[Top] [Prev] [Next] [Bottom]

1997 OASDI Trustees Report


H. ASSUMPTIONS AND METHODS UNDERLYING THE
ACTUARIAL ESTIMATES

 This section describes the assumptions and methods which underlie the actuarial estimates in this report. Unless specifically stated otherwise, the assumptions and methods were used for each of the three alternatives and for both the short-range and long-range periods. Some of the principal economic and demographic assumptions which vary by alternative are summarized in section II.D . Further details about the assumptions, methods, and actuarial estimates are contained in Actuarial Studies published by the Office of the Chief Actuary, Social Security Administration, which are available upon request.1/

1. Total Population

Projections were made of the population in the Social Security Area by age, sex, and marital status as of January 1 of each year 1996 through 2080. The starting Social Security Area population for January 1, 1995 was developed from the estimated United States population, including armed forces overseas, based on data from the Bureau of the Census, adjusted for net census undercount and increased for other U.S. citizens living abroad and for populations in the geographic areas covered by the OASDI program but not included in the U.S. population. This starting population was then projected using assumed rates of birth, death, marriage, and divorce and assumed levels of migration.

Historically, fertility rates in the United States have fluctuated widely. The total fertility rate is defined to be the average number of children that would be born to a woman in her lifetime if she were to experience the birth rates by age observed in, or assumed for, the selected year, and if she were to survive the entire child-bearing period. The total fertility rate decreased from 3.3 children per woman after World War I to 2.1 during the Great Depression, rose to 3.7 in 1957, and then fell to 1.7 in 1976. After 1976, the total fertility rate began to rise again, reaching a level of 2.07 for 1991. Since then, it has declined slightly to a level currently estimated at 2.02 for 1995.

These variations in fertility rates have resulted from changes in many factors, including social attitudes, economic conditions, and the use of birth-control methods. Future fertility rates may be expected to remain close to recent levels. The recent historical and projected trends in certain population characteristics are consistent with a continued relatively low fertility rate. These trends include the rising percentages of women who have never married, of women who are divorced, and of young women who are in the labor force. Based on consideration of these factors, ultimate total fertility rates of 2.2, 1.9, and 1.6 children per woman were selected for alternatives I, II, and III, respectively. For each alternative, the total fertility rate is assumed to reach its ultimate level in 2020. A rate of 2.1 would ultimately result in a nearly constant population if net immigration were zero and if death rates were constant.

Historically, death rates in the United States have declined fairly steadily. Historical rates used in preparing this report were calculated using data from the National Center for Health Statistics (NCHS) that are final for 1900-94 (by cause of death starting in 1968) and provisional for 1995. For ages 65 and over, Medicare final data for years 1968 through 1994, and provisional data for 1995 were used. The age-sex-adjusted death rate -- which is calculated here as the crude rate that would occur in the enumerated total population as of April 1, 1990, if that population were to experience the death rates by age and sex for the selected year -- declined at an average rate of 1.1 percent per year between 1900 and 1994. Between 1968 and 1994, the period for which death rates are available by cause, the age-sex adjusted death rate (for all causes combined) declined at an average rate of 1.3 percent per year. However, since 1982, age-sex adjusted death rates have declined more slowly, at average rates of 0.7 percent between 1982 and 1994.

Reductions in death rates have resulted from many factors, including increased medical knowledge and availability of health-care services, and improvements in personal health-care practices such as diet and exercise. Based on consideration of the expected rate of future progress in these and other areas, three alternative sets of ultimate annual percentage reductions in central death rates by age, sex, and cause of death were selected for 2021 and later. The intermediate set, which is used for alternative II, is considered to be the most likely to occur. Except for those causes of death which primarily affect children and people of working age, the average annual percentage reductions used for alternative I are smaller than those for alternative II, while those used for alternative III are greater.

Between 1994 and 2021, the reductions in central death rates for alternative II are assumed to change gradually from the average annual reductions by age, sex, and cause of death observed between 1968 and 1994, to the ultimate annual percentage reductions by age, sex, and cause of death assumed for 2021 and later. Alternative I reductions are assumed to change gradually from 50 percent of the average annual reductions observed between 1968 and 1994, while alternative III reductions are assumed to change gradually from 150 percent of the average annual reductions observed between 1968 and 1994.

After adjustment for changes in the age-sex distribution of the population, the resulting death rates were projected to decline at an average annual rate of about 0.2 percent, 0.6 percent, and 1.0 percent between 1995 and 2071 for alternatives I, II, and III, respectively.

For calendar years 1995 and 1996, the net legal immigration is estimated to be 536,000 and 645,000 persons per year, respectively. In addition, for these years the net other-than-legal immigration is estimated to be 300,000 persons per year.

The Immigration Act of 1990 increased substantially the number of legal immigrants permitted starting in 1992. For calendar year 1997, net immigration is assumed to be 1,170,000, 925,000, and 725,000 persons per year for alternatives I, II, and III, respectively. Of these net numbers of immigrants, 720,000, 625,000, and 525,000, respectively, are assumed to be legal, and the remainders are assumed to be other-than-legal. Based on changes in immigration categories and limits specified in the 1990 legislation, the estimated level of net legal immigration varies for years through 2000, reaching an assumed ultimate level for 2001 and later. Net immigration for 1998 and 1999 is assumed to be 1,160,000, 910,000, and 740,000 persons per year for alternatives I, II, and III, respectively. Of these net numbers of immigrants, 710,000, 610,000, and 540,000, respectively, are assumed to be legal, and the remainders are assumed to be other-than-legal. Net immigration for 2000 and later is assumed to be 1,150,000, 900,000, and 750,000 persons per year for alternatives I, II, and III, respectively. Of these net numbers of immigrants, 700,000, 600,000, and 550,000, respectively, are assumed to be legal, and the remainders are assumed to be other-than-legal.

