2014 OASDI Trustees Report

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IV. ACTUARIAL ESTIMATES
This chapter presents actuarial estimates of the future financial condition of the Social Security program. These estimates show the income, cost, and asset reserves or unfunded obligation of the OASI and DI Trust Funds: (1) in dollars over the 10‑year short-range period; and (2) as a percentage of taxable payroll, as a percentage of gross domestic product, and in present-value dollars over the 75‑year long-range period. In addition, the chapter discusses a variety of measures of the adequacy of current program financing. This report distinguishes between: (1) the cost (obligations) of the program, which includes all future benefits scheduled under current law; and (2) expenditures (disbursements), which include actual payments for the past plus only the portion of projected program cost that would be payable with the financing provisions in current law.
This chapter presents the estimates and measures of trust fund financial adequacy for the short range period (2014‑23) first, followed by estimates and measures of actuarial status for the long range period (2014‑88). Summary measures are also provided for trust fund status over the infinite horizon. As described in the Overview chapter of this report, these estimates depend upon a broad set of demographic, economic, and programmatic factors. This chapter presents estimates under three sets of assumptions to show a wide range of possible outcomes, because assumptions related to these factors are subject to uncertainty. The intermediate set of assumptions, designated as alternative II, reflects the Trustees’ best estimate of future experience; the low-cost alternative I is significantly more optimistic and the high-cost alternative III is significantly more pessimistic for the trust funds’ future financial outlook. The tables of this report show the intermediate estimates first, followed by the low-cost and high-cost estimates. Chapter V describes these three sets of assumptions, along with the actuarial methods used to produce the estimates. Appendix D and appendix E present two additional methods to illustrate the uncertainty of the projections. Appendix D presents sensitivity analyses of the effects of variation in individual factors and appendix E presents probability distributions generated by a stochastic model.
A. SHORT-RANGE ESTIMATES
The Trustees consider the trust funds to be fully solvent if the funds can pay scheduled benefits in full on a timely basis. A standard method of assessing solvency is the “trust fund ratio,” which is the reserves in a fund at the beginning of a year (which do not include advance tax transfers) expressed as a percentage of the cost during the year. The trust fund ratio represents the proportion of a year’s cost which the reserves available at the beginning of that year can cover. The Trustees assume that a trust fund ratio of 100 percent of annual program cost provides a reasonable “contingency reserve.” Maintaining a reasonable contingency reserve is important because the trust funds do not have borrowing authority. After reserves are depleted, the trust funds would be unable to pay benefits in full on a timely basis if annual revenue were less than annual cost. Unexpected events, such as severe economic recessions or large changes in other trends, can quickly deplete reserves. In such cases, a reasonable contingency reserve can maintain the ability to pay scheduled benefits while giving lawmakers time to address possible changes to the program.
The short-range test of financial adequacy applies to the OASI and DI Trust Funds individually and combined on a theoretical basis. If the estimated trust fund ratio is at least 100 percent at the beginning of the projection period, the test requires that it remain at or above 100 percent throughout the 10-year period. If the ratio is initially less than 100 percent, then it must reach at least 100 percent within 5 years (without reserve depletion at any time during this period) and then remain at or above 100 percent throughout the remainder of the 10-year period. This test is applied using the estimates based on the intermediate assumptions. If either trust fund fails this test, then program solvency in the next 10 years is in question, and lawmakers should take prompt action to improve short-range financial adequacy.
1. Operations of the OASI Trust Fund
This subsection presents estimates, based on the assumptions described in chapter V, of the operations and financial status of the OASI Trust Fund for the period 2014-23. These estimates assume that there are no changes in the statutory provisions and regulations under which the OASDI program currently operates.1
Table IV.A1 shows these estimates, which indicate that the asset reserves of the OASI Trust Fund continue to increase through 2021 under the intermediate assumptions, throughout the next 10 years under the low-cost assumptions, and through 2016 under the high-cost assumptions. However, trust fund ratios decline throughout the 10-year period under all three sets of assumptions. Based on the intermediate assumptions, the reserves of the OASI Trust Fund continue to exceed 100 percent of annual cost by a large amount through the end of 2023. Consequently, the OASI Trust Fund satisfies the test of short-range financial adequacy by a wide margin. Table IV.A1 also indicates that the OASI Trust Fund would satisfy the short-range test even under the high-cost assumptions. See figure IV.A1 for an illustration of these results.
Table IV.A1.—Operations of the OASI Trust Fund, Calendar Years 2009-23 a 
GF
reim-
burse-
mentsb
pay-mentsc
Trust
fund
ratio 5

a
Appendix A presents a detailed description of the components of income and cost, along with complete historical values.

