While it is reasonable to assume that actual trust fund experience will fall within the range defined by the three alternative sets of assumptions used in this report, no definite assurance can be given that this will occur because of the uncertainty inherent in projections of this type and length. In general, a greater degree of confidence can be placed in the assumptions and estimates for the earlier years than for the later years. Nonetheless, even for the earlier years, the estimates are only an indication of the expected trend and general range of future program experience.
The assumptions vary, in most cases, from year to year during the
first 5 to 25 years before reaching their ultimate values for the
remainder of the 75-year projection period. The following table summarizes the
ultimate values assumed for the key economic and demographic factors underlying
the actuarial estimates shown in this
report. These ultimate values apply for years after 2020, with the
exception of life expectancy, which is assumed to continue improving
throughout the projection period.
Table I.F1. Ultimate Economic and Demographic Assumptions | |||||
| Ultimate assumptions |
Intermediate |
Low Cost |
High Cost | ||
| Annual percentage change in: | |||||
| Average wage in covered employment | 4.4 | 3.9 | 4.9 | ||
| Consumer Price Index (CPI) | 3.5 |
2.5 |
4.5 | ||
| Real-wage differential (percent) | 0.9 | 1.4 | 0.4 | ||
| Unemployment rate (percent) | 6.0 | 5.0 | 7.0 | ||
| Annual interest rate (percent) | 6.2 | 5.9 | 6.4 | ||
| Total fertility rate (children per woman) | 1.9 | 2.2 | 1.6 | ||
| Life expectancy at birth in 2075 (combined average for men and women, in years) | 81.5 | 78.5 | 85.5 | ||
|
Annual net immigration (in thousands) |
900.0 |
1,150.0 |
750.0 | ||
The long-range economic assumptions in last year's report were not
changed from those used in the 1995 report. Although improvements
had recently been made in the determination of inflation rates, as
measured by the CPI and the GDP price deflator, there was not
enough time to sufficiently analyze the effects of these improvements.
However, the economic assumptions in this report do reflect the
effects of these improvements.
The effects of these improvements, along with other changes reflecting the judgment of the Trustees, include lowering assumed increases in the CPI by 0.5 percentage point for all three sets of assumptions, reducing the real-wage differential and the rate of growth in productivity by 0.1 percentage point each for all three sets, and raising the real interest rate by 0.4 percentage point for all three sets of assumptions.
The ultimate demographic assumptions for this report are essentially unchanged from those used in the 1996 report. Only the values for life expectancy are slightly different because they reflect the accumulated difference in annual mortality rate assumptions for all years through the year 2075.
Revisions of other economic and demographic assumptions for the early years of the projection period, based on data collected since the 1996 report, had little effect in the long range, with the exception of changes in the mortality rates and labor force participation rates. Based on additional data for the years 1992-95, mortality rates for the starting year are slightly lower than those estimated for 1996 in last year's report. This results in the rates of reduction in mortality during the first 25 years of the projection period being increased slightly over those used in the 1996 report. Based on recent data the estimated civilian labor force for 1997 is about 0.8 million higher than was estimated for the 1996 report. The effect of this higher starting value is to increase projected labor force slightly throughout the long-range projection period for this report.
These assumptions reflect a careful assessment of past data and future prospects. Other changes in assumptions and methods reflected in the estimates in this report are discussed in section II.F.