2007 OASDI Trustees Report

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V. ASSUMPTIONS AND METHODS UNDERLYING ACTUARIAL ESTIMATES

C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS

The demographic and economic assumptions and methods described in the previous sections are used in a set of models to project future income and cost 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 benefit-computation procedures. These automatic adjustments are based upon measured changes in the national average wage index (AWI) 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 2016. 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 AWI 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 2007, and also shows projected amounts through 2016. 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 immigrants 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 age-adjusted coverage rate for males age 16 and over is projected to be 72.5, 72.5, and 72.6 percent for 2081 for the low cost, intermediate, and high cost assumptions, respectively, or approximately unchanged from the 2005 level of about 72.5 percent. (Age-adjusted covered worker rates are adjusted to the 2005 age distribution of the Social Security area population.) For females, the projected age-adjusted coverage rate changes from its 2005 level of 62.1 percent to 63.6, 63.3, and 63.0 percent for 2081 for the low cost, intermediate, and high cost assumptions, 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. In computing taxable payroll, wages are adjusted to take into account the "excess wages" earned by workers with multiple jobs whose combined wages exceed the contribution and benefit base. Also, from 1983 through 2001, 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.

The computation of taxable earnings for employees, employers, and the self-employed is based on 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 reflects only the portion of covered earnings that is at or below the contribution and benefit base. The portion of covered earnings that is taxable (i.e., at or below the base) was about 89.5, 86.9, and 82.8 percent for 1983, 1994, and 2000, respectively. This ratio of taxable earnings to covered earnings rose to about 85.8 in 2002, then fell to 83.7 by 2005. Our preliminary estimate for 2006 is 83.2 percent. The average annual rate of change in the ratio was about -0.3 percent between 1983 and 2006.

Most of this decline was due to a relative increase in wages for high wage earners. We expect some of this shifting to continue for the intermediate and high cost assumptions. We also expect some additional decline due to the change in the age-sex distribution of the workforce (as the baby-boom generation moves into ages of higher relative earnings). The projected taxable earnings ratios in 2016 are 83.8, 83.0, and 82.2 percent for the low cost, intermediate, and high cost assumptions, respectively. After 2016, the taxable to covered ratio is held approximately constant.

Payroll tax revenue is 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

Eligibility for benefits under the OASDI program requires some minimal level of work in covered employment. This requirement is established by a worker's accumulation of quarters of coverage (QCs). Prior to 1978, one QC was credited for each calendar quarter in which at least $50 was earned. In 1978, when quarterly reporting of earnings was replaced by annual reporting, the amount required to earn a QC (up to a maximum of four per year) was set at $250. Since then, this amount has been adjusted each year according to changes in the AWI. Its value in 2007 is $1,000.

There are three types of insured status which can be acquired by a worker under the OASDI program. Each of these statuses is determined by the number and recency of QCs earned. Fully insured status is acquired by any worker whose total number of QCs is greater than or equal to the number of years elapsed after the year of attainment of age 21 (and at least six). Once a worker has accumulated 40 QCs, he or she remains permanently fully insured. Disability-insured status is acquired by any fully insured worker over age 30 who has accumulated 20 QCs during the 40-quarter period ending with the current quarter; any fully insured worker aged 24-30 who has accumulated QCs during one-half of the quarters elapsed after the quarter of attainment of age 21 and up to and including the current quarter; and any fully insured worker under age 24 who has accumulated six QCs during the 12-quarter period ending with the current quarter. Currently insured status is acquired by any worker who has accumulated six QCs during the 13-quarter period ending with the current quarter. Periods of disability are excluded from the above described QC requirements for insured status (but do not reduce the minimum of six QCs).

There are many types of benefits payable to workers and their family members under the OASDI program. One of the requirements of eligibility for these benefits is the insured status of the worker. A worker must be fully insured to be eligible for a primary retirement benefit, and for his or her spouse or children to be eligible for auxiliary benefits. A deceased worker must have been either currently insured or fully insured at the time of death for his or her children (and their mother or father) to be eligible for benefits. If there are no eligible surviving children, the deceased worker must have been fully insured at the time of death for his or her surviving spouse to be eligible. A worker must be disability insured to be eligible for a primary disability benefit, and for his or her spouse or children to be eligible for auxiliary benefits.

