, for Persons Reaching Age 62 in Each Year 1986 and Later
Year of birth
Year of
attainment of
age 62
Normal
retirement
age (NRA)
Credit for each
year of delayed
retirement after
NRA (percent)
Benefit, as a percentage of PIA,
beginning at age -
62
65
66
67
70
1924
1986
65
3
80
100
103
106
115
1925
1987
65
3 1/2
80
100
103 1/2
107
117 1/2
1926
1988
65
3 1/2
80
100
103 1/2
107
117 1/2
1927
1989
65
4
80
100
104
108
120
1928
1990
65
4
80
100
104
108
120
1929
1991
65
4 1/2
80
100
104 1/2
109
122 1/2
1930
1992
65
4 1/2
80
100
104 1/2
109
122 1/2
1931
1993
65
5
80
100
105
110
125
1932
1994
65
5
80
100
105
110
125
1933
1995
65
5 1/2
80
100
105 1/2
111
127 1/2
1934
1996
65
5 1/2
80
100
105 1/2
111
127 1/2
1935
1997
65
6
80
100
106
112
130
1936
1998
65
6
80
100
106
112
130
1937
1999
65
6 1/2
80
100
106 1/2
113
132 1/2
1938
2000
65, 2 mo
6 1/2
79 1/6
98 8/9
105 5/12
111 11/12
131 5/12
1939
2001
65, 4 mo
7
78 1/3
97 7/9
104 2/3
111 2/3
132 2/3
1940
2002
65, 6 mo
7
77 1/2
96 2/3
103 1/2
110 1/2
131 1/2
1941
2003
65, 8 mo
7 1/2
76 2/3
95 5/9
102 1/2
110
132 1/2
1942
2004
65, 10 mo
7 1/2
75 5/6
94 4/9
101 1/4
108 3/4
131 1/4
1943-54
2005-16
66
8
75
93 1/3
100
108
132
1955
2017
66, 2 mo
8
74 1/6
92 2/9
98 8/9
106 2/3
130 2/3
1956
2018
66, 4 mo
8
73 1/3
91 1/9
97 7/9
105 1/3
129 1/3
1957
2019
66, 6 mo
8
72 1/2
90
96 2/3
104
128
1958
2020
66, 8 mo
8
71 2/3
88 8/9
95 5/9
102 2/3
126 2/3
1959
2021
66, 10 mo
8
70 5/6
87 7/9
94 4/9
101 1/3
125 1/3
1960 & later
2022 & later
67
8
70
86 2/3
93 1/3
100
124

2. Covered Employment

Projections of the total labor force and unemployment rate are based on Bureau of Labor Statistics definitions from the Current Population Survey (CPS), and thus represent the average weekly number of employed and unemployed persons, aged 16 and over, in the U.S. in a calendar year. Total covered workers in a year are the number of persons who have any OASDI covered earnings at any time during the year. For those aged 16 and over, projected covered employment is the sum of age-sex components, each of which is projected as a ratio to the CPS concept of employment. For those under age 16, projected covered employment is the sum of age-sex components, each of which is projected as a ratio to the Social Security area population. The projection methodology accounts for changes in the business cycle, the quarterly pattern of growth in employment within each year, changes in non-OASDI covered employment, the increase in coverage of Federal civilian employment as a result of the 1983 Social Security Amendments, and changes in the number of other-than-legal aliens estimated to be residing within the Social Security coverage area.

Covered worker rates are defined as the ratio of OASDI covered workers to the Social Security area population. The projected age-adjusted coverage rate for men, aged 16 and over, changes from its 1999 level of 74.7 percent to 72.5, 71.9, and 71.5 percent for 2075 for alternatives I, II, and III, respectively. (Age-adjusted covered worker rates are adjusted to the 1999 age distribution of the Social Security area population.) For women, it remains at its 1999 level of 63.4 percent for alternative I, and changes to 62.9 and 62.3 percent for 2075 for alternatives II and III, respectively.

3. Taxable Payroll and Payroll Tax Revenue

The OASDI taxable payroll is the amount of earnings in a year which, when multiplied by the combined employee-employer tax rate, yields the total amount of taxes due from wages and self-employed income in the year. Taxable payroll is used in estimating OASDI income and in determining income and cost rates and actuarial balances. (See section IV.B.1, Annual Income Rates, Cost Rates, and Balances, for definitions of these terms.) Taxable payroll is computed from taxable earnings, defined as the sum of wages and self-employment earnings subject to the Social Security tax. Wages are adjusted to take into account the "excess wages" earned by workers with multiple jobs whose combined wages exceed the taxable earnings base. Also, beginning in 1983, taxable payroll includes deemed wage credits for military service. Prior to 1984, the self-employed tax rate was less than the combined employee-employer rate, thus taxable self-employed earnings were weighted to reflect this. Also, prior to 1988, employers were exempt from Social Security tax on part of their employees' tips; taxable payroll was reduced by half of this exempt amount to take this into account.