b
Includes reimbursements from the General Fund of the Treasury to the OASI Trust Fund for: (1) the cost of noncontributory wage credits for military service before 1957; (2) the cost of benefits to certain uninsured persons who attained age 72 before 1968; (3) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by Public Law 98-21; (4) the cost in 2009-17 of excluding certain self-employment earnings from SECA taxes under Public Law 110-246; and (5) payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96.

c
Projected benefits are estimated as scheduled under current law.

d
The “Trust fund ratio” column represents reserves at the beginning of a year (which are identical to reserves at the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

e
Between -$50 million and $50 million.
Note: Totals do not necessarily equal the sums of rounded components.

The estimated income shown in table IV.A1 increases annually under each set of assumptions throughout the short-range projection period. The estimated increases in income reflect increases in estimated OASDI taxable earnings and growth in interest earnings on the invested reserves in the trust fund. Employment increases in every year through 2023 for all three alternatives. The number of persons with taxable earnings increases on the basis of alternatives I, II, and III from 163 million during calendar year 2013 to about 185 million, 181 million, and 176 million, respectively, in 2023. The total annual amount of taxable earnings increases in every year through 2023 for each alternative. Total earnings increase from $5,913 billion in 2013 to $11,737 billion, $9,937 billion, and $8,459 billion in 2023, on the basis of alternatives I, II, and III, respectively. These increases in taxable earnings are due primarily to: (1) projected increases in employment levels as the working age population increases; (2) trend increases in average earnings in covered employment (reflecting both real growth and price inflation); (3) increases in the contribution and benefit base under the automatic-adjustment provisions; and (4) growth in employment and average earnings, temporarily higher than trend, as the economy recovers from the economic recession.
Interest earnings generally contribute to the overall projected increase in trust fund income during this period. Despite the projected growth in OASI Trust Fund reserves, annual interest earnings decline slightly in the early projection years under all three sets of assumptions due to historically low interest rates assumed for newly-issued bonds. Thereafter, interest income increases under the intermediate and low-cost assumptions due to the net effects of higher reserve levels and the patterns of projected interest rates. Under the high-cost assumptions, declining reserves cause interest income to continue to decrease throughout the short-range period. Although interest earnings generally increase over the short-range period, interest declines as a share of total OASI Trust Fund income. By 2023, OASI interest income is about 10 percent of total trust fund income under the intermediate assumptions, as compared to 13 percent in 2013.
Rising OASI cost during 2014-23 reflects automatic benefit increases as well as the upward trend in the number of beneficiaries and in the average monthly earnings underlying benefits. The growth in the number of beneficiaries since 2009 and the expected future growth result both from the increase in the aged population and from the increase in the proportion of the population that is eligible for benefits.
The Treasury invests OASI income in financial securities, generally special public-debt obligations of the U.S. Government. The revenue used to make these purchases flows to the General Fund of the Treasury. The trust fund earns interest on these securities, and the Treasury invests maturing securities in new securities if not immediately needed to pay program costs. Program expenditures require the redemption of trust fund securities, generally prior to maturity, to cover the payments made by the General Fund of the Treasury on behalf of the trust fund.
2. Operations of the DI Trust Fund
Table IV.A2 shows the estimated operations and financial status of the DI Trust Fund during calendar years 2014-23 under the three sets of assumptions, together with values for actual experience during 2009-13. Non-interest income increases steadily after 2013 under each alternative, due to most of the same factors described previously for the OASI Trust Fund.  DI cost grows at a slower rate than DI income or OASI cost, but remains greater than DI income. As a result, after having reached a maximum in 2008, DI Trust Fund reserves continue to decrease after 2013 under each alternative. Under the intermediate assumptions, reserves continue to decline until their projected depletion in the fourth quarter of 2016. Under the low-cost assumptions, reserves begin to increase again after reaching a low point in 2019; reserves are at such low levels in 2019 and 2020 that the DI trust fund requires advance tax transfers2 to pay scheduled benefits in a timely fashion. Under the high-cost assumptions, DI reserves decline steadily until depletion in the second quarter of 2016.
Benefit pay-mentsc

