2014 OASDI Trustees Report

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This section summarizes the report’s major findings.
In 2013
At the end of 2013, the OASDI program was providing benefit payments1 to about 58 million people: 41 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 11 million disabled workers and dependents of disabled workers. During the year, an estimated 163 million people had earnings covered by Social Security and paid payroll taxes. Total expenditures in 2013 were $823 billion. Total income was $855 billion, which consisted of $752 billion in non-interest income and $103 billion in interest earnings. Asset reserves held in special issue U.S. Treasury securities grew from $2,732 billion at the beginning of the year to $2,764 billion at the end of the year.
Short-Range Results
Social Security’s cost exceeded its tax income in 2013, and also exceeded its non-interest income, as it has since 2010. This relationship is projected to continue throughout the short-range period (2014 through 2023) and beyond. The 2013 deficit of tax income relative to cost was $76 billion and the deficit of non-interest income relative to cost was $71 billion. In recent years, OASDI tax income and non-interest income have differed as a result of a temporary reduction in the Social Security payroll tax for 2011 and 2012, combined with reimbursements from the General Fund of the Treasury to the Social Security trust funds that amounted to $103 billion in 2011, $114 billion in 2012, and $5 billion in 2013. Assuming there is no future legislation to transfer General Funds to the trust funds, OASDI tax income should approximately equal non-interest income this year and in future years. For 2014, the deficit of tax income (and non-interest income) is projected to be approximately $80 billion.
The Trustees project that the asset reserves of the OASI Trust Fund and of the theoretical combined OASI and DI Trust Funds2 will be adequate over the next 10 years under the intermediate assumptions. However, the projected reserves of the DI Trust Fund decline steadily from 62 percent of annual cost at the beginning of 2014 until the trust fund reserves are depleted in the fourth quarter of 2016. At the time reserves are depleted, continuing income to the DI Trust Fund would be sufficient to pay 81 percent of scheduled DI benefits. The DI Trust Fund does not satisfy the short-range test of financial adequacy. Figures II.D2 and II.D3 illustrate the implications of reserve depletion for the combined trust funds and for the DI Trust Fund alone.
The Trustees project that the reserves of the combined OASI and DI Trust Funds will increase for the next several years, growing from $2,764 billion at the beginning of 2014 to $2,878 billion at the beginning of 2020. Reserves increase through 2019 because annual cost is less than total income for 2014 through 2019. At the same time, however, the ratio of reserves to cost declines, from 320 percent of annual cost for 2014 to 233 percent of annual cost for 2020.
Beginning in 2020, annual cost exceeds total income, and therefore the combined reserves begin to decline, reaching $2,698 billion at the end of 2023. The ratio of reserves at the beginning of a year to cost for that year declines to 187 percent as of the beginning of 2023. For last year’s report, the Trustees projected that combined reserves would be 315 percent of annual cost at the beginning of 2014 and 189 percent at the beginning of 2023.
Long-Range Results
The Trustees project that annual OASDI cost will exceed non-interest income throughout the long-range period (2014 through 2088) under the intermediate assumptions. The dollar level of the theoretical combined trust fund reserves declines beginning in 2020 until reserves become depleted in 2033. Considered separately, the DI Trust Fund reserves become depleted in 2016 and the OASI Trust Fund reserves become depleted in 2034. The projected reserve depletion years were 2033 for OASDI, 2016 for DI, and 2035 for OASI in last year’s report.
Projected OASDI cost generally increases more rapidly than projected non-interest income through about 2035 primarily because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the number of workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2035 to 2050, the cost rate (the ratio of program cost to taxable payroll) generally declines because the aging baby-boom generation is gradually replaced at retirement ages by historically low-birth-rate generations, causing the beneficiary-to-worker ratio to decline. Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more slowly than between 2010 and 2035.
The projected OASDI annual cost rate increases from 13.95 percent of taxable payroll for 2014 to 17.09 percent for 2035 and to 18.19 percent for 2088, a level that is 4.90 percent of taxable payroll more than the projected income rate (the ratio of program income to taxable payroll) for 2088. For last year’s report, the Trustees estimated the OASDI cost for 2088 at 18.07 percent, or 4.82 percent of payroll more than the annual income rate for that year. Expressed in relation to the projected gross domestic product (GDP), OASDI cost rises from 4.9 percent of GDP for 2014 to about 6.2 percent by 2035, then declines to 6.0 percent by 2050, and then remains between 6.0 and 6.1 percent through 2088.
For the 75‑year projection period, the actuarial deficit is 2.88 percent of taxable payroll, 0.16 percentage point larger than in last year’s report. The open group unfunded obligation for OASDI over the 75‑year period is $10.6 trillion in present value and is $1.0 trillion more than the measured level of $9.6 trillion a year ago. If the assumptions, methods, starting values, and the law had all remained unchanged, the actuarial deficit would have increased to 2.78 percent of taxable payroll and the unfunded obligation would have risen to about $10.1 trillion due to the change in the valuation date. The remaining increase in the actuarial deficit and the unfunded obligation is primarily due to changes in methods, assumptions, and starting values.
Under the intermediate assumptions, the Trustees project that annual cost for the OASDI program will exceed non-interest income in 2014 and remain higher throughout the remainder of the long-range period. The projected theoretical combined OASI and DI Trust Fund asset reserves increase through 2019, begin to decline in 2020, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2033. At the time of reserve depletion, continuing income to the combined trust funds would be sufficient to pay 77 percent of scheduled benefits. However, the DI Trust Fund reserves become depleted in 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 81 percent of DI benefits. Therefore, legislative action is needed as soon as possible to address the DI program’s financial imbalance. Lawmakers may consider responding to the impending DI Trust Fund reserve depletion as they did in 1994, solely by reallocating the payroll tax rate between OASI and DI. Such a response might serve to delay DI reforms and much needed corrections for OASDI as a whole. However, enactment of a more permanent solution could include a tax reallocation in the short-run.
For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.83 percentage points3 (from its current level of 12.40 percent to 15.23 percent; a relative increase of 22.8 percent); (2) scheduled benefits during the period would have to be reduced by an amount equivalent to an immediate and permanent reduction of 17.4 percent applied to all current and future beneficiaries, or 20.8 percent if the reductions were applied only to those who become initially eligible for benefits in 2014 or later; or (3) some combination of these approaches would have to be adopted.
The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 59 million beneficiaries and 165 million covered workers and their families in 2014. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

The definitions of “benefit payment” and other terms appear in the Glossary.

The OASI and DI Trust Funds are distinct legal entities which operate independently. To illustrate the actuarial status of the program as a whole, the fund operations are often combined on a theoretical basis.

The necessary tax rate of 2.83 percent differs from the 2.88 percent actuarial deficit for two reasons. First, the necessary tax rate is the rate required to maintain solvency throughout the period that does not result in any trust fund reserve at the end of the period, whereas the actuarial deficit incorporates an ending trust fund reserve equal to 1 year’s cost. Second, the necessary tax rate reflects a behavioral response to tax rate changes, whereas the actuarial deficit does not. In particular, the calculation of the necessary tax rate assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.

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