Taxable earnings for employees, employers, and the self-employed were estimated from total earnings in covered employment. Covered earnings are summed from component sectors, each of which is based on the projected growth of U.S. earnings and a factor that reflects any projected change in coverage (e.g., the increase in coverage in the Federal civilian sector due to mandatory coverage of newly hired employees). The level of taxable earnings, that is, covered earnings at or below the taxable earnings base, was then estimated based on adjustments to the latest available historical earnings distributions for wage and self-employed workers. The ratio of taxable to covered earnings decreased from about 90.2 percent in 1983 to 87.9 percent in 1994, or by an average annual rate of -0.2 percent. The ratio is estimated to have fallen further to 84.3 percent in 1999, or at an average annual rate of 0.8 percent, due mainly to the increased proportion of very high wage earners.

Some of this historical decline was projected to continue through 2010 in all alternatives. The taxable earnings ratio was projected to be about 84.2, 83.5, and 82.9 percent in 2010 in alternatives I, II, and III, respectively, or to change at an average annual rate of about 0.0, -0.1, and -0.2 percent. After 2010, the taxable to covered ratio was held approximately constant in each alternative.

Payroll tax revenue was computed by applying the appropriate tax rates to taxable wages and self-employment income, taking into account the lag between the time the tax liability is incurred and when the taxes are collected. In the case of wages, employers are required to deposit withholding taxes with the Treasury on a schedule determined by the amount of tax liability incurred. (Generally, the higher the amount of liability, the sooner the taxes must be paid-ranging from the middle of the following month to, for companies with very large payrolls, the next banking day after wages are paid.) Self-employed workers are required to make estimated tax payments on their earnings four times during the year, as well as making up any under-estimate on their individual income tax return. The pattern of actual receipts by the Treasury is taken into account when estimating self-employed tax collections.

4. Insured Population

There are three basic types of insured status under the OASDI program: fully insured, currently insured, and disability insured. Fully insured status is required of an aged worker for eligibility to a primary retirement benefit and for the eligibility of that worker's spouse and children to auxiliary benefits. Fully insured status is also required of a deceased worker for the eligibility of the worker's survivors to benefits (with the exception of child survivors and parents of eligible child survivors, in which cases the deceased worker is required to have had either currently insured status or fully insured status). Disability insured status, which is more restrictive than fully insured status, is required of a disabled worker for eligibility to a primary disability benefit and for the eligibility of the worker's spouse and children to auxiliary benefits.

Projections of the percentage of the population that is fully insured were made by age and sex, from estimated distributions of workers by accumulated quarters of coverage based on past and projected coverage rates and amounts of earnings required for quarters of coverage. Currently insured status was disregarded for purposes of these estimates, because the number of cases in which eligibility for benefits is based solely on currently insured status is relatively small. Projections of the percentage of fully insured persons who are also disability insured were made by age and sex based on past and projected coverage rates, the requirements for disability insured status, and their historical relationships. Finally, the fully insured and disability insured populations were developed from the projected total population by applying the appropriate percentages.

Under this procedure, the percentage of the Social Security area population aged 62 and over that is fully insured is projected to increase from its estimated level of 77.8 for December 31, 1996, to 88.5, 89.2, and 89.6 for December 31, 2075, based on alternatives I, II, and III, respectively. The percentage for females is projected to increase significantly, while that for males is projected to decrease slightly. Based on alternative II, for example, the percentage for males is projected to decrease during this period from 91.4 to 90.5, while that for females is projected to increase from 67.9 to 88.1.

The fully insured population by age and sex was further subdivided by marital status, using the variation in labor force participation rates by marital status to estimate the variation in coverage rates by marital status. These coverage rates were then used to estimate the variation in the fully insured rates by marital status.

5. Old-Age and Survivors Insurance Beneficiaries

The number of OASI beneficiaries was projected for each type of benefit separately, by the sex of the worker on whose earnings the benefits are based, and by the age of the beneficiary. For selected types of benefits, the number of beneficiaries was also projected by marital status.

For the short-range period, the number of retired-worker beneficiaries was developed by applying award rates to the aged fully insured population less those insured persons entitled to retired-worker, disabled-worker, or widow(er)'s benefits, and by applying termination rates to the number of persons already receiving retired-worker benefits.

For the long-range period, the number of retired-worker beneficiaries not previously converted from disabled-worker beneficiary status was projected as a percentage of the exposed population, i.e., the aged fully insured population less persons entitled to or converted from disability benefits and insured persons entitled to widow(er)'s benefits. The percentage for age 62 was projected by a simple linear regression which uses the projected labor force participation rate for age 62. The percentage for ages 70 and over was assumed to be nearly 100, because the retirement earnings test and delayed retirement credit do not apply after age 70, but was adjusted for the statistical difference between in-force data and in-current-payment data. The percentage for each age 63 through 69 was projected from the December 31, 2000 retired-worker beneficiaries data which reflects the elimination of the earnings test after normal retirement age, with an adjustment for changes in the portion of the primary insurance amount that is payable at each age of entitlement. As the normal retirement age increases, the number of retired-worker beneficiaries not automatically converted from disabled-worker beneficiary status as a percentage of the exposed population is gradually adjusted downward at each age 63 through 69.

