2003 OASDI Trustees Report 

IV. ACTUARIAL ESTIMATES
Three types of financial measures are useful in assessing the actuarial status of the Social Security trust funds under the financing approach specified in current law: (1) annual cashflow measures, including income and cost rates, and balances, (2) trust fund ratios, and (3) summary measures like actuarial balance and unfunded obligations. The first longrange estimates presented are the series of projected annual balances, which are the differences between the projected annual income rates and annual cost rates. In assessing the financial condition of the program, particular attention should be paid to the level of the annual balances at the end of the longrange period and the time at which the annual balances may change from positive to negative values. The next measure discussed is the pattern of projected trust fund ratios. The trust fund ratio represents the proportion of a year's projected outgo that can be paid with the funds available at the beginning of the year. Particular attention should be paid to the amount and year of maximum trust fund ratio, to the year of exhaustion of the funds, and to stability of the trust fund ratio in cases where the ratio remains positive at the end of the longrange period. The final measures discussed in this section summarize the total income and cost over valuation periods that extend through 75 years, and the infinite horizon. These measures indicate whether projected income will be adequate for the period as a whole. Estimates for the infinite future were not included in last year's report, but are included in this year's report. The first such measure, actuarial balance, indicates the size of any shortfall as a percentage of the taxable payroll over the period. The second, open group unfunded obligation, indicates the size of any shortfall in presentvalue discounted dollars. This section also includes a comparison of workers to beneficiaries, closed group unfunded obligations, the longrange test of close actuarial balance, and the reasons for change in the actuarial balance from the last report.
If the 75year actuarial balance is zero (or positive) then the trust fund ratio at the end of the period, by definition, will be at 100 percent (or greater) and financing for the program is considered to be adequate for the 75year period as a whole. (Financial adequacy for each year is determined by whether the trust fund is zero or positive throughout the year.) Whether or not financial adequacy is stable in the sense that it is likely to continue for subsequent 75year periods in succeeding reports is also important when considering the actuarial status of the program. One indication of this stability is the behavior of the trust fund ratio at the end of the projection period. If projected trust fund ratios for the last several years of the longrange period are positive and constant or rising, then it is likely that subsequent Trustees Reports will also show projections of financial adequacy (assuming no changes in demographic and economic assumptions). The actuarial balance and the open group unfunded obligation for the infinite future provide additional measures of the ultimate financial status of the program.
Basic to the consideration of the longrange actuarial status of the trust funds are the concepts of income rate and cost rate, each of which is expressed as a percentage of taxable payroll. Other measures of the cash flow of the program are shown in appendix F. The annual income rate is the ratio of income from revenues (payroll tax contributions and income from the taxation of benefits) to the OASDI taxable payroll for the year. The OASDI taxable payroll consists of the total earnings which are subject to OASDI taxes, with some relatively small adjustments.^{1} Because the taxable payroll reflects these adjustments, the annual income rate can be defined to be the sum of the OASDI combined employeeemployer contribution rate (or the payrolltax rate) scheduled in the law and the rate of income from taxation of benefits (which is, in turn, expressed as a percentage of taxable payroll). As such, it excludes net investment income and reimbursements from the General Fund of the Treasury for the costs associated with special monthly payments to certain uninsured persons who attained age 72 before 1968 and who have fewer than 3 quarters of coverage.
The annual cost rate is the ratio of the cost of the program to the taxable payroll for the year. In this context, the cost is defined to include scheduled benefit payments, special monthly payments to certain uninsured persons who have 3 or more quarters of coverage (and whose payments are therefore not reimbursable from the General Fund of the Treasury), administrative expenses, net transfers from the trust funds to the Railroad Retirement program under the financialinterchange provisions, and payments for vocational rehabilitation services for disabled beneficiaries. For any year, the income rate minus the cost rate is referred to as the balance for the year. (In this context, the term balance does not represent the assets of the trust funds, which are sometimes referred to as the balance in the trust funds.)
Table IV.B1 presents a comparison of the estimated annual income rates and cost rates by trust fund and alternative. Detailed longrange projections of trust fund operations, in nominal dollar amounts, are shown in table VI.F9.
The projections for OASI under the intermediate assumptions show the income rate increasing slowly and steadily due to the combination of the flat payroll tax rate and the gradually increasing effect of the taxation of benefits. The pattern of the cost rate is much different. It is projected to remain fairly stable for the next several years. However, from about 2010 to 2030 the cost rate increases rapidly as the babyboom generation reaches retirement age. Thereafter, the cost rate rises steadily, but slowly, reflecting projected reductions in death rates and continued relatively low birth rates, reaching 17.27 percent of taxable payroll for 2077. By comparison, the income rate reaches 11.54 percent of taxable payroll for 2077.
Projected income rates under the low cost and high cost sets of assumptions are very similar to those projected for the intermediate assumptions as they are largely a reflection of the tax rates specified in the law. OASI cost rates for the low cost and high cost assumptions differ significantly from those projected for the intermediate assumptions, but follow generally similar patterns. For the low cost assumptions, the cost rate declines somewhat for the first 5 years, and then rises, reaching the current level around 2014 and a peak of 13.06 percent of payroll for 2035. The cost rate then declines gradually, reaching a level of 12.44 percent of payroll for 2077. For the high cost assumptions, the cost rate rises generally throughout the 75year period. It rises at a relatively fast pace between 2010 and 2030 because of the aging of the babyboom generation. During the third 25year subperiod, the projected cost rate continues rising and reaches 24.87 percent of payroll for 2077.
The projected pattern of the OASI annual balance is important in the analysis of the financial condition of the program. Under the intermediate assumptions the annual balance is positive for 15 years (through 2017) and is negative thereafter. This annual deficit rises rapidly, reaching over 2 percent of taxable payroll by 2025, and continues rising thereafter, to a level of 5.73 percent of taxable payroll for 2077.
Under the low cost assumptions the projected OASI annual balance is positive for 19 years (through 2021) and thereafter is negative. The deficit under the low cost assumptions rises to a peak of 1.81 percent of taxable payroll for 2035, but declines over the next 15 to 20 years, as the effect of the babyboom generation diminishes and the assumed higher fertility rates increase the size of the work force. The deficit under the low cost assumptions continues to decline, but at a relatively slow pace over the period 2051 through 2077. Under the high cost assumptions, however, the OASI balance is projected to be positive for only 12 years (through 2014) and to be negative thereafter, with a deficit of 1.80 percent for 2020, 7.94 percent for 2050, and 12.91 percent of payroll for 2077.
Calendar
year 
OASI


DI


Combined



Income
rate ^{1} 
Cost
rate

Balance ^{2}

Income
rate ^{1} 
Cost
rate

Balance^{2}

Income
rate ^{1} 
Cost
rate

Balance^{2}


Historical data:



