1999 ANNUAL REPORT OF THE BOARD OF TRUSTEES

OF THE FEDERAL OLD-AGE AND SURVIVORS

INSURANCE AND DISABILITY INSURANCE TRUST

FUNDS

COMMUNICATION

FROM

THE BOARD OF TRUSTEES, FEDERAL OLDAGE AND SURVIVORS INSURANCE AND

DISABILITY INSURANCE TRUST FUNDS

TRANSMITTING

THE 1999 ANNUAL REPORT OF THE BOARD OF TRUSTEES OF THE

FEDERAL OLD-AGE AND SURVIVORS INSURANCE AND THE FEDERAL DISABILITY INSURANCE TRUST FUNDS, PURSUANT TO

SECTION 201(C)(2) OF THE SOCIAL SECURITY ACT, AS AMENDED
.
(III)

LETTER OF TRANSMITTAL

BOARD OF TRUSTEES OF THE

FEDERAL OLD-AGE AND SURVIVORS INSURANCE

AND DISABILITY INSURANCE TRUST FUNDS,

Washington, D.C., March 30, 1999

The Honorable J. Dennis Hastert

Speaker of the House of Representatives

Washington, D.C.

The Honorable Albert Gore, Jr.

President of the Senate

Washington, D.C.

Gentlemen: 

We have the honor of transmitting to you the 1999 Annual Report of the Board of

Trustees of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal

Disability Insurance Trust Fund (the 59th such report), in compliance with section

201(c)(2) of the Social Security Act.

Respectfully,

/S/ /S/

Robert E. Rubin, Secretary of the

Treasury, and Managing

Trustee of the Trust Funds.

Alexis M. Herman, Secretary 

of Labor, and Trustee.

/S/ /S/

Donna E. Shalala, Secretary of

Health and Human Services,

and Trustee.

Kenneth S. Apfel, Commissioner

of Social Security, and Trustee.

/S/ /S/

Stephen G. Kellison, Trustee. Marilyn Moon, Trustee.

/S/

John R. Dyer, Principal Deputy 

Commissioner of Social Security , 

and Secretary, Board of Trustees.
.
(V)

CONTENTS

I. OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

B. HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

C. TRUST FUND FINANCIAL OPERATIONS . . . . . . . . . . . . . . . . . . . . 6

1. Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3. Trust Fund Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

D. INTRODUCTION TO ACTUARIAL ESTIMATES . . . . . . . . . . . . . . . 9

E. ECONOMIC AND DEMOGRAPHIC ASSUMPTIONS. . . . . . . . . . . . 11

1. Economic Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2. Demographic Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

F. SHORT-RANGE ACTUARIAL ESTIMATES . . . . . . . . . . . . . . . . . . . 14

1. OASI Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

2. DI Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3. OASI and DI Trust Funds, Combined . . . . . . . . . . . . . . . . . . . . . 16

G. LONG-RANGE ACTUARIAL ESTIMATES . . . . . . . . . . . . . . . . . . . . 18

1. Annual Income Rates, Cost Rates, and Balances. . . . . . . . . . . . 18

2. Summarized Income Rates, Cost Rates, and Balances . . . . . . . 21

3. Trust Fund Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4. Test of Long-Range Close Actuarial Balance . . . . . . . . . . . . . . . 26

H. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

1. Short-Term Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2. Long-Term Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

3. Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

II. ACTUARIAL ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

A. SOCIAL SECURITY AMENDMENTS SINCE

THE 1998 REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

B. DESCRIPTION OF THE TRUST FUNDS . . . . . . . . . . . . . . . . . . . . . 32

C. SUMMARY OF THE OPERATIONS OF THE OLD-AGE AND 

SURVIVORS INSURANCE AND DISABILITY INSURANCE 

TRUST FUNDS, FISCAL YEAR 1998. . . . . . . . . . . . . . . . . . . . . . . . 38

1. Old-Age and Survivors Insurance Trust Fund . . . . . . . . . . . . . . . 38

2. Disability Insurance Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 43

3. Old-Age and Survivors Insurance and Disability 

Insurance Trust Funds, Combined . . . . . . . . . . . . . . . . . . . . . . . 48
(VI)

D. PRINCIPAL ECONOMIC AND DEMOGRAPHIC ASSUMPTIONS. . 53

1. Economic Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

a. GDP, Labor Productivity, and Labor Force Growth . . . . . . . . 54

b. Unemployment Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

c. Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

d. Growth in Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

e. Trust Fund Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

2. Demographic Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

a. Fertility Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

b. Death Rate and Life Expectancy . . . . . . . . . . . . . . . . . . . . . . 60

c. Immigration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

E. AUTOMATIC ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

F. ACTUARIAL ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

1. Operations and Status of the Trust Funds During

the Period October 1, 1998, to December 31, 2008 . . . . . . . . . . 76

a. OASI Trust Fund Operations . . . . . . . . . . . . . . . . . . . . . . . . . 77

b. DI Trust Fund Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

c. Combined OASI and DI Trust Fund Operations . . . . . . . . . . . 85

2. Long-Range Actuarial Status of the Trust Funds . . . . . . . . . . . . 106

a. Annual Income Rates, Cost Rates, and Balances . . . . . . . . . 107

b. Summarized Income Rates, Cost Rates, and Balances . . . . . 111

c. Test of Long-Range Close Actuarial Balance. . . . . . . . . . . . . 114

d. Income and Cost Rates by Component . . . . . . . . . . . . . . . . . 118

e. Comparison of Workers to Beneficiaries. . . . . . . . . . . . . . . . . 121

f. Trust Fund Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

g. Reasons for Change in Actuarial Balance 

From Last Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

G. LONG-RANGE SENSITIVITY ANALYSIS. . . . . . . . . . . . . . . . . . . . . 131

1. Total Fertility Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

2. Death Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

3. Net Immigration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

4. Real-Wage Differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

5. Consumer Price Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

6. Real Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

7. Disability Incidence Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

8. Disability Termination Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

H. ASSUMPTIONS AND METHODS UNDERLYING THE

ACTUARIAL ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

1. Total Population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

2. Covered Population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

3. Average Earnings, Inflation, and Real Interest Rate . . . . . . . . . . 147

4. Taxable Payroll and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

5. Insured Population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

6. Old-Age and Survivors Insurance Beneficiaries . . . . . . . . . . . . . 152

7. Disability Insurance Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 158
(VII)

8. Average Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

9. Benefit Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

10. Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

11. Railroad Retirement Financial Interchange . . . . . . . . . . . . . . . . . 164

12. Benefits to Uninsured Persons . . . . . . . . . . . . . . . . . . . . . . . . . . 165

13. Military-Service Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

14. Income From Taxation of Benefits. . . . . . . . . . . . . . . . . . . . . . . . 165

III. APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

A. ACTUARIAL ESTIMATES FOR THE OASDI AND HI

PROGRAMS, COMBINED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

B. LONG-RANGE ESTIMATES OF SOCIAL SECURITY

TRUST FUND OPERATIONS IN DOLLARS. . . . . . . . . . . . . . . . . . . 173

C. LONG-RANGE ESTIMATES OF SOCIAL SECURITY

TRUST FUND OPERATIONS AS A PERCENTAGE

OF GROSS DOMESTIC PRODUCT. . . . . . . . . . . . . . . . . . . . . . . . . 185

D. TEN YEAR HISTORY OF ACTUARIAL BALANCE ESTIMATES . . . 191

E. ACTUARIAL ANALYSIS OF BENEFIT DISBURSEMENTS

FROM THE FEDERAL OLD-AGE AND SURVIVORS

INSURANCE TRUST FUND WITH RESPECT TO

DISABLED BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

F. FEDERAL REGISTER NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

G. GLOSSARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

H. STATEMENT OF ACTUARIAL OPINION . . . . . . . . . . . . . . . . . . . . . 219
.
(IX)

TABLES

I.B1 Change in Actuarial Balance Over the Next 75 Years Based on 

Intermediate Assumptions by Reason for Change . . . . . . . . . . . . 5

I.C1 Summary of OASDI Trust Fund Operations . . . . . . . . . . . . . . . . . 6

I.C2 Tax Rates for 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

I.E1 Ultimate Economic and Demographic Assumptions . . . . . . . . . . . 11

I.G1 OASDI Income and Cost Rates for 25-Year Subperiods. . . . . . . . 22

I.G2 OASDI Income and Cost Rates for 75-Year Valuation Period. . . . 23

I.G3 OASDI Trust Fund Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

II.B1 Contribution and Benefit Base and Contribution Rates . . . . . . . . . 33

II.C1 Statement of Operations of the OASI Trust Fund 

During Fiscal Year 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

II.C2 Assets of the OASI Trust Fund, by Type, Interest Rate, and 

Year of Maturity, at End of Fiscal Year, 1997 and 1998. . . . . . . . . 42

II.C3 Statement of Operations of the DI Trust Fund 

During Fiscal Year 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

II.C4 Assets of the DI Trust Fund, by Type, Interest Rate, and 

Year of Maturity, at End of Fiscal Year, 1997 and 1998. . . . . . . . . 47

II.C5 Statement of Operations of the OASI and DI Trust Funds,

Combined, During Fiscal Year 1998 . . . . . . . . . . . . . . . . . . . . . . . 48

II.C6 Comparison of Actual and Estimated Operations of the

OASI and DI Trust Funds, Fiscal Year 1998 . . . . . . . . . . . . . . . . . 50

II.C7 Estimated Distribution of Benefit Payments From the OASI 

and DI Trust Funds, by Type of Beneficiary or Payment, 

Fiscal Years 1997 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

II.C8 Net Administrative Expenses as a Percentage of 

Contribution Income and of Benefit Payments, 

by Trust Fund, Fiscal Years 1994-98. . . . . . . . . . . . . . . . . . . . . . . 51

II.C9 Investment Transactions of the OASI and DI Trust Funds 

in Fiscal Year 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

II.D1 Selected Economic Assumptions by Alternative,

Calendar Years 1960-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

II.D2 Selected Demographic Assumptions by Alternative, 

Calendar Years 1940-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

II.E1 Average Wage Index, Calendar Years 1951-97 . . . . . . . . . . . . . . 65

II.E2 Cost-of-Living Benefit Increases, Average Wage Index Increases, 

OASDI Contribution and Benefit Bases, and Retirement Earnings 

Test Exempt Amounts, by Alternative, 1975-2008. . . . . . . . . . . . . 66
(X)

II.E3 Selected OASDI Program Amounts Determined Under the 

Automatic-Adjustment Provisions, Calendar Years 1978-99, 

and Projected Future Amounts, Calendar Years 2000-08, 

on the Basis of the Intermediate Set of Assumptions . . . . . . . . . . 69

II.E4 Increases in Normal Retirement Age and Delayed Retirement 

Credits, With Resulting Benefit, as a Percentage of PIA, 

Payable at Selected Ages, for Persons Reaching Age 62 

in Each Year 1986 and Later . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

II.F1 Estimated Operations of the OASI Trust Fund by Alternative, 

Calendar Years 1998-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

II.F2 Estimated Operations of the DI Trust Fund by Alternative,

Calendar Years 1998-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

II.F3 Estimated Operations of the OASI and DI Trust Funds, 

Combined, by Alternative, Calendar Years 1998-2008 . . . . . . . . . 86

II.F4 Trust Fund Ratios by Trust Fund, Selected Calendar 

Years 1950-98, and Estimated Future Ratios by 

Alternative, Calendar Years 1999-2008 . . . . . . . . . . . . . . . . . . . . . 89

II.F5 Change in OASI and DI Trust Fund Ratios at the Beginning 

of the Tenth Year of Projection, Based on the Intermediate 

Assumptions, by Reason for Change . . . . . . . . . . . . . . . . . . . . . . 91

II.F6 Comparison of Income Rates and Cost Rates, by Trust Fund, 

Selected Calendar Years 1950-98, and Estimated Rates by 

Alternative, Calendar years 1999-2008 . . . . . . . . . . . . . . . . . . . . . 92

II.F7 Operations of the OASI Trust Fund During Selected Fiscal 

Years 1940-98 and Estimated Future Operations During 

Fiscal Years 1999-2008, on the Basis of the Intermediate 

Set of Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

II.F8 Operations of the OASI Trust Fund During Selected Calendar

Years 1940-98 and Estimated Future Operations During 

Calendar Years 1999-2008, on the Basis of the Intermediate 

Set of Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

II.F9 Operations of the DI Trust Fund During Selected Fiscal 

Years 1960-98 and Estimated Future Operations During 

Fiscal Years 1999-2008, on the Basis of the Intermediate 

Set of Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

II.F10 Operations of the DI Trust Fund During Selected Calendar

Years 1960-98 and Estimated Future Operations During 

Calendar Years 1999-2008, on the Basis of the Intermediate 

Set of Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

II.F11 Operations of the OASI and DI Trust Funds, Combined, 

During Selected Fiscal Years 1960-98 and Estimated 

Future Operations During Fiscal Years 1999-2008, on the 

Basis of the Intermediate Set of Assumptions . . . . . . . . . . . . . . . . 102
(XI)

II.F12 Operations of the OASI and DI Trust Funds, Combined, 

During Selected Calendar Years 1960-98 and Estimated 

Future Operations During Calendar Years 1999-2008, on the 

Basis of the Intermediate Set of Assumptions. . . . . . . . . . . . . . . . 104

II.F13 Comparison of Estimated Income Rates and Cost Rates by

Trust Fund and Alternative, Calendar Years 1999-2075 . . . . . . . 108

II.F14 Comparison of Summarized Income Rates and Cost Rates 

for 25-Year Subperiods, by Trust Fund and Alternative, 

Calendar Years 1999-2073 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

II.F15 Comparison of Summarized Income Rates and Cost Rates 

for Valuation Periods, by Trust Fund and Alternative, 

Calendar Years 1999-2073 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

II.F16 Comparison of Estimated Long-Range Actuarial Balances 

With the Minimum Allowable for the Test for Close Actuarial 

Balance by Trust Fund, Based on Intermediate Estimates . . . . . . 117

II.F17 Components of Annual Income Rates by Trust Fund and 

Alternative, Calendar Years 1999-2075. . . . . . . . . . . . . . . . . . . . . 119

II.F18 Components of Summarized Income Rates and Cost Rates 

by Trust Fund and Alternative, Calendar Years 1999-2073. . . . . . 121

II.F19 Comparison of OASDI Covered Workers and Beneficiaries

by Alternative, Calendar Years 1945-2075 . . . . . . . . . . . . . . . . . . 122

II.F20 Estimated Trust Fund Ratios by Trust Fund and Alternative,

Calendar Years 1999-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

II.F21 Change in Actuarial Balance Over the Next 75 Years 

Based on Intermediate Assumptions by Trust Fund 

and Reason for Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

II.G1 Estimated OASDI Income Rates, Cost Rates, and 

Actuarial Balances, Based on Intermediate Estimates 

With Various Fertility Assumptions . . . . . . . . . . . . . . . . . . . . . . . . 132

II.G2 Estimated OASDI Income Rates, Cost Rates, and 

Actuarial Balances, Based on Intermediate Estimates 

With Various Death-Rate Assumptions . . . . . . . . . . . . . . . . . . . . . 133

II.G3 Estimated OASDI Income Rates, Cost Rates, and 

Actuarial Balances, Based on Intermediate Estimates 

With Various Net-Immigration Assumptions . . . . . . . . . . . . . . . . . 134

II.G4 Estimated OASDI Income Rates, Cost Rates, and 

Actuarial Balances, Based on Intermediate Estimates 

With Various Real-Wage Assumptions . . . . . . . . . . . . . . . . . . . . . 136

II.G5 Estimated OASDI Income Rates, Cost Rates, and 

Actuarial Balances, Based on Intermediate Estimates 

With Various CPI-Increase Assumptions. . . . . . . . . . . . . . . . . . . . 137
(XII)

II.G6 Estimated OASDI Income Rates, Cost Rates, and 

Actuarial Balances, Based on Intermediate Estimates 

With Various Real-Interest Assumptions . . . . . . . . . . . . . . . . . . . . 138

II.G7 Estimated OASDI Income Rates, Cost Rates, and 

Actuarial Balances, Based on Intermediate Estimates 

With Various Disability Incidence Assumptions . . . . . . . . . . . . . . . 139

II.G8 Estimated OASDI Income Rates, Cost Rates, and 

Actuarial Balances, Based on Intermediate Estimates 

With Various Disability Termination Assumptions . . . . . . . . . . . . . 140

II.H1 Social Security Area Population as of July 1 and 

Dependency Ratios, by Alternative and Broad Age Group, 

Calendar Years 1950-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

II.H2 OASI Beneficiaries With Monthly Benefits in 

Current-Payment Status as of December 31 by 

Alternative, Calendar Years 1945-2075 . . . . . . . . . . . . . . . . . . . . . 156

II.H3 DI Beneficiaries With Monthly Benefits in 

Current-Payment Status as of December 31 by 

Alternative, Calendar Years 1960-2075 . . . . . . . . . . . . . . . . . . . . . 162

III.A1 Contribution Rates for the OASDI and HI Programs . . . . . . . . . . . 168

III.A2 Comparison of Estimated Income Rates and 

Cost Rates for OASDI and HI by Alternative, 

Calendar Years 1999-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

III.A3 Comparison of Summarized Income Rates and 

Cost Rates for 25-Year Subperiods, for OASDI and HI 

by Alternative, Calendar Years 1999-2073 . . . . . . . . . . . . . . . . . . 171

III.A4 Comparison of Summarized Income Rates and 

Cost Rates for Valuation Periods, for OASDI and HI 

by Alternative, Calendar Years 1999-2073 . . . . . . . . . . . . . . . . . . 172

III.B1 Selected Economic Variables by Alternative, 

Calendar Years 1998-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

III.B2 Estimated Operations of the Combined OASI and DI 

Trust Funds in Constant 1999 Dollars by Alternative, 

Calendar Years 1999-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

III.B3 Estimated Operations of the Combined OASI and DI 

Trust Funds in Current Dollars by Alternative, 

Calendar Years 1999-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

III.B4 Estimated OASDI and HI Income Excluding Interest, 

Outgo, and Balance in Current Dollars by Alternative, 

Calendar Years 1999-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

III.B5 Estimated Annual Benefit Amount Payable to Retired 

Workers With Various Steady Pre-Retirement Earnings 

Levels Based on Intermediate Assumptions, 

Calendar Years 1999-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
(XIII)

III.C1 Estimated OASDI and HI Income Excluding Interest, Outgo, 

and Balance as a Percentage of GDP by Alternative, 

Calendar Years 1999-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

III.C2 Ratio of OASDI Taxable Payroll to GDP by Alternative, 

Calendar Years 1999-2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

III.D1 Long-Range Actuarial Balances for the OASDI Program as 

Shown for the Intermediate Assumptions in the Trustees 

Reports Issued in Years 1989-99 . . . . . . . . . . . . . . . . . . . . . . . . . 193

III.E1 Benefit Disbursements From the OASI Trust Fund With 

Respect to Disabled Beneficiaries, Selected Calendar 

Years 1960-98 and Estimated Future Disbursements 

During 1999-2008 Based on Intermediate Assumptions . . . . . . . . 195

III.E2 Benefit Disbursements Under the OASDI Program With 

Respect to Disabled Beneficiaries, by Trust Fund, 

Selected Calendar Years 1960-98, and Estimated 

Future Disbursements During 1999-2008 Based on 

Intermediate Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
.
(XV)

FIGURES

I.F1 OASI Trust Fund Ratios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

I.F2 DI Trust Fund Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

I.F3 Trust Fund Ratios for OASI and DI Trust Funds, Combined . . . . . 17

I.G1 OASDI Income Rates and Cost Rates. . . . . . . . . . . . . . . . . . . . . . 19

I.G2 Number of Workers Per Beneficiary . . . . . . . . . . . . . . . . . . . . . . . 21

I.G3 Trust Fund Ratios for OASI and DI Trust Funds, Combined . . . . . 25

II.F1 Estimated Assets at End of Year, for OASI and DI Trust Funds 

Combined, by Alternative, Calendar Years 1988-2008 . . . . . . . . . 88

II.F2 Estimated Trust Fund Ratios, for OASI and DI Trust Funds 

Combined, by Alternative, Calendar Years 1988-2008 . . . . . . . . . 89

II.F3 Estimated OASDI Income Rates and Cost Rates

by Alternative, Calendar Years 1985-2075 . . . . . . . . . . . . . . . . . . 111

II.F4 Comparison of Estimated Long-Range Actuarial Balances 

With the Minimum Allowable for Close Actuarial Balance, 

Alternative II by Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

II.F5 Ratios of Estimated OASDI Beneficiaries Per 100 Covered 

Workers by Alternative, Calendar Years 1985-2075 . . . . . . . . . . . 124

II.F6 Estimated Trust Fund Ratios, for OASI and DI Trust Funds 

Combined, by Alternative, Calendar Years 1985-2075 . . . . . . . . . 128

III.B1 Estimated OASDI Income and Outgo in Constant Dollars,

Based on Alternative II by Calendar Year . . . . . . . . . . . . . . . . . . . 178
.
1

I. OVERVIEW

A. INTRODUCTION

The Old-Age, Survivors, and Disability Insurance (OASDI) program

in the United States provides protection against the loss of earnings

due to retirement, death, or disability. The OASDI program consists of

two separate parts which pay monthly benefits to workers and their

families—Old-Age and Survivors Insurance (OASI) and Disability

Insurance (DI). Under OASI, monthly benefits are paid to retired

workers and their families and to survivors of deceased workers.

Under DI, monthly benefits are paid to disabled workers and their

families.

The Board of Trustees was established under the Social Security Act

to oversee the financial operations of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance

Trust Fund. The Board is composed of six members, four of whom

serve automatically by virtue of their positions in the Federal Government: the Secretary of the Treasury, who is the Managing Trustee, the

Secretary of Labor, the Secretary of Health and Human Services, and

the Commissioner of Social Security. The other two members are

appointed by the President and confirmed by the Senate to serve as

public representatives: Stephen G. Kellison and Marilyn Moon are

currently serving 4-year terms that began on July 20, 1995.

The Social Security Act requires that the Board, among other duties,

report annually to the Congress on the financial and actuarial status

of the OASI and DI Trust Funds. This annual report, for 1999, is the

59th such report.
Overview

2

B. HIGHLIGHTS

Important developments since the 1998 Annual Report was issued are

shown below:

 • During calendar year 1998, OASDI benefits amounting to $375.0

billion were paid to retired and disabled workers and their families, and to survivors of deceased workers.

 • The number of persons receiving monthly OASDI benefits at the

end of December 1998 was 44.2 million.

 • In 1998, an estimated 148 million people worked in jobs covered

by the OASDI program and paid OASDI contributions on their

earnings.

 • Income to the combined OASI and DI Trust Funds amounted to

$489.2 billion in calendar year 1998, and expenditures were

$382.3 billion. The assets of the combined funds, therefore,

increased by $106.9 billion, from $655.5 billion at the end of

December 1997 to $762.5 billion at the end of December 1998.

 • Assets at the beginning of the year, as a percentage of expenditures during the year, increased from 171 percent at the beginning of 1998 to an estimated 194 percent at the beginning of

1999, for the combined OASI and DI Trust Funds.

 • Interest earnings on the invested assets of the combined OASI

and DI Trust Funds were $49.3 billion in calendar year 1998.

This represented an effective annual interest rate of 7.2 percent,

earned by the combined assets during calendar year 1998. During the same period, the average interest rate on new securities

purchased by the trust funds was 5.6 percent.

 • Administrative expenses for the OASDI program were $3.5 billion in calendar year 1998, or about 0.9 percent of benefit payments in the year.

 • An automatic benefit increase of 1.3 percent became effective for

December 1998. The OASDI contribution and benefit base was

increased from $68,400 for 1998, to $72,600 for 1999.
3

Highlights

The major findings of this report are summarized below:

Short-Range Results

 • In the short range (i.e., the next 10 years) the combined assets of

the OASI and DI Trust Funds are expected to increase from the

current level of $762.5 billion at the end of calendar year 1998, or

194 percent of estimated expenditures in 1999, to $2,327 billion,

or 350 percent of annual expenditures, at the beginning of 2009,

based on the intermediate assumptions.

 • The assets of the OASI Trust Fund are expected to increase rapidly during the next 10 years, from 200 percent of annual expenditures at the beginning of 1999 to 386 percent of annual

expenditures at the beginning of 2009, based on the intermediate

assumptions.

 • The assets of the DI Trust Fund are expected to increase from

153 percent of annual expenditures at the beginning of 1999 to

213 percent of annual expenditures at the beginning of 2004,

based on the intermediate assumptions. While the assets of the

fund, in nominal dollars, continue to grow during the subsequent

5 years, assets relative to annual expenditures begin to decline in

2004, becoming 176 percent at the beginning of 2009.

 • The combined OASI and DI Trust Funds, as well as each fund

separately, are adequately financed over the next 10 years and

meet the short-range test for financial adequacy.

Long-Range Results

 • The assets of the combined OASI and DI Trust Funds are

expected to continue growing over the next several years, based

on the intermediate assumptions. By the end of 2021, the assets

are estimated to reach $4.46 trillion, in nominal dollars. The

assets are then estimated to decline until the funds are

exhausted in 2034.

 • In the long range (i.e., the next 75 years) the difference between

the summarized income and cost rates for the OASDI program is

a deficit of 2.07 percent of taxable payroll based on the intermediate assumptions, somewhat smaller than the difference of 2.19

percent in last year’s report. The assets of the combined OASI

and DI Trust Funds are estimated to be depleted under present
Overview

4

law in 2034 based on the intermediate assumptions. At that time,

the estimates indicate that annual tax revenues would be sufficient to cover 71 percent of annual expenditures.

 • On a combined basis, the OASDI program is not in “close actuarial balance” over the next 75 years. In addition, the individual

OASI and DI Trust Funds are not in close actuarial balance.

These results are the same as those shown in the 1998 Annual

Report.

 • With the retirement of the “baby-boom” generation starting in

about 2010, OASDI costs will increase rapidly relative to the taxable earnings of workers. By the end of the 75-year projection

period, the OASDI income rate and cost rate are estimated to

reach 13.4 and 19.8 percent, respectively, under the intermediate

assumptions, resulting in an annual deficit of about 6.4 percent.

Thus, annual tax revenue would be sufficient to cover only about

2/3 of annual expenditures at the end of the 75-year period.

 • The cost of the OASDI program is estimated to rise from its current level of 4.5 percent of gross domestic product (GDP) to 7.0

percent of GDP by the end of the 75-year projection period, and

the annual deficit is estimated to be 2.3 percent of GDP at the

end of the 75-year projection period.

Estimated Operations of the Trust Funds

 • Under the intermediate assumptions, the excess of OASDI tax

revenues over expenditures until 2014, together with interest

earnings on the trust funds, will result in a rapid accumulation of

assets for the combined OASI and DI Trust Funds during this

period. However, total income is estimated to fall short of expenditures beginning in 2022 and in each year thereafter. In this circumstance, trust fund assets would be redeemed to cover the

difference until the assets of the combined funds are exhausted in

2034. 

 • The DI Trust Fund is expected to increase until 2009, and then to

decline steadily until its assets are exhausted in 2020. Because

DI program growth has fluctuated widely in the past, it is essential that the program’s future experience be monitored closely

and that action be taken soon to address the DI Trust Fund’s

actuarial imbalance.
5

Highlights

 • The assets of the OASI Trust Fund are expected to increase until

2024, and then to decline until they are exhausted in 2036.

Because the OASI program is not in close actuarial balance, the

long-range deficit of the OASI Trust Fund should be addressed. 

 • It is important to address the financing of both the OASI and DI

programs soon to allow time for phasing in any necessary

changes and for workers to adjust their retirement plans to take

account of those changes. The importance of this is emphasized

by the high priority that the President and the Congress are giving to the resolution of the program’s long-range financial problems.

Reasons for changes from last year’s report to this report in the longrange actuarial balance of the OASDI program, based on the intermediate assumptions, are shown in table I.B1. Also shown is the estimated effect associated with each reason for change. For a more

detailed discussion of these changes, see section II.F2g.

Table I.B1.—Change in Actuarial Balance Over the Next 75 Years Based on 

Intermediate Assumptions by Reason for Change

[As a percentage of taxable payroll]

Item

OASI and DI,

combined

Actuarial balance shown in last year’s report . . . . . . . . . . . . . . . . . . . . . . -2.19

Changes in actuarial balance due to changes in:

Valuation period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -.08

Demographic assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.03

Economic assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.15

Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.02

Total change in actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.12

Actuarial balance shown in this report . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.07
Overview

6

C. TRUST FUND FINANCIAL OPERATIONS

The various sources of income to the OASDI program, and categories

of expenditures, can be illustrated by reference to the actual transactions during calendar year 1998. Table I.C1 summarizes these transactions.

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

1. Income

Most OASDI income consists of the taxes paid by employees, employers, and the self-employed on earnings covered by the OASDI program. These taxes (also called contributions) are collected under the

Federal Insurance Contributions Act and the Self-Employment Contributions Act. The taxes are paid on earnings up to a specified maximum annual amount (the “contribution and benefit base”), which was

$68,400 for 1998. Table I.C2 shows the allocation of the OASDI tax

rates by program for 1998.

The tax rates for OASDI are not scheduled to change from their current values under present law. The maximum amount of earnings

subject to OASDI taxes increases automatically each year, based on

the increase in the average wage for all workers. In calendar year

1998, OASDI payroll tax income amounted to $430.2 billion, representing 88 percent of the total income received under the OASDI program during the year.

Table I.C1.—Summary of OASDI Trust Fund Operations

Amount in calendar year 1998 (in billions)

Type of income or expenditure OASI DI OASDI

Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $424.8 $64.4 $489.2

Payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371.2 59.0 430.2

Taxation of benefits . . . . . . . . . . . . . . . . . . . . . . . 9.1 .6 9.7

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.5 4.8 49.3

Total expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . 332.3 49.9 382.3

Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . 326.8 48.2 375.0

Railroad Retirement financial interchange . . . . 3.7 .2 3.8

Administrative expenses . . . . . . . . . . . . . . . . . . . 1.9 1.6 3.5

Table I.C2.—Tax Rates for 1998 

OASI DI OASDI

Tax rate for employees and employers, each (in percent) . . . 5.35 0.85 6.20

Tax rate for self-employed persons (in percent) . . . . . . . . . . . 10.70 1.70 12.40
7

Trust Fund Financial Operations

Beneficiaries whose “adjusted gross income” exceeds certain threshold

amounts must pay income taxes on up to 85 percent of their annual

OASDI benefits. The income tax revenue that results from taxing up

to 50 percent of those benefits, together with taxes withheld from the

benefits paid to nonresident aliens, is credited to the OASI and DI

Trust Funds and totaled $9.7 billion in 1998. (The additional tax revenue that results from taxing up to 85 percent of benefits is credited to

the Hospital Insurance (HI) Trust Fund.)

The final source of income to the trust funds is from interest on the

invested assets of the funds. By law, these investments must be in

interest-bearing securities of the U.S. Government or in securities

guaranteed by the United States. Interest from investments in 1998

amounted to $49.3 billion. This represented an effective annual interest rate of 7.2 percent, earned by the assets of the trust funds during

calendar year 1998. During the same period, the average interest rate

on new securities purchased by the trust funds was 5.6 percent.

2. Expenditures

In 1998, benefit payments totaling $375.0 billion were made to retired

and disabled workers and their families, and to survivors of deceased

workers. Such payments represent 98 percent of all expenditures by

the OASDI program. An additional $3.8 billion was transferred from

the OASI and DI Trust Funds to the Railroad Retirement program in

1998, under provisions of the law requiring a financial interchange

between the two programs. The cost of administering the OASDI program in 1998 was $3.5 billion, or about 0.9 percent of total benefits

paid during the year.

3. Trust Fund Assets

In 1998, total income was $489.2 billion and total expenditures were

$382.3 billion. The assets of the OASI and DI Trust Funds therefore

increased by a net total of $106.9 billion during the year, from $655.5

billion to $762.5 billion. The invested assets of the trust funds are

backed by the full faith and credit of the U.S. Government, in the

same way as other public-debt obligations of the United States.

When program income exceeds expenditures, the trust fund serves as

a vehicle to help fund a portion of the program’s accruing financial

obligations in advance. In particular, as invested assets continue to
Overview

8

increase over the next 20 or so years, interest earnings will become a

larger share of total trust fund income. In 1998, interest income to the

combined OASI and DI Trust Funds represented 10.1 percent of total

OASDI income. On a combined basis, interest income in 2008 would

represent an estimated 15.9 percent of total income.

Conversely, if income to a trust fund is inadequate to defray expenditures, the fund’s assets serve as a contingency reserve to cover the

shortfall temporarily. For example, the expenditures of the DI Trust

Fund exceeded income to the fund for most of 1994 (prior to enactment of the OASDI tax rate reallocation), necessitating a redemption

of assets to cover the difference. In the event of recurring shortfalls,

the availability of trust fund assets allows time for the enactment and

implementation of legislation to restore financial stability to the program.
9

Introduction to Actuarial Estimates

D. INTRODUCTION TO ACTUARIAL ESTIMATES

The financial and actuarial status of the OASDI program is traditionally evaluated for both short-range (the next 10 years) and long-range

(the next 75 years) periods. The various income and expenditure

items described in the previous section are estimated separately, and

then combined to form estimates of the future level of trust fund

assets.

A period of 75 years is used to evaluate the long-range actuarial status of the program in order to obtain the full range of financial commitments that will be incurred on behalf of the great majority of

current program participants. For example, a group of workers now

entering the labor force at age 22 will work and pay OASDI taxes for

the next 45 years before reaching age 67. At age 67, those surviving

may retire and begin to receive full benefits (i.e., not reduced for early

retirement). Some of them may live and receive benefits for more than

30 years. Thus, a 75-year projection period will include the entire

working and retired life span of the great majority of workers now

contributing to the program, as well as those now receiving benefits.

The actual future income and expenditures of the OASI and DI Trust

Funds will depend on many factors, including future economic and

demographic conditions. Because of the inherent uncertainty in estimates for as long as 75 years into the future, projections are shown in

this report under three alternative sets of assumptions regarding

future economic and demographic trends. Designated as alternatives

I, II, and III, these sets range from low cost (alternative I) to high cost

(alternative III), with alternative II representing the set of intermediate cost assumptions. The low cost set is more optimistic from the

standpoint of OASDI financing and the high cost set is more pessimistic. In the tables in this report, the intermediate estimates, which the

Board of Trustees regards as their “best estimates,” will be shown

first followed by the low cost and high cost estimates.

The future income and expenditures of the OASDI program will, of

course, also depend on the kinds of future policy changes that may be

made in the program. The estimates presented in this report are

based on the current OASDI program and, thus, do not reflect the

effects of any future legislative changes that have not yet been

enacted into law.

From the estimated income, expenditure, and asset amounts, a number of different measures are calculated for use in evaluating the
Overview

10

financial status of the program. Because of the difficulty in comparing

dollar values for different periods, these measures are generally based

on relative scales (although financial operations in nominal and inflation-adjusted dollar amounts are also available). These relative measures include (1) the annual amounts of future income and outgo as a

percentage of the amount of earnings subject to the OASDI payroll

tax, (2) the annual differences between these income and outgo figures, and (3) summarized values representing these figures over various periods. The level of trust fund assets relative to annual

expenditures and the year in which the trust fund is projected to be

exhausted are also presented as additional measures for evaluating

the financial status of the program. Careful review of these measures

provides a reasonably complete picture of the financial outlook for the

OASDI program.

The program is also subject to two explicit tests of financial status

(see section II.F)—a short-range test and a long-range test. The purpose of these tests is to provide objective criteria for determining

whether or not the projected financial status of the OASDI program is

considered satisfactory in each time period. The tests help highlight

the need for corrective action when they are not met.

As usually required in the analysis of any complex subject, these summary tests should be considered in conjunction with a full understanding of the year-by-year patterns, trends, and other financial

characteristics revealed by the underlying actuarial projections.
11

Economic and Demographic Assumptions

E. ECONOMIC AND DEMOGRAPHIC ASSUMPTIONS

Actual future income from OASDI payroll taxes and other sources,

and actual future expenditures for benefits and administrative

expenses, will depend upon a large number of factors: the size and

composition of the population that is receiving benefits, the level of

monthly benefit amounts, the size and characteristics of the work

force covered under OASDI, and the level of workers’ earnings. These

factors will depend in turn upon future marriage and divorce rates,

birth rates, death rates, migration rates, labor force participation and

unemployment rates, disability incidence and termination rates,

retirement age patterns, productivity gains, wage increases, cost-ofliving increases, and many other economic and demographic factors.

While it is reasonable to assume that actual trust fund experience will

fall within the range defined by the three alternative sets of assumptions used in this report, no definite assurance can be given that this

will occur because of the uncertainty inherent in projections of this

type and length. In general, a greater degree of confidence can be

placed in the assumptions and estimates for the earlier years than for

the later years. Nonetheless, even for the earlier years, the estimates

are only an indication of the expected trend and potential range of

future program experience.

The assumptions vary, in most cases, from year to year during the

first 5 to 30 years before reaching their ultimate values for the

remainder of the 75-year projection period. The following table summarizes the ultimate values assumed for the key economic and demographic factors underlying the actuarial estimates shown in this

report. These ultimate values apply for years after 2029, with the

exception of life expectancy, which is assumed to continue improving

throughout the projection period.

Table I.E1.— Ultimate Economic and Demographic Assumptions

Ultimate assumptions Intermediate Low Cost High Cost

Annual percentage change in:

Average wage in covered employment . . . . . . . . 4.2 3.7 4.7

Consumer Price Index (CPI) . . . . . . . . . . . . . . . . 3.3 2.3 4.3

Real-wage differential (percent) . . . . . . . . . . . . . . . 0.9 1.4 0.4

Unemployment rate (percent) . . . . . . . . . . . . . . . . . . . 5.5 4.5 6.5

Annual interest rate (percent) . . . . . . . . . . . . . . . . . . . 6.3 6.0 6.5

Total fertility rate (children per woman). . . . . . . . . . . . 1.9 2.2 1.6

Life expectancy at birth in 2075 (combined average 

for men and women, in years) . . . . . . . . . . . . . . . . 81.8 78.8 85.7

Annual net immigration (in thousands) . . . . . . . . . . . . 900.0 1,150.0 750.0
Overview

12

1. Economic Assumptions 

Consistent with past practice the Trustees conducted a comprehensive

review and examination of all assumptions, as part of the preparation

for the 1999 report. In particular, the assumptions in this year’s

report fully reflect the implications of the most recent announced

changes in CPI methodology. In light of this year’s review, the ultimate values of three important assumptions were changed.

 • The intermediate CPI inflation rate assumption was lowered

0.2 percentage point, from 3.5 percent to 3.3 percent based on a

Bureau of Labor Statistics (BLS) improvement in the CPI

announced last year.

 • Because the projected nominal interest rate earned on trust fund

assets was left unchanged at 6.3 percent, the intermediate inflation-adjusted interest rate assumption increased from 2.8 percent

to 3.0 percent, due to the lower CPI assumption.

 • The intermediate unemployment rate assumption was lowered

from 6.0 percent to 5.5 percent.

In mid-April 1998, after careful analysis, the BLS announced an

improvement in the method of calculating the CPI by switching from

an arithmetic to a geometric mean formula at a low level of aggregation beginning in January 1999. This change is expected to lower the

future annual growth rate of the CPI by 0.2 percentage point. While

announced too late to be included in the 1998 report, the effect of this

change has been incorporated into the intermediate, low cost and high

cost assumptions for the 1999 Trustees Report. That is, for each alternative, the ultimate annual CPI inflation rate was lowered by 0.2 percentage point compared to last year’s assumption. As a consequence,

the ultimate real interest rate assumption is higher by 0.2 percent in

all three alternatives, because the Trustees did not change last year’s

nominal interest rate assumption. 

The ultimate unemployment rate is 0.5 percentage point lower in the

intermediate, low cost, and high cost assumptions for the 1999 Trustees Report than in the 1998 report. The lower unemployment rate

assumptions reflect a careful analysis of past unemployment rate

behavior including the more recent historical period of low inflation

and low unemployment.

In addition, the projected ultimate annual growth rate for the GDP

deflator was lowered by 0.2 percentage point due to the “pass

through” effect of the CPI change on the GDP deflator as well as the

Trustees’ decision to maintain last year’s assumption that ultimate
13

Economic and Demographic Assumptions

GDP-measured inflation is 0.1 percentage point lower than ultimate

CPI-measured inflation. The projected ultimate annual growth rate in

labor productivity (output per hour) was also left the same as in the

1998 report. Because the Trustees did not change either the inflation

“wedge” or the productivity growth assumption, the long-range ultimate annual real wage differential in this year’s report is unchanged

from last year’s 0.9 percent per year.

Revisions to the economic assumptions during the early years of the

projection period have a net positive effect on the long-range actuarial

balance. The changes reflect both recent actual data, which affect the

starting point of the projections, and an assessment that some of the

recent favorable economic performance, with low unemployment, low

inflation, and faster than expected growth in both GDP and employment, will carry through into the early years of the projection period.

Compared to the 1998 report, this year’s report generally reflects

assumptions of lower CPI increases, lower unemployment rates,

higher productivity gains, faster labor force growth and a higher ratio

of wages to total compensation throughout the first 10 years of the

projection period. In combination, these changes produce somewhat

higher levels of employment, productivity, real wages, and real GDP

throughout the balance of the 75-year projection period. 

2. Demographic Assumptions

The Trustees’ review of the demographic assumptions resulted in ultimate demographic assumptions which are only slightly changed from

those used in the 1998 report. Revisions of demographic assumptions

for the early years of the projection period, based on data collected

since the 1998 report, had little effect on the long-range estimates,

with the exception of changes in the fertility rates.

While the ultimate rates of improvement in mortality are unchanged,

the values for life expectancy are slightly higher because they reflect

the accumulated difference in annual mortality rate assumptions

through the first 25 years.

Based on recently available data for 1997, fertility rates in this report

are higher than those estimated in last year’s report. Because of the

higher starting levels, the fertility rates during the first 25 years of

the projection period are increased slightly over those used in the

1998 report.

These assumptions reflect a careful assessment of past data and

future prospects. Other changes in assumptions and methods

reflected in the estimates in this report are discussed in section II.F.
Overview

14

F. SHORT-RANGE ACTUARIAL ESTIMATES

The financial status of the OASDI program during the next 10 years

(1999-2008) is measured by the estimated level of trust fund assets.

Because of inflation, economic growth, and growth in the OASDI program, asset levels expressed in nominal dollar amounts are not comparable over long periods of time. For this reason, it is more

informative to consider a relative measure of the program’s financial

condition.

For example, OASDI assets at the beginning of calendar year 1999

amounted to $763 billion, while assets at the beginning of 1960 were

$22 billion. The asset level in 1999 would be sufficient to cover

roughly 23 months of expenditures in the absence of other income.

Assets in 1960, although much smaller in nominal dollars, could have

covered about 22 months of expenditures and in that sense represented a contingency reserve of about the same level.

The ratio of trust fund assets at the beginning of a year to expenditures during the year is termed the “trust fund ratio.” This ratio

serves as the primary measure of the fund’s financial adequacy in the

short range. It is also used when applying an explicit test of shortrange financial adequacy.

1. OASI Trust Fund

Figure I.F1 presents historical trust fund ratios for the OASI Trust

Fund in 1988-98 and estimated ratios for 1999-2008 based on the

alternative sets of assumptions.

As shown in figure I.F1, the OASI trust fund ratio is estimated to

increase from 200 percent at the beginning of 1999 to 374 percent by

2008, based on the intermediate (alternative II) assumptions. The

ratio is also estimated to increase during the next 10 years under the

low cost (alternative I) assumptions. However, under the high cost

(alternative III) assumptions the ratio is estimated to level off soon

after the end of the short-range projection period. Because OASI

assets are estimated to exceed 100 percent of annual expenditures

throughout the next 10 years, the OASI Trust Fund meets the

requirements of the Trustees’ formal test of short-range financial adequacy. (This test is described in detail in the section titled “Actuarial

Estimates” later in this report.) Thus, the financing scheduled under

present law for the OASI Trust Fund is considered fully adequate to
15

Short-Range Actuarial Estimates

meet future expenditures over this period and to provide for an adequate contingency reserve.

2. DI Trust Fund

As described in the 1995 Annual Report, legislation enacted in 1994

provided additional financing to the DI Trust Fund through a reallocation of a portion of the OASI tax rate. Largely as a result of this

additional revenue, the DI Trust Fund is currently adequately

financed for the short-range period. As shown in figure I.F2, the DI

trust fund ratio is estimated to increase from 153 percent at the

beginning of 1999 to 188 percent by 2008, based on the intermediate

(alternative II) assumptions. Because DI assets exceeded the level of

1 year’s expenditures at the beginning of 1999 and are estimated to

remain above that level in 2000 and later, the DI Trust Fund meets

the requirements of the Trustees’ formal test of short-range financial

adequacy under the intermediate assumptions.

However, as also shown in figure I.F2, under the high cost assumptions, not only does DI fail to meet the short-range test of financial

adequacy, the DI Trust Fund is projected to be exhausted soon after

the end of the short-range projection period. This situation is similar

to projections made for the 1998 Annual Report.

 Figure I.F1.—OASI Trust Fund Ratios

[Assets as a percentage of annual expenditures]

I

II

III

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Calendar year

Historical Estimated
Overview

16

3. OASI and DI Trust Funds, Combined

Figure I.F3 summarizes the trust fund ratios for the OASI and DI

Trust Funds, combined, in the recent past and estimates for the next

10 years.

 Figure I.F2.—DI Trust Fund Ratios

[Assets as a percentage of annual expenditures]

I

II

III

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Calendar year

Historical Estimated
17

Short-Range Actuarial Estimates

As shown, the trust fund ratio for OASI and DI on a combined basis is

estimated to increase from 194 percent at the beginning of 1999 to 342

percent by 2008, based on the intermediate assumptions. Based on

the low cost assumptions, the ratio would also increase throughout

the 10-year period. Under the high cost assumptions, however, the

ratio would level off after 2005, and begin to decline near the end of

the short-range projection period. However, because the trust fund

ratio for the combined funds is estimated to remain above 100 percent

under the intermediate assumptions, the combined funds meet the

short-range test of financial adequacy.

 Figure I.F3.—Trust Fund Ratios for OASI and DI Trust Funds, Combined

[Assets as a percentage of annual expenditures]

I

II

III

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Calendar year

Historical Estimated
Overview

18

G. LONG-RANGE ACTUARIAL ESTIMATES

The long-range financial estimates provided in this section generally

relate to the OASI and DI Trust Funds on a combined basis. However,

because the OASI and DI programs are legally separate, a final

assessment of the financial status of these funds must be provided on

a separate basis, as is done later in this section. More detailed estimates for these trust funds, both separately and combined, can be

found in section II.F2 of this report.

Each year estimates of the financial and actuarial status of the

OASDI program are prepared for the next 75 years. Although financial estimates for periods as long as 75 years are inherently uncertain,

the results can provide valuable information for policymakers. In particular, such estimates can indicate whether the program—as seen

from today’s vantage point—is considered to be in satisfactory financial condition.

As mentioned previously, a number of different measures are useful in

evaluating the financial status of the trust funds over the next 75

years. In addition to the actuarial balance and the trust fund ratio,

emphasis is placed on the relationship between the estimated future

levels of tax income and expenditures for each year. The year-by-year

patterns of this relationship are of particular interest.

The estimates and measures described above provide a basis for analyzing the expected future cost and income of the OASDI program. In

order to assess the actuarial status of the program a formal test for

long-range “close actuarial balance” is applied.

1. Annual Income Rates, Cost Rates, and Balances

A comparison between past and estimated future OASDI income

(from payroll taxes on covered earnings and income taxes on OASDI

benefits) and OASDI expenditures (for benefits and administrative

expenses credited to OASI and DI Trust Funds) is presented in figure

I.G1. Included are historical data for the past 14 calendar years

(1985-98) and estimates for the 75-year long-range projection period

(1999-2073) under the three alternative sets of assumptions. These

income and expenditure amounts are shown relative to the earnings

in covered employment that are taxable under the OASDI program—

referred to as “taxable payroll.” The ratio of tax income (including

both payroll taxes and income from taxation of benefits) to taxable
19

Long-Range Actuarial Estimates

payroll is called the “income rate” and the ratio of expenditures to taxable payroll is the “cost rate.”

For calendar year 1999, the income rate for the OASDI program is

estimated to be about 12.70 percent of taxable payroll. This rate is the

sum of the combined tax rate payable by employees and employers,

12.40 percent, and the revenue from the income taxation of OASDI

benefits that is credited to the trust funds, equivalent to 0.30 percent

of taxable payroll. Since OASDI payroll tax rates are not scheduled to

change in the future under present law, payroll tax income as a percentage of taxable payroll remains constant at about 12.40 percent.

Income from the taxation of benefits will gradually increase as a percentage of taxable payroll, primarily because a greater proportion of

benefits will become subject to taxation. Thus, the income rate is projected to increase somewhat from its current level, reaching about

13.35 percent of taxable payroll by 2073. The income rate projection

shown in figure I.G1 is based on the intermediate set of assumptions

(alternative II) only; the projections under the low cost and high cost

sets of assumptions (alternatives I and III, respectively) are very similar.

Figure I.G1.—OASDI Income Rates and Cost Rates

[As a percentage of taxable payroll]

II

I

III

0%

5%

10%

15%

20%

25%

30%

35%

1985 1995 2005 2015 2025 2035 2045 2055 2065 2075

Calendar year

Historical

 Income rates

 Cost rates

Estimated
Overview

20

As figure I.G1 indicates, the pattern of the estimated cost rates is

much different from that of the estimated income rates. Costs as a

percentage of taxable payroll are estimated to rise slowly until about

2010 (or to decline slowly, in the case of alternative I) and then to

increase rapidly for about the next 20 years. Thereafter, cost rates are

estimated to grow less rapidly (or to decline somewhat, in the case of

alternative I). By 2073 the cost rate is estimated to reach 14.04 percent, 19.79 percent, and 28.78 percent under alternatives I, II, and III,

respectively.

The primary reason that the estimated OASDI cost rate increases

rapidly after about 2010 is that the number of beneficiaries is projected to increase more rapidly than the number of covered workers.

Because the cost rate expresses expenditures (primarily payments to

beneficiaries) as a percentage of taxable payroll (the taxable earnings

of covered workers), there is a close relationship between the demographic characteristics of the population and the OASDI cost rate.

Figure I.G2 shows the estimated number of covered workers per

OASDI beneficiary. In 1998, there were about 3.4 workers for every

beneficiary. As indicated, this ratio is expected to decline substantially

in the future under all three sets of assumptions. The most rapid

decline will occur as the relatively large number of persons born during the “baby boom” (from the end of World War II through the mid1960s) reaches retirement age and begins to receive benefits. At the

same time, the relatively small number of persons born during the

subsequent period of low fertility rates will comprise the labor force.

Between 2030 and 2050, the number of workers per beneficiary is relatively stable as the “baby-boom” generation diminishes in size. After

2050, this ratio will continue to decline at a slower pace for the intermediate and high cost projections, reflecting the increasing numbers

of beneficiaries due to projected increases in life expectancy. Based on

the low cost assumptions, a slow increase in this ratio is projected to

occur after 2034. By the end of the 75-year projection period, the number of workers per beneficiary is projected to decline to 2.5, 1.8, and

1.3 under the low cost (alternative I), intermediate (alternative II),

and high cost (alternative III) assumptions, respectively.
21

Long-Range Actuarial Estimates

The difference between the income rate and the cost rate in a given

year is referred to as the “annual balance” for that year. The pattern

of the projected OASDI annual balance depends significantly on the

economic and demographic conditions assumed to occur in the future.

Income rates are estimated to exceed cost rates until 2019, 2014, and

2009, under alternatives I, II, and III, respectively, resulting in positive annual balances. Thereafter, under the intermediate assumptions, the annual deficit is projected to rise rapidly, reaching 4.62

percent of taxable payroll for 2030 and 6.44 percent for 2073. Under

alternative I, annual deficits rise to a peak of 2.26 percent of payroll

for 2033, and decline steadily thereafter, falling below 1 percent by

2071. Under adverse conditions, as assumed in alternative III, the

deficit would grow very rapidly, to over 15 percent of taxable payroll

by 2073.

2. Summarized Income Rates, Cost Rates, and Balances

It is useful to consider the income and cost rates on a summarized

basis over the three 25-year subperiods that make up the 75-year projection period. For this purpose, the annual income rates are summarized by calculating the present value of tax income for the subperiod

Figure I.G2.—Number of Workers Per Beneficiary

II

I

III

0

1

2

3

4

1985 1995 2005 2015 2025 2035 2045 2055 2065 2075

Calendar year

Historical

Estimated
Overview

22

in question, and expressing it as a percentage of the present value of

taxable payroll for that subperiod. (“Present values” are used in financial analysis to calculate the lump-sum equivalent value, at a particular point in time, of a series of future amounts or transactions. See the

Glossary for additional information.) Similarly, a summarized cost

rate is calculated, as the present value of expenditures for the subperiod, expressed as a percentage of the present value of taxable payroll

for that subperiod. The following table shows these summarized rates

for the OASDI program for the three 25-year subperiods.

A small positive balance is shown under the intermediate alternative

II assumptions for the first subperiod; thereafter, the program is projected to experience substantial deficits, for the reasons outlined previously. Under the low cost alternative I assumptions, summarized

tax income would also exceed summarized costs only for the first 25-

year subperiod, with deficits diminishing to relatively low levels in

the third subperiod. (The less favorable outlook for the second subperiod occurs under the low cost assumptions because the “baby-boom”

generation is retiring throughout this period, while the assumed

higher ultimate fertility rates have not yet had their full effect on the

estimated numbers of workers.) If the high cost conditions of alternative III are experienced, substantial deficits are projected to occur for

all three subperiods.

To assess the overall financial balance for the long range, it is customary to calculate summarized income rates and cost rates for the full

75-year valuation period. For this purpose, summarized income and

cost rates are calculated on a present-value basis, as before. In addition, the summarized income rate is augmented by the value of trust

fund assets on hand at the beginning of the period. Similarly, the

summarized cost rate is adjusted to include the additional cost of

accumulating trust fund assets at the end of the period equal to 100

 Table I.G1.—OASDI Income and Cost Rates for 25-Year Subperiods

Income rate Cost rate Balance

Intermediate:

1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.78 12.50 0.28

2024-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.12 17.79 -4.67

2049-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.28 18.99 -5.71

Low Cost:

1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.74 11.38 1.36

2024-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.99 14.85 -1.85

2049-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.05 14.24 -1.19

High Cost:

1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.82 13.70 -.88

2024-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.28 21.18 -7.89

2049-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.62 25.80 -12.19
23

Long-Range Actuarial Estimates

percent of the following year’s expenditures. The results of this calculation are shown in the following table.

The difference between the summarized income and cost rates for the

75-year valuation period is called the “actuarial balance” and ranges

from a positive actuarial balance of 0.23 percent of taxable payroll

under the low cost assumptions to a deficit of 4.97 percent under the

high cost assumptions. Based on the intermediate assumptions, an

actuarial deficit of 2.07 percent is projected, representing the difference between the summarized income rate of 13.49 percent and the

corresponding cost rate of 15.56 percent.

The estimated actuarial deficit is smaller than the corresponding deficit of 2.19 percent of payroll in last year’s report. If the only change for

this year’s report was to change the long-range valuation period from

1998-2072 to 1999-2073, the deficit for this year’s report would have

risen to 2.27 percent of payroll. However, there are a number of other

changes that have the net effect of more than offsetting the increase

in the deficit which results from the change in valuation period. The

principal changes contributing to the improved actuarial balance are

some slightly more favorable economic assumptions in the long term

and stronger economic growth in the near term than was expected in

last year’s report. See section II.F2g for complete details on the

change in actuarial balance from last year’s report.

The size of the actuarial balance for any valuation period represents a

measure of the program’s financial adequacy for that period. The

actuarial balance can be interpreted as the amount of change which, if

made to the payroll tax rates scheduled under present law for each

year in the period, would bring the program into exact actuarial balance. For example, if the 75-year actuarial deficit of 2.07 percent

under intermediate assumptions were addressed by raising scheduled

tax rates by 1.04 percent for employees and employers, each, and by

2.08 percent for the self-employed, then OASDI assets at the beginning of 1999, together with income from payroll taxes, interest, and

other sources, would be just sufficient to meet all expenditures for the

 Table I.G2.—OASDI Income and Cost Rates for 75-Year Valuation Period

Income rate Cost rate

Actuarial

balance

Intermediate:

1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.49 15.56 -2.07

Low Cost:

1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.37 13.14 .23

High Cost:

1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.62 18.60 -4.97
Overview

24

long-range period and leave a trust fund level at the end of the period

equal to about 100 percent of the following year’s expenditures. Of

course, there are numerous other changes to tax rates, revenue provisions, or benefit provisions that could also result in the elimination of

the long-range actuarial deficit.

The 75-year actuarial balance is a convenient and widely used measure of the OASDI program’s overall financial status. It is important

to remember, however, that this summary measure reflects the combined effects of several very different periods, as previously described.

Thus, while the use of summary measures such as the actuarial balance is often convenient, such measures should not be used as a substitute for a more complete understanding of the underlying year-byyear outlook.

3. Trust Fund Ratios

As noted previously, the total income of the OASDI program currently

exceeds total expenditures by a substantial margin. As a result, the

assets of the combined trust funds are increasing rapidly. Under the

intermediate alternative II assumptions, tax income is expected to

exceed expenditures until 2014, when the cost of the program will

start to increase more rapidly with the retirement of the “baby-boom”

generation. Beginning with 2014, the tax income projected under

present law is expected to be insufficient to cover program expenditures, making it necessary to draw upon the annual interest earned

on trust fund assets to make up the shortfall. Total income, including

interest earnings, is expected to exceed expenditures until 2022. It

will then be necessary to draw on accumulated trust fund assets,

effectively redeeming assets to make up the shortfall. If no corrective

action were taken, trust fund assets would be exhausted by the end of

2034. At that time, the annual tax revenues of the combined trust

funds would be sufficient to cover about 71 percent of annual expenditures. The resulting pattern of combined OASI and DI assets,

expressed as a percentage of annual expenditures, is illustrated in figure I.G3 under each of the three alternative sets of assumptions.

At the beginning of 1999, the combined assets of the OASI and DI

Trust Funds represented about 194 percent of combined expenditures

estimated for the year. Based on the intermediate assumptions, assets

would accumulate to a peak of 364 percent of expenditures in 2013,

and would then decline steadily until exhaustion in 2034. Based on

the intermediate estimates in last year’s report, the peak fund ratio
25

Long-Range Actuarial Estimates

for the combined funds was estimated to be 324 percent in 2012 and

the year of exhaustion was estimated to be 2032.

For OASI and DI, separately, the peak fund ratios based on the intermediate assumptions are 415 and 213 percent, respectively, in this

year’s report and 367 percent and 201 percent, respectively, in last

year’s report. The following table presents a summary of the projections in this year’s report for OASI, DI, and the combined trust funds

under the three sets of assumptions for the period 1999 through 2073.

Figure I.G3.—Trust Fund Ratios for OASI and DI Trust Funds, Combined

[Assets as a percentage of annual expenditures]

 Table I.G3.—OASDI Trust Fund Ratios

OASI DI Combined

Intermediate:

Maximum trust fund ratio (percent) . . . . . . . . . . . . . 415 213 364

Year attained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 2004 2013

Year of exhaustion. . . . . . . . . . . . . . . . . . . . . . . . . . 2036 2020 2034

Low Cost:

Maximum trust fund ratio (percent) . . . . . . . . . . . . . 550 1,439 529

Year attained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 2073 2018

Year of exhaustion. . . . . . . . . . . . . . . . . . . . . . . . . . ———

High Cost:

Maximum trust fund ratio (percent) . . . . . . . . . . . . . 318 166 265

Year attained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 2001 2008

Year of exhaustion. . . . . . . . . . . . . . . . . . . . . . . . . . 2028 2011 2024

I

0%

100%

200%

300%

400%

500%

600%

1985 1995 2005 2015 2025 2035 2045 2055 2065 2075

Calendar year

Historical Estimated

III II
Overview

26

Under the low cost alternative I assumptions, the combined trust

fund ratio rises rapidly until the retirement of the “baby-boom” generation and begins declining during the retirement years of the “babyboom” generation. However, this decline nearly ceases after 2065,

even though annual balances remain negative at a level around 1 percent of payroll. This occurs because the projected trust fund interest

earnings are high enough to offset the annual deficits and still keep

the trust funds growing nearly as fast as annual outgo. For the high

cost alternative III, the combined trust fund is permanently

exhausted in 2024.