Table II.H1 shows the projected population as of July 1 by broad age group, for the three alternatives. Also shown are tabulated aged dependency ratios (see table footnotes for definitions). Because eligibility for many types of OASDI benefits depends on marital status, the population was projected by marital status, as well as by age and sex. Marriage and divorce rates were based on recent data from NCHS.


Table II.H1.­ Social Security Area Population as of July 1 and Dependency Ratios,
by Alternative and Broad Age Group, Calendar Years 1950-2075

Calendar
year		 Population (in thousands)
 Dependency ratio
Under 20 20-64 65 and
over		 Total Aged 1/ Total 2/
Historical data:
       1950 53,895 92,739 12,752 159,386 0.138 0.719
       1960 72,989 99,842 17,250 190,081 .173 .904
       1965 80,124 104,826 19,092 204,041 .182 .946
       1970 80,672 113,184 20,920 214,776 .185 .898
       1975 78,428 122,852 23,265 224,545 .189 .828
       1980 74,560 134,420 26,148 235,128 .195 .749
       1985 73,220 144,860 29,059 247,140 .201 .706
       1990 75,112 152,886 31,978 259,977 .209 .700
       1995 79,055 159,608 34,211 272,874 .214 .710
 
Intermediate:
       2000 81,379 168,093 35,408 284,880 .211 .695
       2005 81,730 177,533 36,813 296,076 .207 .668
       2010 81,387 185,811 39,814 307,011 .214 .652
       2015 80,942 191,120 45,713 317,775 .239 .663
       2020 81,785 192,994 53,044 327,822 .275 .699
       2025 82,742 192,512 61,396 336,650 .319 .749
       2030 83,245 192,410 68,394 344,049 .355 .788
       2035 83,248 194,778 72,015 350,041 .370 .797
       2040 83,294 198,365 73,191 354,850 .369 .789
       2045 83,646 201,358 73,797 358,801 .366 .782
       2050 84,160 202,682 75,398 362,241 .372 .787
       2055 84,628 203,098 77,798 365,524 .383 .800
       2060 84,947 203,139 80,796 368,882 .398 .816
       2065 85,187 204,356 82,788 372,331 .405 .822
       2070 85,469 205,837 84,380 375,686 .410 .825
       2075 85,831 206,979 85,949 378,758 .415 .830
 
Low Cost:
       2000 82,029 168,948 35,290 286,267 .209 .694
       2005 83,653 179,324 36,354 299,331 .203 .669
       2010 85,220 188,483 38,896 312,600 .206 .658
       2015 87,390 194,705 44,298 326,392 .228 .676
       2020 91,365 197,803 51,088 340,256 .258 .720
       2025 95,558 199,187 58,793 353,539 .295 .775
       2030 99,105 201,614 65,023 365,742 .323 .814
       2035 102,072 207,155 67,862 377,089 .328 .820
       2040 105,066 214,557 68,401 388,024 .319 .808
       2045 108,449 221,946 68,584 398,979 .309 .798
       2050 112,254 228,104 69,904 410,262 .306 .799
       2055 116,056 233,963 72,113 422,132 .308 .804
       2060 119,640 240,175 74,893 434,708 .312 .810
       2065 123,120 248,022 76,787 447,928 .310 .806
       2070 126,725 256,242 78,620 461,587 .307 .801
       2075 130,527 264,157 80,827 475,511 .306 .800
 
High Cost:
       2000 80,791 167,338 35,515 283,644 .212 .695
       2005 79,966 175,826 37,220 293,011 .212 .666
       2010 77,836 183,309 40,622 301,768 .222 .646
       2015 74,940 187,947 46,980 309,867 .250 .649
       2020 72,906 188,911 54,858 316,674 .290 .676
       2025 70,998 186,948 63,900 321,846 .342 .722
       2030 68,954 184,721 71,789 325,464 .389 .762
       2035 66,661 184,291 76,435 327,386 .415 .776
       2040 64,607 184,449 78,606 327,662 .426 .776
       2045 62,931 183,510 80,072 326,513 .436 .779
       2050 61,300 180,599 82,403 324,302 .456 .796
       2055 59,689 176,363 85,412 321,465 .484 .823
       2060 58,095 171,258 89,003 318,356 .520 .859
       2065 56,564 167,148 91,396 315,109 .547 .885
       2070 55,138 163,463 93,002 311,603 .569 .906
       2075 53,816 159,676 94,153 307,645 .590 .927
1 Population aged 65 and over, divided by population aged 20-64.

2 Sum of population aged 65 and over, and population under age 20, divided by population aged 20-64.

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



2. Covered Population

The number of covered workers in a year is defined as the number of persons who, at any time during the year, have OASDI taxable earnings. Projections of the number of covered workers were made by applying projected coverage rates to the projected Social Security Area population. The coverage rates -- i.e., the number of covered workers in the year, as a percentage of the population as of July 1 -- were determined by age and sex using projected labor force participation rates and unemployment rates, and their historical relationships to coverage rates. In addition, the coverage rates were adjusted to reflect the increase in coverage of Federal civilian employment as a result of the 1983 Social Security Amendments and changes in the number of other-than-legal aliens estimated to be residing within the Social Security coverage area.