Historical estimates of the fully insured population, as a percentage of the Social Security area population, are made by age and sex for each birth cohort beginning with 1900. These percentages are based on 30,000 simulated work histories for each sex and birth cohort, which are constructed from past coverage rates, median earnings, and amounts required for crediting QCs. These work histories are developed by a model which assumes that persons who have recently been out of covered employment are likely to remain out of covered employment. This model is aligned such that the simulated fully insured percentages reproduce fairly closely the fully insured percentages estimated from the Continuous Work History Sample from 1970 to date. The fully insured population for future years is projected using this model with the additional inputs of estimated future coverage rates, median earnings, and amounts required for crediting QCs.

Projections of the disability-insured population, as a percentage of the fully insured population, are made by age and sex for each birth cohort beginning with 1900. These percentages are based on the same simulated work histories used to project the fully insured percentages. Additional adjustments are made to bring the simulated disability-insured percentages into close agreement with those estimated from the Continuous Work History Sample. The principal adjustment is for periods of disability (which are not explicitly taken into account in the model). These periods (which reduce the normally applicable QC requirements) have a negligible effect on fully insured status at retirement age, but a substantial effect on disability-insured status.

Projections of the currently insured population are not made. This is because the number of beneficiaries who are entitled to benefits based solely on currently insured status has been very small, and is expected to remain small in the future.

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 80.5 for December 31, 2004, to 89.5, 90.2, and 90.9 for December 31, 2085, under alternatives I, II, and III, respectively. The percentage for females is projected to increase significantly, while that for males is projected to decline somewhat. Under alternative II, for example, the percentage for males is projected to decrease slightly during this period from 92.4 to 92.1, while that for females is projected to increase from 71.4 to 88.5.

5. Old-Age and Survivors Insurance Beneficiaries

The number of OASI beneficiaries is 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 is also projected by marital status.

For the short-range period, the number of retired-worker beneficiaries is developed by applying award rates to the aged fully insured population less those insured persons entitled to retired-worker, disabled-worker, aged widow(er)'s, or aged spouse'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 is 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. For age 62, a linear regression is developed based on the relationship between the historical exposed percentage and the labor force participation rate. The regression coefficients are then used to project the percentage based on the projected labor force participation rate for age 62. The percentage for ages 70 and over is assumed to be nearly 100, because the retirement earnings test does not apply after normal retirement age and the delayed retirement credit does not apply after age 70. The percentage for each age 63 through 69 is projected based on historical experience 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 during the transition period.

For the long-range period also, the number of retired-worker beneficiaries previously converted from disabled-worker beneficiaries is calculated separately in a manner consistent with the calculation of disabled-worker beneficiaries.

The number of aged-spouse beneficiaries (excluding those who are also receiving a retired-worker benefit) is 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, insured aged-spouse beneficiaries are projected concurrently with the retired-worker beneficiaries. Uninsured aged-spouse beneficiaries are projected, on the other hand, by applying award rates to the aged uninsured male or female population, and by applying termination rates to the population already receiving such benefits. In the long-range period, aged-spouse beneficiaries are estimated by marital status. To the number of spouses aged 62 and over in the population, a series of factors are 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 a projected prevalence rate is applied to calculate the estimated number of aged-spouse beneficiaries.

In addition, the same factors are 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 is 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 and 19, who are eligible for benefits as children of retired-worker beneficiaries, are based on the projected number of children in the population. In the short-range period, the number of entitled children is 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 is projected separately by sex of the wage-earner parent. The number of entitled children is projected for each age under 18 from the latest beneficiary data by reflecting changes in the following: the number of children in the population and the proportion of retired workers age 62 to 71 to the population age 20 to 71. For student beneficiaries, factors are applied to the number of children age 18 and 19 in the population, representing the probabilities that the parent is alive, aged 62 or over, insured, and receiving a retired-worker benefit. Another factor is applied representing the probability that the child is attending a secondary school.

The number of disabled children, age 18 and over, of retired-worker beneficiaries is projected from the adult population. In the short-range period, award rates are applied to the population, and termination rates are applied to the number of disabled children already receiving benefits. In the long-range period, disabled children are projected in a manner similar to that for student children with the inclusion of a factor reflecting the probability of being disabled before age 22.