Trust fund assets are generally invested in special Treasury securities

so that the excess of cash receipts over expenditures is borrowed from

the trust funds by the general fund of the Treasury and used to help

meet various Federal outlays, or to reduce the amount of publicly-held

Federal debt. These securities are backed by the full faith and credit

of the U.S. Government, the same as other public-debt obligations of

the U.S. Government. The assets of the trust funds can be redeemed

for cash at any time if required to meet program expenditures. The

redemption of a Treasury security held by a trust fund requires that

the Treasury transfer cash—obtained from another revenue source,

such as income taxes or borrowing from the public—to the trust fund.

Thus, the investment operations of the trust funds result in various

cash flows between the trust funds and the general fund of the Treasury.

Under the intermediate assumptions, the excess of OASDI tax income

over outgo during the next 15 years will result in a substantial net

cash flow of these amounts to the general fund as they are borrowed

from the trust funds. Thereafter, this cash flow is expected to reverse;

as more trust fund securities are redeemed to meet benefit payments

and other expenditures, the general fund of the Treasury will be

drawn upon to provide the necessary cash. The accumulation and subsequent redemption of substantial trust fund assets has important

economic and public policy implications that go well beyond the operation of the OASDI program itself. Discussion of these broader issues is

not within the scope of this report.

4. Test of Long-Range Close Actuarial Balance

Because the OASI and DI programs, both separately and combined,

have actuarial deficits that are more than 5 percent of the corresponding summarized cost rates over the next 75 years under the Trustees’
27

Long-Range Actuarial Estimates

intermediate (alternative II) assumptions, they do not meet the

requirements of the Trustees’ formal test for long-range close actuarial balance. (This test is described in detail in section II.F titled “Actuarial Estimates” later in this report.)
Overview

28

H. CONCLUSION

As we have reported for the last several years, the OASDI program is

adequately financed over the next 10 years and for many years thereafter, but the program is not in close actuarial balance over the next

75 years. The long-range deficit shown in this report is lower than in

the 1998 report, and, if the OASI and DI Trust Funds were combined,

the year of exhaustion of the funds is now estimated to be 2034, or 2

years later than in the 1998 report. This improvement is due to some

more favorable economic assumptions in the long term and stronger

economic growth in the near term than was expected in last year’s

report.

1. Short-Term Status

At the beginning of 1999, the combined assets of the trust funds represented 194 percent of estimated expenditures in 1999. Under both

the intermediate and low cost assumptions, the combined funds, as

well as the ratio of fund assets at the beginning of a year to annual

expenditures, are projected to grow during the next 10 years and for

several years thereafter. However, under the high cost assumptions,

while the dollar amount of assets of the combined funds continues to

grow throughout the next 10 years, the trust fund ratio increases

until 2008 and begins to decline in 2009. Both the OASI and DI Trust

Funds separately meet the short-term solvency test.

2. Long-Term Status

Although the combined trust funds are well financed over the next 10

years, the OASDI program is not in close actuarial balance over the

full 75-year projection period and therefore does not meet the longterm solvency test. The estimated actuarial balance is a deficit of 2.07

percent of taxable payroll over the next 75 years, based on the intermediate assumptions. The combined OASI and DI Trust Funds would

become exhausted in 2034 without corrective legislation. At that time,

annual tax revenues of the combined trust funds would be less than

expenditures by 5.02 percent of taxable earnings and would be sufficient to cover only 71 percent of annual expenditures.

The intermediate estimates indicate that the combined trust funds

would be sufficient to enable the timely payment of benefits for the

next 35 years. Relative to annual expenditures, the combined trust

funds would continue to grow during the next 14 years, reaching a
29

Conclusion

peak of about 3.6 times annual expenditures. Considering each fund

separately, the OASI Trust Fund would have sufficient funds for the

next 37 years, and the DI Trust Fund for the next 21 years, to enable

timely payment of benefits. Based on the high cost assumptions, the

combined funds would be sufficient to enable the timely payment of

benefits only for the next 25 years. 

For each of the next 15 years, OASDI income from contributions on

taxable earnings and from income taxes on benefits is expected to

exceed total expenditures. Starting in about 2010, however, OASDI

costs, relative to taxable earnings, are expected to begin increasing

rapidly as the “baby-boom” generation reaches retirement age. In contrast, the program’s income from contributions payable on taxable

earnings and income taxes on benefits will remain a relatively constant percentage of taxable payroll.

Therefore, the OASDI cost rate is estimated to exceed the income rate

from 2014 through the end of the projection period, with the shortfall

reaching 6.44 percent of taxable earnings by 2073, the last year of the

75-year period. Based on the less favorable conditions assumed for the

high cost estimates, the crossover point would be reached in 2009, and

the shortfall would grow eventually to be 14.98 percent of taxable

earnings by 2073. Similarly, based on the low cost estimates, the

crossover point is 2019, and the shortfall reaches a peak of 2.3 percent

in 2033 and then declines to 1.0 percent by 2073.

Although OASDI annual balances become negative in 2014 in the

intermediate case, the availability of interest earnings results in continued trust fund growth until 2022. Because expenditures are estimated to increase faster than assets, however, OASDI assets would

decline relative to annual expenditures, from about 3.6 to about 2.8

times annual expenditures, during the same period.

3. Recommendations

In view of the size of the financial shortfall in the OASDI program

over the next 75 years, we again urge that the long-range deficits of

both the OASI and DI Trust Funds be addressed in a timely way.

Because the DI Trust Fund is expected to be depleted several years

earlier than the OASI Trust Fund, and because DI program growth

has fluctuated widely in the past, it is essential that the DI program’s

future experience be monitored closely. 
Overview

30

It is important to address both the OASI and DI problems soon to

allow time for phasing in any necessary changes and for workers to

adjust their retirement plans to take account of those changes. We

believe that the public discussion and analysis of the long-range

financing problems of the OASDI program over the past year have

been useful. We strongly support the bipartisan efforts of the President and the Congress to address these issues.
31

Amendments

II. ACTUARIAL ANALYSIS

A. SOCIAL SECURITY AMENDMENTS SINCE

THE 1998 REPORT

Since the 1998 Annual Report was transmitted to the Congress on

April 28, 1998, there have been no legislative changes enacted that

would have a significant effect on the financial status of the OASDI

program.
Actuarial Analysis

32

B. DESCRIPTION OF THE TRUST FUNDS

The Federal Old-Age and Survivors Insurance Trust Fund was established on January 1, 1940, as a separate account in the United States

Treasury. All the financial operations of the OASI program are handled through this fund. The Federal Disability Insurance Trust Fund

is another separate account in the United States Treasury; it was

established on August 1, 1956. All the financial operations of the DI

program are handled through this fund.

The primary receipts of these two funds are amounts appropriated to

each of them under permanent authority on the basis of contributions

payable by workers, their employers, and individuals with selfemployment income, in work covered by the OASDI program. All

employees, and their employers, in covered employment are required

to pay contributions with respect to their wages. Employees, and their

employers, are also required to pay contributions with respect to cash

tips, if the individual’s monthly cash tips amount to at least $20. All

self-employed persons are required to pay contributions with respect

to their covered net earnings from self-employment. In addition to

paying the required employer contributions on the wages of covered

Federal employees, the Federal Government also pays amounts equivalent to the combined employer and employee contributions that

would be paid on deemed wage credits attributable to military service

performed after 1956 if such wage credits were covered wages.

In general, an individual’s contributions, or taxes, are computed on

wages or net earnings from self-employment, or both wages and net

self-employment earnings combined, up to a specified maximum

annual amount. The contributions are determined first on the wages

and then on any net self-employment earnings, such that the total

does not exceed the annual maximum amount. An employee who pays

contributions on wages in excess of the annual maximum amount

(because of employment with two or more employers) is eligible for a

refund of the excess employee contributions.

The monthly benefit amount to which an individual (or his or her

spouse and children) may become entitled under the OASDI program

is based on the individual’s taxable earnings during his or her lifetime. For almost all persons who first become eligible to receive benefits in 1979 or later, the earnings used in the computation of benefits

are indexed to reflect increases in average wage levels.
33

Description of the Trust Funds

The contribution, or tax, rates applicable in each calendar year and

the allocation of these rates between the OASI and DI Trust Funds

are shown in table II.B1.

For 2000 and later, the rates shown in table II.B1 are those scheduled

in present law. (The total contribution rates for the OASDI and Hospital Insurance (HI) programs combined, and for each program separately, are shown in appendix A, table III.A1.) The maximum amount

of earnings on which OASDI contributions are payable in a year,

which is also the maximum amount of earnings creditable in that year

for benefit-computation purposes, is called the contribution and benefit base. The contribution and benefit base for each year through 1999

is also shown in table II.B1.

Table II.B1.—Contribution and Benefit Base and Contribution Rates

Calendar years

Contribution

and benefit

base

Contribution rates (percent)

Employees and employers,

each Self-employed

OASDI OASI DI OASDI OASI DI

1937-49. . . . . . . . $3,000 1.000 1.000 — ———

1950 . . . . . . . . . . 3,000 1.500 1.500 — — — —

1951-53. . . . . . . . 3,600 1.500 1.500 — 2.2500 2.2500 —

1954 . . . . . . . . . . 3,600 2.000 2.000 — 3.0000 3.0000 —

1955-56. . . . . . . . 4,200 2.000 2.000 — 3.0000 3.0000 —

1957-58. . . . . . . . 4,200 2.250 2.000 0.250 3.3750 3.0000 0.3750

1959 . . . . . . . . . . 4,800 2.500 2.250 .250 3.7500 3.3750 .3750

1960-61. . . . . . . . 4,800 3.000 2.750 .250 4.5000 4.1250 .3750

1962 . . . . . . . . . . 4,800 3.125 2.875 .250 4.7000 4.3250 .3750

1963-65. . . . . . . . 4,800 3.625 3.375 .250 5.4000 5.0250 .3750

1966 . . . . . . . . . . 6,600 3.850 3.500 .350 5.8000 5.2750 .5250

1967 . . . . . . . . . . 6,600 3.900 3.550 .350 5.9000 5.3750 .5250

1968 . . . . . . . . . . 7,800 3.800 3.325 .475 5.8000 5.0875 .7125

1969 . . . . . . . . . . 7,800 4.200 3.725 .475 6.3000 5.5875 .7125

1970 . . . . . . . . . . 7,800 4.200 3.650 .550 6.3000 5.4750 .8250

1971 . . . . . . . . . . 7,800 4.600 4.050 .550 6.9000 6.0750 .8250

1972 . . . . . . . . . . 9,000 4.600 4.050 .550 6.9000 6.0750 .8250

1973 . . . . . . . . . . 10,800 4.850 4.300 .550 7.0000 6.2050 .7950

1974 . . . . . . . . . . 13,200 4.950 4.375 .575 7.0000 6.1850 .8150

1975 . . . . . . . . . . 14,100 4.950 4.375 .575 7.0000 6.1850 .8150

1976 . . . . . . . . . . 15,300 4.950 4.375 .575 7.0000 6.1850 .8150

1977 . . . . . . . . . . 16,500 4.950 4.375 .575 7.0000 6.1850 .8150

1978 . . . . . . . . . . 17,700 5.050 4.275 .775 7.1000 6.0100 1.0900

1979 . . . . . . . . . . 22,900 5.080 4.330 .750 7.0500 6.0100 1.0400

1980 . . . . . . . . . . 25,900 5.080 4.520 .560 7.0500 6.2725 .7775

1981 . . . . . . . . . . 29,700 5.350 4.700 .650 8.0000 7.0250 .9750

1982 . . . . . . . . . . 32,400 5.400 4.575 .825 8.0500 6.8125 1.2375

1983 . . . . . . . . . . 35,700 5.400 4.775 .625 8.0500 7.1125 .9375

1984 1 . . . . . . . . . 37,800 5.700 5.200 .500 11.4000 10.4000 1.0000

1985 1 . . . . . . . . . 39,600 5.700 5.200 .500 11.4000 10.4000 1.0000

1986 1 . . . . . . . . . 42,000 5.700 5.200 .500 11.4000 10.4000 1.0000

1987 1 . . . . . . . . . 43,800 5.700 5.200 .500 11.4000 10.4000 1.0000

1988 1 . . . . . . . . . 45,000 6.060 5.530 .530 12.1200 11.0600 1.0600

1989 1 . . . . . . . . . 48,000 6.060 5.530 .530 12.1200 11.0600 1.0600

1990 . . . . . . . . . . 51,300 6.200 5.600 .600 12.4000 11.2000 1.2000
Actuarial Analysis

34

All contributions are collected by the Internal Revenue Service and

deposited in the general fund of the Treasury. The contributions are

immediately and automatically appropriated to the trust funds on an

estimated basis. The exact amount of contributions received is not

known initially because the OASDI and HI contributions and individual income taxes are not separately identified in collection reports

received by the Internal Revenue Service. Periodic adjustments are

subsequently made to the extent that the estimates are found to differ

from the amounts of contributions actually payable as determined

from reported earnings. Adjustments are also made to account for any

refunds to employees (with more than one employer) who paid contributions on wages in excess of the contribution and benefit base.

Beginning in 1984, up to one-half of an individual’s or couple’s OASDI

benefits was subject to Federal income taxation under certain circumstances. Effective for taxable years beginning after 1993, the maximum percentage of benefits subject to taxation was increased from 50

percent to 85 percent. The proceeds from taxation of up to 50 percent

of benefits are credited to the OASI and DI Trust Funds in advance,

on an estimated basis, at the beginning of each calendar quarter, with

no reimbursement to the general fund for interest costs attributable

to the advance transfers. (The additional tax revenues resulting from

the increase to 85 percent are transferred to the HI Trust Fund.) Sub1991 . . . . . . . . . . $53,400 6.200 5.600 0.600 12.4000 11.2000 1.2000

1992 . . . . . . . . . . 55,500 6.200 5.600 .600 12.4000 11.2000 1.2000

1993 . . . . . . . . . . 57,600 6.200 5.600 .600 12.4000 11.2000 1.2000

1994 . . . . . . . . . . 60,600 6.200 5.260 .940 12.4000 10.5200 1.8800

1995 . . . . . . . . . . 61,200 6.200 5.260 .940 12.4000 10.5200 1.8800

1996 . . . . . . . . . . 62,700 6.200 5.260 .940 12.4000 10.5200 1.8800

1997 . . . . . . . . . . 65,400 6.200 5.350 .850 12.4000 10.7000 1.7000

1998 . . . . . . . . . . 68,400 6.200 5.350 .850 12.4000 10.7000 1.7000

1999 . . . . . . . . . . 72,600 6.200 5.350 .850 12.4000 10.7000 1.7000

2000 and later. . . ( 2 ) 6.200 5.300 .900 12.4000 10.6000 1.8000

 1 In 1984 only, an immediate credit of 0.3 percent of taxable wages was allowed against the OASDI contributions paid by employees, which resulted in an effective contribution rate of 5.4 percent. The appropriations of contributions to the trust funds, however, were based on the combined employee-employer rate

of 11.4 percent, as if the credit for employees did not apply. Similar credits of 2.7 percent, 2.3 percent, and

2.0 percent were allowed against the combined OASDI and Hospital Insurance (HI) contributions on net

earnings from self-employment in 1984, 1985, and 1986-89, respectively. Beginning in 1990, selfemployed persons are allowed a deduction, for purposes of computing their net earnings, equal to half of

the combined OASDI and HI contributions that would be payable without regard to the contribution and

benefit base. The OASDI contribution rate is then applied to net earnings after this deduction, but subject

to the OASDI base.

 2 Subject to automatic adjustment based on increases in average wages.

Table II.B1.—Contribution and Benefit Base and Contribution Rates (Cont.)

Calendar years

Contribution

and benefit

base

Contribution rates (percent)

Employees and employers,

each Self-employed

OASDI OASI DI OASDI OASI DI
35

Description of the Trust Funds

sequent adjustments are made based on the actual amounts as shown

on annual income tax records. The amounts appropriated from the

general fund of the Treasury are allocated to the OASI and DI Trust

Funds on the basis of the income taxes paid on the benefits from each

fund. (A special provision applies to benefits paid to nonresident

aliens. Under Public Law 103-465, effective for taxable years beginning after 1994, a flat-rate tax, usually 25.5 percent, is withheld from

the benefits before they are paid and, therefore, remains in the trust

funds. From 1984 to 1994 the flat-rate tax that was withheld was usually 15 percent.)

Another source of income to the trust funds is interest received on

investments held by the trust funds. That portion of each trust fund

which, in the judgment of the Managing Trustee, is not required to

meet current expenditures for benefits and administration is invested,

on a daily basis, primarily in interest-bearing obligations of the U.S.

Government (including special public-debt obligations described

below). Investments may also be made in obligations guaranteed as to

both principal and interest by the United States, including certain

Federally sponsored agency obligations that are designated in the

laws authorizing their issuance as lawful investments for fiduciary

and trust funds under the control and authority of the United States

or any officer of the United States. These obligations may be acquired

on original issue at the issue price or by purchase of outstanding obligations at their market price.

The Social Security Act authorizes the issuance of special public-debt

obligations for purchase exclusively by the trust funds. The Act provides that these obligations shall bear interest at a rate equal to the

average market yield (computed on the basis of market quotations as

of the end of the calendar month next preceding the date of such

issue) on all marketable interest-bearing obligations of the United

States then forming a part of the public debt which are not due or callable until after the expiration of 4 years from the end of such calendar

month. Beginning January 1999, in calculating the average market

yield rate for this purpose, the Treasury incorporates the yield to the

call date when a callable bond’s market price is above par.

Although the special issues cannot be bought or sold in the open market, they are nonetheless redeemable at all times at par value and

thus bear no risk of fluctuations in principal value due to changes in

interest rates. Just as in the case of marketable securities, all of the
Actuarial Analysis

36

investments held by the trust funds are backed by the full faith and

credit of the U.S. Government.

Income is also affected by provisions of the Social Security Act for (1)

transfers between the general fund of the Treasury and the OASI and

DI Trust Funds for any adjustments to prior payments for the cost

arising from the granting of noncontributory wage credits for military

service prior to 1957, according to periodic determinations; (2) annual

reimbursements from the general fund of the Treasury to the OASI

Trust Fund for any costs arising from the special monthly cash payments to certain uninsured persons—i.e., those who attained age 72

before 1968 and who generally are not eligible for cash benefits under

other provisions of the OASDI program; and (3) the receipt of unconditional money gifts or bequests made for the benefit of the trust funds

or any activity financed through the funds.

The primary expenditures of the OASI and DI Trust Funds are for (1)

OASDI benefit payments, net of any reimbursements from the general fund of the Treasury for unnegotiated benefit checks, and (2)

expenses incurred by the Social Security Administration and the

Department of the Treasury in administering the OASDI program

and the provisions of the Internal Revenue Code relating to the collection of contributions. Such administrative expenses include expenditures for construction, rental and lease, or purchase of office buildings

and related facilities for the Social Security Administration. The

Social Security Act does not permit expenditures from the OASI and

DI Trust Funds for any purpose not related to the payment of benefits

or administrative costs for the OASDI program.

The expenditures of the trust funds are also affected by (1) costs of

vocational rehabilitation services furnished as an additional benefit to

disabled persons receiving cash benefits because of their disabilities

where such services contributed to their successful rehabilitation, and

(2) the provisions of the Railroad Retirement Act which provide for a

system of coordination and financial interchange between the Railroad Retirement program and the Social Security program. Under the

latter provisions, transfers between the Railroad Retirement program’s Social Security Equivalent Benefit Account and the trust funds

are made on an annual basis in order to place each trust fund in the

same position in which it would have been if railroad employment had

always been covered under Social Security.

The net worth of facilities and other fixed capital assets is not carried

in the statements of the operations of the trust funds presented in this
37

Description of the Trust Funds

report. This is because the value of fixed capital assets does not represent funds available for the payment of benefits or administrative

expenditures, and therefore is not considered in assessing the actuarial status of the trust funds.
Actuarial Analysis

38

C. SUMMARY OF THE OPERATIONS OF THE OLD-AGE AND 

SURVIVORS INSURANCE AND DISABILITY INSURANCE 

TRUST FUNDS, FISCAL YEAR 1998

1. Old-Age and Survivors Insurance Trust Fund

A statement of the income and disbursements of the Federal Old-Age

and Survivors Insurance Trust Fund in fiscal year 1998, and of the

assets of the fund at the beginning and end of the fiscal year, is presented in table II.C1.

During fiscal year 1998, total receipts amounted to $415.7 billion, and

total disbursements were $330.0 billion. The assets of the OASI Trust

Fund thus increased by $85.7 billion during the year, to a total of

$653.1 billion on September 30, 1998.

Included in total receipts during fiscal year 1998 were $366.4 billion

in payroll tax contributions appropriated to the fund. These contributions were offset by transfers totaling $1.8 billion to the general fund

of the Treasury for the estimated amount of refunds to employees who

worked for more than one employer during a year and paid contributions in excess of the contribution and benefit base. In addition, $0.2

billion was received from the general fund of the Treasury representing payment for the taxes that would have been paid on estimated

deemed wage credits for military service in 1998 if such credits had

been considered to be covered wages. (Included in this payment are

adjustments for revised estimates of deemed wage credits in prior

years.)

Net contributions thus amounted to $364.9 billion, an increase of 6.6

percent over the amount in the preceding year. The increase in OASI

tax contributions from fiscal year 1997 to fiscal year 1998 is due to (1)

the increase in the allocation of the OASDI tax rate to OASI that

became effective January 1, 1997, (2) increased earnings, and (3) the

increases in the contribution and benefit base that became effective

on January 1 of each year 1997 and 1998. (Table II.B1 in the preceding section shows the tax rates and contribution and benefit bases in

effect for these years.)

Income from taxation of benefits amounted to $8.6 billion, of which 98

percent represented amounts credited to the trust funds in advance,

on an estimated basis. The remaining 2 percent of the total income

from taxation of benefits represented amounts withheld from the benefits paid to nonresident aliens.
39

Fiscal Year 1998 Operations

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

Table II.C1.—Statement of Operations of the OASI Trust Fund During Fiscal Year 1998

[In thousands]

Total assets, September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $567,395,145

Receipts:

Contributions:

Employment taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $366,406,016

Payments from the general fund of the Treasury for:

Contributions subject to refund . . . . . . . . . . . . . . . . . . . . . . . . . . -1,778,010

Employee-employer contributions on deemed wage credits for 

military service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,000

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364,871,006

Income from taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . 161,829

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . 8,433,000

Total income from taxation of benefits . . . . . . . . . . . . . . . . . . . . . 8,594,829

Reimbursement from the general fund for costs of payments to uninsured persons who attained age 72 before 1968 . . . . . . . . . . . . . . 1,808

Investment income and interest adjustments:

Interest on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,197,289

Interest on transfers to the general fund account for the Supplemental Security Income program due to adjustment in allocation 

of administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,017

Interest on interfund transfers due to adjustment in allocation of 

administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -337

Interest on interfund transfers due to adjustment in allocation of 

capitalized asset program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Interest on certain reimbursements from the general fund . . . . . . . 80

Net investment income and interest adjustments . . . . . . . . . . . . 42,198,152

Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Total receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415,665,946

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323,436,423

Offset for collected overpayments. . . . . . . . . . . . . . . . . . . . . . . . . . 874,560

Reimbursement from the general fund for unnegotiated checks. . . -54,628

Net benefit payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,256,356

Transfer to the Railroad Retirement “Social Security Equivalent

Benefit Account” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,662,248

Administrative expenses:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,775,851

Department of the Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,043

Reimbursement from the general fund for costs of furnishing 

information on deferred vested pension benefits . . . . . . . . . . . . -1,469

Offsetting receipts from sales of supplies, materials, etc. . . . . . . . . -546

Reimbursement from the general fund for costs of furnishing 

information related to the Coal Industry Retiree Health Benefit 

Act of 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -339

Reimbursement from the general fund for costs associated with 

union activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,351

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,034,188

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,952,792

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,713,155

Total assets, September 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653,108,300
Actuarial Analysis

40

Special payments are made to uninsured persons who either attained

age 72 before 1968, or who attained age 72 after 1967 and had 3 quarters of coverage for each year after 1966 and before the year of attainment of age 72. The costs associated with providing such payments to

persons having fewer than 3 quarters of coverage are reimbursable

from the general fund of the Treasury. Accordingly, a reimbursement

of $1,808,000 was transferred to the OASI Trust Fund in fiscal year

1998, as required by section 228 of the Social Security Act. The reimbursement reflected the costs of payments made in fiscal year 1996.

The OASI Trust Fund was credited with interest netting $42.2 billion

which consisted of (1) interest earned on the investments of the trust

fund, (2) interest on transfers between the trust fund and the general

fund account for the Supplemental Security Income program due to

adjustments in the allocation of administrative expenses, (3) interest

arising from the revised allocation of administrative expenses among

the trust funds, (4) interest arising from the revised allocation of the

capitalized asset program, and (5) interest on reimbursements to the

trust fund for costs associated with union activities and pension

reform. The remaining $151,512 of receipts consisted of gifts received

under the provisions authorizing the deposit of money gifts or

bequests in the trust funds.

Of the $330.0 billion in total disbursements, $324.3 billion was for net

benefit payments. The amount of net benefit payments in fiscal year

1998 represents an increase of 3.6 percent over the corresponding

amount in fiscal year 1997. This increase is due primarily to (1) the

automatic cost-of-living benefit increases of 2.9 percent and 2.1 percent which became effective for December 1996 and December 1997

respectively, under the automatic-adjustment provisions in section

215(i) of the Social Security Act, (2) an increase in the total number of

beneficiaries, and (3) an increase in the average benefit amount

resulting from the rising level of earnings.

As described in the preceding section, certain provisions of the Railroad Retirement Act coordinate the Railroad Retirement and OASDI

programs and govern the financial interchanges arising from the allocation of costs between the two programs. Under those provisions, the

Railroad Retirement Board and the Commissioner of Social Security

determined that a transfer of $3.7 billion to the Social Security Equivalent Benefit Account from the OASI Trust Fund was required in

June 1998.
41

Fiscal Year 1998 Operations

The remaining $2.0 billion of disbursements from the OASI Trust

Fund represented net administrative expenses. The expenses of

administering the OASDI and Medicare programs are allocated and

charged directly to each of the various trust funds, through which

those programs are financed, on the basis of provisional estimates.

Similarly, the expenses of administering the Supplemental Security

Income program are also allocated and charged directly to the general

fund of the Treasury on a provisional basis. Periodically, as actual

experience develops and is analyzed, adjustments to the allocations of

administrative expenses for prior periods are effected by interfund

transfers and transfers between the OASI Trust Fund and the general

fund account for the Supplemental Security Income program, with

appropriate interest adjustments.

Section 1131 of the Social Security Act authorizes annual reimbursements from the general fund of the Treasury to the OASI Trust Fund

for additional administrative expenses incurred as a result of furnishing information on deferred vested benefits to pension plan participants, as required by the Employee Retirement Income Security Act

of 1974 (Public Law 93-406). The reimbursement in fiscal year 1998

amounted to $1,468,643.

The OASI Trust Fund was reimbursed $339,453 for expenses of providing certain information required by the Coal Industry Retiree

Health Benefit Act of 1992 (part of the Energy Policy Act of 1992,

Public Law 102-486). The fund was also reimbursed $1,351,321 for

costs associated with union activities, as authorized by Public Law

105-78.

The assets of the OASI Trust Fund at the end of fiscal year 1998

totaled $653.1 billion, consisting of $653.3 billion in U.S. Government

obligations and, as an offset, an extension of credit amounting to $0.2

billion. Table II.C2 shows the total assets of the fund and their distribution at the end of each fiscal year 1997 and 1998.
Actuarial Analysis

42

Note: Special issues are always purchased at par value. Therefore, book value and par value are the

same for each special issue, and the common value is shown above. Where the maturity years are

grouped, the amount maturing in each year is the amount shown divided by the number of years.

Table II.C2.—Assets of the OASI Trust Fund, by Type, Interest Rate, and Year of 

Maturity, at End of Fiscal Year, 1997 and 1998

September 30, 1997 September 30, 1998

Obligations sold only to the trust funds (special issues): 

Certificates of indebtedness:

5.375 percent, 1999 . . . . . . . . . . . . . . . . . . . . . . . . — $16,346,363,000.00

5.75 percent, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . — 5,698,144,000.00

6.625 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . $28,865,523,000.00 —

Bonds:

5.875 percent, 2000-01 . . . . . . . . . . . . . . . . . . . . . . — 12,338,544,000.00

5.875 percent, 2002-12 . . . . . . . . . . . . . . . . . . . . . . — 67,862,003,000.00

5.875 percent, 2013 . . . . . . . . . . . . . . . . . . . . . . . . — 43,258,869,000.00

6.25 percent, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,975,000.00 —

6.25 percent, 2000-06 . . . . . . . . . . . . . . . . . . . . . . . 22,056,825,000.00 22,056,825,000.00

6.25 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,974,000.00 3,150,974,000.00

6.25 percent, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . 23,350,034,000.00 23,350,034,000.00

6.5 percent, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,431,254,000.00 —

6.5 percent, 2000-09 . . . . . . . . . . . . . . . . . . . . . . . . 24,312,540,000.00 24,312,540,000.00

6.5 percent, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 29,742,844,000.00 29,742,844,000.00

6.875 percent, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 3,975,270,000.00 —

6.875 percent, 2000-03 . . . . . . . . . . . . . . . . . . . . . . 15,901,080,000.00 15,901,080,000.00

6.875 percent, 2004-09 . . . . . . . . . . . . . . . . . . . . . . 23,851,626,000.00 23,851,626,000.00

6.875 percent, 2010-11 . . . . . . . . . . . . . . . . . . . . . . 7,950,544,000.00 7,950,544,000.00

6.875 percent, 2012 . . . . . . . . . . . . . . . . . . . . . . . . 37,089,596,000.00 37,089,596,000.00

7 percent,1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,371,481,000.00 1,452,405,000.00

7 percent, 2000-03 . . . . . . . . . . . . . . . . . . . . . . . . . 13,485,924,000.00 13,485,924,000.00

7 percent, 2004-10 . . . . . . . . . . . . . . . . . . . . . . . . . 23,600,360,000.00 23,600,360,000.00

7 percent, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,114,324,000.00 33,114,324,000.00

7.25 percent, 1999-2006 . . . . . . . . . . . . . . . . . . . . . 31,692,448,000.00 31,692,448,000.00

7.25 percent, 2007-08 . . . . . . . . . . . . . . . . . . . . . . . 7,923,114,000.00 7,923,114,000.00

7.25 percent, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . 27,311,591,000.00 27,311,591,000.00

7.375 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 2,701,184,000.00 —

7.375 percent, 1999-2000 . . . . . . . . . . . . . . . . . . . . 7,150,946,000.00 7,150,946,000.00

7.375 percent, 2001-06 . . . . . . . . . . . . . . . . . . . . . . 21,452,844,000.00 21,452,844,000.00

7.375 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . 20,199,060,000.00 20,199,060,000.00

8.125 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 3,611,349,000.00 —

8.125 percent, 1999-2000 . . . . . . . . . . . . . . . . . . . . 7,222,698,000.00 7,222,698,000.00

8.125 percent, 2001-05 . . . . . . . . . . . . . . . . . . . . . . 18,056,740,000.00 18,056,740,000.00

8.125 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . 16,623,586,000.00 16,623,586,000.00

8.375 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 313,295,000.00 —

8.375 percent, 1999-2000 . . . . . . . . . . . . . . . . . . . . 626,590,000.00 626,590,000.00

8.375 percent, 2001 . . . . . . . . . . . . . . . . . . . . . . . . 2,370,396,000.00 2,370,396,000.00

8.625 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 1,301,731,000.00 —

8.625 percent, 1999-2001 . . . . . . . . . . . . . . . . . . . . 3,905,193,000.00 3,905,193,000.00

8.625 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . 3,672,127,000.00 3,672,127,000.00

8.75 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . 7,099,802,000.00 —

8.75 percent, 1999-2000 . . . . . . . . . . . . . . . . . . . . . 14,199,604,000.00 14,199,604,000.00

8.75 percent, 2001-03 . . . . . . . . . . . . . . . . . . . . . . . 21,299,409,000.00 21,299,409,000.00

8.75 percent, 2004-05 . . . . . . . . . . . . . . . . . . . . . . . 26,024,476,000.00 26,024,476,000.00

9.25 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . 2,240,309,000.00 —

9.25 percent, 1999-2000 . . . . . . . . . . . . . . . . . . . . . 4,480,618,000.00 4,480,618,000.00

9.25 percent, 2001-02 . . . . . . . . . . . . . . . . . . . . . . . 4,480,616,000.00 4,480,616,000.00

9.25 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 5,912,435,000.00 5,912,435,000.00

10.375 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . 565,186,000.00 —

10.375 percent, 1999 . . . . . . . . . . . . . . . . . . . . . . . 565,186,000.00 565,186,000.00

10.375 percent, 2000 . . . . . . . . . . . . . . . . . . . . . . . 2,057,101,000.00 2,057,101,000.00

10.75 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 1,022,230,000.00 —

13.75 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 469,685,000.00 —

13.75 percent, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 1,491,915,000.00 1,491,915,000.00

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,444,638,000.00 653,281,692,000.00

Undisbursed balances 1 . . . . . . . . . . . . . . . . . . . . . . . . . 

 1 Negative figures represent an extension of credit against securities to be redeemed within the following

few days.

-49,492,935.68 -173,392,374.92

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,395,145,064.32 653,108,299,625.08
43

Fiscal Year 1998 Operations

All securities held by the trust funds are backed by the full faith and

credit of the United States Government. Those currently held by the

OASI Trust Fund are special issues (i.e., securities sold only to the

trust funds). These are of two types: short-term certificates of indebtedness and long-term bonds. The certificates of indebtedness are

issued through the investment of receipts not required to meet current expenditures, and they mature on the next June 30 following the

date of issue. Special-issue bonds, on the other hand, are normally

acquired only when special issues of either type mature on June 30.

The amount of bonds acquired on June 30 is equal to the amount of

special issues maturing, less amounts required to meet expenditures

on that day.

The effective annual rate of interest earned by the assets of the OASI

Trust Fund during calendar year 1998 was 7.3 percent, as compared

to 7.6 percent earned during calendar year 1997. The interest rate on

special issues purchased by the trust fund in June 1998 was 5.875

percent, payable semiannually. Special-issue bonds with a total par

value of $129.6 billion were purchased in June 1998.

Section 201(d) of the Social Security Act provides that the public-debt

obligations issued for purchase by the OASI and DI Trust Funds shall

have maturities fixed with due regard for the needs of the funds. The

usual practice has been to spread the holdings of special issues, as of

each June 30, so that the amounts maturing in each of the next 15

years are approximately equal. Accordingly, the amounts and maturity dates of the OASI special-issue bonds purchased on June 30,

1998, were selected in such a way that the maturity dates of the total

portfolio of special issues were spread evenly over the 15-year period

1999-2013.

2. Disability Insurance Trust Fund

A statement of the income and disbursements of the Federal Disability Insurance Trust Fund during fiscal year 1998, and of the assets of

the fund at the beginning and end of the fiscal year, is presented in

table II.C3.

During fiscal year 1998, total receipts amounted to $62.9 billion, and

total disbursements were $49.3 billion. The assets of the trust fund

thus increased by $13.6 billion during the year, to a total of $77.1 billion on September 30, 1998.
Actuarial Analysis

44

Included in total receipts were $58.2 billion representing payroll tax

contributions appropriated to the fund. These contributions were offset by transfers totaling $0.3 billion to the general fund of the Treasury for the estimated amount of refunds to employees who worked

for more than one employer during a year and paid contributions in

excess of the contribution and benefit base. In addition, $39,000,000

was received from the general fund of the Treasury representing taxes

that would have been paid on estimated deemed wage credits for military service in 1998 if such credits had been considered to be covered

wages.

Net contributions amounted to $58.0 billion, an increase of 3.2 percent

from the amount in the preceding fiscal year. This increase is attributable to the same factors, insofar as they apply to the DI program, that

accounted for the change in contributions to the OASI Trust Fund.

However, the reallocation of the OASDI tax rate that accounted for

the increase in contributions to the OASI Trust Fund in fiscal year

1998 was an offsetting factor for the DI Trust Fund. Income from the

taxation of benefit payments amounted to $0.5 billion in fiscal year

1998.

Interest totaling $4.4 billion consisted of interest on the investments

of the fund, interest on amounts of interfund transfers, and interest

on reimbursements.

Of the $49.3 billion in total disbursements, $47.6 billion was for net

benefit payments. This represents an increase of 4.8 percent over the

corresponding amount of benefit payments in fiscal year 1997. This

increase is due in part to the same factors that resulted in the net

increase in benefit payments from the OASI Trust Fund. The number

of persons receiving benefits from the DI Trust Fund increased more

rapidly in 1998, however, than those receiving benefits from the OASI

Trust Fund.
45

Fiscal Year 1998 Operations

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

Table II.C3.—Statement of Operations of the DI Trust Fund During Fiscal Year 1998

[In thousands]

Total assets, September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,482,657

Receipts:

Contributions:

Employment taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58,236,226

Payments from the general fund of the Treasury for:

Contributions subject to refund . . . . . . . . . . . . . . . . . . . . . . . . . . -292,790

Employee-employer contributions on deemed wage 

credits for military service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,982,436

Income from taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . 7,101

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . 519,000

Total income from taxation of benefits . . . . . . . . . . . . . . . . . . . . . 526,101

Investment income and interest adjustments:

Interest on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,432,269

Interest on interfund transfers due to adjustment in allocation 

of administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602

Interest on interfund transfers due to adjustment in allocation 

of capitalized asset program. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Net interest adjustments on disbursement of funds to certain 

State Disability Determination Services . . . . . . . . . . . . . . . . . . . 1,070

Interest on reimbursement from the general fund for costs 

associated with union activity . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Total investment income and interest adjustments . . . . . . . . . . . 4,434,009

Total receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,942,545

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,353,912

Offset for collected overpayments. . . . . . . . . . . . . . . . . . . . . . . . . . 228,832

Reimbursement from the general fund for unnegotiated checks. . . -17,363

Net benefit payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,565,380

Transfer to the Railroad Retirement “Social Security 

Equivalent Benefit Account” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,817

Payment for costs of vocational rehabilitation services for disabled 

beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,291

Administrative expenses:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,517,263

Department of the Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,503

Demonstration projects and experiments . . . . . . . . . . . . . . . . . . . . 208

Reimbursement from the general fund for costs of furnishing 

information related to the Coal Industry Retiree Health Benefit 

Act of 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -242

Reimbursement from the general fund for costs associated with 

union activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,126

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,562,607

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,338,095

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,604,451

Total assets, September 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,087,107
Actuarial Analysis

46

Provisions governing the financial interchanges between the Railroad

Retirement and OASDI programs are described in the preceding section. Under those provisions, $156,817,000 was transferred to the

Social Security Equivalent Benefit Account from the DI Trust Fund in

June 1998.

The remaining disbursements amounted to $1.6 billion for net administrative expenses (including $207,698 for demonstration projects and

experiments to test the effect of alternative methods for assisting disabled beneficiaries’ attempts to work), and $53,291,055 for the costs of

vocational rehabilitation services furnished to disabled-worker beneficiaries and to those children of disabled workers who were receiving

benefits on the basis of disabilities that began before age 22. Reimbursement from the trust funds for the costs of such services is made

only in those cases where the services contributed to the successful

rehabilitation of the beneficiaries.

The assets of the DI Trust Fund at the end of fiscal year 1998 totaled

$77.1 billion, consisting of $77.0 billion in U.S. Government obligations and cash totaling $0.1 billion. Table II.C4 shows the total assets

of the fund and their distribution at the end of each fiscal year 1997

and 1998.

The effective annual rate of interest earned by the assets of the DI

Trust Fund during calendar year 1998 was 6.8 percent, as compared

to 7.0 percent earned during calendar year 1997. The interest rate on

public-debt obligations issued for purchase by the trust fund in June

1998 was 5.875 percent, payable semiannually. Special-issue bonds

with a total par value of $18.2 billion were purchased in June 1998.

The investment policies and practices described for the OASI Trust

Fund apply as well to the investment of the assets of the DI Trust

Fund.
47

Fiscal Year 1998 Operations

Note: Special issues are always purchased at par value. Therefore, book value and par value are the

same for each special issue, and the common value is shown above. Where the maturity years are

grouped for special issues, the amount maturing in each year is the amount shown divided by the number

of years.

Table II.C4.—Assets of the DI Trust Fund, by Type, Interest Rate, and Year of Maturity, 

at End of Fiscal Year, 1997 and 1998

September 30, 1997 September 30, 1998

Investments in public-debt obligations:

Public issues: 

Treasury bonds: 

3.5 percent, 1998. . . . . . . . . . . . . . . . . . . . . . . . . $5,000,000.00 $5,000,000.00

7.625 percent, 2002-07 . . . . . . . . . . . . . . . . . . . . 10,000,000.00 10,000,000.00

8.25 percent, 2000-05 . . . . . . . . . . . . . . . . . . . . . 3,750,000.00 3,750,000.00

11.75 percent, 2005-10 . . . . . . . . . . . . . . . . . . . . 30,250,000.00 30,250,000.00

Total investments in public issues at par value, as 

shown above. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,000,000.00 49,000,000.00

Unamortized premium or discount, net . . . . . . . . . . . -110,597.65 -189,886.18

Total investments in public issues at book value. . . . 48,889,402.35 48,810,113.82

Obligations sold only to the trust funds (special 

issues):

Certificates of indebtedness: 

5.375 percent, 1999. . . . . . . . . . . . . . . . . . . . . . . — 2,526,004,000.00

5.75 percent, 1999. . . . . . . . . . . . . . . . . . . . . . . . — 406,123,000.00

6.625 percent, 1998. . . . . . . . . . . . . . . . . . . . . . . 4,284,629,000.00 —

6.75 percent, 1998. . . . . . . . . . . . . . . . . . . . . . . . 62,383,000.00 —

Bonds: 

5.875 percent, 2000-12 . . . . . . . . . . . . . . . . . . . . — 11,911,718,000.00

5.875 percent, 2013. . . . . . . . . . . . . . . . . . . . . . . — 5,361,805,000.00

6.5 percent, 1999. . . . . . . . . . . . . . . . . . . . . . . . . 2,147,659,000.00 1,059,081,000.00

6.5 percent, 2000-07 . . . . . . . . . . . . . . . . . . . . . . 17,181,272,000.00 17,181,272,000.00

6.5 percent, 2008. . . . . . . . . . . . . . . . . . . . . . . . . 3,064,120,000.00 3,064,120,000.00

6.875 percent, 1998. . . . . . . . . . . . . . . . . . . . . . . 220,111,000.00 —

6.875 percent, 1999-2002 . . . . . . . . . . . . . . . . . . 1,060,996,000.00 1,060,996,000.00

6.875 percent, 2003. . . . . . . . . . . . . . . . . . . . . . . 265,252,000.00 265,252,000.00

6.875 percent, 2004-07 . . . . . . . . . . . . . . . . . . . . 1,061,000,000.00 1,061,000,000.00

6.875 percent, 2008-09 . . . . . . . . . . . . . . . . . . . . 530,498,000.00 530,498,000.00

6.875 percent, 2010-12 . . . . . . . . . . . . . . . . . . . . 13,336,560,000.00 13,336,560,000.00

7 percent, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,116,150,000.00 —

7 percent, 1999-2008. . . . . . . . . . . . . . . . . . . . . . 11,161,510,000.00 11,161,510,000.00

7 percent, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,180,271,000.00 4,180,271,000.00

7.375 percent, 2004-06 . . . . . . . . . . . . . . . . . . . . 142,803,000.00 142,803,000.00

7.375 percent, 2007. . . . . . . . . . . . . . . . . . . . . . . 916,460,000.00 916,460,000.00

8.125 percent, 2004-05 . . . . . . . . . . . . . . . . . . . . 300,322,000.00 300,322,000.00

8.125 percent, 2006. . . . . . . . . . . . . . . . . . . . . . . 868,859,000.00 868,859,000.00

8.75 percent, 2003. . . . . . . . . . . . . . . . . . . . . . . . 174,477,000.00 174,477,000.00

8.75 percent, 2004-05 . . . . . . . . . . . . . . . . . . . . . 1,437,396,000.00 1,437,396,000.00

Total obligations sold only to the trust funds 

(special issues) . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,512,728,000.00 76,946,527,000.00

Total investments in public-debt obligations (book value 1 )

 1 Par value, plus unamortized premium or less discount outstanding.

63,561,617,402.35 76,995,337,113.82

Undisbursed balances 2 . . . . . . . . . . . . . . . . . . . . . . . . . .

 2 Negative figure represents an extension of credit against securities to be redeemed within the following

few days.

-78,960,538.67 91,770,319.42

Total assets (book value 1) . . . . . . . . . . . . . . . . . . . . . . . . 63,482,656,863.68 77,087,107,433.24
Actuarial Analysis

48

3. Old-Age and Survivors Insurance and Disability Insurance

Trust Funds, Combined

A statement of the operations of the income and disbursements of the

OASI and DI Trust Funds, on a combined basis, is presented in table

II.C5. The entries in this table represent the sums of the corresponding values from tables II.C1 and II.C3. For a discussion of the nature

of these income and expenditure transactions, reference should be

made to the preceding two subsections covering OASI and DI separately. 

Table II.C5.—Statement of Operations of the OASI and DI Trust Funds,

Combined, During Fiscal Year 1998

[In thousands]

Total assets, September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $630,877,802

Receipts:

Contributions:

Employment taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $424,642,241

Payments from the general fund of the Treasury for:

Contributions subject to refund . . . . . . . . . . . . . . . . . . . . . . . . . . -2,070,800

Employee-employer contributions on deemed wage

credits for military service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,000

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422,853,441

Income from taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . 168,929

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . 8,952,000

Total income from taxation of benefits . . . . . . . . . . . . . . . . . . . . . 9,120,929

Reimbursement from the general fund for costs of payments to 

uninsured persons who attained age 72 before 1968 . . . . . . . . . . 1,808

Investment income and interest adjustments:

Interest on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,629,558

Interest on transfers to the general fund account for the

Supplemental Security Income program due to adjustment in 

allocation of administrative expenses. . . . . . . . . . . . . . . . . . . . . 1,017

Interest on interfund transfers due to adjustment in allocation of 

administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

Interest on interfund transfers due to adjustment in allocation of 

capitalized asset program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Interest on certain reimbursements from the general fund . . . . . . . 120

Net interest adjustments on disbursement of funds to certain State 

Disability Determination Services . . . . . . . . . . . . . . . . . . . . . . . . 1,070

Total investment income and interest adjustments . . . . . . . . . . . 46,632,161

Gifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Total receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478,608,491

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370,790,335

Offset for collected overpayments. . . . . . . . . . . . . . . . . . . . . . . . . . 1,103,392

Reimbursement from the general fund for unnegotiated checks. . . -71,991

Net benefit payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,821,736

Transfer to the Railroad Retirement “Social Security Equivalent 

Benefit Account” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,819,065

Payment for costs of vocational rehabilitation services for disabled 

beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,291
49

Fiscal Year 1998 Operations

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

Table II.C6 compares past estimates of contributions and benefit payments for fiscal year 1998, as shown in the 1994-98 Annual Reports,

with the corresponding actual amounts in 1998. The estimates shown

are the ones based on the alternative II assumptions.

A number of factors can contribute to differences between estimates

and subsequent actual amounts, including actual values for key economic, demographic, and other variables that differ from assumed levels. In addition, amendments to the Social Security Act can cause

actual taxes or benefits to vary from earlier estimates. For example,

the reallocation of the OASDI tax rate, enacted in October 1994,

makes comparison of tax estimates in the 1994 Annual Report with

actual taxes in fiscal year 1998 meaningless for OASI and DI taken

separately. Estimates of OASI benefit payments were generally close

to actual payments in 1998. The actual amount of DI benefit payments in 1998, however, was significantly below estimates in the

1994-97 reports, due to slower-than-expected growth in the number of

disabled workers.

Disbursements: (Cont.)

Administrative expenses:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,293,114

Department of the Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308,546

Reimbursement from the general fund for costs of furnishing 

information on deferred vested pension benefits . . . . . . . . . . . . -1,469

Offsetting receipts from sales of supplies, materials, etc. . . . . . . . . -546

Reimbursement from the general fund for costs of furnishing 

information related to the Coal Industry Retiree Health Benefit 

Act of 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -581

Reimbursement from the general fund for costs associated with 

union activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2,477

Demonstration projects and experiments . . . . . . . . . . . . . . . . . . . . 208

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,596,795

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,290,886

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,317,605

Total assets, September 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 730,195,407

Table II.C5.—Statement of Operations of the OASI and DI Trust Funds,

Combined, During Fiscal Year 1998 (Cont.)

[In thousands]
Actuarial Analysis

50

At the end of fiscal year 1998, about 44.2 million persons were receiving monthly benefits under the OASDI program. Of these persons,

about 37.9 million and 6.3 million were receiving monthly benefits

from the OASI Trust Fund and the DI Trust Fund, respectively. The

number of persons receiving benefits from the OASI and DI Trust

Funds grew by 0.3 percent and 2.9 percent, respectively, during the

fiscal year. The estimated distribution of benefit payments in fiscal

years 1997 and 1998, by type of beneficiary, is shown in table II.C7 for

each trust fund separately.

Table II.C6.—Comparison of Actual and Estimated Operations of the

OASI and DI Trust Funds, Fiscal Year 1998

[Amounts in millions]

Net contributions 1 

 1 “Actual” contributions for 1998 reflect adjustments for prior fiscal years (see preceding section for

description of these adjustments). “Estimated” contributions also include such adjustments, but on an

estimated basis.

Benefit payments 2 

 2 Includes payments, if any, for vocational rehabilitation services furnished to disabled persons receiving

benefits because of their disabilities.

Amount

Difference

from actual

(percent) Amount

Difference

from actual

(percent)

OASI Trust Fund:

Estimate in 1994 report. . . . . . . . . . . . . $378,188 3.6 $335,916 3.6

Estimate in 1995 report. . . . . . . . . . . . . 361,256 -1.0 331,735 2.3

Estimate in 1996 report. . . . . . . . . . . . . 352,240 -3.5 328,800 1.4

Estimate in 1997 report. . . . . . . . . . . . . 353,695 -3.1 326,932 0.8

Estimate in 1998 report. . . . . . . . . . . . . 364,499 -0.1 323,698 -0.2

Actual amount . . . . . . . . . . . . . . . . . . . . 364,871 — 324,256 —

DI Trust Fund:

Estimate in 1994 report. . . . . . . . . . . . . 40,526 -30.1 52,926 11.1

Estimate in 1995 report. . . . . . . . . . . . . 57,376 -1.0 51,714 8.6

Estimate in 1996 report. . . . . . . . . . . . . 55,945 -3.5 50,688 6.4

Estimate in 1997 report. . . . . . . . . . . . . 56,185 -3.1 49,975 4.9

Estimate in 1998 report. . . . . . . . . . . . . 57,911 -0.1 48,274 1.4

Actual amount . . . . . . . . . . . . . . . . . . . . 57,982 — 47,619 —

OASI and DI Trust Funds, combined:

Estimate in 1994 report. . . . . . . . . . . . . 418,714 -1.0 388,841 4.6

Estimate in 1995 report. . . . . . . . . . . . . 418,632 -1.0 383,449 3.1

Estimate in 1996 report. . . . . . . . . . . . . 408,185 -3.5 379,488 2.0

Estimate in 1997 report. . . . . . . . . . . . . 409,880 -3.1 376,907 1.4

Estimate in 1998 report. . . . . . . . . . . . . 422,410 -0.1 371,972 ( 3 )

 3 Less than 0.05 percent.

Actual amount . . . . . . . . . . . . . . . . . . . . 422,853 — 371.875 —
51

Fiscal Year 1998 Operations

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

Net administrative expenses charged to the OASI and DI Trust Funds

in fiscal year 1998 totaled $3.6 billion. This amount represented 0.9

percent of contribution income and 1.0 percent of expenditures for

benefit payments. Corresponding percentages for each trust fund separately and for the OASDI program as a whole are shown in table

II.C8 for each of the last 5 years.

Table II.C7.—Estimated Distribution of Benefit Payments From the OASI and DI Trust 

Funds, by Type of Beneficiary or Payment, Fiscal Years 1997 and 1998

[Amounts in millions]

Fiscal year 1997 Fiscal year 1998

Amount

Percentage

of total Amount

Percentage

of total

Total OASDI benefit payments . . . . . . . . . $358,232 100.0 $371,894 100.0

OASI benefit payments . . . . . . . . . . . . . 312,862 87.3 324,311 87.2

DI benefit payments . . . . . . . . . . . . . . . 45,371 12.7 47,583 12.8

OASI benefit payments, total . . . . . . . . . . 312,862 100.0 324,311 100.0

Monthly benefits:

Retired workers and auxiliaries . . . . . 240,665 76.9 250,606 77.3

Retired workers . . . . . . . . . . . . . . . 220,761 70.6 230,331 71.0

Wives and husbands . . . . . . . . . . . 18,042 5.8 18,345 5.7

Children . . . . . . . . . . . . . . . . . . . . . 1,861 0.6 1,930 0.6

Survivors of deceased workers . . . . . 71,981 23.0 73,484 22.7

Aged widows and widowers. . . . . . 57,789 18.5 58,891 18.2

Disabled widows and widowers. . . 1,142 0.4 1,213 0.4

Parents . . . . . . . . . . . . . . . . . . . . . 30 ( 1 )

 1 Less than 0.05 percent.

29 ( 1 )

Children . . . . . . . . . . . . . . . . . . . . . 11,552 3.7 11,897 3.7

Widowed mothers and fathers caring for child beneficiaries. . . . . . 1,468 0.5 1,454 0.4

Uninsured persons generally aged 

72 before 1968 . . . . . . . . . . . . . . . 1 ( 1 ) ( 2 )

 2 Less than $500,000.

( 1 )

Lump-sum death payments. . . . . . . . . . 216 0.1 220 0.1

DI benefit payments, total . . . . . . . . . . . . . 45,371 100.0 47,583 100.0

Disabled workers. . . . . . . . . . . . . . . . 40,798 89.9 42,871 90.1

Wives and husbands . . . . . . . . . . . . . 487 1.1 464 1.0

Children . . . . . . . . . . . . . . . . . . . . . . . 4,086 9.0 4,247 8.9

Table II.C8.—Net Administrative Expenses as a Percentage of Contribution Income 

and of Benefit Payments, by Trust Fund, Fiscal Years 1994-98

Fiscal year 

OASI Trust Fund DI Trust Fund

OASI and DI

Trust Funds,

combined

Contribution

income

Benefit

payments

Contribution

income

Benefit

payments

Contribution

income

Benefit

payments

1994 . . . . . . . . . 0.6 0.7 3.1 2.8 0.8 0.9

1995 . . . . . . . . . .6 .6 1.6 2.7 .8 .9

1996 . . . . . . . . . .6 .6 1.9 2.5 .8 .8

1997 . . . . . . . . . .6 .6 2.2 2.7 .8 .9

1998 . . . . . . . . . .6 .6 2.7 3.3 .9 1.0
Actuarial Analysis

52

Tables II.C2 and II.C4, presented in the two preceding subsections,

showed the assets of the OASI and DI Trust Funds at the end of fiscal

years 1997 and 1998. The changes in the invested assets of the funds

between those two dates are a result of the acquisition and disposition

of securities during fiscal year 1998. Table II.C9 presents these

investment transactions for each trust fund separately and combined.

All amounts shown in the table are at par value.

Note: All investments are shown at par value.

Table II.C9.—Investment Transactions of the OASI and DI Trust Funds in 

Fiscal Year 1998

[In thousands]

OASI

Trust Fund

DI

Trust Fund

OASI and DI

Trust Funds,

combined

Invested assets, September 30, 1997 . . . . $567,444,638 $63,561,728 $631,006,366

Acquisitions:

Special issues:

Certificates of indebtedness . . . . . . . . 399,891,197 61,646,719 461,537,916

Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 129,628,688 18,189,809 147,818,497

Public issues:

Treasury bonds . . . . . . . . . . . . . . . . . . ———

Total acquisitions. . . . . . . . . . . . . . . . . 529,519,885 79,836,528 609,356,413

Dispositions:

Special issues:

Certificates of indebtedness . . . . . . . . 406,712,213 63,061,604 469,773,817

Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 36,970,618 3,341,125 40,311,743

Public issues:

Treasury bonds . . . . . . . . . . . . . . . . . . — — —

Total dispositions. . . . . . . . . . . . . . . . . 443,682,831 66,402,729 510,085,560

Net increase in invested assets . . . . . . . . . 85,837,054 13,433,799 99,270,853

Invested assets, September 30, 1998 . . . . 653,281,692 76,995,527 730,277,219
53

Economic & Demographic Assumptions

D. PRINCIPAL ECONOMIC AND DEMOGRAPHIC 

ASSUMPTIONS

The future income and outgo of the OASDI program depend on many

economic and demographic factors, including gross domestic product,

labor force, unemployment, average earnings, productivity, inflation,

fertility, mortality, net immigration, marriage, divorce, retirement

patterns, and disability incidence and termination. The income will

depend on how these factors affect the size and composition of the

working population and the level and distribution of earnings. Similarly, the outgo will depend on how these factors affect the size and

composition of the beneficiary population and the general level of benefits.

Because projections of these variables are inherently uncertain, estimates are shown in this report on the basis of three plausible sets of

assumptions, designated as intermediate (alternative II), low cost

(alternative I), and high cost (alternative III). The intermediate set,

alternative II, represents the Board’s best estimate of the future

course of the population and the economy. In terms of the net effect on

the status of the OASDI program, the low cost alternative I is the

most optimistic, and the high cost alternative III is the most pessimistic.

The economic and demographic assumptions used in this report are

reexamined each year in light of recent experience and new information about future trends, and are revised if warranted. This year,

there was a particular need for such a review because of changes in

the calculation of the CPI by the Bureau of Labor Statistics (BLS).

These changes were announced last April, too late to incorporate into

the 1998 report.

Although the three sets of economic and demographic assumptions

have been developed using the best available information, the resulting estimates should be interpreted with care. The estimates are not

intended to be predictions of the future financial status of the OASDI

program, but rather, they are intended to be indicators of the expected

trend and likely range of future income and outgo, under a variety of

plausible economic and demographic conditions.

The values for each of the economic and demographic factors are

assumed to move from recently experienced levels or trends, toward

long-range ultimate values over the next 5 to 30 years. The ultimate

values assumed after the first 5 to 30 years for both the economic and
Actuarial Analysis

54

the demographic variables are intended to represent average experience or growth rates. Actual future values will exhibit fluctuations or

cyclical patterns, as in the past.

1. Economic Assumptions

The principal economic assumptions are summarized in table II.D1.

Alternatives I, II, and III represent a range of economic assumptions

designed to produce variation in Social Security’s financial status that

should encompass most of the possibilities that might be encountered.

The intermediate assumptions (alternative II) reflect the Trustees’

consensus expectation of moderate economic growth throughout the

projection period. The low cost assumptions (alternative I) represent a

more optimistic outlook, with relatively stronger economic growth.

The high cost assumptions (alternative III) represent a relatively pessimistic forecast, with weaker economic growth and two recessions in

the short-range period. Economic cycles are not included in assumptions beyond the first 5 to 10 years of the projection period because

they have little effect on the long-range estimates of financial status.

a. GDP, Labor Productivity, and Labor Force Growth

For alternative II, the annual growth in real GDP is assumed to average 2.0 percent over the short-range projection period (1999-2008), a

slower rate than the 2.4 percent average observed over the most

recent historical ten-year period (1989-98). This 0.4 percent slowdown

is mostly due to slower projected growth in labor force and employment. For alternative I, the annual growth rate in the real GDP is

assumed to average 2.6 percent over the next 10 years. The relatively

faster growth is due mostly to a higher assumed rate of growth in

worker productivity. For alternative III, relatively weak economic

growth and an increased inflation rate are assumed for the first 3

quarters of 1999. A recession begins in the fourth quarter of 1999,

lasts 3 quarters, and results in a total decline in real GDP of 1.4 percent. After 8 quarters of recovery, a second recession, with a total

decline in real GDP of 3.0 percent, is assumed to begin in the third

quarter of 2002, lasting 4 quarters. After the second recession, a moderate economic recovery is assumed through 2005, with continued

modest economic growth thereafter.

After 2008, the projected rates of growth in real GDP, for all three

alternatives, are determined by the assumed rates of growth in

employment, average hours worked, and labor productivity. The
55

Economic & Demographic Assumptions

Trustees assume an intermediate trend growth rate of labor productivity of 1.3 percent per year, roughly in line with the average rate of

growth of productivity over the last 30 years.

