2001 OASDI Trustees Report
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B. LONG-RANGE ESTIMATES

Three financial measures are useful in assessing the actuarial status of the Social Security trust funds under the financing approach specified in current law: (1) annual income and cost rates, and balances, (2) trust fund ratios, and (3) actuarial balance. The first long-range estimates presented are the series of projected annual balances (that is, the differences between the projected annual income rates and annual cost rates). In assessing the financial condition of the program, particular attention should be paid to the level of the annual balances at the end of the long-range period and the time at which the annual balances may change from positive to negative values. The next measure to be discussed is the pattern of projected trust fund ratios. The trust fund ratio represents the proportion of a year's projected outgo that can be paid with the funds available at the beginning of the year. Particular attention should be paid to the amount and year of maximum trust fund ratio, to the year of exhaustion of the funds, and to stability of the trust fund ratio in cases where the ratio remains positive at the end of the long-range period. The final measure discussed in this section is the actuarial balance, which summarizes the total income and expenditures over the valuation period and indicates whether projected income will be adequate. This section also includes a comparison of workers to beneficiaries, the long-range test of close actuarial balance and the reasons for change in the actuarial balance from the last report.

If the 75-year actuarial balance is zero (or positive) then the trust fund ratio at the end of the period, by definition, will be at 100 percent (or greater) and financing for the program is considered to be adequate for the 75-year period. Whether or not financial adequacy is stable in the sense that it is likely to continue for subsequent 75-year periods in succeeding Trustees Reports is also important when considering the actuarial status of the program. One indication of this stability is the behavior of the trust fund ratio at the end of the projection period. If projected trust fund ratios for the last several years of the long-range period are constant or rising, then it is likely that subsequent Trustees Reports will also show projections of financial adequacy (assuming no changes in economic and demographic assumptions).

1. Annual Income Rates, Cost Rates, and Balances

Basic to the consideration of the long-range actuarial status of the trust funds are the concepts of income rate and cost rate, each of which is expressed as a percentage of taxable payroll. The annual income rate is the ratio of income from revenues (payroll tax contributions and income from the taxation of benefits) to the OASDI taxable payroll for the year. The OASDI taxable payroll consists of the total earnings which are subject to OASDI taxes, with some relatively small adjustments.1 Because the taxable payroll reflects these adjustments, the annual income rate can be defined to be the sum of the OASDI combined employee-employer contribution rate (or the payroll-tax rate) scheduled in the law and the rate of income from taxation of benefits (which is, in turn, expressed as a percentage of taxable payroll). As such, it excludes reimbursements from the general fund of the Treasury for the costs associated with special monthly payments to certain uninsured persons who attained age 72 before 1968 and who have fewer than 3 quarters of coverage, and net investment income.

The annual cost rate is the ratio of the cost (or outgo, expenditures, or disbursements) of the program to the taxable payroll for the year. In this context, the outgo is defined to include benefit payments, special monthly payments to certain uninsured persons who have 3 or more quarters of coverage (and whose payments are therefore not reimbursable from the general fund of the Treasury), administrative expenses, net transfers from the trust funds to the Railroad Retirement program under the financial-interchange provisions, and payments for vocational rehabilitation services for disabled beneficiaries. For any year, the income rate minus the cost rate is referred to as the balance for the year. (In this context, the term balance does not represent the assets of the trust funds, which are sometimes referred to as the balance in the trust funds.)

Table IV.B1 presents a comparison of the estimated annual income rates and cost rates by trust fund and alternative. Detailed long-range projections of trust fund operations, in nominal dollar amounts, are shown in appendix VI.E.3.

The projections for OASI under the intermediate assumptions show the income rate increasing slowly and steadily due to the combination of the flat payroll tax rate and the gradually increasing effect of the taxation of benefits. The pattern followed by the cost rate is much different. It is projected to remain fairly stable for the next several years. However, from about 2010 to 2030 the cost rate increases rapidly as the baby-boom generation reaches retirement age. After 2030 the cost rate rises less rapidly through 2037 and then declines slightly for the next 9 years as the baby-boom generation ages and begins to diminish and the relatively small birth cohorts of the late 1970s reach retirement age. Thereafter, the cost rate rises steadily, but slowly, reflecting projected reductions in death rates and continued relatively low birth rates. The cost rate during the third 25-year subperiod (2051-2075) rises to almost 17 percent of taxable payroll under the intermediate assumptions. The income rate under these assumptions during the third 25-year subperiod rises to about 11.5 percent of taxable payroll.

Projected income rates under the low cost and high cost sets of assumptions are very similar to those projected for alternative II as they are largely a reflection of the tax rates specified in the law. OASI cost rates for alternatives I and III differ significantly from those projected for alternative II, but follow generally similar patterns. For the low cost alternative I, the cost rate declines somewhat for the first 7 years, and then rises, reaching the current level around 2012 and a peak of 13.26 percent of payroll for 2033. The cost rate then declines gradually, reaching a level of 12.08 percent of payroll for 2075. For the high cost alternative III, the cost rate rises generally throughout the 75-year period. It rises at a relatively fast pace over the next 5 years due to the two assumed economic recessions, and between 2010 and 2030 because of the aging of the baby-boom generation. During the third 25-year subperiod, the projected cost rate continues rising and reaches 24.33 percent of payroll for 2075.

The projected pattern of the OASI annual balance is important in the analysis of the financial condition of the program. Under the alternative II assumptions the annual balance is positive for 16 years (through 2016) and is negative thereafter. This annual deficit rises rapidly, reaching over 2 percent of taxable payroll by 2023, and continues rising thereafter, to a level of 5.33 percent of taxable payroll for 2075.

Under the low cost assumptions the projected OASI annual balance is positive for 19 years (through 2019) and thereafter is negative. The deficit under alternative I rises to a peak of 2.09 percent of taxable payroll for 2033, but declines thereafter, as the effect of the baby-boom generation diminishes and the assumed higher fertility rates increase the size of the work force. The deficit under alternative I declines to 0.86 percent of payroll for 2075. Under the high cost assumptions, however, the OASI balance is projected to be positive for only 13 years (through 2013) and to be negative thereafter, with a deficit of 2.47 percent for 2020, 7.83 percent for 2050, and 12.43 percent of payroll for 2075.

Table IV.B1.- Estimated Annual Income Rates and Cost Rates,
Calendar Years 1990-2075 
[As a percentage of taxable payroll]
Calendar
year
OASI

DI

Combined
Income
rate 1
Cost rate
Balance
Income
rate 1
Cost rate
Balance
Income
rate 1
Cost rate
Balance
Historical data:
1990
11.32
9.66
1.66

1.17
1.09
0.09

12.49
10.74
1.75
1991
11.44
10.15
1.29

1.21
1.18
.03

12.65
11.33
1.32
1992
11.43
10.27
1.16

1.21
1.27
-.06

12.64
11.54
1.10
1993
11.40
10.37
1.03

1.21
1.35
-.14

12.61
11.73
0.88
1994
10.70
10.22
.48

1.89
1.40
.49

12.59
11.62
0.97
1995
10.70
10.22
.48

1.88
1.44
.44

12.59
11.67
0.92
1996
10.73
10.06
.68

1.89
1.48
.41

12.62
11.53
1.09
1997
10.93
9.83
1.09

1.71
1.44
.28

12.64
11.27
1.37
1998
10.96
9.49
1.47

1.72
1.43
.29

12.68
10.91
1.77
1999
10.99
9.13
1.86

1.72
1.43
.29

12.71
10.56
2.15
2000
10.89
9.04
1.86

1.80
1.43
.37

12.69
10.47
2.22
Intermediate:
2001
10.90
9.04
1.86

1.82
1.45
.37

12.72
10.50
2.22
2002
10.90
8.94
1.96

1.82
1.48
.34

12.72
10.42
2.30
2003
10.91
8.91
2.00

1.82
1.53
.29

12.73
10.44
2.29
2004
10.92
8.91
2.01

1.82
1.58
.24

12.74
10.49
2.25
2005
10.93
8.92
2.00

1.82
1.64
.18

12.75
10.56
2.19
2006
10.93
8.95
1.98

1.82
1.70
.12

12.75
10.65
2.11
2007
10.94
9.02
1.92

1.82
1.76
.06

12.76
10.78
1.99
2008
10.95
9.11
1.84

1.82
1.82
(2)