Labor force participation rates were projected by age and sex, taking into account projections of the percentage of the population that is married, the percentage of the population that is disabled, the number of children in the population, the level of retirement benefits, and the state of the economy. For men, the projected age-adjusted labor force participation rates for the year 2075 for alternatives I, II, and III are 1.3, 1.8, and 2.3 percentage points lower, respectively, than the 1995 level of 75.4 percent. For women, the projected age-adjusted labor force participation rates increase for alternatives I and II and decrease for alternative III. The projected age-adjusted rates for 2075 are 1.9, 1.2, and -0.7 percentage points, respectively, different from the 1995 level of 59.0 percent.

The total age-sex-adjusted unemployment rate averaged 5.8 percent for the last 30 years 1966-95 and 6.0 percent for the 10 years 1986-95. The ultimate total age-sex-adjusted unemployment rate is assumed to be 5.0, 6.0, and 7.0 percent for alternatives I, II, and III, respectively. Unemployment levels off to the assumed ultimate age-sex-adjusted rate by the year 2007, for each of the three alternatives.

The projected age-adjusted coverage rate for men changes from its 1995 level of 74.4 percent to 73.0, 72.1, and 71.1 percent in 2075 for alternatives I, II, and III, respectively. For women, it changes from its 1995 level of 61.7 percent to 62.2, 61.0, and 58.6 percent for alternatives I, II, and III, respectively.

3. Average Earnings, Inflation, and Real Interest Rate

Future increases in average earnings and in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W, hereafter denoted as "CPI") will directly affect the OASDI program. Increases in the CPI directly affect the automatic cost-of-living benefit increases, while inflation, in general, affects the nominal levels of average earnings, GDP, and taxable payroll. Average earnings in covered employment for each year have a direct effect on the size of the taxable payroll and on the future level of average benefits. In addition, increases in average wages in the U.S. economy directly affect the indexation, under the automatic-adjustment provisions in the law, of the benefit formulas, the contribution and benefit base, the exempt amounts under the retirement earnings test, the amount of earnings required for a quarter of coverage, and under certain circumstances, the automatic cost-of-living benefit increases.

Increases in average earnings were projected in two components -- average earnings of wage-and-salary workers, usually referred to as average wages (and shown for OASDI covered employment in table II.D1 of this report), and average net earnings of self-employed persons. Each of these was subdivided into increases in real average earnings and increases in the CPI. For simplicity, real increases in the average covered wage are sometimes expressed in the form of real-wage differentials -- i.e., the percentage increase in the average nominal wage minus the percentage increase in the CPI.

The assumed ultimate increases in average real earnings are based on analysis of trends in productivity gains and the factors linking productivity gains with increases in average real earnings. For the 40 years 1956-95, annual increases in productivity for the total U.S. economy averaged 1.7 percent, the result of average annual increases of 2.8, 2.0, 1.2, and 0.9 percent for the 10-year periods 1956-65, 1966-75, 1976-85 and 1986-95, respectively. Meanwhile, the average annual rate of change in average real earnings for the total U.S. economy was an increase of 0.8 percent for the 40 years 1956-95, the result of average annual changes of 2.2, 0.6, -0.2, and 0.7 percent, respectively, for the aforementioned 10-year periods. The change in the linkages between annual changes in productivity and real earnings averaged -0.9 percent for the 40 years 1956-95, and -0.5, -1.3, -1.3, and -0.3 percent, respectively, for the aforementioned 10-year periods. The change in the linkages reflects changes in such factors as the average number of hours worked per year, labor's share of total output, the proportion of employee compensation paid as wages, and price adjustment reflecting the ratio of the GDP chain weighted price index to the CPI.

The average annual rate of change in the average real wage in OASDI covered employment was 1.0 percent over the 40 years 1956-95. However, the average annual rates of change over the 10-year periods varied considerably. The average annual rates of change for the 10-year periods 1956-65, 1966-75, 1976-85, and 1986-95 were 2.0 percent, 0.7 percent, 0.6 percent and 0.6 percent, respectively.

The ultimate annual increases in productivity for all sectors -- wage-and-salary workers, self-employed persons, and the total economy -- are assumed to be about 1.6, 1.3, and 1.0 percent for alternatives I, II, and III, respectively. The corresponding ultimate annual rates of change in the linkages for wage-and-salary workers are assumed to be declines of 0.2, 0.4, and 0.6 percent for alternatives I, II, and III, respectively. These linkages are made up of assumed annual decreases of 0.0, 0.1, and 0.2 percent in average hours worked per year, 0.1, 0.2, and 0.3 percent annual declines in wages as a share of compensation, and differences of 0.1, 0.1, and 0.1 percentage point in the rates of growth in the CPI and the GDP price index for alternatives I, II, and III, respectively. No ultimate change is assumed for the historically relatively stable ratio of employee compensation to GDP. The resulting ultimate real-wage differentials are 1.4, 0.9, and 0.4 percent for alternatives I, II, and III, respectively. Ultimate annual declines in the linkages for self-employed persons are smaller because the proportion of reported compensation that is considered earnings remains constant. As a result, ultimate average real-earnings growth rates for the self-employed are assumed to be higher than for wage- and-salary workers. The corresponding ultimate average real-earnings for wage-and-salary workers and self-employed persons, combined, are slightly higher than those assumed for wage-and-salary workers only.

Historically, the CPI has increased, on average, by 4.4 percent for the 40 years 1957-96, 5.3 percent for the 30 years 1967-96, 5.1 percent for the 20 years 1977-96, and 3.6 percent for the 10 years 1987-96. The ultimate average annual CPI increases of 2.5, 3.5, and 4.5 percent for alternatives I, II, and III, respectively, were chosen to include a reasonable range of possible future experience. The GDP price index has increased by 4.2 percent annually for the 40 years 1957-96, 4.9 percent annually for the 30 years 1967-96, 4.6 percent annually for the 20 years 1977-96, and 3.2 percent annually for the 10 years 1987-96. The growth rate in the GDP price index is estimated to be 0.8 percent slower than the growth rate in the CPI for 1996. The difference between the growth rates in these price indexes is assumed to decline gradually from 0.2 percentage point during 1997, to the ultimate assumed difference of 0.1 percentage point by 2006.