The Trustees project much slower growth in the working age population in the future based on the natural consequence of the “babyboom” generation approaching retirement and the succeeding lowerbirth-rate cohorts reaching working age. The projected slowdown in

labor force growth also reflects the cessation of relatively rapid

growth in labor force participation rates, particularly by women, by

about 2010. The annual rate of growth in total labor force decreased

from an average of about 2 percent per year during the 1970s and

1980s to about 1.1 percent from 1990 to 1998. After 1998 the labor

force is projected to increase at about 0.9 percent per year, on average,

through 2008, and to increase much more slowly after that, ultimately

reaching 0.1 percent toward the end of the 75-year projection period.

Thus, the projected growth of real GDP falls toward trend productivity growth because of the Trustees projected decline in labor force

growth over the long term. With productivity growth at 1.3 percent

and labor force growth slowing to essentially zero, ultimately trend

GDP growth slows to about 1.3 percent as well.

b. Unemployment Rate

Unemployment rates through 2008 are presented in the most commonly cited form, the civilian rate, which is determined by the difference between aggregate civilian labor force and aggregate civilian

employment. For years after 2008, however, total age-sex adjusted

rates are presented. These include the military and are age-sex

adjusted to the 1997 labor force. Such total rates better represent the

population covered by the OASDI program. In addition, these rates

adjust for the changing age-sex distribution of the labor force, which

can obscure the comparison of unemployment rates across time periods.

Ultimate unemployment rates have been lowered by 0.5 percentage

point from the values assumed in the 1998 report. This reflects, in

part, a general view that the Non-Accelerating Inflation Unemployment Rate has dropped significantly over the last 5 years or so and

can be expected to remain at lower levels than had been assumed in

the past. The ultimate age-sex adjusted unemployment rate for each

alternative is assumed to be reached in 2009. The ultimate levels are

4.5, 5.5, and 6.5 for alternatives I, II and III, respectively.
Actuarial Analysis

56

c. Inflation

The annual rate of increase in the CPI (Consumer Price Index for

Urban Wage Earners and Clerical Workers) was 1.3 percent in 1998.

For alternative II, the annual change in the CPI increases from 1.9

percent in 1999 to the assumed ultimate rate of 3.3 percent, reached

in 2007. For alternative I, CPI changes range from 1.8 percent in 1999

to the assumed ultimate rate of 2.3 percent in 2003. For alternative

III, the rate of change in the CPI is projected to increase from 2.5 percent in 1999 to the assumed ultimate rate of 4.3 percent in 2005. Ultimate rates of increase in the CPI are 0.2 percentage point lower than

in the 1998 report, reflecting the changes announced by the BLS in

April 1998. The Trustees also project GDP price inflation, as measured by the GDP deflator, to be 0.1 percentage point lower than CPImeasured inflation, based on the fact that methodological differences

in the construction of the two indices suggest a differential of this

magnitude is likely to persist in the future.

d. Growth in Wages

For alternative II, the annual rate of change in the average wage in

covered employment is assumed to drop from the estimated 5.7 percent increase for 1998, to a projected rate of 2.9 percent for 1999, and

then to average about 3.7 percent for the period 1999 through 2008.

Growth in the average wage does not reach its ultimate assumed rate

of 4.2 percent until after 2010, primarily because price inflation in the

early years of the period is assumed to average less than its ultimate

level through this period.

The real-wage differential (i.e., the difference between the annual

rates of change in the average wage in covered employment and in the

CPI) was 4.4 percent in 1998, based on preliminary data. The

assumed real-wage differential in the future is a direct result of the

rates of change in several economic factors, including productivity

growth and inflation. After 1998, under the intermediate assumptions, the real-wage differential is projected to be between 0.9 and 1.0

percent for the years 1999 through 2010, and thereafter remain at the

ultimate assumed differential of 0.9 percent—4.2 percent nominal

wage growth less 3.3 percent CPI inflation. This is a direct result of

the Trustees’ decisions with respect to their projection of trend labor

productivity and the “wedge” between CPI-measured inflation and

GDP-measured price inflation.
57

Economic & Demographic Assumptions

For the low cost alternative I, the real-wage differential is assumed to

be in the range of 1.3 percent to 1.6 percent between 1999 and 2011,

remaining at the ultimate assumed real-wage differential of 1.4 percent thereafter. For the high cost alternative III, the real-wage differential for the short-range period is projected to fluctuate between -1.7

and 1.4 percent, eventually stabilizing at 0.4 percent in 2040 and

later.

e. Trust Fund Interest Rate

The average annual nominal interest rate for securities newly issued

to the trust funds decreased from 6.6 percent in 1997 to 5.6 percent in

1998. Under the intermediate assumptions it is projected to be below

6.0 percent from 1999 to 2004, reflecting the low projected rate of

inflation, and then to move up gradually, reaching the ultimate

assumed level of 6.3 percent in 2007, the same rate assumed last year.

For the low cost alternative I assumptions, the average annual nominal interest rate is assumed to reach an ultimate level of 6.0 percent

in 2009. In the high cost alternative III, it is assumed to peak at 8.0

percent in 2002, and then decline to an ultimate rate of 6.5 percent in

2009.

The assumed ultimate nominal interest rate is based on assumed real

interest rates of 3.0 percent for the intermediate assumptions, and 3.7

percent and 2.2 percent for alternatives I and III, respectively. These

real interest rates are 0.2 percentage point higher than last year,

reflecting the effect of the reduction in the CPI inflation assumption

adopted for this year’s report.
Actuarial Analysis

58

Table II.D1.—Selected Economic Assumptions by Alternative,

Calendar Years 1960-2075

Average annual percentage

change in—

Calendar year 

Real

GDP 1

Average

annual

wage in

covered

employment

Consumer

Price

Index 2

Realwage

differential 3

(percent)

Average

annual

interest

rate 4

(percent)

Average

annual

unemployment

rate 5

(percent)

Average

annual

percentage

increase

in labor

force 6

Historical data:

1960-64. . . . . . . 4.6 3.4 1.2 2.2 3.7 5.7 1.3

1965-69. . . . . . . 4.2 6.1 3.9 2.2 5.2 3.8 2.1

1970-74. . . . . . . 3.4 6.6 6.2 .4 6.7 5.4 2.3

1975 . . . . . . . . . -.4 6.7 9.1 -2.4 7.4 8.5 1.9

1976 . . . . . . . . . 5.4 8.5 5.7 2.8 7.1 7.7 2.4

1977 . . . . . . . . . 4.7 6.8 6.5 .3 7.1 7.1 2.9

1978 . . . . . . . . . 5.4 11.6 7.7 3.9 8.2 6.1 3.2

1979 . . . . . . . . . 2.8 9.8 11.4 -1.6 9.1 5.8 2.6

1980 . . . . . . . . . -.3 6.7 13.4 -6.7 11.0 7.1 1.9

1981 . . . . . . . . . 2.3 10.8 10.3 .6 13.3 7.6 1.6

1982 . . . . . . . . . -2.1 6.3 6.0 .3 12.8 9.7 1.5

1983 . . . . . . . . . 4.0 4.2 3.0 1.2 11.0 9.6 1.2

1984 . . . . . . . . . 7.0 6.0 3.5 2.5 12.4 7.5 1.8

1985 . . . . . . . . . 3.6 6.0 3.5 2.6 10.8 7.2 1.7

1986 . . . . . . . . . 3.1 4.6 1.6 3.0 8.0 7.0 2.0

1987 . . . . . . . . . 2.9 4.6 3.6 1.0 8.4 6.2 1.7

1988 . . . . . . . . . 3.8 5.3 4.0 1.3 8.8 5.5 1.5

1989 . . . . . . . . . 3.4 3.9 4.8 -.9 8.7 5.3 1.7

1990 . . . . . . . . . 1.2 5.1 5.2 -.1 8.6 5.6 1.6

1991 . . . . . . . . . -.9 3.0 4.1 -1.1 8.0 6.8 .4

1992 . . . . . . . . . 2.7 4.9 2.9 2.0 7.1 7.5 1.2

1993 . . . . . . . . . 2.3 1.9 2.8 -.9 6.1 6.9 .7

1994 . . . . . . . . . 3.5 7 3.4 2.5 1.0 7.1 6.1 1.3

1995 . . . . . . . . . 2.3 7 4.0 2.9 1.1 6.9 5.6 .9

1996 . . . . . . . . . 3.4 7 4.5 2.9 1.6 6.6 5.4 1.2

1997 . . . . . . . . . 3.9 7 5.7 2.3 3.4 6.6 4.9 1.7

1998 . . . . . . . . . 7 3.9 7 5.7 1.3 4.4 5.6 4.5 1.0

Intermediate: 

1999 . . . . . . . . . 2.6 2.9 1.9 1.0 4.7 4.6 1.2

2000 . . . . . . . . . 2.0 3.0 2.1 .9 4.9 4.9 1.0

2001 . . . . . . . . . 2.0 3.4 2.5 .9 5.2 5.1 1.1

2002 . . . . . . . . . 2.0 3.5 2.6 .9 5.4 5.3 .9

2003 . . . . . . . . . 2.0 3.7 2.7 1.0 5.6 5.4 .8

2004 . . . . . . . . . 2.0 3.9 3.0 .9 5.8 5.4 .8

2005 . . . . . . . . . 2.0 4.1 3.1 1.0 6.0 5.5 .9

2006 . . . . . . . . . 2.0 4.1 3.2 .9 6.1 5.5 .8

2007 . . . . . . . . . 2.0 4.2 3.3 1.0 6.3 5.5 .8

2008 . . . . . . . . . 1.9 4.3 3.3 1.0 6.3 5.5 .7

2010 . . . . . . . . . 1.8 4.3 3.3 1.0 6.3 5.5 .6

2020 . . . . . . . . . 1.4 4.2 3.3 .9 6.3 5.5 .2

2030 . . . . . . . . . 1.4 4.2 3.3 .9 6.3 5.5 .2

2040 . . . . . . . . . 1.4 4.2 3.3 .9 6.3 5.5 .2

2050 . . . . . . . . . 1.3 4.2 3.3 .9 6.3 5.5 .1

2060 . . . . . . . . . 1.3 4.2 3.3 .9 6.3 5.5 .1

2070 . . . . . . . . . 1.3 4.2 3.3 .9 6.3 5.5 .1

2075 . . . . . . . . . 1.2 4.2 3.3 .9 6.3 5.5 .1
59

Economic & Demographic Assumptions

Low Cost: 

1999 . . . . . . . . . 3.4 3.4 1.8 1.6 4.7 4.4 1.3

2000 . . . . . . . . . 2.5 3.3 1.9 1.4 4.8 4.5 1.2

2001 . . . . . . . . . 2.5 3.5 2.1 1.5 5.1 4.5 1.1

2002 . . . . . . . . . 2.5 3.4 2.2 1.3 5.3 4.6 1.1

2003 . . . . . . . . . 2.5 3.6 2.3 1.4 5.4 4.6 1.0

2004 . . . . . . . . . 2.5 3.7 2.3 1.4 5.6 4.6 1.0

2005 . . . . . . . . . 2.5 3.6 2.3 1.3 5.6 4.5 1.0

2006 . . . . . . . . . 2.5 3.6 2.3 1.3 5.7 4.5 1.0

2007 . . . . . . . . . 2.5 3.8 2.3 1.5 5.8 4.5 .9

2008 . . . . . . . . . 2.4 3.8 2.3 1.5 5.8 4.5 .8

2010 . . . . . . . . . 2.3 3.8 2.3 1.5 6.0 4.5 .8

2020 . . . . . . . . . 1.9 3.7 2.3 1.4 6.0 4.5 .3

2030 . . . . . . . . . 2.0 3.7 2.3 1.4 6.0 4.5 .5

2040 . . . . . . . . . 2.2 3.7 2.3 1.4 6.0 4.5 .6

2050 . . . . . . . . . 2.1 3.7 2.3 1.4 6.0 4.5 .5

2060 . . . . . . . . . 2.2 3.7 2.3 1.4 6.0 4.5 .6

2070 . . . . . . . . . 2.2 3.7 2.3 1.4 6.0 4.5 .6

2075 . . . . . . . . . 2.1 3.7 2.3 1.4 6.0 4.5 .6

High Cost: 

1999 . . . . . . . . . 2.1 3.2 2.5 .7 5.0 4.6 1.1

2000 . . . . . . . . . -.7 2.8 3.7 -.9 5.6 5.7 .7

2001 . . . . . . . . . 2.6 6.5 5.4 1.1 7.1 5.6 .9

2002 . . . . . . . . . 1.3 6.3 6.0 .3 8.0 5.6 1.0

2003 . . . . . . . . . -1.7 2.4 4.1 -1.7 7.9 7.2 .4

2004 . . . . . . . . . 3.0 5.5 4.2 1.4 7.3 7.0 .7

2005 . . . . . . . . . 2.4 5.4 4.3 1.1 6.8 6.5 1.0

2006 . . . . . . . . . 1.6 4.8 4.3 .6 6.9 6.5 .8

2007 . . . . . . . . . 1.5 4.7 4.3 .4 6.8 6.5 .8

2008 . . . . . . . . . 1.5 4.7 4.3 .4 6.8 6.5 .8

2010 . . . . . . . . . 1.3 4.8 4.3 .5 6.5 6.5 .5

2020 . . . . . . . . . .9 4.8 4.3 .5 6.5 6.5 .1

2030 . . . . . . . . . .8 4.7 4.3 .4 6.5 6.5 .0

2040 . . . . . . . . . .7 4.7 4.3 .4 6.5 6.5 -.1

2050 . . . . . . . . . .4 4.7 4.3 .4 6.5 6.5 -.3

2060 . . . . . . . . . .3 4.7 4.3 .4 6.5 6.5 -.4

2070 . . . . . . . . . .3 4.7 4.3 .4 6.5 6.5 -.5

2075 . . . . . . . . . .3 4.7 4.3 .4 6.5 6.5 -.5

 1 The real GDP (gross domestic product) is the value of total output of goods and services, expressed in

1992 dollars.

 2 The Consumer Price Index is the annual average value for the calendar year of the Consumer Price

Index for Urban Wage Earners and Clerical Workers (CPI-W).

 3 The real-wage differential is the difference between the percentage increases, before rounding, in the

average annual wage in covered employment, and the average annual Consumer Price Index.

 4 The average annual interest rate is the average of the nominal interest rates, which, in practice, are

compounded semiannually, for special public-debt obligations issuable to the trust funds in each of the 12

months of the year.

 5 Through 2008, the rates shown are unadjusted civilian unemployment rates. After 2008, the rates are

total rates (including military), adjusted by age and sex based on the average labor force for 1997.

 6 Labor force is the total for the United States (including military personnel) and reflects the average of the

monthly numbers of persons in the labor force for each year.

 7 Preliminary. Wages in covered employment are considered preliminary for several years primarily due

to uncertainty associated with estimates of amounts above the benefit and contribution base. Estimated

real GDP for 1998 is subject to revision; the value for the intermediate assumption is shown.

Table II.D1.—Selected Economic Assumptions by Alternative,

Calendar Years 1960-2075 (Cont.)

Average annual percentage

change in—

Calendar year 

Real

GDP 1

Average

annual

wage in

covered

employment

Consumer

Price

Index 2

Realwage

differential 3

(percent)

Average

annual

interest

rate 4

(percent)

Average

annual

unemployment

rate 5

(percent)

Average

annual

percentage

increase

in labor

force 6
Actuarial Analysis

60

2. Demographic Assumptions

The principal demographic assumptions for the three alternatives are

shown in table II.D2.

a. Fertility Rate

For the intermediate projection, the assumed ultimate total fertility

rate of 1.9 children per woman is attained in 2023 after a gradual

decline from the preliminary estimate for 1998 of 2.04 children per

woman. Under the low cost alternative I, the total fertility rate is

assumed to rise to an ultimate average level of 2.2 children per

woman by 2023. For the high cost alternative III, the total fertility

rate is assumed to decrease to an ultimate level of 1.6 children per

woman by 2023.

The ultimate total fertility rates, as shown in table II.D2, are

unchanged from last year’s report. Due to the higher-than-expected

level of additional data for the years 1996 and 1997, the total fertility

rates during the first 25 years of the projection period are, generally,

slightly higher than those in last year’s report.

b. Death Rate and Life Expectancy

Under the intermediate assumptions, the age-sex-adjusted death rate

is assumed to decrease steadily during the entire projection period,

with a total reduction of 34 percent from the 1998 level by 2073. Life

expectancies at birth are 79.6 years for men and 84.1 years for women

based on mortality projected for 2075, compared to 73.4 and 79.4

years, respectively, based on 1998 mortality. Life expectancies at age

65 for 2075 mortality are projected to be 18.9 years for men and 22.1

years for women, compared to 15.7 and 19.2 years, respectively, for

1998 mortality.

The age-sex-adjusted death rate for the low cost alternative I is

assumed to decrease more slowly than for the intermediate alternative II, with the total reduction from the 1998 level being 14 percent

by 2073. Life expectancies at birth based on mortality projected for

2075 are 76.6 years for men and 81.2 years for women, while at age 65

they are 16.7 and 19.7 years, respectively.

For the high cost alternative III, the age-sex-adjusted death rate is

assumed to decrease more rapidly than for alternative II, with the

total reduction from the 1998 level being 54 percent by 2073. Life
61

Economic & Demographic Assumptions

expectancies at birth for 2075 mortality are 83.5 years for men and

88.0 years for women, while at age 65 they are 21.9 and 25.2 years,

respectively.

The life expectancies shown in table II.D2 are based on the concept of

a “period” life table. The “period” life expectancy at a given age for any

year represents the average number of years of life remaining if all

persons at that age in the population were to experience the mortality

rates by age observed in, or assumed for, that year. Thus, the life

expectancies are not based on the concept of a “cohort” life table; i.e.,

they do not represent the effects of mortality rates observed in, or

assumed for, each later year of that cohort’s remaining lifetime.

Mortality values shown in table II.D2 are different from values in last

year’s report. Inclusion of additional data for the years 1995-97

resulted in the estimation of lower mortality rates overall for the

starting year 1997 and slightly higher rates of mortality reduction

during the first 25 years of the projection period. The ultimate rates of

reduction in mortality are the same as those used in last year’s report.

c. Immigration

Total net immigration is assumed to be 900,000 persons per year for

the intermediate projection. The assumed level of net annual immigration is the combination of 600,000 net legal immigrants per year

and 300,000 net other-than-legal immigrants per year. For the low

cost alternative I, total net immigration is assumed to be 1,150,000

persons per year. The assumed level of net annual immigration is the

combination of 700,000 net legal immigrants and 450,000 net otherthan-legal immigrants. Under the high cost alternative III, total net

immigration is assumed to be 750,000 persons per year, the combination of 550,000 net legal immigrants per year and 200,000 net otherthan-legal immigrants.
Actuarial Analysis

62

.

Table II.D2.—Selected Demographic Assumptions by Alternative, 

Calendar Years 1940-2075

Total

fertility

rate 1

Age-sex-adjusted

death rate 2

(per 100,000)

Life expectancy 3 

At birth At age 65

Calendar year Male Female Male Female

Historical data:

1940 . . . . . . . . . . . . . 2.23 1,672.6 61.4 65.7 11.9 13.4

1945 . . . . . . . . . . . . . 2.42 1,488.6 62.9 68.4 12.6 14.4

1950 . . . . . . . . . . . . . 3.03 1,339.9 65.6 71.1 12.8 15.1

1955 . . . . . . . . . . . . . 3.50 1,243.0 66.7 72.8 13.1 15.6

1960 . . . . . . . . . . . . . 3.61 1,237.9 66.7 73.2 12.9 15.9

1965 . . . . . . . . . . . . . 2.88 1,210.8 66.8 73.8 12.9 16.3

1970 . . . . . . . . . . . . . 2.43 1,138.4 67.2 74.9 13.1 17.1

1975 . . . . . . . . . . . . . 1.77 1,020.9 68.7 76.6 13.7 18.0

1976 . . . . . . . . . . . . . 1.74 1,010.1 69.1 76.8 13.8 18.1

1977 . . . . . . . . . . . . . 1.80 981.8 69.4 77.2 13.9 18.3

1978 . . . . . . . . . . . . . 1.76 976.3 69.6 77.3 14.0 18.3

1979 . . . . . . . . . . . . . 1.82 944.8 70.0 77.7 14.2 18.6

1980 . . . . . . . . . . . . . 1.85 961.1 69.9 77.5 14.0 18.4

1981 . . . . . . . . . . . . . 1.83 934.5 70.4 77.9 14.2 18.6

1982 . . . . . . . . . . . . . 1.83 906.4 70.8 78.2 14.5 18.8

1983 . . . . . . . . . . . . . 1.81 916.0 70.9 78.1 14.3 18.6

1984 . . . . . . . . . . . . . 1.80 909.2 71.1 78.2 14.4 18.7

1985 . . . . . . . . . . . . . 1.84 912.3 71.1 78.2 14.4 18.6

1986 . . . . . . . . . . . . . 1.84 904.8 71.1 78.3 14.5 18.7

1987 . . . . . . . . . . . . . 1.87 895.6 71.3 78.4 14.6 18.7

1988 . . . . . . . . . . . . . 1.93 906.0 71.2 78.3 14.6 18.7

1989 . . . . . . . . . . . . . 2.01 882.4 71.5 78.6 14.8 18.9

1990 . . . . . . . . . . . . . 2.07 865.8 71.8 78.9 15.0 19.0

1991 . . . . . . . . . . . . . 2.07 854.7 71.9 79.0 15.1 19.1

1992 . . . . . . . . . . . . . 2.06 843.6 72.2 79.2 15.2 19.2

1993 . . . . . . . . . . . . . 2.04 863.3 72.0 78.9 15.1 19.0

1994 . . . . . . . . . . . . . 2.04 852.3 72.2 79.0 15.3 19.0

1995 . . . . . . . . . . . . . 2.02 849.9 72.4 79.0 15.3 19.0

1996 . . . . . . . . . . . . . 2.03 837.0 72.8 79.1 15.4 19.0

1997 4 . . . . . . . . . . . . 2.04 807.4 73.6 79.3 15.9 19.1

1998 4 . . . . . . . . . . . . 2.04 811.7 73.4 79.4 15.7 19.2

Intermediate: 

1999 . . . . . . . . . . . . . 2.03 804.6 73.6 79.5 15.8 19.2

2000 . . . . . . . . . . . . . 2.03 797.8 73.8 79.6 15.8 19.2

2005 . . . . . . . . . . . . . 2.00 768.2 74.6 80.1 16.1 19.4

2010 . . . . . . . . . . . . . 1.97 746.3 75.2 80.4 16.3 19.5

2015 . . . . . . . . . . . . . 1.94 725.8 75.7 80.7 16.5 19.6

2020 . . . . . . . . . . . . . 1.92 704.8 76.0 81.0 16.7 19.8

2025 . . . . . . . . . . . . . 1.90 684.4 76.4 81.4 16.9 20.0

2030 . . . . . . . . . . . . . 1.90 665.0 76.8 81.7 17.1 20.2

2035 . . . . . . . . . . . . . 1.90 646.5 77.1 82.0 17.3 20.5

2040 . . . . . . . . . . . . . 1.90 629.0 77.4 82.3 17.5 20.7

2045 . . . . . . . . . . . . . 1.90 612.3 77.8 82.5 17.7 20.9

2050 . . . . . . . . . . . . . 1.90 596.4 78.1 82.8 17.9 21.1

2055 . . . . . . . . . . . . . 1.90 581.2 78.4 83.1 18.1 21.3

2060 . . . . . . . . . . . . . 1.90 566.7 78.7 83.4 18.3 21.5

2065 . . . . . . . . . . . . . 1.90 552.9 79.0 83.6 18.5 21.7

2070 . . . . . . . . . . . . . 1.90 539.7 79.3 83.9 18.7 21.9

2075 . . . . . . . . . . . . . 1.90 527.1 79.6 84.1 18.9 22.1
63

Economic & Demographic Assumptions

In addition to the assumptions discussed above, many other factors

are necessary to prepare the estimates presented in this report. Section II.H includes a discussion of a number of those factors.

Low Cost: 

1999 . . . . . . . . . . . . . 2.05 811.1 73.5 79.4 15.7 19.1

2000 . . . . . . . . . . . . . 2.06 810.6 73.6 79.4 15.7 19.1

2005 . . . . . . . . . . . . . 2.08 807.7 74.0 79.5 15.7 18.9

2010 . . . . . . . . . . . . . 2.11 808.9 74.2 79.5 15.8 18.8

2015 . . . . . . . . . . . . . 2.15 800.9 74.6 79.6 15.8 18.8

2020 . . . . . . . . . . . . . 2.18 791.0 74.8 79.8 15.9 18.8

2025 . . . . . . . . . . . . . 2.20 780.8 75.0 79.9 16.0 18.9

2030 . . . . . . . . . . . . . 2.20 770.9 75.2 80.1 16.0 19.0

2035 . . . . . . . . . . . . . 2.20 761.3 75.3 80.2 16.1 19.1

2040 . . . . . . . . . . . . . 2.20 752.1 75.5 80.3 16.2 19.1

2045 . . . . . . . . . . . . . 2.20 743.2 75.7 80.5 16.3 19.2

2050 . . . . . . . . . . . . . 2.20 734.6 75.8 80.6 16.3 19.3

2055 . . . . . . . . . . . . . 2.20 726.3 76.0 80.7 16.4 19.4

2060 . . . . . . . . . . . . . 2.20 718.2 76.1 80.9 16.5 19.4

2065 . . . . . . . . . . . . . 2.20 710.4 76.3 81.0 16.5 19.5

2070 . . . . . . . . . . . . . 2.20 702.9 76.4 81.1 16.6 19.6

2075 . . . . . . . . . . . . . 2.20 695.5 76.6 81.2 16.7 19.7

High Cost:

1999 . . . . . . . . . . . . . 2.01 798.7 73.7 79.6 15.8 19.3

2000 . . . . . . . . . . . . . 1.99 786.3 73.9 79.8 15.9 19.4

2005 . . . . . . . . . . . . . 1.91 733.6 75.1 80.6 16.4 19.8

2010 . . . . . . . . . . . . . 1.83 694.1 76.0 81.3 16.8 20.1

2015 . . . . . . . . . . . . . 1.74 660.4 76.6 81.8 17.2 20.5

2020 . . . . . . . . . . . . . 1.65 627.2 77.3 82.4 17.6 20.9

2025 . . . . . . . . . . . . . 1.60 595.5 77.9 82.9 18.0 21.3

2030 . . . . . . . . . . . . . 1.60 565.6 78.5 83.5 18.4 21.7

2035 . . . . . . . . . . . . . 1.60 537.6 79.1 84.0 18.8 22.1

2040 . . . . . . . . . . . . . 1.60 511.3 79.7 84.6 19.1 22.5

2045 . . . . . . . . . . . . . 1.60 486.6 80.2 85.1 19.5 22.9

2050 . . . . . . . . . . . . . 1.60 463.4 80.8 85.6 19.9 23.3

2055 . . . . . . . . . . . . . 1.60 441.5 81.3 86.1 20.3 23.7

2060 . . . . . . . . . . . . . 1.60 421.0 81.9 86.6 20.7 24.0

2065 . . . . . . . . . . . . . 1.60 401.6 82.4 87.1 21.1 24.4

2070 . . . . . . . . . . . . . 1.60 383.3 82.9 87.6 21.5 24.8

2075 . . . . . . . . . . . . . 1.60 366.2 83.5 88.0 21.9 25.2

 1 The total fertility rate for any year is the average number of children who would be born to a woman in

her lifetime if she were to experience the birth rates by age observed in, or assumed for, the selected

year, and if she were to survive the entire childbearing period. The ultimate total fertility rate is assumed to

be reached in 2023.

 2 The age-sex-adjusted death rate is the crude rate that would occur in the enumerated total population

as of April 1, 1990, if that population were to experience the death rates by age and sex observed in, or

assumed for, the selected year.

 3 The life expectancy for any year is the average number of years of life remaining for a person if that person were to experience the death rates by age observed in, or assumed for, the selected year.

 4 Preliminary or estimated.

Table II.D2.—Selected Demographic Assumptions by Alternative, 

Calendar Years 1940-2075 (Cont.)

Total

fertility

rate 1

Age-sex-adjusted

death rate 2

(per 100,000)

Life expectancy 3 

At birth At age 65

Calendar year Male Female Male Female
Actuarial Analysis

64

E. AUTOMATIC ADJUSTMENTS

The Social Security Act specifies that certain program amounts affecting the determination of OASDI benefits are to be adjusted annually,

in general, to reflect changes in the economy. The law prescribes specific formulas that, when applied to reported statistics, produce “automatic” revisions in these program amounts and hence in the

benefit-computation procedures.

In this section, values are shown for program amounts that are subject to automatic adjustment, from the time that such adjustments

became effective through 2008. Projected values for future years are

based on the economic assumptions described in the preceding section

of this report. Appendix F, in addition to providing the most recent

determinations of program amounts under the automatic adjustment

provisions, also provides a more complete description of such

amounts.

Under the automatic-adjustment provisions affecting cost-of-living

increases, benefits generally are increased once a year. These provisions were originally enacted in 1972 and first became effective with

the benefit increase effective for June 1975. The 1983 amendments

changed the effective month to December for years after 1982. For

persons becoming eligible for benefits in 1979 and later, the increases

generally begin with the year in which the worker reaches age 62, or

becomes disabled or dies, if earlier. An automatic cost-of-living benefit

increase of 1.3 percent, effective for December 1998, was announced

in October 1998, as described in appendix F. The automatic cost-of-living benefit increase for any year is normally based on the change in

the CPI from the third quarter of the previous year to the third quarter of the current year.1

Under section 215(b)(3) of the Social Security Act, the national average wage index2 for each year after 1950 is used to index the earnings

of most workers first becoming eligible for benefits in 1979 or later.

This procedure converts a worker’s past earnings to approximately

their equivalent values near the time of the worker’s retirement or

1 If the combined assets of the OASI and DI Trust Funds at the beginning of a year represent less than

20 percent of annual expenditures for that year, then the automatic benefit increase for December is limited to the lesser of the increase in wages or prices. This “stabilizer” provision has not affected any benefit

increases since its enactment in 1983. Based on the projected operations of the trust funds shown in this

report under the alternative sets of assumptions, the stabilizer provision is unlikely to affect any future

OASDI benefit increases under present law.

2 The average wage indexed is defined in the Code of Federal Regulations (Title 20, Chapter III, section

404.211(c)).
65

Automatic Adjustments

other eligibility, and these indexed values are used to calculate the

worker’s benefit. The average wage index is also used to adjust most

of the program amounts that are subject to the automatic-adjustment

provisions. Table II.E1 shows the average wage index as determined

for each year 1951 through 1997.

The law provides for an automatic increase in the OASDI program’s

contribution and benefit base, based on the increase in the average

wage index, for the year following a year in which an automatic benefit increase became effective. As described in appendix F, the contribution and benefit base for 1999 was determined to be $72,600.

Under the retirement earnings test, earnings below certain amounts

are exempted from the withholding of benefits payable to beneficiaries

under age 70. Different exempt amounts apply for beneficiaries under

the normal retirement age (currently, age 65) and for those at this age

and above, up to age 69. The automatic adjustment provisions require

that such exempt amounts be increased in the year following a year in

which an automatic cost-of-living benefit increase becomes effective.

Generally, increases in the exempt amounts are based on increases in

the average wage index. Public Law 104-121, however, mandates a

fixed series of exempt amounts for persons aged 65 to 69, for years

1996-2002. After 2002, the exempt amounts are indexed.

Table II.E2 shows historical automatic cost-of-living benefit increases

for the years 1975-98 and assumed increases through 2008. The table

also shows historical year-to-year percentage increases in the average

wage index for 1975-97 and assumed increases through 2008. As

Table II.E1.—Average Wage Index, Calendar Years 1951-97

Year Amount Year Amount Year Amount

1951 . . . . . $2,799.16 1971. . . . . . $6,497.08 1991 . . . . . $21,811.60

1952 . . . . . 2,973.32 1972. . . . . . 7,133.80 1992 . . . . . 22,935.42

1953 . . . . . 3,139.44 1973. . . . . . 7,580.16 1993 . . . . . 23,132.67

1954 . . . . . 3,155.64 1974. . . . . . 8,030.76 1994 . . . . . 23,753.53

1955 . . . . . 3,301.44 1975. . . . . . 8,630.92 1995 . . . . . 24,705.66

1956 . . . . . 3,532.36 1976. . . . . . 9,226.48 1996 . . . . . 25,913.90

1957 . . . . . 3,641.72 1977. . . . . . 9,779.44 1997 . . . . . 27,426.00

1958 . . . . . 3,673.80 1978. . . . . . 10,556.03

1959 . . . . . 3,855.80 1979. . . . . . 11,479.46

1960 . . . . . 4,007.12 1980. . . . . . 12,513.46

1961 . . . . . 4,086.76 1981. . . . . . 13,773.10

1962 . . . . . 4,291.40 1982. . . . . . 14,531.34

1963 . . . . . 4,396.64 1983. . . . . . 15,239.24

1964 . . . . . 4,576.32 1984. . . . . . 16,135.07

1965 . . . . . 4,658.72 1985. . . . . . 16,822.51

1966 . . . . . 4,938.36 1986. . . . . . 17,321.82

1967 . . . . . 5,213.44 1987. . . . . . 18,426.51

1968 . . . . . 5,571.76 1988. . . . . . 19,334.04

1969 . . . . . 5,893.76 1989. . . . . . 20,099.55

1970 . . . . . 6,186.24 1990. . . . . . 21,027.98
Actuarial Analysis

66

noted above, the OASDI contribution and benefit base and the retirement test exempt amounts for those under the normal retirement age

are adjusted on the basis of such wage increases. After 2002, the

retirement test exempt amounts for those between the normal retirement age and age 70 are also indexed based on increases in the average wage index. The historical and projected amounts for this base

and the exempt amounts are also shown in table II.E2. The projections are shown under the three alternative sets of economic assumptions described in the previous section.

Table II.E2.—Cost-of-Living Benefit Increases, Average Wage Index Increases, 

OASDI Contribution and Benefit Bases, and Retirement Earnings Test

Exempt Amounts, by Alternative, 1975-2008

OASDI

benefit

increases1

(percent)

Increase

in average

wage index2

(percent)

OASDI

contribution

and benefit

base 3

Retirement earnings

test exempt amount

Calendar year

Under

NRA4 NRA4 and

over5

Historical data:

1975 . . . . . . . . . . . . . 8.0 7.5 $14,100 $2,520 $2,520

1976 . . . . . . . . . . . . . 6.4 6.9 15,300 2,760 2,760

1977 . . . . . . . . . . . . . 5.9 6.0 16,500 3,000 3,000

1978 . . . . . . . . . . . . . 6.5 7.9 17,700 3,240 4,000

1979 . . . . . . . . . . . . . 9.9 8.7 22,900 3,480 4,500

1980 . . . . . . . . . . . . . 14.3 9.0 25,900 3,720 5,000

1981 . . . . . . . . . . . . . 11.2 10.1 29,700 4,080 5,500

1982 . . . . . . . . . . . . . 7.4 5.5 32,400 4,440 6,000

1983 . . . . . . . . . . . . . 3.5 4.9 35,700 4,920 6,600

1984 . . . . . . . . . . . . . 3.5 5.9 37,800 5,160 6,960

1985 . . . . . . . . . . . . . 3.1 4.3 39,600 5,400 7,320

1986 . . . . . . . . . . . . . 1.3 3.0 42,000 5,760 7,800

1987 . . . . . . . . . . . . . 4.2 6.4 43,800 6,000 8,160

1988 . . . . . . . . . . . . . 4.0 4.9 45,000 6,120 8,400

1989 . . . . . . . . . . . . . 4.7 4.0 48,000 6,480 8,880

1990 . . . . . . . . . . . . . 5.4 4.6 51,300 6,840 9,360

1991 . . . . . . . . . . . . . 3.7 3.7 53,400 7,080 9,720

1992 . . . . . . . . . . . . . 3.0 5.2 55,500 7,440 10,200

1993 . . . . . . . . . . . . . 2.6 .9 57,600 7,680 10,560

1994 . . . . . . . . . . . . . 2.8 2.7 60,600 8,040 11,160

1995 . . . . . . . . . . . . . 2.6 4.0 61,200 8,160 11,280

1996 . . . . . . . . . . . . . 2.9 4.9 62,700 8,280 12,500

1997 . . . . . . . . . . . . . 2.1 5.8 65,400 8,640 13,500

1998 . . . . . . . . . . . . . 1.3 6 5.4 68,400 9,120 14,500

Intermediate:

1999 . . . . . . . . . . . . . 1.9 2.9 7 72,600 7 9,600 15,500

2000 . . . . . . . . . . . . . 2.2 3.0 76,200 10,080 17,000

2001 . . . . . . . . . . . . . 2.5 3.3 78,600 10,440 25,000

2002 . . . . . . . . . . . . . 2.6 3.5 81,000 10,680 30,000

2003 . . . . . . . . . . . . . 2.8 3.7 83,700 11,040 30,960

2004 . . . . . . . . . . . . . 3.0 3.9 86,400 11,520 32,040

2005 . . . . . . . . . . . . . 3.2 4.0 89,700 11,880 33,240

2006 . . . . . . . . . . . . . 3.2 4.0 93,300 12,360 34,560

2007 . . . . . . . . . . . . . 3.2 4.1 96,900 12,840 35,880

2008 . . . . . . . . . . . . . 3.3 4.2 100,800 13,320 37,320
67

Automatic Adjustments

Other wage-indexed amounts are shown in table II.E3. The table provides historical values from 1978, when the amount of earnings

required for a quarter of coverage was first indexed, through 1999,

and also shows projected amounts under the intermediate assumptions through 2008. These other wage-indexed program amounts are

described in the following paragraphs.

As noted earlier, a worker who becomes eligible for benefits in 1979 or

later generally receives a benefit based on his or her indexed earnings. These indexed earnings are used to calculate the worker’s Average Indexed Monthly Earnings (AIME). The basic formula used to

Low Cost:

1999 . . . . . . . . . . . . . 1.8 3.4 7 $72,600 7 $9,600 $15,500

2000 . . . . . . . . . . . . . 2.0 3.2 76,500 10,080 17,000

2001 . . . . . . . . . . . . . 2.0 3.5 78,900 10,440 25,000

2002 . . . . . . . . . . . . . 2.2 3.4 81,600 10,800 30,000

2003 . . . . . . . . . . . . . 2.3 3.5 84,300 11,160 31,080

2004 . . . . . . . . . . . . . 2.3 3.6 87,300 11,520 32,040

2005 . . . . . . . . . . . . . 2.3 3.5 90,300 12,000 33,240

2006 . . . . . . . . . . . . . 2.3 3.5 93,600 12,360 34,440

2007 . . . . . . . . . . . . . 2.3 3.7 96,900 12,840 35,640

2008 . . . . . . . . . . . . . 2.3 3.7 100,200 13,320 36,960

High Cost:

1999 . . . . . . . . . . . . . 2.7 3.2 7 72,600 7 9,600 15,500

2000 . . . . . . . . . . . . . 3.8 2.8 75,900 10,080 17,000

2001 . . . . . . . . . . . . . 5.7 6.3 78,600 10,440 25,000

2002 . . . . . . . . . . . . . 6.0 6.2 80,700 10,680 30,000

2003 . . . . . . . . . . . . . 3.8 2.5 85,800 11,400 31,920

2004 . . . . . . . . . . . . . 4.2 5.4 91,200 12,120 33,840

2005 . . . . . . . . . . . . . 4.4 5.3 93,300 12,360 34,680

2006 . . . . . . . . . . . . . 4.3 4.8 98,400 13,080 36,600

2007 . . . . . . . . . . . . . 4.3 4.6 103,500 13,800 38,520

2008 . . . . . . . . . . . . . 4.3 4.7 108,600 14,400 40,320

1 Effective with benefits payable for June in each year 1975-82, and for December in each year after

1982.

2 Increase in the average wage index from prior year to the year shown. See footnote 6 below and table

III.B1 for projected dollar amounts of the average wage index.

3 Amounts for 1979-81 were specified by Public Law 95-216. The bases for years after 1989 were

increased slightly by changes to the indexing procedure, as required by Public Law 101-239. Prior to

1991, the Hospital Insurance (HI) contribution base was the same as the OASDI contribution and benefit

base. Higher HI bases of $125,000, $130,200, and $135,000 applied for 1991-93, respectively.

Public Law 103-66 repealed the HI contribution base.

4 Normal retirement age.

5 In 1955-82, the retirement earnings test did not apply at ages 72 and over; beginning in 1983, it does not

apply at ages 70 and over. Amounts for 1978-82 specified by Public Law 95-216; for 1996-2002, Public

Law 104-121.

6 Based on an estimated average wage index of $28,893.68 for 1998.

7 Actual amount, as determined and announced in October 1998.

Table II.E2.—Cost-of-Living Benefit Increases, Average Wage Index Increases, 

OASDI Contribution and Benefit Bases, and Retirement Earnings Test

Exempt Amounts, by Alternative, 1975-2008 (Cont.)

OASDI

benefit

increases1

(percent)

Increase

in average

wage index2

(percent)

OASDI

contribution

and benefit

base 3

Retirement earnings

test exempt amount

Calendar year

Under

NRA4 NRA4 and

over5
Actuarial Analysis

68

compute the Primary Insurance Amount (PIA) for workers who reach

age 62, become disabled, or die in 1999 is:

90 percent of the first $505 of AIME, plus

32 percent of AIME in excess of $505

but not in excess of $3,043, plus

15 percent of AIME in excess of $3,043.

The amounts separating the individual’s AIME into intervals—the

“bend points”—are adjusted automatically by the changes in average

wages as specified in section 215(a)(1)(B) of the Social Security Act.

A similar formula is used to compute the maximum total amount of

monthly benefits payable on the basis of the earnings of a retired or

deceased individual. This formula is a function of the individual’s PIA,

and is shown below for workers who first became eligible for benefits,

or who died before becoming eligible, in 1999:

150 percent of the first $645 of PIA, plus

272 percent of the PIA in excess of $645

but not in excess of $931, plus

134 percent of the PIA in excess of $931

but not in excess of $1,214, plus

175 percent of the PIA in excess of $1,214.

These PIA-interval bend points are adjusted automatically in accordance with section 203(a)(2) of the Act.

An individual’s insured status depends on the number of quarters of

coverage he or she has earned while in covered employment. The 1977

amendments specified the amount of earnings required in 1978 to be

credited with a quarter of coverage and provided for automatic adjustment of this amount for years thereafter.

The law provides for the determination of the OASDI contribution

and benefit bases that would have been in effect in each year after

1978 under the automatic-adjustment provisions as in effect before

the enactment of the 1977 amendments. This “old-law base” is used in

determining special-minimum benefits for certain workers who have

many years of low earnings in covered employment.1 Beginning in

1986, the old-law base is also used in the calculation of OASDI benefits for certain workers who are eligible to receive pensions based on

1 For special minimum purposes, “low earnings” means earnings of at least 15 percent of the old-law

base. Prior to 1991, the definition required earnings of at least 25 percent of the old-law base.
69

Automatic Adjustments

noncovered employment. In addition, it is used for certain purposes

under the Railroad Retirement program and the Employee Retirement Income Security Act of 1974.

Table II.E3.—Selected OASDI Program Amounts1 Determined Under the AutomaticAdjustment Provisions, Calendar Years 1978-99, and Projected Future Amounts, 

Calendar Years 2000-08, on the Basis of the Intermediate Set of Assumptions

1 Other program amounts determined under automatic-adjustment provisions have negligible implications

for the financial operations of the trust funds. These amounts are the substantial gainful activity amount

for blind beneficiaries, the coverage threshold for domestic workers, and, for years after 1999, the coverage threshold for election workers.

AIME “bend

points” in PIA

formula

PIA “bend points”

in maximumfamily-benefit formula

Earnings

required

for a

quarter of

coverage2

2 See appendix F for a description of quarter-of-coverage requirements prior to 1978.

“Old law”

contribution and

benefit

base3

3 Contribution and benefit base that would have been determined automatically under the law in effect

prior to enactment of the Social Security Amendments of 1977. The bases for years after 1989 were

increased slightly by changes to the indexing procedure to determine the base, as required by Public Law

101-239.

Calendar year First Second First Second Third

Historical data:

1978 . . . . . . . (4)

4 No provision in law for this amount in this year.

(4) (4) (4) (4) 5 $250

5 Amount specified for first year by Social Security Amendments of 1977; amounts for subsequent years

subject to automatic-adjustment provisions.

(4)

1979 . . . . . . . 5 $180 5 $1,085 5 $230 5 $332 5 $433 260 $18,900

1980 . . . . . . . 194 1,171 248 358 467 290 20,400

1981 . . . . . . . 211 1,274 270 390 508 310 22,200

1982 . . . . . . . 230 1,388 294 425 554 340 24,300

1983 . . . . . . . 254 1,528 324 468 610 370 26,700

1984 . . . . . . . 267 1,612 342 493 643 390 28,200

1985 . . . . . . . 280 1,691 358 517 675 410 29,700

1986 . . . . . . . 297 1,790 379 548 714 440 31,500

1987 . . . . . . . 310 1,866 396 571 745 460 32,700

1988 . . . . . . . 319 1,922 407 588 767 470 33,600

1989 . . . . . . . 339 2,044 433 626 816 500 35,700

1990 . . . . . . . 356 2,145 455 656 856 520 38,100

1991 . . . . . . . 370 2,230 473 682 890 540 39,600

1992 . . . . . . . 387 2,333 495 714 931 570 41,400

1993 . . . . . . . 401 2,420 513 740 966 590 42,900

1994 . . . . . . . 422 2,545 539 779 1,016 620 45,000

1995 . . . . . . . 426 2,567 544 785 1,024 630 45,300

1996 . . . . . . . 437 2,635 559 806 1,052 640 46,500

1997 . . . . . . . 455 2,741 581 839 1,094 670 48,600

1998 . . . . . . . 477 2,875 609 880 1,147 700 50,700

1999 . . . . . . . 505 3,043 645 931 1,214 740 53,700

Estimates:

2000 . . . . . . . 532 3,206 680 981 1,279 780 56,700

2001 . . . . . . . 547 3,299 699 1,009 1,316 810 58,200

2002 . . . . . . . 564 3,398 720 1,040 1,356 830 60,000

2003 . . . . . . . 582 3,511 744 1,074 1,401 860 62,100

2004 . . . . . . . 603 3,633 770 1,112 1,450 890 64,200

2005 . . . . . . . 625 3,766 798 1,152 1,503 920 66,600

2006 . . . . . . . 649 3,912 829 1,197 1,561 960 69,300

2007 . . . . . . . 675 4,068 862 1,245 1,624 990 72,000

2008 . . . . . . . 702 4,233 897 1,295 1,689 1,030 75,000
Actuarial Analysis

70

In addition to the program amounts affecting the determination of

OASDI benefits that reflect changes in the economy, there are certain

legislated changes that have affected, and will affect, benefits. One

such change, the scheduled increases in the retirement test exempt

amount for beneficiaries aged 65 to 69 over the years 1996-2002, was

shown in table II.E2. Other important changes are the scheduled

increases in the normal retirement age and in the delayed retirement

credits. Table II.E4 shows the scheduled changes in these two important items and their effect on benefits expressed as a percentage of

PIA.

Table II.E4.—Increases in Normal Retirement Age and Delayed Retirement Credits, 

With Resulting Benefit, as a Percentage of PIA, Payable at Selected Ages, 

for Persons Reaching Age 62 in Each Year 1986 and Later

Year of birth

Year of

attainment of

age 62

Normal

retirement

age (NRA)

Credit for each 

year of delayed 

retirement after

NRA (percent)

Benefit, as a percentage of PIA, 

beginning at age —

62 65 66 67 70

1924 . . . . . . 1986 . . . . . . 65 . . . . . . 3 80 100 103 106 115

1925 . . . . . . 1987 . . . . . 65 . . . . . . 3 1/2 80 100 103 1/2 107 117 1/2

1926 . . . . . . 1988 . . . . . 65 . . . . . . 3 1/2 80 100 103 1/2 107 117 1/2

1927 . . . . . . 1989 . . . . . 65 . . . . . . 4 80 100 104 108 120

1928 . . . . . . 1990 . . . . . 65 . . . . . . 4 80 100 104 108 120

1929 . . . . . . 1991 . . . . . 65 . . . . . . 4 1/2 80 100 104 1/2 109 122 1/2

1930 . . . . . . 1992 . . . . . 65 . . . . . . 4 1/2 80 100 104 1/2 109 122 1/2

1931 . . . . . . 1993 . . . . . 65 . . . . . . 5 80 100 105 110 125

1932 . . . . . . 1994 . . . . . 65 . . . . . . 5 80 100 105 110 125

1933 . . . . . . 1995 . . . . . 65 . . . . . . 5 1/2 80 100 105 1/2 111 127 1/2

1934 . . . . . . 1996 . . . . . 65 . . . . . . 5 1/2 80 100 105 1/2 111 127 1/2

1935 . . . . . . 1997 . . . . . 65 . . . . . . 6 80 100 106 112 130

1936 . . . . . . 1998 . . . . . 65 . . . . . . 6 80 100 106 112 130

1937 . . . . . . 1999 . . . . . 65 . . . . . . 6 1/2 80 100 106 1/2 113 132 1/2

1938 . . . . . . 2000 . . . . . 65, 2 mo . 6 1/2 79 1/6 98 8/9 105 5/12 111 11/12 131 5/12

1939 . . . . . . 2001 . . . . . 65, 4 mo . 7 78 1/3 97 7/9 104 2/3 111 2/3 132 2/3

1940 . . . . . . 2002 . . . . . 65, 6 mo . 7 77 1/2 96 2/3 103 1/2 110 1/2 131 1/2

1941 . . . . . . 2003 . . . . . 65, 8 mo . 7 1/2 76 2/3 95 5/9 102 1/2 110 132 1/2

1942 . . . . . . 2004 . . . . . 65, 10 mo 7 1/2 75 5/6 94 4/9 101 1/4 108 3/4 131 1/4

1943-54 . . . . 2005-16 . . . 66 . . . . . . 8 75 93 1/3 100 108 132

1955 . . . . . . 2017 . . . . . 66, 2 mo . 8 74 1/6 92 2/9 98 8/9 106 2/3 130 2/3

1956 . . . . . . 2018 . . . . . 66, 4 mo . 8 73 1/3 91 1/9 97 7/9 105 1/3 129 1/3

1957 . . . . . . 2019 . . . . . 66, 6 mo . 8 72 1/2 90 96 2/3 104 128

1958 . . . . . . 2020 . . . . . 66, 8 mo . 8 71 2/3 88 8/9 95 5/9 102 2/3 126 2/3

1959 . . . . . . 2021 . . . . . 66, 10 mo 8 70 5/6 87 7/9 94 4/9 101 1/3 125 1/3

1960 & later. 2022 & later 67 . . . . . . 8 70 86 2/3 93 1/3 100 124
71

Actuarial Estimates

F. ACTUARIAL ESTIMATES

Section 201(c)(2) of the Social Security Act requires the Board of

Trustees to report annually to the Congress on the operations and status of the OASI and DI Trust Funds during the preceding fiscal year

and on the expected operations and status of those trust funds during

the ensuing 5 fiscal years. Section 201(c) of the Act also requires that

the annual report include “a statement of the actuarial status of the

Trust Funds.”

The required information for the fiscal year that ended September 30,

1998, is presented in section II.C of this report. Estimates of the operations and status of the trust funds during fiscal years 1999-2008 are

presented in this section. In addition, similar estimates for calendar

years 1999-2008 are presented. A description of the actuarial status of

the trust funds over the next 75 years, including long-range estimates

of program income and program costs over that period, is also

included in this section. The methods used to estimate the shortrange operations of the trust funds and the long-range actuarial status are described in section II.H.

A number of different measures are useful in evaluating the financial

status of the trust funds over the next 75 years. In addition to actuarial balance, and summarized income and cost rates, which are

described in detail below, these measures include (1) the levels of

future annual income and outgo, both in terms of dollars and relative

to annual taxable earnings or payroll, including the pattern and ultimate values of such levels; (2) the annual differences between income

and outgo, i.e., the annual balances, in dollars and relative to taxable

payroll; (3) the size of future fund accumulations, in dollars and relative to future annual expenditures; and (4) the year in which trust

fund exhaustion is estimated to occur. Estimates of all these indicators are presented in this section or in the appendices of this report.

However, more attention is focused on certain elements of these measures, as described below.

In the short range, the adequacy of the trust fund level is generally

measured by the “trust fund ratio,” which is defined to be the assets at

the beginning of the year expressed as a percentage of the outgo during the year. (For the years 1984-90, the assets at the beginning of the

year also included advance tax transfers for the month of January.

Assets at the beginning of subsequent years include advance tax

transfers only if such transfers are needed to enable the timely payment of benefits.) The trust fund ratio represents the proportion of a
Actuarial Analysis

72

year’s outgo which can be paid with the funds available at the beginning of the year. During periods when trust fund disbursements

exceed income, as might happen during an economic recession, trust

fund assets are used to meet the shortfall. In the event of recurring

shortfalls for an extended period, the trust funds can allow sufficient

time for the development, enactment, and implementation of legislation to restore financial stability to the program.

The test of financial adequacy over the short-range projection period

(the next 10 years) is applicable to each of the OASI and DI Trust

Funds, separately, as well as to the combined funds. The requirements of this test are as follows: If the estimated trust fund ratio for a

fund is at least 100 percent at the beginning of the projection period,

then it must be projected to remain at or above 100 percent throughout the 10-year projection period. Alternatively, if the ratio is initially

less than 100 percent, then it must be projected to reach a level of at

least 100 percent by the beginning of the sixth year and to remain at

or above 100 percent throughout the remainder of the 10-year period.

In addition, the fund’s estimated assets at the beginning of each

month of the 10-year period must be sufficient to cover that month’s

disbursements. This test is applied on the basis of the intermediate

(alternative II) estimates. Failure to meet this test by either trust

fund is an indication that solvency of the program over the next 10

years is in question and that Congressional action is needed to

improve the short-range financial adequacy of the program.

Basic to the discussion of the long-range actuarial status 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 employeeemployer 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

 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.
73

Actuarial Estimates

associated with special monthly payments to certain uninsured persons who attained age 72 before 1968 and who have fewer than 3

quarters of coverage, transfers under the interfund borrowing provisions, 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; it

excludes special monthly payments to certain uninsured persons

whose payments are reimbursable from the general fund of the Treasury (as described above), and transfers under the interfund borrowing provisions. 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.)

The long-range actuarial status of the trust funds has generally been

summarized by the calculation of the “actuarial balance.” The actuarial balance for a specified valuation period is defined as the difference

between the summarized income rate and the summarized cost rate

over that period. The summarized income rate over a period of years

is equal to the ratio of (a) the sum of the trust fund balance at the

beginning of the period plus the present value of the total income

(excluding interest earnings) during the period to (b) the present

value of the taxable payroll for the years in the period. The summarized cost rate is equal to the ratio of (a) the sum of the present value

of the outgo during the period plus the present value of a targeted

trust fund level at the end of the period equal to the following year’s

outgo to (b) the present value of the taxable payroll for the years in

the period. A targeted ending trust fund level of 1 year’s expenditures

is considered to be an adequate reserve for unforeseen contingencies;

thus, in addition to the total outgo during the projection period, the

summarized cost rate includes the cost of reaching and maintaining a

target trust fund ratio of 100 percent through the end of the projection

period.

The present-value calculations take account of the effect of interest on

future income and outgo. In calculating the present value of future
Actuarial Analysis

74

income, for example, the income in each year of the projection period

is discounted to the beginning of the period using the interest rate

assumed for calculating the interest earnings of the trust funds during the period. Thus, the calculations of the summarized income and

cost rates are consistent with the estimates of trust fund operations

over the projection period.

If the program is in exact actuarial balance for a particular period

(that is, if the actuarial balance is zero), then the present value of estimated future income for all years in the period, plus the beginning

trust fund balance, is exactly equal to the present value of estimated

future expenditures for all years in the period, plus the present value

of targeted trust fund assets at the end of the period in the amount of

the next year’s estimated outgo. A negative actuarial balance indicates that future estimated income and the beginning trust fund balance together are not sufficient to accumulate to the level of the

targeted assets while also covering all estimated expenditures in the

period. A positive actuarial balance indicates that in addition to covering all estimated expenditures in the period, the estimated ending

trust fund assets are more than the targeted level.

The size of the actuarial balance represents a measure of the program’s financial adequacy for the period in question. If the actuarial

balance is a deficit, the size of the deficit can be interpreted as that

amount which, if added to the combined employee-employer contribution rate scheduled under present law for each of the next 75 years,

would bring the program into exact actuarial balance. Of course, there

are any number of different ways to increase taxes or to reduce expenditures, as well as different combinations of such changes, that would

have an equivalent effect on the actuarial balance. Any one of these

different sets of changes would, therefore, bring the program into

exact 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, summarized

income rates and cost rates 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 nega-
75

Actuarial Estimates

tive 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 be able to

effectively plan for their retirement.

It was noted earlier in this section that in addition to the measures

used in the tests of the overall financial condition of the program,

other financial measures are also presented in this report. All of these

measures are important factors in arriving at a full understanding of

the financial position of the OASDI program.
Actuarial Analysis

76

1. Operations and Status of the Trust Funds During

the Period October 1, 1998, to December 31, 2008

This subsection presents estimates of the operations and financial status of the OASI and DI Trust Funds for the period October 1, 1998, to

December 31, 2008, based on the assumptions described in the preceding two sections. No changes are assumed to occur in the present statutory provisions and regulations under which the OASDI program

operates. 1 

These estimates indicate that the assets of the OASI Trust Fund

would continue to increase throughout the next 10 years, rapidly

under the intermediate and low cost assumptions and less rapidly

under the high cost assumptions. The estimates indicate that the

assets of the DI Trust Fund would also continue to increase throughout the next 10 years under the intermediate and low cost assumptions, at a slightly lower rate than for the OASI Trust Fund. Under

the high cost assumptions, DI assets would increase for a few years

before declining. Although not shown in these estimates, DI assets

would become insufficient to permit the timely payment of benefits in

2011 under the high cost assumptions.

As will be shown later in this subsection, the OASI and DI Trust

Funds, both individually and combined, meet the requirements of the

Trustees’ test of short-range financial adequacy.

 1 The estimates shown in this subsection reflect 12 months of benefit payments in each year of the shortrange projection period. In practice, 13 benefit payments have been made in certain years, with the next

year having only 11 payments. This situation resulted from the statutory requirement that benefit checks

be delivered early when the normal check delivery date is a Saturday, Sunday, or legal public holiday. For

example, the benefit checks for December 1998 would normally have been delivered on January 3, 1999;

however, because that day was a Sunday, and the two preceding days a Saturday and a holiday, the

checks were actually delivered on December 31, 1998. The annual benefit figures are shown as if those

benefit checks were delivered on the usual date. Whenever this situation occurs, only the portion of benefits payable on January 3 would be delivered in December. The benefits payable later in January due to

payment cycling, which began in June 1997, would still be paid in January.
77

Actuarial Estimates

a. OASI Trust Fund Operations

Estimates of the operations and status of the OASI Trust Fund during

calendar years 1999-2008 are shown in table II.F1 based on each of

the three alternative sets of assumptions. Actual operations for calendar year 1998 are also shown in the table.

The increases in estimated income shown in table II.F1 under each

set of assumptions reflect increases in estimated taxable earnings and

growth in interest earnings on the invested assets of the trust fund.

For each alternative, employment and earnings are assumed to

increase in every year through 2008 (with the exception that employment is estimated to decline temporarily during the economic recessions assumed under alternative III). The number of persons with

taxable earnings would increase on the basis of alternatives I, II, and

III from 148 million during calendar year 1998 to about 164 million,

161 million, and 158 million, respectively, in 2008. The total annual

amount of taxable earnings is projected to increase from $3,512 billion

in 1998 to $5,531 billion, $5,427 billion, and $5,775 billion, in 2008, on

the basis of alternatives I, II, and III, respectively. (In 1998 dollars—

taking account of assumed increases in the CPI from 1998 to 2008

under each alternative—the estimated amounts of taxable earnings in

2008 are $4,466 billion, $4,131 billion, and $3,789 billion, respectively.) These increases in taxable earnings are due primarily to (1)

projected increases in employment levels and average earnings in covered employment, (2) increases in the contribution and benefit base in

1999-2008 under the automatic adjustment provisions, and (3) various provisions enacted in 1983 and later, including extensions of coverage to additional categories of workers.