12.78
10.93
1.84
2009
10.96
9.25
1.71

1.83
1.87
-.05

12.79
11.13
1.66
2010
10.98
9.42
1.56

1.83
1.92
-.10

12.81
11.34
1.46











2015
11.02
10.69
.33

1.83
2.11
-.28

12.85
12.80
.05
2020
11.08
12.39
-1.32

1.83
2.24
-.41

12.91
14.63
-1.72
2025
11.17
13.82
-2.66

1.84
2.38
-.54

13.00
16.20
-3.20
2030
11.25
14.91
-3.67

1.84
2.36
-.53

13.08
17.28
-4.20
2035
11.30
15.42
-4.12

1.84
2.32
-.49

13.13
17.74
-4.61
2040
11.32
15.37
-4.05

1.84
2.34
-.50

13.16
17.71
-4.55
2045
11.33
15.24
-3.90

1.84
2.44
-.59

13.18
17.67
-4.50
2050
11.35
15.29
-3.94

1.84
2.49
-.65

13.20
17.79
-4.59
2055
11.38
15.56
-4.18

1.85
2.53
-.69

13.23
18.10
-4.87
2060
11.41
15.94
-4.52

1.85
2.52
-.68

13.26
18.46
-5.20
2065
11.44
16.26
-4.82

1.85
2.53
-.68

13.29
18.79
-5.50
2070
11.47
16.55
-5.08

1.85
2.54
-.70

13.31
19.09
-5.78
2075
11.49
16.82
-5.33

1.85
2.57
-.72

13.34
19.39
-6.05
Low Cost:
2001
10.90
8.99
1.91

1.82
1.42
.40

12.72
10.41
2.30
2002
10.90
8.85
2.05

1.82
1.43
.39

12.71
10.27
2.44
2003
10.90
8.78
2.12

1.82
1.45
.37

12.72
10.23
2.49
2004
10.91
8.70
2.21

1.82
1.47
.34

12.73
10.18
2.55
2005
10.92
8.65
2.26

1.82
1.50
.31

12.73
10.16
2.58
2006
10.92
8.61
2.31

1.82
1.53
.29

12.74
10.14
2.60
2007
10.92
8.60
2.33

1.82
1.57
.25

12.75
10.16
2.58
2008
10.93
8.62
2.31

1.82
1.59
.23

12.75
10.21
2.54
2009
10.94
8.69
2.25

1.82
1.62
.21

12.76
10.31
2.45
2010
10.95
8.79
2.16

1.82
1.63
.19

12.78
10.43
2.35











2015
10.98
9.83
1.15

1.82
1.67
.15

12.81
11.50
1.30
2020
11.02
11.28
-.26

1.82
1.72
.11

12.85
13.00
-.15
2025
11.09
12.39
-1.29

1.83
1.79
.04

12.92
14.17
-1.25
2030
11.15
13.10
-1.95

1.83
1.75
.07

12.98
14.85
-1.87
2035
11.18
13.22
-2.04

1.83
1.71
.12

13.01
14.93
-1.92
2040
11.18
12.85
-1.66

1.83
1.70
.13

13.01
14.55
-1.54
2045
11.18
12.45
-1.27

1.83
1.75
.08

13.01
14.20
-1.18
2050
11.19
12.25
-1.06

1.83
1.76
.07

13.02
14.02
-1.00
2055
11.20
12.24
-1.04

1.83
1.77
.06

13.03
14.00
-.97
2060
11.21
12.26
-1.05

1.83
1.74
.09

13.05
14.00
-.96
2065
11.22
12.20
-.98

1.83
1.74
.09

13.05
13.94
-.89
2070
11.22
12.12
-.90

1.83
1.75
.08

13.06
13.87
-.81
2075
11.23
12.08
-.86

1.83
1.77
.07

13.06
13.85
-.79
High Cost:
2001
10.91
9.25
1.66

1.82
1.52
0.30

12.73
10.77
1.95
2002
10.91
9.35
1.56

1.82
1.62
.20

12.73
10.97
1.76
2003
10.92
9.22
1.70

1.82
1.68
.14

12.74
10.89
1.85
2004
10.94
9.49
1.45

1.82
1.81
.01

12.76
11.31
1.45
2005
10.96
9.80
1.16

1.82
1.96
-.13

12.78
11.76
1.03
2006
10.96
9.73
1.23

1.83
2.02
-.20

12.79
11.75
1.03
2007
10.97
9.75
1.22

1.83
2.10
-.27

12.80
11.85
.95
2008
10.98
9.85
1.13

1.83
2.17
-.34

12.81
12.02
.79
2009
10.99
10.03
.96

1.83
2.25
-.42

12.83
12.28
.55
2010
11.01
10.23
.78

1.83
2.32
-.48

12.84
12.55
.30











2015
11.07
11.67
-.61

1.84
2.63
-.80

12.90
14.31
-1.40
2020
11.14
13.61
-2.47

1.84
2.81
-.97

12.98
16.41
-3.43
2025
11.25
15.39
-4.14

1.85
3.03
-1.18

13.10
18.42
-5.32
2030
11.35
16.96
-5.60

1.85
3.05
-1.20

13.20
20.00
-6.80
2035
11.44
18.01
-6.57

1.85
3.02
-1.17

13.29
21.03
-7.74
2040
11.49
18.49
-7.01

1.85
3.07
-1.22

13.34
21.57
-8.23
2045
11.53
18.85
-7.32

1.86
3.25
-1.39

13.39
22.10
-8.71
2050
11.58
19.41
-7.83

1.86
3.38
-1.52

13.44
22.79
-9.35
2055
11.64
20.23
-8.59

1.86
3.48
-1.62

13.50
23.71
-10.21
2060
11.70
21.25
-9.55

1.87
3.51
-1.64

13.57
24.76
-11.19
2065
11.77
22.31
-10.54

1.87
3.54
-1.67

13.64
25.85
-12.21
2070
11.84
23.36
-11.52

1.87
3.57
-1.70

13.71
26.92
-13.22
2075
11.90
24.33
-12.43

1.87
3.60
-1.73

13.77
27.93
-14.16

1 Income rates for DI in 2000 and for OASI in 2001 are modified to include adjustments to the lump-sum payments received in 1983 from the general fund of the Treasury for the cost of noncontributory wage credits for military service in 1940-56.

2 Between -0.005 and 0.005 percent of taxable payroll.

Notes:
1. The income rate excludes interest income and certain transfers from the general fund of the Treasury.

2. Totals do not necessarily equal the sums of rounded components.

Under the intermediate alternative II assumptions, the cost rate for DI increases slowly over the long-range period from 1.45 percent of taxable payroll in 2001 to 2.57 in 2075. The income rate increases only very slightly from 1.82 percent of taxable payroll in 2001 to 1.85 in 2075. The annual balance turns negative in 2009, and the annual deficit reaches 0.72 in 2075.

Under the low cost alternative I assumptions, the DI cost rate increases much less, reaching 1.77 in 2075, with a positive annual balance throughout the period. For the high cost alternative III assumptions, DI cost rises much more, reaching 3.60 for 2075, with an annual deficit beginning in 2005 and reaching 1.73 percent for 2075.

Also of interest are the annual income rate, cost rate, and balance for the combined OASDI program. These rates are shown in table IV.B1 and are discussed in section II.D.

Figure IV.B1 shows in graphical form the patterns of the OASI and DI annual income rates and cost rates. (The combined OASI and DI rates are shown in figure II.D2.) The income rates shown here are only for alternative II in order to simplify the graphical presentation and because, as shown in table IV.B1, the variation in the income rates by alternative is very small. Income rates increase generally, but at a slow rate for each of the alternatives over the long-range period. Both increases in the income rate and variation among the alternatives result from the relatively small component of income from taxation of benefits. Increases in income from taxation of benefits reflect increases in the total amount of benefits paid and the fact that an increasing share of individual benefits will be subject to taxation, because benefit taxation threshold amounts are not indexed.