1990

11.32

9.66

1.66


1.17

1.09

0.09


12.49

10.74

1.75


1991

11.44

10.15

1.29


1.21

1.18

.03


12.65

11.33

1.32


1992

11.43

10.27

1.16


1.21

1.27

.06


12.64

11.54

1.10


1993

11.40

10.37

1.03


1.21

1.35

.14


12.61

11.73

.88


1994

10.70

10.22

.48


1.89

1.40

.49


12.59

11.62

.97


1995

10.70

10.22

.48


1.88

1.44

.44


12.59

11.67

.92


1996

10.73

10.06

.68


1.89

1.48

.41


12.62

11.53

1.09


1997

10.93

9.83

1.09


1.71

1.44

.28


12.64

11.27

1.37


1998

10.96

9.46

1.50


1.72

1.42

.29


12.68

10.88

1.80


1999

10.99

9.09

1.90


1.72

1.42

.30


12.71

10.51

2.20


2000

10.89

9.02

1.87


1.80

1.43

.37


12.69

10.45

2.24


2001

10.89

9.14

1.75


1.82

1.49

.33


12.71

10.63

2.08


2002

10.92

9.34

1.58


1.82

1.61

.21


12.74

10.95

1.79

Intermediate:



2003

10.88

9.22

1.66


1.82

1.67

.15


12.70

10.89

1.81


2004

10.87

9.08

1.79


1.82

1.74

.09


12.69

10.82

1.88


2005

10.88

8.96

1.92


1.82

1.77

.05


12.70

10.73

1.97


2006

10.88

8.88

2.00


1.82

1.77

.05


12.70

10.65

2.05


2007

10.89

8.87

2.03


1.82

1.80

.03


12.72

10.67

2.05


2008

10.91

8.90

2.00


1.83

1.83

^{3}^{/}


12.73

10.73

2.00


2009

10.92

8.97

1.94


1.83

1.87

.04


12.74

10.84

1.90


2010

10.93

9.08

1.85


1.83

1.90

.07


12.76

10.99

1.78


2011

10.97

9.23

1.74


1.83

1.93

.10


12.80

11.16

1.64


2012

10.99

9.41

1.58


1.84

1.96

.13


12.82

11.37

1.45















2015

11.04

10.17

.86


1.84

2.01

.16


12.88

12.18

.70


2020

11.14

11.81

.67


1.85

2.11

.26


12.99

13.92

.93


2025

11.24

13.31

2.08


1.85

2.30

.45


13.09

15.61

2.52


2030

11.32

14.52

3.20


1.86

2.36

.50


13.18

16.88

3.70


2035

11.37

15.17

3.80


1.86

2.37

.51


13.23

17.54

4.31


2040

11.39

15.32

3.93


1.86

2.43

.57


13.26

17.76

4.50


2045

11.41

15.38

3.97


1.87

2.52

.66


13.27

17.91

4.63


2050

11.43

15.61

4.18


1.87

2.58

.71


13.30

18.18

4.89


2055

11.46

15.97

4.52


1.87

2.59

.72


13.32

18.57

5.24


2060

11.48

16.31

4.83


1.87

2.57

.70


13.35

18.88

5.53


2065

11.50

16.56

5.06


1.87

2.59

.72


13.37

19.15

5.79


2070

11.52

16.85

5.33


1.87

2.62

.75


13.39

19.47

6.08


2075

11.54

17.15

5.62


1.87

2.64

.77


13.41

19.79

6.38


2080

11.55

17.45

5.89


1.87

2.65

.77


13.43

20.09

6.67

Low Cost:



2003

10.88

9.14

1.74


1.82

1.62

.20


12.70

10.76

1.94


2004

10.87

8.96

1.91


1.82

1.65

.17


12.69

10.61

2.08


2005

10.87

8.80

2.08


1.82

1.66

.16


12.70

10.46

2.24


2006

10.87

8.67

2.20


1.82

1.63

.19


12.70

10.31

2.39


2007

10.88

8.60

2.28


1.82

1.63

.19


12.71

10.23

2.48


2008

10.89

8.56

2.34


1.82

1.63

.20


12.72

10.18

2.53


2009

10.90

8.56

2.34


1.82

1.63

.19


12.73

10.19

2.54


2010

10.91

8.60

2.31


1.83

1.63

.20


12.74

10.23

2.51


2011

10.95

8.67

2.27


1.83

1.63

.20


12.78

10.31

2.47


2012

10.96

8.79

2.17


1.83

1.63

.20


12.79

10.42

2.37















2015

11.00

9.39

1.61


1.83

1.68

0.15


12.83

11.07

1.76


2020

11.08

10.74

.34


1.84

1.76

.08


12.92

12.50

.42


2025

11.16

11.92

.77


1.84

1.84

.01


13.00

13.76

.76


2030

11.22

12.77

1.55


1.84

1.81

.03


13.06

14.58

1.52


2035

11.25

13.06

1.81


1.84

1.78

.07


13.09

14.83

1.74


2040

11.26

12.89

1.63


1.85

1.79

.05


13.10

14.68

1.58


2045

11.26

12.66

1.40


1.85

1.83

.02


13.10

14.49

1.39


2050

11.26

12.60

1.34


1.85

1.84

.01


13.11

14.44

1.33


2055

11.27

12.65

1.38


1.85

1.83

.02


13.12

14.48

1.36


2060

11.28

12.65

1.38


1.85

1.80

.05


13.12

14.45

1.33


2065

11.27

12.53

1.26


1.85

1.80

.04


13.12

14.34

1.21


2070

11.27

12.44

1.16


1.85

1.82

.03


13.12

14.26

1.14


2075

11.27

12.42

1.15


1.85

1.84

.01


13.12

14.26

1.13


2080

11.28

12.48

1.20


1.85

1.85


13.13

14.32

1.19


High Cost:



2003

10.89

9.44

1.45


1.82

1.77

.05


12.71

11.21

1.50


2004

10.88

9.26

1.62


1.82

1.88

.05


12.70

11.14

1.56


2005

10.88

9.12

1.76


1.83

1.95

.12


12.71

11.07

1.64


2006

10.89

9.24

1.65


1.83

2.01

.19


12.72

11.26

1.46


2007

10.91

9.44

1.47


1.83

2.11

.28


12.74

11.55

1.19


2008

10.92

9.47

1.45


1.83

2.15

.32


12.76

11.62

1.14


2009

10.94

9.62

1.32


1.83

2.22

.39


12.77

11.83

.94


2010

10.96

9.77

1.18


1.84

2.27

.43


12.79

12.04

.75


2011

11.00

9.98

1.02


1.84

2.33

.48


12.84

12.30

.54


2012

11.02

10.22

.80


1.85

2.38

.53


12.86

12.60

.27















2015

11.09

11.11

.01


1.85

2.41

.55


12.95

13.51

.57


2020

11.21

13.01

1.80


1.86

2.52

.66


13.07

15.53

2.46


2025

11.33

14.84

3.52


1.87

2.81

.94


13.20

17.66

4.46


2030

11.43

16.48

5.04


1.87

2.97

1.09


13.31

19.45

6.14


2035

11.51

17.62

6.11


1.88

3.05

1.17


13.39

20.67

7.28


2040

11.56

18.28

6.72


1.88

3.18

1.30


13.44

21.46

8.02


2045

11.60

18.84

7.24


1.89

3.36

1.47


13.49

22.20

8.71


2050

11.65

19.59

7.94


1.89

3.49

1.59


13.54

23.08

9.53


2055

11.71

20.52

8.81


1.90

3.56

1.67


13.60

24.08

10.48


2060

11.77

21.48

9.72


1.90

3.57

1.68


13.66

25.06

11.39


2065

11.82

22.43

10.61


1.90

3.63

1.73


13.72

26.07

12.34


2070

11.88

23.47

11.59


1.90

3.67

1.77


13.78

27.15

13.36


2075

11.94

24.50

12.55


1.90

3.69

1.78


13.84

28.18

14.34


2080

11.99

25.39

13.40


1.90

3.68

1.78


13.89

29.08

15.19

^{1}Income rates for DI in 2000 and for OASI in 2002 are modified to include adjustments to the lumpsum payments received in 1983 from the General Fund of the Treasury for the cost of noncontributory wage credits for military service in 194056. ^{2}The years for which the annual balances are projected under the intermediate assumptions to become permanently negative are 2018, 2008, and 2018 for the OASI, DI, and the combined funds, respectively. Under the high cost assumptions the corresponding years are 2015, 2004, and 2014. Under the low cost assumptions, annual balances for the OASI and the combined funds are projected to become permanently negative in 2022. Under the low cost projection the annual balance for the DI fund is projected to become negative in 2026, but return to being positive in 2028, and would be expected to remain positive until shortly after 2080. ^{3}Between 0.005 and 0.005 percent of taxable payroll. 
Notes:
1. The income rate excludes interest income and certain transfers from the General Fund of the Treasury.
2. Totals do not necessarily equal the sums of rounded components.
Under the intermediate assumptions, the cost rate for DI generally increases over the longrange period from 1.67 percent of taxable payroll for 2003, reaching 2.64 for 2077. The income rate increases only very slightly from 1.82 percent of taxable payroll for 2003 to 1.87 percent for 2077. The annual balance turns negative in 2008, and the annual deficit reaches 0.77 percent for 2077.
Under the low cost assumptions, the DI cost rate increases much less, reaching 1.84 percent for 2077, with a positive annual balance (except for 2026 and 2027) throughout the period. For the high cost assumptions, DI cost rises much more, reaching 3.69 percent for 2077, with an annual deficit beginning in 2004 and reaching 1.79 percent for 2077.
Figure IV.B1 shows in graphical form the patterns of the OASI and DI annual income rates and cost rates. The income rates shown here are only for alternative II in order to simplify the graphical presentation and because, as shown in table IV.B1, the variation in the income rates by alternative is very small. Income rates increase generally, but at a slow rate for each of the alternatives over the longrange period. Both increases in the income rate and variation among the alternatives result from the relatively small component of income from taxation of benefits. Increases in income from taxation of benefits reflect increases in the total amount of benefits paid and the fact that an increasing share of individual benefits will be subject to taxation, because benefit taxation threshold amounts are not indexed.
The patterns of the annual balances for OASI and DI are indicated in figure IV.B1. For each alternative, the magnitude of each of the positive balances in the early years, as a percent of taxable payroll, is represented by the distance between the appropriate costrate curve and the incomerate curve above it. The magnitude of each of the deficits in subsequent years is represented by the distance between the appropriate costrate curve and the incomerate curve below it.
In the future, the cost of OASI, DI and the combined OASDI program as a percent of taxable payroll will not necessarily be within the range encompassed by alternatives I and III. Nonetheless, because alternatives I and III define a reasonably wide range of demographic and economic conditions, the resulting estimates delineate a reasonable range for consideration of potential future program costs.
The cost of the OASDI program has been discussed in this section in relation to taxable payroll, which is a programrelated concept that is very useful in analyzing the financial status of the OASDI program. The cost can also be discussed in relation to broader economic concepts, such as the gross domestic product (GDP). OASDI outlays generally rise from about 4.4 percent of GDP currently to about 7.0 percent of GDP by the end of the 75year projection period under alternative II. Discussion of both the cost and the taxable payroll of the OASDI program in relation to GDP is presented in appendix VI.F.2.
The primary reason that the estimated OASDI cost rate increases rapidly after 2010 is that the number of beneficiaries is projected to increase more rapidly than the number of covered workers. This occurs because the relatively large number of persons born during the babyboom generation will reach retirement age, and begin to receive benefits, while the relatively small number of persons born during the subsequent period of low fertility rates will comprise the labor force. A comparison of the numbers of covered workers and beneficiaries is shown in table IV.B2.
Calendar year

Beneficiaries ^{2} (in thousands)

Covered
workers per OASDI beneficiary 
Beneficiaries
per 100 covered workers 


OASI

DI

OASDI


Historical data:



1945

46,390

1,106



1,106

41.9

2


1950

48,280

2,930



2,930

16.5

6


1955

65,200

7,563



7,563

8.6

12


1960

72,530

13,740

522

14,262

5.1

20


1965

80,680

18,509

1,648

20,157

4.0

25


1970

93,090

22,618

2,568

25,186

3.7

27


1975

100,200

26,998

4,125

31,123

3.2

31


1980

113,649

30,384

4,734

35,118

3.2

31


1985

120,565

32,776

3,874

36,650

3.3

30










1990

133,672

35,266

4,204

39,470

3.4

30


1991

132,969

35,785

4,388

40,172

3.3

30


1992

133,890

36,314

4,716

41,029

3.3

31


1993

136,117

36,758

5,083

41,840

3.3

31


1994

138,197

37,082

5,435

42,516

3.3

31


1995

141,052

37,376

5,731

43,108

3.3

31


1996

143,450

37,521

5,977

43,498

3.3

30


1997

146,145

37,705

6,087

43,793

3.3

30


1998

148,786

37,826

6,250

44,076

3.4

30


1999

151,293

37,934

6,433

44,367

3.4

29


2000

153,517

38,560

6,606

45,166

3.4

29


2001

153,743

38,888

6,780

45,668

3.4

30


2002

152,795

39,116

7,060

46,176

3.3

30

Intermediate:



2005

158,390

40,066

8,051

48,118

3.3

30


2010

166,932

43,408

9,336

52,744

3.2

32


2015

171,837

49,809

10,200

60,009

2.9

35


2020

175,428

57,431

11,010

68,441

2.6

39


2025

178,369

64,779

12,167

76,946

2.3

43


2030

181,372

71,301

12,717

84,018

2.2

46


2035

184,433

75,535

13,090

88,625

2.1

48


2040

187,554

77,728

13,651

91,379

2.1

49


2045

190,281

79,450

14,310

93,760

2.0

49


2050

192,700

81,742

14,763

96,504

2.0

50


2055

195,024

84,626

15,056

99,682

2.0

51


2060

197,408

87,357

15,164

102,521

1.9

52


2065

199,738

89,725

15,480

105,205

1.9

53


2070

201,907

92,265

15,803

108,067

1.9

54


2075

203,950

94,832

16,075

110,908

1.8

54


2080

205,937

97,341

16,292

113,633

1.8

55

Low Cost:



2005

159,711

40,075

7,763

47,837

3.3

30


2010

169,880

43,391

8,429

51,820

3.3

31


2015

176,144

49,345

9,808

59,152

3.0

34


2020

180,977

56,542

10,132

66,674

2.7

37


2025

185,341

63,393

10,598

73,990

2.5

40


2030

190,219

69,290

10,705

79,995

2.4

42


2035

195,793

72,800

10,855

83,654

2.3

43


2040

201,998

74,341

11,266

85,608

2.4

42


2045

208,408

75,594

11,813

87,407

2.4

42


2050

214,881

77,611

12,240

89,851

2.4

42


2055

221,637

80,344

12,596

92,940

2.4

42


2060

228,892

82,924

12,870

95,794

2.4

42


2065

236,633

85,047

13,373

98,420

2.4

42


2070

244,575

87,354

13,957

101,311

2.4

41


2075

252,628

90,068

14,544

104,612

2.4

41


2080

260,776

93,270

15,094

108,364

2.4

42

High Cost:



2005

157,178

40,032

8,538

48,570

3.2

31


2010

163,748

43,414

10,529

53,944

3.0

33


2015

167,948

50,356

10,745

61,101

2.7

36


2020

170,859

58,482

12,033

70,515

2.4

41


2025

172,952

66,483

13,871

80,354

2.2

46


2030

174,760

73,881

14,864

88,746

2.0

51


2035

176,060

79,179

15,472

94,651

1.9

54


2040

176,896

82,446

16,202

98,648

1.8

56


2045

176,805

85,108

16,999

102,107

1.7

58


2050

176,086

88,162

17,499

105,661

1.7

60


2055

174,997

91,681

17,724

109,405

1.6

63


2060

173,712

95,034

17,633

112,666

1.5

65


2065

172,035

98,075

17,708

115,784

1.5

67


2070

170,046

101,247

17,672

118,919

1.4

70


2075

167,858

104,098

17,516

121,614

1.4

72


2080

165,612

106,364

17,308

123,671

1.3

75

^{1}Workers who are paid at some time during the year for employment on which OASDI taxes are due. ^{2}Beneficiaries with monthly benefits in currentpayment status as of June 30. 
Notes:
1. 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 cases the costs are reimbursed by the General Fund of the Treasury. Totals do not necessarily equal the sums of rounded components.
2. Historical covered worker data are subject to revision.
Table IV.B2 shows that the number of covered workers per beneficiary, which was about 3.3 in 2002, is estimated to decline in the future. Based on the low cost assumptions, for which high fertility rates and small reductions in death rates are assumed, the ratio declines to 2.3 by 2033, and then rises back to a level of 2.4 by 2039. Based on the high cost assumptions, for which low fertility rates and large reductions in death rates are assumed, the decline is much greater, reaching 1.8 by 2036, and 1.4 workers per beneficiary by 2069. Based on the intermediate assumptions, the ratio declines to 2.1 by 2031, and 1.8 workers per beneficiary by 2074.
The impact of the demographic shifts under the three alternatives on the OASDI cost rates is better understood by considering the projected number of beneficiaries per 100 workers. As compared to the 2002 level of 30 beneficiaries per 100 covered workers, this ratio is estimated to rise significantly by 2080 to 42 under the low cost assumptions, 55 under the intermediate assumptions, and 75 under the high cost assumptions. The significance of these numbers can be seen by comparing figure IV.B1 to figure IV.B2.
For each alternative, the shape of the curve in figure IV.B2, which shows beneficiaries per 100 covered workers, is strikingly similar to that of the corresponding costrate curve in figure IV.B1, thereby emphasizing the extent to which the cost of the OASDI program as a percentage of taxable payroll is determined by the age distribution of the population. Because the cost rate is basically the product of the number of beneficiaries and their average benefit, divided by the product of the number of covered workers and their average taxable earnings (and because average benefits rise at about the same rate as average earnings), it is to be expected that the pattern of the annual cost rates is similar to that of the annual ratios of beneficiaries to workers.
Trust fund ratios are useful indicators of the adequacy of the financial resources of the Social Security program at any point in time. For any year in which the projected trust fund ratio is positive (i.e., the trust fund holds assets at the beginning of the year), but is not positive for the following year, the trust fund is projected to become exhausted during the year. Under present law, the OASI and DI Trust Funds do not currently have the authority to borrow. Therefore, exhaustion of the assets in either fund during a year, would mean there are no longer sufficient assets in the fund to cover the full amount of benefits scheduled for the year under present law.
The trust fund ratio also serves an additional important purpose in assessing the actuarial status of the program. When the financing is adequate for the timely payment of full benefits throughout the longrange period, the stability of the trust fund ratio toward the end of the period indicates the likelihood that this projected adequacy will continue for subsequent Trustees Reports. If the trust fund ratio toward the end of the period is level (or increasing) then projected adequacy for the longrange period is likely to continue for subsequent reports.
Table IV.B3 shows, by alternative, the estimated trust fund ratios (without regard to advance tax transfers that would be effected after the end of the 10year, shortrange period) for the separate and combined OASI and DI Trust Funds. Also shown in this table is the year in which a fund is estimated to become exhausted, reflecting the effect of the provision for advance tax transfers. The patterns of the OASI and DI trust fund ratios, over the 75year period, are shown graphically in figure IV.B3 for all three sets of assumptions. A graphical presentation of the combined OASDI ratios is shown in figure II.D7.
Based on the intermediate assumptions, the OASI trust fund ratio rises steadily from 301 percent at the beginning of 2003, reaching a peak of 526 percent at the beginning of 2016. This increase in the OASI trust fund ratio results from the fact that the annual income rate (which excludes interest) exceeds annual outgo for several years (see table IV.B1). Thereafter, the OASI trust fund ratio declines steadily, with the OASI Trust Fund becoming exhausted in 2044. The DI trust fund ratio follows a pattern that is similar but unfolds more rapidly. The DI trust fund ratio is estimated to rise from 219 percent at the beginning of 2003 to a peak of 226 percent for 2007, and to decline thereafter until becoming exhausted in 2028.
The trust fund ratio for the combined OASI and DI Trust Funds rises from 288 percent for 2003 to a peak of 471 percent at the beginning of 2016. Thereafter, the ratio declines, with the combined funds becoming exhausted in 2042. Based on the intermediate estimates in last year's report, the peak fund ratio for the combined funds was estimated to be 471 percent for 2015 and the year of exhaustion was estimated to be 2041.
The trust fund ratio for the OASDI program first declines in 2017, about 1 year before annual expenditures begin to exceed noninterest income. This occurs because the increase in trust fund assets during 2016, which reflects interest income and a small excess of noninterest income over cost, occurs at a slower rate than does the increase in the annual cost of the program between 2016 and 2017.
After 2016 the dollar amount of assets is projected to continue to rise through the beginning of 2028 because interest income more than offsets the shortfall in noninterest income. Beginning in 2018, the OASDI program is projected to experience increasingly large cashflow shortfalls that will require the trust funds to redeem special publicdebt obligations of the General Fund of the Treasury. This will differ from the experience of recent years when the trust funds have been net lenders to the General Fund of the Treasury. The change in the cash flow between the trust funds and the general fund is expected to have important public policy and economic implications that go well beyond the operation of the OASDI program itself.
Based on the low cost assumptions, the trust fund ratio for the DI program increases throughout the longrange projection period, reaching the extremely high level of 1,119 percent for 2078. At the end of the longrange period, the DI trust fund ratio is rising by 15 percentage points per year. Thus, subsequent reports are likely to contain projections of adequate longrange financing of the DI program under a similar optimistic set of assumptions. For the OASI program, the trust fund ratio rises to a peak of 636 percent for 2019, dropping thereafter to a level of 394 percent by 2078. At the end of the period the OASI trust fund ratio is declining by 4 percentage points per year. The longterm outlook for the DI program is improved more than for the OASI program largely because lower assumed disability incidence rates have a substantial effect on the DI program but little net effect on the OASI program. For the OASDI program, the trust fund ratio follows a pattern similar to that for OASI, peaking at 606 percent for 2020, and then falling to 488 percent for 2078, with an annual decline at a rate of 2 percentage points. Thus, due to the size of the trust fund ratios and their near stability, subsequent Trustees Reports are likely to contain projections of adequate longrange financing of the OASI and combined OASI and DI program under the low cost assumptions. A stable trust fund ratio at the end of the valuation period indicates that the actuarial balance for Trustees Reports in subsequent years can be expected to remain about the same as long as assumptions are realized.
In contrast, under the high cost assumptions, the OASI trust fund ratio is estimated to peak at 428 percent for 2013, thereafter declining to fund exhaustion by the end of 2033. The DI trust fund ratio is estimated to peak at 211 percent for 2003, thereafter declining to fund exhaustion by the end of 2015. The combined OASDI trust fund ratio is estimated to rise to a peak of 357 percent for 2012, declining thereafter to fund exhaustion by the end of 2031.
Thus, because large ultimate cost rates are projected under all but the low cost assumptions, it is likely that income will eventually need to be increased and/or program costs will need to be reduced in order to prevent the trust funds from becoming exhausted.
Even under the high cost assumptions, however, the combined OASI and DI funds on hand plus their estimated future income would be able to cover their combined cost for 28 years into the future (until 2031). Under the intermediate assumptions the combined starting funds plus estimated future income would be able to cover cost for about 39 years into the future (until 2042). The program would be able to cover cost for the foreseeable future under the more optimistic low cost assumptions. In the 2002 report, the combined trust funds were projected to become exhausted in 2029 under the high cost assumptions and in 2041 under the intermediate assumptions.
Calendar
year 
Intermediate