Growth in interest earnings represents a significant component of the

overall increase in trust fund income during this period. Although

interest rates payable on trust fund investments are not assumed to

change substantially from current levels, the continuing rapid

increase in OASI assets will result in a corresponding increase in

interest income. By 2008, interest income to the OASI Trust Fund is

projected to be about 17 percent of total trust fund income (for all

three alternatives), as compared to 10.5 percent in 1998.
Actuarial Analysis

78

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

Rising expenditures during 1999-2008 reflect automatic benefit

increases as well as the upward trend in the numbers of beneficiaries

and in the average monthly earnings underlying benefits payable by

the program. The growth in the number of beneficiaries in the past

and the expected growth in the future result both from the increase in

the aged population and from the increase in the proportion of the

population which is eligible for benefits. The latter increase is primarily due to various amendments enacted after 1950 which modified

eligibility provisions and extended coverage to additional categories of

employment.

Table II.F1.—Estimated Operations of the OASI Trust Fund by Alternative, 

Calendar Years 1998-2008

[Amounts in billions]

Income

ExpendituresNet increase

in fund

Fund at end

of year

Trust fund

Calendar year Amount 1

 1 Represents assets at beginning of year.

Ratio 2

 2 Represents amounts shown in preceding column as a percentage of expenditures during the year. See

text concerning interpretation of these ratios.

1998 3 . . . . 

 3 Figures for 1998 represent actual experience.

$424.8 $332.3 $92.5 $681.6 $589.1 177

Intermediate:

1999 . . . . . 450.0 341.2 108.8 790.5 681.6 200

2000 . . . . . 463.2 352.4 110.8 901.3 790.5 224

2001 . . . . . 485.7 366.3 119.5 1,020.7 901.3 246

2002 . . . . . 509.1 382.4 126.7 1,147.4 1,020.7 267

2003 . . . . . 534.9 399.5 135.4 1,282.8 1,147.4 287

2004 . . . . . 563.1 418.5 144.6 1,427.5 1,282.8 307

2005 . . . . . 595.8 439.7 156.1 1,583.6 1,427.5 325

2006 . . . . . 629.9 463.1 166.8 1,750.4 1,583.6 342

2007 . . . . . 668.0 488.3 179.7 1,930.1 1,750.4 358

2008 . . . . . 707.1 516.0 191.1 2,121.2 1,930.1 374

Low Cost:

1999 . . . . . 452.0 340.8 111.2 792.8 681.6 200

2000 . . . . . 469.9 351.3 118.6 911.5 792.8 226

2001 . . . . . 495.5 363.8 131.6 1,043.1 911.5 251

2002 . . . . . 521.4 377.5 143.9 1,187.1 1,043.1 276

2003 . . . . . 549.0 392.2 156.8 1,343.8 1,187.1 303

2004 . . . . . 578.8 408.5 170.3 1,514.1 1,343.8 329

2005 . . . . . 611.9 426.0 186.0 1,700.1 1,514.1 355

2006 . . . . . 646.0 444.4 201.6 1,901.7 1,700.1 383

2007 . . . . . 684.1 464.3 219.8 2,121.4 1,901.7 410

2008 . . . . . 722.9 486.3 236.6 2,358.0 2,121.4 436

High Cost:

1999 . . . . . 450.5 341.6 109.0 790.6 681.6 200

2000 . . . . . 460.5 356.0 104.5 895.1 790.6 222

2001 . . . . . 494.9 376.1 118.7 1,013.9 895.1 238

2002 . . . . . 534.5 405.2 129.3 1,143.2 1,013.9 250

2003 . . . . . 552.8 437.4 115.4 1,258.6 1,143.2 261

2004 . . . . . 591.5 462.8 128.7 1,387.2 1,258.6 272

2005 . . . . . 633.4 491.7 141.7 1,528.9 1,387.2 282

2006 . . . . . 672.9 523.5 149.5 1,678.4 1,528.9 292

2007 . . . . . 715.1 557.3 157.8 1,836.2 1,678.4 301

2008 . . . . . 757.6 594.7 162.9 1,999.1 1,836.2 309
79

Actuarial Estimates

Growth has also occurred, and will continue to occur, in the proportion

of eligible persons who, in fact, receive benefits. This growth is due to

several factors, among which are (1) the amendments enacted since

1950 which affect the conditions governing the receipt of benefits and

(2) the increasing percentage of eligible persons who are aged 70 and

over and who therefore may receive benefits regardless of earnings.

The estimates shown in table II.F1 indicate that income to the OASI

Trust Fund would substantially exceed expenditures in every year of

the short-range projection period, under each of the three sets of

assumptions used in this report. The assets of the OASI Trust Fund at

the beginning of 1998 were equal to 177 percent of the fund’s expenditures in 1998. As described in the introduction to this section, this

ratio is known as the “trust fund ratio;” it provides a useful measure

of the relative level of trust fund assets. During 1998, income

exceeded disbursements by $92.5 billion. As a result, the trust fund

ratio increased to about 200 percent at the beginning of 1999.

Assets are estimated to increase substantially in each year of the

short-range projection period, based on each of the three alternative

sets of assumptions. The increase in the trust fund ratio from 200 percent at the beginning of 1999 to the range of 309-436 percent at the

beginning of 2008 is due, in part, to the increases in the OASI tax rate

that became effective in 1988 and 1990 (even though much of the

increase was reallocated to the DI Trust Fund in 1994). Asset growth

is also assisted by growth in taxable earnings that is projected to

exceed the growth in benefit payments throughout the short-range

projection period (except for certain years under alternative III).

As noted in section II.B, the portion of the OASI Trust Fund that is

not needed to meet day-to-day expenditures is used to purchase

investments, generally in special public-debt obligations of the U.S.

Government. The cash used to make these purchases becomes part of

the general fund of the Treasury and is used to meet various Federal

outlays. Interest is paid to the trust fund on these securities and,

when the securities mature or are redeemed prior to maturity, general

fund revenues are used to repay the principal to the trust fund. Thus,

the investment operations of the trust fund result in various cash

flows between the trust fund and the general fund of the Treasury.

Currently, the excess of tax income to the OASI Trust Fund over the

fund’s expenditures results in a substantial net cash flow from the

trust fund to the general fund. Sometime after the turn of the century,

as shown in the following subsection, this cash flow will reverse; as
Actuarial Analysis

80

trust fund securities are redeemed to meet benefit payments and

other expenditures, revenue from the general fund of the Treasury

will be drawn upon to provide the necessary cash. The accumulation

and subsequent redemption of substantial trust fund assets has

important public policy and economic implications that extend well

beyond the operation of the OASDI program itself. Discussion of these

broader issues is not within the scope of this report.

Based on the intermediate (alternative II) assumptions, the assets of

the OASI Trust Fund would continue to exceed 100 percent of annual

expenditures by a steadily increasing amount through the end of

2008. Consequently, the OASI Trust Fund satisfies the test of shortrange financial adequacy by a wide margin. The estimates in table

II.F1 also indicate that the short-range test would be satisfied even

under the high cost assumptions.

In interpreting the trust fund ratios in table II.F1, it should be noted

that at the beginning of any month there must be sufficient assets on

hand to meet the benefit payments that are payable at the beginning

of that month. The specific minimum amount of assets required for

this purpose depends on a number of factors and varies somewhat

from month to month. Currently, assets of roughly 8 to 9 percent of

annual expenditures are sufficient for this purpose, although this

minimum requirement will decline very gradually in the future as

payment cycling is phased in. If the assets of either the OASI or DI

Trust Fund at the end of a month fall below the minimum amount

needed to meet the benefits payable at the beginning of the next

month, section 201(a) of the Social Security Act provides for an

advance transfer to the trust fund of all the taxes that are expected to

be received by the fund in the next month. Thus, the difference

between (1) the sum of the estimated trust fund ratios shown in table

II.F1 and the advance tax transfers for January expressed as a percentage of total expenditures in the year and (2) the minimum level

required to pay benefits on time, represents the reserve available to

handle adverse contingencies.

b. DI Trust Fund Operations

The estimated operations and financial status of the DI Trust Fund

during calendar years 1999-2008 under the three sets of assumptions

are shown in table II.F2, together with figures on actual experience in

1998. Income is generally projected to increase steadily under each

alternative, reflecting most of the same factors described previously in
81

Actuarial Estimates

connection with the OASI Trust Fund. Interest income was 7.5 percent of overall income to the DI Trust Fund in 1998; it is projected to

increase to roughly 11 percent of annual trust fund income by 2008 on

the basis of the intermediate assumptions.

Expenditures are estimated to increase because of automatic benefit

increases and projected increases in the amounts of average monthly

earnings on which benefits are based. In addition, under all three sets

of assumptions, the number of DI beneficiaries in current-payment

status is projected to continue increasing throughout the short-range

projection period, at somewhat higher levels than anticipated in last

year’s report. The projected annual average growth rate in the number of DI worker beneficiaries is roughly 4.6 percent over the period

1998-2008. Growth is attributable to several factors, including (1) a

gradually increasing trend in the estimated number of individuals

insured for disability benefits, and (2) program dynamics which result

in a greater number of insured workers awarded benefits than disabled workers whose benefits terminate as a result of death, recovery,

or conversion to old-age benefit payments.

The proportion of insured workers who apply for and are awarded disability benefits in a given year is referred to as the “disability incidence rate.” This rate has fluctuated substantially in past years and

the causes for the variation have not been precisely determined. Incidence rates increased during 1970-75, declined during 1976-82,

increased again during 1983-85, and remained steady in 1986-89.

During 1990-92 the incidence rate resumed increasing, with unusually rapid increases (on a relative basis) of 8, 12, and 17 percent in

those 3 years. In 1993-97, the observed incidence rate declined from

the 1992 level, before increasing slightly in 1998.

The rapid increases in disability benefit applications and awards during 1990-92 appear to be attributable, in part, to the rise in unemployment associated with the 1990-91 economic recession (although the

evidence is not conclusive). Other explanatory factors may include

changes to the conditions governing receipt of disability benefits, as

introduced through recent legislation, regulations, and court decisions, and increased awareness of the DI program by the public.

These and other factors were discussed at some length in a report

issued December 1992, titled “The Social Security Disability Insurance Program: An Analysis” prepared by the Department of Health

and Human Services at the request of the Board of Trustees. Subsequent to that report, the Social Security Administration, together
Actuarial Analysis

82

with the Office of the Assistant Secretary for Planning and Evaluation in the Department of Health and Human Services, commissioned

a series of studies attempting to quantify some of the reasons for the

rapid growth in the DI program in the early 1990s. Reference should

be made to these studies for further details on the possible factors

contributing to the increases in disability incidence rates observed in

the period 1990-92, and the subsequent changes observed since 1992.

Due to the substantial variation exhibited by incidence rates in the

past and the difficulty in determining reliable explanatory factors for

this variation, any projection of future incidence rates necessarily will

be uncertain. The 1998 disability incidence rate (calculated on an agesex-adjusted basis) was 4.74 awards per 1,000 insured workers. This

figure was about 6 percent lower than the average incidence rate of

5.04 per thousand that was experienced during the period 1970-98.

Under the intermediate assumptions, incidence rates are assumed to

decrease by 1 percent in 1999 and then to increase gradually for the

remainder of the short-range projection period, to only slightly above

the average level experienced over that 29-year historical period.

Under the low cost alternative, incidence rates decline by about 9 percent during 1999-2008, staying under the 1970-98 average over the

next 10 years. The high cost alternative assumes that incidence rates

increase by 23 percent over the next 10 years.

The proportion of DI beneficiaries whose benefits terminate in a given

year has also fluctuated significantly in the past. Over the last 20

years, the rates of benefit termination due to death or conversion to

retirement benefits (at attainment of normal retirement age) have

declined very gradually. This trend is attributable, in part, to the

lower average age of new beneficiaries. However, some recent program changes and health trends have also led to improved mortality

experience among the DI disabled workers. These changes include

legislation to eliminate drug addicts and alcoholics from the DI rolls;

the rapidly diminishing impact of AIDS on DI; continued increases in

mental-impairment disabilities; and a rising number of awards to

older workers, which are based on vocational factors. The termination

rate due to recovery has been much more volatile. Currently, the proportion of disabled beneficiaries whose benefits cease because of their

recovery from disability is very low in comparison to levels experienced throughout the 1970s and early 1980s.
83

Actuarial Estimates

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

In this report, termination rates due to attainment of normal retirement age are estimated to continue their downward trend through

2002. This rate would drop in 2003 and remain at a depressed level

for 5 more years as a result of the increase in the normal retirement

age which begins in that year. Age-specific death rates for disabled

beneficiaries are assumed to decline gradually from the current experience levels. Although actual recovery terminations for 1998 were

slightly higher than expected, projected levels for this year’s report

remain consistent with last year’s report. Although assumptions with

regard to funding continuing disability reviews have not changed

Table II.F2.—Estimated Operations of the DI Trust Fund by Alternative,

Calendar Years 1998-2008

[Amounts in billions]

Income

ExpendituresNet increase

in fund

Fund at end

of year

Trust fund

Calendar year Amount 1

 1 Represents assets at beginning of year.

Ratio 2

 2 Represents amounts shown in preceding column as a percentage of expenditures during the year. See

text concerning interpretation of these ratios.

1998 3 . . . . 

 3 Figures for 1998 represent actual experience.

$64.4 $49.9 $14.4 $80.8 $66.4 133

Intermediate:

1999 . . . . . 68.3 52.8 15.5 96.3 80.8 153

2000 . . . . . 74.9 56.7 18.2 114.6 96.3 170

2001 . . . . . 78.8 60.8 18.0 132.6 114.6 188

2002 . . . . . 82.6 65.7 16.9 149.5 132.6 202

2003 . . . . . 86.8 71.2 15.5 165.0 149.5 210

2004 . . . . . 91.1 77.5 13.6 178.6 165.0 213

2005 . . . . . 95.9 84.4 11.5 190.0 178.6 212

2006 . . . . . 100.6 92.0 8.6 198.6 190.0 207

2007 . . . . . 105.7 100.2 5.5 204.1 198.6 198

2008 . . . . . 110.5 108.6 1.9 206.1 204.1 188

Low Cost:

1999 . . . . . 68.7 52.1 16.6 97.4 80.8 155

2000 . . . . . 76.1 55.3 20.9 118.3 97.4 176

2001 . . . . . 80.6 58.6 22.0 140.3 118.3 202

2002 . . . . . 85.0 62.4 22.6 162.9 140.3 225

2003 . . . . . 89.6 66.6 23.0 185.9 162.9 244

2004 . . . . . 94.5 71.5 23.0 208.8 185.9 260

2005 . . . . . 99.7 76.7 23.0 231.8 208.8 272

2006 . . . . . 104.9 82.2 22.7 254.5 231.8 282

2007 . . . . . 110.6 88.1 22.5 276.9 254.5 289

2008 . . . . . 116.2 94.0 22.2 299.2 276.9 295

High Cost:

1999 . . . . . 68.4 53.9 14.5 95.3 80.8 150

2000 . . . . . 74.1 59.5 14.6 109.9 95.3 160

2001 . . . . . 80.0 66.1 13.8 123.8 109.9 166

2002 . . . . . 86.0 74.7 11.3 135.1 123.8 166

2003 . . . . . 88.1 84.3 3.8 138.9 135.1 160

2004 . . . . . 93.3 93.3 ( 4 )

 4 Less than $50 million.

138.9 138.9 149

2005 . . . . . 98.7 103.3 -4.6 134.3 138.9 134

2006 . . . . . 103.3 114.2 -10.9 123.4 134.3 118

2007 . . . . . 107.7 125.7 -18.0 105.4 123.4 98

2008 . . . . . 111.6 137.7 -26.1 79.2 105.4 77
Actuarial Analysis

84

since authorized under Public Law 104-121, the expected regulatory

increase in the substantial gainful activity amount is expected to

reduce annual recoveries slightly. The overall termination rate

(reflecting all causes) is projected under all three alternatives to

decline gradually during 1998-2002. The overall rate then declines in

2003 due largely to the increase in the normal retirement age cited

above.

The continuing spread of Acquired Immunodeficiency Syndrome

(AIDS) had contributed somewhat to increases in DI awards in the

early 1990s; however, revised downward estimates of both historical

and projected awards due to HIV impairments has been the trend

over the last several reports. In addition, due to the higher mortality

rates of affected individuals, the total number of disabled workers

currently receiving benefits has not increased greatly as a result of

AIDS, and has actually decreased in recent years. Although many

aspects of the AIDS pandemic are well understood, there remains considerable uncertainty regarding future medical advances and future

incidence of HIV infection. To reflect this uncertainty, the projected

numbers of benefit awards to AIDS patients are varied by alternative.

Under the intermediate assumptions, benefit awards to persons with

AIDS are projected to continue recent declines through the remainder

of the short-range period. Under the low cost assumptions, the number of new awards also declines throughout the projection period, but

at a somewhat more rapid rate, while the number projected under the

high cost assumptions increases slightly through 2002 before beginning to decline.

At the beginning of calendar year 1998, the assets of the DI Trust

Fund represented 133 percent of annual expenditures. During 1998,

DI income exceeded DI expenditures by $14.4 billion, with the result

that the trust fund ratio for the beginning of 1999 increased to about

153 percent. Under the intermediate and low cost sets of assumptions,

total income is estimated to exceed expenditures in each year of the

short-range projection period. The increase in the trust fund ratio

from 133 percent at the beginning of 1998 to 153 percent at the beginning of 1999, and the further increase to 213 percent at the beginning

of 2004 on the basis of the intermediate assumptions, are largely due

to the tax rate reallocation enacted in 1994. The decline in the trust

fund ratio to 188 percent at the beginning of 2008 is an early warning

of trouble for the DI Trust Fund soon after the short-range period.
85

Actuarial Estimates

Under the low cost assumptions, the trust fund ratio would increase

rapidly to 295 percent at the beginning of 2008. Under the high cost

assumptions, the assets of the DI Trust Fund would increase through

2003, decline steadily thereafter, and would be exhausted in 2011.

Because DI assets were greater than 1 year’s expenditures at the

beginning of 1999 and would remain above that level in 2000 and

later under the intermediate assumptions, the DI Trust Fund satisfies

the Trustees’ short-range test of financial adequacy. However, as indicated above, under the high cost assumptions not only does DI fail to

meet the short-range test of financial adequacy, but the DI Trust

Fund is exhausted soon after the short-range projection period.

c. Combined OASI and DI Trust Fund Operations

The estimated operations and status of the OASI and DI Trust Funds,

combined, during calendar years 1999-2008 on the basis of the three

alternatives, are shown in table II.F3, together with figures on actual

experience in 1998. These amounts are the sums of the corresponding

figures shown in tables II.F1 and II.F2.
Actuarial Analysis

86

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

At the beginning of 1998, the trust fund ratio for the OASI and DI

Trust Funds combined was 171 percent, as shown in table II.F3. During 1998, total income to the two trust funds was $106.9 billion higher

than total expenditures. As a result of this increase, combined OASDI

assets at the beginning of 1999 represented about 194 percent of estimated combined expenditures for the year. Based on the intermediate

assumptions, the trust fund ratio for the combined funds is projected

to increase substantially, to 342 percent by 2008. The ratio would

grow at an even faster rate under the low cost assumptions, reaching

413 percent at the beginning of 2008. Under the high cost assumpTable II.F3.—Estimated Operations of the OASI and DI Trust Funds, Combined,

by Alternative, Calendar Years 1998-2008

[Amounts in billions]

Income

 ExpendituresNet increase

in funds

Funds at end

of year

Trust fund

Calendar year Amount 1

 1 Represents assets at beginning of year.

Ratio 2

 2 Represents amounts shown in preceding column as a percentage of expenditures during the year. See

text concerning interpretation of these ratios.

1998 3 . . . . 

 3 Figures for 1998 represent actual experience.

$489.2 $382.3 $106.9 $762.5 $655.5 171

Intermediate: 

1999 . . . . . 518.3 394.0 124.3 886.8 762.5 194

2000 . . . . . 538.1 409.1 129.0 1,015.8 886.8 217

2001 . . . . . 564.5 427.1 137.5 1,153.3 1,015.8 238

2002 . . . . . 591.7 448.2 143.6 1,296.9 1,153.3 257

2003 . . . . . 621.7 470.7 150.9 1,447.8 1,296.9 276

2004 . . . . . 654.2 496.0 158.2 1,606.0 1,447.8 292

2005 . . . . . 691.7 524.1 167.6 1,773.6 1,606.0 306

2006 . . . . . 730.5 555.1 175.4 1,949.0 1,773.6 320

2007 . . . . . 773.6 588.4 185.2 2,134.2 1,949.0 331

2008 . . . . . 817.6 624.6 193.0 2,327.2 2,134.2 342

Low Cost: 

1999 . . . . . 520.6 392.9 127.8 890.2 762.5 194

2000 . . . . . 546.0 406.5 139.5 1,029.7 890.2 219

2001 . . . . . 576.0 422.4 153.6 1,183.4 1,029.7 244

2002 . . . . . 606.4 439.8 166.6 1,350.0 1,183.4 269

2003 . . . . . 638.6 458.9 179.7 1,529.7 1,350.0 294

2004 . . . . . 673.2 480.0 193.2 1,722.9 1,529.7 319

2005 . . . . . 711.6 502.7 208.9 1,931.8 1,722.9 343

2006 . . . . . 751.0 526.7 224.3 2,156.1 1,931.8 367

2007 . . . . . 794.7 552.5 242.2 2,398.4 2,156.1 390

2008 . . . . . 839.1 580.3 258.9 2,657.2 2,398.4 413

High Cost:

1999 . . . . . 518.9 395.5 123.5 885.9 762.5 193

2000 . . . . . 534.6 415.5 119.1 1,005.1 885.9 213

2001 . . . . . 574.8 442.3 132.6 1,137.6 1,005.1 227

2002 . . . . . 620.5 479.9 140.6 1,278.3 1,137.6 237

2003 . . . . . 640.9 521.7 119.2 1,397.5 1,278.3 245

2004 . . . . . 684.8 556.1 128.7 1,526.1 1,397.5 251

2005 . . . . . 732.2 595.0 137.1 1,663.3 1,526.1 256

2006 . . . . . 776.2 637.7 138.5 1,801.8 1,663.3 261

2007 . . . . . 822.7 683.0 139.7 1,941.5 1,801.8 264

2008 . . . . . 869.2 732.4 136.8 2,078.3 1,941.5 265
87

Actuarial Estimates

tions, assets would grow more slowly, reaching 265 percent at the

beginning of 2008.

Under the intermediate assumptions, the total assets of the OASI and

DI Trust Funds would remain above 100 percent of annual OASDI

expenditures throughout the short-range projection period. Therefore,

the combined trust funds meet the requirements of the short-range

test of financial adequacy. Under the high cost assumptions, the fund

ratio for OASI and DI combined would still remain above 100 percent

through 2008 (although, as indicated in the section on long-range projections, the ratio would fall below this level shortly thereafter). Thus,

even under adverse conditions the combined funds would satisfy the

short-range test of financial adequacy, although by a narrower margin.

Section 215(i) of the Social Security Act includes a provision to stabilize automatic benefit increases in the event of high inflation at a time

when the combined assets of the OASI and DI Trust Funds are at very

low levels (see section II.E of this report). Under all three alternatives, the level of OASDI assets during 1999-2008 would substantially

exceed the applicable threshold. Thus, the stabilizer provision would

not be triggered during the short-range projection period under any of

the sets of assumptions used in this report.
Actuarial Analysis

88

Figure II.F1 presents the estimated total assets of the OASI and DI

Trust Funds at the end of each year 1999-2008, based on the three

sets of assumptions (together with actual assets at the end of each

year 1988-98). Figure II.F2 illustrates the pattern of actual past and

estimated future OASDI trust fund ratios under the three alternatives. Trust fund ratios for selected years prior to 1999, and estimates

for 1999-2008 under the three alternatives, are shown in table II.F4

for OASI, DI, and both funds combined. In evaluating the ratios

shown in figure II.F2 and table II.F4, it should be recalled that a minimum of roughly 8 to 9 percent is currently needed to meet monthly

cash-flow requirements. The shaded area in figure II.F2 depicts this

requirement.

Figure II.F1.—Estimated Assets at End of Year, for OASI and DI Trust Funds 

Combined, by Alternative, Calendar Years 1988-2008

[In billions]

I

II

III

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Calendar year

Historical Estimated
89

Actuarial Estimates

Figure II.F2.—Estimated Trust Fund Ratios, for OASI and DI Trust Funds Combined, 

by Alternative, Calendar Years 1988-2008

[Assets as a percentage of annual expenditures]

Table II.F4.—Trust Fund Ratios 1 by Trust Fund, Selected Calendar Years 1950-98, and 

Estimated Future Ratios by Alternative, Calendar Years 1999-2008

[In percent]

Calendar year OASI Trust Fund DI Trust Fund

OASI and DI Trust

Funds, combined

Historical data:

1950 . . . . . . . . . . . . . . . 1,156 — 1,156

1955 . . . . . . . . . . . . . . . 405 — 405

1960 . . . . . . . . . . . . . . . 180 304 186

1965 . . . . . . . . . . . . . . . 109 121 110

1970 . . . . . . . . . . . . . . . 101 126 103

1975 . . . . . . . . . . . . . . . 63 92 66

1980 . . . . . . . . . . . . . . . 23 35 25

1985 . . . . . . . . . . . . . . . 24 27 24

1990 . . . . . . . . . . . . . . . 79 40 75

1991 . . . . . . . . . . . . . . . 87 39 82

1992 . . . . . . . . . . . . . . . 103 40 96

1993 . . . . . . . . . . . . . . . 117 35 107

1994 . . . . . . . . . . . . . . . 130 23 117

1995 . . . . . . . . . . . . . . . 139 55 128

1996 . . . . . . . . . . . . . . . 149 83 140

1997 . . . . . . . . . . . . . . . 160 113 154

1998 . . . . . . . . . . . . . . . 177 133 171

Intermediate:

1999 . . . . . . . . . . . . . . . 200 153 194

2000 . . . . . . . . . . . . . . . 224 170 217

2001 . . . . . . . . . . . . . . . 246 188 238

2002 . . . . . . . . . . . . . . . 267 202 257

2003 . . . . . . . . . . . . . . . 287 210 276

2004 . . . . . . . . . . . . . . . 307 213 292

2005 . . . . . . . . . . . . . . . 325 212 306

2006 . . . . . . . . . . . . . . . 342 207 320

2007 . . . . . . . . . . . . . . . 358 198 331

2008 . . . . . . . . . . . . . . . 374 188 342

I

II

III

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Calendar year

Historical Estimated

Minimum level required to pay benefits
Actuarial Analysis

90

The factors underlying the changes in the intermediate estimates for

the OASI Trust Fund from last year’s annual report to this report are

analyzed in table II.F5. In the 1998 Annual Report, the trust fund

ratio for OASI was estimated to reach 323 percent at the beginning of

2007—the tenth projection year from that report. The corresponding

ratio shown in this report for the tenth projection year (2008) is 374

percent. If there had been no changes to the projections, then the estimated ratio at the beginning of 2008 would have been 12 percentage

points higher than at the beginning of 2007. There were changes,

however, to reflect the latest actual data, as well as adjustments to

the assumptions for future years. The cumulative net effects of

changes in economic assumptions (including re-estimates of future tax

revenue consistent with recent revisions to historical data) resulted in

an increase in the trust fund ratio of 35 percentage points by the

beginning of 2008. In addition, the tenth year trust fund ratio showed

a small net change due to the effects of revised population projections,

as well as revised assumptions regarding future average benefit levels

and projected numbers of old-age and survivor beneficiaries.

Corresponding estimates of the factors underlying the changes in the

financial projections for the DI Trust Fund, and for the OASI and DI

Low Cost:

1999 . . . . . . . . . . . . . . . 200 155 194

2000 . . . . . . . . . . . . . . . 226 176 219

2001 . . . . . . . . . . . . . . . 251 202 244

2002 . . . . . . . . . . . . . . . 276 225 269

2003 . . . . . . . . . . . . . . . 303 244 294

2004 . . . . . . . . . . . . . . . 329 260 319

2005 . . . . . . . . . . . . . . . 355 272 343

2006 . . . . . . . . . . . . . . . 383 282 367

2007 . . . . . . . . . . . . . . . 410 289 390

2008 . . . . . . . . . . . . . . . 436 295 413

High Cost:

1999 . . . . . . . . . . . . . . . 200 150 193

2000 . . . . . . . . . . . . . . . 222 160 213

2001 . . . . . . . . . . . . . . . 238 166 227

2002 . . . . . . . . . . . . . . . 250 166 237

2003 . . . . . . . . . . . . . . . 261 160 245

2004 . . . . . . . . . . . . . . . 272 149 251

2005 . . . . . . . . . . . . . . . 282 134 256

2006 . . . . . . . . . . . . . . . 292 118 261

2007 . . . . . . . . . . . . . . . 301 98 264

2008 . . . . . . . . . . . . . . . 309 77 265

 1 Represents assets at beginning of year as a percentage of expenditures during the year. For 1985 and

1990, assets at beginning of year for each trust fund and the combined funds include the respective OASI

and DI advance tax transfers for January.

Table II.F4.—Trust Fund Ratios 1 by Trust Fund, Selected Calendar Years 1950-98, and 

Estimated Future Ratios by Alternative, Calendar Years 1999-2008 (Cont.)

[In percent]

Calendar year OASI Trust Fund DI Trust Fund

OASI and DI Trust

Funds, combined
91

Actuarial Estimates

Trust Funds combined, are also shown in table II.F5. As was the case

for OASI, the key factor affecting the new estimates for the DI Trust

Fund was the cumulative effect of changes in assumptions related to

economic performance. The one other significant factor affecting DI in

this year’s report is the impact of mortality improvement trends

among the disabled as discussed above.

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

Table II.F6 shows that total expenditures in calendar year 1998 from

the OASI and DI Trust Funds decreased to 10.92 percent of taxable

payroll for the year—1.76 percentage points less than the income rate

of 12.68 percent. This decrease in the total cost rate for OASDI is primarily attributable to the growth of the OASDI taxable payroll, as

described previously. Under the intermediate assumptions, the

OASDI cost rate would decline for a few years before increasing gradually during the remainder of the short-range projection period, to

11.55 percent in 2008. Based on the low cost assumptions, the cost

rate is estimated to decline steadily before increasing slightly at the

end of the short-range projection period, reaching 10.52 percent in

2008. The high cost alternative indicates a significant increase, to

12.72 percent in 2008.

These cost rate projections are shown in table II.F6 for both trust

funds, separately and combined. Table II.F6 also shows a comparison

of the cost rates with the corresponding income rates. As explained

previously, the income rate represents the sum of the combined

employee-employer payroll tax rate and the income derived from the

Federal income taxation of OASDI benefits, expressed as a percentage

of taxable payroll. The difference between the income rate and the

cost rate for a year is referred to as the “balance” for that year.

Table II.F5.—Change in OASI and DI Trust Fund Ratios at the Beginning of the Tenth 

Year of Projection, Based on the Intermediate Assumptions, by Reason for Change

[In percent]

Item

OASI Trust

Fund

DI Trust

Fund

OASI and DI

Trust Funds,

combined

Trust fund ratio shown in last year’s report for

calendar year 2007 . . . . . . . . . . . . . . . . . . . . . . 323 187 301

Change in trust fund ratio due to changes in: 

Valuation period. . . . . . . . . . . . . . . . . . . . . . . . 12 -9 8

Demographic assumptions . . . . . . . . . . . . . . . 2 ( 1 )

 1 Between -0.5 and 0.5 percent.

1

Economic assumptions . . . . . . . . . . . . . . . . . . 35 23 32

Programmatic assumptions. . . . . . . . . . . . . . . 2 -13 ( 1 )

Total change in trust fund ratio . . . . . . . . . . . . . . 51 1 41

Trust fund ratio shown in this report for calendar 

year 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 188 342
Actuarial Analysis

92

Notes: 

1. Historical taxable payroll data are subject to revision.

2. The income rate excludes interest income and certain transfers from the general fund of the Treasury.

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

Table II.F6.—Comparison of Income Rates and Cost Rates, by Trust Fund, Selected 

Calendar Years 1950-98, and Estimated Rates by Alternative,

Calendar years 1999-2008

[As a percentage of taxable payroll] 

OASI Trust Fund DI Trust Fund OASI and DI, combined

Calendar 

year

Income

rate 1

 1 Income rates for 1985, 1990, 1995, and 2000 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.

Cost

rate Balance

Income

rate 1

Cost

rate Balance

Income

rate 1

Cost

rate Balance

Historical data:

1950 . . . . 3.00 1.17 1.83 — — — 3.00 1.17 1.83

1955 . . . . 4.00 3.34 .66 — — — 4.00 3.34 .66

1960 . . . . 5.50 5.59 -.09 0.50 0.30 0.20 6.00 5.89 .11

1965 . . . . 6.75 7.23 -.48 .50 .70 -.20 7.25 7.93 -.68

1970 . . . . 7.30 7.31 -.01 1.10 .81 .29 8.40 8.12 .28

1975 . . . . 8.75 9.29 -.54 1.15 1.36 -.21 9.90 10.64 -.74

1980 . . . . 9.04 9.33 -.29 1.12 1.38 -.26 10.16 10.71 -.55

1985 . . . . 10.71 9.92 .79 1.07 1.13 -.06 11.79 11.05 .73

1990 . . . . 11.32 9.66 1.66 1.17 1.09 .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 .88

1994 . . . . 10.70 10.22 .48 1.89 1.40 .49 12.59 11.62 .97

1995 . . . . 10.70 10.22 .48 1.88 1.44 .44 12.59 11.66 .93

1996 . . . . 10.73 10.05 .68 1.89 1.48 .41 12.62 11.53 1.10

1997 . . . . 10.93 9.81 1.11 1.71 1.43 .28 12.64 11.25 1.39

1998 . . . . 10.96 9.49 1.47 1.72 1.43 .29 12.68 10.92 1.76

Intermediate:

1999 . . . . 10.98 9.35 1.63 1.72 1.45 .27 12.70 10.80 1.90

2000 . . . . 10.83 9.30 1.54 1.82 1.49 .32 12.65 10.79 1.86

2001 . . . . 10.86 9.29 1.57 1.82 1.54 .28 12.67 10.83 1.85

2002 . . . . 10.86 9.31 1.55 1.82 1.60 .22 12.68 10.91 1.76

2003 . . . . 10.86 9.33 1.54 1.82 1.66 .16 12.68 10.99 1.69

2004 . . . . 10.87 9.35 1.52 1.82 1.73 .09 12.69 11.08 1.61

2005 . . . . 10.88 9.38 1.50 1.82 1.80 .02 12.70 11.18 1.52

2006 . . . . 10.88 9.42 1.47 1.82 1.87 -.05 12.71 11.29 1.42

2007 . . . . 10.89 9.47 1.42 1.82 1.94 -.12 12.71 11.41 1.31

2008 . . . . 10.90 9.54 1.36 1.83 2.01 -.18 12.73 11.55 1.18

Low Cost:

1999 . . . . 10.98 9.26 1.72 1.72 1.41 .30 12.70 10.67 2.03

2000 . . . . 10.82 9.11 1.71 1.82 1.43 .38 12.63 10.54 2.10

2001 . . . . 10.85 9.02 1.83 1.82 1.45 .36 12.67 10.48 2.19

2002 . . . . 10.85 8.95 1.90 1.82 1.48 .34 12.67 10.43 2.23

2003 . . . . 10.85 8.91 1.95 1.82 1.51 .30 12.67 10.42 2.25

2004 . . . . 10.86 8.87 1.99 1.82 1.55 .27 12.67 10.42 2.25

2005 . . . . 10.86 8.84 2.02 1.82 1.59 .23 12.68 10.43 2.25

2006 . . . . 10.87 8.81 2.05 1.82 1.63 .19 12.68 10.45 2.24

2007 . . . . 10.87 8.80 2.07 1.82 1.67 .15 12.69 10.47 2.22

2008 . . . . 10.88 8.82 2.06 1.82 1.70 .12 12.70 10.52 2.18

High Cost:

1999 . . . . 10.98 9.35 1.63 1.72 1.47 .24 12.70 10.82 1.88

2000 . . . . 10.87 9.50 1.36 1.82 1.59 .23 12.68 11.09 1.59

2001 . . . . 10.86 9.39 1.47 1.82 1.65 .17 12.68 11.05 1.63

2002 . . . . 10.86 9.49 1.37 1.82 1.75 .07 12.68 11.24 1.44

2003 . . . . 10.89 10.08 .81 1.82 1.94 -.12 12.71 12.02 .68

2004 . . . . 10.89 10.02 .87 1.82 2.02 -.20 12.71 12.04 .67

2005 . . . . 10.89 10.02 .87 1.82 2.11 -.28 12.72 12.13 .59

2006 . . . . 10.90 10.09 .81 1.83 2.20 -.37 12.73 12.29 .44

2007 . . . . 10.91 10.20 .72 1.83 2.30 -.47 12.74 12.50 .25

2008 . . . . 10.93 10.33 .60 1.83 2.39 -.56 12.76 12.72 .04
93

Actuarial Estimates

Estimates of the operations of the trust funds during calendar years

1999-2008 have been presented in the preceding tables on the basis of

three different sets of economic assumptions, because of the uncertainty of future economic and demographic developments. Under the

provisions of the Social Security Act, estimates of the expected operations and status of the trust funds during the next 5 fiscal years are

required to be shown in this report. Accordingly, detailed estimates of

the expected operations and status of the trust funds during fiscal

years 1999-2003 are shown in the remaining tables of this section for

the intermediate assumptions (alternative II) only. Similar detailed

estimates are also shown for 5 additional fiscal years (2004-08) and on

a calendar-year basis for 1999-2008.

Data on the actual operations of the OASI Trust Fund for selected

years during 1940-98, and estimates of the expected operations of the

trust fund during 1999-2008 on the basis of the intermediate assumptions, are shown in tables II.F7 and II.F8 on a fiscal- and calendaryear basis, respectively. Corresponding figures on the operations of

the DI Trust Fund are shown in tables II.F9 and II.F10. Operations of

both trust funds combined are shown in tables II.F11 and II.F12.

(Data relating to the operations of the two trust funds for years not

shown in tables II.F7-II.F12 are contained in past annual reports.)

The figures shown in tables II.F8, II.F10, and II.F12 for 1987, 1988,

1992, 1993, 1998, and 1999 are adjusted to reflect 12 months of benefit payments in each year.
Actuarial Analysis

94

Table II.F7.—Operations of the OASI Trust Fund During Selected Fiscal Years 1940-98 

and Estimated Future Operations During Fiscal Years 1999-2008, on the Basis

of the Intermediate Set of Assumptions

[In millions]

Income

Fiscal year 1 

 1 Under the Congressional Budget Act of 1974 (Public Law 93-344), fiscal years 1977 and later consist of

the 12 months ending on September 30 of each year. Fiscal years prior to 1977 consisted of the 12

months ending on June 30 of each year.

Total

Net contributions 2

 2 Beginning in 1983, includes transfers from general fund of Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 and later, if such credits were

considered to be covered wages.

Income

from taxation of

 benefits

Payments

from the

general fund of

the Treasury 3

 3 Includes payments (1) in 1947-52 and in 1967 and later, for costs of noncontributory wage credits for

military service performed before 1957; (2) in 1972-83, for costs of deemed wage credits for military service performed after 1956; and (3) in 1969 and later, for costs of benefits to certain uninsured persons

who attained age 72 before 1968.

Net

interest 4

 4 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged currently to the trust fund on an estimated basis, with a final adjustment, including

interest, made in the following fiscal year. The amounts of these interest adjustments are included in net

interest. For years prior to 1967, a description of the method of accounting for administrative expenses is

contained in the 1970 Annual Report. Beginning in October 1973, the figures shown include relatively

small amounts of gifts to the fund. Net interest for 1983-86 reflects payments from a borrowing trust fund

to a lending trust fund for interest on amounts owed under the interfund borrowing provisions. During

1983-91, interest paid from the trust fund to the general fund on advance tax transfers is reflected. The

amounts shown for 1985 and 1986 include interest adjustments of $76.5 million and $11.5 million, respectively, on unnegotiated checks issued before April 1985.

Historical data:

1940 . . . . . . . . . . . $592 $550 — — $42

1945 . . . . . . . . . . . 1,434 1,310 — — 124

1950 . . . . . . . . . . . 2,367 2,106 — $4 257

1955 . . . . . . . . . . . 5,525 5,087 — — 438

1960 . . . . . . . . . . . 10,360 9,843 — — 517

1965 . . . . . . . . . . . 16,443 15,857 — — 586

1970 . . . . . . . . . . . 31,746 29,955 — 442 1,350

1975 . . . . . . . . . . . 58,757 56,017 — 447 2,292

1980 . . . . . . . . . . . 100,051 97,608 — 557 1,886

1985 . . . . . . . . . . . 179,881 175,305 $3,151 105 1,321

1986 . . . . . . . . . . . 195,331 187,007 3,329 2,293 2,701

1987 . . . . . . . . . . . 206,846 199,554 3,323 69 3,900

1988 . . . . . . . . . . . 235,720 226,409 3,335 55 5,922

1989 . . . . . . . . . . . 260,457 247,116 3,638 43 9,660

1990 . . . . . . . . . . . 278,607 261,506 2,924 34 14,143

1991 . . . . . . . . . . . 293,288 270,841 5,790 -2,089 18,746

1992 . . . . . . . . . . . 307,102 278,506 6,019 19 22,557

1993 . . . . . . . . . . . 319,298 287,569 5,893 14 25,822

1994 . . . . . . . . . . . 342,263 308,397 5,351 10 28,505

1995 . . . . . . . . . . . 326,067 289,529 5,114 7 31,417

1996 . . . . . . . . . . . 356,843 317,157 5,785 -124 34,026

1997 . . . . . . . . . . . 386,465 342,312 6,462 3 37,689

1998 . . . . . . . . . . . 415,666 364,871 8,595 2 42,198

Estimates:

1999 . . . . . . . . . . . 446,152 388,420 11,091 1 46,640

2000 . . . . . . . . . . . 459,974 399,868 9,629 ( 5 ) 50,477

2001 . . . . . . . . . . . 478,434 414,195 10,027 -827 55,039

2002 . . . . . . . . . . . 502,099 431,068 10,535 ( 5 ) 60,496

2003 . . . . . . . . . . . 526,552 448,600 11,136 ( 5 ) 66,816

2004 . . . . . . . . . . . 552,909 467,289 11,859 ( 5 ) 73,761

2005 . . . . . . . . . . . 588,501 493,950 12,700 ( 5 ) 81,852

2006 . . . . . . . . . . . 619,410 514,777 13,671 ( 5 ) 90,961

2007 . . . . . . . . . . . 656,403 540,610 14,736 ( 5 )

 5 Less than $500,000.

101,057

2008 . . . . . . . . . . . 694,192 565,933 15,926 ( 5 ) 112,333
95

Actuarial Estimates

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

Table II.F7.—Operations of the OASI Trust Fund During Selected Fiscal Years 1940-98 

and Estimated Future Operations During Fiscal Years 1999-2008, on the Basis

of the Intermediate Set of Assumptions (Cont.)

[In millions]

Expenditures Assets

Fiscal year Total

Benefit

payments 1

 1 Beginning in 1967, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount

of reimbursement for unnegotiated benefit checks.

Administrative

expenses

Transfers to

Railroad

Retirement

program

Net

increase

during

year

Amount

at end of

period

Historical data:

1940 . . . . . . . . . . . $28 $16 $12 — $564 $1,745

1945 . . . . . . . . . . . 267 240 27 — 1,167 6,613

1950 . . . . . . . . . . . 784 727 57 — 1,583 12,893

1955 . . . . . . . . . . . 4,427 4,333 103 -$10 1,098 21,141

1960 . . . . . . . . . . . 11,073 10,270 202 600 -713 20,829

1965 . . . . . . . . . . . 15,962 15,226 300 436 482 20,180

1970 . . . . . . . . . . . 27,321 26,268 474 579 4,425 32,616

1975 . . . . . . . . . . . 56,676 54,847 848 982 2,081 39,948

1980 . . . . . . . . . . . 103,228 100,626 1,160 1,442 -3,177 24,566

1985 . . . . . . . . . . . 169,210 165,310 1,589 2,310 2 6,308

 2 Reflects offset for repayment from the OASI Trust Fund of amounts borrowed from the DI and HI Trust

Funds in 1982. The amount repaid in 1985 was $4,364 million; in 1986, the amount was $13,155 million.

33,877

1986 . . . . . . . . . . . 178,534 174,340 1,609 2,585 2 3,642 37,519

1987 . . . . . . . . . . . 186,101 182,003 1,541 2,557 20,745 58,265

1988 . . . . . . . . . . . 197,021 192,502 1,729 2,790 38,700 96,964

1989 . . . . . . . . . . . 209,102 204,600 1,657 2,845 51,355 148,319

1990 . . . . . . . . . . . 223,481 218,948 1,564 2,969 55,126 203,445

1991 . . . . . . . . . . . 241,316 236,195 1,746 3,375 51,972 255,417

1992 . . . . . . . . . . . 256,239 251,268 1,823 3,148 50,862 306,280

1993 . . . . . . . . . . . 269,934 264,561 2,021 3,353 49,364 355,644

1994 . . . . . . . . . . . 281,572 276,278 1,874 3,420 60,691 416,335

1995 . . . . . . . . . . . 294,456 288,607 1,797 4,052 31,611 447,946

1996 . . . . . . . . . . . 305,311 299,968 1,788 3,554 51,533 499,479

1997 . . . . . . . . . . . 318,548 312,862 1,998 3,688 67,916 567,395

1998 . . . . . . . . . . . 329,953 324,256 2,034 3,662 85,713 653,108

Estimates:

1999 . . . . . . . . . . . 338,906 333,135 2,166 3,606 107,245 760,353

2000 . . . . . . . . . . . 349,433 343,934 2,018 3,481 110,541 870,894

2001 . . . . . . . . . . . 362,655 357,263 1,987 3,406 115,779 986,673

2002 . . . . . . . . . . . 378,376 372,819 2,073 3,484 123,723 1,110,396

2003 . . . . . . . . . . . 395,159 389,561 2,121 3,477 131,393 1,241,789

2004 . . . . . . . . . . . 413,658 408,025 2,158 3,475 139,251 1,381,040

2005 . . . . . . . . . . . 434,357 428,670 2,191 3,495 154,145 1,535,185

2006 . . . . . . . . . . . 457,178 451,518 2,222 3,437 162,232 1,697,417

2007 . . . . . . . . . . . 481,908 476,080 2,254 3,575 174,494 1,871,911

2008 . . . . . . . . . . . 508,839 502,928 2,286 3,624 185,353 2,057,264
Actuarial Analysis

96

Table II.F8.—Operations of the OASI Trust Fund During Selected Calendar

Years 1940-98 and Estimated Future Operations During Calendar Years 1999-2008,

on the Basis of the Intermediate Set of Assumptions

[In millions]

Income

Calendar year Total

Net contributions 1

 1 Beginning in 1983, includes transfers from general fund of Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 and later, if such credits were

considered to be covered wages.

Income

from taxation of

 benefits

Payments

from the

general fund of

the Treasury 2

 2 Includes payments (1) in 1947-51 and in 1966 and later, for costs of noncontributory wage credits for

military service performed before 1957; (2) in 1971-82, for costs of deemed wage credits for military service performed after 1956; and (3) in 1968 and later, for costs of benefits to certain uninsured persons

who attained age 72 before 1968.

Net

interest 3

 3 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged currently to the trust fund on an estimated basis, with a final adjustment, including

interest, made in the following fiscal year. The amounts of these interest adjustments are included in net

interest. For years prior to 1967, a description of the method of accounting for administrative expenses is

contained in the 1970 Annual Report. Beginning in October 1973, the figures shown include relatively

small amounts of gifts to the fund. Net interest for 1983-86 reflects payments from a borrowing trust fund

to a lending trust fund for interest on amounts owed under the interfund borrowing provisions. During

1983-90, interest paid from the trust fund to the general fund on advance tax transfers is reflected. The

amount shown for 1985 includes an interest adjustment of $88 million on unnegotiated checks issued

before April 1985.

Historical data:

1940 . . . . . . . . . . . $368 $325 — — $43

1945 . . . . . . . . . . . 1,420 1,285 — — 134

1950 . . . . . . . . . . . 2,928 2,667 — $4 257

1955 . . . . . . . . . . . 6,167 5,713 — — 454

1960 . . . . . . . . . . . 11,382 10,866 — — 516

1965 . . . . . . . . . . . 16,610 16,017 — — 593

1970 . . . . . . . . . . . 32,220 30,256 — 449 1,515

1975 . . . . . . . . . . . 59,605 56,619 — 622 2,364

1980 . . . . . . . . . . . 105,841 103,355 — 641 1,845

1985 . . . . . . . . . . . 184,239 176,958 $3,208 2,203 1,871

1986 . . . . . . . . . . . 197,393 190,741 3,424 160 3,069

1987 . . . . . . . . . . . 210,736 202,735 3,257 55 4,690

1988 . . . . . . . . . . . 240,770 229,775 3,384 43 7,568

1989 . . . . . . . . . . . 264,653 250,195 2,439 34 11,985

1990 . . . . . . . . . . . 286,653 267,530 4,848 -2,089 16,363

1991 . . . . . . . . . . . 299,286 272,574 5,864 19 20,829

1992 . . . . . . . . . . . 311,162 280,992 5,852 14 24,303

1993 . . . . . . . . . . . 323,277 290,905 5,335 10 27,027

1994 . . . . . . . . . . . 328,271 293,323 4,995 7 29,946

1995 . . . . . . . . . . . 342,801 304,620 5,490 -129 32,820

1996 . . . . . . . . . . . 363,741 321,557 6,471 7 35,706

1997 . . . . . . . . . . . 397,169 349,946 7,426 2 39,795

1998 . . . . . . . . . . . 424,848 371,207 9,149 1 44,491

Estimates:

1999 . . . . . . . . . . . 449,995 391,154 10,314 ( 4 ) 48,527

2000 . . . . . . . . . . . 463,239 401,675 9,716 -827 52,674

2001 . . . . . . . . . . . 485,735 417,918 10,135 ( 4 ) 57,683

2002 . . . . . . . . . . . 509,102 434,865 10,669 ( 4 ) 63,567

2003 . . . . . . . . . . . 534,889 453,382 11,293 ( 4 ) 70,213

2004 . . . . . . . . . . . 563,141 473,407 12,051 ( 4 ) 77,683

2005 . . . . . . . . . . . 595,847 496,625 12,919 ( 4 ) 86,303

2006 . . . . . . . . . . . 629,895 520,059 13,926 ( 4 )

 4 Less than $500,000.

95,911

2007 . . . . . . . . . . . 667,965 546,344 15,011 ( 4 ) 106,610

2008 . . . . . . . . . . . 707,062 572,473 16,242 ( 4 ) 118,347
97

Actuarial Estimates

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

Table II.F8.—Operations of the OASI Trust Fund During Selected Calendar

Years 1940-98 and Estimated Future Operations During Calendar Years 1999-2008,

on the Basis of the Intermediate Set of Assumptions (Cont.)

[In millions]

Expenditures Assets

Calendar year Total

Benefit

payments 1

 1 Beginning in 1966, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount

of reimbursement for unnegotiated benefit checks.

Administrative

expenses

Transfers to

Railroad

Retirement

program

Net

increase

during

year

Amount

at end of

period

Historical data:

1940 . . . . . . . . . . . $62 $35 $26 — $306 $2,031

1945 . . . . . . . . . . . 304 274 30 — 1,116 7,121

1950 . . . . . . . . . . . 1,022 961 61 — 1,905 13,721

1955 . . . . . . . . . . . 5,079 4,968 119 -$7 1,087 21,663

1960 . . . . . . . . . . . 11,198 10,677 203 318 184 20,324

1965 . . . . . . . . . . . 17,501 16,737 328 436 -890 18,235

1970 . . . . . . . . . . . 29,848 28,798 471 579 2,371 32,454

1975 . . . . . . . . . . . 60,395 58,517 896 982 -789 36,987

1980 . . . . . . . . . . . 107,678 105,082 1,154 1,442 -1,837 22,824

1985 . . . . . . . . . . . 171,150 167,248 1,592 2,310 2 8,725

 2 Reflects offset for repayment from the OASI Trust Fund of amounts borrowed from the DI and HI Trust

Funds in 1982. The amount repaid in 1985 was $4,364 million; in 1986, the amount was $13,155 million.

35,842

1986 . . . . . . . . . . . 181,000 176,813 1,601 2,585 2 3,239 39,081

1987 . . . . . . . . . . . 187,668 183,587 1,524 2,557 23,068 62,149

1988 . . . . . . . . . . . 200,020 195,454 1,776 2,790 40,750 102,899

1989 . . . . . . . . . . . 212,489 207,971 1,673 2,845 52,164 155,063

1990 . . . . . . . . . . . 227,519 222,987 1,563 2,969 59,134 214,197

1991 . . . . . . . . . . . 245,634 240,467 1,792 3,375 53,652 267,849

1992 . . . . . . . . . . . 259,861 254,883 1,830 3,148 51,301 319,150

1993 . . . . . . . . . . . 273,104 267,755 1,996 3,353 50,173 369,322

1994 . . . . . . . . . . . 284,133 279,068 1,645 3,420 44,138 413,460

1995 . . . . . . . . . . . 297,760 291,630 2,077 4,052 45,041 458,502

1996 . . . . . . . . . . . 308,217 302,861 1,802 3,554 55,524 514,026

1997 . . . . . . . . . . . 322,073 316,257 2,128 3,688 75,096 589,121

1998 . . . . . . . . . . . 332,324 326,762 1,899 3,662 92,524 681,645

Estimates:

1999 . . . . . . . . . . . 341,167 335,330 2,232 3,606 108,827 790,473

2000 . . . . . . . . . . . 352,428 346,938 2,009 3,481 110,811 901,284

2001 . . . . . . . . . . . 366,277 360,859 2,012 3,406 119,458 1,020,742

2002 . . . . . . . . . . . 382,420 376,849 2,087 3,484 126,682 1,147,424

2003 . . . . . . . . . . . 399,469 393,860 2,132 3,477 135,420 1,282,844

2004 . . . . . . . . . . . 418,508 412,865 2,168 3,475 144,633 1,427,477

2005 . . . . . . . . . . . 439,730 434,034 2,200 3,495 156,117 1,583,594

2006 . . . . . . . . . . . 463,103 457,434 2,232 3,437 166,792 1,750,387

2007 . . . . . . . . . . . 488,266 482,428 2,263 3,575 179,699 1,930,086

2008 . . . . . . . . . . . 515,994 510,074 2,295 3,624 191,068 2,121,154
Actuarial Analysis

98

Table II.F9.—Operations of the DI Trust Fund During Selected Fiscal Years 1960-98 

and Estimated Future Operations During Fiscal Years 1999-2008, on the Basis of the 

Intermediate Set of Assumptions

[In millions]

Income

Fiscal year 1 

 1 Under the Congressional Budget Act of 1974 (Public Law 93-344), fiscal years 1977 and later consist of

the 12 months ending on September 30 of each year. Fiscal years prior to 1977 consisted of the 12

months ending on June 30 of each year.

Total

Net contributions 2

 2 Beginning in 1983, includes transfers from general fund of Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 and later, if such credits were

considered to be covered wages.

Income

from taxation of

 benefits

Payments

from the

general fund of

the Treasury 3

 3 Includes payments (1) in 1967 and later, for costs of noncontributory wage credits for military service

performed before 1957; and (2) in 1972-83, for costs of deemed wage credits for military service performed after 1956.

Net

interest 4

 4 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged currently to the trust fund on an estimated basis, with a final adjustment, including

interest, made in the following fiscal year. The amounts of these interest adjustments are included in net

interest. For years prior to 1967, a description of the method of accounting for administrative expenses is

contained in the 1970 Annual Report. Beginning in July 1974, the figures shown include relatively small

amounts of gifts to the fund. Net interest for 1983-86 reflects payments from a borrowing trust fund to a

lending trust fund for interest on amounts owed under the interfund borrowing provisions. During 1983-91,

interest paid from the trust fund to the general fund on advance tax transfers is reflected. The amount

shown for 1985 includes an interest adjustment of $14.8 million on unnegotiated checks issued before

April 1985.

Historical data:

1960 . . . . . . . . . . . $1,034 $987 — — $47

1965 . . . . . . . . . . . 1,237 1,175 — — 62

1970 . . . . . . . . . . . 4,380 4,141 — $16 223

1975 . . . . . . . . . . . 7,920 7,356 — 52 512

1980 . . . . . . . . . . . 17,376 16,805 — 118 453

1985 . . . . . . . . . . . 17,984 16,876 $217 — 891

1986 . . . . . . . . . . . 20,130 18,139 229 1,017 746

1987 . . . . . . . . . . . 20,047 19,324 5 -16

 5 Reflects $195 million in transfers from the DI Trust Fund to the general fund of the Treasury to correct

estimated amounts transferred for calendar years 1984 and 1985.

— 738

1988 . . . . . . . . . . . 22.369 21,736 56 — 577

1989 . . . . . . . . . . . 24,479 23,694 135 — 650

1990 . . . . . . . . . . . 28,215 27,291 158 — 766

1991 . . . . . . . . . . . 29,322 28,953 131 -775 1,014

1992 . . . . . . . . . . . 31,168 29,871 218 — 1,080

1993 . . . . . . . . . . . 32,056 30,822 268 — 966

1994 . . . . . . . . . . . 34,044 33,041 305 — 699

1995 . . . . . . . . . . . 70,209 67,987 335 — 1,888

1996 . . . . . . . . . . . 59,220 56,571 370 -203 2,482

1997 . . . . . . . . . . . 60,088 56,162 400 — 3,526

1998 . . . . . . . . . . . 62,943 57,982 526 — 4,434

Estimates:

1999 . . . . . . . . . . . 67,578 61,692 694 — 5,192

2000 . . . . . . . . . . . 73,204 66,715 612 — 5,877

2001 . . . . . . . . . . . 77,702 70,344 660 -8 6,706

2002 . . . . . . . . . . . 81,531 73,198 718 — 7,615

2003 . . . . . . . . . . . 85,493 76,175 787 — 8,530

2004 . . . . . . . . . . . 89,608 79,354 871 — 9,383

2005 . . . . . . . . . . . 95,014 83,879 968 — 10,168

2006 . . . . . . . . . . . 99,379 87,419 1,078 — 10,882

2007 . . . . . . . . . . . 104,443 91,801 1,201 — 11,441

2008 . . . . . . . . . . . 109,273 96,102 1,335 — 11,836
99

Actuarial Estimates

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

Table II.F9.—Operations of the DI Trust Fund During Selected Fiscal Years 1960-98 

and Estimated Future Operations During Fiscal Years 1999-2008, on the Basis of the 

Intermediate Set of Assumptions (Cont.)

[In millions]

Expenditures Assets

Fiscal year Total

Benefit

payments 1

 1 Beginning in 1967, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount

of reimbursement for unnegotiated benefit checks.

Administrative

expenses

Transfers to

Railroad

Retirement

program

Net

increase

during

year

Amount

at end of

period

Historical data:

1960 . . . . . . . . . . . $533 $528 $32 -$27 $501 $2,167

1965 . . . . . . . . . . . 1,495 1,392 79 24 -257 2,007

1970 . . . . . . . . . . . 2,954 2,795 149 10 1,426 5,104

1975 . . . . . . . . . . . 7,982 7,701 253 29 -62 8,191

1980 . . . . . . . . . . . 15,320 14,998 334 -12 2,056 7,680

1985 . . . . . . . . . . . 19,294 18,648 603 43 2 1,230

 2 Reflects repayment from the OASI Trust Fund of amounts borrowed from the DI Trust Fund in 1982.

The amount repaid in 1985 was $2,540 million; in 1986, the amount was $2,541 million.