The patterns of the annual balances for OASI and DI are indicated in figure IV.B1. For each alternative, the magnitude of each of the positive balances in the early years, as a percent of taxable payroll, is represented by the distance between the appropriate cost-rate curve and the income-rate curve above it. The magnitude of each of the deficits in subsequent years is represented by the distance between the appropriate cost-rate curve and the income-rate curve below it.

In the future, the cost of OASI, DI and the combined OASDI program as a percent of taxable payroll will not necessarily be within the range encompassed by alternatives I and III. Nonetheless, because alternatives I and III define a reasonably wide range of economic and demographic conditions, the resulting estimates delineate a reasonable range for consideration of potential future program costs.

Figure IV.B1.- Long-Range OASI and DI Annual Income Rates and Cost Rates
[As a percentage of taxable payroll]
Long-range historical (1985-2000) and estimated (2000-2075) annual income rates (under the intermediate set of assumptions only) and cost rates for the OASI and DI Trust Funds, (as a percentage of taxable payroll) under all three sets of assumptions. The depicted rates can be found in table IV.B1.

2. Comparison of Workers to Beneficiaries

The primary reason that the estimated OASDI cost rate increases rapidly after 2010 is that the number of beneficiaries is projected to increase more rapidly than the number of covered workers. This occurs because the relatively large number of persons born during the period of high fertility rates from the end of World War II through the mid-1960s will reach retirement age, and begin to receive benefits, while the relatively small number of persons born during the subsequent period of low fertility rates will comprise the labor force. A comparison of the numbers of covered workers and beneficiaries is shown in table IV.B2.

Table IV.B2.- Covered Workers and Beneficiaries, Calendar Years 1945-2075 
Calendar year
Covered
workers1
(in thousands)
Beneficiaries2 (in thousands)
Covered
workers per
OASDI
beneficiary
Beneficiaries
per 100
covered
workers
OASI
DI
OASDI
Historical data:
1945
46,390
1,106
-
1,106
41.9
2
1950
48,280
2,930
-
2,930
16.5
6
1955
65,200
7,563
-
7,563
8.6
12
1960
72,530
13,740
522
14,262
5.1
20
1965
80,680
18,509
1,648
20,157
4.0
25
1970
93,090
22,618
2,568
25,186
3.7
27
1975
100,200
26,998
4,125
31,123
3.2
31
1980
113,649
30,384
4,734
35,118
3.2
31
1985
120,565
32,776
3,874
36,650
3.3
30






1990
133,672
35,266
4,204
39,470
3.4
30
1991
132,969
35,785
4,388
40,172
3.3
30
1992
133,890
36,314
4,716
41,029
3.3
31
1993
136,117
36,758
5,083
41,840
3.3
31
1994
138,192
37,082
5,435
42,516
3.3
31
1995
141,027
37,376
5,731
43,108
3.3
31
1996
143,505
37,521
5,977
43,498
3.3
30
1997
146,305
37,705
6,087
43,793
3.3
30
1998
149,096
37,826
6,250
44,076
3.4
30
1999
151,186
37,934
6,433
44,367
3.4
29
2000
152,903
38,560
6,606
45,166
3.4
30
Intermediate:
2005
158,653
40,280
7,756
48,036
3.3
30
2010
164,125
43,630
9,130
52,760
3.1
32
2015
168,461
49,842
10,226
60,068
2.8
36
2020
171,234
57,350
11,123
68,474
2.5
40
2025
173,314
64,519
11,895
76,415
2.3
44
2030
175,562
70,438
12,057
82,495
2.1
47
2035
178,416
74,182
12,138
86,321
2.1
48
2040
181,385
75,603
12,433
88,036
2.1
49
2045
184,071
76,623
13,080
89,702
2.1
49
2050
186,389
78,210
13,528
91,738
2.0
49
2055
188,507
80,706
13,891
94,596
2.0
50
2060
190,555
83,581
14,024
97,604
2.0
51
2065
192,595
86,293
14,215
100,508
1.9
52
2070
194,551
88,789
14,463
103,252
1.9
53
2075
196,377
91,168
14,757
105,925
1.9
54
Low Cost:
2005
160,444
40,195
7,363
47,558
3.4
30
2010
167,454
43,334
8,213
51,547
3.2
31
2015
172,934
49,253
8,759
58,012
3.0
34
2020
176,716
56,387
9,179
65,566
2.7
37
2025
180,036
63,089
9,650
72,738
2.5
40
2030
183,989
68,303
9,717
78,020
2.4
42
2035
189,165
71,233
9,785
81,018
2.3
43
2040
195,085
71,908
10,063
81,971
2.4
42
2045
201,290
72,447
10,626
83,073
2.4
41
2050
207,446
73,749
11,057
84,806
2.4
41
2055
213,805
76,083
11,456
87,539
2.4
41
2060
220,579
78,748
11,726
90,474
2.4
41
2065
227,831
81,173
12,096
93,269
2.4
41
2070
235,318
83,494
12,573
96,067
2.4
41
2075
242,847
86,046
13,112
99,159
2.4
41
High Cost:
2005
154,112
40,350
8,399
48,748
3.2
32
2010
160,949
43,885
10,338
54,223
3.0
34
2015
164,611
50,430
11,729
62,159
2.6
38
2020
166,572
58,332
13,105
71,437
2.3
43
2025
167,663
66,048
14,170
80,219
2.1
48
2030
168,427
72,821
14,411
87,232
1.9
52
2035
169,269
77,598
14,488
92,086
1.8
54
2040
169,693
80,052
14,780
94,832
1.8
56
2045
169,363
81,890
15,493
97,383
1.7
57
2050
168,409
84,118
15,929
100,047
1.7
59
2055
166,984
87,105
16,209
103,314
1.6
62
2060
165,192
90,474
16,133
106,608
1.5
65
2065
163,102
93,709
16,047
109,755
1.5
67
2070
160,789
96,606
15,933
112,539
1.4
70
2075
158,357
99,028
15,849
114,877
1.4
73

1 Workers who are paid at some time during the year for employment on which OASDI taxes are due.

2 Beneficiaries with monthly benefits in current-payment status as of June 30.

Notes:
1. The number of beneficiaries does not include certain uninsured persons, most of whom both attained age 72 before 1968 and have fewer than 3 quarters of coverage, in which cases the costs are reimbursed by the general fund of the Treasury. The number of such uninsured persons was 103 as of June 30, 2000. Totals do not necessarily equal the sums of rounded components.

2. Historical covered worker data are subject to revision.

Table IV.B2 shows that the number of covered workers per beneficiary, which was about 3.4 in 2000, is estimated to decline in the future. Based on the low cost alternative I, for which high fertility rates and small reductions in death rates are assumed, the ratio declines to 2.3 by 2031, and then rises back to a level of 2.4 by 2038. Based on the high cost alternative III, for which low fertility rates and large reductions in death rates are assumed, the decline is much greater, reaching 1.8 by 2035, and 1.4 workers per beneficiary by 2069. Based on the intermediate alternative II, the ratio declines to 2.1 by 2029, and 1.9 workers per beneficiary by 2061.

The impact of the demographic shifts under the three alternatives on the OASDI cost rates is better understood by considering the projected number of beneficiaries per 100 workers. As compared to the 2000 level of 30 beneficiaries per 100 covered workers, this ratio is estimated to rise significantly by 2075 to 41 under alternative I, 54 under alternative II, and 73 under alternative III. The significance of these numbers can be seen by comparing figure IV.B1 to figure IV.B2.

Figure IV.B2.- Number of OASDI Beneficiaries Per 100 Covered Workers
Historical (1985-2000) and estimated (2000-2075) number of beneficiaries per 100 covered workers under the OASDI program under all three sets of assumptions. The depicted ratios can be found in table IV.B2.