Low Cost


High Cost



OASI

DI

Com
bined 
OASI

DI

Com
bined 
OASI

DI

Com
bined 

2003

301

219

288


301

224

289


301

211

286

2004

326

221

309


328

232

313


323

203

303

2005

351

222

330


357

242

339


342

190

315

2006

377

225

352


388

257

367


359

179

327

2007

402

226

373


419

271

396


371

163

333

2008

427

226

392


452

286

425


381

146

337

2009

449

223

410


483

300

453


394

128

344

2010

470

219

426


512

315

481


407

109

351

2011

488

215

440


539

330

506


417

90

355

2012

503

209

452


565

346

531


425

69

357













2015

525

193

470


615

384

580


424

5

350

2020

500

149

447


634

431

606


361

^{1}/

284

2025

431

74

378


613

460

593


252

^{1}/

173

2030

338

^{1/}

287


575

506

567


117

^{1}/

34

2035

232

^{1}/

183


540

570

544


^{1}/

^{1}/

^{1}/

2040

120

^{1}/

69


519

625

532


^{1}/

^{1}/

^{1}/

2045

^{1}/

^{1}/

^{1}/


507

669

527


^{1}/

^{1}/

^{1}/

2050

^{1}/

^{1}/

^{1}/


492

719

521


^{1}/

^{1}/

^{1}/

2055

^{1}/

^{1}/

^{1}/


473

781

512


^{1}/

^{1}/

^{1}/

2060

^{1}/

^{1}/

^{1}/


452

862

503


^{1}/

^{1}/

^{1}/

2065

^{1}/

^{1}/

^{1}/


435

935

498


^{1}/

^{1}/

^{1}/

2070

^{1}/

^{1}/

^{1}/


421

1,004

495


^{1}/

^{1}/

^{1}/

2075

^{1}/

^{1}/

^{1}/


405

1,074

491


^{1}/

^{1}/

^{1}/

2080

^{1}/

^{1}/

^{1}/


386

1,150

484


^{1}/

^{1}/

^{1}/

Trust fund is estimated to
become exhausted in 
2044

2028

2042


^{2/}

^{2}/

^{2}/


2033

2015

2031

^{1}The trust fund is estimated to be exhausted by the beginning of this year. The last line of the table shows the specific year of trust fund exhaustion. ^{2}The fund is not estimated to be exhausted within the projection period. 
Note: See definition of trust fund ratio. The combined ratios shown for years after the DI fund is estimated to be exhausted are theoretical and are shown for informational purposes only.
A graphic illustration of the trust fund ratios for the separate OASI and DI Trust Funds is shown in figure IV.B3 for each of the alternative sets of assumptions. A graphic illustration of the trust fund ratios for the combined trust funds is shown in figure II.D7.
Summarized values for the full 75year period are useful in analyzing the longrange adequacy of financing for the program over the period as a whole under present law and under proposed modifications to the law. In order to focus on the full 75year period as well as on broad patterns through the period, tables IV.B4 and IV.B5 summarize, on a presentvalue basis, the projected annual figures shown in table IV.B1 for various periods within the overall 75year projection period.
Table IV.B4 shows rates on a presentvalue basis summarized for each of the 25year subperiods, excluding both the assets of the trust funds on hand at the beginning of the period and the cost of accumulating a target trust fund balance by the end of the period. These rates are useful for comparing the total cash flows of tax income and cost, as an indicator of the degree to which tax income during the period is sufficient to meet the cost estimated for the period.
For the OASDI program, a positive balance is projected for the first 25year subperiod under both the low cost and intermediate assumptions. A deficit is projected for the first 25year subperiod under the high cost assumptions. Deficits are projected for the second and third subperiods under all three alternatives.
Subperiod

OASI


DI


Combined



Income
rate 
Cost
rate 
Balance

Income
rate 
Cost
rate 
Balance

Income
rate 
Cost
rate 
Balance


Intermediate:



200327

11.03

10.53

0.49


1.84

2.00

0.16


12.86

12.53

0.33


202852

11.38

15.15

3.78


1.86

2.44

.58


13.24

17.60

4.36


205377

11.49

16.52

5.03


1.87

2.60

.73


13.36

19.12

5.76

Low Cost:



200327

10.99

9.79

1.20


1.83

1.70

.13


12.82

11.50

1.32


202852

11.24

12.80

1.55


1.85

1.81

.04


13.09

14.61

1.52


205377

11.27

12.55

1.28


1.85

1.82

.03


13.12

14.37

1.25

High Cost:



200327

11.07

11.43

.36


1.85

2.37

.52


12.92

13.80

.88


202852

11.54

18.04

6.50


1.88

3.19

1.31


13.42

21.22

7.80


205377

11.81

22.30

10.48


1.90

3.62

1.72


13.71

25.91

12.20

^{1}Income rates do not include beginning trust fund balances and cost rates do not include the cost of accumulating target trust fund balances. 
Note: Totals do not necessarily equal the sums of rounded components.
Table IV.B5 shows summarized rates for valuation periods of the first 25, the first 50, and the entire 75 years of the longrange projection period, including the funds on hand at the start of the period and the cost of accumulating a target trust fund balance equal to 100 percent of annual cost by the end of the period. The actuarial balance for each of these three valuation periods is equal to the difference between the summarized income rate and the summarized cost rate for the corresponding period. An actuarial balance of zero for any period would indicate that estimated cost for the period could be met, on average, with a remaining trust fund balance at the end of the period equal to 100 percent of the following year's cost. A negative actuarial balance indicates that, over the next 75 years, the present value of income to the program plus the existing trust fund falls short of the present value of the cost of the program plus the cost of reaching a target trust fund balance of 1 year's cost by the end of the period. Combined with a falling trust fund ratio, this signals the possibility of continuing cashflow deficits, implying that the currentlaw level of financing is not sustainable.
Valuation
period 
OASI