For the long-range period also, the number of retired-worker beneficiaries previously converted from disabled-worker beneficiaries was calculated as an extension beyond normal retirement age of the calculation of disabled-worker beneficiaries.

The number of aged-spouse beneficiaries was estimated from the population projected by age and sex. The benefits of aged-spouse beneficiaries are based on the earnings records of their husbands or wives, who are referred to as "wage earners." In the short-range period, a regression equation was used to project the number of aged-spouse beneficiaries, as a proportion of the aged uninsured female or male population. In the long-range period, aged-spouse beneficiaries were estimated from the population projected by age, sex, and marital status. To the number of spouses aged 62 and over in the population, a series of factors were applied, representing the probabilities that the spouse and the wage earner meet all of the conditions of eligibility-i.e., the probabilities that (1) the wage earner is 62 or over, (2) the wage earner is insured, (3) the wage earner is receiving benefits, (4) the spouse is not receiving a benefit for the care of an entitled child, (5) the spouse is not insured, and (6) the spouse is not eligible to receive a significant government pension based on earnings in noncovered employment. To the resulting number of spouses was applied a projected prevalence rate to calculate the estimated number of aged-spouse beneficiaries.

In addition, the same factors were applied to the number of divorced persons aged 62 and over in the population, with three differences. First, an additional factor is required to reflect the probability that the person's former wage-earner spouse is still alive (otherwise, the person may be entitled to a divorced widow(er)'s benefit). Second, a factor is required to reflect the probability that the marriage to the wage-earner spouse was at least 10 years in duration. Third, factor (3) above was not applied because, effective for January 1985, a divorced person generally need not wait to receive benefits until the former wage-earner spouse is receiving benefits.

The projected numbers of children under age 18, and students aged 18, who are eligible for benefits as children of retired-worker beneficiaries, were based on the projected number of children in the population. In the short-range period, the number of entitled children was developed by applying award rates to the number of children in the population where both parents are alive, and by applying termination rates to the number of children already receiving benefits.

In the long-range period, the number of entitled children was projected separately by sex of the wage-earner parent. To the number of children in the population, factors were applied representing the probabilities that the parent is alive, aged 62 or over, insured, and receiving a retired-worker benefit. Another factor was applied representing the probability that the child is not entitled to a benefit based on the other parent's earnings. In addition, a factor was applied to reduce the number of beneficiaries to reflect the more restrictive requirements for entitlement of stepchildren that were enacted in Public Law 104-121. For children aged 18, a factor representing the probability that the child is attending a secondary school was also applied.

The number of disabled children aged 18 and over of retired-worker beneficiaries was projected from the adult population. In the short-range period, award rates were applied to the population, and termination rates were applied to the number of disabled children already receiving benefits. In the long-range period, disabled children were projected in a manner similar to that for children under 18, with the inclusion of a factor representing the probability of being disabled since childhood.

In the short-range period, the number of entitled young-spouse beneficiaries was developed by applying award rates to the number of awards to children of retired workers, where the children are either under age 16 or disabled, and by applying termination rates to the number of young-spouses already receiving benefits. In the long-range period, young-spouse beneficiaries were projected as a proportion of the projected number of child beneficiaries of retired workers, taking into account projected changes in average family size.

The number of aged-widow(er) beneficiaries was projected from the population by age and sex. In the short-range period, insured aged-widow(er) beneficiaries were projected concurrently with the retired-worker beneficiaries. A regression equation projected the number of uninsured aged-widow(er) beneficiaries, as a proportion of the uninsured aged female or male population not receiving any type of benefit. In the long-range period, aged-widow(er) beneficiaries were projected from the population by age, sex, and marital status. Four factors were applied to the number of widow(er)s in the population aged 60 and over. These factors represent the probabilities that (1) the deceased wage earner was fully insured at death, (2) the widow(er) is not receiving a benefit for the care of an entitled child, (3) the widow(er) is not fully insured, and (4) the widow(er)'s benefits are not withheld because of receipt of a significant government pension based on earnings in noncovered employment. In addition, some insured widow(er)s who had not applied for their retired-worker benefits are assumed to receive widow(er)'s benefits. Also, the same factors were applied to the number of divorced persons aged 60 and over in the population, with additional factors representing the probability that the person's former wage-earner spouse is deceased and that the marriage was at least 10 years in duration.

In the short-range period, the number of disabled-widow(er) beneficiaries was estimated as a proportion of the uninsured female or male population aged 50-64. In the long-range period, the number was projected for each age 50 through 64 as a percentage of the widowed and divorced populations, adjusted for the insured status of the deceased spouse and the prevalence of disability.