For each alternative, the shape of the curve in figure IV.B2, which shows beneficiaries per 100 covered workers, is strikingly similar to that of the corresponding cost-rate curve in figure IV.B1, thereby emphasizing the extent to which the cost of the OASDI program as a percentage of taxable payroll is determined by the age distribution of the population. Because the cost rate is basically the product of the number of beneficiaries and their average benefit, divided by the product of the number of covered workers and their average taxable earnings (and because average benefits rise at about the same rate as average earnings), it is to be expected that the pattern of the annual cost rates is similar to that of the annual ratios of beneficiaries to workers. A graphical presentation of covered workers per beneficiary is shown in figure II.D3 of the Overview.

3. Trust Fund Ratios

Trust fund ratios are useful indicators of the adequacy of the financial resources of the Social Security program at any point in time. For any year in which the projected trust fund ratio is positive (i.e., the trust fund holds assets at the beginning of the year), but is not positive for the following year, the trust fund is projected to become exhausted during the year. Under present law, the OASI and DI Trust Funds do not currently have the authority to borrow. Therefore, exhaustion of the assets in either fund during a year, would mean there are no longer sufficient funds to cover the full amount of benefits payable under present law.

The trust fund ratio also serves an additional important purpose in assessing the actuarial status of the program. When the financing is adequate for the timely payment of full benefits throughout the long-range period, the stability of the trust fund ratio toward the end of the period indicates the likelihood that this projected adequacy will continue for subsequent Trustees Reports. If the trust fund ratio toward the end of the period is level (or increasing) then projected adequacy for the long-range period is likely to continue for subsequent reports.

Table IV.B3 shows, by alternative, the estimated trust fund ratios (without regard to advance tax transfers that would be effected after the end of the 10-year, short-range period) for the separate and combined OASI and DI Trust Funds. Also shown in this table is the first year in which a fund is estimated to be exhausted, reflecting the effect of the provision for advance tax transfers. The patterns of the OASI and DI trust fund ratios, over the 75-year period, are shown graphically in figure IV.B3 for all three sets of assumptions. A graphical presentation of the combined OASDI ratios is shown in figure II.D4.

Based on alternative II, the OASI trust fund ratio rises steadily from 246 percent at the beginning of 2001, reaching a peak of 481 percent at the beginning of 2014. This increase in the OASI trust fund ratio results from the fact that the annual income rate (which excludes interest) exceeds annual outgo for several years (see table IV.B1). Thereafter, the OASI trust fund ratio declines steadily, with the OASI Trust Fund becoming exhausted in 2040. The DI trust fund ratio follows a pattern that is similar but unfolds more rapidly. The DI trust fund ratio is estimated to rise from 195 percent at the beginning of 2001 to a peak of 261 percent in 2007, and to decline thereafter until becoming exhausted in 2026.

The trust fund ratio for the combined OASI and DI Trust Funds rises from 239 percent for 2001 to a peak of 436 percent at the beginning of 2014. Thereafter, the ratio declines, with the combined funds becoming exhausted in 2038. Based on the intermediate estimates in last year's report, the peak fund ratio for the combined funds was estimated to be 421 percent in 2013 and the year of exhaustion was estimated to be 2037.

The trust fund ratio for the combined OASDI program first declines in 2015, 1 year before annual expenditures begin to exceed noninterest income. This occurs because the increases in trust fund assets during 2014 and 2015, reflecting interest income and small excesses of noninterest income over cost, occur at a slower rate than does the annual cost of the program.

After 2014 the dollar amount of assets is projected to continue to rise through the beginning of 2025 because interest income more than offsets the shortfall in noninterest income. Revenue from the general fund of the Treasury will be needed due to the cash-flow shortfall in increasingly large amounts, beginning in 2016, to redeem the trust funds' special public-debt obligations. This will differ from the experience of recent years when the trust funds have been net lenders to the general fund. The change in the cash flow between the trust funds and the general fund is expected to have important public policy and economic implications that go well beyond the operation of the OASDI program itself. Discussion of these issues is outside the scope of this report.

Based on the low cost alternative I assumptions, the trust fund ratio for the DI program increases throughout the long-range projection period, reaching the extremely high level of 1,592 percent for 2076. At the end of the long-range period, the DI trust fund ratio is rising by 25 percentage points per year. Thus, subsequent reports are likely to contain projections of adequate long-range financing of the DI program. For the OASI program, the trust fund ratio rises to a peak of 593 percent for 2017, dropping thereafter to a level of 381 percent by 2076. At the end of the period the OASI trust fund ratio is declining by 1 percentage point per year. For the combined OASDI program, the trust fund ratio follows a pattern similar to that for OASI, peaking at 577 percent for 2018, and then falling to 485 percent for 2041. However, after 2041 the combined OASI and DI trust fund ratio rises slowly, reaching 536 percent for 2076, with an annual increase at a rate of 3 percentage points. Thus, due to the size of the trust fund ratios and their near stability, subsequent Trustees Reports are likely to contain projections of adequate long-range financing of the OASI and combined OASI and DI programs. A stable trust fund ratio at the end of the valuation period indicates that the actuarial balance for Trustees Reports in subsequent years can be expected to remain about the same as long as assumptions are realized.

In contrast, under the high cost alternative III, the OASI trust fund ratio is estimated to peak at 374 percent for 2012, thereafter declining to fund exhaustion by the end of 2030. The DI trust fund ratio is estimated to peak at 205 percent for 2003, thereafter declining to fund exhaustion by the end of 2014. The combined OASDI trust fund ratio is estimated to rise to a peak of 321 percent for 2010, declining thereafter to fund exhaustion by the end of 2027.

Thus, because of the high ultimate cost rates that are projected under all but the low cost assumptions, it is likely that income will eventually need to be increased and/or program costs will need to be reduced in order to prevent the trust funds from becoming exhausted.

Even under the high cost assumptions, however, the combined OASI and DI funds on hand plus their estimated future income would be able to cover their combined expenditures for 26 years into the future (until 2027). Under the alternative II assumptions the combined starting funds plus estimated future income would be able to cover expenditures for about 37 years into the future (until 2038). The program would be able to cover expenditures for the indefinite future under the more optimistic assumptions in alternative I. In the 2000 report, the combined trust funds were projected to be exhausted in 2026 under alternative III and in 2037 under alternative II.

.

Table IV.B3.- Estimated Trust Fund Ratios, Calendar Years 2001-75
[In percent]
Calendar year
Intermediate

Low Cost

High Cost
OASI
DI
Com-
bined
OASI
DI
Com-
bined
OASI
DI
Com-
bined
2001
246
195
239

246
198
240

246
190
238
2002
272
217
264

273
226
266

268
202
258
2003
298
235
289

302
251
295

287
205
274
2004
324
248
313

332
274
324

303
202
287
2005
349
256
335

363
295
353

313
191
293
2006
374
260
356

395
312
383

327
178
301
2007
398
261
375

427
328
412

341
164
310
2008
419
259
393

459
342
440

354
148
317
2009
438
255
407

487
356
466

363
130
320
2010
453
249
419

513
369
490

369
110
321











2015
480
201
434

586
440
565

357
(1)
289
2020
437
127
389

584
505
573

280
(1)
202
2025
357
31
309

552
552
552

163
(1)
78
2030
255
(1)
208

507
624
521

17
(1)
(1)
2035
138
(1)
93

465
723
494

(1)
(1)
(1)
2040
13
(1)
(1)

440
821
485

(1)
(1)
(1)
2045
(1)
(1)
(1)

429
894
486

(1)
(1)
(1)
2050
(1)
(1)
(1)

422
979
492

(1)
(1)
(1)
2055
(1)
(1)
(1)

414
1,075
497

(1)
(1)
(1)
2060
(1)
(1)
(1)

403
1,197
502

(1)
(1)
(1)
2065
(1)
(1)
(1)

393
1,324
509

(1)
(1)
(1)
2070
(1)
(1)
(1)

387
1,446
521

(1)
(1)
(1)
2075
(1)
(1)
(1)

382
1,567
533

(1)
(1)
(1)
Trust fund is estimated
to be exhausted in:
2040
2026
2038

(2)
(2)
(2)

2030
2014
2027

1 The trust fund is estimated to have been exhausted by the beginning of this year. The last line of the table shows the specific year of trust fund exhaustion.

2 The fund is not estimated to be exhausted within the projection period.

Note: See glossary for definition of trust fund ratio. The combined ratios shown for years after the DI fund is estimated to be exhausted are theoretical and are shown for informational purposes only.