5,873

1986 . . . . . . . . . . . 20,196 19,529 600 68 2 2,475 8,348

1987 . . . . . . . . . . . 21,222 20,427 738 57 -1,175 7,173

1988 . . . . . . . . . . . 22,269 21,405 803 61 100 7,273

1989 . . . . . . . . . . . 23,389 22,550 751 88 1,090 8,363

1990 . . . . . . . . . . . 25,124 24,327 717 80 3,091 11,455

1991 . . . . . . . . . . . 27,780 26,909 789 82 1,543 12,997

1992 . . . . . . . . . . . 31,285 30,382 845 58 -116 12,881

1993 . . . . . . . . . . . 34,632 33,615 935 83 -2,576 10,305

1994 . . . . . . . . . . . 37,979 36,851 1,022 106 -3,935 6,370

1995 . . . . . . . . . . . 41,374 40,234 1,072 68 28,835 35,206

1996 . . . . . . . . . . . 44,343 43,266 1,074 2 14,877 50,083

1997 . . . . . . . . . . . 46,689 45,419 1,211 59 13,399 63,483

1998 . . . . . . . . . . . 49,338 47,619 1,563 157 13,604 77,087

Estimates:

1999 . . . . . . . . . . . 51,920 50,307 1,507 106 15,658 92,746

2000 . . . . . . . . . . . 55,728 54,070 1,540 118 17,476 110,221

2001 . . . . . . . . . . . 59,716 58,100 1,527 89 17,986 128,208

2002 . . . . . . . . . . . 64,495 62,770 1,602 123 17,036 145,244

2003 . . . . . . . . . . . 69,816 67,999 1,684 133 15,677 160,921

2004 . . . . . . . . . . . 75,903 73,985 1,774 143 13,705 174,626

2005 . . . . . . . . . . . 82,646 80,619 1,871 156 12,368 186,994

2006 . . . . . . . . . . . 90,062 87,941 1,974 147 9,317 196,311

2007 . . . . . . . . . . . 98,111 95,844 2,084 182 6,333 202,644

2008 . . . . . . . . . . . 106,496 104,097 2,202 197 2,777 205,421
Actuarial Analysis

100

Table II.F10.—Operations of the DI Trust Fund During Selected Calendar

Years 1960-98 and Estimated Future Operations During Calendar Years 1999-2008,

on the Basis of the Intermediate Set of Assumptions

[In millions]

Income

Calendar year Total

Net contributions 1

 1 Beginning in 1983, includes transfers from general fund of Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 and later, if such credits were

considered to be covered wages.

Income

from taxation of

 benefits

Payments

from the

general fund of

the Treasury 2

 2 Includes payments (1) in 1966 and later, for costs of noncontributory wage credits for military service

performed before 1957; and (2) in 1971-82, for costs of deemed wage credits for military service performed after 1956.

Net

interest 3

 3 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged currently to the trust fund on an estimated basis, with a final adjustment, including

interest, made in the following fiscal year. The amounts of these interest adjustments are included in net

interest. For years prior to 1967, a description of the method of accounting for administrative expenses is

contained in the 1970 Annual Report. Beginning in July 1974, the figures shown include relatively small

amounts of gifts to the fund. Net interest for 1983-86 reflects payments from a borrowing trust fund to a

lending trust fund for interest on amounts owed under the interfund borrowing provisions. During 1983-90,

interest paid from the trust fund to the general fund on advance tax transfers is reflected. The amount

shown for 1985 includes an interest adjustment of $14.8 million on unnegotiated checks issued before

April 1985.

Historical data:

1960 . . . . . . . . . . . $1,063 $1,010 — — $53

1965 . . . . . . . . . . . 1,247 1,188 — — 59

1970 . . . . . . . . . . . 4,774 4,481 — $16 277

1975 . . . . . . . . . . . 8,035 7,444 — 90 502

1980 . . . . . . . . . . . 13,871 13,255 — 130 485

1985 . . . . . . . . . . . 19,301 17,191 $222 1,017 870

1986 . . . . . . . . . . . 19,439 18,399 238 — 803

1987 . . . . . . . . . . . 20,303 19,691 4 -36

 4 Reflects $195 million in transfers from the DI Trust Fund to the general fund of the Treasury to correct

estimated amounts transferred for calendar years 1984 and 1985.

— 648

1988 . . . . . . . . . . . 22,699 22,039 61 — 600

1989 . . . . . . . . . . . 24,795 23,993 95 — 707

1990 . . . . . . . . . . . 28,791 28,539 144 -775 883

1991 . . . . . . . . . . . 30,390 29,137 190 — 1,063

1992 . . . . . . . . . . . 31,430 30,136 232 — 1,062

1993 . . . . . . . . . . . 32,301 31,185 281 — 835

1994 . . . . . . . . . . . 52,841 51,373 311 — 1,157

1995 . . . . . . . . . . . 56,696 54,401 341 -203 2,158

1996 . . . . . . . . . . . 60,710 57,325 373 — 3,012

1997 . . . . . . . . . . . 60,499 56,037 470 — 3,992

1998 . . . . . . . . . . . 64,357 58,966 558 — 4,832

Estimates:

1999 . . . . . . . . . . . 68,338 62,160 648 — 5,529

2000 . . . . . . . . . . . 74,882 67,992 623 -8 6,276

2001 . . . . . . . . . . . 78,814 70,977 673 — 7,164

2002 . . . . . . . . . . . 82,644 73,832 733 — 8,079

2003 . . . . . . . . . . . 86,764 76,989 806 — 8,969

2004 . . . . . . . . . . . 91,069 80,394 893 — 9,782

2005 . . . . . . . . . . . 95,861 84,333 993 — 10,535

2006 . . . . . . . . . . . 100,599 88,317 1,107 — 11,174

2007 . . . . . . . . . . . 105,662 92,773 1,233 — 11,656

2008 . . . . . . . . . . . 110,524 97,212 1,369 — 11,943
101

Actuarial Estimates

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

Table II.F10.—Operations of the DI Trust Fund During Selected Calendar

Years 1960-98 and Estimated Future Operations During Calendar Years 1999-2008,

on the Basis of the Intermediate Set of Assumptions (Cont.)

[In millions]

Expenditures Assets

Calendar year Total

Benefit

payments 1

 1 Beginning in 1966, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount

of reimbursement for unnegotiated benefit checks.

Administrative

expenses

Transfers to

Railroad

Retirement

program

Net

increase

during

year

Amount

at end of

period

Historical data:

1960 . . . . . . . . . . . $600 $568 $36 -$5 $464 $2,289

1965 . . . . . . . . . . . 1,687 1,573 90 24 -440 1,606

1970 . . . . . . . . . . . 3,259 3,085 164 10 1,514 5,614

1975 . . . . . . . . . . . 8,790 8,505 256 29 -754 7,354

1980 . . . . . . . . . . . 15,872 15,515 368 -12 -2,001 3,629

1985 . . . . . . . . . . . 19,478 18,827 608 43 2 2,363

 2 Reflects repayment from the OASI Trust Fund of amounts borrowed from the DI Trust Fund in 1982.

The amount repaid in 1985 was $2,540 million; in 1986, the amount was $2,541 million.

6,321

1986 . . . . . . . . . . . 20,522 19,853 600 68 2 1,459 7,780

1987 . . . . . . . . . . . 21,425 20,519 849 57 -1,122 6,658

1988 . . . . . . . . . . . 22,494 21,695 737 61 206 6,864

1989 . . . . . . . . . . . 23,753 22,911 754 88 1,041 7,905

1990 . . . . . . . . . . . 25,616 24,829 707 80 3,174 11,079

1991 . . . . . . . . . . . 28,571 27,695 794 82 1,819 12,898

1992 . . . . . . . . . . . 32,004 31,112 834 58 -574 12,324

1993 . . . . . . . . . . . 35,662 34,613 966 83 -3,361 8,963

1994 . . . . . . . . . . . 38,879 37,744 1,029 106 13,962 22,925

1995 . . . . . . . . . . . 42,055 40,923 1,064 68 14,641 37,566

1996 . . . . . . . . . . . 45,351 44,189 1,160 2 15,359 52,924

1997 . . . . . . . . . . . 47,034 45,695 1,280 59 13,465 66,389

1998 . . . . . . . . . . . 49,931 48,207 1,567 157 14,425 80,815

Estimates:

1999 . . . . . . . . . . . 52,817 51,226 1,486 106 15,521 96,335

2000 . . . . . . . . . . . 56,656 55,001 1,537 118 18,227 114,562

2001 . . . . . . . . . . . 60,814 59,181 1,544 89 18,000 132,562

2002 . . . . . . . . . . . 65,744 64,000 1,621 123 16,900 149,462

2003 . . . . . . . . . . . 71,240 69,401 1,705 133 15,524 164,986

2004 . . . . . . . . . . . 77,489 75,549 1,797 143 13,580 178,566

2005 . . . . . . . . . . . 84,396 82,345 1,895 156 11,465 190,032

2006 . . . . . . . . . . . 91,989 89,843 2,000 147 8,609 198,641

2007 . . . . . . . . . . . 100,168 97,874 2,112 182 5,493 204,135

2008 . . . . . . . . . . . 108,598 106,170 2,231 197 1,926 206,061
Actuarial Analysis

102

Table II.F11.—Operations of the OASI and DI Trust Funds, Combined, During Selected 

Fiscal Years 1960-98 and Estimated Future Operations During Fiscal Years 1999-2008,

on the Basis of the Intermediate Set of Assumptions

[In millions]

Income

Fiscal year 1 

 1 Under the Congressional Budget Act of 1974 (Public Law 93-344), fiscal years 1977 and later consist of

the 12 months ending on September 30 of each year. Fiscal years prior to 1977 consisted of the 12

months ending on June 30 of each year.

Total

Net contributions 2

 2 Beginning in 1983, includes transfers from general fund of Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 and later, if such credits were

considered to be covered wages.

Income

from taxation of

 benefits

Payments

from the

general fund of

the Treasury 3

 3 Includes payments (1) in 1947-52 and in 1967 and later, for costs of noncontributory wage credits for

military service performed before 1957; (2) in 1972-83, for costs of deemed wage credits for military service performed after 1956; and (3) in 1969 and later, for costs of benefits to certain uninsured persons

who attained age 72 before 1968.

Net

interest 4

 4 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged currently to the trust funds on an estimated basis, with a final adjustment, including

interest, made in the following fiscal year. The amounts of these interest adjustments are included in net

interest. For years prior to 1967, a description of the method of accounting for administrative expenses is

contained in the 1970 Annual Report. Beginning in October 1973, the figures shown include relatively

small amounts of gifts to the funds. Net interest for 1983-86 reflects payments from a borrowing trust fund

to a lending trust fund for interest on amounts owed under the interfund borrowing provisions. During

1983-91, interest paid from the trust funds to the general fund on advance tax transfers is reflected. The

amounts shown for 1985 and 1986 include interest adjustments of $91.3 million and $11.5 million, respectively, on unnegotiated checks issued before April 1985.

Historical data:

1960 . . . . . . . . . . . $11,394 $10,830 — — $564

1965 . . . . . . . . . . . 17,681 17,032 — — 648

1970 . . . . . . . . . . . 36,127 34,096 — $458 1,572

1975 . . . . . . . . . . . 66,677 63,374 — 499 2,804

1980 . . . . . . . . . . . 117,427 114,413 — 675 2,339

1985 . . . . . . . . . . . 197,865 192,181 $3,368 105 2,211

1986 . . . . . . . . . . . 215,461 205,146 3,558 3,310 3,447

1987 . . . . . . . . . . . 226,893 218,878 3,307 69 4,638

1988 . . . . . . . . . . . 258,090 248,145 3,390 55 6,500

1989 . . . . . . . . . . . 284,936 270,811 3,772 43 10,310

1990 . . . . . . . . . . . 306,822 288,797 3,081 34 14,909

1991 . . . . . . . . . . . 322,611 299,794 5,921 -2,864 19,759

1992 . . . . . . . . . . . 338,270 308,377 6,237 19 23,637

1993 . . . . . . . . . . . 351,354 318,391 6,161 14 26,788

1994 . . . . . . . . . . . 376,307 341,438 5,656 10 29,203

1995 . . . . . . . . . . . 396,276 357,516 5,449 7 33,304

1996 . . . . . . . . . . . 416,064 373,728 6,155 -327 36,508

1997 . . . . . . . . . . . 446,553 398,474 6,862 3 41,215

1998 . . . . . . . . . . . 478,608 422,853 9,121 2 46,632

Estimates:

1999 . . . . . . . . . . . 513,730 450,112 11,785 1 51,832

2000 . . . . . . . . . . . 533,178 466,583 10,241 ( 5 ) 56,354

2001 . . . . . . . . . . . 556,136 484,539 10,687 -835 61,745

2002 . . . . . . . . . . . 583,630 504,266 11,252 ( 5 ) 68,111

2003 . . . . . . . . . . . 612,044 524,775 11,923 ( 5 ) 75,346

2004 . . . . . . . . . . . 642,517 546,643 12,729 ( 5 ) 83,145

2005 . . . . . . . . . . . 683,516 577,829 13,667 ( 5 ) 92,019

2006 . . . . . . . . . . . 718,789 602,196 14,750 ( 5 ) 101,843

2007 . . . . . . . . . . . 760,846 632,411 15,937 ( 5 )

 5 Less than $500,000.

112,498

2008 . . . . . . . . . . . 803,465 662,035 17,260 ( 5 ) 124,169
103

Actuarial Estimates

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

Table II.F11.—Operations of the OASI and DI Trust Funds, Combined, During Selected 

Fiscal Years 1960-98 and Estimated Future Operations During Fiscal Years 1999-2008,

on the Basis of the Intermediate Set of Assumptions (Cont.)

[In millions]

Expenditures Assets

Fiscal year Total

Benefit

payments 1

 1 Beginning in 1967, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount

of reimbursement for unnegotiated benefit checks.

Administrative

expenses

Transfers to

Railroad

Retirement

program

Net

increase

during

year

Amount

at end of

period

Historical data:

1960 . . . . . . . . . . . $11,606 $10,798 $234 $574 -$212 $22,996

1965 . . . . . . . . . . . 17,456 16,618 379 459 224 22,187

1970 . . . . . . . . . . . 30,275 29,063 623 589 5,851 37,720

1975 . . . . . . . . . . . 64,658 62,547 1,101 1,010 2,018 48,138

1980 . . . . . . . . . . . 118,548 115,624 1,494 1,430 -1,121 32,246

1985 . . . . . . . . . . . 188,504 183,959 2,192 2,353 2 7,538

 2 Reflects offset for repayment from the OASI Trust Fund of amounts borrowed from the HI Trust Fund in

1982. The amount repaid in 1985 was $1,824 million; in 1986, the amount was $10,613 million.

39,750

1986 . . . . . . . . . . . 198,730 193,869 2,209 2,653 2 6,117 45,867

1987 . . . . . . . . . . . 207,323 202,430 2,279 2,614 19,570 65,437

1988 . . . . . . . . . . . 219,290 213,907 2,532 2,851 38,800 104,237

1989 . . . . . . . . . . . 232,491 227,150 2,407 2,934 52,445 156,682

1990 . . . . . . . . . . . 248,605 243,275 2,280 3,049 58,217 214,900

1991 . . . . . . . . . . . 269,096 263,104 2,535 3,457 53,515 268,415

1992 . . . . . . . . . . . 287,524 281,650 2,668 3,206 50,746 319,161

1993 . . . . . . . . . . . 304,566 298,176 2,955 3,435 46,788 365,949

1994 . . . . . . . . . . . 319,551 313,129 2,896 3,526 56,757 422,706

1995 . . . . . . . . . . . 335,830 328,841 2,870 4,120 60,446 483,152

1996 . . . . . . . . . . . 349,654 343,235 2,862 3,556 66,410 549,562

1997 . . . . . . . . . . . 365,238 358,281 3,210 3,747 81,316 630,878

1998 . . . . . . . . . . . 379,291 371,875 3,597 3,819 99,318 730,195

Estimates:

1999 . . . . . . . . . . . 390,826 383,442 3,673 3,711 122,903 853,099

2000 . . . . . . . . . . . 405,162 398,004 3,558 3,599 128,017 981,116

2001 . . . . . . . . . . . 422,371 415,362 3,514 3,495 133,765 1,114,881

2002 . . . . . . . . . . . 442,871 435,589 3,675 3,607 140,759 1,255,640

2003 . . . . . . . . . . . 464,975 457,559 3,805 3,610 147,070 1,402,710

2004 . . . . . . . . . . . 489,561 482,010 3,933 3,619 152,956 1,555,666

2005 . . . . . . . . . . . 517,003 509,289 4,063 3,651 166,513 1,722,179

2006 . . . . . . . . . . . 547,240 539,459 4,196 3,584 171,549 1,893,728

2007 . . . . . . . . . . . 580,019 571,924 4,338 3,757 180,827 2,074,555

2008 . . . . . . . . . . . 615,335 607,026 4,489 3,821 188,130 2,262,685
Actuarial Analysis

104

Table II.F12.—Operations of the OASI and DI Trust Funds, Combined, During Selected 

Calendar Years 1960-98 and Estimated Future Operations During Calendar

Years 1999-2008, on the Basis of the Intermediate Set of Assumptions

[In millions]

Income

Calendar year Total

Net contributions 1

 1 Beginning in 1983, includes transfers from general fund of Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 and later, if such credits were

considered to be covered wages.

Income

from taxation of

 benefits

Payments

from the

general fund of

the Treasury 2

 2 Includes payments (1) in 1947-51 and in 1966 and later, for costs of noncontributory wage credits for

military service performed before 1957; (2) in 1971-82, for costs of deemed wage credits for military service performed after 1956; and (3) in 1968 and later, for costs of benefits to certain uninsured persons

who attained age 72 before 1968.

Net

interest 3

 3 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged currently to the trust funds on an estimated basis, with a final adjustment, including

interest, made in the following fiscal year. The amounts of these interest adjustments are included in net

interest. For years prior to 1967, a description of the method of accounting for administrative expenses is

contained in the 1970 Annual Report. Beginning in October 1973, the figures shown include relatively

small amounts of gifts to the funds. Net interest for 1983-86 reflects payments from a borrowing trust fund

to a lending trust fund for interest on amounts owed under the interfund borrowing provisions. During

1983-90, interest paid from the trust funds to the general fund on advance tax transfers is reflected. The

amount shown for 1985 includes an interest adjustment of $102.8 million on unnegotiated checks issued

before April 1985.

Historical data:

1960 . . . . . . . . . . . $12,445 $11,876 — — $569

1965 . . . . . . . . . . . 17,857 17,205 — — 651

1970 . . . . . . . . . . . 36,993 34,737 — $465 1,791

1975 . . . . . . . . . . . 67,640 64,259 — 515 2,866

1980 . . . . . . . . . . . 119,712 116,711 — 670 2,330

1985 . . . . . . . . . . . 203,540 194,149 $3,430 3,220 2,741

1986 . . . . . . . . . . . 216,833 209,140 3,662 160 3,871

1987 . . . . . . . . . . . 231,039 222,425 3,221 55 5,338

1988 . . . . . . . . . . . 263,469 251,814 3,445 43 8,168

1989 . . . . . . . . . . . 289,448 274,189 2,534 34 12,692

1990 . . . . . . . . . . . 315,443 296,070 4,992 -2,864 17,245

1991 . . . . . . . . . . . 329,676 301,711 6,054 19 21,892

1992 . . . . . . . . . . . 342,591 311,128 6,084 14 25,365

1993 . . . . . . . . . . . 355,578 322,090 5,616 10 27,862

1994 . . . . . . . . . . . 381,111 344,695 5,306 7 31,103

1995 . . . . . . . . . . . 399,497 359,021 5,831 -332 34,977

1996 . . . . . . . . . . . 424,451 378,881 6,844 7 38,718

1997 . . . . . . . . . . . 457,668 405,984 7,896 2 43,787

1998 . . . . . . . . . . . 489,204 430,174 9,707 1 49,323

Estimates:

1999 . . . . . . . . . . . 518,332 453,314 10,962 ( 4 ) 54,056

2000 . . . . . . . . . . . 538,121 469,667 10,339 -835 58,950

2001 . . . . . . . . . . . 564,550 488,895 10,807 ( 4 ) 64,847

2002 . . . . . . . . . . . 591,747 508,697 11,403 ( 4 ) 71,646

2003 . . . . . . . . . . . 621,652 530,371 12,100 ( 4 ) 79,182

2004 . . . . . . . . . . . 654,210 553,801 12,944 ( 4 ) 87,465

2005 . . . . . . . . . . . 691,708 580,958 13,912 ( 4 ) 96,838

2006 . . . . . . . . . . . 730,494 608,376 15,033 ( 4 )

 4 Less than $500,000.

107,085

2007 . . . . . . . . . . . 773,627 639,117 16,244 ( 4 ) 118,266

2008 . . . . . . . . . . . 817,586 669,685 17,610 ( 4 ) 130,290
105

Actuarial Estimates

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

Table II.F12.—Operations of the OASI and DI Trust Funds, Combined, During Selected 

Calendar Years 1960-98 and Estimated Future Operations During Calendar

Years 1999-2008, on the Basis of the Intermediate Set of Assumptions (Cont.)

[In millions]

Expenditures Assets

Calendar year Total

Benefit

payments 1

 1 Beginning in 1966, includes payments for vocational rehabilitation services furnished to disabled persons receiving benefits because of their disabilities. Beginning in 1983, amounts are reduced by amount

of reimbursement for unnegotiated benefit checks.

Administrative

expenses

Transfers to

Railroad

Retirement

program

Net

increase

during

year

Amount

at end of

period

Historical data:

1960 . . . . . . . . . . . $11,798 $11,245 $240 $314 $647 $22,613

1965 . . . . . . . . . . . 19,187 18,311 418 459 -1,331 19,841

1970 . . . . . . . . . . . 33,108 31,884 635 589 3,886 38,068

1975 . . . . . . . . . . . 69,184 67,022 1,152 1,010 -1,544 44,342

1980 . . . . . . . . . . . 123,550 120,598 1,522 1,430 -3,838 26,453

1985 . . . . . . . . . . . 190,628 186,075 2,200 2,353 2 11,088

 2 Reflects offset for repayment from the OASI Trust Fund of amounts borrowed from the HI Trust Fund in

1982. The amount repaid in 1985 was $1,824 million; in 1986, the amount was $10,613 million.

42,163

1986 . . . . . . . . . . . 201,522 196,667 2,202 2,653 2 4,698 46,861

1987 . . . . . . . . . . . 209,093 204,106 2,373 2,614 21,946 68,807

1988 . . . . . . . . . . . 222,514 217,149 2,513 2,851 40,955 109,762

1989 . . . . . . . . . . . 236,242 230,882 2,427 2,934 53,206 162,968

1990 . . . . . . . . . . . 253,135 247,816 2,270 3,049 62,309 225,277

1991 . . . . . . . . . . . 274,205 268,162 2,587 3,457 55,471 280,747

1992 . . . . . . . . . . . 291,865 285,995 2,664 3,206 50,726 331,473

1993 . . . . . . . . . . . 308,766 302,368 2,963 3,435 46,812 378,285

1994 . . . . . . . . . . . 323,011 316,812 2,674 3,526 58,100 436,385

1995 . . . . . . . . . . . 339,815 332,554 3,141 4,120 59,683 496,068

1996 . . . . . . . . . . . 353,569 347,050 2,962 3,556 70,883 566,950

1997 . . . . . . . . . . . 369,108 361,952 3,409 3,747 88,560 655,510

1998 . . . . . . . . . . . 382,255 374,969 3,467 3,819 106,950 762,460

Estimates:

1999 . . . . . . . . . . . 393,984 386,556 3,717 3,711 124,348 886,808

2000 . . . . . . . . . . . 409,083 401,938 3,546 3,599 129,038 1,015,846

2001 . . . . . . . . . . . 427,091 420,040 3,557 3,495 137,458 1,153,304

2002 . . . . . . . . . . . 448,164 440,849 3,708 3,607 143,583 1,296,887

2003 . . . . . . . . . . . 470,709 463,261 3,837 3,610 150,944 1,447,830

2004 . . . . . . . . . . . 495,997 488,414 3,965 3,619 158,213 1,606,044

2005 . . . . . . . . . . . 524,126 516,379 4,096 3,651 167,583 1,773,626

2006 . . . . . . . . . . . 555,092 547,277 4,232 3,584 175,402 1,949,028

2007 . . . . . . . . . . . 588,435 580,303 4,375 3,757 185,192 2,134,220

2008 . . . . . . . . . . . 624,591 616,244 4,526 3,821 192,994 2,327,215
Actuarial Analysis

106

2. Long-Range Actuarial Status of the Trust Funds

Historically, the actuarial balance (described earlier in this section)

has been used as the principal measure of the actuarial status of the

OASDI program. Actuarial balances have traditionally been computed

for the 25-year valuation period encompassing 1999-2023, the 50-year

valuation period covering 1999-2048, and the entire long-range (75-

year) valuation period, 1999-2073.

Beginning with the 1991 Annual Report, actuarial balances have also

been computed based on the intermediate (alternative II) assumptions for valuation periods that are 10 years, 11 years, and continuing

through 75 years in length. This series of actuarial balances provides

the basis for the test of long-range close actuarial balance, described

earlier in this section.

In addition to these actuarial balances, other indicators of the financial condition of the program are shown in this report. One is the

series of projected annual balances (that is, the differences between

the projected annual income rates and annual cost rates), with particular attention being 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. Another is the

pattern of projected trust fund ratios, with particular attention being

paid to the amount and year of maximum fund ratio accumulation, 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 longrange period. These additional indicators are defined in the introduction to this section.

The estimates are sensitive to changes in the underlying economic

and demographic assumptions. The degree of sensitivity, however,

varies considerably among the various assumptions. For example,

variations in assumed fertility rates have little effect on the estimates

for the early years, because almost all of the covered workers and beneficiaries projected for the early years were born prior to the start of

the projection period. However, lower fertility rates have large

impacts on the actuarial balance in the later years. Variations in economic factors, such as interest rates and increases in wages and

prices, have significant effects on the estimates for the short term, as

well as for the long term. In general, the degree of confidence that can

be placed in the assumptions and estimates is greater for the earlier

years than for the later years. Nonetheless, even for the earlier years,

the estimates are only an indication of the expected trend and general
107

Actuarial Estimates

range of future program experience. Section II.G contains a more

detailed discussion of the effects on the estimates of varying certain

economic and demographic assumptions.

a. Annual Income Rates, Cost Rates, and Balances

Table II.F13 presents a comparison of the estimated annual income

rates and cost rates by trust fund and alternative. As previously mentioned, the annual income rate excludes net interest income, as well

as certain other transfers from the general fund of the Treasury.

Detailed long-range projections of trust fund operations, in nominal

dollar amounts, are shown in appendix B.

The projections for OASDI under the intermediate alternative II

assumptions show income rates that increase 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 rates is much different. Initially, they are projected to rise

slowly with faster increases by 2010; for about the next 20 years

thereafter (through about 2030), they increase rather rapidly, as the

“baby-boom” generation reaches retirement age. Cost rates continue

to rise, but more slowly, through 2037 and then decline slightly for the

next 6 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, they rise steadily, but slowly, reflecting

projected increases in life expectancy. The cost rates during the third

25-year subperiod rise to a level over 19 percent of taxable payroll

under the intermediate alternative II assumptions. The income rate

during the third 25-year subperiod is over 13 percent of taxable payroll under alternative II.

Projected income rates under the low cost and high cost sets of

assumptions (alternatives I and III, respectively) are very similar to

those projected for alternative II as they are largely a reflection of the

tax rates specified in the law. OASDI combined cost rates for alternatives I and III differ significantly in size from those projected for alternative II, but follow generally similar patterns. For the low cost

alternative I, cost rates decline somewhat for the first 5 years, and

then rise, reaching the current level around 2010 and a peak of 15.27

percent of payroll in 2033. Thereafter, cost rates decline gradually,

reaching a level of 14.04 percent of payroll in 2073. For the high cost

alternative III, cost rates rise throughout the 75-year period. They

rise at a relatively fast pace during the next 5 years, due to the two
Actuarial Analysis

108

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 28.78

percent of payroll in 2073.

The projected pattern of the OASDI annual balances (that is, the difference between the income rates and the cost rates) is important in

the analysis of the financial condition of the program. Under the alternative II assumptions the annual balances are positive for 15 years

(through 2013) and are negative thereafter. This annual deficit rises

rapidly, reaching over 2 percent of taxable payroll by 2020, and continues rising thereafter, to a level of 6.44 percent of taxable payroll for

2073.

Under alternative I projected OASDI annual balances are positive for

20 years (through 2018) and thereafter are negative. Deficits under

alternative I rise to a peak of 2.26 percent of taxable payroll in 2033,

but decline thereafter, as the effect of the “baby-boom” generation

diminishes and the assumed higher fertility rates increase the work

force. Deficits under alternative I decline to 0.97 percent of payroll by

2073. Under the more pessimistic alternative III, however, the OASDI

balances are projected to be positive for only 10 years (through 2008)

and to be negative thereafter, with deficits of 3.89 percent in 2020,

10.02 percent in 2050, and 14.98 percent of payroll in 2073.

Table II.F13.—Comparison of Estimated Income Rates and Cost Rates by

Trust Fund and Alternative, Calendar Years 1999-2075 

[As a percentage of taxable payroll]

OASI DI Combined

Calendar 

year

Income

rate 1 Cost

rate Balance

Income

rate 1 Costrate Balance

Income

rate 1 Costrate Balance

Intermediate:

1999 . . . . 10.98 9.35 1.63 1.72 1.45 0.27 12.70 10.80 1.90

2000 . . . . 10.83 9.30 1.54 1.82 1.49 .32 12.65 10.79 1.86

2001 . . . . 10.86 9.29 1.57 1.82 1.54 .28 12.67 10.83 1.85

2002 . . . . 10.86 9.31 1.55 1.82 1.60 .22 12.68 10.91 1.76

2003 . . . . 10.86 9.33 1.54 1.82 1.66 .16 12.68 10.99 1.69

2004 . . . . 10.87 9.35 1.52 1.82 1.73 .09 12.69 11.08 1.61

2005 . . . . 10.88 9.38 1.50 1.82 1.80 .02 12.70 11.18 1.52

2006 . . . . 10.88 9.42 1.47 1.82 1.87 -.05 12.71 11.29 1.42

2007 . . . . 10.89 9.47 1.42 1.82 1.94 -.12 12.71 11.41 1.31

2008 . . . . 10.90 9.54 1.36 1.83 2.01 -.18 12.73 11.55 1.18

2010 . . . . 10.92 9.82 1.10 1.83 2.09 -.26 12.75 11.91 .84

2015 . . . . 10.99 11.05 -.06 1.83 2.22 -.39 12.82 13.26 -.45

2020 . . . . 11.08 12.75 -1.66 1.83 2.28 -.45 12.91 15.03 -2.12

2025 . . . . 11.18 14.24 -3.06 1.83 2.39 -.55 13.01 16.62 -3.61

2030 . . . . 11.25 15.31 -4.05 1.84 2.41 -.57 13.09 17.71 -4.62

2035 . . . . 11.31 15.83 -4.52 1.84 2.37 -.53 13.15 18.19 -5.05

2040 . . . . 11.33 15.80 -4.47 1.84 2.38 -.54 13.17 18.18 -5.00

2045 . . . . 11.35 15.68 -4.33 1.84 2.47 -.63 13.19 18.15 -4.96

2050 . . . . 11.37 15.75 -4.38 1.84 2.53 -.68 13.22 18.28 -5.06

2055 . . . . 11.40 16.07 -4.67 1.85 2.57 -.73 13.25 18.64 -5.39

2060 . . . . 11.44 16.49 -5.06 1.85 2.56 -.71 13.29 19.05 -5.77

2065 . . . . 11.47 16.82 -5.35 1.85 2.55 -.70 13.32 19.37 -6.05

2070 . . . . 11.49 17.07 -5.58 1.85 2.56 -.71 13.34 19.63 -6.29

2075 . . . . 11.51 17.30 -5.79 1.85 2.59 -.74 13.36 19.90 -6.53
109

Actuarial Estimates

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.

Low Cost:

1999 . . . . 10.98 9.26 1.72 1.72 1.41 0.30 12.70 10.67 2.03

2000 . . . . 10.82 9.11 1.71 1.82 1.43 .38 12.63 10.54 2.10

2001 . . . . 10.85 9.02 1.83 1.82 1.45 .36 12.67 10.48 2.19

2002 . . . . 10.85 8.95 1.90 1.82 1.48 .34 12.67 10.43 2.23

2003 . . . . 10.85 8.91 1.95 1.82 1.51 .30 12.67 10.42 2.25

2004 . . . . 10.86 8.87 1.99 1.82 1.55 .27 12.67 10.42 2.25

2005 . . . . 10.86 8.84 2.02 1.82 1.59 .23 12.68 10.43 2.25

2006 . . . . 10.87 8.81 2.05 1.82 1.63 .19 12.68 10.45 2.24

2007 . . . . 10.87 8.80 2.07 1.82 1.67 .15 12.69 10.47 2.22

2008 . . . . 10.88 8.82 2.06 1.82 1.70 .12 12.70 10.52 2.18

2010 . . . . 10.89 9.02 1.87 1.82 1.72 .10 12.71 10.74 1.97

2015 . . . . 10.95 10.05 .90 1.82 1.72 .10 12.77 11.77 1.00

2020 . . . . 11.02 11.50 -.47 1.82 1.73 .10 12.85 13.23 -.38

2025 . . . . 11.10 12.67 -1.57 1.83 1.78 .05 12.92 14.44 -1.52

2030 . . . . 11.15 13.36 -2.20 1.83 1.77 .05 12.98 15.13 -2.15

2035 . . . . 11.19 13.49 -2.31 1.83 1.73 .10 13.01 15.22 -2.21

2040 . . . . 11.19 13.14 -1.95 1.83 1.72 .11 13.02 14.86 -1.84

2045 . . . . 11.19 12.75 -1.56 1.83 1.76 .07 13.02 14.51 -1.49

2050 . . . . 11.20 12.55 -1.35 1.83 1.77 .06 13.03 14.32 -1.29

2055 . . . . 11.21 12.54 -1.33 1.83 1.78 .06 13.04 14.31 -1.27

2060 . . . . 11.23 12.55 -1.33 1.83 1.75 .08 13.06 14.30 -1.24

2065 . . . . 11.23 12.46 -1.23 1.83 1.73 .10 13.06 14.19 -1.13

2070 . . . . 11.23 12.34 -1.11 1.83 1.74 .09 13.07 14.08 -1.02

2075 . . . . 11.24 12.29 -1.05 1.83 1.76 .07 13.07 14.05 -.98

High Cost:

1999 . . . . 10.98 9.35 1.63 1.72 1.47 .24 12.70 10.82 1.88

2000 . . . . 10.87 9.50 1.36 1.82 1.59 .23 12.68 11.09 1.59

2001 . . . . 10.86 9.39 1.47 1.82 1.65 .17 12.68 11.05 1.63

2002 . . . . 10.86 9.49 1.37 1.82 1.75 .07 12.68 11.24 1.44

2003 . . . . 10.89 10.08 .81 1.82 1.94 -.12 12.71 12.02 .68

2004 . . . . 10.89 10.02 .87 1.82 2.02 -.20 12.71 12.04 .67

2005 . . . . 10.89 10.02 .87 1.82 2.11 -.28 12.72 12.13 .59

2006 . . . . 10.90 10.09 .81 1.83 2.20 -.37 12.73 12.29 .44

2007 . . . . 10.91 10.20 .72 1.83 2.30 -.47 12.74 12.50 .25

2008 . . . . 10.93 10.33 .60 1.83 2.39 -.56 12.76 12.72 .04

2010 . . . . 10.95 10.67 .28 1.83 2.54 -.71 12.78 13.21 -.43

2015 . . . . 11.04 12.06 -1.02 1.84 2.76 -.92 12.88 14.82 -1.94

2020 . . . . 11.16 13.99 -2.84 1.84 2.87 -1.03 13.00 16.87 -3.87

2025 . . . . 11.27 15.84 -4.57 1.85 3.05 -1.20 13.12 18.88 -5.77

2030 . . . . 11.37 17.38 -6.01 1.85 3.10 -1.26 13.22 20.49 -7.26

2035 . . . . 11.46 18.45 -6.99 1.85 3.09 -1.24 13.31 21.54 -8.23

2040 . . . . 11.51 18.98 -7.47 1.85 3.14 -1.29 13.36 22.13 -8.76

2045 . . . . 11.56 19.40 -7.85 1.86 3.33 -1.47 13.41 22.73 -9.31

2050 . . . . 11.61 20.04 -8.43 1.86 3.47 -1.61 13.47 23.51 -10.04

2055 . . . . 11.68 21.03 -9.35 1.87 3.59 -1.72 13.54 24.62 -11.07

2060 . . . . 11.76 22.25 -10.49 1.87 3.61 -1.74 13.62 25.86 -12.24

2065 . . . . 11.83 23.44 -11.61 1.87 3.62 -1.75 13.70 27.06 -13.36

2070 . . . . 11.90 24.54 -12.64 1.87 3.64 -1.77 13.77 28.18 -14.41

2075 . . . . 11.96 25.54 -13.57 1.87 3.68 -1.81 13.83 29.22 -15.39

 1 Income rates for 2000 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.

Table II.F13.—Comparison of Estimated Income Rates and Cost Rates by

Trust Fund and Alternative, Calendar Years 1999-2075 (Cont.)

[As a percentage of taxable payroll]

OASI DI Combined

Calendar 

year

Income

rate 1 Cost

rate Balance

Income

rate 1 Costrate Balance

Income

rate 1 Costrate Balance
Actuarial Analysis

110

Also of interest are the long-range financial conditions of the separate

OASI and DI programs. Annual balances under alternative II remain

positive through 2014 for the OASI program, but only through 2005

for the DI program.

Figure II.F3 shows in graphical form the patterns of the OASDI

annual income rates and cost rates. The income rates are shown only

for alternative II in order to simplify the graphical presentation and

because, as shown in table II.F13, 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 the combination of changes in the benefit cost and the fact that an increasing

share of benefits will be subject to taxation, because benefit taxation

threshold amounts are not indexed.

The OASDI long-range summarized income rates for alternatives I

and III for the 75-year valuation period differ by less than 0.3 percent

of taxable payroll. By 2073, the annual income rates under alternatives I and III differ by less than 0.8 percent of taxable payroll.

The patterns of the annual balances are indicated in figure II.F3. 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 the 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.
111

Actuarial Estimates

b. Summarized Income Rates, Cost Rates, and Balances

Summarized values for the full 75-year period are useful in analyzing

the long-range financial condition of the program under present law

and the long-range financial effects of 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 II.F14 and II.F15 summarize, on a

present-value basis, the projected annual figures shown in table

II.F13 for various periods within the overall 75-year projection period.

Table II.F14 shows rates on a present-value basis summarized for

each of the 25-year subperiods, excluding both the 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 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-

Figure II.F3.—Estimated OASDI Income Rates and Cost Rates

by Alternative, Calendar Years 1985-2075

[As a percentage of taxable payroll]

II

I

III

0%

5%

10%

15%

20%

25%

30%

35%

1985 1995 2005 2015 2025 2035 2045 2055 2065 2075

Calendar year

Historical

 Income rates

 Cost rates

Estimated
Actuarial Analysis

112

year subperiod under the high cost alternative III. Deficits are projected for the second and third subperiods under all three alternatives.

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

Table II.F15 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.

Table II.F14.—Comparison of Summarized Income Rates and Cost Rates for 25-Year 

Subperiods 1 , by Trust Fund and Alternative, Calendar Years 1999-2073

 [As a percentage of taxable payroll]

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

accumulating target trust fund balances.

OASI DI Combined

Subperiod

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Intermediate:

1999-2023. . . . 10.95 10.51 0.45 1.82 1.99 -0.17 12.78 12.50 0.28

2024-2048. . . . 11.28 15.38 -4.10 1.84 2.41 -.57 13.12 17.79 -4.67

2049-2073. . . . 11.43 16.43 -5.00 1.85 2.56 -.71 13.28 18.99 -5.71

Low Cost:

1999-2023. . . . 10.92 9.73 1.19 1.82 1.65 .17 12.74 11.38 1.36

2024-2048. . . . 11.17 13.09 -1.93 1.83 1.75 .07 12.99 14.85 -1.85

2049-2073. . . . 11.22 12.49 -1.27 1.83 1.75 .08 13.05 14.24 -1.19

High Cost:

1999-2023. . . . 10.99 11.31 -.32 1.83 2.39 -.56 12.82 13.70 -.88

2024-2048. . . . 11.43 18.03 -6.60 1.85 3.15 -1.30 13.28 21.18 -7.89

2049-2073. . . . 11.75 22.22 -10.46 1.87 3.59 -1.72 13.62 25.80 -12.19
113

Actuarial Estimates

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

The values in table II.F15 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 1.89

percent of taxable payroll under alternative I, 0.77 percent under

alternative II, and -0.48 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 0.52 percent under alternative I, but would have

deficits of 1.26 percent under alternative II and 3.34 percent under

alternative III. Thus, the program is more than adequately financed

for the 50-year valuation period under only the low cost set of assumptions, alternative I.

For the entire 75-year valuation period, the combined OASDI program would again have actuarial deficits except for the low cost set of

assumptions, alternative I. The actuarial balance for this long-range

valuation period is projected to be 0.23 percent of taxable payroll

Table II.F15.—Comparison of Summarized Income Rates and Cost Rates for Valuation 

Periods 1 , by Trust Fund and Alternative, Calendar Years 1999-2073

 [As a percentage of taxable payroll]

 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.

OASI DI Combined

Valuation

period

Income

rate

Cost

rate

Actuarial

balance

Income

rate

Cost

rate

Actuarial

balance

Income

rate

Cost

rate

Actuarial

balance

Intermediate:

25-years:

1999-2023 . . . 11.88 10.97 0.91 1.93 2.07 -0.14 13.81 13.04 0.77

50-years:

1999-2048 . . . 11.65 12.62 -.97 1.89 2.18 -.29 13.54 14.80 -1.26

75-years:

1999-2073 . . . 11.60 13.31 -1.70 1.88 2.25 -.36 13.49 15.56 -2.07

Low Cost:

25-years:

1999-2023 . . . 11.82 10.14 1.68 1.92 1.70 .22 13.74 11.84 1.90

50-years:

1999-2048 . . . 11.56 11.21 .35 1.88 1.71 .17 13.45 12.92 .53

75-years:

1999-2073 . . . 11.49 11.42 .07 1.87 1.71 .16 13.37 13.14 .23

High Cost:

25-years:

1999-2023 . . . 11.92 11.83 .08 1.94 2.49 -.55 13.85 14.32 -.47

50-years:

1999-2048 . . . 11.72 14.23 -2.51 1.90 2.73 -.83 13.63 16.96 -3.34

75-years:

1999-2073 . . . 11.73 15.71 -3.98 1.90 2.88 -.99 13.62 18.60 -4.97
Actuarial Analysis

114

under alternative I, -2.07 percent under alternative II, and -4.97 percent under alternative III.

As may be concluded from tables II.F14 and II.F15, 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 nearly the same relative to program costs.

c. Test of Long-Range Close Actuarial Balance

Two tests of the financial status of the OASI, DI, and combined

OASDI programs are presented in this report. The test of long-range

close actuarial balance incorporates a graduated tolerance scale which

allows larger actuarial deficits (relative to program costs) for longer

valuation periods, thus allowing for the greater uncertainty inherent

in the estimates for later years. The other test, the short-range test of

the financial adequacy of the program, was discussed earlier in this

section.

Table II.F16 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

II.F4 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 II.F15.

As discussed earlier, a program is found not to be in long-range close

actuarial balance if, for any of the valuation periods ending with the

10th through 75th years of the projection period, the estimated actuarial balance is less than the minimum allowable balance. The minimum allowable balance as a percentage of the summarized cost rate is
115

Actuarial Estimates

-5.0 percent for the full 75-year long-range period and is reduced uniformly for shorter valuation periods, reaching zero for the 10-year valuation period.

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 36 years, under the

intermediate alternative II estimates. For valuation periods of length

greater than 36 years, the estimated actuarial balance is less than the

minimum allowable. For the full 75-year long-range period the estimated actuarial balance reaches -12.81 percent of the summarized

cost rate, for a shortfall of 7.81 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 this section), 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 16 years under the intermediate alternative II estimates. For valuation periods of length greater

than 16 years, the estimated actuarial balance is less than the minimum allowable. The shortfall from the minimum allowable balance

rises to a level of 16.10 percent of the summarized cost rate for the full

long-range period, for a shortfall of 11.10 percent, from the minimum

allowable balance of -5.0 percent of the summarized cost rate. Thus,

as noted above for the OASI program, the DI program, although meeting the short-range test of financial adequacy (as discussed earlier in

this section), is not in long-range close actuarial balance. 

As indicated above, financing for the DI program is 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 occurs early 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 34 years.

For valuation periods of length greater than 34 years, the estimated

actuarial balance is below the minimum allowable balance. The size of
Actuarial Analysis

116

the shortfall from the minimum allowable balance rises gradually,

reaching 8.28 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 (as discussed earlier

in this section), 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.
117

Actuarial Estimates

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

Table II.F16.—Comparison of Estimated Long-Range Actuarial Balances With the 

Minimum Allowable for the Test for Close Actuarial Balance by Trust Fund,

Based on Intermediate Estimates

Rates

(percentage of taxable payroll)

 Values expressed as a

percentage of cost rate

Valuation

period

Summarized

income rate

Summarized

cost rate

Actuarial

balance

Actuarial

balance

Minimum

allowable

actuarial

 balance

OASI:

10 years: 1999-2008 . . . 12.98 10.31 2.66 25.82 0.00

15 years: 1999-2013 . . . 12.34 10.25 2.09 20.35 -.38

20 years: 1999-2018 . . . 12.04 10.53 1.51 14.30 -.77

25 years: 1999-2023 . . . 11.88 10.97 .91 8.27 -1.15

30 years: 1999-2028 . . . 11.79 11.43 .36 3.12 -1.54

35 years: 1999-2033 . . . 11.73 11.85 -.12 -1.00 -1.92

40 years: 1999-2038 . . . 11.69 12.18 -.49 -4.01 -2.31

45 years: 1999-2043 . . . 11.67 12.43 -.76 -6.14 -2.69

50 years: 1999-2048 . . . 11.65 12.62 -.97 -7.71 -3.08

55 years: 1999-2053 . . . 11.63 12.78 -1.15 -8.99 -3.46

60 years: 1999-2058 . . . 11.62 12.93 -1.31 -10.12 -3.85

65 years: 1999-2063 . . . 11.61 13.07 -1.46 -11.14 -4.23

70 years: 1999-2068 . . . 11.61 13.19 -1.59 -12.03 -4.62

75 years: 1999-2073 . . . 11.60 13.31 -1.70 -12.81 -5.00

DI:

10 years: 1999-2008 . . . 2.06 1.90 .15 8.12 .00

15 years: 1999-2013 . . . 1.99 1.97 .01 .66 -.38

20 years: 1999-2018 . . . 1.95 2.02 -.07 -3.64 -.77

25 years: 1999-2023 . . . 1.93 2.07 -.14 -6.59 -1.15

30 years: 1999-2028 . . . 1.92 2.11 -.19 -9.00 -1.54

35 years: 1999-2033 . . . 1.91 2.13 -.22 -10.46 -1.92

40 years: 1999-2038 . . . 1.90 2.15 -.25 -11.48 -2.31

45 years: 1999-2043 . . . 1.90 2.17 -.27 -12.37 -2.69

50 years: 1999-2048 . . . 1.89 2.18 -.29 -13.26 -3.08

55 years: 1999-2053 . . . 1.89 2.20 -.31 -14.07 -3.46

60 years: 1999-2058 . . . 1.89 2.22 -.33 -14.75 -3.85

65 years: 1999-2063 . . . 1.89 2.23 -.34 -15.28 -4.23

70 years: 1999-2068 . . . 1.89 2.24 -.35 -15.71 -4.62

75 years: 1999-2073 . . . 1.88 2.25 -.36 -16.10 -5.00

OASDI:

10 years: 1999-2008 . . . 15.03 12.22 2.82 23.06 .00

15 years: 1999-2013 . . . 14.32 12.22 2.10 17.17 -.38

20 years: 1999-2018 . . . 13.99 12.55 1.43 11.41 -.77

25 years: 1999-2023 . . . 13.81 13.04 .77 5.92 -1.15

30 years: 1999-2028 . . . 13.70 13.54 .17 1.23 -1.54

35 years: 1999-2033 . . . 13.64 13.98 -.34 -2.44 -1.92

40 years: 1999-2038 . . . 13.59 14.33 -.73 -5.13 -2.31

45 years: 1999-2043 . . . 13.56 14.59 -1.03 -7.06 -2.69

50 years: 1999-2048 . . . 13.54 14.80 -1.26 -8.53 -3.08

55 years: 1999-2053 . . . 13.52 14.98 -1.46 -9.74 -3.46

60 years: 1999-2058 . . . 13.51 15.14 -1.64 -10.80 -3.85

65 years: 1999-2063 . . . 13.50 15.30 -1.80 -11.74 -4.23

70 years: 1999-2068 . . . 13.49 15.43 -1.94 -12.56 -4.62

75 years: 1999-2073 . . . 13.49 15.56 -2.07 -13.29 -5.00
Actuarial Analysis

118

d. Income and Cost Rates by Component

Annual income rates and their components are shown in table II.F17

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.

(Income from taxation of benefits reflects changes in the cost rates

and the fact that benefit-taxation threshold amounts are not indexed.)

Summarized income and cost rates, along with their components, are

presented in table II.F18 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,

Figure II.F4.—Comparison of Estimated Long-Range Actuarial Balances With the 

Minimum Allowable for Close Actuarial Balance, Alternative II by Trust Fund

OASDI

OASI

DI

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2008 2013 2018 2023 2028 2033 2038 2043 2048 2053 2058 2063 2068 2073

Ending year of valuation period

 Actuarial balance as percentage

 of summarized cost rate

 Minimum allowable actuarial balance
119

Actuarial Estimates

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 II.F17.—Components of Annual Income Rates by Trust Fund and Alternative, 

Calendar Years 1999-2075 

[As a percentage of taxable payroll]

OASI DI Combined

Calendar year

Payroll

tax

Taxation

of

 benefits Total

Payroll

tax

Taxation

of

 benefits Total

Payroll

tax

Taxation

of

 benefits Total

Intermediate:

1999 . . . . . 10.70 0.28 10.98 1.70 0.02 1.72 12.40 0.30 12.70

2000 . . . . . 10.60 .23 10.83 1.80 .02 1.82 12.40 .25 12.65

2001 . . . . . 10.60 .26 10.86 1.80 .02 1.82 12.40 .27 12.67

2002 . . . . . 10.60 .26 10.86 1.80 .02 1.82 12.40 .28 12.68

2003 . . . . . 10.60 .26 10.86 1.80 .02 1.82 12.40 .28 12.68

2004 . . . . . 10.60 .27 10.87 1.80 .02 1.82 12.40 .29 12.69

2005 . . . . . 10.60 .28 10.88 1.80 .02 1.82 12.40 .30 12.70

2006 . . . . . 10.60 .28 10.88 1.80 .02 1.82 12.40 .31 12.71

2007 . . . . . 10.60 .29 10.89 1.80 .02 1.82 12.40 .31 12.71

2008 . . . . . 10.60 .30 10.90 1.80 .03 1.83 12.40 .33 12.73

2010 . . . . . 10.60 .32 10.92 1.80 .03 1.83 12.40 .35 12.75

2015 . . . . . 10.60 .39 10.99 1.80 .03 1.83 12.40 .42 12.82

2020 . . . . . 10.60 .48 11.08 1.80 .03 1.83 12.40 .51 12.91

2025 . . . . . 10.60 .58 11.18 1.80 .03 1.83 12.40 .61 13.01

2030 . . . . . 10.60 .65 11.25 1.80 .04 1.84 12.40 .69 13.09

2035 . . . . . 10.60 .71 11.31 1.80 .04 1.84 12.40 .75 13.15

2040 . . . . . 10.60 .73 11.33 1.80 .04 1.84 12.40 .77 13.17

2045 . . . . . 10.60 .75 11.35 1.80 .04 1.84 12.40 .79 13.19

2050 . . . . . 10.60 .77 11.37 1.80 .04 1.84 12.40 .82 13.22

2055 . . . . . 10.60 .80 11.40 1.80 .05 1.85 12.40 .85 13.25

2060 . . . . . 10.60 .84 11.44 1.80 .05 1.85 12.40 .89 13.29

2065 . . . . . 10.60 .87 11.47 1.80 .05 1.85 12.40 .92 13.32

2070 . . . . . 10.60 .89 11.49 1.80 .05 1.85 12.40 .94 13.34

2075 . . . . . 10.60 .91 11.51 1.80 .05 1.85 12.40 .96 13.36
Actuarial Analysis

120

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

Low Cost:

1999 . . . . . 10.70 0.28 10.98 1.70 0.02 1.72 12.40 0.30 12.70

2000 . . . . . 10.60 .22 10.82 1.80 .02 1.82 12.40 .23 12.63

2001 . . . . . 10.60 .25 10.85 1.80 .02 1.82 12.40 .27 12.67

2002 . . . . . 10.60 .25 10.85 1.80 .02 1.82 12.40 .27 12.67

2003 . . . . . 10.60 .25 10.85 1.80 .02 1.82 12.40 .27 12.67

2004 . . . . . 10.60 .26 10.86 1.80 .02 1.82 12.40 .27 12.67

2005 . . . . . 10.60 .26 10.86 1.80 .02 1.82 12.40 .28 12.68

2006 . . . . . 10.60 .27 10.87 1.80 .02 1.82 12.40 .28 12.68

2007 . . . . . 10.60 .27 10.87 1.80 .02 1.82 12.40 .29 12.69

2008 . . . . . 10.60 .28 10.88 1.80 .02 1.82 12.40 .30 12.70

2010 . . . . . 10.60 .29 10.89 1.80 .02 1.82 12.40 .31 12.71

2015 . . . . . 10.60 .35 10.95 1.80 .02 1.82 12.40 .37 12.77

2020 . . . . . 10.60 .42 11.02 1.80 .02 1.82 12.40 .45 12.85

2025 . . . . . 10.60 .50 11.10 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 .59 11.19 1.80 .03 1.83 12.40 .61 13.01

2040 . . . . . 10.60 .59 11.19 1.80 .03 1.83 12.40 .62 13.02

2045 . . . . . 10.60 .59 11.19 1.80 .03 1.83 12.40 .62 13.02

2050 . . . . . 10.60 .60 11.20 1.80 .03 1.83 12.40 .63 13.03

2055 . . . . . 10.60 .61 11.21 1.80 .03 1.83 12.40 .64 13.04

2060 . . . . . 10.60 .63 11.23 1.80 .03 1.83 12.40 .66 13.06

2065 . . . . . 10.60 .63 11.23 1.80 .03 1.83 12.40 .66 13.06

2070 . . . . . 10.60 .63 11.23 1.80 .03 1.83 12.40 .67 13.07

2075 . . . . . 10.60 .64 11.24 1.80 .03 1.83 12.40 .67 13.07

High Cost:

1999 . . . . . 10.70 .28 10.98 1.70 .02 1.72 12.40 .30 12.70

2000 . . . . . 10.60 .27 10.87 1.80 .02 1.82 12.40 .28 12.68

2001 . . . . . 10.60 .26 10.86 1.80 .02 1.82 12.40 .28 12.68

2002 . . . . . 10.60 .26 10.86 1.80 .02 1.82 12.40 .28 12.68

2003 . . . . . 10.60 .29 10.89 1.80 .02 1.82 12.40 .31 12.71

2004 . . . . . 10.60 .29 10.89 1.80 .02 1.82 12.40 .31 12.71

2005 . . . . . 10.60 .29 10.89 1.80 .02 1.82 12.40 .32 12.72

2006 . . . . . 10.60 .30 10.90 1.80 .03 1.83 12.40 .33 12.73

2007 . . . . . 10.60 .31 10.91 1.80 .03 1.83 12.40 .34 12.74

2008 . . . . . 10.60 .33 10.93 1.80 .03 1.83 12.40 .36 12.76

2010 . . . . . 10.60 .35 10.95 1.80 .03 1.83 12.40 .38 12.78

2015 . . . . . 10.60 .44 11.04 1.80 .04 1.84 12.40 .48 12.88

2020 . . . . . 10.60 .56 11.16 1.80 .04 1.84 12.40 .60 13.00

2025 . . . . . 10.60 .67 11.27 1.80 .05 1.85 12.40 .72 13.12

2030 . . . . . 10.60 .77 11.37 1.80 .05 1.85 12.40 .82 13.22

2035 . . . . . 10.60 .86 11.46 1.80 .05 1.85 12.40 .91 13.31

2040 . . . . . 10.60 .91 11.51 1.80 .05 1.85 12.40 .96 13.36

2045 . . . . . 10.60 .96 11.56 1.80 .06 1.86 12.40 1.01 13.41

2050 . . . . . 10.60 1.01 11.61 1.80 .06 1.86 12.40 1.07 13.47

2055 . . . . . 10.60 1.08 11.68 1.80 .07 1.87 12.40 1.14 13.54

2060 . . . . . 10.60 1.16 11.76 1.80 .07 1.87 12.40 1.22 13.62

2065 . . . . . 10.60 1.23 11.83 1.80 .07 1.87 12.40 1.30 13.70

2070 . . . . . 10.60 1.30 11.90 1.80 .07 1.87 12.40 1.37 13.77

2075 . . . . . 10.60 1.36 11.96 1.80 .07 1.87 12.40 1.43 13.83

Table II.F17.—Components of Annual Income Rates by Trust Fund and Alternative, 

Calendar Years 1999-2075 (Cont.) 

[As a percentage of taxable payroll]

OASI DI Combined

Calendar year

Payroll

tax

Taxation

of

 benefits Total

Payroll

tax

Taxation

of

 benefits Total

Payroll

tax

Taxation

of

 benefits Total
121

Actuarial Estimates

.

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

e. 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 comTable II.F18.—Components of Summarized Income Rates and Cost Rates by

Trust Fund and Alternative, Calendar Years 1999-2073

 [As a percentage of taxable payroll]

Income rate Cost rate

Valuation period

Payroll

tax

Taxation

of

 benefits

Beginning

fund

 balance Total

Disbursements

Ending

fund

 balance Total

OASI:

Intermediate:

1999-2023 . . . . . 10.61 0.35 0.92 11.88 10.51 0.46 10.97

1999-2048 . . . . . 10.60 .48 .56 11.65 12.42 .20 12.62

1999-2073 . . . . . 10.60 .55 .45 11.60 13.20 .11 13.31

Low Cost:

1999-2023 . . . . . 10.61 .32 .90 11.82 9.73 .41 10.14

1999-2048 . . . . . 10.60 .41 .55 11.56 11.05 .16 11.21

1999-2073 . . . . . 10.60 .46 .44 11.49 11.34 .08 11.42

High Cost:

1999-2023 . . . . . 10.60 .39 .93 11.92 11.31 .52 11.83

1999-2048 . . . . . 10.60 .56 .56 11.72 13.98 .25 14.23

1999-2073 . . . . . 10.60 .68 .45 11.73 15.56 .15 15.71

DI:

Intermediate:

1999-2023 . . . . . 1.80 .03 .11 1.93 1.99 .08 2.07

1999-2048 . . . . . 1.80 .03 .07 1.89 2.15 .03 2.18

1999-2073 . . . . . 1.80 .03 .05 1.88 2.23 .02 2.25

Low Cost:

1999-2023 . . . . . 1.80 .02 .11 1.92 1.65 .06 1.70

1999-2048 . . . . . 1.80 .02 .06 1.88 1.69 .02 1.71

1999-2073 . . . . . 1.80 .02 .05 1.87 1.70 .01 1.71

High Cost:

1999-2023 . . . . . 1.79 .03 .11 1.94 2.39 .10 2.49

1999-2048 . . . . . 1.80 .04 .07 1.90 2.69 .04 2.73

1999-2073 . . . . . 1.80 .04 .05 1.90 2.86 .02 2.88

OASDI:

Intermediate:

1999-2023 . . . . . 12.40 .37 1.03 13.81 12.50 .54 13.04

1999-2048 . . . . . 12.40 .51 .63 13.54 14.57 .23 14.80

1999-2073 . . . . . 12.40 .58 .51 13.49 15.43 .12 15.56

Low Cost:

1999-2023 . . . . . 12.40 .34 1.01 13.74 11.38 .47 11.84

1999-2048 . . . . . 12.40 .44 .61 13.45 12.74 .18 12.92

1999-2073 . . . . . 12.40 .48 .49 13.37 13.04 .09 13.14

High Cost:

1999-2023 . . . . . 12.40 .42 1.04 13.85 13.70 .62 14.32

1999-2048 . . . . . 12.40 .60 .62 13.63 16.67 .29 16.96

1999-2073 . . . . . 12.40 .72 .50 13.62 18.43 .17 18.60
Actuarial Analysis

122

parison of the numbers of covered workers and beneficiaries is shown

in table II.F19.