In the short-range period, the number of entitled young-spouse beneficiaries is 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 are 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 (excluding those who are also receiving a retired-worker benefit) is projected from the population by age and sex. In the short-range period, insured aged-widow(er) beneficiaries are projected concurrently with the retired-worker beneficiaries. Uninsured aged-widow(er) beneficiaries are projected, on the other hand, by applying award rates to the aged uninsured male or female population, and by applying termination rates to the population already receiving such benefits. In the long-range period, aged-widow(er) beneficiaries are projected by marital status. Four factors are 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 is 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 are 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 is developed by applying award rates to the uninsured male or female population, and by applying termination rates to the population already receiving a disabled-widow(er) benefit. In the long-range period, the number is projected for each age 50 up to NRA as percentages of the widowed and divorced populations, adjusted for the insured status of the deceased spouse, the prevalence of disability, and the probability that the disabled spouse is not receiving another type of benefit.

The projected numbers of children under age 18, and students aged 18 and 19, who are eligible for benefits as survivors of deceased workers, are 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 is 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 is projected in a manner analogous to that for student beneficiaries of retired workers, with the factor representing the probability that the parent is aged 62 or over replaced by a factor that represents the probability that the parent is deceased.

In the short-range period, the numbers of entitled mother-survivor and father-survivor beneficiaries are 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, assuming they are not remarried, are estimated from the number of child-survivor beneficiaries, taking into account projected changes in average family size.

The number of parent-survivor beneficiaries is 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 are 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 1945-2085 

[In thousands]

Calendar year
Retired workers and auxiliaries
 
Survivors
Total
Worker
Spouse
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
5,028
318
1,809
7
34,542
 
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
5,225
275
1,884
4
37,534
 
1996
26,905
2,970
442
5,211
242
1,898
4
37,672
 
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
 
2001
28,843
2,742
467
4,828
197
1,890
3
38,969
 
2002
29,195
2,681
477
4,770
194
1,908
2
39,226
 
2003
29,537
2,622
480
4,705
190
1,910
2
39,446
 
2004
29,952
2,569
482
4,642
184
1,901
2
39,733
 
2005
30,461
2,524
488
4,569
178
1,903
2
40,126
 
2006
30,976
2,476
490
 
4,494
171
1,899
2
40,508
Intermediate:
 
2010
34,297
2,433
547
 
4,458
156
1,865
1
43,758
 
2015
40,989
2,353
627
4,414
146
1,862
1
50,392
 
2020
49,123
2,259
695
4,334
142
1,869
2
58,423
 
2025
56,335
2,347
747
4,298
143
1,876
2
65,748
 
2030
62,888
2,353
787
4,305
144
1,891
2
72,369
 
2035
67,256
2,292
791
4,308
142
1,892
2
76,683
 
2040
69,507
2,266
788
4,284
139
1,873
2
78,857
 
2045
71,004
2,293
791
4,267
134
1,840
2
80,330
 
2050
72,682
2,387
813
4,244
130
1,808
2
82,064
 
2055
74,850
2,520
829
4,235
127
1,779
2
84,341
 
2060
77,413
2,623
849
4,243
124
1,751
2
87,004
 
2065
79,796
2,702
853
4,293
120
1,724
2
89,491
 
2070
82,066
2,755
862
4,369
117
1,698
2
91,868
 
2075
84,256
2,805
873
4,445
114
1,672
2
94,165
 
2080
86,545
2,863
890
4,493
110
1,649
2
96,552
 
2085
88,963
2,932
909
4,527
108
1,627
2
99,067
Low Cost:
 
2010
34,272
2,434
549
 
4,455
157
1,872
1
43,741
 
2015
40,809
2,361
635
 
4,399
150
1,899
1
50,255
 
2020
48,458
2,236
704
 
4,367
138
1,978
2
57,883
 
2025
55,134
2,318
769
 
4,370
137
2,065
2
64,795
 
2030
61,022
2,306
827
 
4,416
134
2,170
2
70,877
 
2035
64,674
2,215
848
 
4,443
131
2,259
2
74,573
 
2040
66,262
2,152
859
 
4,416
129
2,321
2
76,140
 
2045
67,303
2,147
878
 
4,377
128
2,360
2
77,194
 
2050
68,716
2,204
916
 
4,320
128
2,386
2
78,672
 
2055
70,778
2,298
950
 
4,272
129
2,418
2
80,846
 
2060
73,206
2,365
989
 
4,241
131
2,461
2
83,395
 
2065
75,394
2,397
1,009
 
4,250
133
2,509
2
85,693
 
2070
77,392
2,407
1,035
 
4,281
135
2,556
2
87,808
 
2075
79,500
2,422
1,066
 
4,324
137
2,601
2
90,052
 
2080
82,256
2,463
1,115
 
4,369
139
2,647
2
92,989
 
2085
85,680
2,542
1,168
 
4,429
141
2,696
2
96,657
High Cost:
 