The ultimate increases in average annual wages in covered employment are assumed to be 3.9, 4.4, and 4.9 percent, for alternatives I, II, and III, respectively. These were obtained, for each alternative, by adding the assumed annual percentage increase in the CPI to the assumed real-wage differential. Ultimate increases in average wages and earnings for the U.S. economy are very similar to those assumed for average wages in covered employment.

The interest rate considered in this report is the nominal interest rate, which is compounded semiannually, for special U.S. government obligations issuable to the trust funds in each of the 12 months of the year. The real interest rate is defined to be the annual (compounded) yield rate for investments in these securities divided by the growth in the CPI.

In developing a reasonable range of assumed future real interest rates for the three alternatives, historical experience was examined for the 40 years, 1956-95, and for each of the 10-year subperiods, 1956-65, 1966-75, 1976-85, and 1986-95. For the 40-year period, the real interest rate averaged 2.4 percent per year. For the four 10-year subperiods, the real interest rates averaged 1.4, 0.5, 2.9, and 4.7 percent per year, respectively. The assumed ultimate real interest rates are 3.4 percent, 2.7 percent, and 1.9 percent for alternatives I, II, and III, respectively. The projected interest rates are assumed to trend toward these ultimate interest rates, attaining the ultimate values after the tenth projection year.

4. Taxable Payroll and Taxes

The taxable payroll for any period is that amount which, when multiplied by the combined employee-employer tax rate, yields the total amount of taxes paid by employees, employers, and the self-employed for work during the period. The taxable payroll is important not just in estimating OASDI income, but also in determining income and cost rates, and actuarial balances. These terms are defined in the introduction to the section entitled "Actuarial Estimates."

In practice, the taxable payroll is calculated as a weighted average of the earnings on which employees, employers, and self-employed persons make contributions to the OASDI program. The weighting takes into account the lower tax rates, as compared to the combined employee-employer rate, which apply to multiple-employer "excess wages," and which did apply, before 1984, to net earnings from self-employment and, before 1988, to tips. For 1983 and later, taxable payroll also includes deemed wage credits for military service. Estimates of taxable earnings for employees, employers, and the self-employed were developed from corresponding estimates of earnings in the U.S. economy, by means of factors which adjust for various differences in these measures. The factors adjust total U.S. earnings by removing earnings from noncovered employment, adding earnings from various outlying areas which are covered by Social Security but are not included in published "U.S." data, and removing earnings above the taxable earnings base.

Decreases in the ratio of taxable earnings to earnings in OASDI covered employment since 1984 are due to the increasing proportion of total covered wages earned by very high wage earners. This trend is projected to continue through the first 10 years of the projection period for alternatives II and III. The ratio of taxable wages to wages in covered employment is projected to decline from a level of 0.873 for 1996 to ultimate levels of 0.858 and 0.851, by the end of the tenth projection year for alternatives II, and III, respectively. For alternative I, the ratio is assumed to remain fairly constant at 0.873. These ultimate ratios of taxable earnings to OASDI covered earnings are about the same as were assumed for last year's report.

The projected levels of the taxable payroll for the intermediate cost alternative are lower than those projected for last year's report throughout the long-range projection period. This results from slower growth in average wages in covered employment than was assumed for last year's report.

Estimates of taxes collected were developed from the estimates of taxable earnings by applying the employee, employer, or self-employed tax rate, and by taking into account the lag between the time the tax liability is incurred and the time the taxes are collected.

5. Insured Population

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

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

Under this procedure, the percentage of the Social Security Area population aged 62 and over that is fully insured is projected to increase from its estimated level of 77.5 on January 1, 1994, to 90.9, 90.7, and 90.3 on January 1, 2075, based on alternatives I, II, and III, respectively. The percentage for females is projected to increase significantly, while that for males is projected to increase slightly. Based on alternative II, for example, the percentage for males is projected to increase during this period from 92.3 to 92.5, while that for females is projected to increase from 66.7 to 89.2.

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

6. Old-Age and Survivors Insurance Beneficiaries

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

For the short-range period, the number of retired-worker beneficiaries was developed by applying award rates to the aged fully insured population less those insured persons entitled to retired-worker, disabled-worker, or widow(er)'s benefits, and by applying termination rates to the number of persons already receiving retired-worker benefits. The fraction of entitled beneficiaries that would actually receive benefits was projected to increase at ages 65-69, due to the modifications in the retirement earnings test enacted in Public Law 104-121.

For the long-range period, the number of retired-worker beneficiaries not previously converted from disabled-worker beneficiary status was projected as a percentage of the exposed population, i.e., the aged fully insured population less persons entitled to or converted from disability benefits and insured persons entitled to widow(er)'s benefits. The percentage for ages 70 and over was assumed to be nearly 100, because the retirement earnings test and delayed retirement credit do not apply after age 70. The percentage for each age 62 through 69 was projected from observed historical and projected short-range trends, with an adjustment for changes in the portion of the primary insurance amount payable at each age of entitlement to the portion payable at age-70 entitlement. As the normal retirement age increases, the number of retired workers as a percentage of the exposed population is gradually adjusted downward at each age 62 through 69, reaching an ultimate level in 2030; these downward adjustments also reflect the effects of scheduled increases in the delayed retirement credits.