Table II.F19.—Comparison of OASDI Covered Workers and Beneficiaries

by Alternative, Calendar Years 1945-2075 

Covered

workers 1

(in thousands)

Beneficiaries 2 (in thousands)

Covered

workers per

OASDI

 beneficiary

Beneficiaries

per 100

covered

Calendar year OASI DI OASDI workers

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 . . . . . . . 113,656 30,384 4,734 35,118 3.2 31

1985 . . . . . . . 120,565 32,776 3,874 36,650 3.3 30

1986 . . . . . . . 123,400 33,350 3,972 37,322 3.3 30

1987 . . . . . . . 126,287 33,917 4,034 37,952 3.3 30

1988 . . . . . . . 130,142 34,343 4,077 38,421 3.4 30

1989 . . . . . . . 132,493 34,754 4,105 38,859 3.4 29

1990 . . . . . . . 133,692 35,266 4,204 39,470 3.4 30

1991 . . . . . . . 132,999 35,785 4,388 40,172 3.3 30

1992 . . . . . . . 133,930 36,314 4,716 41,029 3.3 31

1993 . . . . . . . 136,137 36,758 5,083 41,840 3.3 31

1994 . . . . . . . 138,212 37,082 5,435 42,516 3.3 31

1995 . . . . . . . 141,057 37,376 5,731 43,108 3.3 31

1996 . . . . . . . 143,515 37,521 5,977 43,498 3.3 30

1997 . . . . . . . 146,719 37,705 6,087 43,793 3.4 30

1998 . . . . . . . 148,459 37,826 6,250 44,076 3.4 30

Intermediate:

1999 . . . . . . . 150,038 38,007 6,451 44,458 3.4 30

2000 . . . . . . . 151,105 38,247 6,668 44,914 3.4 30

2005 . . . . . . . 157,082 40,171 8,128 48,299 3.3 31

2010 . . . . . . . 162,882 43,825 9,489 53,314 3.1 33

2015 . . . . . . . 166,503 49,815 10,533 60,348 2.8 36

2020 . . . . . . . 168,480 57,145 11,131 68,276 2.5 41

2025 . . . . . . . 169,509 64,071 11,654 75,724 2.2 45

2030 . . . . . . . 170,705 69,505 11,849 81,354 2.1 48

2035 . . . . . . . 172,770 72,901 11,836 84,737 2.0 49

2040 . . . . . . . 174,887 74,027 12,030 86,057 2.0 49

2045 . . . . . . . 176,528 74,622 12,575 87,197 2.0 49

2050 . . . . . . . 177,798 75,759 12,937 88,696 2.0 50

2055 . . . . . . . 178,773 77,830 13,211 91,041 2.0 51

2060 . . . . . . . 179,693 80,288 13,229 93,517 1.9 52

2065 . . . . . . . 180,640 82,348 13,271 95,619 1.9 53

2070 . . . . . . . 181,546 84,039 13,425 97,463 1.9 54

2075 . . . . . . . 182,304 85,622 13,631 99,254 1.8 54
123

Actuarial Estimates

Notes: 

1. The numbers of beneficiaries do 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 303 as of June 30, 1998,

and is estimated to be fewer than 100 by the turn of the century. Totals do not necessarily equal the sums

of rounded components.

2. Historical covered worker data are subject to revision.

Table II.F19 shows that the number of covered workers per beneficiary, which was about 3.4 in 1998, 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 2030, and then rises back to a level of 2.4 by 2040,

and 2.5 by 2065. Based on the high cost alternative III, for which low

fertility rates and substantial reductions in death rates are assumed,

the decline is much greater, reaching 1.9 by 2030, and 1.3 workers per

Low Cost:

1999 . . . . . . . 150,521 38,004 6,420 44,424 3.4 30

2000 . . . . . . . 152,163 38,232 6,573 44,804 3.4 29

2005 . . . . . . . 159,555 39,983 7,583 47,565 3.4 30

2010 . . . . . . . 166,337 43,381 8,351 51,733 3.2 31

2015 . . . . . . . 170,938 49,054 8,818 57,871 3.0 34

2020 . . . . . . . 174,076 55,992 9,074 65,066 2.7 37

2025 . . . . . . . 176,695 62,446 9,384 71,830 2.5 41

2030 . . . . . . . 180,059 67,264 9,512 76,776 2.3 43

2035 . . . . . . . 184,908 69,959 9,527 79,486 2.3 43

2040 . . . . . . . 190,472 70,484 9,739 80,223 2.4 42

2045 . . . . . . . 196,009 70,735 10,235 80,970 2.4 41

2050 . . . . . . . 201,515 71,681 10,615 82,295 2.4 41

2055 . . . . . . . 207,210 73,657 10,962 84,619 2.4 41

2060 . . . . . . . 213,379 75,971 11,166 87,137 2.4 41

2065 . . . . . . . 220,045 77,922 11,452 89,374 2.5 41

2070 . . . . . . . 226,909 79,762 11,874 91,636 2.5 40

2075 . . . . . . . 233,734 81,920 12,353 94,273 2.5 40

High Cost:

1999 . . . . . . . 149,906 38,012 6,506 44,518 3.4 30

2000 . . . . . . . 149,321 38,265 6,841 45,106 3.3 30

2005 . . . . . . . 154,272 40,366 8,991 49,358 3.1 32

2010 . . . . . . . 159,802 44,310 10,640 54,950 2.9 34

2015 . . . . . . . 162,674 50,639 12,266 62,905 2.6 39

2020 . . . . . . . 163,772 58,400 13,210 71,610 2.3 44

2025 . . . . . . . 163,544 65,888 13,953 79,840 2.0 49

2030 . . . . . . . 162,993 72,116 14,219 86,335 1.9 53

2035 . . . . . . . 162,795 76,485 14,179 90,664 1.8 56

2040 . . . . . . . 162,040 78,579 14,356 92,935 1.7 57

2045 . . . . . . . 160,417 79,947 14,954 94,901 1.7 59

2050 . . . . . . . 158,190 81,727 15,286 97,013 1.6 61

2055 . . . . . . . 155,386 84,341 15,454 99,795 1.6 64

2060 . . . . . . . 152,239 87,379 15,217 102,595 1.5 67

2065 . . . . . . . 148,913 90,395 14,851 105,246 1.4 71

2070 . . . . . . . 145,525 91,888 14,670 106,558 1.4 73

2075 . . . . . . . 142,096 93,279 14,491 107,770 1.3 76

 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.

Table II.F19.—Comparison of OASDI Covered Workers and Beneficiaries

by Alternative, Calendar Years 1945-2075 (Cont.)

Covered

workers 1

(in thousands)

Beneficiaries 2 (in thousands)

Covered

workers per

OASDI

 beneficiary

Beneficiaries

per 100

covered

Calendar year OASI DI OASDI workers
Actuarial Analysis

124

beneficiary by 2075. Based on the intermediate alternative II, the

ratio declines to 2.1 by 2030, and 1.8 workers per beneficiary by 2075.

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

1998 level of 30 beneficiaries per 100 covered workers, this ratio is

estimated to rise by 2075 to significantly higher levels, which are 40

under alternative I, 54 under alternative II, and 76 under alternative

III. The significance of these numbers can be seen by comparing figure II.F3 to figure II.F5.

For each alternative, the shape of the curve in figure II.F5, which

shows beneficiaries per 100 covered workers, is strikingly similar to

that of the corresponding cost-rate curve in figure II.F3, 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

Figure II.F5.—Ratios of Estimated OASDI Beneficiaries Per 100 Covered Workers

by Alternative, Calendar Years 1985-2075

II

I

III

0

10

20

30

40

50

60

70

80

90

100

1985 1995 2005 2015 2025 2035 2045 2055 2065 2075

Calendar year

Historical Estimated
125

Actuarial Estimates

workers. A graphical presentation of covered workers per beneficiary

is shown in figure I.G2 of the Overview.

f. Trust Fund Ratios

Table II.F20 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 combined fund ratios, over the 75-year period, are shown graphically in

figure II.F6 for all three sets of assumptions.

Based on alternative II, the OASI trust fund ratio rises steadily from

200 percent at the beginning of 1999, reaching a peak of 415 percent

at the beginning of 2014. This increase in the OASI trust fund ratio

results from the fact that the annual income rate (excluding interest)

exceeds annual outgo for several years (see table II.F13). Thereafter,

the OASI trust fund ratio declines steadily, with the OASI Trust Fund

becoming exhausted in 2036. 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 153 percent at the beginning of 1999 to a peak

of 213 percent in 2004, and to decline thereafter until becoming

exhausted in 2020.

The trust fund ratio for the hypothetical combined OASI and DI Trust

Funds rises from 194 percent for 1999 to a peak of 364 percent at the

beginning of 2013. Thereafter, the ratio declines, with the combined

funds becoming exhausted in 2034. Based on the intermediate estimates in last year’s report, the peak fund ratio for the combined funds

was estimated to be 324 percent in 2012 and the year of exhaustion

was estimated to be 2032.

The trust fund ratio for the combined OASDI program begins to

decline in 2014, the same year annual expenditures begin to exceed

noninterest income. Although the dollar amount of assets will continue to rise through the beginning of 2022, because interest income

more than offsets the shortfall in noninterest income, revenue from

the general fund of the Treasury will be needed in increasingly large

amounts, beginning in 2014, to redeem the trust funds’ special publicdebt obligations due to the cash-flow shortfall. This will differ from

the experience of recent years when the trust funds have been net
Actuarial Analysis

126

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 1,439 percent by 2073. At

the end of the long-range period, the DI trust fund ratio is rising by 26

percentage points per year. For the OASI program, the trust fund

ratio rises to a peak of 550 percent in 2017, dropping thereafter to a

level of 191 percent by 2073. At the end of the period the OASI trust

fund ratio is declining by 5 percentage points per year. For the combined OASDI program, trust fund ratios follow a pattern similar to

that for OASI, peaking at 529 percent in 2018, and then falling to 346

percent by 2073. However, at the end of the long-range period, the

OASDI trust fund ratio is nearly stable. 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 318 percent in 2011, thereafter declining

to fund exhaustion by the end of 2028. The DI trust fund ratio is estimated to peak at 166 percent in 2001, thereafter declining to fund

exhaustion by the end of 2011. The combined OASDI trust fund ratio

is estimated to rise to a peak of 265 percent in 2008, declining thereafter to fund exhaustion by the end of 2024.

The fact that the financing for the DI program is relatively more adequate compared to the financing for the OASI program under low cost

assumptions, but relatively less adequate under high cost assumptions is due to the tax rate reallocation enacted in 1994. This reallocation roughly equalized the size of the long-range actuarial deficits of

the OASI and DI programs in relation to the summarized cost rates

under intermediate assumptions. A smaller reallocation would have

been needed to equalize the deficits in this manner under low cost

alternative I assumptions, while a larger reallocation would have

been needed under high cost alternative III assumptions.

Thus, because of the high ultimate cost rates that are projected under

all but the most optimistic assumptions, income will eventually need
127

Actuarial Estimates

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 25 years into the future

(until 2024). Under the alternative II assumptions the combined

starting funds plus estimated future income would be able to cover

expenditures for about 35 years into the future (until 2034). The program would be able to cover expenditures for the indefinite future

under the more optimistic assumptions in alternative I. In the 1998

report, the combined trust funds were projected to be exhausted in

2022 under alternative III and in 2032 under alternative II.

.

Note: See Glossary for definition of trust fund ratio. The combined ratios shown for years after either the

OASI or the DI fund is estimated to be exhausted are theoretical and are shown for informational purposes only.

Table II.F20.—Estimated Trust Fund Ratios by Trust Fund and Alternative,

Calendar Years 1999-2075

[In percent]

Calendar year

Intermediate Low Cost High Cost

OASI DI

Combined OASI DICombined OASI DICombined

1999 . . . . . . . . . . . 200 153 194 200 155 194 200 150 193

2000 . . . . . . . . . . . 224 170 217 226 176 219 222 160 213

2001 . . . . . . . . . . . 246 188 238 251 202 244 238 166 227

2002 . . . . . . . . . . . 267 202 257 276 225 269 250 166 237

2003 . . . . . . . . . . . 287 210 276 303 244 294 261 160 245

2004 . . . . . . . . . . . 307 213 292 329 260 319 272 149 251

2005 . . . . . . . . . . . 325 212 306 355 272 343 282 134 256

2006 . . . . . . . . . . . 342 207 320 383 282 367 292 118 261

2007 . . . . . . . . . . . 358 198 331 410 289 390 301 98 264

2008 . . . . . . . . . . . 374 188 342 436 295 413 309 77 265

2010 . . . . . . . . . . . 397 165 356 480 311 453 317 27 262

2015 . . . . . . . . . . . 412 92 359 545 364 519 294 ( 1 ) 217

2020 . . . . . . . . . . . 364 5 309 540 429 525 212 ( 1 ) 125

2025 . . . . . . . . . . . 277 ( 1 ) 223 503 485 501 90 ( 1 ) ( 1 )

2030 . . . . . . . . . . . 167 ( 1 )

 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.

113 453 544 464 ( 1 ) ( 1 ) ( 1 )

2035 . . . . . . . . . . . 38 ( 1 ) ( 1 ) 403 634 429 ( 1 ) ( 1 ) ( 1 )

2040 . . . . . . . . . . . ( 1 ) ( 1 ) ( 1 ) 365 726 407 ( 1 ) ( 1 ) ( 1 )

2045 . . . . . . . . . . . ( 1 ) ( 1 ) ( 1 ) 338 800 394 ( 1 ) ( 1 ) ( 1 )

2050 . . . . . . . . . . . ( 1 ) ( 1 ) ( 1 ) 315 883 385 ( 1 ) ( 1 ) ( 1 )

2055 . . . . . . . . . . . ( 1 ) ( 1 ) ( 1 ) 290 977 375 ( 1 ) ( 1 ) ( 1 )

2060 . . . . . . . . . . . ( 1 ) ( 1 ) ( 1 ) 261 1,100 364 ( 1 ) ( 1 ) ( 1 )

2065 . . . . . . . . . . . ( 1 ) ( 1 ) ( 1 ) 233 1,234 355 ( 1 ) ( 1 ) ( 1 )

2070 . . . . . . . . . . . ( 1 ) ( 1 ) ( 1 ) 206 1,363 349 ( 1 ) ( 1 ) ( 1 )

2075 . . . . . . . . . . . ( 1 ) ( 1 ) ( 1 ) 180 1,492 345 ( 1 ) ( 1 ) ( 1 )

Trust fund is estimated to be 

exhausted in: . . 2036 2020 2034 ( 2 )

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

( 2 ) ( 2 ) 2028 2011 2024
Actuarial Analysis

128

A graphic illustration of the trust fund ratios for the combined trust

funds is shown in figure II.F6 for each of the alternative sets of

assumptions.

Figure II.F6.—Estimated Trust Fund Ratios, for OASI and DI Trust Funds Combined, 

by Alternative, Calendar Years 1985-2075

[Assets as a percentage of annual expenditures]

I

0%

100%

200%

300%

400%

500%

600%

1985 1995 2005 2015 2025 2035 2045 2055 2065 2075

Calendar year

Historical Estimated

III II
129

Actuarial Estimates

g. Reasons for Change in Actuarial Balance From Last Report

Reasons for changes from last year’s report to this report in the longrange actuarial balance under the intermediate assumptions are

itemized in table II.F21. Also shown are the estimated effects associated with each reason for change.

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

No legislative change was enacted since last year’s report, nor was

any regulatory change that would affect the estimated long-range

OASDI actuarial balance.

In changing from the valuation period of last year’s report, which was

1998-2072, to the valuation period of this report, 1999-2073, the relatively large negative annual balance for 2073 is included. This results

in a larger long-range actuarial deficit. (Note that the fund balance at

the end of 1998, i.e., at the beginning of the projection period, is

included in the 75-year actuarial balance.)

Two demographic assumptions were modified: (1) projected fertility

rates were increased slightly through 2022, consistent with recent

data that show higher birth rates than did earlier estimates; and (2)

projected mortality rates were decreased slightly (mainly at younger

ages), reflecting the latest data, which were, on balance, lower than

expected for 1997. These modifications result in a net increase in the

long-range actuarial balance.

Table II.F21.—Change in Actuarial Balance Over the Next 75 Years Based on 

Intermediate Assumptions by Trust Fund and Reason for Change

[As a percentage of taxable payroll]

Item OASI DI Combined

Shown in last year’s report:

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.57 1.88 13.45

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.38 2.26 15.64

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.81 -.38 -2.19

Changes in actuarial balance due to changes in:

Legislation / Regulation . . . . . . . . . . . . . . . . . . . . . -- -- --

Valuation period. . . . . . . . . . . . . . . . . . . . . . . . . . . -.07 -.01 -.08

Demographic assumptions . . . . . . . . . . . . . . . . . . +.03 .00 +.03

Economic assumptions . . . . . . . . . . . . . . . . . . . . . +.13 +.02 +.15

Disability assumptions. . . . . . . . . . . . . . . . . . . . . . .00 .00 .00

Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.02 .00 +.02

Total change in actuarial balance . . . . . . . . . . . . . . . +.10 +.02 +.12

Shown in this report:

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.70 -.36 -2.07

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.60 1.88 13.49

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.31 2.25 15.56
Actuarial Analysis

130

Several significant changes were made to economic assumptions for

this year’s report (see discussion in section II.D1). In total, these

changes reduced the actuarial deficit by 0.15 percent of taxable payroll. Recent economic performance and changes in the short-range

economic assumptions accounted for a reduction of 0.03 percent of taxable payroll, while changes in the ultimate economic assumptions

accounted for the remaining reduction of 0.12 percent of taxable payroll.

Disabled worker incidence rates experienced since last year’s report

have been somewhat higher than estimated. However, ultimate incidence rates are projected to reach the same level assumed in last

year’s report. This modification results in a negligible change in the

long-range actuarial balance for the DI program.

Several changes in methods were made for this year’s report. The

method for estimating earnings levels of high earners was improved

for long-range projections, reducing the actuarial balance somewhat.

However, several other changes resulted in a small improvement in

the actuarial balance. Labor force participation rates were reestimated, resulting in increases, particularly at higher ages. Also, recent

levels of revenue from taxation of benefits have been higher, and numbers of beneficiaries somewhat lower than estimated for last year’s

report. The net effect of all changes in methods is a small improvement in the actuarial balance.

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 GDP. OASDI outlays generally rise from a little less

than 5 percent of GDP currently to about 6.9 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 C.
131

Sensitivity Analysis

G. LONG-RANGE SENSITIVITY ANALYSIS

This section presents estimates which illustrate the sensitivity of the

long-range actuarial balance of the OASDI program to changes in

selected individual assumptions. The estimates based on the three

alternative sets of assumptions (see sections II.D and II.F2) illustrate

the effects of varying all of the principal assumptions simultaneously

in order to portray a generally more optimistic or pessimistic future,

in terms of the financial status of the OASDI program. In the sensitivity analysis presented in this section, the intermediate alternative II

is used as the reference point, and one assumption at a time is varied

within that alternative. Similar variations in the selected assumptions within the other alternatives would result in similar relative

variations in the long-range estimates.

Each table that follows shows the effects of changing a particular

assumption on the OASDI summarized income rates, summarized

cost rates, and actuarial balances (as defined earlier in this report) for

25-year, 50-year, and 75-year valuation periods. Because the income

rate varies only slightly with changes in assumptions, it is not considered in the discussion of the tables. The change in each of the actuarial balances is approximately equal to the change in the

corresponding cost rate, but in the opposite direction.

1. Total Fertility Rate

Table II.G1 shows the estimated OASDI income rates, cost rates, and

actuarial balances, on the basis of alternative II with various assumptions about the ultimate total fertility rate. These assumptions are

that the ultimate total fertility rate will be 1.6, 1.9, and 2.2 children

per woman as assumed for alternatives III, II, and I, respectively. The

rate is assumed to change gradually from its current level and to

reach the various ultimate values in 2023.
Actuarial Analysis

132

For the 25-year period, the cost rate for the three fertility assumptions varies by only about 0.05 percent of taxable payroll. In contrast,

the 75-year cost rate varies over a wide range, decreasing from 15.94

to 15.20 percent, as the assumed ultimate total fertility rate increases

from 1.6 to 2.2. Similarly, while the 25-year actuarial balance varies

by only 0.04 percent of taxable payroll, the 75-year actuarial balance

varies over a much wider range, from -2.42 to -1.74 percent.

During the 25-year period, the very slight effect of changes in fertility

on the working population is more than offset by increases in the

number of child beneficiaries. Hence, the program cost slightly

increases with higher fertility. For the 75-year long-range period,

however, changes in fertility have a relatively greater impact on the

labor force than on the beneficiary population. As a result, an increase

in fertility significantly reduces the cost rate. Each increase of 0.1 in

the ultimate total fertility rate increases the long-range actuarial balance by about 0.11 percent of taxable payroll.

2. Death Rates

Table II.G2 shows the estimated OASDI income rates, cost rates, and

actuarial balances, on the basis of alternative II with various assumptions about future reductions in death rates. The analysis was developed by varying the percentage decrease assumed to occur during

1998-2073 in the death rates by age, sex, and cause of death. The

decreases assumed for this period, summarized as changes in the ageTable II.G1.—Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, 

Based on Intermediate Estimates With Various Fertility Assumptions

[As a percentage of taxable payroll]

Ultimate total fertility rate 1 

 1 The total fertility rate for any year is the average number of children who would be born to a woman in

her lifetime if she were to experience the birth rates by age observed in, or assumed for, the selected

year, and if she were to survive the entire childbearing period. The ultimate total fertility rate is assumed to

be reached in 2023.

Valuation period 1.6 1.9 2.2

Summarized income rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.81 13.81 13.81

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.55 13.54 13.53

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.52 13.49 13.46

Summarized cost rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.01 13.04 13.06

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.90 14.80 14.72

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.94 15.56 15.20

Actuarial balance: 

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . +.79 +.77 +.75

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.35 -1.26 -1.18

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.42 -2.07 -1.74
133

Sensitivity Analysis

sex-adjusted death rate, are about 16 percent, 34 percent, and 54 percent as assumed for alternatives I, II, and III, respectively. It should

be noted that these reductions do not apply uniformly to all ages, as

some variation by age was assumed (see section II.H1) consistent with

the objective of selecting assumptions for alternatives I and III that

are relatively more optimistic and more pessimistic, respectively, in

terms of the financing of the OASDI program.

The variation in cost for the 25-year period is less pronounced than

the variation for the 75-year period because the decreases in death

rates are assumed to occur gradually. The 25-year cost rate increases

from 12.87 percent (for 16-percent lower ultimate death rates) to

13.21 percent (for 54-percent lower ultimate rates). The 75-year cost

rate increases from 14.93 to 16.27 percent. The actuarial balance

decreases from +0.94 to +0.61 percent for the 25-year period, and from

-1.47 to -2.75 percent for the 75-year period.

Lower death rates cause both the income (as well as taxable payroll)

and the outgo of the OASDI program to be higher than they would

otherwise be. The relative increase in outgo, however, exceeds the relative increase in taxable payroll. For any given year, reductions in the

death rates for people who have attained the retirement eligibility age

of 62 (people whose death rates are the highest) increase the number

of retired-worker beneficiaries (and, therefore, the amount of retirement benefits paid) without adding significantly to the number of covered workers (and, therefore, to the taxable payroll). Although

reductions for people aged 50 to retirement eligibility age do result in

Table II.G2.—Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, 

Based on Intermediate Estimates With Various Death-Rate Assumptions

 [As a percentage of taxable payroll]

Reduction in death rates 1 

 1 The measure of the reduction in death rates is the decrease in the age-sex-adjusted death rate during

1998-2073.

Valuation period 16 percent 34 percent 54 percent

Summarized income rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.80 13.81 13.81

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.52 13.54 13.56

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.46 13.49 13.52

Summarized cost rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.87 13.04 13.21

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.37 14.80 15.26

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.93 15.56 16.27

Actuarial balance: 

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . +.94 +.77 +.61

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . -.85 -1.26 -1.71

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.47 -2.07 -2.75
Actuarial Analysis

134

significant increases to the taxable payroll, those increases are not

large enough to offset the sum of the additional retirement benefits

mentioned above and the disability benefits paid to additional beneficiaries in this pre-retirement age group. At ages under 50, death rates

are so low that even substantial reductions would not result in significant increases in the numbers of covered workers or beneficiaries.

Consequently, if death rates for all ages are lowered by about the

same relative amount, outgo increases at a rate greater than the rate

of growth in payroll, thereby resulting in higher cost rates. Each additional 10-percentage-point reduction in the age-sex-adjusted death

rate assumed to occur in 1998-2073, relative to the 34-percent reduction assumed for alternative II, decreases the long-range actuarial

balance by about 0.34 percent of taxable payroll.

3. Net Immigration

Table II.G3 shows the estimated OASDI income rates, cost rates, and

actuarial balances, under alternative II with various assumptions

about the magnitude of net immigration. These assumptions are that

the annual net immigration will be 750,000 persons, 900,000 persons,

and 1,150,000 persons as assumed for alternatives III, II, and I,

respectively.

For all three periods, the cost rate decreases with increasing rates of

net immigration. For the 25-year period, the cost rate decreases from

13.09 percent of taxable payroll (for annual net immigration of

750,000 persons) to 12.96 percent (for annual net immigration of

Table II.G3.—Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, 

Based on Intermediate Estimates With Various Net-Immigration Assumptions

 [As a percentage of taxable payroll]

Net immigration per year

Valuation period 750,000 900,000 1,150,000

Summarized income rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.82 13.81 13.80

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.55 13.54 13.52

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.50 13.49 13.47

Summarized cost rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.09 13.04 12.96

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.91 14.80 14.64

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.68 15.56 15.37

Actuarial balance: 

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . +.73 +.77 +.84

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.36 -1.26 -1.12

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.18 -2.07 -1.90
135

Sensitivity Analysis

1,150,000 persons). For the 50-year period, it decreases from 14.91

percent to 14.64 percent, and for the 75-year period, it decreases from

15.68 percent to 15.37 percent. The actuarial balance increases from

+0.73 to +0.84 percent for the 25-year period, from -1.36 to -1.12 for

the 50-year period, and from -2.18 to -1.90 percent for the 75-year

period.

The cost rate decreases with increasing rates of net immigration

because immigration occurs at relatively young ages, thereby increasing the numbers of covered workers earlier than the numbers of beneficiaries. Each additional group of 100,000 immigrants relative to the

900,000 net immigration assumed for alternative II, increases the

long-range actuarial balance by about 0.07 percent of taxable payroll.

4. Real-Wage Differential

Table II.G4 shows the estimated OASDI income rates, cost rates, and

actuarial balances, on the basis of alternative II with various assumptions about the real-wage differential. These assumptions are that the

ultimate real-wage differential will be 0.4 percentage point, 0.9 percentage point, and 1.4 percentage points as assumed for alternatives

III, II, and I, respectively. In each case, the ultimate annual increase

in the CPI is assumed to be 3.3 percent (as assumed for alternative

II), yielding ultimate percentage increases in average annual wages in

covered employment of 3.7, 4.2, and 4.7 percent under alternatives

III, II, and I, respectively.

For the 25-year period, the cost rate decreases from 13.43 percent (for

a real-wage differential of 0.4 percentage point) to 12.65 percent (for a

differential of 1.4 percentage points). For the 50-year period, it

decreases from 15.36 to 14.24 percent, and for the 75-year period it

decreases from 16.14 to 14.96 percent. The actuarial balance

increases from +0.44 to +1.10 percent for the 25-year period, from

-1.75 to -0.78 for the 50-year period, and from -2.57 to -1.55 percent for

the 75-year period.
Actuarial Analysis

136

The cost rate decreases with increasing real-wage differentials,

because the higher real-wage levels increase the taxable payroll,

while benefit increases are not affected. Although the initial benefit

levels are higher because of the higher wages, these increases are

more than offset by the increases in the taxable payroll of future

workers. Each 0.5-percentage-point increase in the assumed realwage differential increases the long-range actuarial balance by about

0.51 percent of taxable payroll.

5. Consumer Price Index

Table II.G5 shows the estimated OASDI income rates, cost rates, and

actuarial balances, on the basis of alternative II with various assumptions about the rate of increase for the Consumer Price Index (CPI).

These assumptions are that the ultimate annual increase in the CPI

will be 2.3 percent, 3.3 percent, and 4.3 percent as assumed for alternatives I, II, and III, respectively. In each case, the ultimate real-wage

differential is assumed to be 0.9 percentage point (as assumed for

alternative II), yielding ultimate percentage increases in average

annual wages in covered employment of 3.2, 4.2, and 5.2 percent

under alternatives I, II, and III, respectively.

Table II.G4.—Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, 

Based on Intermediate Estimates With Various Real-Wage Assumptions

 [As a percentage of taxable payroll]

Ultimate percentage increase in wages-CPI 1 

 1 The first value in each pair is the assumed ultimate annual percentage increase in average wages in

covered employment. The second value is the assumed ultimate annual percentage increase in the Consumer Price Index. The difference between the two values is the real-wage differential.

Valuation period 3.7-3.3 4.2-3.3 4.7-3.3

Summarized income rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.87 13.81 13.75

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.62 13.54 13.46

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.57 13.49 13.41

Summarized cost rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.43 13.04 12.65

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.36 14.80 14.24

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.14 15.56 14.96

Actuarial balance: 

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . +.44 +.77 +1.10

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.75 -1.26 -.78

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.57 -2.07 -1.55
137

Sensitivity Analysis

For all three periods, the cost rate decreases with greater assumed

rates of increase in the CPI. For the 25-year period, the cost rate

decreases from 13.19 (for CPI increases of 2.3 percent) to 12.89 percent (for CPI increases of 4.3 percent). For the 50-year period, it

decreases from 15.02 to 14.59 percent, and for the 75-year period, it

decreases from 15.80 to 15.31 percent. The actuarial balance

increases from +0.64 to +0.90 percent for the 25-year period, from

-1.46 to -1.07 for the 50-year period, and from -2.29 to -1.84 percent for

the 75-year period.

The patterns described above result primarily from the time lag

between the effects of the CPI changes on taxable payroll and on benefit payments. When assuming a greater rate of increase in the CPI

(in conjunction with a constant real-wage differential), the effect on

taxable payroll of the implied greater rate of increase in average

wages is experienced immediately, while the effect on benefits of the

greater rate of increase in the CPI is experienced with a lag of about 1

year. In addition, the effect on benefits of the greater rate of increase

in average wages is experienced no sooner than 2 years later. Thus,

the higher taxable payrolls have a stronger effect than the higher benefits, thereby resulting in lower cost rates. The effect of each 1.0-percentage-point increase in the rate of change assumed for the CPI is an

increase in the long-range actuarial balance of about 0.23 percent of

taxable payroll.

Table II.G5.—Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, 

Based on Intermediate Estimates With Various CPI-Increase Assumptions

[As a percentage of taxable payroll]

Ultimate percentage increase in wages-CPI 1 

 1 The first value in each pair is the assumed ultimate annual percentage increase in average wages in

covered employment. The second value is the assumed ultimate annual percentage increase in the Consumer Price Index.

Valuation period 3.2-2.3 4.2-3.3 5.2-4.3

Summarized income rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.83 13.81 13.78

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.56 13.54 13.52

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.51 13.49 13.47

Summarized cost rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.19 13.04 12.89

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.02 14.80 14.59

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.80 15.56 15.31

Actuarial balance: 

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . +.64 +.77 +.90

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.46 -1.26 -1.07

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.29 -2.07 -1.84
Actuarial Analysis

138

6. Real Interest Rate

Table II.G6 shows the estimated OASDI income rates, cost rates, and

actuarial balances, on the basis of alternative II with various assumptions about the annual real interest rate for special public-debt obligations issuable to the trust funds, which are compounded

semiannually. These assumptions are that the ultimate annual real

interest rate will be 2.2 percent, 3.0 percent, and 3.7 percent as

assumed for alternatives III, II, and I, respectively. In each case, the

ultimate annual increase in the CPI is assumed to be 3.3 percent (as

assumed for alternative II), resulting in ultimate annual yields of 5.6,

6.4, and 7.1 percent under alternatives III, II, and I, respectively.

For the 25-year period, the cost rate decreases slightly with increasing real interest rates from 13.17 percent (for an ultimate real interest rate of 2.2 percent) to 12.93 percent (for an ultimate real interest

rate of 3.7 percent). For the 50-year period, it decreases from 15.15 to

14.51 percent, and for the 75-year period, it decreases from 16.07 to

15.13 percent. The actuarial balance increases from +0.58 to +0.93

percent for the 25-year period, from -1.68 to -0.91 percent for the 50-

year period, and from -2.64 to -1.59 percent for the 75-year period.

Each 0.5-percentage-point increase in the assumed real interest rate

increases the long-range actuarial balance by about 0.35 percent of

taxable payroll.

Table II.G6.—Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, 

Based on Intermediate Estimates With Various Real-Interest Assumptions

 [As a percentage of taxable payroll]

Ultimate annual real interest rate

Valuation period 2.2 percent 3.0 percent 3.7 percent

Summarized income rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.75 13.81 13.86

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.48 13.54 13.60

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.43 13.49 13.55

Summarized cost rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.17 13.04 12.93

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.15 14.80 14.51

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.07 15.56 15.13

Actuarial balance: 

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . +.58 +.77 +.93

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.68 -1.26 -.91

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.64 -2.07 -1.59
139

Sensitivity Analysis

7. Disability Incidence Rates

Table II.G7 shows the estimated OASDI income rates, cost rates, and

actuarial balances, on the basis of alternative II with various assumptions concerning future disability incidence rates. For all three alternatives, incidence rates by age and sex are assumed to vary during

the early years of the projection period before attaining ultimate levels in 2013. The ultimate levels attained vary by sex. In comparison to

the corresponding annual rates experienced during the base period

1984-86, the ultimate rates for men are about the same for alternative

I, about 25 percent higher for alternative II, and about 50 percent

higher for alternative III. For women they are higher by about 17 percent for alternative I, 47 percent for alternative II, and 76 percent for

alternative III. 

For the 25-year period, the cost rate increases with increasing disability incidence rates from 12.82 percent (for the relatively low rates

assumed for alternative I) to 13.25 percent (for the relatively high

rates assumed for alternative III). For the 50-year period, it increases

from 14.52 to 15.07 percent, and for the 75-year period, it increases

from 15.26 to 15.84 percent. The actuarial balance decreases from

+0.99 to +0.56 percent for the 25-year period, from -0.99 to -1.53 percent for the 50-year period, and from -1.77 to -2.35 percent for the 75-

year period.

Table II.G7.—Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, 

Based on Intermediate Estimates With Various Disability Incidence Assumptions

[As a percentage of taxable payroll]

Disability incidence rates

based on alternative—

Valuation period I II III

Summarized income rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.81 13.81 13.81

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.54 13.54 13.54

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.49 13.49 13.49

Summarized cost rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.82 13.04 13.25

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.52 14.80 15.07

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.26 15.56 15.84

Actuarial balance: 

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . +.99 +.77 +.56

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . -.99 -1.26 -1.53

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.77 -2.07 -2.35
Actuarial Analysis

140

8. Disability Termination Rates

Table II.G8 shows the estimated OASDI income rates, cost rates, and

actuarial balances, on the basis of alternative II with various assumptions about future disability termination rates.

For alternative II, death-termination rates by age and sex are

assumed to decline until they reach levels by the end of the 75-year

period that, for men and women, respectively, are about 45 percent

and 55 percent of those experienced during the base period 1977-80.

For the other alternatives, the rates are assumed to spread gradually

from the rates for alternative II. By the end of the projection period,

for alternatives I and III, respectively, the rates for men are about 61

percent and 30 percent of those experienced during the base period;

for women the corresponding rates are about 75 percent and 37 percent of those experienced during the base period.

For alternative II, ultimate recovery-termination rates by age and sex

are assumed to be attained in 2013; such rates are assumed to be 50

percent of those experienced in the base period, 1977-80. The ultimate

rates for alternatives I and III are also assumed to be attained in

2013; they are assumed to be 60 percent and 40 percent, respectively,

of those experienced in the base period.

For the 25-year period, the cost rate increases with decreasing disability termination rates from 13.00 percent (for the relatively high rates

assumed for alternative I) to 13.07 percent (for the relatively low rates

Table II.G8.—Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, 

Based on Intermediate Estimates With Various Disability Termination Assumptions

 [As a percentage of taxable payroll]

Disability termination rates

based on alternative—

Valuation period I II III

Summarized income rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.81 13.81 13.81

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.54 13.54 13.54

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.49 13.49 13.49

Summarized cost rate:

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.00 13.04 13.07

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.75 14.80 14.85

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.50 15.56 15.61

Actuarial balance: 

25-year: 1999-2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . +.81 +.77 +.74

50-year: 1999-2048. . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.21 -1.26 -1.31

75-year: 1999-2073. . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.01 -2.07 -2.12
141

Sensitivity Analysis

assumed for alternative III). For the 50-year period, it increases from

14.75 to 14.85 percent, and for the 75-year period, it increases from

15.50 to 15.61 percent. The actuarial balance decreases from +0.81 to

+0.74 percent for the 25-year period, from -1.21 to -1.31 percent for

the 50-year period, and from -2.01 to -2.12 percent for the 75-year

period.
Actuarial Analysis

142

H. ASSUMPTIONS AND METHODS UNDERLYING THE

ACTUARIAL ESTIMATES

This section describes the assumptions and methods which underlie

the actuarial estimates in this report. Unless specifically stated otherwise, the assumptions and methods were used for each of the three

alternatives and for both the short-range and long-range periods.

Some of the principal economic and demographic assumptions which

vary by alternative are summarized in section II.D. Further details

about the assumptions, methods, and actuarial estimates are contained in Actuarial Studies published by the Office of the Chief Actuary, Social Security Administration, which are available upon

request. 1 

1. Total Population

Projections were made of the population in the Social Security Area

by age, sex, and marital status as of January 1 of each year 1998

through 2080. The starting Social Security Area population for January 1, 1997 was developed from the estimated United States population, including Armed Forces overseas, based on data from the Bureau

of the Census, adjusted for net census undercount and increased for

other U.S. citizens living abroad and for populations in the geographic

areas covered by the OASDI program but not included in the U.S.

population. This starting population was then projected using

assumed rates of birth, death, marriage, and divorce and assumed

levels of migration.

Historically, fertility rates in the United States have fluctuated

widely. The total fertility rate is defined to be the average number of

children that would be born to a woman in her lifetime if she were to

experience the birth rates by age observed in, or assumed for, the

selected year, and if she were to survive the entire childbearing

period. The total fertility rate decreased from 3.3 children per woman

after World War I to 2.1 during the Great Depression, rose to 3.7 in

1957, and then fell to 1.7 in 1976. After 1976, the total fertility rate

 1 To obtain copies of this report or studies and notes published by the Office of the Chief Actuary write to:

Office of the Chief Actuary, Social Security Administration, Suite 700 Altmeyer Building, 6401 Security

Boulevard, Baltimore, Maryland 21235; or call (410)965-3015. This report is also available on the Internet

at http://www.ssa.gov/OACT/pubs.html. This Internet site also presents year-by-year values for the longrange projections over the next 75 years which are only shown every fifth year in the printed version of

this report. Other actuarial publications are also available from this address.
143

Assumptions & Methods

began to rise again, reaching a level of 2.07 for 1991. Since then, it

has declined slightly to a level currently estimated at 2.04 for 1997.

These variations in fertility rates have resulted from changes in many

factors, including social attitudes, economic conditions, and the use of

birth-control methods. Future fertility rates may be expected to

remain close to recent levels. The recent historical and projected

trends in certain population characteristics are consistent with a continued relatively low fertility rate. These trends include the rising

percentages of women who have never married, of women who are

divorced, and of young women who are in the labor force. Based on

consideration of these factors, ultimate total fertility rates of 2.2, 1.9,

and 1.6 children per woman were selected for alternatives I, II, and

III, respectively. For each alternative, the total fertility rate is

assumed to reach its ultimate level in 2023. A rate of 2.1 would ultimately result in a nearly constant population if net immigration were

zero and if death rates were constant.

Historically, death rates in the United States have declined fairly

steadily. Historical rates used in preparing this report were calculated

using data from the National Center for Health Statistics (NCHS)

that are final for 1900-96 (by cause of death starting in 1968) and provisional for 1997. For ages 65 and over, Medicare final data for years

1968 through 1996, and provisional data for 1997 were used. The agesex-adjusted death rate—which is calculated here as the crude rate

that would occur in the enumerated total population as of April 1,

1990, if that population were to experience the death rates by age and

sex for the selected year—declined at an average rate of 1.1 percent

per year between 1900 and 1996. Between 1968 and 1996, the period

for which death rates are available by cause, the age-sex adjusted

death rate (for all causes combined) declined at an average rate of 1.2

percent per year. However, since 1982, age-sex adjusted death rates

have declined more slowly, at an average rate of 0.6 percent between

1982 and 1996.

Reductions in death rates have resulted from many factors, including

increased medical knowledge and availability of health-care services,

and improvements in personal health-care practices such as diet and

exercise. Based on consideration of the expected rate of future

progress in these and other areas, three alternative sets of ultimate

annual percentage reductions in central death rates by age, sex, and

cause of death were selected for 2023 and later. The intermediate set,

which is used for alternative II, is considered to be the most likely to

occur. Except for those causes of death which primarily affect children
Actuarial Analysis

144

and people of working age, the average annual percentage reductions

used for alternative I are smaller than those for alternative II, while

those used for alternative III are greater.

Between 1996 and 2023, the reductions in central death rates for

alternative II are assumed to change gradually from the average

annual reductions by age, sex, and cause of death observed between

1968 and 1996, to the ultimate annual percentage reductions by age,

sex, and cause of death assumed for 2023 and later. Alternative I

reductions are assumed to change gradually from 50 percent of the

average annual reductions observed between 1968 and 1996, while

alternative III reductions are assumed to change gradually from 150

percent of the average annual reductions observed between 1968 and

1996.

After adjustment for changes in the age-sex distribution of the population, the resulting death rates were projected to decline at an average annual rate of about 0.2 percent, 0.5 percent, and 1.0 percent

between 1996 and 2073 for alternatives I, II, and III, respectively.

For calendar years 1997 and 1998, the net legal immigration is estimated to be 683,000 and 600,000 persons per year, respectively. In

addition, for these years the net other-than-legal immigration is estimated to be 300,000 persons per year.

The Immigration Act of 1990 increased substantially the number of

legal immigrants permitted starting in 1992. Based on changes in

immigration categories and limits specified in the 1990 legislation,

the estimated level of net legal immigration under alternative I varies

for years through 2000, reaching an assumed ultimate level of

1,150,000 for 2001 and later. Net immigration for 1999 and later is

assumed to be 900,000 and 750,000 persons per year for alternatives

II and III, respectively. Of the ultimate net numbers of immigrants,

700,000, 600,000, and 550,000, are assumed to be legal, under alternatives I, II and III, respectively, and the remaining immigrants

under each assumption are assumed to be other-than-legal.

Table II.H1 shows the projected population as of July 1 by broad age

group, for the three alternatives. Also shown are tabulated aged

dependency ratios (see table footnotes for definitions). Because eligibility for many types of OASDI benefits depends on marital status,
145

Assumptions & Methods

the population was projected by marital status, as well as by age and

sex. Marriage and divorce rates were based on data from NCHS.

Table II.H1.—Social Security Area Population as of July 1 and Dependency Ratios,

by Alternative and Broad Age Group, Calendar Years 1950-2075 

Population (in thousands) Dependency ratio

Calendar year Under 20 20-64

65 and

over Total Aged 1 Total 2

Historical data:

1950 . . . . . . . . . . . . 53,895 92,739 12,752 159,386 0.138 0.719

1960 . . . . . . . . . . . . 72,989 99,842 17,250 190,081 .173 .904

1965 . . . . . . . . . . . . 80,134 104,833 19,093 204,059 .182 .947

1970 . . . . . . . . . . . . 80,685 113,194 20,921 214,800 .185 .898

1975 . . . . . . . . . . . . 78,438 122,862 23,266 224,566 .189 .828

1980 . . . . . . . . . . . . 74,570 134,431 26,149 235,151 .195 .749

1985 . . . . . . . . . . . . 73,250 144,899 29,065 247,214 .201 .706

1990 . . . . . . . . . . . . 75,161 152,964 32,004 260,128 .209 .701

1995 . . . . . . . . . . . . 79,037 159,812 34,281 273,130 .215 .709

Intermediate:

2000 . . . . . . . . . . . . 81,571 168,509 35,383 285,463 .210 .694

2005 . . . . . . . . . . . . 82,247 177,919 36,747 296,912 .207 .669

2010 . . . . . . . . . . . . 82,151 186,102 39,742 307,995 .214 .655

2015 . . . . . . . . . . . . 81,831 191,402 45,639 318,872 .238 .666

2020 . . . . . . . . . . . . 82,514 193,580 53,013 329,106 .274 .700

2025 . . . . . . . . . . . . 83,377 193,298 61,437 338,112 .318 .749

2030 . . . . . . . . . . . . 83,881 193,342 68,442 345,665 .354 .788

2035 . . . . . . . . . . . . 83,909 195,831 72,028 351,767 .368 .796

2040 . . . . . . . . . . . . 83,903 199,470 73,271 356,643 .367 .788

2045 . . . . . . . . . . . . 84,210 202,476 73,957 360,643 .365 .781

2050 . . . . . . . . . . . . 84,689 204,030 75,424 364,144 .370 .785

2055 . . . . . . . . . . . . 85,133 204,672 77,700 367,505 .380 .796

2060 . . . . . . . . . . . . 85,435 204,828 80,678 370,941 .394 .811

2065 . . . . . . . . . . . . 85,651 205,856 82,942 374,450 .403 .819

2070 . . . . . . . . . . . . 85,900 207,228 84,712 377,840 .409 .823

2075 . . . . . . . . . . . . 86,228 208,348 86,355 380,931 .414 .828

Low Cost:

2000 . . . . . . . . . . . . 81,774 168,699 35,363 285,835 .210 .694

2005 . . . . . . . . . . . . 83,430 178,904 36,499 298,834 .204 .670

2010 . . . . . . . . . . . . 84,942 187,886 39,087 311,915 .208 .660

2015 . . . . . . . . . . . . 86,930 194,042 44,488 325,460 .229 .677

2020 . . . . . . . . . . . . 90,597 197,261 51,306 339,164 .260 .719

2025 . . . . . . . . . . . . 94,757 198,583 59,057 352,396 .297 .775

2030 . . . . . . . . . . . . 98,402 200,904 65,260 364,567 .325 .815

2035 . . . . . . . . . . . . 101,416 206,347 68,024 375,786 .330 .821

2040 . . . . . . . . . . . . 104,360 213,590 68,572 386,522 .321 .810

2045 . . . . . . . . . . . . 107,616 220,839 68,821 397,276 .312 .799

2050 . . . . . . . . . . . . 111,313 227,039 70,052 408,404 .309 .799

2055 . . . . . . . . . . . . 115,100 232,867 72,185 420,152 .310 .804

2060 . . . . . . . . . . . . 118,701 238,903 74,994 432,597 .314 .811

2065 . . . . . . . . . . . . 122,155 246,453 77,044 445,653 .313 .808

2070 . . . . . . . . . . . . 125,682 254,584 78,862 459,128 .310 .803

2075 . . . . . . . . . . . . 129,401 262,521 80,955 472,877 .308 .801
Actuarial Analysis

146

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

2. Covered Population

The number of covered workers in a year is defined as the number of

persons who, at any time during the year, have OASDI taxable earnings. Projections of the number of covered workers were made by

applying projected coverage rates to the projected Social Security

Area population. The coverage rates—i.e., the number of covered

workers in the year, as a percentage of the population as of July 1—

were determined by age and sex using projected labor force participation rates and unemployment rates, and their historical relationships

to coverage rates. In addition, the coverage rates were adjusted to

reflect the increase in coverage of Federal civilian employment as a

result of the 1983 Social Security Amendments and changes in the

number of other-than-legal aliens estimated to be residing within the

Social Security coverage area.

Labor force participation rates were projected by age and sex, taking

into account projections of the percentage of the population that is

married, the percentage of the population that is disabled, the number of children in the population, the level of retirement benefits, and

the state of the economy. For men, the projected age-adjusted labor

force participation rates for 2075 for alternatives I, II, and III are 1.6,

1.7, and 1.5 percentage points lower, respectively, than the 1997 level

of 75.5 percent. For women, the projected age-adjusted labor force

High Cost:

2000 . . . . . . . . . . . . 81,395 168,373 35,406 285,174 0.210 0.694

2005 . . . . . . . . . . . . 81,210 177,312 37,007 295,529 .209 .667

2010 . . . . . . . . . . . . 79,652 185,014 40,408 305,074 .218 .649

2015 . . . . . . . . . . . . 77,231 189,797 46,805 313,833 .247 .654

2020 . . . . . . . . . . . . 75,208 191,335 54,782 321,324 .286 .679

2025 . . . . . . . . . . . . 73,179 189,860 63,990 327,029 .337 .722

2030 . . . . . . . . . . . . 71,058 188,076 71,983 331,116 .383 .761

2035 . . . . . . . . . . . . 68,730 188,120 76,665 333,515 .408 .773

2040 . . . . . . . . . . . . 66,579 188,697 78,971 334,248 .419 .771

2045 . . . . . . . . . . . . 64,925 188,051 80,550 333,526 .428 .774

2050 . . . . . . . . . . . . 63,330 185,646 82,748 331,724 .446 .787

2055 . . . . . . . . . . . . 61,692 181,947 85,655 329,293 .471 .810

2060 . . . . . . . . . . . . 60,044 177,279 89,265 326,588 .504 .842

2065 . . . . . . . . . . . . 58,472 173,090 92,163 323,726 .532 .870

2070 . . . . . . . . . . . . 57,025 169,301 94,239 320,565 .557 .893

2075 . . . . . . . . . . . . 55,692 165,461 95,757 316,909 .579 .915

 1 Population aged 65 and over, divided by population aged 20-64.

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

Table II.H1.—Social Security Area Population as of July 1 and Dependency Ratios,

by Alternative and Broad Age Group, Calendar Years 1950-2075 (Cont.)

Population (in thousands) Dependency ratio

Calendar year Under 20 20-64

65 and

over Total Aged 1 Total 2
147

Assumptions & Methods

participation rates increase for alternatives I, II and III. The projected

age-adjusted rates for 2075 are 0.6, 0.6, and 0.5 percentage points,

respectively, higher than the 1997 level of 60.0 percent.

The total age-sex-adjusted unemployment rate averaged 5.8 percent

for the 30 years 1968-97 and 5.8 percent for the 10 years 1988-97. The

ultimate total age-sex-adjusted unemployment rate is assumed to be

4.5, 5.5, and 6.5 percent for alternatives I, II, and III, respectively.

These ultimate unemployment rates are 0.5 percentage point lower

than those used in last year’s report. Unemployment levels off to the

assumed ultimate age-sex-adjusted rate by 2009, for each of the three

alternatives.

The projected age-adjusted coverage rate for men changes from its

1997 level of 74.9 percent to 73.6, 72.5, and 71.4 percent in 2075 for

alternatives I, II, and III, respectively. For women, it changes from its

1997 level of 63.1 percent to 62.3, 61.7, and 60.9 percent for alternatives I, II, and III, respectively.

3. Average Earnings, Inflation, and Real Interest Rate

Future increases in average earnings and in the Consumer Price

Index for Urban Wage Earners and Clerical Workers (CPI-W, hereafter denoted as “CPI”) will directly affect the OASDI program.

Increases in the CPI directly affect the automatic cost-of-living benefit

increases, while inflation, in general, affects the nominal levels of

average earnings, GDP, and taxable payroll. Average earnings in covered employment for each year have a direct effect on the size of the

taxable payroll and on the future level of average benefits. In addition, increases in average wages in the U.S. economy directly affect

the indexation, under the automatic-adjustment provisions in the law,

of the benefit formulas, the contribution and benefit base, the exempt

amounts under the retirement earnings test, the amount of earnings

required for a quarter of coverage, and under certain circumstances,

the automatic cost-of-living benefit increases.

Increases in average earnings were projected in two components—

average earnings of wage-and-salary workers, usually referred to as

average wages (and shown for OASDI covered employment in table

II.D1 of this report), and average net earnings of self-employed persons. Each of these was subdivided into increases in real average

earnings and increases in the CPI. For simplicity, real increases in the

average covered wage are sometimes expressed in the form of real-
Actuarial Analysis

148

wage differentials—i.e., the percentage increase in the average nominal wage minus the percentage increase in the CPI.

The assumed ultimate increases in average real earnings are based on

analysis of trends in productivity gains and the factors linking productivity gains with increases in average real earnings. For the 40

years 1958-97, annual increases in productivity for the total U.S.

economy averaged 1.7 percent, the result of average annual increases

of 2.9, 2.0, 1.0, and 0.9 percent for the 10-year periods 1958-67, 1968-

77, 1978-87 and 1988-97, respectively. Meanwhile, the average annual

rate of change in average real earnings for the total U.S. economy was

an increase of 0.9 percent for the 40 years 1958-97, the result of average annual changes of 2.3, 0.4, 0.0, and 0.8 percent, respectively, for

the aforementioned 10-year periods. The change in the linkages

between annual changes in productivity and real earnings averaged

-0.8 percent for the 40 years 1958-97, and -0.6, -1.5, -1.0, and -0.2 percent, respectively, for the aforementioned 10-year periods. The change

in the linkages reflects changes in such factors as the average number

of hours worked per year, labor’s share of total output, the proportion

of employee compensation paid as wages, and price adjustment

reflecting the ratio of the GDP price index to the CPI.

The average annual rate of change in the average real wage in OASDI

covered employment was 0.9 percent over the 40 years 1958-97. However, the average annual rates of change over the 10-year periods varied considerably. The average annual rates of change for the 10-year

periods 1958-67, 1968-77, 1978-87, and 1988-97 were 2.0 percent, 0.5

percent, 0.7 percent and 0.7 percent, respectively.

The ultimate annual increases in productivity for all sectors—wageand-salary workers, self-employed persons, and the total economy—

are assumed to be about 1.6, 1.3, and 1.0 percent for alternatives I, II,

and III, respectively. The corresponding ultimate annual rates of

change in the linkages for wage-and-salary workers are assumed to be

declines of 0.2, 0.4, and 0.6 percent for alternatives I, II, and III,

respectively. These linkages are made up of assumed annual

decreases of 0.0, 0.1, and 0.2 percent in average hours worked per

year, 0.1, 0.2, and 0.3 percent annual declines in wages as a share of

compensation for alternatives I, II, and III, respectively, and a difference of 0.1 percentage point between the rates of growth in the CPI

and the GDP price index for each alternative. No ultimate change is

assumed for the historically relatively stable ratio of employee compensation to GDP. The resulting ultimate real-wage differentials are

1.4, 0.9, and 0.4 percent for alternatives I, II, and III, respectively.
149

Assumptions & Methods

Ultimate annual declines in the linkages for self-employed persons

are smaller because the proportion of reported compensation that is

considered earnings remains constant. As a result, ultimate average

real-earnings growth rates for the self employed are assumed to be

higher than for wage-and-salary workers. The corresponding ultimate

average real-earnings for wage-and-salary workers and self-employed

persons, combined, are slightly higher than those assumed for wageand-salary workers only.

Historically, the CPI has increased, on average, by 4.4 percent for the

40 years 1958-97, 5.3 percent for the 30 years 1968-97, 4.9 percent for

the 20 years 1978-97, and 3.4 percent for the 10 years 1988-97. The

ultimate average annual CPI increases of 2.3, 3.3, and 4.3 percent for

alternatives I, II, and III, respectively, were chosen to include a reasonable range of possible future experience. These ultimate CPI

increases are 0.2 percentage point lower than those used in last year’s

report. The GDP price index has increased by 4.1 percent annually for

the 40 years 1958-97, 4.9 percent annually for the 30 years 1968-97,

4.4 percent annually for the 20 years 1978-97, and 3.0 percent annually for the 10 years 1988-97. The difference between the growth rates

in these price indexes is assumed to decline gradually from 0.5 percentage point during 1999, to the ultimate assumed difference of 0.1

percentage point by 2008.

The ultimate increases in average annual wages in covered employment are assumed to be 3.7, 4.2, and 4.7 percent, for alternatives I, II,

and III, respectively. These were obtained, for each alternative, by

adding the assumed annual percentage increase in the CPI to the

assumed real-wage differential. Hence, the growth in average annual

wages in covered employment for each alternative is 0.2 percentage

point lower than those used in last year’s report. Ultimate increases

in average wages and earnings for the U.S. economy are very similar

to those assumed for average wages in covered employment.

The interest rate considered in this report is the nominal interest

rate, which is compounded semiannually, for special U.S. Government

obligations issuable to the trust funds in each of the 12 months of the

year. The real interest rate is defined to be the annual (compounded)

yield rate for investments in these securities divided by the growth in

the CPI.

In developing a reasonable range of assumed future real interest rates

for the three alternatives, historical experience was examined for the

40 years, 1958-97, and for each of the 10-year subperiods, 1958-67,
Actuarial Analysis

150

1968-77, 1978-87, and 1988-97. For the 40-year period, the real interest rate averaged 2.5 percent per year. For the four 10-year subperiods, the real interest rates averaged 1.8, 0.4, 4.0, and 4.2 percent per

year, respectively. The assumed ultimate real interest rates are 3.7

percent, 3.0 percent, and 2.2 percent for alternatives I, II, and III,

respectively. These ultimate real interest rates are 0.2 percentage

point higher than those used in last year’s report. The projected interest rates are assumed to trend toward these ultimate interest rates.

The ultimate value for alternative II is reached in 2007, and for alternatives I and III in 2009.

4. Taxable Payroll and Taxes

The taxable payroll for any period is that amount which, when multiplied by the combined employee-employer tax rate, yields the total

amount of taxes due from employees, employers, and the self

employed for work during the period. The taxable payroll is important

not just in estimating OASDI income, but also in determining income

and cost rates, and actuarial balances. These terms are defined in the

introduction to the section titled “Actuarial Estimates.”

In practice, the taxable payroll is calculated as a weighted average of

the earnings on which employees, employers, and self-employed persons make contributions to the OASDI program. The weighting takes

into account the lower tax rates, as compared to the combined

employee-employer rate, which apply to multiple-employer “excess

wages,” and which did apply, before 1984, to net earnings from self

employment and, before 1988, to tips. For 1983 and later, taxable payroll also includes deemed wage credits for military service. Estimates

of taxable earnings for employees, employers, and the self-employed

were developed from corresponding estimates of earnings in the U.S.

economy, by means of factors which adjust for various differences in

these measures. The factors adjust total U.S. earnings by removing

earnings from noncovered employment, adding earnings from various

outlying areas which are covered by Social Security but are not

included in published U.S. data, and removing earnings above the

taxable earnings base.

Decreases in the ratio of taxable earnings to earnings in OASDI covered employment since 1984 are due to the increasing proportion of

total covered wages earned by very high wage earners. This trend is

projected to continue through the first 10 years of the projection

period for alternatives II and III. The ratio of taxable wages to wages
151

Assumptions & Methods

in covered employment is projected to decline from a level of 0.862 for

1998 to ultimate levels of 0.855 and 0.847, by the end of the tenth projection year for alternatives II, and III, respectively. For alternative I,

the ratio is assumed to raise slightly to about 0.870. These ultimate

ratios of taxable earnings to OASDI covered earnings are about the

same as were assumed for last year’s report.

The projected levels of the taxable payroll for the intermediate alternative are higher than those projected for last year’s report through

2011, but are lower thereafter. This results from a lower ultimate

growth in the CPI than was assumed for last year’s report.

Estimates of taxes collected were developed from the estimates of taxable earnings by applying the employee, employer, or self-employed

tax rate, and by taking into account the lag between the time the tax

liability is incurred and the time the taxes are collected.

5. Insured Population

There are three basic types of insured status under the OASDI program: fully insured, currently insured, and disability insured. Fully

insured status is required of an aged worker for eligibility to a primary retirement benefit and for the eligibility of that worker’s spouse

and children to auxiliary benefits. Fully insured status is also

required of a deceased worker for the eligibility of the worker’s survivors to benefits (with the exception of child survivors and parents of

eligible child survivors, in which cases the deceased worker is

required to have had either currently insured status or fully insured

status). Disability insured status, which is more restrictive than fully

insured status, is required of a disabled worker for eligibility to a primary disability benefit and for the eligibility of the worker’s spouse

and children to auxiliary benefits.

Projections of the percentage of the population that is fully insured

were made by age and sex, from estimated distributions of workers by

accumulated quarters of coverage based on past and projected coverage rates and amounts of earnings required for quarters of coverage.

Currently insured status was disregarded for purposes of these estimates, because the number of cases in which eligibility for benefits is

based solely on currently insured status is relatively small. Projections of the percentage of fully insured persons who are also disability

insured were made by age and sex based on past and projected coverage rates, the requirements for disability insured status, and their
Actuarial Analysis

152

historical relationships. Finally, the fully insured and disability

insured populations were developed from the projected total population by applying the appropriate percentages.