A graphic illustration of the trust fund ratios for the separate OASI and DI Trust Funds is shown in figure IV.B3 for each of the alternative sets of assumptions. A graphic illustration of the trust fund ratios for the combined trust funds is shown in figure II.D4.

Figure IV.B3.- Long-Range OASI and DI Trust Fund Ratios
[Assets as a percentage of annual expenditures]
Long-range historical (1985-2000) and estimated (2000-2075) trust fund ratios (assets as a percentage of annual expenditures) for the OASI and DI Trust Funds, under all three sets of assumptions. The estimated trust fund ratios can be found in table IV.B3.

4. Summarized Income Rates, Cost Rates, and Balances

Summarized values for the full 75-year period are useful in analyzing the long-range adequacy of financing for the program over the period as a whole under present law and under proposed modifications to the law. In order to focus on the full 75-year period as well as on broad patterns through the period, tables IV.B4 and IV.B5 summarize, on a present-value basis, the projected annual figures shown in table IV.B1 for various periods within the overall 75-year projection period.

Table IV.B4 shows rates on a present-value basis summarized for each of the 25-year subperiods, excluding both the assets of the trust funds on hand at the beginning of the period and the cost of accumulating a target trust fund balance by the end of the period. These rates are useful for comparing the total cash flows of tax income and expenditures, as an indicator of the degree to which tax income during the period is sufficient to meet the outgo estimated for the period.

For the combined OASDI program, a positive balance is projected for the first 25-year subperiod under both the low cost alternative I and the intermediate alternative II. A deficit is projected for the first 25-year subperiod under the high cost alternative III. Deficits are projected for the second and third subperiods under all three alternatives.

Table IV.B4.- Summarized Income Rates and Cost Rates for 25-Year Subperiods1, Calendar Years 2001-75
[As a percentage of taxable payroll]
Subperiod
OASI

DI

Combined
Income
rate
Cost
rate
Balance
Income
rate
Cost
rate
Balance
Income
rate
Cost
rate
Balance
Intermediate:
2001-25
10.99
10.48
0.52

1.82
1.95
-0.13

12.82
12.43
0.39
2026-50
11.28
15.12
-3.84

1.84
2.38
-.54

13.11
17.50
-4.39
2051-75
11.41
16.04
-4.63

1.84
2.53
-.69

13.26
18.58
-5.32
Low Cost:
2001-25
10.96
9.77
1.19

1.82
1.62
.20

12.78
11.39
1.39
2026-50
11.16
12.83
-1.67

1.83
1.74
.09

12.98
14.57
-1.58
2051-75
11.20
12.20
-1.00

1.83
1.75
.08

13.03
13.95
-.92
High Cost:
2001-25
11.03
11.40
-.37

1.83
2.38
-.55

12.86
13.78
-.92
2026-50
11.43
17.93
-6.50

1.85
3.12
-1.27

13.28
21.04
-7.76
2051-75
11.72
21.69
-9.97

1.86
3.52
-1.65

13.58
25.21
-11.62

1 Income rates do not include beginning trust fund balances and cost rates do not include the cost of accumulating target trust fund balances.

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

Table IV.B5 shows summarized rates for valuation periods of the first 25, the first 50, and the entire 75 years of the long-range projection period, including the funds on hand at the start of the period and the cost of accumulating a target trust fund balance equal to 100 percent of annual expenditures by the end of the period. The actuarial balance for each of these three valuation periods is equal to the difference between the summarized income rate and the summarized cost rate for the corresponding period. An actuarial balance of zero for any period would indicate that estimated outgo for the period could be met, on average, with a remaining trust fund balance at the end of the period equal to 100 percent of the following year's outgo. A negative actuarial balance indicates that, over the next 75 years, the present value of income to the program plus the existing trust fund falls short of the present value of expenditures by the program plus the cost of reaching a target trust fund balance of one year's expenditures by the end of the period-deficits for some years within the period are not fully offset by surpluses in other years. Combined with a falling trust fund ratio, this signals the possibility of continuing cash-flow deficits, implying that the current-law level of financing is not sustainable.

Table IV.B5.- Summarized Income Rates and Cost Rates for Valuation Periods1, Calendar Years 2001-75
[As a percentage of taxable payroll]
Valuation
period
OASI

DI

Combined
Income
rate
Cost
rate
Actuarial
balance
Income
rate
Cost
rate
Actuarial
balance
Income
rate
Cost
rate
Actuarial
balance
Intermediate:
25 years:











2001-25
12.07
10.95
1.12

1.96
2.03
-0.07

14.03
12.98
1.05
50 years:











2001-50
11.75
12.54
-.79

1.91
2.16
-.25

13.66
14.70
-1.03
75 years:











2001-75
11.68
13.21
-1.53

1.90
2.23
-.33

13.58
15.44
-1.86
Low Cost:
25 years:











2001-25
12.03
10.19
1.84

1.96
1.68
.27

13.99
11.87
2.12
50 years:











2001-50
11.68
11.16
.52

1.90
1.69
.21

13.58
12.85
.74
75 years:











2001-75
11.58
11.34
.24

1.89
1.70
.19

13.47
13.04
.43
High Cost:
25 years:











2001-25
12.13
11.94
.19

1.97
2.49
-.51

14.10
14.42
-.32
50 years:











2001-50
11.84
14.32
-2.48

1.92
2.73
-.81

13.77
17.05
-3.29
75 years:











2001-75
11.82
15.80
-3.98

1.91
2.88
-.97

13.73
18.68
-4.95

1 Income rates include beginning trust fund balances and cost rates include the cost of reaching an ending fund target equal to 100 percent of annual expenditures by the end of the period.

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

The values in table IV.B5 show that the combined OASDI program is expected to operate with a positive actuarial balance over the 25-year valuation period under alternatives I and II. For the 25-year valuation period the summarized values indicate actuarial balances of 2.12 percent of taxable payroll under alternative I, 1.05 percent under alternative II, and -0.32 percent under alternative III. Thus, the program is more than adequately financed for the 25-year valuation period under all but the high cost alternative III projections. For the 50-year valuation period the OASDI program would have a positive actuarial balance of 0.74 percent under alternative I, but would have deficits of 1.03 percent under alternative II and 3.29 percent under alternative III. Thus, the program is more than adequately financed for the 50year valuation period under only the low cost set of assumptions.

For the entire 75-year valuation period, the combined OASDI program would again have actuarial deficits except under the low cost set of assumptions. The actuarial balance for this long-range valuation period is projected to be 0.43 percent of taxable payroll under alternative I, -1.86 percent under alternative II, and -4.95 percent under alternative III.

Assuming the Trustees' intermediate assumptions are realized, the deficit of 1.86 percent of payroll indicates that financial adequacy of the program for the next 75 years could be restored if the Social Security payroll tax were immediately and permanently increased from its current level of 12.4 percent (combined employee-employer shares) to 14.26 percent. Alternatively, all current and future benefits could be reduced by about 13 percent (or there could be some combination of tax increases and benefit reductions). Changes of this magnitude would be sufficient to eliminate the actuarial deficit over the 75-year projection period. However, because of the upward shift in the average age of the population, projected annual deficits begin in 2016 and increase to levels in excess of 6 percent of taxable payroll by the end of the 75-year period. The large annual deficits at the end of the projection period indicate that the annual cost will very likely continue to exceed tax revenues after 2075. As a result, ensuring the sustainability of the system would eventually require larger changes than those needed to restore actuarial balance for the 75-year period.

As may be concluded from tables IV.B4 and IV.B5, the financial condition of the DI program is substantially weaker than that of the OASI program for the first 25 years. Summarized over the full 75-year period, however, long-range deficits for the OASI and DI programs under intermediate assumptions are more similar, relative to the level of program costs.