In addition, two other factors were applied. One was to adjust for the effect of projected changes in the proportion of other-than-legal aliens in the population. The other was to adjust for the effect of the earnings test provision of Public Law 104-121.

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

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

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

The projected numbers of children under age 18, and students aged 18, who are eligible for benefits as children of retired-worker beneficiaries, were based on the projected number of children in the population. In the short-range period, the number of entitled children was developed by applying award rates to the number of children in the population where both parents are alive, and by applying termination rates to the number of children already receiving benefits. The award rates were adjusted downward and the termination rates were adjusted upward from what they otherwise would have been to reflect trends expected to occur as a result of the stepchild provision of Public Law 104-121.

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

The number of disabled children aged 18 and over of retired-worker beneficiaries was projected from the adult population. In the short-range period, award rates were applied to the uninsured population, and termination rates were applied to the number of disabled children already receiving benefits. These award and termination rates were adjusted similarly to those for minor and student children to reflect trends expected to occur as a result of the stepchild provision of Public Law 104-121. In the long-range period, disabled children were projected in a manner similar to that for children under 18, with the inclusion of a factor representing the probability of being disabled since childhood.

In the short-range period, the number of young-spouse beneficiaries was projected as a proportion of the projected number of child beneficiaries who are either under age 16 or disabled. In the long-range period, young-spouse beneficiaries were projected as a proportion of the projected number of child beneficiaries of retired workers, taking into account projected changes in average family size.

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

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

The projected numbers of children under age 18, and students aged 18, who are eligible for benefits as survivors of deceased workers, were based on the projected number of children in the population whose mothers or fathers are deceased. In the short-range period, the number of entitled children was developed by applying award rates to the number of orphaned children, and by applying termination rates to the number of children already receiving benefits. The award rates were adjusted downward to reflect the trend expected to occur as a result of the stepchild provision of Public Law 104-121.

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

In the short-range period, the numbers of mother-survivor and father-survivor beneficiaries were projected from the number of child-survivor beneficiaries who are either under age 16 or disabled. In the long-range period, mother-survivor and father-survivor beneficiaries were estimated from the number of child-survivor beneficiaries, taking into account projected changes in average family size.

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

Table II.H2 shows the projected number of beneficiaries under the OASI program by type of benefit. Included among the beneficiaries who receive retired-worker benefits are some persons who also receive a residual benefit consisting of the excess of an auxiliary benefit over their retired-worker benefit. Estimates of the number of such residual payments were made separately for spouses and widow(er)s.


Table II.H2.­ OASI Beneficiaries With Monthly Benefits in Current-Payment Status
as of December 31 by Alternative, Calendar Years 1945-2075

[In thousands]
Calendar
year		 Retired workers and auxiliaries
 Survivors
 Total
Worker Wife-
husband		 Child Widow-
widower		 Mother-
father		 Child Parent
Historical data:
       1945 518 159 13 94 121 377 6 1,288
       1950 1,771 508 46 314 169 653 15 3,477
       1955 4,474 1,192 122 701 292 1,154 25 7,961
       1960 8,061 2,269 268 1,544 401 1,577 36 14,157
       1965 11,101 2,614 461 2,371 472 2,074 35 19,128
       1970 13,349 2,668 546 3,227 523 2,688 29 23,030
       1975 16,588 2,867 643 3,888 582 2,919 21 27,508
       1980 19,562 3,018 639 4,415 563 2,610 15 30,821
       1985 22,432 3,069 456 4,863 372 1,918 10 33,119
       1986 22,981 3,088 450 4,932 350 1,878 9 33,687
       1987 23,440 3,090 439 4,984 329 1,837 8 34,126
       1988 23,858 3,086 421 5,029 318 1,783 7 34,502
       1989 24,327 3,093 422 5,071 312 1,782 7 35,012
       1990 24,837 3,101 421 5,112 304 1,777 6 35,557
       1991 25,289 3,104 425 5,158 301 1,792 6 36,074
       1992 25,758 3,112 432 5,205 294 1,808 5 36,614
       1993 26,104 3,094 436 5,224 289 1,837 5 36,990
       1994 26,408 3,066 440 5,232 283 1,865 4 37,298
       1995 26,673 3,026 441 5,226 275 1,884 4 37,528
       1996 26,898 2,970 442 5,210 242 1,898 4 37,664
 
Intermediate:
       1997 27,170 2,956 446 5,237 243 1,920 3 37,976
       2000 28,107 2,925 456 5,274 244 1,975 3 38,984
       2005 30,277 2,868 468 5,370 237 2,027 2 41,248
       2010 34,235 2,736 544 5,548 222 1,949 3 45,237
       2015 40,461 2,494 615 5,639 208 1,851 3 51,269
       2020 47,756 2,419 691 5,722 202 1,808 3 58,603
       2025 54,302 2,440 743 5,793 203 1,796 3 65,280
       2030 59,517 2,440 773 5,809 202 1,788 3 70,531
       2035 62,612 2,408 792 5,801 198 1,773 3 73,586
       2040 63,657 2,347 795 5,785 192 1,750 3 74,529
       2045 64,423 2,346 803 5,803 188 1,725 3 75,290
       2050 65,831 2,392 814 5,817 184 1,704 3 76,745
       2055 68,054 2,498 838 5,840 181 1,686 3 79,100
       2060 70,354 2,592 856 5,840 178 1,667 3 81,489
       2065 72,076 2,657 866 5,866 174 1,645 3 83,286
       2070 73,505 2,704 871 5,920 170 1,623 3 84,796
       2075 74,926 2,752 879 5,987 167 1,604 3 86,318
 