2010
34,332
2,432
546
 
4,462
155
1,858
1
43,786
 
2015
41,197
2,351
621
 
4,433
143
1,826
1
50,571
 
2020
49,831
2,313
683
 
4,309
144
1,755
2
59,036
 
2025
57,640
2,435
722
 
4,227
142
1,682
2
66,850
 
2030
65,076
2,497
748
 
4,186
139
1,614
2
74,261
 
2035
70,475
2,487
742
 
4,163
132
1,540
2
79,541
 
2040
73,764
2,507
729
 
4,142
123
1,459
2
82,724
 
2045
76,151
2,581
718
 
4,146
113
1,379
2
85,089
 
2050
78,581
2,712
727
 
4,150
104
1,313
2
87,589
 
2055
81,336
2,882
730
 
4,165
96
1,251
2
90,461
 
2060
84,429
3,028
732
 
4,181
88
1,190
2
93,651
 
2065
87,402
3,152
723
 
4,240
80
1,132
2
96,731
 
2070
90,331
3,243
720
 
4,322
73
1,077
2
99,768
 
2075
93,007
3,320
715
 
4,401
67
1,027
2
102,538
 
2080
95,269
3,384
710
 
4,430
61
982
2
104,837
 
2085
97,067
3,433
705
 
4,426
56
940
2
106,629

Notes:
1. The number of beneficiaries does not include uninsured individuals who receive benefits under Section 228 of the Social Security Act. Costs are reimbursed from the General Fund of the Treasury for most of these individuals.
2. 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 who have not yet attained normal retirement age. Spouses and children of such disabled workers may also receive DI benefits provided they satisfy certain criteria, principally meeting age requirements. 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 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 explained, this variation is attributed in large part to a variety of demographic and economic 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 2000. Such adjustment facilitates meaningful comparisons over long periods of time. From a historically high level of about 7.2 awards per thousand insured in 1975, age-sex-adjusted rates declined to about 3.7 per thousand by 1982. Following a gradual trend upward, rates increased to about 5.8 per thousand by 1992, but declined from that point to about 4.7 per thousand in 2000. As described in chapter IV, in the discussion of the short-range DI estimates, the incidence rate experience for 2001-06, and the projections for 2007-10, are affected by a one-time special workload. In addition to historical values, figure V.C3 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 especially noticeable in the period after 2000 when the aging baby-boom generation will be concentrated in the ages of highest disability incidence.

Figure V.C3.-DI Disabled Worker Incidence Rates, 1970-2016

[Awards per thousand disability exposed]

[D]

Table V.C5 presents the long-range ultimate incidence rate assumptions age-sex adjusted to the disability-exposed population as of January 1, 2000 for ages through 64. 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 2
 
Percent change from
base period  3 to ultimate rate
Intermediate assumption
5.5
 
2027
 
+2
Low cost assumption
4.4
2027
-19
High cost assumption
6.6
2027
+22

1Number of annual new disabled-worker entitlements per thousand disability-exposed, age-sex-adjusted to the disability-exposed population as of January 1, 2000.

2The transition to ultimate incidence rates is generally completed in 2026. However, for ages 61 through 66 incidence rates are adjusted through 2027 in order to reflect increases in the normal retirement age (NRA) that are scheduled in the law.

3Base period rate for long-range incidence rate assumptions is 5.4 per thousand representing the average age-sex-adjusted incidence rate for 1994-96.

For the 2007 report, the ultimate age-sex-adjusted incidence rates for all three assumptions are lower than in last year's report. The reduction in the assumed age-sex-adjusted incidence rates reflects the trend over the last 30 years, including a closing differential between male and female incidence rates. The ultimate male age-adjusted incidence rates are 10 percent lower than last year's rates; while the ultimate female age-adjusted incidence rates are less than 1 percent higher than last year's rates.