The projected numbers of children under age 18, and students aged 18, who are eligible for benefits as survivors of deceased workers, were based on the projected number of children in the population whose mothers or fathers are deceased. In the short-range period, the number of entitled children was developed by applying award rates to the number of orphaned children, and by applying termination rates to the number of children already receiving benefits.

In the long-range period, the number of child-survivor beneficiaries was projected in a manner analogous to that for child beneficiaries of retired workers, with the factor representing the probability that the parent is aged 62 or over replaced by a factor that represented the probability that the parent is deceased.

In the short-range period, the numbers of entitled mother-survivor and father-survivor beneficiaries were developed by applying award rates to the number of awards to child-survivor beneficiaries, where the children are either under age 16 or disabled, and by applying termination rates to the number of mother-survivors and father-survivors already receiving benefits. In the long-range period, mother-survivor and father-survivor beneficiaries were estimated from the number of child-survivor beneficiaries, taking into account projected changes in average family size.

The number of parent-survivor beneficiaries was projected based on the historical pattern of the number of such beneficiaries.

Table V.C4 shows the projected number of beneficiaries under the OASI program by type of benefit. Included among the beneficiaries who receive retired-worker benefits are some persons who also receive a residual benefit consisting of the excess of an auxiliary benefit over their retired-worker benefit. Estimates of the number of such residual payments were made separately for spouses and widow(er)s.

Table V.C4.- OASI Beneficiaries With Benefits in Current-Payment Status
at the End of Calendar Years 1945-2075 
[In thousands]
Calendar year
Retired workers and auxiliaries

Survivors
Total
Worker
Wife-
husband
Child
Widow-
widower
Mother-
father
Child
Parent
Historical data:
1945
518
159
13