Low Cost:
       1997 27,152 2,956 446 5,235 243 1,919 3 37,954
       2000 27,996 2,917 457 5,260 243 1,971 3 38,847
       2005 29,913 2,839 471 5,317 238 2,043 2 40,822
       2010 33,611 2,638 548 5,512 225 2,064 3 44,601
       2015 39,479 2,357 624 5,609 213 2,048 3 50,333
       2020 46,334 2,250 710 5,718 206 2,082 3 57,302
       2025 52,386 2,237 776 5,816 206 2,142 3 63,566
       2030 56,950 2,205 821 5,846 207 2,206 3 68,238
       2035 59,354 2,149 858 5,824 209 2,256 3 70,652
       2040 59,815 2,077 878 5,768 209 2,285 3 71,036
       2045 60,222 2,068 906 5,736 211 2,314 3 71,460
       2050 61,363 2,102 941 5,708 214 2,357 3 72,689
       2055 63,394 2,188 990 5,710 219 2,407 3 74,910
       2060 65,458 2,258 1,031 5,716 224 2,456 3 77,147
       2065 67,116 2,310 1,063 5,770 227 2,500 3 78,990
       2070 68,817 2,359 1,093 5,869 230 2,543 3 80,914
       2075 70,906 2,426 1,127 6,003 233 2,589 3 83,288
 
High Cost:
       1997 27,188 2,957 446 5,238 243 1,921 3 37,997
       2000 28,206 2,933 455 5,289 244 1,980 3 39,110
       2005 30,579 2,898 465 5,421 238 2,036 2 41,638
       2010 34,749 2,830 541 5,582 228 1,880 3 45,813
       2015 41,294 2,632 605 5,657 205 1,688 3 52,085
       2020 49,018 2,605 672 5,697 193 1,562 3 59,751
       2025 56,090 2,680 709 5,719 188 1,483 3 66,872
       2030 62,077 2,736 723 5,705 180 1,422 3 72,846
       2035 66,081 2,760 724 5,702 169 1,366 3 76,805
       2040 68,013 2,742 710 5,727 158 1,313 3 78,667
       2045 69,477 2,782 697 5,800 148 1,259 3 80,166
       2050 71,495 2,872 685 5,862 138 1,207 3 82,262
       2055 74,237 3,036 686 5,904 129 1,156 3 85,151
       2060 77,070 3,192 684 5,887 120 1,106 3 88,062
       2065 79,137 3,300 678 5,866 112 1,057 3 90,153
       2070 80,562 3,361 667 5,862 105 1,010 3 91,571
       2075 81,559 3,397 659 5,856 98 968 3 92,539
Note: The number of beneficiaries does not include certain uninsured persons, most of whom both attained age 72 before 1968 and have fewer than 3 quarters of coverage, in which case the costs are reimbursed by the general fund of the Treasury. The number of such uninsured persons was 653 as of December 31, 1996, and is estimated to be fewer than 200 by the turn of the century. Totals do not necessarily equal the sums of rounded components.


7. Disability Insurance Beneficiaries

The number of DI beneficiaries was projected for each type of benefit separately, by the sex of the worker on whose earnings the benefits are based, and the age of the beneficiary. The number of disabled-worker beneficiaries was projected from the estimated number of such beneficiaries entitled on December 31, 1996, by adding new entitlements and subtracting terminations. The starting number of entitled disabled-worker beneficiaries was estimated by age, sex, and duration of entitlement, from the tabulated number of disabled-worker beneficiaries in current-payment status on December 31, 1996. The number of new entitlements during each year was projected by applying assumed age-sex specific disability incidence rates to the projected disability insured population (excluding those already entitled to disabled-worker benefits).

The number of terminations was projected by applying assumed termination rates to the disabled-worker population. In the short-range period, the number of terminations was projected by applying assumed termination rates by reason -- death, recovery, and all other -- and by age and sex, to the entitled disabled-worker population. In the long-range period, the number of terminations was projected by applying assumed death rates and recovery rates, by age, sex, and duration of entitlement, to the entitled disabled-worker population. To this number of terminations was added, in both the short-range and long-range periods, the number of disabled-worker beneficiaries who would be automatically converted to retired-worker beneficiaries upon attainment of the normal retirement age (currently, age 65).

The projection of rates of incidence and termination in the DI program begins with an evaluation of historical trends in these rates. With respect to disability incidence, rates have varied dramatically over the past 25 years, declining from historically high levels in 1974, to a level about half as large by 1982. From 1982 through 1992, incidence rates have increased fairly steadily so that by 1992 the incidence rate had regained 84 percent of the decline experienced between 1974 and 1982. Since 1992, the incidence rate has once again experienced a decline, to a level that is about 70-75 percent of the 1974 level.

Assumed future levels for disability incidence rates were determined in two stages: (1) rates are first projected from recent levels based on past trends and future expectations, as if the increases scheduled in present law for the normal retirement age (NRA) would not occur, and (2) for the year 2000 and later an adjustment is made to reflect the scheduled increase in the NRA; rates for persons aged 60 through 64 are assumed to increase, and rates for ages 65 and 66 are extrapolated. In addition, the incidence rates were adjusted downward to reflect trends expected to occur as a result of the drug addiction and alcoholism provision of Public Law 104-121.

For the intermediate assumptions, gross incidence rates were projected to increase over the next 10 years due to the growing proportion of insured workers at the higher ages. Gross rates projected under the first stage increase from 1996 levels by about 18 percent over the next 10 years, reaching a level of about 5.9 per thousand persons exposed (approximated by the average number of persons who are disability insured and not currently entitled to disabled worker benefits).