Under this procedure, the percentage of the Social Security Area population aged 62 and over that is fully insured is projected to increase

from its estimated level of 77.4 on December 31, 1994, to 91.0, 90.9,

and 90.5 on December 31, 2074, based on alternatives I, II, and III,

respectively. The percentage for females is projected to increase significantly, while that for males is projected to increase slightly. Based on

alternative II, for example, the percentage for males is projected to

increase during this period from 91.6 to 92.7, while that for females is

projected to increase from 67.0 to 89.4.

The fully insured population by age and sex was further subdivided

by marital status, using the variation in labor force participation

rates by marital status to estimate the variation in coverage rates by

marital status. These coverage rates were then used to estimate the

variation in the fully insured rates by marital status.

6. Old-Age and Survivors Insurance Beneficiaries

The number of OASI beneficiaries was projected for each type of benefit separately, by the sex of the worker on whose earnings the benefits

are based, and by the age of the beneficiary. For selected types of benefits, the number of beneficiaries was also projected by marital status. 

For the short-range period, the number of retired-worker beneficiaries

was developed by applying award rates to the aged fully insured population less those insured persons entitled to retired-worker, disabledworker, or widow(er)’s benefits, and by applying termination rates to

the number of persons already receiving retired-worker benefits. The

fraction of entitled beneficiaries that would actually receive benefits

was projected to continue increasing at ages 65-69, reflecting the modifications in the retirement earnings test enacted in Public Law 104-

121.

For the long-range period, the number of retired-worker beneficiaries

not previously converted from disabled-worker beneficiary status was

projected as a percentage of the exposed population, i.e., the aged fully

insured population less persons entitled to or converted from disability benefits and insured persons entitled to widow(er)’s benefits. The

percentage for ages 70 and over was assumed to be nearly 100,

because the retirement earnings test and delayed retirement credit do
153

Assumptions & Methods

not apply after age 70, but was adjusted for the statistical difference

between in-force data and in-current-payment data, and projected

increases in the proportion of other-than-legal persons in the population. The percentage for each age 62 through 69 was projected from

observed historical and projected short-range trends, with an adjustment for changes in the portion of the primary insurance amount payable at each age of entitlement to the portion payable at age 70

entitlement. As the normal retirement age increases, the number of

retired workers as a percentage of the exposed population is gradually

adjusted downward at each age 62 through 69, reaching an ultimate

level in 2030; these downward adjustments also reflect the effects of

scheduled increases in the delayed retirement credits. Concurrently,

the percentage for ages 65 through 69 was adjusted for the earnings

test provision of Public Law 104-121.

For the long-range period also, the number of retired-worker beneficiaries previously converted from disabled-worker beneficiaries was

calculated as an extension beyond normal retirement age of the calculation of disabled-worker beneficiaries.

The number of aged-spouse beneficiaries was estimated from the population projected by age and sex. The benefits of aged-spouse beneficiaries are based on the earnings records of their husbands or wives,

who are referred to as “wage earners.” In the short-range period, a

regression equation was used to project the number of aged-spouse

beneficiaries, as a proportion of the aged uninsured female or male

population. In the long-range period, aged-spouse beneficiaries were

estimated from the population projected by age, sex, and marital status. To the number of spouses aged 62 and over in the population, a

series of factors were applied, representing the probabilities that the

spouse and the wage earner meet all of the conditions of eligibility—

i.e., the probabilities that (1) the wage earner is 62 or over, (2) the

wage earner is insured, (3) the wage earner is receiving benefits, (4)

the spouse is not receiving a benefit for the care of an entitled child,

(5) the spouse is not insured, and (6) the spouse is not eligible to

receive a significant government pension based on earnings in noncovered employment. To the resulting number of spouses was applied a

projected prevalence rate to calculate the estimated number of agedspouse beneficiaries.

In addition, the same factors were applied to the number of divorced

persons aged 62 and over in the population, with three differences.

First, an additional factor is required to reflect the probability that

the person’s former wage-earner spouse is still alive (otherwise, the
Actuarial Analysis

154

person may be entitled to a divorced widow(er)’s benefit). Second, a

factor is required to reflect the probability that the marriage to the

wage-earner spouse was at least 10 years in duration. Third, factor (3)

was not applied because, effective for January 1985, a divorced person

generally need not wait to receive benefits until the former wageearner spouse is receiving benefits.

The projected numbers of children under age 18, and students aged

18, who are eligible for benefits as children of retired-worker beneficiaries, were based on the projected number of children in the population. In the short-range period, the number of entitled children was

developed by applying award rates to the number of children in the

population where both parents are alive, and by applying termination

rates to the number of children already receiving benefits.

In the long-range period, the number of entitled children was projected separately by sex of the wage-earner parent. To the number of

children in the population, factors were applied representing the probabilities that the parent is alive, aged 62 or over, insured, and receiving a retired-worker benefit. Another factor was applied representing

the probability that the child is not entitled to a benefit based on the

other parent’s earnings. In addition, a factor was applied to reduce the

number of beneficiaries to reflect the more restrictive requirements

for entitlement of stepchildren that were enacted in Public Law 104-

121. For children aged 18, a factor representing the probability that

the child is attending a secondary school was also applied.

The number of disabled children aged 18 and over of retired-worker

beneficiaries was projected from the adult population. In the shortrange period, award rates were applied to the population, and termination rates were applied to the number of disabled children already

receiving benefits. In the long-range period, disabled children were

projected in a manner similar to that for children under 18, with the

inclusion of a factor representing the probability of being disabled

since childhood.

In the short-range period, the number of entitled young-spouse beneficiaries was developed by applying award rates to the number of

awards to children of retired workers, where the children are either

under age 16 or disabled, and by applying termination rates to the

number of young-spouses already receiving benefits. In the long-range

period, young-spouse beneficiaries were projected as a proportion of

the projected number of child beneficiaries of retired workers, taking

into account projected changes in average family size.
155

Assumptions & Methods

The number of aged-widow(er) beneficiaries was projected from the

population by age and sex. In the short-range period, insured agedwidow(er) beneficiaries were projected concurrently with the retiredworker beneficiaries. A regression equation projected the number of

uninsured aged-widow(er) beneficiaries, as a proportion of the uninsured aged female or male population not receiving any type of benefit. In the long-range period, aged-widow(er) beneficiaries were

projected from the population by age, sex, and marital status. Four

factors were applied to the number of widow(er)s in the population

aged 60 and over. These factors represent the probabilities that (1) the

deceased wage earner was fully insured at death, (2) the widow(er) is

not receiving a benefit for the care of an entitled child, (3) the

widow(er) is not fully insured, and (4) the widow(er)’s benefits are not

withheld because of receipt of a significant government pension based

on earnings in noncovered employment. In addition, some insured

widow(er)s who had not applied for their retired-worker benefits are

assumed to receive widow(er) benefits. Also, the same factors were

applied to the number of divorced persons aged 60 and over in the

population, with additional factors representing the probability that

the person’s former wage-earner spouse is deceased and that the marriage was at least 10 years in duration.

In the short-range period, the number of disabled-widow(er) beneficiaries was estimated as a proportion of the uninsured female or male

population aged 50-64. In the long-range period, the number was projected for each age 50 through 64 as a percentage of the widowed and

divorced populations, adjusted for the insured status of the deceased

spouse and the prevalence of disability.

The projected numbers of children under age 18, and students aged

18, who are eligible for benefits as survivors of deceased workers,

were based on the projected number of children in the population

whose mothers or fathers are deceased. In the short-range period, the

number of entitled children was developed by applying award rates to

the number of orphaned children, and by applying termination rates

to the number of children already receiving benefits.

In the long-range period, the number of child-survivor beneficiaries

was projected in a manner analogous to that for child beneficiaries of

retired workers, with the factor representing the probability that the

parent is aged 62 or over replaced by a factor that represented the

probability that the parent is deceased.
Actuarial Analysis

156

In the short-range period, the numbers of entitled mother-survivor

and father-survivor beneficiaries were developed by applying award

rates to the number of awards to child-survivor beneficiaries, where

the children are either under age 16 or disabled, and by applying termination rates to the number of mother-survivors and father-survivors already receiving benefits. In the long-range period, mothersurvivor and father-survivor beneficiaries were estimated from the

number of child-survivor beneficiaries, taking into account projected

changes in average family size.

The number of parent-survivor beneficiaries was projected based on

the historical pattern of the number of such beneficiaries.

Table II.H2 shows the projected number of beneficiaries under the

OASI program by type of benefit. Included among the beneficiaries

who receive retired-worker benefits are some persons who also receive

a residual benefit consisting of the excess of an auxiliary benefit over

their retired-worker benefit. Estimates of the number of such residual

payments were made separately for spouses and widow(er)s.

Table II.H2.—OASI Beneficiaries With Monthly Benefits in Current-Payment Status

as of December 31 by Alternative, Calendar Years 1945-2075

[In thousands]

Retired workers and auxiliaries Survivors

Calendar year Worker Total

Wifehusband ChildWidowwidowerMotherfather Child Parent

Historical data:

1945 . . . . . . . . 518 159 13 94 121 377 6 1,288

1950 . . . . . . . . 1,771 508 46 314 169 653 15 3,477

1955 . . . . . . . . 4,474 1,192 122 701 292 1,154 25 7,961

1960 . . . . . . . . 8,061 2,269 268 1,544 401 1,577 36 14,157

1965 . . . . . . . . 11,101 2,614 461 2,371 472 2,074 35 19,128

1970 . . . . . . . . 13,349 2,668 546 3,227 523 2,688 29 23,030

1975 . . . . . . . . 16,589 2,867 643 3,888 582 2,919 21 27,509

1980 . . . . . . . . 19,564 3,018 639 4,415 563 2,610 15 30,823

1985 . . . . . . . . 22,435 3,069 456 4,863 372 1,918 10 33,123

1986 . . . . . . . . 22,985 3,088 450 4,931 350 1,878 9 33,691

1987 . . . . . . . . 23,444 3,090 439 4,984 329 1,837 8 34,130

1988 . . . . . . . . 23,862 3,086 432 5,029 318 1,809 7 34,543

1989 . . . . . . . . 24,331 3,093 422 5,071 312 1,782 6 35,017

1990 . . . . . . . . 24,841 3,101 421 5,111 304 1,777 6 35,562

1991 . . . . . . . . 25,293 3,104 425 5,158 301 1,792 5 36,078

1992 . . . . . . . . 25,762 3,112 431 5,205 294 1,808 5 36,618

1993 . . . . . . . . 26,109 3,094 436 5,224 289 1,837 5 36,994

1994 . . . . . . . . 26,412 3,066 440 5,232 283 1,865 4 37,303

1995 . . . . . . . . 26,679 3,026 441 5,226 275 1,884 4 37,534

1996 . . . . . . . . 26,905 2,970 442 5,210 242 1,898 4 37,671

1997 . . . . . . . . 27,282 2,922 441 5,053 230 1,893 3 37,825

1998 . . . . . . . . 27,518 2,864 439 4,990 221 1,884 3 37,918
157

Assumptions & Methods

Note: The number of beneficiaries does not include certain uninsured persons, most of whom both

attained age 72 before 1968 and have fewer than 3 quarters of coverage, in which case the costs are

reimbursed by the general fund of the Treasury. The number of such uninsured persons was 225 as of

December 31, 1998, and is estimated to be fewer than 100 by the turn of the century. Totals do not necessarily equal the sums of rounded components.

Intermediate:

1999 . . . . . . . . 27,749 2,845 440 4,997 213 1,891 3 38,139

2000 . . . . . . . . 28,042 2,829 441 5,005 207 1,893 3 38,421

2005 . . . . . . . . 30,108 2,766 444 5,103 184 1,878 2 40,485

2010 . . . . . . . . 33,896 2,722 486 5,239 184 1,801 3 44,332

2015 . . . . . . . . 40,193 2,554 561 5,308 171 1,706 3 50,495

2020 . . . . . . . . 47,648 2,443 639 5,346 165 1,661 3 57,905

2025 . . . . . . . . 54,337 2,476 693 5,377 165 1,645 3 64,696

2030 . . . . . . . . 59,596 2,476 721 5,360 163 1,639 3 69,960

2035 . . . . . . . . 62,766 2,432 738 5,345 160 1,628 3 73,073

2040 . . . . . . . . 63,889 2,347 743 5,326 156 1,608 3 74,073

2045 . . . . . . . . 64,552 2,318 750 5,336 152 1,587 3 74,698

2050 . . . . . . . . 65,747 2,348 759 5,342 148 1,566 3 75,913

2055 . . . . . . . . 67,780 2,451 779 5,359 145 1,547 3 78,063

2060 . . . . . . . . 70,123 2,560 796 5,370 142 1,527 3 80,521

2065 . . . . . . . . 72,036 2,639 805 5,403 138 1,507 3 82,531

2070 . . . . . . . . 73,607 2,690 810 5,467 135 1,486 3 84,198

2075 . . . . . . . . 75,088 2,739 817 5,537 132 1,467 3 85,782

Low Cost:

1999 . . . . . . . . 27,742 2,845 440 4,996 214 1,891 3 38,131

2000 . . . . . . . . 28,019 2,827 442 5,002 207 1,895 3 38,395

2005 . . . . . . . . 29,915 2,746 447 5,073 186 1,894 2 40,263

2010 . . . . . . . . 33,422 2,652 488 5,228 185 1,881 3 43,860

2015 . . . . . . . . 39,357 2,446 567 5,307 173 1,846 3 49,699

2020 . . . . . . . . 46,360 2,300 652 5,372 165 1,855 3 56,706

2025 . . . . . . . . 52,515 2,301 718 5,431 162 1,893 3 63,022

2030 . . . . . . . . 57,083 2,267 760 5,424 162 1,946 3 67,645

2035 . . . . . . . . 59,535 2,190 794 5,388 162 1,994 3 70,066

2040 . . . . . . . . 60,072 2,083 816 5,322 163 2,024 3 70,483

2045 . . . . . . . . 60,421 2,038 844 5,271 163 2,046 3 70,786

2050 . . . . . . . . 61,425 2,055 877 5,219 165 2,076 3 71,820

2055 . . . . . . . . 63,338 2,138 923 5,199 168 2,114 3 73,882

2060 . . . . . . . . 65,476 2,221 963 5,198 171 2,154 3 76,186

2065 . . . . . . . . 67,217 2,280 995 5,244 173 2,191 3 78,103

2070 . . . . . . . . 68,863 2,330 1,023 5,335 176 2,227 3 79,956

2075 . . . . . . . . 70,815 2,395 1,054 5,453 178 2,264 3 82,161

High Cost:

1999 . . . . . . . . 27,758 2,846 440 4,998 213 1,891 3 38,149

2000 . . . . . . . . 28,067 2,832 441 5,009 207 1,892 3 38,451

2005 . . . . . . . . 30,293 2,787 444 5,135 183 1,868 2 40,711

2010 . . . . . . . . 34,375 2,797 485 5,243 189 1,754 3 44,846

2015 . . . . . . . . 41,037 2,671 557 5,295 175 1,618 3 51,356

2020 . . . . . . . . 48,988 2,606 627 5,299 168 1,522 3 59,212

2025 . . . . . . . . 56,304 2,687 670 5,292 164 1,455 3 66,575

2030 . . . . . . . . 62,430 2,738 685 5,257 157 1,398 3 72,667

2035 . . . . . . . . 66,577 2,744 686 5,255 148 1,343 3 76,754

2040 . . . . . . . . 68,627 2,702 673 5,279 138 1,289 3 78,711

2045 . . . . . . . . 70,005 2,707 662 5,343 129 1,242 3 80,091

2050 . . . . . . . . 71,814 2,768 649 5,393 120 1,194 3 81,941

2055 . . . . . . . . 74,385 2,907 647 5,427 112 1,145 3 84,626

2060 . . . . . . . . 77,342 3,058 646 5,420 104 1,097 3 87,671

2065 . . . . . . . . 79,812 3,173 640 5,409 96 1,050 3 90,183

2070 . . . . . . . . 81,671 3,238 630 5,413 90 1,006 3 92,052

2075 . . . . . . . . 83,031 3,277 622 5,414 84 965 3 93,395

Table II.H2.—OASI Beneficiaries With Monthly Benefits in Current-Payment Status

as of December 31 by Alternative, Calendar Years 1945-2075 (Cont.)

[In thousands]

Retired workers and auxiliaries Survivors

Calendar year Worker Total

Wifehusband ChildWidowwidowerMotherfather Child Parent
Actuarial Analysis

158

7. Disability Insurance Beneficiaries

The number of DI beneficiaries was projected for each type of benefit

separately, by the sex of the worker on whose earnings the benefits

are based, and the age of the beneficiary. The number of disabledworker beneficiaries was projected from the estimated number of such

beneficiaries entitled on December 31, 1998, by adding new entitlements and subtracting terminations. The starting number of entitled

disabled-worker beneficiaries was estimated by age, sex, and duration

of entitlement, from the tabulated number of disabled-worker beneficiaries in current-payment status on December 31, 1998. The number

of new entitlements during each year was projected by applying

assumed age-sex specific disability incidence rates to the projected

disability insured population (after excluding those already entitled to

disabled-worker benefits). 

The number of terminations was projected by applying assumed termination rates to the disabled-worker population. In the short-range

period, the number of terminations was projected by applying

assumed termination rates by reason—death, recovery, and all

other—and by age and sex, to the entitled disabled-worker population.

In the long-range period, the number of terminations was projected by

applying assumed death rates and recovery rates, by age, sex, and

duration of entitlement, to the entitled disabled-worker population. To

this number of terminations was added, in both the short-range and

long-range periods, the number of disabled-worker beneficiaries who

would be automatically converted to retired-worker beneficiaries upon

attainment of the normal retirement age (NRA), currently age 65.

The projection of incidence and termination rates for the DI program

begins with an evaluation of historical trends. Incidence rates have

varied within a wide range over the past 25 years. From an historically high level of roughly 7.0 awards per thousand insured in 1975,

rates declined to roughly 3.6 per thousand by 1982. Following a gradual trend upward, rates increased to roughly 5.7 per thousand by

1992 and have since followed a gradual trend downward to an estimated 4.7 per thousand in 1998.

Projected levels of disability incidence rates for workers are normally

determined in two or three steps. Rates are initially estimated from

their most recent levels based on past trends and future expectations

without regard to the increases in normal retirement age scheduled

under present law. Next, an adjustment is made to reflect the scheduled increase in NRA; beginning with individuals attaining age 62 in
159

Assumptions & Methods

2000 (the first cohort affected), incidence rates are adjusted upward to

account for the additional eligible workers who are expected to file for

disability benefits rather than for reduced retirement benefits that

are even more reduced when the NRA is greater than age 65.

Under intermediate assumptions, gross incidence rates are estimated

to increase over the next 10 years, attributable in part to a disability

population more heavily weighted toward the higher incidence ages

(50-64). Without regard to scheduled NRA increases, rates are estimated to increase from 4.7 awards per thousand in 1998 to 5.5 per

thousand by 2008.

Further increases in incidence rates attributable to the scheduled

NRA increases and new ages at which disability benefits may be payable (65-67), result in an additional 0.4 awards per thousand by 2008.

These adjustments contribute to the overall rise in the gross incidence

rate to 5.9 per thousand by the end of the short-range period. The

overall rate continues to increase to 7.2 per thousand by 2027, at

which time the effects of the scheduled increase in the NRA on the DI

program will be complete. This is very close to the ultimate rate of 7.3

per thousand, attained in 2071.

Under the low cost assumptions, the gross disability incidence rate is

assumed to decrease slightly to 4.5 per thousand in 1999 before

resuming an upward trend back toward the 1998 level of 4.7 per thousand by 2002. The upward trend continues to 5.0 per thousand by

2008. The gross incidence rate for 2027 is estimated to be 5.7 per

thousand exposed. Under the high cost assumptions, the gross disability incidence rate is assumed to increase by about 43 percent over the

next 10 years, to a level comparable to the historical highs experienced in the mid 1970s. The gross incidence rate under the high cost

assumptions is estimated to reach about 8.6 per thousand exposed by

2027.

In the short-range period, the age-sex specific termination rates are

projected by reason—death, recovery, and all other. Two notable developments that may slightly affect mortality rates among the disabled

include a significant reduction in projected awards due to HIV impairments, and the elimination of current and future benefit payments to

drug addicts and alcoholics. Both of these categories are assumed to

have significantly higher death rates than the overall disability population, but are relatively small in number compared to total disabled

workers in current-payment status. The actual impact may not be

known for some time. Gross death rates are projected to remain rela-
Actuarial Analysis

160

tively constant at roughly 33.5 deaths per thousand disabled workers.

This is down slightly from 35.5 deaths per thousand as projected

under the intermediate set of assumptions from last year’s report. The

pattern of projected recovery rates is based on workload estimates

(supplied by the Social Security Administration’s Office of Disability),

and budgetary constraints affecting the anticipated number of continuing disability reviews scheduled in the future (supplied by the

Social Security Administration’s Office of Budget). Under low cost

(high cost) assumptions, terminations due to death, recovery, and

other reasons increase (decrease) to levels roughly 10 percent higher

(lower) than those under the intermediate assumptions.

In the long-range period, the death-termination rates and recovery

rates were projected by age, sex, and duration of entitlement. For

1998, the last year of actual data, recovery rates were 52 percent of

the base period rates for males, and 58 percent of the base period

rates for females. Death-termination rates for 1998 were 76 percent of

the base period for males, and 74 percent of the base period rates for

females.

For alternative II, death rates reach levels in 2073 approximately 55

percent lower for males and approximately 44 percent lower for

females than those experienced by disabled-worker beneficiaries during 1977-80, the most recent period for which detailed data are available. The recovery rates for both males and females, after their

patterns during the short-range period, are assumed to increase until

2013, when they attain ultimate levels that are 50 percent lower than

those experienced during the period 1977-80. Projected increases in

recovery rates reflect the estimated effect of the periodic reviews

required by provisions of law first enacted in 1980, and amended in

1983, 1984, 1990, and 1996.

For alternative I, the death rates in 2073 are estimated to be roughly

39 percent lower for males and approximately 25 percent lower for

females than those experienced by disabled-worker beneficiaries during 1977-80. Recovery rates are assumed to increase to ultimate levels

that are about 10 percent higher than the 1998 level for males, and

about the same as the 1998 level for females. These ultimate recovery

rates are 40 percent lower than those of the 1977-80 base period for

both males and females. For alternative III, the death rates in 2073

are estimated to be about 70 percent lower for males and 63 percent

lower for females than those experienced during 1977-80. Recovery

rates are assumed to decrease to ultimate levels that are about 20

percent lower than the 1998 levels for males, and about 30 percent
161

Assumptions & Methods

lower than the 1998 levels for females. These ultimate recovery rates

are 60 percent lower than those experienced during 1977-80.

In the short-range period, the projected numbers of children under

age 18, students aged 18, and disabled children aged 18 and over, who

are eligible for benefits as children of disabled-worker beneficiaries,

were projected by applying quarterly award and termination rates.

Awards to the three categories of child beneficiaries were based on the

number of awards to disabled-worker beneficiaries.

In the long-range period, the projected numbers of minor child and

student beneficiaries were based on the projected number of children

in the population by age. To the number of children were applied factors representing the probability that either of their parents is

insured and disabled. In addition, a factor was applied to reduce the

number of beneficiaries to reflect the more restrictive requirements

for entitlement of stepchildren that were enacted in Public Law

104-121. The number of disabled children aged 18 and over was projected as a function of the number of disabled-worker beneficiaries

and the size of the adult population.

In the short-range period, the number of young-spouse beneficiaries

was projected by applying quarterly award and termination rates,

where awards were based on the number of awards to child beneficiaries who are either under age 16 or disabled. The number of agedspouse beneficiaries was also projected by applying quarterly award

and termination rates, where awards were based on the number of

awards to disabled-worker beneficiaries.

In the long-range period, the number of young-spouse beneficiaries

was projected as a proportion of the projected number of child beneficiaries who are either under age 16 or disabled, taking into account

projected changes in family size. The number of aged-spouse beneficiaries was projected as a proportion of the number of disabled-worker

beneficiaries, based on recent experience and allowing for projected

changes in marriage rates.

Table II.H3 shows the projected number of beneficiaries under the DI

program by type of benefit.
Actuarial Analysis

162

Table II.H3.—DI Beneficiaries With Monthly Benefits in Current-Payment Status 

as of December 31 by Alternative, Calendar Years 1960-2075

[In thousands]

Disabled

worker

Auxiliaries

Calendar year Total

Wifehusband Child

Historical data:

1960 . . . . . . . . . . . . . . . . . . . . . . . . 455 77 155 687

1965 . . . . . . . . . . . . . . . . . . . . . . . . 988 193 558 1,739

1970 . . . . . . . . . . . . . . . . . . . . . . . . 1,493 283 889 2,665

1975 . . . . . . . . . . . . . . . . . . . . . . . . 2,488 453 1,411 4,351

1980 . . . . . . . . . . . . . . . . . . . . . . . . 2,856 462 1,359 4,677

1985 . . . . . . . . . . . . . . . . . . . . . . . . 2,653 306 945 3,904

1986 . . . . . . . . . . . . . . . . . . . . . . . . 2,725 301 965 3,991

1987 . . . . . . . . . . . . . . . . . . . . . . . . 2,782 291 968 4,041

1988 . . . . . . . . . . . . . . . . . . . . . . . . 2,826 281 963 4,070

1989 . . . . . . . . . . . . . . . . . . . . . . . . 2,891 271 962 4,124

1990 . . . . . . . . . . . . . . . . . . . . . . . . 3,007 266 989 4,261

1991 . . . . . . . . . . . . . . . . . . . . . . . . 3,191 266 1,052 4,509

1992 . . . . . . . . . . . . . . . . . . . . . . . . 3,464 271 1,151 4,886

1993 . . . . . . . . . . . . . . . . . . . . . . . . 3,721 273 1,255 5,249

1994 . . . . . . . . . . . . . . . . . . . . . . . . 3,958 271 1,350 5,579

1995 . . . . . . . . . . . . . . . . . . . . . . . . 4,179 264 1,409 5,852

1996 . . . . . . . . . . . . . . . . . . . . . . . . 4,378 224 1,463 6,065

1997 . . . . . . . . . . . . . . . . . . . . . . . . 4,501 207 1,438 6,146

1998 . . . . . . . . . . . . . . . . . . . . . . . . 4,691 190 1,446 6,327

Intermediate:

1999 . . . . . . . . . . . . . . . . . . . . . . . . 4,895 184 1,462 6,541

2000 . . . . . . . . . . . . . . . . . . . . . . . . 5,109 179 1,477 6,765

2005 . . . . . . . . . . . . . . . . . . . . . . . . 6,456 191 1,638 8,285

2010 . . . . . . . . . . . . . . . . . . . . . . . . 7,673 207 1,723 9,604

2015 . . . . . . . . . . . . . . . . . . . . . . . . 8,647 205 1,762 10,614

2020 . . . . . . . . . . . . . . . . . . . . . . . . 9,171 215 1,777 11,163

2025 . . . . . . . . . . . . . . . . . . . . . . . . 9,656 239 1,817 11,712

2030 . . . . . . . . . . . . . . . . . . . . . . . . 9,719 243 1,866 11,827

2035 . . . . . . . . . . . . . . . . . . . . . . . . 9,714 240 1,903 11,857

2040 . . . . . . . . . . . . . . . . . . . . . . . . 9,910 238 1,927 12,075

2045 . . . . . . . . . . . . . . . . . . . . . . . . 10,426 249 1,948 12,623

2050 . . . . . . . . . . . . . . . . . . . . . . . . 10,742 256 1,966 12,964

2055 . . . . . . . . . . . . . . . . . . . . . . . . 10,978 265 1,988 13,232

2060 . . . . . . . . . . . . . . . . . . . . . . . . 10,951 266 2,008 13,225

2065 . . . . . . . . . . . . . . . . . . . . . . . . 10,991 265 2,025 13,281

2070 . . . . . . . . . . . . . . . . . . . . . . . . 11,138 267 2,039 13,444

2075 . . . . . . . . . . . . . . . . . . . . . . . . 11,326 272 2,053 13,651

Low Cost:

1999 . . . . . . . . . . . . . . . . . . . . . . . . 4,851 182 1,449 6,481

2000 . . . . . . . . . . . . . . . . . . . . . . . . 5,012 176 1,450 6,637

2005 . . . . . . . . . . . . . . . . . . . . . . . . 5,988 177 1,527 7,692

2010 . . . . . . . . . . . . . . . . . . . . . . . . 6,702 174 1,522 8,398

2015 . . . . . . . . . . . . . . . . . . . . . . . . 7,195 158 1,500 8,853

2020 . . . . . . . . . . . . . . . . . . . . . . . . 7,424 155 1,505 9,084

2025 . . . . . . . . . . . . . . . . . . . . . . . . 7,701 164 1,559 9,424

2030 . . . . . . . . . . . . . . . . . . . . . . . . 7,698 161 1,636 9,495

2035 . . . . . . . . . . . . . . . . . . . . . . . . 7,684 156 1,708 9,548

2040 . . . . . . . . . . . . . . . . . . . . . . . . 7,861 154 1,765 9,780

2045 . . . . . . . . . . . . . . . . . . . . . . . . 8,303 162 1,816 10,281

2050 . . . . . . . . . . . . . . . . . . . . . . . . 8,605 168 1,875 10,647

2055 . . . . . . . . . . . . . . . . . . . . . . . . 8,874 176 1,945 10,995

2060 . . . . . . . . . . . . . . . . . . . . . . . . 8,990 178 2,017 11,185

2065 . . . . . . . . . . . . . . . . . . . . . . . . 9,221 182 2,086 11,489

2070 . . . . . . . . . . . . . . . . . . . . . . . . 9,579 188 2,153 11,920

2075 . . . . . . . . . . . . . . . . . . . . . . . . 9,985 196 2,221 12,401
163

Assumptions & Methods

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

8. Average Benefits

Average benefits were projected by type of benefit based on recent historical averages, projected average Primary Insurance Amounts

(PIAs), and projected ratios of average benefits to average PIAs. Average PIAs were calculated from projected distributions of beneficiaries

by duration from year of award, average awarded PIAs, and increases

thereto since the year of award, reflecting automatic benefit increases,

recomputations to reflect additional covered earnings, and other factors. Average awarded PIAs were calculated from projected earnings

histories, which were developed from the actual earnings histories

associated with a sample of awards made in 1997. A sample of 1996

awards was used for the 1998 report.

For several types of benefits—retired-worker, aged-spouse, and agedwidow(er) benefits—the percentage of the PIA that is payable depends

on the age at initial entitlement to benefits. Projected ratios of average benefits to average PIAs for these types of benefits were based on

projections of age distributions at initial entitlement.

9. Benefit Payments

For each type of benefit, benefit payments were calculated as the

product of a number of beneficiaries and a corresponding average

monthly benefit. In the short-range period, benefit payments were calHigh Cost:

1999 . . . . . . . . . . . . . . . . . . . . . . . . 4,969 188 1,489 6,645

2000 . . . . . . . . . . . . . . . . . . . . . . . . 5,280 188 1,533 7,001

2005 . . . . . . . . . . . . . . . . . . . . . . . . 7,170 215 1,821 9,206

2010 . . . . . . . . . . . . . . . . . . . . . . . . 8,652 247 1,924 10,823

2015 . . . . . . . . . . . . . . . . . . . . . . . . 10,120 264 2,010 12,394

2020 . . . . . . . . . . . . . . . . . . . . . . . . 10,957 291 2,016 13,264

2025 . . . . . . . . . . . . . . . . . . . . . . . . 11,678 331 2,022 14,030

2030 . . . . . . . . . . . . . . . . . . . . . . . . 11,832 341 2,020 14,192

2035 . . . . . . . . . . . . . . . . . . . . . . . . 11,859 338 2,002 14,200

2040 . . . . . . . . . . . . . . . . . . . . . . . . 12,090 334 1,982 14,406

2045 . . . . . . . . . . . . . . . . . . . . . . . . 12,690 347 1,968 15,004

2050 . . . . . . . . . . . . . . . . . . . . . . . . 13,014 352 1,939 15,306

2055 . . . . . . . . . . . . . . . . . . . . . . . . 13,191 360 1,908 15,459

2060 . . . . . . . . . . . . . . . . . . . . . . . . 12,956 354 1,872 15,182

2065 . . . . . . . . . . . . . . . . . . . . . . . . 12,699 345 1,833 14,878

2070 . . . . . . . . . . . . . . . . . . . . . . . . 12,517 339 1,795 14,651

2075 . . . . . . . . . . . . . . . . . . . . . . . . 12,375 337 1,760 14,471

Table II.H3.—DI Beneficiaries With Monthly Benefits in Current-Payment Status 

as of December 31 by Alternative, Calendar Years 1960-2075 (Cont.)

[In thousands]

Disabled

worker

Auxiliaries

Calendar year Total

Wifehusband Child
Actuarial Analysis

164

culated on a quarterly basis. In the long-range period, all benefit payments were calculated on an annual basis, using the number of

beneficiaries on December 31. These amounts were adjusted to

include retroactive payments to newly awarded beneficiaries, and

other amounts not reflected in the regular monthly benefit payments.

Lump-sum death payments were calculated as the product of (1) the

number of such payments, which was projected on the basis of the

assumed death rates, the projected fully insured population, and the

estimated percentage of the fully insured population that would qualify for benefits, and (2) the amount of the lump-sum death payment,

which is $255 (not indexed in future years).

10. Administrative Expenses

The projection of administrative expenses through 2008 was based on

assumed increases in average wages, increases in the CPI, and

increases in the number of beneficiaries. For years after 2008, administrative expenses are assumed to increase because of increases in the

number of beneficiaries and increases in the average wage which will

more than offset assumed improvements in administrative productivity.

11. Railroad Retirement Financial Interchange

Railroad workers are covered under a separate multi-tiered plan, the

first tier being very similar to OASDI coverage. An annual financial

interchange between the Railroad Retirement fund and the OASI and

DI funds is made reflecting the difference between (1) the amount of

OASDI benefits that would be paid to railroad workers and their families if railroad employment had been covered under the OASDI program and (2) the amount of OASDI payroll tax that would be received

from railroad workers if they were covered directly under the OASDI

program.

The effect of the financial interchange with the Railroad Retirement

program was evaluated on the basis of trends similar to those used in

estimating the cost of OASDI benefits. The resulting effect was

annual short-range costs of about $3-5 billion and a long-range summarized cost of 0.05 percent of taxable payroll to the OASDI program.
165

Assumptions & Methods

12. Benefits to Uninsured Persons

The law provides for special monthly cash payments to certain uninsured persons who attained age 72 before 1968 or who have 3 quarters

of coverage for each year after 1966 and before the year of attainment

of age 72. The number of such uninsured persons was projected based

on an extrapolation of the historical survival rate of the members of

that group. The benefit payable to these uninsured persons is a fixed

amount which increases by the percentage benefit increase applicable

to regular OASDI benefits. These payments are made from the OASI

Trust Fund, which is then reimbursed from the general fund of the

Treasury for the costs (including administrative expenses and interest) associated with providing payments to those persons with fewer

than 3 quarters of coverage. The nonreimbursable payments are

assumed to be insignificant after 2000. Neither the reimbursable payments nor the associated reimbursements are reflected in the cost

rates or the income rates. These amounts are reflected, however, in

tables which show trust fund operations.

13. Military-Service Transfers

As a result of the 1983 amendments, the OASI and DI Trust Funds

received lump-sum payments, in May 1983, for the cost (including

administrative expenses) of providing additional benefit payments

resulting from noncontributory wage credits for military service performed prior to 1957. Adjustments to the payments were made in

1985, 1990, and 1995, and additional adjustments will be made in

2000 and every fifth year thereafter. The adjustments for 2000 were

estimated based on the change in interest rates since the determination of the adjustments in 1995. No adjustments after 1995 would be

due unless actual interest rates are different from those assumed, or

changes are made in the methods used to determine the military-service transfers. 

14. Income From Taxation of Benefits

Under present law, the OASI and DI Trust Funds are credited with

the additional income taxes attributable to the taxation of the first 50

percent of OASDI benefit payments. (The remainder of the income

taxes attributable to the taxation of up to 85 percent of OASDI benefit

payments is credited to the HI Trust Fund.) For the short-range

period, income to the trust funds from such taxation was estimated by
Actuarial Analysis

166

applying the following two factors to total OASI and DI benefit payments: (1) the percentage of benefit payments (limited to 50 percent)

that is taxable, and (2) the average tax rate applicable to those benefits. For the long-range period, income to the trust funds from such

taxation was estimated by applying projected ratios of such income to

total OASI and DI benefit payments. Because the income thresholds

used for benefit taxation are, by law, constant in the future, their values in relation to future income and benefit levels will decline. Thus,

ratios of income from taxation of benefits to the amount of benefits are

projected to increase. These ratios were projected reflecting the

results of a model developed by the Office of Tax Analysis, Department of the Treasury, relating OASDI benefit payments to total personal income for a sample of recent tax returns.
167

OASDI & HI Combined

III. APPENDICES

A. ACTUARIAL ESTIMATES FOR THE OASDI AND HI

PROGRAMS, COMBINED

In this appendix, long-range actuarial estimates for the OASDI and

Hospital Insurance (HI) programs are combined to facilitate analysis

of the adequacy of the combined income and assets of the trust funds

relative to their combined expenditures. Combining cost and income

rates as percentages of taxable payroll requires a note of caution. The

taxable payrolls for the HI program are larger than those estimated

for the OASDI program because (1) a larger maximum taxable

amount was established for the HI program in 1991, with the maximum being eliminated altogether for the HI program in 1994, (2) a

larger proportion of Federal, State, and local government employees

have their wages covered under the HI program, and (3) the earnings

of railroad workers are included directly in the HI taxable payroll but

not in the OASDI taxable payroll (railroad contributions for the equivalent of OASDI benefits are accounted for in a net interchange that

occurs annually between the OASDI and Railroad Retirement programs). As a result, the HI taxable payroll is about 25 percent larger

than the OASDI taxable payroll throughout the long-range period.

Nonetheless, combined OASDI and HI rates shown in this appendix

are computed by adding the separately derived rates for the programs. The resulting combined rates may be interpreted as those

applicable to the taxable payroll in the amount of the OASDI payroll,

with the separate HI rates being additionally applicable to the excess

of the HI payroll over the OASDI payroll.

Long-range estimates are subject to much uncertainty and should not

be considered precise forecasts. Instead they should be considered as

indicative of the general trend and range of costs that could reasonably be expected to occur. The emphasis in this appendix on combined

operations, while significant, should not obscure the analysis of the

financial status of the individual trust funds, which are legally separate and cannot be commingled. In addition, the factors which determine the costs of the OASI, DI, and HI programs differ substantially.

As with the OASI and DI Trust Funds, income to the HI Trust Fund

comes primarily from contributions paid by employees, employers,

and self-employed persons. The combined OASDI and HI contribution

rate for employees and their employers is often referred to as the
Appendices

168

FICA tax, because it is authorized by the Federal Insurance Contributions Act. Contribution rates for the OASDI and HI programs are

shown in table III.A1. 

Table III.A2 shows estimated annual income rates and cost rates for

the OASDI program, the HI program, and the combined OASDI and

HI programs, based on the low cost, intermediate, and high cost sets

of assumptions (alternatives I, II, and III) described earlier in this

report. These annual rates are intended to indicate the cash-flow

operation of the programs. Therefore, income rates exclude interest

earned on trust fund assets and cost rates exclude the cost of accumulating or maintaining target trust fund balances. Table III.A2 also

shows the differences between income rates and cost rates, called balances. Estimates shown for the combined trust funds are theoretical

because no authority currently exists for transferring assets from one

trust fund to another.

Under all three sets of assumptions, combined OASDI and HI cost

rates are projected to rise above current levels, with the sharpest

increase occurring during the period 2010-30. Under the high cost set

of assumptions, alternative III, annual deficits are projected to occur

beginning in 2006, and to continue for the remainder of the 75-year

projection period. Cost rates are projected to rise to over three times

their current level by the end of the projection period. Under the

Table III.A1.—Contribution Rates for the OASDI and HI Programs

 [In percent]

Calendar years

Employees and employers,

each Self employed

OASDI HI

Combined OASDI HICombined

1966 . . . . . . . . . . . . . . . . . . . . . 3.85 0.35 4.20 5.80 0.35 6.15

1967 . . . . . . . . . . . . . . . . . . . . . 3.90 .50 4.40 5.90 .50 6.40

1968 . . . . . . . . . . . . . . . . . . . . . 3.80 .60 4.40 5.80 .60 6.40

1969-70. . . . . . . . . . . . . . . . . . . 4.20 .60 4.80 6.30 .60 6.90

1971-72. . . . . . . . . . . . . . . . . . . 4.60 .60 5.20 6.90 .60 7.50

1973 . . . . . . . . . . . . . . . . . . . . . 4.85 1.00 5.85 7.00 1.00 8.00

1974-77. . . . . . . . . . . . . . . . . . . 4.95 .90 5.85 7.00 .90 7.90

1978 . . . . . . . . . . . . . . . . . . . . . 5.05 1.00 6.05 7.10 1.00 8.10

1979-80. . . . . . . . . . . . . . . . . . . 5.08 1.05 6.13 7.05 1.05 8.10

1981 . . . . . . . . . . . . . . . . . . . . . 5.35 1.30 6.65 8.00 1.30 9.30

1982-83. . . . . . . . . . . . . . . . . . . 5.40 1.30 6.70 8.05 1.30 9.35

1984 1 . . . . . . . . . . . . . . . . . . . . 

 1 See footnote 1 under table II.B1 in the section titled “Description of the Trust Funds” for a description of

tax credits allowed against the combined OASDI and HI taxes on net earnings from self-employment in

1984-89.

5.70 1.30 7.00 11.40 2.60 14.00

1985 . . . . . . . . . . . . . . . . . . . . . 5.70 1.35 7.05 11.40 2.70 14.10

1986-87. . . . . . . . . . . . . . . . . . . 5.70 1.45 7.15 11.40 2.90 14.30

1988-89. . . . . . . . . . . . . . . . . . . 6.06 1.45 7.51 12.12 2.90 15.02

1990 and later. . . . . . . . . . . . . . 6.20 1.45 7.65 12.40 2.90 15.30
169

OASDI & HI Combined

intermediate assumptions, alternative II, annual deficits begin in

2013, with cost rates nearly doubling by the end of the projection

period. Under the low cost assumptions, alternative I, cost rates are

projected to increase by about 30 percent, with annual deficits beginning by 2020.

Table III.A2.—Comparison of Estimated Income Rates and Cost Rates 1 

for OASDI and HI by Alternative, Calendar Years 1999-2075

[As a percentage of taxable payroll 1]

OASDI HI Combined

Calendar 

year

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Intermediate:

1999 . . . . 12.70 10.80 1.90 3.02 3.10 -0.08 15.72 13.90 1.82

2000 . . . . 12.65 10.79 1.86 3.04 3.10 -.05 15.70 13.89 1.81

2001 . . . . 12.67 10.83 1.85 3.05 3.09 -.04 15.72 13.92 1.80

2002 . . . . 12.68 10.91 1.76 3.05 3.10 -.05 15.73 14.01 1.71

2003 . . . . 12.68 10.99 1.69 3.05 3.11 -.06 15.74 14.10 1.64

2004 . . . . 12.69 11.08 1.61 3.06 3.14 -.08 15.75 14.22 1.52

2005 . . . . 12.70 11.18 1.52 3.06 3.17 -.11 15.76 14.35 1.41

2006 . . . . 12.71 11.29 1.42 3.06 3.20 -.14 15.77 14.49 1.28

2007 . . . . 12.71 11.41 1.31 3.07 3.24 -.17 15.78 14.65 1.13

2008 . . . . 12.73 11.55 1.18 3.07 3.27 -.20 15.80 14.82 .98

2010 . . . . 12.75 11.91 .84 3.08 3.33 -.26 15.82 15.24 .58

2015 . . . . 12.82 13.26 -.45 3.10 3.60 -.50 15.92 16.86 -.94

2020 . . . . 12.91 15.03 -2.12 3.14 4.00 -.86 16.06 19.03 -2.97

2025 . . . . 13.01 16.62 -3.61 3.20 4.54 -1.35 16.21 21.16 -4.96

2030 . . . . 13.09 17.71 -4.62 3.24 5.09 -1.85 16.33 22.80 -6.47

2035 . . . . 13.15 18.19 -5.05 3.27 5.52 -2.24 16.42 23.71 -7.29

2040 . . . . 13.17 18.18 -5.00 3.29 5.79 -2.50 16.46 23.97 -7.50

2045 . . . . 13.19 18.15 -4.96 3.31 5.96 -2.65 16.50 24.11 -7.61

2050 . . . . 13.22 18.28 -5.06 3.32 6.06 -2.74 16.54 24.34 -7.80

2055 . . . . 13.25 18.64 -5.39 3.34 6.16 -2.82 16.59 24.80 -8.21

2060 . . . . 13.29 19.05 -5.77 3.36 6.33 -2.97 16.65 25.38 -8.73

2065 . . . . 13.32 19.37 -6.05 3.38 6.55 -3.17 16.69 25.92 -9.22

2070 . . . . 13.34 19.63 -6.29 3.39 6.78 -3.39 16.73 26.41 -9.68

2075 . . . . 13.36 19.90 -6.53 3.41 6.99 -3.59 16.77 26.89 -10.12

Low Cost:

1999 . . . . 12.70 10.67 2.03 3.02 3.05 -.03 15.72 13.72 2.00

2000 . . . . 12.63 10.54 2.10 3.04 2.99 .05 15.68 13.53 2.14

2001 . . . . 12.67 10.48 2.19 3.04 2.94 .11 15.71 13.41 2.30

2002 . . . . 12.67 10.43 2.23 3.05 2.90 .15 15.71 13.33 2.38

2003 . . . . 12.67 10.42 2.25 3.05 2.87 .18 15.72 13.29 2.43

2004 . . . . 12.67 10.42 2.25 3.05 2.86 .19 15.72 13.28 2.45

2005 . . . . 12.68 10.43 2.25 3.05 2.84 .21 15.73 13.27 2.46

2006 . . . . 12.68 10.45 2.24 3.05 2.83 .22 15.74 13.28 2.46

2007 . . . . 12.69 10.47 2.22 3.06 2.82 .23 15.75 13.30 2.45

2008 . . . . 12.70 10.52 2.18 3.06 2.81 .25 15.76 13.33 2.43

2010 . . . . 12.71 10.74 1.97 3.06 2.78 .28 15.78 13.52 2.25

2015 . . . . 12.77 11.77 1.00 3.08 2.79 .29 15.85 14.56 1.29

2020 . . . . 12.85 13.23 -.38 3.11 2.89 .23 15.96 16.11 -.15

2025 . . . . 12.92 14.44 -1.52 3.16 3.03 .13 16.08 17.47 -1.39

2030 . . . . 12.98 15.13 -2.15 3.19 3.12 .07 16.17 18.25 -2.08

2035 . . . . 13.01 15.22 -2.21 3.21 3.17 .04 16.22 18.39 -2.17

2040 . . . . 13.02 14.86 -1.84 3.22 3.19 .03 16.24 18.05 -1.81

2045 . . . . 13.02 14.51 -1.49 3.22 3.21 .01 16.24 17.72 -1.48

2050 . . . . 13.03 14.32 -1.29 3.23 3.26 -.03 16.26 17.58 -1.32

2055 . . . . 13.04 14.31 -1.27 3.24 3.31 -.08 16.28 17.63 -1.35

2060 . . . . 13.06 14.30 -1.24 3.25 3.40 -.16 16.30 17.71 -1.40

2065 . . . . 13.06 14.19 -1.13 3.25 3.52 -.27 16.31 17.71 -1.40

2070 . . . . 13.07 14.08 -1.02 3.25 3.65 -.39 16.32 17.73 -1.41

2075 . . . . 13.07 14.05 -.98 3.26 3.77 -.51 16.33 17.82 -1.49
Appendices

170

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.

Tables III.A3 and III.A4 show the estimates of summarized OASDI

and HI income rates, cost rates and balances for various time periods,

based on all three sets of assumptions. In table III.A3 values are summarized over the three 25-year subperiods (excluding the beginning

fund balances and the cost of accumulating ending fund targets). In

table III.A4 values are summarized over the 25-year, 50-year, and 75-

year valuation periods (for which beginning fund balances are

included in the summarized income rates, and the costs of accumulating an ending fund balance equal to 100 percent of annual expenditures by the end of the period are included in the summarized cost

rates). Estimates shown for the combined trust funds are theoretical

because no authority currently exists for transferring assets from one

trust fund to another.

High Cost:

1999 . . . . 12.70 10.82 1.88 3.02 3.16 -0.14 15.72 13.98 1.74

2000 . . . . 12.68 11.09 1.59 3.05 3.24 -.19 15.73 14.34 1.39

2001 . . . . 12.68 11.05 1.63 3.05 3.24 -.19 15.73 14.29 1.44

2002 . . . . 12.68 11.24 1.44 3.05 3.26 -.21 15.74 14.50 1.24

2003 . . . . 12.71 12.02 .68 3.07 3.41 -.35 15.77 15.43 .34

2004 . . . . 12.71 12.04 .67 3.07 3.47 -.40 15.78 15.51 .27

2005 . . . . 12.72 12.13 .59 3.07 3.53 -.46 15.79 15.66 .13

2006 . . . . 12.73 12.29 .44 3.07 3.63 -.55 15.80 15.92 -.12

2007 . . . . 12.74 12.50 .25 3.08 3.72 -.64 15.82 16.22 -.40

2008 . . . . 12.76 12.72 .04 3.08 3.82 -.73 15.84 16.54 -.70

2010 . . . . 12.78 13.21 -.43 3.09 4.01 -.92 15.88 17.22 -1.34

2015 . . . . 12.88 14.82 -1.94 3.13 4.69 -1.56 16.01 19.51 -3.50

2020 . . . . 13.00 16.87 -3.87 3.18 5.66 -2.48 16.18 22.53 -6.35

2025 . . . . 13.12 18.88 -5.77 3.25 7.02 -3.77 16.37 25.90 -9.54

2030 . . . . 13.22 20.49 -7.26 3.31 8.55 -5.24 16.53 29.04 -12.50

2035 . . . . 13.31 21.54 -8.23 3.36 9.87 -6.51 16.66 31.40 -14.74

2040 . . . . 13.36 22.13 -8.76 3.39 10.79 -7.40 16.76 32.92 -16.16

2045 . . . . 13.41 22.73 -9.31 3.42 11.34 -7.92 16.83 34.07 -17.23

2050 . . . . 13.47 23.51 -10.04 3.45 11.57 -8.11 16.92 35.08 -18.15

2055 . . . . 13.54 24.62 -11.07 3.49 11.77 -8.28 17.03 36.39 -19.35

2060 . . . . 13.62 25.86 -12.24 3.54 12.09 -8.56 17.16 37.95 -20.79

2065 . . . . 13.70 27.06 -13.36 3.58 12.50 -8.92 17.28 39.56 -22.28

2070 . . . . 13.77 28.18 -14.41 3.62 12.95 -9.33 17.38 41.12 -23.74

2075 . . . . 13.83 29.22 -15.39 3.65 13.37 -9.72 17.48 42.60 -25.11

 1 The taxable payroll for HI is significantly larger than the taxable payroll for OASDI because the HI taxable maximum amount was eliminated beginning 1994, and because HI covers all Federal civilian

employees, including those hired before 1984, all State and local government employees hired after

April 1, 1986, and railroad employees. Combined OASDI and HI rates are computed as the sum of the

separately derived rates for each program.

Table III.A2.—Comparison of Estimated Income Rates and Cost Rates 1 

for OASDI and HI by Alternative, Calendar Years 1999-2075 (Cont.)

[As a percentage of taxable payroll 1]

OASDI HI Combined

Calendar 

year

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance
171

OASDI & HI Combined

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

Under the high cost alternative III, the combined OASDI and HI system is projected to experience large deficits during the 25-year, 50-

year, and 75-year valuation periods (table III.A4, including beginning

trust fund balances and the cost of ending fund targets). Deficits are

projected to occur during each 25-year subperiod of the 75-year projection period (table III.A3, excluding beginning trust fund balances and

the cost of ending fund targets). Under intermediate alternative II

assumptions, deficits of smaller magnitude than those for the high

cost alternative III are projected to occur for each of the three 25-year

subperiods, and for the 50-year and the 75-year valuation periods.

Under the low cost alternative I, the combined OASDI and HI system

is projected to show positive balances for the first 25-year subperiod

and for each of the three valuation periods. Relatively small deficits

are projected for the second and third 25-year subperiods.

Table III.A3.—Comparison of Summarized Income Rates and Cost Rates 1 

for 25-Year Subperiods 2 , for OASDI and HI by Alternative,

Calendar Years 1999-2073

[As a percentage of taxable payroll 1]

 1 The taxable payroll for HI is significantly larger than the taxable payroll for OASDI because the HI taxable maximum amount was eliminated beginning 1994, and because HI covers all Federal civilian

employees, including those hired before 1984, all State and local government employees hired after

April 1, 1986, and railroad employees. Combined OASDI and HI rates are computed as the sum of the

separately derived rates for each program.

 2 For 25-year subperiods, income rates do not include beginning trust fund balances and cost rates do

not include the cost of reaching ending fund targets.

OASDI HI Combined

Subperiod

Income

 rate

 Cost

rate Balance

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Intermediate:

1999-2023. . . 12.78 12.50 0.28 3.09 3.46 -0.37 15.87 15.96 -0.09

2024-2048. . . 13.12 17.79 -4.67 3.26 5.38 -2.12 16.38 23.17 -6.79

2049-2073. . . 13.28 18.99 -5.71 3.36 6.38 -3.02 16.64 25.37 -8.73

Low Cost:

1999-2023. . . 12.74 11.38 1.36 3.07 2.86 .21 15.81 14.24 1.57

2024-2048. . . 12.99 14.85 -1.85 3.20 3.15 .05 16.19 17.99 -1.80

2049-2073. . . 13.05 14.24 -1.19 3.24 3.43 -.19 16.29 17.67 -1.38

High Cost:

1999-2023. . . 12.82 13.70 -.88 3.11 4.27 -1.16 15.93 17.97 -2.04

2024-2048. . . 13.28 21.18 -7.89 3.34 9.49 -6.15 16.62 30.67 -14.05

2049-2073. . . 13.62 25.80 -12.19 3.53 12.16 -8.63 17.15 37.97 -20.82
Appendices

172

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

Table III.A4.—Comparison of Summarized Income Rates and Cost Rates 1 for Valuation 

Periods 2 , for OASDI and HI by Alternative, Calendar Years 1999-2073

 [As a percentage of taxable payroll 1]

 1 The taxable payroll for HI is significantly larger than the taxable payroll for OASDI because the HI taxable maximum amount was eliminated beginning 1994, and because HI covers all Federal civilian

employees, including those hired before 1984, all State and local government employees hired after

April 1, 1986, and railroad employees. Combined OASDI and HI rates are computed as the sum of the

separately derived rates for each program.

 2 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.

OASDI HI Combined

Valuation

period 

Income

 rate

 Cost

rate

Actuarial

balance

Income

rate

Cost

rate

Actuarial

balance

Income

rate

Cost

rate

Actuarial

balance

Intermediate:

25-years:

1999-2023 . . . 13.81 13.04 0.77 3.21 3.60 -0.40 17.02 16.64 0.38

50-years:

1999-2048 . . . 13.54 14.80 -1.26 3.23 4.31 -1.08 16.77 19.11 -2.34

75-years:

1999-2073 . . . 13.49 15.56 -2.07 3.26 4.71 -1.46 16.75 20.27 -3.52

Low Cost:

25-years:

1999-2023 . . . 13.74 11.84 1.90 3.19 2.96 .23 16.93 14.80 2.13

50-years:

1999-2048 . . . 13.45 12.92 .53 3.19 3.02 .17 16.64 15.94 .70

75-years:

1999-2073 . . . 13.37 13.14 .23 3.20 3.11 .10 16.57 16.25 .33

High Cost:

25-years:

1999-2023 . . . 13.85 14.32 -.47 3.23 4.48 -1.25 17.08 18.80 -1.72

50-years:

1999-2048 . . . 13.63 16.96 -3.34 3.28 6.45 -3.18 16.91 23.41 -6.51

75-years:

1999-2073 . . . 13.62 18.60 -4.97 3.32 7.47 -4.15 16.95 26.07 -9.12
173

Operations in Dollars

B. LONG-RANGE ESTIMATES OF SOCIAL SECURITY

TRUST FUND OPERATIONS IN DOLLARS

This appendix presents long-range projections in dollars of the operations of the combined OASI and DI Trust Funds and in some cases the

HI Trust Fund. It provides the means to track the progress of the

funds during the projection period. Meaningful comparison of current

dollar values over long periods of time can be difficult because of the

tendency toward inflation. Some means of removing inflation is thus

generally desirable. Several economic series, or “indices,” are provided

to allow current dollars to be adjusted for changes in prices, wages,

and certain other aspects of economic growth during the projection

period.

The selection of a particular index for adjustment of current dollars

depends upon the analyst’s decision as to which index provides the

most useful standard for adjusting dollar amounts, over time, to create values that are appropriately comparable. Table III.B1 presents

five such indices for adjustment.

One of the most common forms of standardization is based on some

measure of change in the prices of consumer goods. One such price

index is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W, hereafter referred to as “CPI”) which is published

by the Bureau of Labor Statistics, Department of Labor. This is the

index used to determine annual increases in OASDI monthly benefits

payable after the year of initial eligibility. The CPI is assumed to

increase ultimately at annual rates of 2.3, 3.3, and 4.3 percent for the

low cost, intermediate, and high cost sets of assumptions (alternatives

I, II, and III, respectively). Constant-dollar values (those adjusted by

the CPI) are provided in table III.B2.

Another type of standardization combines the effects of price inflation

and real-wage growth. The wage index presented here is the “SSA

average wage index,” as defined in section 215(i)(1)(G) of the Social

Security Act. This index is used to make annual adjustments to many

earnings-related quantities embodied in the Social Security Act, such

as the contribution and benefit base. The average annual wage is

assumed to increase ultimately by 3.7, 4.2, and 4.7 percent under the

low cost, intermediate, and high cost alternatives (I, II, and III),

respectively.

The taxable payroll index adjusts for the effects of changes in the

number of workers and changes in the proportion of earnings that are
Appendices

174

taxable, as well as for the effects of price inflation and real-wage

growth. The OASDI taxable payroll consists of all earnings subject to

OASDI taxation, adjusted for the lower effective tax rate on multipleemployer “excess wages,” and including deemed wage credits for military service.

The gross domestic product (GDP) index adjusts for the growth in the

aggregate amount of goods and services produced in the United

States. Values adjusted by GDP (see appendix C) indicate their relative share of the total output of the economy. No explicit assumptions

are made about growth in taxable payroll or GDP. These series are

computed reflecting the other more basic economic and demographic

assumptions, as discussed in section II.H.

Discounting with interest is another way of adjusting current dollars.