94
121
377
6
1,288
1950
1,771
508
46

314
169
653
15
3,477
1955
4,474
1,192
122

701
292
1,154
25
7,961
1960
8,061
2,269
268

1,544
401
1,577
36
14,157
1965
11,101
2,614
461

2,371
472
2,074
35
19,128
1970
13,349
2,668
546

3,227
523
2,688
29
23,030
1975
16,589
2,867
643

3,888
582
2,919
21
27,509
1980
19,564
3,018
639

4,415
563
2,610
15
30,823
1985
22,435
3,069
456

4,863
372
1,918
10
33,123
1986
22,985
3,088
450

4,931
350
1,878
9
33,691
1987
23,444
3,090
439

4,984
329
1,837
8
34,130
1988
23,862
3,086
432

5,029
318
1,809
7
34,543
1989
24,331
3,093
422

5,071
312
1,782
6
35,017
1990
24,841
3,101
421

5,111
304
1,777
6
35,562
1991
25,293
3,104
425

5,158
301
1,792
5
36,078
1992
25,762
3,112
431

5,205
294
1,808
5
36,618
1993
26,109
3,094
436

5,224
289
1,837
5
36,994
1994
26,412
3,066
440

5,232
283
1,865
4
37,303
1995
26,679
3,026
441

5,226
275
1,884
4
37,534
1996
26,905
2,970
442

5,210
242
1,898
4
37,671
1997
27,282
2,922
441

5,053
230
1,893
3
37,825
1998
27,518
2,864
439

4,990
221
1,884
3
37,918
1999
27,784
2,811
442

4,944
212
1,885
3
38,081
2000
28,505
2,798
459

4,901
203
1,878
3
38,748
Intermediate:
2005
30,345
2,716
481

4,870
178
1,866
2
40,458
2010
34,176
2,663
476

4,960
162
1,777
2
44,215
2015
40,437
2,627
543

5,078
149
1,700
3
50,537
2020
47,969
2,627
634

5,129
142
1,633
3
58,137
2025
54,851
2,703
710

5,167
140
1,609
3
65,184
2030
60,551
2,734
750

5,155
138
1,597
3
70,929
2035
64,011
2,736
771

5,154
134
1,581
3
74,390
2040
65,350
2,701
774

5,174
130
1,555
3
75,688
2045
66,343
2,744
781

5,216
126
1,531
3
76,744
2050
67,922
2,819
795

5,237
123
1,508
3
78,406
2055
70,360
2,944
820

5,248
119
1,485
3
80,980
2060
73,128
3,056
841

5,261
116
1,461
3
83,865
2065
75,675
3,165
856

5,301
113
1,439
3
86,552
2070
78,006
3,253
868

5,372
110
1,419
3
89,029
2075
80,230
3,340
880

5,445
106
1,400
3
91,405
Low Cost:
2005
30,262
2,707
482

4,858
179
1,871
2
40,361
2010
33,878
2,633
482

4,918
166
1,809
2
43,888
2015
39,787
2,542
547

5,076
150
1,809
3
49,914
2020
46,891
2,498
644

5,144
143
1,808
3
57,131
2025
53,238
2,533
728

5,208
141
1,846
3
63,698
2030
58,155
2,525
779

5,214
140
1,895
3
68,711
2035
60,770
2,494
813

5,206
139
1,936
3
71,361
2040
61,367
2,436
831

5,196
139
1,959
3
71,931
2045
61,898
2,468
854

5,196
138
1,975
3
72,532
2050
63,183
2,536
886

5,180
139
1,997
3
73,924
2055
65,421
2,651
933

5,173
141
2,023
3
76,344
2060
67,901
2,744
973

5,190
143
2,051
3
79,005
2065
70,086
2,831
1,007

5,253
144
2,080
3
81,405
2070
72,170
2,907
1,038

5,358
146
2,109
3
83,731
2075
74,491
2,996
1,073

5,474
147
2,139
3
86,323
High Cost:
2005
30,415
2,726
479

4,882
177
1,857
2
40,539
2010
34,428
2,693
471

5,001
158
1,746
2
44,499
2015
41,068
2,720
539

5,063
151
1,614
3
51,159
2020
49,040
2,776
626

5,084
142
1,494
3
59,165
2025
56,539
2,909
694

5,081
137
1,416
3
66,779
2030
63,166
3,001
723

5,039
130
1,351
3
73,412
2035
67,670
3,062
729

5,037
121
1,288
3
77,910
2040
70,008
3,082
715

5,084
112
1,225
3
80,229
2045
71,760
3,170
705

5,167
104
1,174
3
82,083
2050
73,944
3,279
697

5,226
96
1,126
3
84,370
2055
76,868
3,437
701

5,252
88
1,076
3
87,424
2060
80,178
3,578
701

5,243
81
1,028
3
90,812
2065
83,310
3,712
701

5,233
75
983
3
94,017
2070
86,107
3,811
697

5,241
69
942
3
96,871
2075
88,439
3,894
694

5,248
64
906
3
99,248

Note: The number of beneficiaries does not include certain uninsured persons, most of whom both attained age 72 before 1968 and have fewer than 3 quarters of coverage, in which case the costs are reimbursed by the general fund of the Treasury. The number of such uninsured persons was 89 as of December 31, 2000. Totals do not necessarily equal the sums of rounded components.

6. Disability Insurance Beneficiaries

Benefits are paid from the DI Trust Fund to individuals who satisfy the disability-insured requirements who, are unable to engage in substantial gainful activity due to medically determinable physical or mental impairment severe enough to satisfy the requirements of the program, and have not yet attained normal retirement age. Spouses and children of such disabled workers may also receive DI benefits provided they satisfy certain criteria, mostly depending upon age or the age of a child in the care of the non-disabled spouse. In projecting future benefit outlays from the DI Trust Fund, the number of DI beneficiaries is projected for each type of beneficiary separately, by the sex of the disabled worker on whose earnings the benefits are based, and the age of the beneficiary. Such projections are accomplished using standard actuarial methods reflecting future additions to the DI rolls through awards of new benefits, and subtractions from the rolls due to death, recovery, or administrative conversion upon attainment of normal retirement age from status as a disabled-worker beneficiary to status as a retired-worker beneficiary. The long-range and short-range models used to make these projections are both constructed from this basic outline, but differ in some details reflecting their respective uses.

The number of new entitlements to disabled-worker benefits during each year is projected by applying assumed age-sex specific disability incidence rates to the projected disability-exposed population.2 Long-range ultimate disability incidence rates are selected based on careful analysis of historical patterns and expected future conditions, including the impact of scheduled increases in the normal retirement age.3 Incidence rates for the first half of the short-range period reflect the most recent actual experience along with consideration of other factors expected to affect the processing of disability claims in the near term. Over the latter half of the short-range period, incidence rates are assumed to trend into levels consistent with the long-range ultimate incidence rate assumptions.

These assumed incidence rates are summarized in figure V.C3 and table V.C5. As illustrated in figure V.C3, incidence rates have varied within a wide range over the past 30 years. Although not completely understood, this variation is attributed in large part to a variety of economic and demographic factors, along with the effects of changes due to legislation and program administration.4 The solid lines in figure V.C3 illustrate values of the summarized incidence rate, age-sex adjusted to the distribution of the disability-exposed population for 1998. Such adjustment facilitates meaningful comparisons over long periods of time. From a historically high level of about 7 awards per thousand insured in 1975, age-sex-adjusted rates declined to about 3.6 per thousand by 1982. Following a gradual trend upward, rates increased to about 5.7 per thousand by 1992 and have since declined to about 4.6 per thousand in 2000. Figure V.C3 also displays the age-sex-adjusted short-range incidence rates under the three alternative sets of assumptions. Gross (unadjusted) incidence rates are also shown in figure V.C3 in dashed lines. These unadjusted rates are heavily influenced by the changing age-sex distribution of the exposed population over time. This is most noticeable in the period 2000 to 2010 when the aging baby-boom generation will be concentrated in the ages of highest disability incidence.