DI


Combined



Income
rate 
Cost
rate 
Actuarial
balance 
Income
rate 
Cost
rate 
Actuarial
balance 
Income
rate 
Cost
rate 
Actuarial
balance 

Intermediate:



25 years:















200327

12.33

11.01

1.32


2.01

2.08

0.07


14.34

13.09

1.26


50 years:















200352

11.94

12.63

.68


1.95

2.21

.26


13.89

14.84

.95


75 years:















200377

11.85

13.41

1.56


1.93

2.29

.35


13.78

15.70

1.92

Low Cost:



25 years:















200327

12.28

10.21

2.07


2.00

1.76

.24


14.28

11.98

2.31


50 years:















200352

11.86

11.19

.66


1.94

1.77

.17


13.80

12.97

.83


75 years:















200377

11.73

11.45

.28


1.92

1.78

.14


13.65

13.23

.42

High Cost:



25 years:















200327

12.38

11.98

.40


2.02

2.47

.45


14.40

14.45

.05


50 years:















200352

12.03

14.44

2.41


1.96

2.76

.79


14.00

17.20

3.20


75 years:















200377

11.99

16.07

4.09


1.95

2.93

.98


13.93

19.00

5.07

^{1}Income rates include beginning trust fund balances and cost rates include the cost of reaching a target trust fund level of 1 year's cost at the end of the period. 
Note: Totals do not necessarily equal the sums of rounded components.
The values in table IV.B5 show that the combined OASDI program is expected to operate with a positive actuarial balance over the 25year valuation period under the low cost and intermediate assumptions. For the 25year valuation period the summarized values indicate actuarial balances of 2.31 percent of taxable payroll under the low cost assumptions, 1.26 percent under the intermediate assumptions, and 0.05 percent under the high cost assumptions. Thus, the program is more than adequately financed for the 25year valuation period under all but the high cost projections. For the 50year valuation period the OASDI program would have a positive actuarial balance of 0.83 percent under the low cost assumptions, but would have deficits of 0.95 percent under the intermediate assumptions and 3.20 percent under the high cost assumptions. Thus, the program is more than adequately financed for the 50year valuation period under only the low cost set of assumptions.
For the entire 75year valuation period, the combined OASDI program would again have actuarial deficits except under the low cost set of assumptions. The actuarial balance for this longrange valuation period is projected to be 0.42 percent of taxable payroll under the low cost assumptions, 1.92 percent under the intermediate assumptions, and 5.07 percent under the high cost assumptions.
Assuming the Trustees' intermediate assumptions are realized, the deficit of 1.92 percent of payroll indicates that financial adequacy of the program for the next 75 years could be restored if the Social Security payroll tax were immediately and permanently increased from its current level of 12.4 percent (combined employeeemployer shares) to 14.32 percent. Alternatively, all current and future benefits could be reduced by about 13 percent (or there could be some combination of tax increases and benefit reductions). Changes of this magnitude would be sufficient to eliminate the actuarial deficit over the 75year projection period. However, because of the projected increase in the average age of the population, projected annual deficits begin in 2018 and increase to levels in excess of 6 percent of taxable payroll by the end of the 75year period. The large annual deficits at the end of the projection period indicate that the annual cost will very likely continue to exceed tax revenues after 2077. As a result, ensuring the sustainability of the system would eventually require larger changes than those needed to restore actuarial balance for the 75year period. For the infinite future, the actuarial deficit is estimated to be 3.8 percent of taxable payroll under the intermediate assumptions. This means that financial adequacy of the OASDI program could be restored permanently if the combined payroll tax rate were immediately raised from 12.4 percent to 16.2 percent, or if benefits were immediately reduced by 23 percent.
As may be concluded from tables IV.B4 and IV.B5, the financial condition of the DI program is substantially weaker than that of the OASI program for the first 25 years. Summarized over the full 75year period, however, longrange deficits for the OASI and DI programs under intermediate assumptions are more similar, relative to the level of program costs.
Table IV.B6 presents the components and the calculation of the longrange (75year) actuarial balance under the intermediate assumptions. The present value of future cost less future tax income over the longrange period, minus the amount of trust fund assets at the beginning of the projection period, amounts to $3.5 trillion. This amount is referred to as the 75year "open group unfunded obligation." The actuarial deficit (i.e., the negative of the actuarial balance) combines this unfunded obligation with the present value of the "ending target trust fund," and expresses the total as a percentage of the present value of the taxable payroll for the period. The present value of future tax income minus cost, plus starting trust fund assets, minus the present value of the ending target trust fund amounts to $3.8 trillion. Expressed as a percentage of taxable payroll for the period, this is the actuarial balance of 1.92 percent.
Item

OASI

DI

Combined



Present value as of January 1, 2003 (in billions):







a. Payroll tax revenue

$21,164

$3,594

$24,758



b. Taxation of benefits revenue

1,284

106

1,389


c. Tax income (a + b)

22,448

3,700

26,147



d. Cost

26,544

4,531

31,075



e. Cost minus tax income (d  c)

4,096

831

4,927



f. Trust fund assets at start of period

1,217

160

1,378



g. Open group unfunded obligation (e  f)

2,879

671

3,550



h. Ending target trust fund ^{1}

243

37

280



i. Income minus cost, plus assets at start of period, minus
ending target trust fund (c  d + f  h) 
3,121

708

3,829



j. Taxable payroll

199,758

199,758

199,758


Percent of taxable payroll:






Actuarial balance (i ÷ j)

1.56

.35

1.92

^{1}The calculation of the actuarial balance includes the cost of accumulating a target trust fund balance equal to 100 percent of annual cost by the end of the period. 
Note: Totals do not necessarily equal the sums of rounded components
As shown in the previous section, a negative actuarial balance (or an actuarial deficit) provides one measure of the unfunded obligation of the program over a period of time. Two additional measures of OASDI unfunded obligations under the intermediate assumptions are presented below.
Consistent with practice since 1965, this report focuses on the 75year period from 2003 to 2077 for the evaluation of the longrun financial status of the OASDI program on an open group basis (i.e., including both current and future participants). Table IV.B7 shows that the present value of open group unfunded obligations for the program over that period is $3.5 trillion. Some experts, however, have described the limitations of using a 75year period. Overemphasis of summary measures (such as the actuarial balance and open group unfunded obligations) for the 75year period can lead to incorrect perceptions and policy that fails to address sustainability.
In order to provide a fuller description of longrun unfunded obligations of the OASDI program, this section presents estimates of obligations that extend to the infinite horizon. The extension assumes that the currentlaw OASDI program and the demographic and economic trends used for the 75year projection continue indefinitely. Table IV.B7 shows that extending the calculations beyond 2077 adds $7.0 trillion to estimated unfunded obligations, making the total open group unfunded obligation $10.5 trillion. The $7.0 trillion increment reflects a significant financing gap for OASDI after 2077.
Unfunded obligations through the infinite horizon ^{1}