5. Test of Long-Range Close Actuarial Balance

The long-range test of close actuarial balance applies to a set of valuation periods beginning with the first 10 years and continuing through the first 11 years, the first 12 years, etc., up to and including the full 75-year projection period. Under the long-range test, the summarized income rate and cost rate are calculated for each of the 66 valuation periods in the full 75-year long-range projection period, with the first of these periods consisting of the next 10 years. Each succeeding period becomes longer by 1 year, culminating with the period consisting of the next 75 years. The long-range test is met if, for each of the 66 time periods, the actuarial balance is not less than zero or is negative by, at most, a specified percentage of the summarized cost rate for the same time period. The percentage allowed for a negative actuarial balance is 5 percent for the full 75-year period. For shorter periods, the allowable percentage begins with zero for the first 10 years and increases uniformly for longer periods, until it reaches the maximum percentage of 5 percent allowed for the 75-year period. The criterion for meeting the test is less stringent for the longer periods in recognition of the greater uncertainty associated with estimates for more distant years.

When a negative actuarial balance in excess of the allowable percentage of the summarized cost rate is projected for one or more of the 66 separate valuation periods, the program fails the long-range test of close actuarial balance. Being out of close actuarial balance indicates that the program is expected to experience financial problems in the future and that ways of improving the financial status of the program should be considered. The sooner the actuarial balance is less than the minimum allowable balance, expressed as a percentage of the summarized cost rate, the more urgent is the need for corrective action. However, it is recognized that necessary changes in program financing or benefit provisions should not be put off until the last possible moment if future beneficiaries and workers are to effectively plan for their retirement.

Table IV.B6 presents a comparison of the estimated actuarial balances with the minimum allowable balance (or maximum allowable deficit) under the long-range test, each expressed as a percentage of the summarized cost rate, based on the intermediate alternative II estimates. Values are shown for only 14 of the valuation periods: those of length 10 years, 15 years, and continuing in 5-year increments through 75 years. However, each of the 66 periods-those of length 10 years, 11 years, and continuing in 1-year increments through 75 years-is considered for the test. These minimum allowable balances are calculated to show the limit for each valuation period resulting from the graduated tolerance scale. The patterns in the estimated balances as a percentage of the summarized cost rates, as well as that for the minimum allowable balance, are presented graphically in figure IV.B4 for the OASI, DI and combined OASDI programs. Values shown for the 25-year, 50-year, and 75-year valuation periods correspond to those presented in table IV.B5.

For the OASI program, the estimated actuarial balance as a percentage of the summarized cost rate exceeds the minimum allowable for valuation periods of length 10 years through 39 years, under the intermediate alternative II estimates. For valuation periods of length greater than 39 years, the estimated actuarial balance is less than the minimum allowable. For the full 75-year long-range period the estimated actuarial balance reaches -11.61 percent of the summarized cost rate, for a shortfall of 6.61 percent, from the minimum allowable balance of -5.0 percent of the summarized cost rate. Thus, although the OASI program satisfies the short-range test of financial adequacy (as discussed earlier in section IV.A.), it is not in long-range close actuarial balance.

For the DI program, the estimated actuarial balance as a percentage of the summarized cost rate exceeds the minimum allowable balance for valuation periods of length 10 through 21 years under the intermediate alternative II estimates. For valuation periods of length greater than 21 years, the estimated actuarial balance is less than the minimum allowable. For the full 75-year long-range period the estimated actuarial balance reaches -14.76 percent of the summarized cost rate, for a shortfall of 9.76 percent, from the minimum allowable balance of -5.0 percent of the summarized cost rate. Thus, the DI program, although meeting the short-range test of financial adequacy, is not in long-range close actuarial balance.

Financing for the DI program is much less adequate than for the OASI program during the first 25 years even though long-range actuarial deficits are more comparable over the entire 75-year period. This occurs because much more of the increase in the long-range cost due to the aging of the large baby-boom generation occurs earlier for the DI program than for the OASI program. As a result, tax rates that are relatively more adequate for the OASI program during the first 25 years become relatively less adequate later in the long-range period.

For the combined OASDI program, the estimated actuarial balance as a percentage of the summarized cost rate exceeds the minimum allowable balance for valuation periods of length 10 years through 37 years. For valuation periods of length greater than 37 years, the estimated actuarial balance is below the minimum allowable balance. The size of the shortfall from the minimum allowable balance rises gradually, reaching 7.06 percent of the summarized cost rate for the full 75-year long-range valuation period. Thus, although the OASDI program satisfies the short-range test of financial adequacy, it is out of long-range close actuarial balance.

The OASI and DI programs, both separate and combined, were also found to be out of close actuarial balance in last year's report. The estimated deficits for the OASI, DI, and combined OASDI programs in this report are similar to those shown in last year's report.

Table IV.B6.- Comparison of Estimated Long-Range Actuarial Balances With the Minimum Allowable in the Test for Close Actuarial Balance,
Based on Intermediate Assumptions
Valuation
period
Rates
(percentage of taxable payroll)

Values expressed as a
percentage of cost rate
Summarized
income rate
Summarized
cost rate
Actuarial
balance
Actuarial
balance
Minimum
allowable
actuarial
balance
OASI:
10 years: 2001-10
13.35
9.98
3.37

33.78
0.00
15 years: 2001-15
12.61
10.06
2.55

25.33
-.38
20 years: 2001-20
12.26
10.46
1.80

17.22
-.77
25 years: 2001-25
12.07
10.95
1.12

10.23
-1.15
30 years: 2001-30
11.95
11.42
.53

4.62
-1.54
35 years: 2001-35
11.87
11.83
.04

.38
-1.92
40 years: 2001-40
11.82
12.14
-.32

-2.60
-2.31
45 years: 2001-45
11.78
12.36
-.58

-4.69
-2.69
50 years: 2001-50
11.75
12.54
-.79

-6.28
-3.08
55 years: 2001-55
11.73
12.69
-.97

-7.61
-3.46
60 years: 2001-60
11.71
12.84
-1.13

-8.79
-3.85
65 years: 2001-65
11.70
12.97
-1.28

-9.84
-4.23
70 years: 2001-70
11.69
13.10
-1.41

-10.78
-4.62
75 years: 2001-75
11.68
13.21
-1.53

-11.61
-5.00
DI:
10 years: 2001-10
2.13
1.86
.27

14.44
.00
15 years: 2001-15
2.03
1.92
.12

6.06
-.38
20 years: 2001-20
1.99
1.98
.01

.53
-.77
25 years: 2001-25
1.96
2.03
-.07

-3.58
-1.15
30 years: 2001-30
1.94
2.08
-.13

-6.31
-1.54
35 years: 2001-35
1.93
2.10
-.17

-7.95
-1.92
40 years: 2001-40
1.92
2.12
-.19

-9.16
-2.31
45 years: 2001-45
1.92
2.14
-.22

-10.33
-2.69
50 years: 2001-50
1.91
2.16
-.25

-11.41
-3.08
55 years: 2001-55
1.91
2.18
-.27

-12.36
-3.46
60 years: 2001-60
1.90
2.19
-.29

-13.12
-3.85
65 years: 2001-65
1.90
2.20
-.30

-13.74
-4.23
70 years: 2001-70
1.90
2.22
-.32

-14.28
-4.62
75 years: 2001-75
1.90
2.23
-.33

-14.76
-5.00
OASDI:
10 years: 2001-10
15.48
11.84
3.64

30.74
.00
15 years: 2001-15
14.65
11.98
2.66

22.24
-.38
20 years: 2001-20
14.25
12.44
1.81

14.57
-.77
25 years: 2001-25
14.03
12.98
1.05

8.07
-1.15
30 years: 2001-30
13.89
13.50
.40

2.94
-1.54
35 years: 2001-35
13.81
13.93
-.12

-.88
-1.92
40 years: 2001-40
13.74
14.25
-.51

-3.57
-2.31
45 years: 2001-45
13.70
14.50
-.80

-5.52
-2.69
50 years: 2001-50
13.66
14.70
-1.03

-7.04
-3.08
55 years: 2001-55
13.64
14.87
-1.24

-8.31
-3.46
60 years: 2001-60
13.61
15.03
-1.42

-9.42
-3.85
65 years: 2001-65
13.60
15.18
-1.58

-10.41
-4.23
70 years: 2001-70
13.59
15.32
-1.73

-11.28
-4.62
75 years: 2001-75
13.58
15.44
-1.86

-12.06
-5.00

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

Figure IV.B4.- Long-Range Test of Close Actuarial Balance
[Comparison of Estimated Long-Range Actuarial Balances With the Minimum
Allowable for Close Actuarial Balance Under Intermediate Assumptions]
Comparison of estimated long-range actuarial balances (as a percentage of summarized cost rates) with the minimum allowable for close actuarial balance under the intermediate assumptions, for ending year of valuation period 2010-2075. The depicted data can be found in table IV.B6.