a
Appendix A presents a detailed description of the components of income and cost, along with complete historical values.

b
Includes reimbursements from the General Fund of the Treasury to the DI Trust Fund for: (1) the cost of noncontributory wage credits for military service before 1957; (2) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by Public Law 98-21; (3) the cost in 2009-17 of excluding certain self-employment earnings from SECA taxes under Public Law 110-246; and (4) payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96.

c
Projected benefits are estimated as scheduled under current law.

d
The “Trust fund ratio” column represents reserves at the beginning of a year (which are identical to reserves at the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

e
Between -$50 million and $50 million.

f
The DI Trust Fund becomes depleted in 2016 under the intermediate and the high-cost assumptions. Accordingly, certain trust fund operation values from the year of the trust fund depletion through 2023 are not meaningful under the present law.
Note: Totals do not necessarily equal the sums of the rounded components.

In the future, DI cost increases in part due to increases in average benefit levels resulting from: (1) automatic benefit increases; and (2) projected increases in the amounts of average monthly earnings on which benefits are based. The number of DI beneficiaries in current-payment status increases but at a slower rate than in the past 20 years during the short-range projection period.
At the beginning of calendar year 2013, the reserves of the DI Trust Fund represented 86 percent of annual cost. During 2013, DI cost exceeded income, and the trust fund ratio for the beginning of 2014 decreased to about 62 percent. Under the intermediate assumptions, cost exceeds total income throughout the short-range projection period. The projected cost in excess of income results in the estimated depletion of the DI Trust Fund reserves in the fourth quarter of 2016.
Under the low-cost assumptions, the trust fund ratio decreases to a low of 2 percent at the beginning of 2020 before increasing to 12 percent at the beginning of 2023. Under the high-cost assumptions, the reserves of the DI Trust Fund decline steadily until depletion in the second quarter of 2016.
Since the reserves of the DI Trust Fund were lower than estimated annual cost at the beginning of 2014, and they remain below that level throughout the short-range period, the DI Trust Fund fails the Trustees’ short-range test of financial adequacy under all three alternatives. Furthermore, the DI Trust Fund becomes depleted by the end of the fourth and second quarters of 2016 under alternatives II and III, respectively, and is able to pay scheduled benefits on time in 2019 and 2020 under alternative I only by using advance tax transfers.
3. Operations of the Combined OASI and DI Trust Funds
Table IV.A3 shows the estimated operations and status of the combined OASI and DI Trust Funds for calendar years 2014-23 under the three alternatives, together with actual experience in 2009‑13. Income and cost for the OASI Trust Fund represent over 80 percent of the corresponding amounts for the combined OASI and DI Trust Funds. Therefore, based on the relative strength of the OASI Trust Fund over the next 10 years, the combined OASI and DI Trust Funds would have sufficient financial resources to pay all scheduled benefits through the end of the short-range period and would satisfy the short-range test of financial adequacy under all three alternative sets of assumptions. Under current law, one trust fund cannot share financial resources with another trust fund.
Table IV.A3.—Operations of the Combined OASI and DI Trust Funds,
Calendar Years 2009-23a 
GF
reim-
burse-
mentsb
Benefit pay-mentsc
Trust
fund
ratio d

a
Appendix A presents a detailed description of the components of income and cost, along with complete historical values.

b
Includes reimbursements from the General Fund of the Treasury to the OASI and DI Trust Funds for: (1) the cost of noncontributory wage credits for military service before 1957; (2) the cost of benefits to certain uninsured persons who attained age 72 before 1968; (3) the cost of payroll tax credits provided to employees in 1984 and self-employed persons in 1984-89 by Public Law 98-21; (4) the cost in 2009-17 of excluding certain self-employment earnings from SECA taxes under Public Law 110-246; and (5) payroll tax revenue forgone under the provisions of Public Laws 111-147, 111-312, 112-78, and 112-96.

c
Projected benefits are estimated as scheduled under current law.

d
The “Trust fund ratio” column represents reserves at the beginning of a year (which are identical to reserves at the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

e
Between -$50 million and $50 million.