$10.5



Unfunded obligations from program inception through 2077

3.5


Unfunded obligations from 2078 through the infinite horizon

7.0

^{1}Present value of future cost less future taxes, reduced by the amount of trust fund assets at the beginning of the period. This concept is also referred to as the infinite horizon open group obligation. 
The Financial Report of the United States, consistent with recommendations of the Federal Accounting Standards Advisory Board (FASAB), reports present values of net future OASDI obligations over the next 75 years, separately for current participants at ages 62 and over in 2003 and for current participants at ages 15 through 61 in 2003. Combining these values yields a closed group net obligation that excludes past and future participants.^{2}
The first line of table IV.B8 shows the present value of future cost less future taxes over the next 100 years for all current participants. Subtracting the current value of the trust fund (the accumulated value of past OASDI taxes less cost) gives a closed group (excluding only future participants) unfunded obligation of $10.5 trillion. For the Social Security benefits to be sustainable for the infinite future, the contributions of current and future participants in the system must fully offset the shortfall due to past and current participants. However, future participants, as a whole, are projected to pay, in present value, taxes that are approximately equal to the cost of providing benefits they are scheduled to receive over the infinite future. Thus, the long run financing gap that program reforms must ultimately close is $10.5 trillion in present value. This can be achieved by raising additional revenue or reducing benefits (or some combination) for current and future participants so that the present value of the additional revenue or reduced benefits for the infinite future equals $10.5 trillion.
Present value of future cost less future taxes for current participants ^{1}

$11.9

Less current trust fund
(tax accumulations minus expenditures to date for past and current participants) 
1.4

Equals unfunded obligations for past and current participants ^{2}

10.5

Less present value of taxes less cost for future participants for the infinite future

.0

Equals unfunded obligations for all participants for the infinite future

10.5

^{1}The Financial Report of the United States separates these obligations into two parts: current participants at ages 62 and over in 2002 ($4.0 trillion) and current participants at ages 15 to 61 in 2002 ($7.2 trillion). The sum of the two parts is less than the number in the table because the calculation is done over 75 years for the Financial Report (a period that does not capture the complete lifetime of all current participants), the 75year valuation period begins one year earlier, and the intermediate assumptions and methods of the 2002 Trustees Report are used. ^{2}This concept is also referred to as the closed group unfunded obligation. 
The longrange test of close actuarial balance applies to a set of valuation periods beginning with the first 10 years and continuing through the first 11 years, the first 12 years, etc., up to and including the full 75year projection period. Under the longrange test, the summarized income rate and cost rate are calculated for each of the 66 valuation periods in the full 75year longrange projection period, with the first of these periods consisting of the next 10 years. Each succeeding period becomes longer by 1 year, culminating with the period consisting of the next 75 years. The longrange test is met if, for each of the 66 time periods, the actuarial balance is not less than zero or is negative by, at most, a specified percentage of the summarized cost rate for the same time period. The percentage allowed for a negative actuarial balance is 5 percent for the full 75year period. For shorter periods, the allowable percentage begins with zero for the first 10 years and increases uniformly for longer periods, until it reaches the maximum percentage of 5 percent allowed for the 75year period. The criterion for meeting the test is less stringent for the longer periods in recognition of the greater uncertainty associated with estimates for more distant years.
When a negative actuarial balance in excess of the allowable percentage of the summarized cost rate is projected for one or more of the 66 separate valuation periods, the program fails the longrange test of close actuarial balance. Being out of close actuarial balance indicates that the program is expected to experience financial problems in the future and that ways of improving the financial status of the program should be considered. The sooner the actuarial balance is less than the minimum allowable balance, expressed as a percentage of the summarized cost rate, the more urgent is the need for corrective action. However, it is recognized that necessary changes in program financing or benefit provisions should not be put off until the last possible moment if future beneficiaries and workers are to effectively plan for their retirement.
Table IV.B9 presents a comparison of the estimated actuarial balances with the minimum allowable balance (or maximum allowable deficit) under the longrange test, each expressed as a percentage of the summarized cost rate, based on the intermediate estimates. Values are shown for only 14 of the valuation periods: those of length 10 years, 15 years, and continuing in 5year increments through 75 years. However, each of the 66 periodsthose of length 10 years, 11 years, and continuing in 1year increments through 75 yearsis considered for the test. These minimum allowable balances are calculated to show the limit for each valuation period resulting from the graduated tolerance scale. The patterns in the estimated balances as a percentage of the summarized cost rates, as well as that for the minimum allowable balance, are presented graphically in figure IV.B4 for the OASI, DI and combined OASDI program. Values shown for the 25year, 50year, and 75year valuation periods correspond to those presented in table IV.B5.
For the OASI program, the estimated actuarial balance as a percentage of the summarized cost rate exceeds the minimum allowable for valuation periods of length 10 years through 42 years, under the intermediate estimates. For valuation periods of length greater than 42 years, the estimated actuarial balance is less than the minimum allowable. For the full 75year longrange period the estimated actuarial balance reaches 11.65 percent of the summarized cost rate, for a shortfall of 6.65 percent, from the minimum allowable balance of 5.0 percent of the summarized cost rate. Thus, although the OASI program satisfies the shortrange test of financial adequacy (as discussed earlier), it is not in longrange close actuarial balance.
For the DI program, the estimated actuarial balance as a percentage of the summarized cost rate exceeds the minimum allowable balance for valuation periods of length 10 through 21 years under the intermediate estimates. For valuation periods of length greater than 21 years, the estimated actuarial balance is less than the minimum allowable. For the full 75year longrange period the estimated actuarial balance reaches 15.50 percent of the summarized cost rate, for a shortfall of 10.50 percent, from the minimum allowable balance of 5.0 percent of the summarized cost rate. Thus, the DI program, although meeting the shortrange test of financial adequacy, is not in longrange close actuarial balance.
Financing for the DI program is much less adequate than for the OASI program during the first 25 years even though longrange actuarial deficits are more comparable over the entire 75year period. This occurs because much more of the increase in the longrange cost due to the aging of the large babyboom generation occurs earlier for the DI program than for the OASI program. As a result, tax rates that are relatively more adequate for the OASI program during the first 25 years become relatively less adequate later in the longrange period.
For the OASDI program, the estimated actuarial balance as a percentage of the summarized cost rate exceeds the minimum allowable balance for valuation periods of length 10 years through 39 years. For valuation periods of length greater than 39 years, the estimated actuarial balance is below the minimum allowable balance. The size of the shortfall from the minimum allowable balance rises gradually, reaching 7.21 percent of the summarized cost rate for the full 75year longrange valuation period. Thus, although the OASDI program satisfies the shortrange test of financial adequacy, it is out of longrange close actuarial balance.
The OASI and DI programs, both separate and combined, were also found to be out of close actuarial balance in last year's report. The estimated deficits for the OASI, DI, and combined OASDI program in this report are similar to those shown in last year's report.
Note: Totals do not necessarily equal the sums of rounded components.
Annual income rates and their components are shown in table IV.B10 for each alternative set of assumptions. The annual income rates reflect the scheduled payroll tax rates and the projected income from the taxation of benefits expressed as a percentage of taxable payroll. (Increasing income from taxation of benefits reflects rising benefit and income levels and the fact that benefittaxation threshold amounts are not indexed.)
Summarized income and cost rates, along with their components, are presented in table IV.B11 for 25year, 50year, and 75year valuation periods. Summarized income rates include the starting trust fund balance in addition to the components included in the annual income rates. The summarized cost rates include the cost of reaching a target trust fund of 100 percent of annual cost at the end of the period in addition to the cost included in the annual cost rates.
It may be noted that the payroll tax income expressed as a percentage of taxable payroll is slightly smaller than the actual tax rates in effect for each period. This results from the fact that all OASDI income and cost amounts presented in this report are computed on a cash basis, i.e., amounts are attributed to the year in which they are actually received by, or expended (payable) from, the fund, while taxable payroll is allocated to the year in which earnings are paid. Because earnings are paid to workers before the corresponding payroll taxes are credited to the funds, payroll tax income for a particular year reflects a combination of the taxable payrolls from that year and from prior years, when payroll was smaller. Dividing payroll tax income by taxable payroll for a particular year, or period of years, will thus generally result in an income rate that is slightly less than the applicable tax rate for the period.
Note: Totals do not necessarily equal the sums of rounded components.
Note: Totals do not necessarily equal the sums of rounded components.
Reasons for changes from last year's report to this report in the longrange actuarial balance under the intermediate assumptions are itemized in table IV.B12. Also shown are the estimated effects associated with each reason for change.
Item