Figure V.C3.- DI Disabled Worker Incidence Rates, 1970-2010
[Awards per thousand disability exposed]
DI disabled worker incidence rates, 1970-2010 (awards per thousand disability exposed). Projected numbers (2000-2010) under all three alternatives. Solid lines illustrate values of the summarized incidence rate, age-sex adjusted to the distribution of the disability exposed population for 1998. The dashed lines illustrate the gross (unadjusted) incidence rates.

Table V.C5 presents the long-range ultimate incidence rate assumptions age-sex adjusted to the disability-exposed population as of January 1, 1996. The table also indicates the year in which the ultimate values are attained, along with an indication of the relationship between those ultimate rates and the rates for the base period (1994-96) that was used to develop relative levels of disability incidence by age and sex for long-range assumptions.

Table V.C5.- Long-Range Ultimate Disabled Worker Age-Sex Adjusted Incidence Rates1

Ultimate
incidence rate

Year ultimate
rate is attained

Percentage change from
base period 2 to ultimate rate
Intermediate assumption
5.6

2026

+10
Low cost assumption
4.5

2026

-12
High cost assumption
6.7

2026

+32

1 Number of annual new disabled-worker entitlements per thousand disability-exposed, age-sex adjusted to the disability-exposed population as of January 1, 1996.

2 Base period rate for long-range incidence rate assumptions is 5.0 per thousand representing the average age-sex adjusted incidence rate for 1994-96.

The number of disabled-worker beneficiaries having their benefits terminated during each year is projected by applying assumed termination rates to the disabled-worker population. The termination rates are developed by age, sex, and reason for termination.5 In addition, in the long-range period, termination rates are also assumed to vary by duration of entitlement to disabled-worker benefits. To this number of terminations is added the number of disabled-worker beneficiaries who would be automatically converted to retired-worker beneficiaries upon attainment of the normal retirement age.

In the short-range period, gross death rates under the intermediate assumptions are projected to remain relatively constant at between 35 and 37 deaths per thousand disabled workers. This is about the same as projected under the intermediate set of assumptions for last year's report. The pattern of projected recovery rates under the intermediate assumptions is consistent with assumed levels of continuing disability reviews required to fulfill the legislative mandate for regular reviews of all disabled beneficiaries. Under low cost (high cost) assumptions, terminations due to death, recovery, and other reasons increase (decrease) to levels roughly 10 percent higher (lower) than those under the intermediate assumptions.

For the long-range period, projection of death rates and recovery rates begins with an analysis of such rates split by age, sex, and duration of entitlement over the base period 1991-95.6 Under the intermediate assumptions, recovery rates for both males and females, are assumed to remain approximately constant after 2010. Death rates over the long-range period are assumed to change gradually, at about the same trend as for death rates in the general population, reaching levels in 2075 which are lower than the base period level by 49 percent for males and 40 percent for females.

Under the low cost assumptions, recovery rates and death rates are assumed to be higher than the corresponding levels assumed for the intermediate assumptions. Ultimate recovery rates are assumed to be higher than the base period rate by 125 percent for males and by 89 percent for females, while death rates are assumed to change gradually reaching levels in 2075 which are lower than the base period level by 32 percent for males and 21 percent for females.

Under the high cost assumptions, recovery rates and death rates are assumed to be lower than the corresponding levels assumed for the intermediate assumptions. Ultimate recovery rates are assumed to be higher than the base period rate by 50 percent for males and by 26 percent for females, while death rates are assumed to change gradually reaching levels in 2075 which are lower than the base period level by 63 percent for males and 56 percent for females.

These detailed projections of disabled-worker entitlements and terminations are combined using standard multiple decrement techniques to produce projections of numbers of disabled workers in current-payment status over the 75-year projection period. These projections are presented in table V.C6. As indicated in that table, the number of disabled workers in current-payment status is projected to grow from 5.0 million at the end of 2000, to 10.4 million, 11.9 million, or 13.2 million at the end of 2075, under the low cost, intermediate, or high cost assumptions, respectively. Of course, much of this growth is a direct result of the growth and aging of the population described earlier in this chapter.

Another way to view this projected growth in disabled workers is to compare the size of the projected disabled-worker population to the size of the underlying disability-insured population reflecting the age-sex distribution of the insured population as of January 1, 1996. Such a ratio eliminates the effects of the aging population and is referred to as the disabled worker age-sex adjusted prevalence rate. Expressed in these terms, the prevalence of disability is projected to grow from 33.9 per thousand disability insured at the beginning of 2000, to 35.2 per thousand, 46.5 per thousand, and 58.9 per thousand at the beginning of 2075, under the low cost, intermediate, and high cost assumptions, respectively.

Table V.C6 also presents projections of the numbers of auxiliary beneficiaries paid from the DI Trust Fund. As indicated at the beginning of this subsection, such auxiliary beneficiaries consist of qualifying spouses and children of disabled workers. In the case of children, the child must be either (1) under age 18, (2) age 18 and still a student in high school, or (3) over age 18 and disabled prior to age 22. In the case of spouses, the spouse must either be at least age 62, or have an eligible child beneficiary who is either under age 16 or disabled in his or her care.