Further increases in incidence rates over age 60, along with rates assumed for persons aged 66 and 67 due to the scheduled increase in the NRA, are reflected in the second stage for years 2000 and later. These adjustments contribute to the overall rise in the gross disability incidence rate from a level of 4.8 per thousand exposed for 1996 to 7.2 per thousand exposed by the year 2027, at which time the effects of the scheduled increase in the NRA on the DI program will be complete. This is very close to the ultimate rate of 7.3 per thousand, attained in 2047.

Under the low cost assumptions, the gross disability incidence rate was assumed to decrease steadily over the next several years, falling 7 percent by 2000 before resuming a steady upward trend back toward the 1996 level of roughly 5.0 per thousand exposed by 2006. The 2027 gross incidence rate is assumed to be 5.7 per thousand exposed. Under the high cost assumptions, the gross disability incidence rate is assumed to increase by about 37 percent over the next 10 years, to a level comparable to the historical highs experienced in the mid 1970s. The gross incidence rate under the high cost assumptions is assumed to reach about 8.8 per thousand exposed by 2027.

In the short-range period, the age-sex specific termination rates were projected by reason -- death, recovery, and all other. Under intermediate assumptions, no noticeable change in mortality among the disabled is expected. Gross rates are projected to remain relatively constant at the 1996 level of approximately 38 deaths per thousand disabled workers. The pattern of projected recovery rates is based on workload estimates from the Office of Disability, and budgetary constraints affecting the anticipated number of continuing disability reviews scheduled in the future, as provided by the Office of Budget. Termination rates due to all other reasons (except conversion to old-age benefits) are projected to exhibit a one-time increase in 1997 reflecting the effect of the elimination of drug addiction and alcoholism as a qualifying condition for entitlement to disability benefits under Public Law 104-121. Under low cost (high cost) assumptions, terminations due to death, recovery, and other reasons increase (decrease) to levels roughly 10 percent higher (lower) than those under the intermediate assumptions.

In the long-range period, the death rates and recovery rates were projected by age, sex, and duration of entitlement. For alternative II, death rates reach levels in 2071 approximately 43 percent lower for males and approximately 36 percent lower for females than those experienced by disabled-worker beneficiaries during 1977-80, the most recent period for which detailed data are available. The recovery rates, after their patterns during the short-range period, are assumed to increase until 2010, when they attain ultimate levels about 50 percent lower than those experienced during the period 1977-80. Projected increases in recovery rates reflect the estimated effect of the periodic reviews required by provisions of law first enacted in 1980, and amended in 1983, 1984, 1990, and 1996.

For alternative I, the death rates in 2071 are assumed to be roughly 32 percent lower for males and approximately 20 percent lower for females than those experienced by disabled-worker beneficiaries during 1977-80. Recovery rates are assumed to increase from current, 1996, levels to levels that are about 1.6 times the 1996 level for males, and about 1.4 times the 1996 level for females. These ultimate recovery rates are 40 percent lower than those of the 1977-80 base period. For alternative III, the death rates in 2071 are assumed to be about 64 percent lower for males and 58 percent lower for females than those experienced during 1977-80, and recovery rates are assumed to be 60 percent lower than those experienced during 1977-80.

In the short-range period, the projected numbers of children under age 18, students aged 18, and disabled children aged 18 and over, who are eligible for benefits as children of disabled-worker beneficiaries, were projected by applying quarterly award and termination rates. Awards to the three categories of child beneficiaries were based on the number of awards to disabled-worker beneficiaries. As a result of anticipated trends due to the stepchild provision of Public Law 104-121, child awards were adjusted downward while child terminations were adjusted upward.

In the long-range period, the projected numbers of minor child and student beneficiaries were based on the projected number of children in the population by age. To the number of children were applied factors representing the probability that either of their parents is insured and disabled. In addition, a factor was applied to reduce the number of beneficiaries to reflect the more restrictive requirements for entitlement of stepchildren that were enacted in Public Law 104-121. The number of disabled children aged 18 and over was projected as a function of the number of disabled-worker beneficiaries and the size of the adult population.

In the short-range period, the number of young-spouse beneficiaries was projected by applying quarterly award and termination rates, where awards were based on the number of awards to child beneficiaries who are either under age 16 or disabled. Again, due to the stepchild provision of Public Law 104-121, terminations of young spouses were adjusted upward. The number of aged-spouse beneficiaries was also projected by applying quarterly award and termination rates, where awards were based on the number of awards to disabled-worker beneficiaries.

In the long-range period, the number of young-spouse beneficiaries was projected as a proportion of the projected number of child beneficiaries who are either under age 16 or disabled, taking into account projected changes in family size. The number of aged-spouse beneficiaries was projected as a proportion of the number of disabled-worker beneficiaries, based on recent experience and allowing for projected changes in marriage rates.

Table II.H3 shows the projected number of beneficiaries under the DI program by type of benefit.