OASI

DI

Combined



Shown in last year's report:



Income rate

11.79

1.92

13.72



Cost rate

13.33

2.26

15.59



Actuarial balance

1.54

.34

1.87


Changes in actuarial balance due to changes in:




Legislation / Regulation

.00

.00

.00



Valuation period ^{1}

.06

.01

.07



Demographic data and assumptions

.03

.01

.04



Economic data and assumptions

+.01

.01

.00



Disability data and assumptions

.00

.00

.00



Programmatic data and methods

+.05

+.01

+.06


Total change in actuarial balance

.03

.02

.04


Shown in this report:



Actuarial balance

1.56

.35

1.92



Income rate

11.85

1.93

13.78



Cost rate

13.41

2.29

15.70

^{1}In changing from the valuation period of last year's report, which was 200276, to the valuation period of this report, 200377, the relatively large negative annual balance for 2077 is included. This results in a larger longrange actuarial deficit. The fund balance at the end of 2002, i.e., at the beginning of the projection period, is included in the 75year actuarial balance. 
Note: Totals do not necessarily equal the sums of rounded components.
No legislative changes have been enacted since the last report that directly affect the financing of the Social Security program (see section III.B).
In changing from the valuation period of last year's report, which was 200276, to the valuation period of this report, 200377, the relatively large negative annual balance for 2077 is included. This results in a larger longrange actuarial deficit. (Note that the fund balance at the end of 2002, i.e., at the beginning of the projection period, is included in the 75year actuarial balance.)
Ultimate demographic assumptions are unchanged from last year's report. However, the starting population was updated based on tabulations from the 2000 Census, resulting in a substantially larger population and far more otherthanlegal residents. As the new census indicated a far larger than previously estimated rate of otherthanlegal immigration since 1990, this assumption was increased for the first 20 years of the projection period. Fertility rates were revised downward for recent years and at the start of the projection period, also due to the larger than expected census. In addition, mortality rates at ages under 65 were revised downward slightly for recent years and for the entire projection period due to the larger than expected census. However, mortality rates at ages 65 and over for the year 2000 were replaced with slightly higher final estimates (based on data unrelated to the census), resulting in slightly higher rates throughout the projection period. In total, these updates to demographic data and assumptions resulted in an increase in the actuarial deficit of about 0.04 percent of taxable payroll.
Two ultimate economic assumptions were changed from those used in last year's report. First, the price differential, defined as the annual percent change in the Gross Domestic Product (GDP) deflator less the annual percent change in the CPI, was changed from 0.2 to 0.3, based on new research by the Bureau of Labor Statistics. Second, the average annual percent change in average hours worked was increased from 0.1 percent to 0.0 percent, based on historical trends. The change in the price differential reduces the realwage differential by 0.1 percent, while the increase in average hours worked increases the realwage differential by 0.1 percent. Thus, compared to last year's report, these two changes to the ultimate economic assumptions have no net effect on the realwage differential and, therefore, the 75year actuarial balance.
Two additional changes in economic assumptions are important. First, the Bureau of Economic Analysis revised downward its estimate of historical aggregate wages by about 3.0 percent for 2001 and 4.0 percent for 2002. Reflecting this revision substantially reduces OASDI tax income throughout the projection period but affects benefit levels with a significant delay, only for newly eligible individuals in the future. The net effect of this revision is thus an increase in the longrange actuarial deficit. Second, starting with the 2003 report, labor force participation rates are projected to increase with life expectancy. This change increases the projected size of the labor force by nearly 2.0 percent by the end of the 75year period and significantly reduces the longrange actuarial deficit. However, these two changes tend to cancel and have a negligible net effect (i.e., less that 0.005 percent of taxable payroll) on the 75year actuarial balance.
Two significant changes affect disability assumptions. First, the ultimate disability incidence rates were lowered somewhat from the levels used in last year's report in order to bring the rates closer to the average experience of the last 30 years. Second, rates of improvement used to project longrange death rates were increased to be more consistent with assumed improvement in overall mortality. The net effect of these two changes roughly offset each other, resulting in about the same disability prevalence rate and thus having very little effect on projected cost.
Several methodological improvements and updates of programspecific data were made for projections in the 2003 report. First, an updated sample of new beneficiaries was used for projecting longrange average benefit levels. Second, shortrange projections were modified to reflect more of a delay in the average age at entitlement to benefits for retired workers as a result of the increasing normal retirement age (NRA). This change significantly reduced the number of beneficiaries, and thus the cost of the program in the early projection years. Together these changes result in a decrease in the actuarial deficit of 0.06 percent of taxable payroll.
If no changes in assumptions or methods were made for this report and actual experience had met expectations since the last report, the OASDI actuarial deficit would still be increased by 0.07 percent of taxable payroll from the level estimated for last year's report due to the change in the valuation period (see table IV.B12). However, changes were made in data, assumptions, and methods for this report. The net effect of these changes is to offset a portion of the increase in the deficit due to the new valuation period. This is indicated by the total 0.04percent increase in the deficit, which, after rounding, raises the deficit from 1.87 percent to 1.92 percent of payroll.
The effects of changes made in this report can also be illustrated by comparing the annual (cashflow) balances for this and the prior year's report. Figure IV.B5 provides this comparison for the combined OASDI program over the long range.
The annual balance is lower, for this report, early in the projection period due to revisions in national earnings data for 2001 and 2002. Higher annual balances from about 2010 to 2040 reflect the increases in otherthanlegal immigration since 1990, reflected in the 2000 Census, and the assumption for this report of higher annual immigration through 2022. The higher levels of immigration for 1990 through 2022 result in additional beneficiaries which cause a reduction in the annual balances from about 2040 to 2075.
^{1}Adjustments are made to include deemed wage credits based on military service for 19832001, and to reflect the lower effective tax rates (as compared to the combined employeeemployer rate) which apply to multipleemployer "excess wages," and which did apply, before 1984, to net earnings from selfemployment and, before 1988, to income from tips.
^{2}Accounting for Social Insurance, Statement of Recommended Accounting Standards, Number 17, Federal Accounting Standards Advisory Board, August 1999 (p. 36).
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