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 gradually decline to about 27 deaths per thousand disabled workers. The pattern of projected recovery rates under the intermediate assumptions is consistent with the temporarily lower levels of continuing disability reviews assumed in the preparation of the President's FY 2008 Budget. Following temporary resource constraints over the period 2006-07, projected recovery rates return to levels required to fulfill the legislative mandate for regular reviews of all disabled beneficiaries. Under low cost (high cost) assumptions, total termination rates due to death, recovery, and other reasons increase (decrease) to levels roughly 5-10 percent higher (lower) than those under the intermediate assumptions.

For the long-range period, projection of death and recovery rates begins with an analysis of such rates by age, sex, and duration of entitlement over the base period 1996-20006. For all three sets of assumptions, the ultimate recovery rates are reached in the twentieth year of the projection period. In contrast, death rates by age and sex are assumed to change throughout the long-range period at the same rate as for death rates in the general population.

For the 2007 report, the projection methods for death and recovery rates are improved. Under the prior method, the base-period death and recovery rates were multiplied by projection factors by sex and year to estimate future death and recovery rates. Under the new method, these projection factors are determined by age group, sex and year. The new methodology has a negligible effect on the long-range actuarial balance (less than 0.005 percent of taxable payroll).

In 2006, the age-adjusted7 recovery rates were 9 and 8 per thousand disabled beneficiaries for men and women, respectively, and the age-adjusted2 death rates were 29.1 and 21.4 per thousand disabled beneficiaries for men and women, respectively. Under the intermediate assumptions, the age-adjusted recovery rates are projected to remain relatively stable, reaching ultimate levels of 10 and 9 per thousand disabled beneficiaries for men and women, respectively. In addition, the age-adjusted death rates are projected to gradually decline to levels of 14.7 and 11.5 per thousand disabled beneficiaries for men and women, respectively, in 2085.

Under the low cost assumptions, recovery rates and death rates are assumed to be higher than the corresponding levels assumed for the intermediate assumptions. The ultimate age-adjusted recovery rates are 12 and 11 per thousand disabled beneficiaries for men and women, respectively. The age-adjusted death rates are projected to gradually decline to levels of 22.3 and 17.1 per thousand disabled beneficiaries for men and women, respectively, in 2085.

Under the high cost assumptions, recovery rates and death rates are assumed to be lower than the corresponding levels assumed for the intermediate assumptions. The ultimate age-adjusted recovery rates are 8 and 7 per thousand disabled beneficiaries for men and women, respectively. The age-adjusted death rates are projected to gradually decline to levels of 7.8 and 6.0 per thousand disabled beneficiaries for men and women, respectively, in 2085.

These detailed projections of disabled-worker entitlements and terminations are combined using standard multiple decrement techniques to produce numbers of disabled workers in current-payment status over the 75-year projection period. The projection is presented in table V.C6. As indicated in that table, the number of disabled workers in current-payment status is projected to grow from 6.8 million at the end of 2006, to 11.6 million, 12.7 million, or 13.5 million at the end of 2085, 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, 2000. 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 for ages through 64 is projected to grow from 39.0 per thousand disability insured at the beginning of 2006, to 46.6 per thousand, and 59.5 per thousand at the beginning of 2085, under the intermediate, and high cost assumptions, respectively. Under the low cost assumptions, the disability prevalence rate is projected to decrease to 35.0 per thousand.

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 or 19 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 1960-2085 

[In thousands]

Calendar year
Disabled
worker
Auxiliaries
Total
Spouse
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
 
2001
5,268
157
1,482
6,907
 
2002
5,539
152
1,526
7,217
 
2003
5,869
151
1,571
7,590
 
2004
6,198
153
1,599
7,950
 
2005
6,519
157
1,633
8,309
 
2006
6,807
156
1,652
8,615
Intermediate:
 
2010
7,769
158
1,747
9,674
 
2015
8,613
156
1,825
10,594
 
2020
9,091
162
1,924
11,176
 
2025
9,755
193
2,055
12,003
 
2030
9,830
195
2,182
12,206
 
2035
9,999
195
2,276
12,470
 
2040
10,286
204
2,338
12,828
 
2045
10,794
216
2,380
13,389
 
2050
11,115
226
2,420
13,762
 
2055
11,422
235
2,471
14,129
 
2060
11,511
235
2,523
14,269
 
2065
11,718
239
2,573
14,530
 
2070
11,959
243
2,615
14,817
 
2075
12,238
249
2,652
15,139
 
2080
12,491
254
2,692
15,436
 
2085
12,691
258
2,735
15,684
Low Cost:
 
