Short-Range Actuarial EstimatesFor the short-range period (2013 through 2022), the Trustees measure financial adequacy by comparing projected asset reserves at the beginning of each year to projected program cost for that year under the intermediate set of assumptions. Maintaining a trust fund ratio of 100 percent or more — that is, reserves at the beginning of each year at least equal to projected cost for the year — is a good indication that the trust fund can cover most short-term contingencies. The projected trust fund ratios under the intermediate assumptions for OASI alone, and for OASI and DI combined, exceed 100 percent throughout the short-range period. Therefore, OASI and OASDI satisfy the Trustees’ short-term test of financial adequacy. However, the DI Trust Fund fails the Trustees’ short-term test of financial adequacy. The Trustees estimate that the DI trust fund ratio was at 85 percent at the beginning of 2013. After 2013, the projected DI trust fund ratio declines until the trust fund reserves become depleted in 2016. Figure II.D1 shows that the trust fund ratios for the combined OASI and DI Trust Funds decline consistently after 2010.

Figure II.D1.—Short-Range OASI and DI Combined Trust Fund Ratio As it has since 2010, projected OASDI cost exceeds non-interest income throughout the short-range period. Cost is less than total income until 2021, when cost begins to exceed total income. While trust fund reserves continue to grow through 2020, they grow more slowly than cost, causing the trust fund ratio to decline, as shown in figure II.D1.Long-Range Actuarial EstimatesThe Trustees use three types of measures to assess the actuarial status of the program over the next 75 years: (1) annual cash-flow measures, including income rates, cost rates, and balances; (2) trust fund ratios; and (3) summary measures such as actuarial balances and open group unfunded obligations. The Trustees most often express these measures as percentages of taxable payroll, or less frequently as percentages of gross domestic product (GDP) or in dollars. The Trustees also present summary measures over the infinite horizon. The infinite horizon values provide an additional indication of Social Security’s very-long-run financial condition, but are subject to much greater uncertainty.

Figure II.D3.—Number of Covered Workers Per OASDI Beneficiary Another important way to look at Social Security’s future is to view its annual cost and non-interest income as a share of U.S. economic output. As shown in figure II.D4, the Trustees project that Social Security’s cost as a percent of GDP will grow from 4.4 percent in 2008 to about 6.2 percent by 2035, then decline to 6.0 percent by 2050, and remain between 6.0 and 6.2 percent through 2087. As the economy recovers, Social Security’s non-interest income, which reflects scheduled tax rates, increases from its current level of about 4.6 percent of GDP to about 4.9 percent of GDP for 2022. Thereafter, non-interest income as a percent of GDP declines gradually, to about 4.6 percent by 2087, because the Trustees expect the share of employee compensation provided as noncovered fringe benefits to increase gradually.

Another way to illustrate the projected financial shortfall of the OASDI program is to examine the cumulative present value of scheduled income less cost. Figure II.D5 shows the present value of cumulative OASDI income less cost from the inception of the program through years 2012‑87. A positive value represents the present value of trust fund reserves at the end of the selected year. A negative value is the unfunded obligation through the selected year. The asset reserves of the combined trust funds were $2.7 trillion at the end of 2012. The trust fund reserves decline on a present value basis after 2012, but remain positive through 2032. However, after 2032 this cumulative amount becomes negative, which means that the combined OASI and DI Trust Funds have a net unfunded obligation through each year after 2032. Through the end of 2087, the combined funds have a present-value unfunded obligation of $9.6 trillion. If the assumptions, methods, starting values, and the law had all remained unchanged from last year, the unfunded obligation would have risen to about $9.1 trillion due to the change in the valuation date. The remaining increase in the unfunded obligation is primarily due to lower near-term real interest rates.Figures II.D2, II.D4, and II.D5 show that the program’s financial condition is worsening at the end of the projection period. Trends in annual balances and cumulative values toward the end of the 75-year period provide an indication of the program’s ability to maintain solvency beyond 75 years. Consideration of summary measures alone for a 75‑year period can lead to incorrect perceptions and to policy prescriptions that do not achieve sustainable solvency.^{1}

A first approach uses alternative scenarios reflecting low-cost (alternative I) and high-cost (alternative III) sets of assumptions. Figure II.D6 shows the projected trust fund ratios for the combined OASI and DI Trust Funds under the intermediate, low-cost, and high-cost assumptions. The low-cost alternative includes a higher ultimate total fertility rate, slower improvement in mortality, a higher real-wage differential, a higher ultimate real interest rate, and a lower unemployment rate. The high-cost alternative, in contrast, includes a lower ultimate total fertility rate, more rapid improvement in mortality, a lower real-wage differential, a lower ultimate real interest rate, and a higher unemployment rate. These alternatives are not intended to suggest that all parameters would be likely to differ from the intermediate values in the same direction, but are intended to illustrate the effect of clearly defined scenarios that are, on balance, very favorable or unfavorable for the program’s financial status. Actual future costs are unlikely to be as extreme as those portrayed by the low-cost and high-cost projections. The method for constructing the low-cost and high-cost projections does not lend itself to estimating the probability that actual experience will lie within or outside the range they define.

Appendix D of this report presents long-range sensitivity analysis for the OASDI program. By varying one parameter at a time, sensitivity analysis provides a second approach for illustrating the uncertainty surrounding projections into the future.A third approach uses stochastic simulations that reflect randomly assigned annual values for each parameter. These simulations produce a distribution of projections and corresponding probabilities that future outcomes will fall within or outside a given range. The results of the stochastic simulations, discussed in more detail in appendix E, suggest that trust fund reserve depletion (i.e., the point at which the trust fund ratio reaches zero) is likely by mid-century. In particular, figure II.D7 suggests that based on these stochastic simulations, trust fund asset reserves will deplete between 2028 and 2044 with a 95‑percent probability.

The projected long-range OASDI actuarial deficit increased from 2.67 percent of taxable payroll for last year’s report to 2.72 percent of taxable payroll for this year’s report. The change in the 75-year projection period alone increased the actuarial deficit to 2.72 percent. The effects of recently-enacted legislation, updated demographic data and assumptions, and updated economic data and assumptions worsened the actuarial deficit, but these effects were offset by updated programmatic data and improved methodologies, causing little additional change in the actuarial balance. For a detailed description of the specific changes identified in table II.D2, see section IV.B.6.

Figure II.D8 compares this year’s projections of annual balances (non-interest income minus cost) to those in last year’s report. See page 76 for details.

Figure II.D8.—OASDI Annual Balances: 2012 and 2013 Trustees Reports

SSA Home | Privacy Policy | Website Policies & Other Important Information | Site Map | Actuarial Publications | May 31, 2013 |