6. Income and Cost Rates by Component

Annual income rates and their components are shown in table IV.B7 for each alternative set of assumptions. The annual income rates reflect the scheduled payroll tax rates and the projected income from the taxation of benefits expressed as a percentage of taxable payroll. (Increasing income from taxation of benefits reflects rising benefit and income levels and the fact that benefit-taxation threshold amounts are not indexed.)

Summarized income and cost rates, along with their components, are presented in table IV.B8 for 25-year, 50-year, and 75-year valuation periods. Summarized income rates include the starting trust fund balance in addition to the components included in the annual income rates. The summarized cost rates include the cost of reaching and maintaining an ending trust fund target of 100 percent of annual expenditures by the end of the period in addition to the expenditures included in the annual cost rates.

It may be noted that the payroll tax income expressed as a percentage of taxable payroll is slightly smaller than the actual tax rates in effect for each period. This results from the fact that all OASDI income and outgo amounts presented in this report are computed on a cash basis, i.e., amounts are attributed to the year in which they are actually received by, or expended from, the fund, while taxable payroll is allocated to the year in which earnings are paid. Because earnings are paid to workers before the corresponding payroll taxes are credited to the funds, payroll tax income for a particular year reflects a combination of the taxable payrolls from that year and from prior years, when payroll was smaller. Dividing payroll tax income by taxable payroll for a particular year, or period of years, will thus generally result in an income rate that is slightly less than the applicable tax rate for the period.

Table IV.B7.- Components of Annual Income Rates, Calendar Years 2001-75 
[As a percentage of taxable payroll]
Calendar year
OASI

DI

Combined
Payroll
tax rate
Taxation
of
benefits
Total
Payroll
tax rate
Taxation
of
benefits
Total
Payroll
tax rate
Taxation
of
benefits
Total
Intermediate:
2001
10.60
0.30
10.90

1.80
0.02
1.82

12.40
0.32
12.72
2002
10.60
.30
10.90

1.80
.02
1.82

12.40
.32
12.72
2003
10.60
.31
10.91

1.80
.02
1.82

12.40
.33
12.73
2004
10.60
.32
10.92

1.80
.02
1.82

12.40
.34
12.74
2005
10.60
.33
10.93

1.80
.02
1.82

12.40
.35
12.75
2006
10.60
.33
10.93

1.80
.02
1.82

12.40
.35
12.75
2007
10.60
.34
10.94

1.80
.02
1.82

12.40
.36
12.76
2008
10.60
.35
10.95

1.80
.02
1.82

12.40
.38
12.78
2009
10.60
.36
10.96

1.80
.03
1.83

12.40
.39
12.79
2010
10.60
.38
10.98

1.80
.03
1.83

12.40
.41
12.81











2015
10.60
.42
11.02

1.80
.03
1.83

12.40
.45
12.85
2020
10.60
.48
11.08

1.80
.03
1.83

12.40
.51
12.91
2025
10.60
.57
11.17

1.80
.04
1.84

12.40
.60
13.00
2030
10.60
.65
11.25

1.80
.04
1.84

12.40
.68
13.08
2035
10.60
.70
11.30

1.80
.04
1.84

12.40
.73
13.13
2040
10.60
.72
11.32

1.80
.04
1.84

12.40
.76
13.16
2045
10.60
.73
11.33

1.80
.04
1.84

12.40
.78
13.18
2050
10.60
.75
11.35

1.80
.04
1.84

12.40
.80
13.20
2055
10.60
.78
11.38

1.80
.05
1.85

12.40
.83
13.23
2060
10.60
.81
11.41

1.80
.05
1.85

12.40
.86
13.26
2065
10.60
.84
11.44

1.80
.05
1.85

12.40
.89
13.29
2070
10.60
.87
11.47

1.80
.05
1.85

12.40
.91
13.31
2075
10.60
.89
11.49

1.80
.05
1.85

12.40
.94
13.34
Low Cost:
2001
10.60
0.30
10.90

1.80
0.02
1.82

12.40
0.32
12.72
2002
10.60
.30
10.90

1.80
.02
1.82

12.40
.31
12.71
2003
10.60
.30
10.90

1.80
.02
1.82

12.40
.32
12.72
2004
10.60
.31
10.91

1.80
.02
1.82

12.40
.33
12.73
2005
10.60
.32
10.92

1.80
.02
1.82

12.40
.33
12.73
2006
10.60
.32
10.92

1.80
.02
1.82

12.40
.34
12.74
2007
10.60
.32
10.92

1.80
.02
1.82

12.40
.35
12.75
2008
10.60
.33
10.93

1.80
.02
1.82

12.40
.35
12.75
2009
10.60
.34
10.94

1.80
.02
1.82

12.40
.36
12.76
2010
10.60
.35
10.95

1.80
.02
1.82

12.40
.38
12.78











2015
10.60
.38
10.98

1.80
.02
1.82

12.40
.41
12.81
2020
10.60
.42
11.02

1.80
.02
1.82

12.40
.45
12.85
2025
10.60
.49
11.09

1.80
.03
1.83

12.40
.52
12.92
2030
10.60
.55
11.15

1.80
.03
1.83

12.40
.58
12.98
2035
10.60
.58
11.18

1.80
.03
1.83

12.40
.61
13.01
2040
10.60
.58
11.18

1.80
.03
1.83

12.40
.61
13.01
2045
10.60
.58
11.18

1.80
.03
1.83

12.40
.61
13.01
2050
10.60
.59
11.19

1.80
.03
1.83

12.40
.62
13.02
2055
10.60
.60
11.20

1.80
.03
1.83

12.40
.63
13.03
2060
10.60
.61
11.21

1.80
.03
1.83

12.40
.65
13.05
2065
10.60
.62
11.22

1.80
.03
1.83

12.40
.65
13.05
2070
10.60
.62
11.22

1.80
.03
1.83

12.40
.66
13.06
2075
10.60
.63
11.23

1.80
.03
1.83

12.40
.66
13.06
High Cost:
2001
10.60
.31
10.91

1.80
.02
1.82

12.40
.33
12.73
2002
10.60
.31
10.91

1.80
.02
1.82

12.40
.33
12.73
2003
10.60
.32
10.92

1.80
.02
1.82

12.40
.34
12.74
2004
10.60
.34
10.94

1.80
.02
1.82

12.40
.36
12.76
2005
10.60
.36
10.96

1.80
.02
1.82

12.40
.38
12.78
2006
10.60
.36
10.96

1.80
.03
1.83

12.40
.39
12.79
2007
10.60
.37
10.97

1.80
.03
1.83

12.40
.40
12.80
2008
10.60
.38
10.98

1.80
.03
1.83

12.40
.41
12.81
2009
10.60
.39
10.99

1.80
.03
1.83

12.40
.43
12.83
2010
10.60
.41
11.01

1.80
.03
1.83

12.40
.44
12.84











2015
10.60
.47
11.07

1.80
.04
1.84

12.40
.50
12.90
2020
10.60
.54
11.14

1.80
.04
1.84

12.40
.58
12.98
2025
10.60
.65
11.25

1.80
.05
1.85

12.40
.70
13.10
2030
10.60
.75
11.35

1.80
.05
1.85

12.40
.80
13.20
2035
10.60
.84
11.44

1.80
.05
1.85

12.40
.89
13.29
2040
10.60
.89
11.49

1.80
.05
1.85

12.40
.94
13.34
2045
10.60
.93
11.53

1.80
.06
1.86

12.40
.99
13.39
2050
10.60
.98
11.58

1.80
.06
1.86

12.40
1.04
13.44
2055
10.60
1.04
11.64

1.80
.06
1.86

12.40
1.10
13.50
2060
10.60
1.10
11.70

1.80
.07
1.87

12.40
1.17
13.57
2065
10.60
1.17
11.77

1.80
.07
1.87

12.40
1.24
13.64
2070
10.60
1.24
11.84

1.80
.07
1.87

12.40
1.31
13.71
2075
10.60
1.30
11.90

1.80
.07
1.87

12.40
1.37
13.77

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

.