2010
7,480
150
1,673
9,302
 
2015
7,959
142
1,684
9,784
 
2020
8,111
137
1,745
9,993
 
2025
8,352
153
1,832
10,336
 
2030
8,111
142
1,931
10,183
 
2035
8,092
132
2,029
10,253
 
2040
8,253
133
2,114
10,500
 
2045
8,636
139
2,189
10,964
 
2050
8,908
144
2,263
11,316
 
2055
9,198
150
2,359
11,706
 
2060
9,362
150
2,472
11,983
 
2065
9,670
152
2,592
12,414
 
2070
10,071
156
2,708
12,935
 
2075
10,585
162
2,822
13,569
 
2080
11,098
169
2,936
14,203
 
2085
11,573
177
3,056
14,805
High Cost:
 
2010
8,277
173
1,886
10,336
 
2015
9,718
178
2,067
11,963
 
2020
10,741
205
2,238
13,184
 
2025
11,762
254
2,372
14,388
 
2030
11,983
267
2,459
14,709
 
2035
12,256
275
2,495
15,025
 
2040
12,632
291
2,490
15,414
 
2045
13,256
310
2,470
16,035
 
2050
13,614
321
2,463
16,398
 
2055
13,919
330
2,462
16,711
 
2060
13,899
327
2,446
16,672
 
2065
13,952
329
2,420
16,701
 
2070
13,946
329
2,385
16,660
 
2075
13,869
328
2,348
16,544
 
2080
13,737
326
2,317
16,380
 
2085
13,545
323
2,293
16,161

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

7. Average Benefits

Average benefits are 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 are 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 are calculated from projected earnings histories, which are developed using a combination of the actual earnings histories associated with a sample of awards made in 2003, and more recent actual earnings levels by age and sex for covered workers.

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 are based on projections of age distributions at initial entitlement.

8. Benefit Payments

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

Lump-sum death payments are calculated as the product of (1) the number of such payments, which is 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 2016 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 2016, 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 is evaluated on the basis of trends similar to those used in estimating the cost of OASDI benefits. The resulting effect is annual short-range costs of about $4-5 billion and a long-range summarized cost of 0.03 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

Beginning in 1966, the OASI and DI Trust Funds were reimbursed annually for the cost (including administrative expenses) of providing additional benefit payments resulting from noncontributory wage credits for military service performed prior to 1957. The 1983 amendments modified the reimbursement mechanism and the timing of the reimbursements, and required a transfer in 1983 to include all future costs attributable to the wage credits. The amendments also require adjustments to that 1983 transfer every fifth year, beginning with 1985, to account for actual data.

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 up to the first 50 percent of OASI and DI benefit payments. (The remainder of the income taxes attributable to the taxation of up to 85 percent of OASI and DI benefit payments is credited to the HI Trust Fund.)

For the short-range period, income to the trust funds from such taxation is 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 marginal tax rate applicable to those benefits.

For the long-range period, income to the trust funds from such taxation is estimated by applying projected ratios of taxation of OASI and DI benefits 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 gradually. Ultimate tax ratios for OASI and DI benefits are estimated by eliminating the current threshold amounts for taxation of OASDI benefits completely and adjusting the OASDI beneficiary distribution in a recent Current Population Survey for the projected 75th year age-sex distribution of the SSA beneficiary population.


1Details of these indexation procedures are published annually in the Federal Register, and are also available on the Social Security website at www.socialsecurity.gov/OACT/COLA/index.html.

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

3Incidence 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.

4A more detailed discussion of the recent history of the DI program is presented in Actuarial Study 118, "Social Security Disability Insurance Program Worker Experience," June 2005. This study can be found at www.socialsecurity.gov/OACT/NOTES/s2000s.html.

5Reasons for termination reflected in the projections 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 118, "Social Security Disability Insurance Program Worker Experience," June 2005. This study can be found on the Social Security website at www.socialsecurity.gov/OACT/NOTES/s2000s.html.

7 Males are age adjusted to the male disabled workers in current-pay as of January 1, 2000. Females are age adjusted to the female disabled workers in current-pay as of January 1, 2000.


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