Note: Totals do not necessarily equal the sums of rounded components.
4. Factors Underlying Changes in 10-Year Trust Fund Ratio Estimates From the 2013 Report
Table IV.A4 presents an analysis of the factors underlying the changes in the intermediate estimates over the short-range projection period for the OASI, DI, and the combined funds from last year’s report to this report.
In the 2013 report, the trust fund ratio for OASI reached 250 percent at the beginning of 2022 — the tenth projection year for that report. The change in the short-range valuation period alone, from 2013‑22 to 2014‑23, lowered the estimated trust fund ratio for the tenth year by 15 percentage points, to 235 percent. Changes to reflect changes in law and regulations since last year’s report, the most recent data, adjustments to the assumptions for future years, and changes in projection methods further reduced the ratio for the tenth projection year to 232 percent.
Changes in demographic assumptions over the short-range period did not significantly affect the projected tenth-year trust fund ratio for OASI. Changes in economic data and assumptions, primarily the effect of lower cost-of-living adjustments, lower interest rates, and lower payroll tax revenues over the ten year period, generated partially offsetting effects on OASI trust fund ratios resulting in a net reduction in the OASI trust fund ratio of 2 percentage points by the beginning of 2023. Incorporating recent programmatic data, including the numbers of beneficiaries and amount of benefit payments, resulted in no significant net effect on the tenth year OASI trust fund ratio. In addition, there are two changes in the short-range projection methodology worth noting as compared to the methodology used for the 2013 report. The first of these is an improvement in the process used to project the average benefit for new awards, and the second is a refinement of the method for projecting the number of retired workers. In combination, these methodology changes decreased the ending trust fund ratio by a net of 1 percentage point, primarily due to the second change. Finally, the totality of legislative and regulatory changes since the 2013 report was published, including the United States v. Windsor decision, did not have a significant effect on the tenth year trust fund ratio. See section III.B for details.
Table IV.A4 also shows corresponding estimates of the factors underlying the changes in the financial projections for the DI Trust Fund, and for the combined OASI and DI Trust Funds. The ratios at the beginning of 2022 for the DI Trust Fund and the combined OASI and DI Trust Funds in last year’s report, as well as the corresponding ratios for the beginning of 2023 in this year’s report, are theoretical because the Trustees project that the DI Trust Fund reserves will be depleted prior to the end of the short range projection period. The DI trust fund ratio increased by 9 percentage points due to lower-than-expected disability incidence rates experienced since last year. The overall 9-percentage-point decrease in the DI trust fund ratio is the net effect of this change in disability incidence and the other factors described above for the OASI Trust Fund.
Trust fund ratio shown in last year’s report for calendar year 2022a

a
Figures for DI, and OASI and DI combined, are theoretical because the DI Trust Fund reserves are depleted before the beginning of the tenth year under the assumptions of each report. The figures for DI are the ratios of the unfunded obligation at the beginning of the tenth year to cost for that year.

b
Between -0.5 and 0.5 percent.

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

1
The estimates shown in this subsection reflect 12 months of scheduled benefits in each year of the short-range projection period. In practice, the actual payment dates have at times shifted over calendar year boundaries as a result of the statutory requirement for early delivery of benefit checks when the normal check delivery date is a Saturday, Sunday, or legal public holiday.

2
Advance tax transfers are a change in the timing of the crediting of payroll tax income to a trust fund in which all payroll taxes for a month are credited to the trust fund on the first of the month rather than throughout the month. This timing change allows the trust fund to pay benefits due early in the month on time. Advance tax transfers are permitted under current law only when necessary to pay scheduled benefits.


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