Table II.H3.­ DI Beneficiaries With Monthly Benefits in Current-Payment Status
as of December 31 by Alternative, Calendar Years 1960-2075

[In thousands]
Calendar
year		 Disabled
worker		 Auxiliaries
 Total
Wife-
husband		 Child
Historical data:
       1960 455 77 155 687
       1965 988 193 558 1,739
       1970 1,493 283 889 2,665
       1975 2,489 453 1,411 4,352
       1980 2,859 462 1,359 4,680
       1985 2,657 306 945 3,907
       1986 2,729 301 965 3,994
       1987 2,786 291 968 4,045
       1988 2,830 281 963 4,074
       1989 2,895 272 962 4,129
       1990 3,011 266 989 4,266
       1991 3,195 266 1,052 4,513
       1992 3,468 271 1,151 4,890
       1993 3,726 273 1,255 5,254
       1994 3,963 271 1,350 5,584
       1995 4,185 264 1,409 5,858
       1996 4,386 224 1,463 6,072
 
Intermediate:
       1997 4,583 219 1,475 6,276
       2000 5,236 214 1,529 6,979
       2005 6,531 232 1,709 8,471
       2010 7,836 245 1,698 9,780
       2015 8,678 237 1,681 10,597
       2020 9,064 243 1,669 10,976
       2025 9,484 263 1,696 11,442
       2030 9,510 265 1,736 11,511
       2035 9,476 262 1,768 11,506
       2040 9,654 263 1,790 11,707
       2045 10,185 275 1,808 12,268
       2050 10,496 283 1,824 12,603
       2055 10,695 290 1,846 12,831
       2060 10,629 288 1,865 12,782
       2065 10,667 289 1,881 12,837
       2070 10,834 293 1,895 13,022
       2075 11,030 298 1,909 13,237
 
Low Cost:
       1997 4,533 216 1,458 6,207
       2000 4,979 203 1,461 6,643
       2005 5,850 207 1,544 7,602
       2010 6,664 199 1,467 8,330
       2015 7,131 180 1,429 8,740
       2020 7,303 173 1,424 8,901
       2025 7,559 180 1,470 9,210
       2030 7,548 178 1,539 9,264
       2035 7,520 175 1,602 9,296
       2040 7,685 176 1,651 9,511
       2045 8,137 185 1,701 10,022
       2050 8,444 192 1,759 10,394
       2055 8,702 199 1,827 10,728
       2060 8,812 202 1,895 10,909
       2065 9,068 207 1,961 11,236
       2070 9,444 215 2,024 11,683
       2075 9,852 224 2,090 12,165
 
High Cost:
       1997 4,641 222 1,495 6,358
       2000 5,568 230 1,624 7,422
       2005 7,388 262 1,912 9,562
       2010 8,981 305 1,920 11,205
       2015 10,207 315 1,909 12,431
       2020 10,817 339 1,870 13,027
       2025 11,419 374 1,854 13,648
       2030 11,502 381 1,845 13,728
       2035 11,473 376 1,828 13,677
       2040 11,667 374 1,814 13,855
       2045 12,269 387 1,792 14,448
       2050 12,555 393 1,760 14,707
       2055 12,641 398 1,728 14,767
       2060 12,306 387 1,694 14,386
       2065 12,003 377 1,658 14,038
       2070 11,839 372 1,623 13,834
       2075 11,702 369 1,591 13,663
Note: Totals do not necessarily equal the sums of rounded components.


8. Average Benefits

Average benefits were projected by type of benefit based on recent historical averages, projected average Primary Insurance Amounts (PIAs), and projected ratios of average benefits to average PIAs. Average PIAs were calculated from projected distributions of beneficiaries by duration from year of award, average awarded PIAs, and increases thereto since the year of award, reflecting automatic benefit increases, recomputations to reflect additional covered earnings, and other factors. Average awarded PIAs were calculated from projected earnings histories, which were developed from the actual earnings histories associated with a sample of awards made in 1994. The 1994 sample was also used for the 1996 report.

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

9. Benefit Payments

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

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

10. Administrative Expenses

The projection of administrative expenses through 2006 was based on assumed increases in average wages, increases in the CPI, and increases in the number of beneficiaries. For years after 2006, 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.

11. 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 (2) the amount of OASDI payroll tax that would be received from railroad workers if they were covered directly under the OASDI program.

The effect of the financial interchange with the Railroad Retirement program was evaluated on the basis of trends similar to those used in estimating the cost of OASDI benefits. The resulting effect was annual short-range costs of about $3-5 billion and a long-range summarized cost of 0.05 percent of taxable payroll to the OASDI program.

12. Benefits to Uninsured Persons

The law provides for special monthly cash payments to certain uninsured persons who attained age 72 before 1968 or who have 3 quarters of coverage for each year after 1966 and before the year of attainment of age 72. The number of such uninsured persons was projected based on an extrapolation of the historical survival rate of the members of that group. The benefit payable to these uninsured persons is a fixed amount which increases by the percentage benefit increase applicable to regular OASDI benefits. These payments are made from the OASI Trust Fund, which is then reimbursed from the general fund of the Treasury for the costs (including administrative expenses and interest) associated with providing payments to those persons with fewer than 3 quarters of coverage. The nonreimbursable payments are assumed to be insignificant after 2000. Neither the reimbursable payments nor the associated reimbursements are reflected in the cost rates or the income rates. These amounts are reflected, however, in tables which show trust fund operations.

13. Military-Service Transfers

As a result of the 1983 amendments, the OASI and DI Trust Funds received lump-sum payments, in May 1983, for the cost (including administrative expenses) of providing additional benefit payments resulting from noncontributory wage credits for military service performed prior to 1957. Adjustments to the payments were made in 1985, 1990, and 1995, and additional adjustments will be made in 2000 and every fifth year thereafter. The adjustments for 2000 were estimated based on the change in interest rates since the determination of the adjustments in 1995. No adjustments after 1995 would be due unless actual interest rates are different from those assumed, or changes are made in the methods used to determine the military-service transfers.

14. Income From Taxation of Benefits

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


[Top] [Prev] [Next] [Bottom]

1 To obtain printed copies of this report or studies published by the Office of the Chief Actuary write to: Office of the Chief Actuary, Social Security Administration, Suite 700 Altmeyer Building, 6401 Security Boulevard, Baltimore, Maryland 21235; or call (410)965-3015.