Table IV.B8.- Components of Summarized Income Rates and Cost Rates,
Calendar Years 2001-75
[As a percentage of taxable payroll]
Valuation period
Income rate

Cost rate
Payroll
tax
Taxation
of
benefits
Beginning
fund
balance
Total
Disburse-
ments
Ending
fund
balance
Total
OASI:
Intermediate:
2001-25
10.59
0.40
1.07
12.07

10.48
0.47
10.95
2001-50
10.59
.52
.64
11.75

12.34
.20
12.54
2001-75
10.59
.58
.51
11.68

13.10
.11
13.21
Low Cost:
2001-25
10.59
.37
1.07
12.03

9.77
.42
10.19
2001-50
10.59
.45
.64
11.68

10.99
.16
11.16
2001-75
10.59
.48
.51
11.58

11.25
.09
11.34
High Cost:
2001-25
10.59
.44
1.10
12.13

11.40
.54
11.94
2001-50
10.59
.61
.65
11.84

14.06
.26
14.32
2001-75
10.59
.71
.51
11.82

15.64
.16
15.80
DI:
Intermediate:
2001-25
1.80
.03
.14
1.96

1.95
.08
2.03
2001-50
1.80
.03
.08
1.91

2.12
.03
2.16
2001-75
1.80
.03
.07
1.90

2.21
.02
2.23
Low Cost:
2001-25
1.80
.02
.14
1.96

1.62
.06
1.68
2001-50
1.80
.02
.08
1.90

1.67
.02
1.69
2001-75
1.80
.03
.06
1.89

1.69
.01
1.70
High Cost:
2001-25
1.80
.03
.14
1.97

2.38
.10
2.49
2001-50
1.80
.04
.08
1.92

2.68
.05
2.73
2001-75
1.80
.05
.07
1.91

2.85
.02
2.88
OASDI:
Intermediate:
2001-25
12.39
.43
1.21
14.03

12.43
.55
12.98
2001-50
12.39
.55
.73
13.66

14.46
.23
14.70
2001-75
12.39
.62
.58
13.58

15.31
.13
15.44
Low Cost:
2001-25
12.39
.39
1.21
13.99

11.39
.47
11.87
2001-50
12.39
.47
.72
13.58

12.66
.19
12.85
2001-75
12.39
.51
.57
13.47

12.94
.10
13.04
High Cost:
2001-25
12.39
.48
1.24
14.10

13.78
.64
14.42
2001-50
12.39
.65
.73
13.77

16.74
.31
17.05
2001-75
12.39
.76
.58
13.73

18.49
.18
18.68

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

7. Reasons for Change in Actuarial Balance From Last Report

Reasons for changes from last year's report to this report in the long-range actuarial balance under the intermediate assumptions are itemized in table IV.B9. Also shown are the estimated effects associated with each reason for change.

Table IV.B9.- Reasons for Change in the 75-Year Actuarial Balance
Under Intermediate Assumptions
[As a percentage of taxable payroll]
Item
OASI
DI
Combined
Shown in last year's report:
Income rate
11.62
1.89
13.51
Cost rate
13.15
2.26
15.40
Actuarial balance
-1.53
-.37
-1.89
Changes in actuarial balance due to changes in:
Legislation / Regulation
.00
.00
.00
Valuation period 1
-.06
-.01
-.07
Demographic assumptions
+.08
+.01
+.09
+.02
+.00
+.02
Disability assumptions
.00
+.02
+.02
Projection methods and data
-.04
+.02
-.02
Total change in actuarial balance
-.01
+.04
+.03
Shown in this report:
Actuarial balance
-1.53
-.33
-1.86
Income rate
11.68
1.90
13.58
Cost rate
13.21
2.23
15.44

1 In changing from the valuation period of last year's report, which was 2000-74, to the valuation period of this report, 2001-75, the relatively large negative annual balance for 2075 is included. This results in a larger long-range actuarial deficit. The fund balance at the end of 2000, i.e., at the beginning of the projection period, is included in the 75-year actuarial balance.

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

Two legislative changes have been enacted since the last report that have effects on the financing of the Social Security program, see section III.B. The first change eliminates the earnings test for Social Security beneficiaries who have attained normal retirement age, effective beginning in 2000. The second change provides for an adjustment to benefits in order to compensate for the effects of an error in the published Consumer Price Index for 1999. The effects of each of these changes on the actuarial balance is negligible (less than 0.005 percent of taxable payroll) for both OASI and DI.

In changing from the valuation period of last year's report, which was 2000-74, to the valuation period of this report, 2001-75, the relatively large negative annual balance for 2075 is included. This results in a larger long-range actuarial deficit. (Note that the fund balance at the end of 2000, i.e., at the beginning of the projection period, is included in the 75-year actuarial balance.)

Ultimate demographic assumptions are unchanged from last year's report. However, new data have resulted in several changes in starting levels and assumptions for early years in the projection period. Preliminary data for 1999 indicate a higher birth rate than was estimated for the 2000 report. Starting levels of birth rates and rates for the years of transition from the most recent data to the ultimate assumptions were updated to reflect these data. Updated mortality data for 1998 indicate much less decline in death rates for that year than was indicated by preliminary data used in the 2000 report. The updated data result in a higher starting level for death rates and a slightly slower decline in years through 2026. The age distribution assumed for legal residents who emigrate from the United States was modified to reflect recently available data. This results in a somewhat higher average for emigrants. Each of these three updates results in a reduction (improvement) in the actuarial deficit. The total effect is a reduction of 0.09 percent of taxable payroll.

Ultimate economic assumptions are unchanged for the 2001 report. However, faster economic growth in 2000 and for the next several years, results in slightly higher assumed growth during the short range. By the time any evidence of slower growth for the fourth calendar quarter of 2000 was available, assumptions for this report were already established. However, this slower growth is assumed to be temporary, and to have no effect on the underlying growth potential of the economy over the short range. Thus, on balance, the updates made for economic assumptions in this report result in a small reduction in the actuarial deficit of 0.02 percent of payroll.

Long-range disability incidence and termination rate assumptions were updated to reflect recent data on distributions by age and sex. These updates were made in conjunction with reductions in assumed levels of age-sex specific incidence rates beginning part of the way through the short-range period. The combination of these changes result in ultimate disability prevalence rates that are very similar to those projected in last year's report. These changes reduced the actuarial deficit by about 0.02 percent of payroll.

Several methodological improvements and updates of program-specific data were made for projections in the 2001 report. The method for projecting the effect of other-than-legal immigration on the number of beneficiaries was improved by replacing an adjustment to retirement prevalence rates with a model for the effect of other-than-legal immigration on the percentage of the resident population that achieves fully insured status under the OASDI program. A method for projecting interest rates was introduced that takes into account changes in the state of the economy. The model for projecting the number of workers in covered employment based on the size of the employed labor force was updated to reflect recent data. An updated sample of new benefit awards was used for projecting average benefit levels. Finally, several changes in the methods for projecting average benefit levels for female workers were made that improve the estimated distribution of retirees by the number of years of work in covered employment. Together these changes result in an increase in the actuarial deficit for the OASDI program of 0.02 percent of taxable payroll.

The cost of the OASDI program has been discussed in this section in relation to taxable payroll, which is a program-related concept that is very useful in analyzing the financial status of the OASDI program. The cost can also be discussed in relation to broader economic concepts, such as the gross domestic product (GDP). OASDI outlays generally rise from about 4.2 percent of GDP currently to about 6.7 percent of GDP by the end of the 75-year projection period under alternative II. Discussion of both the cost and the taxable payroll of the OASDI program in relation to GDP is presented in appendix VI.E.2.


1 Adjustments are made to include, after 1982, deemed wage credits based on military service, and to reflect the lower effective 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 income from tips.


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