In general, such auxiliary beneficiaries are projected in a manner that is related to the projected number of disabled-worker beneficiaries. In the short-range period, this is accomplished for family members of disabled-worker beneficiaries by projecting incidence and termination rates for each category of auxiliary beneficiary. In the long-range period, the child beneficiaries at ages 18 and under are projected in relation to the projected number of children in the population, by applying factors representing the probability that either of their parents is insured and disabled. Spouses eligible because they have an eligible child in care are projected relative to the projected number of such children. The remaining categories of children and spouses are projected in relation to the projected number of disabled-worker beneficiaries.

Table V.C6.- DI Beneficiaries With Benefits in Current-Payment Status at the End of Calendar Years 1960-2075 
[In thousands]
Calendar year
Disabled
worker
Auxiliaries
Total
Wife-
husband
Child
Historical data:
1960
455
77
155
687
1965
988
193
558
1,739
1970
1,493
283
889
2,665
1975
2,488
453
1,411
4,351
1980
2,856
462
1,359
4,677
1985
2,653
306
945
3,904
1986
2,725
301
965
3,991
1987
2,782
291
968
4,041
1988
2,826
281
963
4,070
1989
2,891
271
962
4,124
1990
3,007
266
989
4,261
1991
3,191
266
1,052
4,509
1992
3,464
271
1,151
4,886
1993
3,721
273
1,255
5,249
1994
3,958
271
1,350
5,579
1995
4,179
264
1,409
5,852
1996
4,378
224
1,463
6,065
1997
4,501
207
1,438
6,146
1998
4,691
190
1,446
6,327
1999
4,870
176
1,468
6,514
2000
5,036
165
1,466
6,667
Intermediate:
2005
6,148
153
1,579
7,880
2010
7,277
166
1,797
9,239
2015
8,263
165
1,912
10,340
2020
8,978
185
2,015
11,179
2025
9,641
216
2,106
11,963
2030
9,644
216
2,187
12,048
2035
9,698
217
2,253
12,168
2040
9,968
218
2,302
12,488
2045
10,558
233
2,347
13,139
2050
10,936
240
2,388
13,564
2055
11,239
249
2,433
13,921
2060
11,310
249
2,474
14,034
2065
11,475
253
2,511
14,239
2070
11,691
257
2,544
14,491
2075
11,947
263
2,576
14,786
Low Cost:
2005
5,805
144
1,491
7,441
2010
6,510
147
1,610
8,268
2015
7,044
132
1,634
8,811
2020
7,377
138
1,687
9,202
2025
7,771
154
1,768
9,694
2030
7,695
149
1,863
9,708
2035
7,709
146
1,956
9,811
2040
7,930
146
2,035
10,111
2045
8,418
157
2,103
10,678
2050
8,755
163
2,177
11,095
2055
9,058
171
2,265
11,493
2060
9,224
173
2,356
11,753
2065
9,514
178
2,447
12,140
2070
9,905
184
2,536
12,625
2075
10,350
192
2,625
13,166
High Cost:
2005
6,690
171
1,731
8,592
2010
8,263
188
2,031
10,483
2015
9,507
207
2,191
11,906
2020
10,616
247
2,330
13,193
2025
11,555
297
2,409
14,260
2030
11,645
305
2,451
14,400
2035
11,744
309
2,466
14,518
2040
12,065
311
2,464
14,840
2045
12,754
329
2,474
15,556
2050
13,156
334
2,470
15,959
2055
13,426
342
2,459
16,227
2060
13,344
337
2,437
16,118
2065
13,294
334
2,410
16,038
2070
13,215
331
2,379
15,924
2075
13,158
332
2,350
15,840

Note: Totals do not necessarily equal the sums of rounded components.

7. Average Benefits

Average benefits were projected by type of benefit based on recent historical averages, projected average primary insurance amounts (PIAs), and projected ratios of average benefits to average PIAs. Average PIAs were calculated from projected distributions of beneficiaries by duration from year of award, average awarded PIAs, and increases thereto since the year of award, reflecting automatic benefit increases, recomputations to reflect additional covered earnings, and other factors. Average awarded PIAs were calculated from projected earnings histories, which were developed from the actual earnings histories associated with a sample of awards made in 1999, with adjustment in age distribution to reflect the effect of the Senior Citizens' Freedom to Work Act of 2000 (Public Law 106-182, enacted on April 7, 2000) as described in section III.B. A sample of 1998 awards was used for the 2000 report.

For several types of benefits-retired-worker, aged-spouse, and aged-widow(er) benefits-the percentage of the PIA that is payable depends on the age at initial entitlement to benefits. Projected ratios of average benefits to average PIAs for these types of benefits were based on projections of age distributions at initial entitlement.

8. Benefit Payments

For each type of benefit, benefit payments were calculated as the product of a number of beneficiaries and a corresponding average monthly benefit. In the short-range period, benefit payments were calculated on a quarterly basis. In the long-range period, all benefit payments were calculated on an annual basis, using the number of beneficiaries on December 31. These amounts were adjusted to include retroactive payments to newly awarded beneficiaries, and other amounts not reflected in the regular monthly benefit payments.

Lump-sum death payments were calculated as the product of (1) the number of such payments, which was projected on the basis of the assumed death rates, the projected fully insured population, and the estimated percentage of the fully insured population that would qualify for benefits, and (2) the amount of the lump-sum death payment, which is $255 (not indexed in future years).

9. Administrative Expenses

The projection of administrative expenses through 2010 is based on historical experience and the expected growth in average wages. Additionally, estimates for the first several years of the projection are provided by the Office of Budget. For years after 2010, administrative expenses are assumed to increase because of increases in the number of beneficiaries and increases in the average wage which will more than offset assumed improvements in administrative productivity.

10. Railroad Retirement Financial Interchange

Railroad workers are covered under a separate multi-tiered plan, the first tier being very similar to OASDI coverage. An annual financial interchange between the Railroad Retirement fund and the OASI and DI funds is made reflecting the difference between (1) the amount of OASDI benefits that would be paid to railroad workers and their families if railroad employment had been covered under the OASDI program and administrative expenses associated with these benefits, and (2) the amount of OASDI payroll tax and income tax that would be received with allowances for interest from railroad workers.

The effect of the financial interchange with the Railroad Retirement program was evaluated on the basis of trends similar to those used in estimating the cost of OASDI benefits. The resulting effect was annual short-range costs of about $3-5 billion and a long-range summarized cost of 0.04 percent of taxable payroll to the OASDI program.

11. Benefits to Uninsured Persons

Some older persons had little or no chance to become fully insured for Social Security benefits during their working lifetimes. Special payments from the OASI Trust Fund may be granted to uninsured persons who either: (1) attained age 72 before 1968, or (2) attained age 72 in 1968 or later and had 3 quarters of coverage for each year after 1966 and before the year of attainment of age 72. Benefits and costs associated with uninsured persons of the first type above are reimbursable from the general fund of the Treasury. All projected costs associated with reimbursable and non-reimbursable payments to uninsured persons are insignificant.

12. Military-Service Transfers

As a result of the 1983 amendments, the OASI and DI Trust Funds received lump-sum payments, in May 1983, for the cost (including administrative expenses) of providing additional benefit payments resulting from noncontributory wage credits for military service performed prior to 1957. Adjustments to the payments were made in 1985, 1990, 1995, and 2000, and may be made every fifth year thereafter. The adjustments for 2000 included a transfer of $836 million from the DI Trust Fund to the general fund of the Treasury. Note that $393 million that was scheduled to be transferred from the general fund to the OASI Trust Fund did not occur, and will be made-with an allowance for interest-in 2001.

13. Income From Taxation of Benefits

Under present law, the OASI and DI Trust Funds are credited with the additional income taxes attributable to the taxation of the first 50 percent of OASDI benefit payments. (The remainder of the income taxes attributable to the taxation of up to 85 percent of OASDI benefit payments is credited to the HI Trust Fund.) For the short-range period, income to the trust funds from such taxation was estimated by applying the following two factors to total OASI and DI benefit payments: (1) the percentage of benefit payments (limited to 50 percent) that is taxable, and (2) the average tax rate applicable to those benefits. For the long-range period, income to the trust funds from such taxation was estimated by applying projected ratios of such income to total OASI and DI benefit payments. Because the income thresholds used for benefit taxation are, by law, constant in the future, their values in relation to future income and benefit levels will decline. Thus, ratios of income from taxation of benefits to the amount of benefits are projected to increase. These ratios were projected reflecting the results of a model developed by the Office of Tax Analysis, Department of the Treasury, relating OASDI benefit payments to total personal income for a sample of recent tax returns.


1 Details of these indexation procedures are published annually in the Federal Register, and are also available on the Internet at http://www.ssa.gov/OACT/COLA/index.html.

2 The disability-exposed population is the disability-insured population that is not currently entitled for disabled-worker benefits.

3 Incidence rates are adjusted upward to account for the additional workers who are expected to file for disability benefits rather than for reduced retirement benefits that are even more reduced when the NRA is greater than age 65.

4 A more detailed discussion of the recent history of the DI program is presented in Actuarial Study 114, "Social Security Disability Insurance Program Worker Experience", June 1999. This study can be found on the Internet at http://www.ssa.gov/OACT/NOTES/AS114/as114Foreword.html.

5 Reasons for termination include death, recovery and (in the short range only) a small residual category of terminations for special administrative reasons.

6 The termination rate analysis was based on work presented in Actuarial Study 114 referenced previously.


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