The series of interest-rate factors included here is based on the average of the assumed annual interest rates for special public-debt obligations issuable to the trust funds. This series is slightly different

from the interest rates used to create summarized values elsewhere in

this report, where the actual yield on currently held trust fund assets

is used for each year. Ultimate nominal interest rates, which, in practice, are compounded semiannually, are assumed to be approximately

6.0, 6.3, and 6.5 percent for the low cost, intermediate, and high cost

alternatives (I, II, and III), respectively.
175

Operations in Dollars

Table III.B1.—Selected Economic Variables by Alternative, 

Calendar Years 1998-2075

[GDP and taxable payroll in billions]

Calendar year

Adjusted

 CPI 1 SSA average

wage index 2 Taxable payroll 3

Gross

domestic

 product

Compound

interest-rate

factor 4

Intermediate:

1998 . . . . . . . . . . . 98.16 $28,893.68 $3,501 $8,509 0.9460

1999 . . . . . . . . . . . 100.00 29,732.49 3,649 8,845 1.0000

2000 . . . . . . . . . . . 102.09 30,629.66 3,791 9,194 1.0480

2001 . . . . . . . . . . . 104.61 31,647.10 3,944 9,591 1.0994

2002 . . . . . . . . . . . 107.31 32,741.79 4,106 10,020 1.1575

2003 . . . . . . . . . . . 110.26 33,943.43 4,283 10,488 1.2214

2004 . . . . . . . . . . . 113.58 35,259.52 4,475 11,001 1.2912

2005 . . . . . . . . . . . 117.15 36,668.51 4,690 11,560 1.3674

2006 . . . . . . . . . . . 120.90 38,149.91 4,918 12,154 1.4507

2007 . . . . . . . . . . . 124.83 39,731.81 5,158 12,784 1.5409

2008 . . . . . . . . . . . 128.95 41,419.56 5,410 13,446 1.6388

2010 . . . . . . . . . . . 137.60 44,971.87 5,961 14,850 1.8543

2015 . . . . . . . . . . . 161.85 55,243.29 7,502 18,863 2.5285

2020 . . . . . . . . . . . 190.38 67,860.68 9,347 23,723 3.4479

2025 . . . . . . . . . . . 223.94 83,359.84 11,578 29,668 4.7016

2030 . . . . . . . . . . . 263.41 102,398.97 14,352 37,152 6.4111

2035 . . . . . . . . . . . 309.83 125,786.55 17,846 46,668 8.7421

2040 . . . . . . . . . . . 364.44 154,515.75 22,211 58,640 11.9208

2045 . . . . . . . . . . . 428.68 189,806.61 27,555 73,438 16.2552

2050 . . . . . . . . . . . 504.23 233,157.80 34,083 91,706 22.1657

2055 . . . . . . . . . . . 593.11 286,410.22 42,061 114,252 30.2252

2060 . . . . . . . . . . . 697.64 351,825.34 51,902 142,346 41.2151

2065 . . . . . . . . . . . 820.61 432,181.03 64,091 177,455 56.2010

2070 . . . . . . . . . . . 965.24 530,889.63 79,117 221,171 76.6358

2075 . . . . . . . . . . . 1,135.37 652,143.06 97,589 275,416 104.5008

Low Cost:

1998 . . . . . . . . . . . 98.28 28,896.73 3,503 8,513 .9460

1999 . . . . . . . . . . . 100.00 29,878.58 3,682 8,910 1.0000

2000 . . . . . . . . . . . 101.91 30,847.90 3,857 9,292 1.0480

2001 . . . . . . . . . . . 104.00 31,913.95 4,032 9,704 1.0985

2002 . . . . . . . . . . . 106.28 32,996.29 4,216 10,146 1.1551

2003 . . . . . . . . . . . 108.68 34,166.69 4,405 10,619 1.2170

2004 . . . . . . . . . . . 111.14 35,394.01 4,606 11,120 1.2840

2005 . . . . . . . . . . . 113.72 36,650.33 4,818 11,644 1.3563

2006 . . . . . . . . . . . 116.37 37,950.65 5,042 12,195 1.4336

2007 . . . . . . . . . . . 119.02 39,347.35 5,274 12,772 1.5163

2008 . . . . . . . . . . . 121.72 40,821.93 5,514 13,368 1.6048

2010 . . . . . . . . . . . 127.39 43,898.64 6,030 14,629 1.8017

2015 . . . . . . . . . . . 142.73 52,643.51 7,443 18,148 2.4208

2020 . . . . . . . . . . . 159.91 63,130.41 9,097 22,295 3.2526

2025 . . . . . . . . . . . 179.17 75,706.34 11,070 27,279 4.3702

2030 . . . . . . . . . . . 200.74 90,787.48 13,526 33,518 5.8718

2035 . . . . . . . . . . . 224.91 108,872.88 16,631 41,448 7.8894

2040 . . . . . . . . . . . 252.00 130,561.02 20,532 51,426 10.6002

2045 . . . . . . . . . . . 282.34 156,569.56 25,337 63,753 14.2425

2050 . . . . . . . . . . . 316.34 187,759.16 31,226 78,930 19.1364

2055 . . . . . . . . . . . 354.43 225,161.89 38,468 97,676 25.7117

2060 . . . . . . . . . . . 397.11 270,015.47 47,475 121,081 34.5464

2065 . . . . . . . . . . . 444.92 323,804.16 58,704 150,371 46.4168

2070 . . . . . . . . . . . 498.50 388,307.84 72,583 186,749 62.3659

2075 . . . . . . . . . . . 558.52 465,661.06 89,646 231,672 83.7952
Appendices

176

Table III.B2 shows estimated operations of the combined OASI and DI

Trust Funds in constant 1999 dollars (i.e., adjusted by the CPI indexing series as discussed above). Items included in the table are: income

excluding interest, interest income, total income, total outgo, and

assets at the end of the year. Income excluding interest consists of

payroll-tax contributions, income from taxation of benefits, and miscellaneous reimbursements from the general fund of the Treasury.

Outgo consists of benefit payments, administrative expenses, net

transfers from the OASI and DI Trust Funds to the Railroad Retirement program under the financial-interchange provisions, and payments for vocational rehabilitation services for disabled beneficiaries.

These estimates are based on the low cost, intermediate, and high cost

sets of assumptions (alternatives I, II, and III).

High Cost:

1998 . . . . . . . . . . . 97.56 $28,782.44 $3,500 $8,505 0.9460

1999 . . . . . . . . . . . 100.00 29,696.91 3,654 8,857 1.0000

2000 . . . . . . . . . . . 103.73 30,542.48 3,745 9,112 1.0507

2001 . . . . . . . . . . . 109.35 32,467.84 4,004 9,844 1.1107

2002 . . . . . . . . . . . 115.88 34,480.02 4,269 10,548 1.1905

2003 . . . . . . . . . . . 120.65 35,349.69 4,340 10,778 1.2873

2004 . . . . . . . . . . . 125.66 37,253.45 4,618 11,553 1.3910

2005 . . . . . . . . . . . 131.09 39,217.05 4,906 12,320 1.4940

2006 . . . . . . . . . . . 136.71 41,102.32 5,186 13,038 1.5969

2007 . . . . . . . . . . . 142.58 43,011.06 5,466 13,788 1.7084

2008 . . . . . . . . . . . 148.69 45,012.60 5,758 14,581 1.8258

2010 . . . . . . . . . . . 161.75 49,343.22 6,393 16,258 2.0798

2015 . . . . . . . . . . . 199.65 62,081.31 8,217 21,182 2.8622

2020 . . . . . . . . . . . 246.42 78,107.78 10,455 27,325 3.9389

2025 . . . . . . . . . . . 304.16 98,271.53 13,201 34,990 5.4207

2030 . . . . . . . . . . . 375.43 123,640.62 16,628 44,724 7.4599

2035 . . . . . . . . . . . 463.39 155,558.80 20,935 57,142 10.2661

2040 . . . . . . . . . . . 571.97 195,716.73 26,280 72,751 14.1281

2045 . . . . . . . . . . . 705.98 246,241.58 32,771 92,009 19.4428

2050 . . . . . . . . . . . 871.39 309,809.56 40,646 115,775 26.7568

2055 . . . . . . . . . . . 1,075.56 389,787.78 50,176 145,009 36.8223

2060 . . . . . . . . . . . 1,327.56 490,412.59 61,808 181,249 50.6742

2065 . . . . . . . . . . . 1,638.62 617,014.00 76,064 226,329 69.7369

2070 . . . . . . . . . . . 2,022.55 776,297.94 93,530 282,389 95.9707

2075 . . . . . . . . . . . 2,496.44 976,701.56 114,907 352,058 132.0732

 1 The CPI used to adjust OASDI benefits is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI), as defined by the Bureau of Labor Statistics, Department of Labor. The values shown

are adjusted by dividing the calendar-year annual average CPI by the analogous value for 1999, and multiplying the result by 100, thereby initializing the CPI at 100 for 1999.

 2 The “SSA average wage index” is defined in section 215(i)(1)(G) of the Social Security Act; it is used in

the calculations of initial benefits and the automatic adjustment of the contribution and benefit base and

other wage-indexed program amounts.

 3 Taxable payroll consists of total earnings subject to OASDI contribution rates, adjusted to include

deemed wages based on military service and to reflect the lower effective contribution rates (compared to

the combined employee-employer rate) which apply to multiple-employer “excess wages.”

 4 The compound interest-rate factor is based on the average of the assumed annual interest rates for

special public-debt obligations issuable to the trust funds in the 12 months of the year, under each alternative.

Table III.B1.—Selected Economic Variables by Alternative, 

Calendar Years 1998-2075 (Cont.)

[GDP and taxable payroll in billions]

Calendar year

Adjusted

 CPI 1 SSA average

wage index 2 Taxable payroll 3

Gross

domestic

 product

Compound

interest-rate

factor 4
177

Operations in Dollars

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

Table III.B2.—Estimated Operations of the Combined OASI and DI Trust Funds in 

Constant 1999 Dollars 1 by Alternative, Calendar Years 1999-2075

[In billions]

 1 The adjustment from current to constant dollars is by the CPI indexing series shown in table III.B1.

Calendar year

Income

excluding

interest

Interest

income

Total

 income Outgo

Assets at

 end of year

Intermediate:

1999 . . . . . . . . . . . $464.3 $54.1 $518.3 $394.0 $886.8

2000 . . . . . . . . . . . 469.4 57.7 527.1 400.7 995.1

2001 . . . . . . . . . . . 477.7 62.0 539.7 408.3 1,102.5

2002 . . . . . . . . . . . 484.7 66.8 551.4 417.6 1,208.5

2003 . . . . . . . . . . . 492.0 71.8 563.8 426.9 1,313.1

2004 . . . . . . . . . . . 499.0 77.0 576.0 436.7 1,414.0

2005 . . . . . . . . . . . 507.8 82.7 590.5 447.4 1,514.0

2006 . . . . . . . . . . . 515.7 88.6 604.2 459.1 1,612.1

2007 . . . . . . . . . . . 525.0 94.7 619.7 471.4 1,709.7

2008 . . . . . . . . . . . 533.0 101.0 634.0 484.4 1,804.8

2010 . . . . . . . . . . . 551.3 114.6 665.9 516.0 1,986.6

2015 . . . . . . . . . . . 593.2 141.2 734.4 614.8 2,326.1

2020 . . . . . . . . . . . 633.1 143.6 776.7 738.0 2,321.6

2025 . . . . . . . . . . . 671.7 117.8 789.5 859.4 1,850.4

2030 2 . . . . . . . . . .

 2 Estimates for later years are not shown because the combined OASI and DI Trust Funds are estimated

to become exhausted in 2034 under the intermediate assumptions and in 2024 under the high cost

assumptions.

712.2 62.7 774.9 965.2 899.2

Low Cost: 

1999 . . . . . . . . . . . 466.5 54.1 520.6 392.9 890.2

2000 . . . . . . . . . . . 477.7 58.1 535.8 398.9 1,010.5

2001 . . . . . . . . . . . 490.9 63.0 553.9 406.2 1,137.9

2002 . . . . . . . . . . . 501.9 68.7 570.6 413.9 1,270.2

2003 . . . . . . . . . . . 512.8 74.8 587.6 422.2 1,407.6

2004 . . . . . . . . . . . 524.2 81.6 605.8 431.9 1,550.2

2005 . . . . . . . . . . . 536.7 89.0 625.8 442.0 1,698.7

2006 . . . . . . . . . . . 548.4 97.0 645.3 452.6 1,852.8

2007 . . . . . . . . . . . 562.1 105.6 667.7 464.2 2,015.2

2008 . . . . . . . . . . . 574.4 115.0 689.4 476.7 2,183.0

2010 . . . . . . . . . . . 601.0 137.6 738.6 508.5 2,532.7

2015 . . . . . . . . . . . 665.0 196.1 861.1 613.8 3,431.5

2020 . . . . . . . . . . . 729.9 240.8 970.7 752.3 4,171.9

2025 . . . . . . . . . . . 797.4 270.1 1,067.5 892.3 4,643.9

2030 . . . . . . . . . . . 873.4 284.5 1,158.0 1,019.6 4,866.9

2035 . . . . . . . . . . . 960.8 290.2 1,251.0 1,125.5 4,954.4

2040 . . . . . . . . . . . 1,059.4 296.6 1,356.0 1,210.5 5,070.6

2045 . . . . . . . . . . . 1,167.0 309.9 1,476.9 1,302.1 5,307.1

2050 . . . . . . . . . . . 1,284.4 329.5 1,613.9 1,413.6 5,649.1

2055 . . . . . . . . . . . 1,413.8 352.4 1,766.2 1,553.6 6,040.0

2060 . . . . . . . . . . . 1,558.8 375.8 1,934.6 1,709.6 6,439.5

2065 . . . . . . . . . . . 1,721.1 402.1 2,123.2 1,872.6 6,893.3

2070 . . . . . . . . . . . 1,899.8 433.9 2,333.6 2,050.8 7,443.5

2075 . . . . . . . . . . . 2,095.0 471.0 2,566.0 2,255.2 8,081.3

High Cost:

1999 . . . . . . . . . . . 464.6 54.3 518.9 395.5 885.9

2000 . . . . . . . . . . . 457.6 57.8 515.4 400.5 969.0

2001 . . . . . . . . . . . 463.5 62.3 525.7 404.5 1,040.4

2002 . . . . . . . . . . . 466.9 68.5 535.5 414.1 1,103.1

2003 . . . . . . . . . . . 456.3 74.9 531.2 432.4 1,158.3

2004 . . . . . . . . . . . 465.6 79.3 544.9 442.6 1,214.5

2005 . . . . . . . . . . . 475.7 82.8 558.5 453.9 1,268.8

2006 . . . . . . . . . . . 481.6 86.1 567.8 466.4 1,317.9

2007 . . . . . . . . . . . 488.0 89.1 577.0 479.1 1,361.7

2008 . . . . . . . . . . . 493.0 91.6 584.6 492.6 1,397.8

2010 . . . . . . . . . . . 504.3 93.1 597.4 522.2 1,440.8

2015 . . . . . . . . . . . 529.0 85.1 614.1 610.0 1,325.9

2020 2 . . . . . . . . . . 550.4 54.3 604.7 715.7 784.5
Appendices

178

Figure III.B1 provides a comparison of outgo with total annual income

(including interest) and annual income excluding interest, for the

OASDI program under intermediate assumptions. All values are

expressed in constant dollars, as shown in table III.B2. The difference

between the income values for each year is equal to the trust fund

interest earnings. Thus the figure illustrates the fact that, under

intermediate assumptions, combined OASDI expenditures will be

payable from (1) current tax income alone through 2013, (2) current

tax income plus a portion of annual interest income for years 2014

through 2021, and (3) current tax income, annual interest income,

plus a portion of the principal balance in the trust funds for years

2022 through 2033, i.e., through the year preceding the year of trust

fund exhaustion.

Table III.B3 shows estimated operations of the combined OASI and DI

Trust Funds in current dollars—that is in dollars unadjusted for price

inflation. Items included in the table are: income excluding interest,

interest income, total income, total outgo, and assets at the end of the

year. These estimates, based on the low cost, intermediate, and high

cost sets of economic and demographic assumptions (I, II, and III), are

presented to facilitate independent analysis.

Figure III.B1.—Estimated OASDI Income and Outgo in Constant Dollars,

Based on Alternative II by Calendar Year

[In billions]

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

1995 2000 2005 2010 2015 2020 2025 2030 2035

Calendar year

Outgo

Total income

Income excluding interest
179

Operations in Dollars

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

Table III.B3.—Estimated Operations of the Combined OASI and DI Trust Funds in 

Current Dollars by Alternative, Calendar Years 1999-2075

[In billions]

Calendar year

Income

excluding

interest

Interest

income

Total

 income Outgo

Assets at end

of year

Intermediate:

1999 . . . . . . . . . . . $464.3 $54.1 $518.3 $394.0 $886.8

2000 . . . . . . . . . . . 479.2 58.9 538.1 409.1 1,015.8

2001 . . . . . . . . . . . 499.7 64.8 564.5 427.1 1,153.3

2002 . . . . . . . . . . . 520.1 71.6 591.7 448.2 1,296.9

2003 . . . . . . . . . . . 542.5 79.2 621.7 470.7 1,447.8

2004 . . . . . . . . . . . 566.7 87.5 654.2 496.0 1,606.0

2005 . . . . . . . . . . . 594.9 96.8 691.7 524.1 1,773.6

2006 . . . . . . . . . . . 623.4 107.1 730.5 555.1 1,949.0

2007 . . . . . . . . . . . 655.4 118.3 773.6 588.4 2,134.2

2008 . . . . . . . . . . . 687.3 130.3 817.6 624.6 2,327.2

2010 . . . . . . . . . . . 758.5 157.7 916.3 710.0 2,733.5

2015 . . . . . . . . . . . 960.1 228.5 1,188.6 995.0 3,764.8

2020 . . . . . . . . . . . 1,205.3 273.3 1,478.6 1,404.9 4,419.8

2025 . . . . . . . . . . . 1,504.1 263.9 1,768.0 1,924.5 4,143.6

2030 1 . . . . . . . . . .

 1 Estimates for later years are not shown because the combined OASI and DI Trust Funds are estimated

to become exhausted in 2034 under the intermediate assumptions and in 2024 under the high cost

assumptions.

1,876.0 165.1 2,041.1 2,542.3 2,368.5

Low Cost:

1999 . . . . . . . . . . . 466.5 54.1 520.6 392.9 890.2

2000 . . . . . . . . . . . 486.8 59.2 546.0 406.5 1,029.7

2001 . . . . . . . . . . . 510.5 65.5 576.0 422.4 1,183.4

2002 . . . . . . . . . . . 533.4 73.0 606.4 439.8 1,350.0

2003 . . . . . . . . . . . 557.3 81.3 638.6 458.9 1,529.7

2004 . . . . . . . . . . . 582.6 90.6 673.2 480.0 1,722.9

2005 . . . . . . . . . . . 610.4 101.2 711.6 502.7 1,931.8

2006 . . . . . . . . . . . 638.1 112.8 751.0 526.7 2,156.1

2007 . . . . . . . . . . . 669.0 125.7 794.7 552.5 2,398.4

2008 . . . . . . . . . . . 699.2 139.9 839.1 580.3 2,657.2

2010 . . . . . . . . . . . 765.5 175.3 940.9 647.8 3,226.3

2015 . . . . . . . . . . . 949.1 279.9 1,229.0 876.1 4,897.6

2020 . . . . . . . . . . . 1,167.1 385.1 1,552.3 1,203.1 6,671.4

2025 . . . . . . . . . . . 1,428.6 484.0 1,912.6 1,598.7 8,320.3

2030 . . . . . . . . . . . 1,753.4 571.2 2,324.6 2,046.8 9,769.8

2035 . . . . . . . . . . . 2,161.0 652.7 2,813.7 2,531.4 11,143.1

2040 . . . . . . . . . . . 2,669.5 747.5 3,417.0 3,050.5 12,777.6

2045 . . . . . . . . . . . 3,294.9 874.9 4,169.8 3,676.5 14,984.1

2050 . . . . . . . . . . . 4,063.2 1,042.3 5,105.5 4,471.7 17,870.3

2055 . . . . . . . . . . . 5,010.9 1,249.0 6,259.8 5,506.3 21,407.5

2060 . . . . . . . . . . . 6,190.0 1,492.4 7,682.4 6,789.0 25,571.5

2065 . . . . . . . . . . . 7,657.4 1,789.0 9,446.4 8,331.5 30,670.0

2070 . . . . . . . . . . . 9,470.2 2,162.9 11,633.2 10,222.9 37,105.8

2075 . . . . . . . . . . . 11,701.1 2,630.6 14,331.8 12,595.5 45,135.6

High Cost:

1999 . . . . . . . . . . . 464.6 54.3 518.9 395.5 885.9

2000 . . . . . . . . . . . 474.6 60.0 534.6 415.5 1,005.1

2001 . . . . . . . . . . . 506.8 68.1 574.8 442.3 1,137.6

2002 . . . . . . . . . . . 541.1 79.4 620.5 479.9 1,278.3

2003 . . . . . . . . . . . 550.5 90.4 640.9 521.7 1,397.5

2004 . . . . . . . . . . . 585.1 99.6 684.8 556.1 1,526.1

2005 . . . . . . . . . . . 623.6 108.6 732.2 595.0 1,663.3

2006 . . . . . . . . . . . 658.5 117.7 776.2 637.7 1,801.8

2007 . . . . . . . . . . . 695.7 127.0 822.7 683.0 1,941.5

2008 . . . . . . . . . . . 733.0 136.2 869.2 732.4 2,078.3

2010 . . . . . . . . . . . 815.7 150.5 966.2 844.6 2,330.5

2015 . . . . . . . . . . . 1,056.1 169.9 1,226.1 1,217.9 2,647.2

2020 1 . . . . . . . . . . 1,356.3 133.9 1,490.2 1,763.6 1,933.3
Appendices

180

Table III.B4 shows, in current dollars, estimated income (excluding

interest) and estimated total outgo (excluding the cost of accumulating target trust fund balances) of the combined OASI and DI Trust

Funds, of the HI Trust Fund, and of the combined OASI, DI, and HI

Trust Funds, based on the low cost, intermediate, and high cost sets of

assumptions (alternatives I, II, and III) described earlier in this

report. For OASDI, income excluding interest consists of payroll-tax

contributions, proceeds from taxation of OASDI benefits, and miscellaneous transfers from the general fund of the Treasury. Outgo consists of benefit payments, administrative expenses, net transfers from

the trust funds to the Railroad Retirement program, and payments

for vocational rehabilitation services for disabled beneficiaries. For

HI, income excluding interest consists of payroll-tax contributions

(including contributions from railroad employment), proceeds from

the taxation of OASDI benefits, and payments from the general fund

of the Treasury for contributions on deemed wage credits for military

service. Total outgo consists of outlays (benefits and administrative

expenses) for insured beneficiaries. Income and outgo estimates are

shown on a cash basis for the OASDI program and on an incurred

basis for the HI program.

Table III.B4 also shows the difference between income excluding

interest and outgo, which is called the balance. The balance indicates

the size of the net cash flow from tax income and expenditures to the

funds.
181

Operations in Dollars

Table III.B4.—Estimated OASDI and HI Income Excluding Interest, Outgo, and

Balance in Current Dollars by Alternative, Calendar Years 1999-2075

[In billions]

OASDI HI Combined

Calendar

year

Income

excluding

interest Outgo Balance

Income

excluding

interest Outgo Balance

Income

excluding

interest Outgo Balance

Intermediate:

1999 . . . . $464 $394 $70 $135 $138 -$4 $599 $532 $67

2000 . . . . 479 409 70 141 143 -3 620 552 68

2001 . . . . 500 427 73 147 149 -2 647 576 71

2002 . . . . 520 448 72 153 156 -2 673 604 69

2003 . . . . 542 471 72 160 163 -3 703 634 69

2004 . . . . 567 496 71 168 173 -5 735 669 66

2005 . . . . 595 524 71 177 183 -6 771 707 64

2006 . . . . 623 555 68 186 194 -8 809 749 60

2007 . . . . 655 588 67 195 206 -11 851 795 56

2008 . . . . 687 625 63 205 219 -13 893 843 49

2010 . . . . 759 710 49 227 245 -19 985 955 30

2015 . . . . 960 995 -35 288 335 -46 1,248 1,330 -81

2020 . . . . 1,205 1,405 -200 365 464 -99 1,570 1,869 -299

2025 . . . . 1,504 1,925 -420 459 652 -193 1,963 2,577 -614

2030 . . . . 1,876 2,542 -666 578 908 -330 2,454 3,450 -996

2035 . . . . 2,342 3,247 -904 726 1,225 -498 3,069 4,472 -1,403

2040 . . . . 2,921 4,037 -1,116 909 1,599 -690 3,831 5,636 -1,806

2045 . . . . 3,630 5,001 -1,372 1,133 2,043 -910 4,763 7,044 -2,281

2050 . . . . 4,498 6,230 -1,732 1,408 2,570 -1,161 5,906 8,800 -2,893

2055 . . . . 5,565 7,842 -2,277 1,749 3,224 -1,475 7,314 11,066 -3,752

2060 . . . . 6,886 9,888 -3,002 2,172 4,090 -1,918 9,058 13,978 -4,920

2065 . . . . 8,522 12,413 -3,891 2,697 5,227 -2,530 11,219 17,640 -6,422

2070 . . . . 10,539 15,531 -4,993 3,344 6,682 -3,338 13,883 22,213 -8,330

2075 . . . . 13,020 19,415 -6,395 4,142 8,504 -4,363 17,162 27,920 -10,758

Low Cost:

1999 . . . . 467 393 74 136 137 -1 602 530 72

2000 . . . . 487 407 80 143 140 2 629 547 83

2001 . . . . 511 422 88 149 144 5 660 566 93

2002 . . . . 533 440 94 156 148 7 689 588 101

2003 . . . . 557 459 98 163 154 10 720 612 108

2004 . . . . 583 480 103 171 160 11 753 640 113

2005 . . . . 610 503 108 179 166 12 789 669 120

2006 . . . . 638 527 111 187 173 14 825 700 125

2007 . . . . 669 552 116 196 181 15 865 733 132

2008 . . . . 699 580 119 205 189 17 905 769 136

2010 . . . . 766 648 118 225 204 21 990 852 138

2015 . . . . 949 876 73 280 254 26 1,229 1,130 99

2020 . . . . 1,167 1,203 -36 346 321 25 1,513 1,524 -11

2025 . . . . 1,429 1,599 -170 427 410 17 1,856 2,009 -153

2030 . . . . 1,753 2,047 -293 528 516 12 2,281 2,563 -282

2035 . . . . 2,161 2,531 -370 654 646 8 2,815 3,178 -363

2040 . . . . 2,670 3,051 -381 810 803 7 3,479 3,853 -374

2045 . . . . 3,295 3,676 -382 1,001 998 2 4,296 4,675 -379

2050 . . . . 4,063 4,472 -408 1,236 1,247 -11 5,299 5,719 -420

2055 . . . . 5,011 5,506 -495 1,527 1,563 -37 6,537 7,070 -532

2060 . . . . 6,190 6,789 -599 1,889 1,981 -93 8,079 8,770 -692

2065 . . . . 7,657 8,331 -674 2,338 2,533 -194 9,996 10,864 -868

2070 . . . . 9,470 10,223 -753 2,893 3,242 -349 12,363 13,465 -1,102

2075 . . . . 11,701 12,596 -894 3,577 4,137 -560 15,278 16,732 -1,454
Appendices

182

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

Table III.B5 shows estimated future benefit amounts payable to persons attaining age 65 in various years based on retirement at the normal retirement age and at age 65, for various steady levels of preretirement earnings, based on intermediate assumptions. The benefit

amount is shown in current dollars, constant dollars (adjusted by the

CPI indexing series shown in table III.B1), and as a percentage of

earnings in the 12-month period preceding retirement. The normal

retirement age is currently 65 and is scheduled to increase to age 66

during the period 2000-05 (at a rate of 2 months per year as workers

attain age 62) and to age 67 during the period 2017-22 (also by

2 months per year as workers attain age 62). The pre-retirement

earnings levels shown are: low (earnings at 45 percent of the projected

SSA average wage index), average (earnings at the amount of the projected SSA average wage index), high (earnings at 160 percent of the

projected SSA average wage index), and maximum (earnings at the

amount of the projected OASDI contribution and benefit base).

High Cost:

1999 . . . . $465 $395 $69 $135 $141 -$6 $600 $537 $63

2000 . . . . 475 415 59 139 148 -9 614 564 50

2001 . . . . 507 442 64 150 159 -10 657 602 55

2002 . . . . 541 480 61 161 172 -11 702 652 50

2003 . . . . 551 522 29 164 183 -19 715 704 10

2004 . . . . 585 556 29 175 198 -23 760 754 6

2005 . . . . 624 595 29 187 215 -28 811 810 ( 1 )

2006 . . . . 658 638 21 198 234 -36 857 872 -15

2007 . . . . 696 683 13 210 254 -44 905 937 -31

2008 . . . . 733 732 1 222 274 -53 955 1,007 -52

2010 . . . . 816 845 -29 247 320 -73 1,063 1,165 -102

2015 . . . . 1,056 1,218 -162 322 482 -160 1,378 1,700 -322

2020 . . . . 1,356 1,764 -407 417 741 -324 1,773 2,504 -731

2025 . . . . 1,728 2,493 -764 537 1,160 -623 2,265 3,653 -1,388

2030 . . . . 2,195 3,406 -1,211 689 1,781 -1,092 2,884 5,187 -2,303

2035 . . . . 2,781 4,509 -1,728 881 2,589 -1,708 3,662 7,098 -3,436

2040 . . . . 3,507 5,815 -2,308 1,117 3,556 -2,439 4,624 9,371 -4,747

2045 . . . . 4,389 7,448 -3,059 1,405 4,660 -3,255 5,795 12,108 -6,314

2050 . . . . 5,467 9,556 -4,089 1,760 5,899 -4,139 7,228 15,455 -8,228

2055 . . . . 6,785 12,352 -5,567 2,200 7,416 -5,217 8,985 19,768 -10,783

2060 . . . . 8,407 15,983 -7,575 2,746 9,391 -6,645 11,153 25,373 -14,220

2065 . . . . 10,405 20,582 -10,177 3,421 11,957 -8,536 13,826 32,539 -18,713

2070 . . . . 12,860 26,356 -13,496 4,255 15,238 -10,983 17,115 41,594 -24,479

2075 . . . . 15,872 33,578 -17,705 5,283 19,357 -14,075 21,155 52,935 -31,780

 1 Between -$500 million and $500 million.

Table III.B4.—Estimated OASDI and HI Income Excluding Interest, Outgo, and

Balance in Current Dollars by Alternative, Calendar Years 1999-2075 (Cont.)

[In billions]

OASDI HI Combined

Calendar

year

Income

excluding

interest Outgo Balance

Income

excluding

interest Outgo Balance

Income

excluding

interest Outgo Balance
183

Operations in Dollars

Table III.B5.—Estimated Annual Benefit Amount Payable 1 to Retired Workers

With Various Steady Pre-Retirement Earnings Levels Based on

Intermediate Assumptions, Calendar Years 1999-2075 

Retirement at normal retirement age Retirement at age 65

Year attain age 

65 2 

Age at

retirementCurrent

dollars

Constant

1999

dollars 3

Percent

of

earnings

Current

dollars

Constant

1999

dollars 3

Percent

of

earnings

 Low earnings: 4 

1999 . . . . . . 65:0 $6,935 $6,935 53.3 $6,935 $6,935 53.3

2000 . . . . . . 65:0 7,141 6,995 53.4 7,141 6,995 53.4

2005 . . . . . . 65:6 9,264 7,784 57.2 8,819 7,528 55.6

2010 . . . . . . 66:0 11,480 8,077 56.7 10,336 7,512 53.2

2015 . . . . . . 66:0 14,103 8,435 56.7 12,695 7,844 53.2

2020 . . . . . . 66:2 17,424 8,812 56.7 15,414 8,096 52.6

2025 . . . . . . 67:0 22,080 9,240 56.5 17,797 7,947 49.4

2030 . . . . . . 67:0 27,122 9,649 56.5 21,864 8,301 49.4

2035 . . . . . . 67:0 33,320 10,078 56.5 26,858 8,669 49.4

2040 . . . . . . 67:0 40,936 10,526 56.5 32,995 9,054 49.4

2045 . . . . . . 67:0 50,286 10,993 56.5 40,528 9,454 49.4

2050 . . . . . . 67:0 61,789 11,484 56.5 49,793 9,875 49.5

2055 . . . . . . 67:0 75,880 11,989 56.5 61,164 10,312 49.4

2060 . . . . . . 67:0 93,231 12,523 56.5 75,146 10,771 49.5

2065 . . . . . . 67:0 114,530 13,079 56.5 92,305 11,248 49.5

2070 . . . . . . 67:0 140,689 13,659 56.5 113,387 11,747 49.5

2075 . . . . . . 67:0 172,818 14,264 56.5 139,294 12,269 49.5

Average earnings:

1999 . . . . . . 65:0 11,454 11,454 39.6 11,454 11,454 39.6

2000 . . . . . . 65:0 11,806 11,564 39.7 11,806 11,564 39.7

2005 . . . . . . 65:6 15,292 12,850 42.5 14,547 12,418 41.3

2010 . . . . . . 66:0 18,988 13,359 42.2 17,075 12,409 39.6

2015 . . . . . . 66:0 23,320 13,948 42.2 20,973 12,958 39.6

2020 . . . . . . 66:2 28,797 14,564 42.1 25,450 13,368 39.1

2025 . . . . . . 67:0 36,544 15,293 42.1 29,384 13,122 36.7

2030 . . . . . . 67:0 44,895 15,972 42.1 36,087 13,700 36.7

2035 . . . . . . 67:0 55,159 16,684 42.1 44,342 14,312 36.7

2040 . . . . . . 67:0 67,746 17,420 42.1 54,462 14,944 36.7

2045 . . . . . . 67:0 83,232 18,195 42.1 66,915 15,610 36.7

2050 . . . . . . 67:0 102,245 19,002 42.1 82,198 16,302 36.7

2055 . . . . . . 67:0 125,600 19,845 42.1 100,969 17,024 36.7

2060 . . . . . . 67:0 154,287 20,725 42.1 124,036 17,779 36.7

2065 . . . . . . 67:0 189,532 21,644 42.1 152,362 18,567 36.7

2070 . . . . . . 67:0 232,826 22,604 42.1 187,173 19,391 36.7

2075 . . . . . . 67:0 286,001 23,606 42.1 229,926 20,251 36.7

High earnings: 5 

1999 . . . . . . 65:0 14,795 14,795 32.0 14,795 14,795 32.0

2000 . . . . . . 65:0 15,292 14,979 32.1 15,292 14,979 32.1

2005 . . . . . . 65:6 20,092 16,883 34.9 19,119 16,320 33.9

2010 . . . . . . 66:0 25,041 17,617 34.8 22,573 16,405 32.7

2015 . . . . . . 66:0 30,745 18,389 34.8 27,712 17,122 32.7

2020 . . . . . . 66:2 37,989 19,213 34.7 33,632 17,666 32.3

2025 . . . . . . 67:0 48,084 20,122 34.6 38,830 17,340 30.3

2030 . . . . . . 67:0 59,070 21,016 34.6 47,699 18,109 30.3

2035 . . . . . . 67:0 72,571 21,950 34.6 58,601 18,914 30.3

2040 . . . . . . 67:0 89,141 22,922 34.6 71,981 19,751 30.3

2045 . . . . . . 67:0 109,512 23,940 34.6 88,419 20,626 30.3

2050 . . . . . . 67:0 134,529 25,003 34.6 108,622 21,542 30.3

2055 . . . . . . 67:0 165,249 26,110 34.6 133,433 22,497 30.3

2060 . . . . . . 67:0 202,997 27,268 34.6 163,913 23,495 30.3

2065 . . . . . . 67:0 249,360 28,477 34.6 201,349 24,537 30.3

2070 . . . . . . 67:0 306,312 29,739 34.6 247,338 25,624 30.3

2075 . . . . . . 67:0 376,284 31,058 34.6 303,833 26,761 30.3
Appendices

184

Maximum earnings: 6 

1999 . . . . . . 65:0 $16,502 $16,502 24.1 $16,502 $16,502 24.1

2000 . . . . . . 65:0 17,144 16,793 23.6 17,144 16,793 23.6

2005 . . . . . . 65:6 23,119 19,426 26.3 21,994 18,775 25.5

2010 . . . . . . 66:0 29,709 20,901 27.1 26,617 19,344 25.3

2015 . . . . . . 66:0 37,158 22,225 27.6 33,380 20,624 25.9

2020 . . . . . . 66:2 46,098 23,314 27.7 40,780 21,420 25.7

2025 . . . . . . 67:0 58,528 24,493 27.7 47,169 21,064 24.2

2030 . . . . . . 67:0 71,898 25,579 27.7 57,975 22,010 24.2

2035 . . . . . . 67:0 88,322 26,714 27.7 71,211 22,984 24.2

2040 . . . . . . 67:0 108,345 27,860 27.7 87,360 23,971 24.2

2045 . . . . . . 67:0 133,013 29,078 27.6 107,250 25,019 24.2

2050 . . . . . . 67:0 163,288 30,347 27.6 131,653 26,110 24.2

2055 . . . . . . 67:0 200,578 31,692 27.6 161,723 27,267 24.2

2060 . . . . . . 67:0 246,399 33,098 27.6 198,664 28,476 24.2

2065 . . . . . . 67:0 302,666 34,564 27.6 244,029 29,738 24.2

2070 . . . . . . 67:0 371,784 36,095 27.6 299,766 31,056 24.2

2075 . . . . . . 67:0 456,701 37,696 27.6 368,222 32,432 24.2

 1 Annual benefit amount is the benefit payable for the 12-month period starting with the month of retirement.

 2 Assumed to attain age 65 in January of the year.

 3 The adjustment from current to constant dollars is made using the CPI indexing series shown in table

III.B1. 

 4 Earnings equal to 45 percent of average.

 5 Earnings equal to 160 percent of average.

 6 Earnings equal to the OASDI contribution and benefit base.

Table III.B5.—Estimated Annual Benefit Amount Payable 1 to Retired Workers

With Various Steady Pre-Retirement Earnings Levels Based on

Intermediate Assumptions, Calendar Years 1999-2075 (Cont.) 

Retirement at normal retirement age Retirement at age 65

Year attain age 

65 2 

Age at

retirementCurrent

dollars

Constant

1999

dollars 3

Percent

of

earnings

Current

dollars

Constant

1999

dollars 3

Percent

of

earnings
185

Percentage of GDP

C. LONG-RANGE ESTIMATES OF SOCIAL SECURITY

TRUST FUND OPERATIONS AS A PERCENTAGE

OF GROSS DOMESTIC PRODUCT

This appendix presents long-range projections of the operations of the

combined Old-Age and Survivors Insurance and Disability Insurance

(OASI and DI) Trust Funds and of the Hospital Insurance (HI) Trust

Fund expressed as a percentage of gross domestic product (GDP).

While expressing these fund operations as a percentage of taxable

payroll is the most useful approach for assessing the financial status

of the programs (see table II.F13 and appendix A), analyzing them as

a percentage of GDP provides an additional perspective on these fund

operations in relation to the total value of goods and services produced

in the United States.

Table III.C1 shows estimated income excluding interest, total outgo,

and the resulting balance of the combined OASI and DI Trust Funds,

of the HI Trust Fund, and of the combined OASI, DI, and HI Trust

Funds, expressed as percentages of GDP on the basis of each of the

three alternative sets of assumptions. The estimated GDP on which

these percentages are based is also shown in table III.C1. For OASDI,

income excluding interest consists of payroll-tax contributions, proceeds from taxation of benefits, and various reimbursements from the

general fund of the Treasury. Total outgo consists of benefit payments,

administrative expenses, net transfers from the trust funds to the

Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries. For HI, income excluding

interest consists of payroll-tax contributions (including contributions

from railroad employment), proceeds from taxation of benefits, and

payments from the general fund of the Treasury for contributions on

deemed wage credits for military service. Total outgo consists of outlays (benefits and administrative expenses) for insured beneficiaries.

Both the HI income and outgo are on an incurred basis.

The OASDI balance (income excluding interest, less outgo) as a percentage of GDP is projected to be positive on the basis of the low cost

alternative I through 2018, but with decreasing deficits after 2033.

The OASDI balance is projected to be positive through 2013 on the

basis of the intermediate alternative II and through 2008 on the basis

of the high cost alternative III, before becoming permanently negative, with increasing deficits. The projected HI balance as a percentage of GDP, is negative in 1999 on the basis of the low cost alternative

I, with positive balances ending by 2047, and increasing deficits thereafter. The HI balance is projected to be negative throughout the long-
Appendices

186

range period under the intermediate and high cost alternatives, with

deficits increasing steadily after 2002. The combined OASDI and HI

balance as a percentage of GDP is projected to be positive through

2019 under the low cost alternative I, through 2011 under the intermediate alternative II, and through only 2005 under the high cost

alternative III. Between 2010 and about 2035, under all three alternatives, both the OASDI and HI balances as percentages of GDP are

projected to decline substantially because the “baby-boom” generation

reaches retirement age during these years. After balances cease to be

positive under the intermediate and high cost alternatives, the size of

annual deficits increases fairly steadily for the OASDI and HI programs, both separately and combined.

By 2075, the combined OASDI and HI balances as percentages of

GDP, based on the three alternatives, are projected to differ by a relatively large amount: from a deficit of 0.63 percent for the low cost

alternative I to a deficit of 9.03 percent for the high cost alternative

III. Projected balances differ by a much smaller amount by the tenth

year, 2008, from a positive balance of 1.02 percent for the low cost

alternative I to a deficit of 0.36 percent for the high cost alternative

III.

The summarized long-range (75-year) balance as a percentage of GDP

for the combined OASDI and HI programs varies by a relatively large

amount (from a positive 0.15 percent, based on the low cost alternative I, to a deficit of 3.80 percent, based on the high cost alternative

III). The 25-year summarized balance varies by a smaller amount

(from a positive 0.90 percent to a deficit of 0.80 percent). Summarized

rates are calculated on the present-value basis including the trust

fund balances on January 1, 1999 and the cost of reaching and maintaining a target trust fund level equal to 100 percent of annual expenditures by the end of the period. (See section II.F for further

explanation.)
187

Percentage of GDP

Table III.C1.—Estimated OASDI and HI Income Excluding Interest, Outgo, and Balance 

as a Percentage of GDP by Alternative, Calendar Years 1999-2075 

Percentage of GDP

GDP in

dollars

(billions)

OASDI HI Combined

Calendar year

Income 1

OutgoBalanceIncome1OutgoBalanceIncome1OutgoBalance

Intermediate:

1999 . . . . . . 5.25 4.45 0.79 1.52 1.56 -0.04 6.77 6.02 0.75 $8,845

2000 . . . . . . 5.21 4.45 .76 1.53 1.56 -.03 6.74 6.01 .73 9,194

2001 . . . . . . 5.21 4.45 .76 1.53 1.55 -.02 6.74 6.01 .74 9,591

2002 . . . . . . 5.19 4.47 .72 1.53 1.55 -.02 6.72 6.03 .69 10,020

2003 . . . . . . 5.17 4.49 .68 1.53 1.56 -.03 6.70 6.05 .66 10,488

2004 . . . . . . 5.15 4.51 .64 1.53 1.57 -.04 6.68 6.08 .60 11,001

2005 . . . . . . 5.15 4.53 .61 1.53 1.58 -.06 6.67 6.12 .56 11,560

2006 . . . . . . 5.13 4.57 .56 1.53 1.60 -.07 6.66 6.16 .49 12,154

2007 . . . . . . 5.13 4.60 .52 1.53 1.61 -.09 6.65 6.22 .44 12,784

2008 . . . . . . 5.11 4.65 .47 1.53 1.63 -.10 6.64 6.27 .37 13,446

2010 . . . . . . 5.11 4.78 .33 1.53 1.66 -.13 6.64 6.44 .20 14,850

2015 . . . . . . 5.09 5.28 -.19 1.53 1.77 -.25 6.62 7.05 -.43 18,863

2020 . . . . . . 5.08 5.92 -.84 1.54 1.95 -.42 6.62 7.87 -1.26 23,723

2025 . . . . . . 5.07 6.49 -1.42 1.55 2.20 -.65 6.62 8.69 -2.07 29,668

2030 . . . . . . 5.05 6.84 -1.79 1.56 2.44 -.89 6.60 9.29 -2.68 37,152

2035 . . . . . . 5.02 6.96 -1.94 1.56 2.62 -1.07 6.58 9.58 -3.01 46,668

2040 . . . . . . 4.98 6.88 -1.90 1.55 2.73 -1.18 6.53 9.61 -3.08 58,640

2045 . . . . . . 4.94 6.81 -1.87 1.54 2.78 -1.24 6.49 9.59 -3.11 73,438

2050 . . . . . . 4.90 6.79 -1.89 1.54 2.80 -1.27 6.44 9.60 -3.16 91,706

2055 . . . . . . 4.87 6.86 -1.99 1.53 2.82 -1.29 6.40 9.69 -3.28 114,252

2060 . . . . . . 4.84 6.95 -2.11 1.53 2.87 -1.35 6.36 9.82 -3.46 142,346

2065 . . . . . . 4.80 7.00 -2.19 1.52 2.94 -1.43 6.32 9.94 -3.62 177,455

2070 . . . . . . 4.76 7.02 -2.26 1.51 3.02 -1.51 6.28 10.04 -3.77 221,171

2075 . . . . . . 4.73 7.05 -2.32 1.50 3.09 -1.58 6.23 10.14 -3.91 275,416

Summarized rates: 2 

25-year:

1999-2023. . 5.55 5.24 .31 1.59 1.79 -.20 7.14 7.03 .11 —

50-year:

1999-2048. . 5.34 5.83 -.50 1.57 2.10 -.53 6.91 7.93 -1.03 —

75-year

1999-2073. . 5.23 6.04 -.80 1.56 2.26 -.70 6.79 8.30 -1.50 —

Low Cost:

1999 . . . . . . 5.24 4.41 .83 1.52 1.54 -.02 6.76 5.95 .81 8,910

2000 . . . . . . 5.24 4.38 .86 1.54 1.51 .02 6.77 5.89 .89 9,292

2001 . . . . . . 5.26 4.35 .91 1.54 1.48 .05 6.80 5.84 .96 9,704

2002 . . . . . . 5.26 4.34 .92 1.54 1.46 .07 6.79 5.80 1.00 10,146

2003 . . . . . . 5.25 4.32 .93 1.54 1.45 .09 6.78 5.77 1.02 10,619

2004 . . . . . . 5.24 4.32 .92 1.54 1.44 .10 6.78 5.75 1.02 11,120

2005 . . . . . . 5.24 4.32 .92 1.54 1.43 .11 6.78 5.75 1.03 11,644

2006 . . . . . . 5.23 4.32 .91 1.53 1.42 .11 6.77 5.74 1.03 12,195

2007 . . . . . . 5.24 4.33 .91 1.53 1.42 .12 6.77 5.74 1.03 12,772

2008 . . . . . . 5.23 4.34 .89 1.54 1.41 .13 6.77 5.75 1.02 13,368

2010 . . . . . . 5.23 4.43 .80 1.54 1.40 .14 6.77 5.82 .95 14,629

2015 . . . . . . 5.23 4.83 .40 1.54 1.40 .14 6.77 6.22 .55 18,148

2020 . . . . . . 5.24 5.40 -.16 1.55 1.44 .11 6.79 6.84 -.05 22,295

2025 . . . . . . 5.24 5.86 -.62 1.57 1.50 .06 6.80 7.36 -.56 27,279

2030 . . . . . . 5.23 6.11 -.88 1.58 1.54 .04 6.81 7.65 -.84 33,518

2035 . . . . . . 5.21 6.11 -.89 1.58 1.56 .02 6.79 7.67 -.87 41,448

2040 . . . . . . 5.19 5.93 -.74 1.57 1.56 .01 6.77 7.49 -.73 51,426

2045 . . . . . . 5.17 5.77 -.60 1.57 1.57 ( 3 ) 6.74 7.33 -.59 63,753

2050 . . . . . . 5.15 5.67 -.52 1.57 1.58 -.01 6.71 7.25 -.53 78,930

2055 . . . . . . 5.13 5.64 -.51 1.56 1.60 -.04 6.69 7.24 -.54 97,676

2060 . . . . . . 5.11 5.61 -.49 1.56 1.64 -.08 6.67 7.24 -.57 121,081

2065 . . . . . . 5.09 5.54 -.45 1.55 1.68 -.13 6.65 7.22 -.58 150,371

2070 . . . . . . 5.07 5.47 -.40 1.55 1.74 -.19 6.62 7.21 -.59 186,749

2075 . . . . . . 5.05 5.44 -.39 1.54 1.79 -.24 6.59 7.22 -.63 231,672
Appendices

188

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

The difference between trust fund operations expressed as percentages of taxable payroll and those expressed as percentages of GDP can

be seen by analyzing the estimated ratios of OASDI taxable payroll to

GDP, which are presented in table III.C2. HI taxable payroll is about

25 percent larger than the OASDI taxable payroll throughout the

long-range period (see appendix A for a detailed description of the difference). The cost as a percentage of GDP is approximately equal to

Low Cost (Cont.):

Summarized rates: 2

25-year:

1999-2023. . 5.66 4.88 0.78 1.60 1.48 0.12 7.26 6.36 0.90 —

50-year:

1999-2048. . 5.48 5.27 .22 1.59 1.50 .09 7.08 6.77 .31 —

75-year

1999-2073. . 5.41 5.31 .09 1.58 1.53 .05 6.99 6.84 .15 —

High Cost:

1999 . . . . . . 5.25 4.47 .78 1.52 1.59 -.07 6.77 6.06 .71 $8,857

2000 . . . . . . 5.21 4.56 .65 1.53 1.63 -.10 6.74 6.19 .55 9,112

2001 . . . . . . 5.15 4.49 .66 1.52 1.62 -.10 6.67 6.11 .56 9,844

2002 . . . . . . 5.13 4.55 .58 1.53 1.63 -.10 6.66 6.18 .48 10,548

2003 . . . . . . 5.11 4.84 .27 1.52 1.70 -.17 6.63 6.54 .10 10,778

2004 . . . . . . 5.06 4.81 .25 1.51 1.71 -.20 6.58 6.53 .05 11,553

2005 . . . . . . 5.06 4.83 .23 1.52 1.75 -.23 6.58 6.58 ( 3 ) 12,320

2006 . . . . . . 5.05 4.89 .16 1.52 1.79 -.27 6.57 6.69 -.11 13,038

2007 . . . . . . 5.05 4.95 .09 1.52 1.84 -.32 6.57 6.79 -.23 13,788

2008 . . . . . . 5.03 5.02 ( 3 ) 1.52 1.88 -.36 6.55 6.90 -.36 14,581

2010 . . . . . . 5.02 5.19 -.18 1.52 1.97 -.45 6.54 7.16 -.63 16,258

2015 . . . . . . 4.99 5.75 -.76 1.52 2.28 -.76 6.50 8.02 -1.52 21,182

2020 . . . . . . 4.96 6.45 -1.49 1.52 2.71 -1.19 6.49 9.16 -2.68 27,325

2025 . . . . . . 4.94 7.12 -2.18 1.53 3.32 -1.78 6.47 10.44 -3.97 34,990

2030 . . . . . . 4.91 7.62 -2.71 1.54 3.98 -2.44 6.45 11.60 -5.15 44,724

2035 . . . . . . 4.87 7.89 -3.02 1.54 4.53 -2.99 6.41 12.42 -6.01 57,142

2040 . . . . . . 4.82 7.99 -3.17 1.54 4.89 -3.35 6.36 12.88 -6.53 72,751

2045 . . . . . . 4.77 8.10 -3.32 1.53 5.06 -3.54 6.30 13.16 -6.86 92,009

2050 . . . . . . 4.72 8.25 -3.53 1.52 5.10 -3.57 6.24 13.35 -7.11 115,775

2055 . . . . . . 4.68 8.52 -3.84 1.52 5.11 -3.60 6.20 13.63 -7.44 145,009

2060 . . . . . . 4.64 8.82 -4.18 1.51 5.18 -3.67 6.15 14.00 -7.85 181,249

2065 . . . . . . 4.60 9.09 -4.50 1.51 5.28 -3.77 6.11 14.38 -8.27 226,329

2070 . . . . . . 4.55 9.33 -4.78 1.51 5.40 -3.89 6.06 14.73 -8.67 282,389

2075 . . . . . . 4.51 9.54 -5.03 1.50 5.50 -4.00 6.01 15.04 -9.03 352,058

Summarized rates: 2

25-year:

1999-2023. . 5.46 5.64 -.18 1.58 2.20 -.61 7.04 7.84 -.80 —

50-year:

1999-2048. . 5.21 6.49 -1.28 1.56 3.08 -1.52 6.78 9.57 -2.80 —

75-year

1999-2073. . 5.09 6.95 -1.86 1.55 3.49 -1.94 6.64 10.44 -3.80 —

 1 Income excludes interest on the trust funds.

 2 Summarized rates are calculated on the present-value basis including the value of the trust funds on

January 1, 1999 and the cost of reaching and maintaining a target trust fund level equal to 100 percent of

annual expenditures by the end of the period.

 3 Between -0.005 and 0.005 percent of GDP.

Table III.C1.—Estimated OASDI and HI Income Excluding Interest, Outgo, and Balance 

as a Percentage of GDP by Alternative, Calendar Years 1999-2075 (Cont.)

Percentage of GDP

GDP in

dollars

(billions)

OASDI HI Combined

Calendar year

Income 1

OutgoBalanceIncome1OutgoBalanceIncome1OutgoBalance
189

Percentage of GDP

the cost as a percentage of taxable payroll multiplied by the ratio of

taxable payroll to GDP.

Projections of GDP for the first several years were based on assumed

quarterly changes in real GDP and the GDP implicit price deflator.

Thereafter, projections of GDP were based on the projected increases

in U.S. employment, labor productivity, average hours worked, and

the GDP implicit price deflator. Projections of taxable payroll reflect

the projected growth in GDP, along with assumed changes in the ratio

of worker compensation to GDP, the ratio of earnings to worker compensation, the ratio of OASDI covered earnings to total earnings, and

the ratio of taxable to total covered earnings.

Over the long-range projection period, projected increases in taxable

payroll differ from projected increases in GDP primarily due to the

assumed trend in the ratio of wages to total employee compensation—

i.e., wages plus fringe benefits. The ratio of wages to total employee

compensation declined at an average annual rate of 0.28 percent for

the 40 years 1958-96. For the 10-year periods 1958-67, 1968-77, 1978-

87 the ratio declined by 0.31, 0.71, and 0.19 percent, respectively. For

the 10-year period 1988-97 the ratio increased by 0.08 percent. Ultimate future annual rates of decline in the ratio of wages to employee

compensation are assumed to be 0.1, 0.2, and 0.3 percent for alternatives I, II, and III, respectively. An additional factor that has made the

Table III.C2.—Ratio of OASDI Taxable Payroll to GDP by Alternative, 

Calendar Years 1999-2075 

Calendar year Intermediate Low Cost High Cost

1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.413 0.413 0.413

2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .412 .415 .411

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .411 .416 .407

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .410 .416 .405

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .408 .415 .403

2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .407 .414 .400

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .406 .414 .398

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .405 .413 .398

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .403 .413 .396

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .402 .413 .395

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .401 .412 .393

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .398 .410 .388

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .394 .408 .383

2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .390 .406 .377

2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .386 .404 .372

2035 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .382 .401 .366

2040 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .379 .399 .361

2045 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .375 .397 .356

2050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .372 .396 .351

2055 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .368 .394 .346

2060 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .365 .392 .341

2065 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .361 .390 .336

2070 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .358 .389 .331

2075 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .354 .387 .326
Appendices

190

overall ratio of taxable payroll to GDP decline in recent years is the

decline in the ratio of taxable earnings to covered earnings, as a result

of the relatively greater increases in earnings for persons with earnings above the benefit and contribution base. This decline in the taxable ratio is assumed to continue at a slower pace through 2008.
191

History of Actuarial Balances

D. TEN YEAR HISTORY OF ACTUARIAL BALANCE 

ESTIMATES

This appendix chronicles the recent history of the primary measure of

long-range actuarial status, namely the actuarial balance, as shown

in the annual reports for 1989 and later. Actuarial balance is defined

in detail in section II.F, Actuarial Estimates. Conceptually, the two

basic components of actuarial balance are the summarized income

rate and the summarized cost rate. Both rates are expressed as percentages of taxable payroll. For any given period, the actuarial balance is the difference between the present value of tax income for the

period, and the present value of the outgo for the period, each divided

by the present value of taxable payroll for all years in the period. Also

included in the calculation of the actuarial balance are:

 • The amount of the trust fund balances on hand at the beginning

of the valuation period, and

 • The present value of a target trust fund balance equal to 100 percent of the amount of annual outgo to be reached and maintained

by the end of the valuation period, as shown in the reports for

1991 and later.

It should be noted that the current method of calculating the actuarial

balance based on present values, though used prior to the 1973

Annual Report, was not used for the annual reports of 1973-87.

Instead, a simpler method that approximates the results of the

present-value approach, called the “average-cost” method, was used

during that period. Under the average-cost method, the sum of the

annual cost rates (which are expressed as percentages of taxable payroll) over the 75-year projection period was divided by the total number of years, 75, to obtain the average cost rate per year. The average

income rate was similarly calculated, and the difference between the

average income rate and the average cost rate was called the actuarial balance.

In 1973, when the average-cost method was first used, the long-range

financing of the program was more nearly on a pay-as-you-go basis.

Also, based on the long-range economic and demographic assumptions

then being used, the annual rate of growth in taxable payroll was

about the same as the annual rate at which the trust funds earned

interest. In either situation (i.e., pay-as-you-go financing, where the

annual income rate is the same as the annual cost rate, or an annual

rate of growth in taxable payroll equal to the annual interest rate),
Appendices

192

the average-cost method produces the same result as the presentvalue method. However, by 1988, neither of these situations still

existed.

As a result of legislation enacted in 1977 and in 1983, substantial

increases in the trust funds were estimated to occur well into the next

century, so that the program was partially “advance funded,” rather

than being funded on a pay-as-you-go basis. Also, because of declines

in long-range fertility rates and average real-wage growth that were

assumed in the annual reports over the period 1973-87, the annual

rate of growth in taxable earnings assumed for the long range became

significantly lower than the assumed interest rate. Therefore, during

the period 1973-87, the results of the average-cost method and the

present-value method began to diverge, and by 1988 they were quite

different. While the average-cost method still accounted for most of

the effects of the assumed interest rate, it no longer accounted for all

of the interest effects. The present-value method, of course, does

account for the full effect of the assumed interest rates. So, in 1988,

the present-value method of calculating the actuarial balance was

resumed.

A positive actuarial balance indicates that estimated income is more

than sufficient to meet estimated trust fund obligations for the period

as a whole. A negative actuarial balance indicates that estimated

income is insufficient to meet estimated trust fund obligations for the

entire period. An actuarial balance of zero indicates that the estimated income exactly matches estimated trust fund obligations for

the period.

Table III.D1 shows the estimated OASDI actuarial balances, as well

as the summarized income and cost rates, for the last 10 annual

reports (1989-98), along with the estimates for the current report. The

values shown are based on the intermediate alternative II assumptions, or alternative II-B for years prior to 1991.
193

History of Actuarial Balances

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

In 1989 and 1990, changes in economic assumptions accounted for

most of the changes in the estimated actuarial balance. In 1991, the

effect of legislation, changes in economic assumptions, and the introduction of the cost of reaching and maintaining an ending trust fund

target combined to produce the change in actuarial balance. In 1992,

changes in disability assumptions and the method for projecting average benefit levels accounted for most of the change in the actuarial

balance. In 1993, numerous small changes in assumptions and methods had offsetting effects on the actuarial balance. In 1994, changes in

the real-wage assumption, disability rates, and the earnings sample

used for projecting average benefit levels accounted for most of the

change in the actuarial balance. In 1995, numerous small changes

had largely offsetting effects on the actuarial balance, including a substantial reallocation of the payroll tax rate, which reduced the OASI

actuarial balance, but increased the DI actuarial balance. In 1996, a

change in the method of projecting dually entitled beneficiaries produced a large increase in the actuarial balance, which almost totally

offset decreases produced by changes in the valuation period and in

the economic and demographic assumptions. Various changes in

assumptions and methods for the 1997 report had roughly offsetting

effects on the actuarial balance. In 1998, increases caused by changes

in the economic assumptions, although partially offset by decreases

produced by changes in the valuation period and in the demographic

assumptions, accounted for most of the changes in the estimated actuarial balance. Changes affecting the actuarial balance shown for the

1999 report are described in section II.F2g.

Table III.D1.—Long-Range Actuarial Balances for the OASDI Program as Shown for 

the Intermediate Assumptions 1 in the Trustees Reports Issued in Years 1989-99

 [As a percentage of taxable payroll]

Year of report

Summarized

income rate

Summarized

cost rate

Actuarial

balance

Change from

previous year

1989 . . . . . . . . . . . . . . . . . . . . . . . . 13.02 13.72 -0.70 -0.13

1990 . . . . . . . . . . . . . . . . . . . . . . . . 13.04 13.95 -.91 -.21

1991 . . . . . . . . . . . . . . . . . . . . . . . . 13.11 14.19 -1.08 -.17

1992 . . . . . . . . . . . . . . . . . . . . . . . . 13.16 14.63 -1.46 -.38

1993 . . . . . . . . . . . . . . . . . . . . . . . . 13.21 14.67 -1.46 ( 2 )

1994 . . . . . . . . . . . . . . . . . . . . . . . . 13.24 15.37 -2.13 -.66

1995 . . . . . . . . . . . . . . . . . . . . . . . . 13.27 15.44 -2.17 -.04

1996 . . . . . . . . . . . . . . . . . . . . . . . . 13.33 15.52 -2.19 -.02

1997 . . . . . . . . . . . . . . . . . . . . . . . . 13.37 15.60 -2.23 -.03

1998 . . . . . . . . . . . . . . . . . . . . . . . . 13.45 15.64 -2.19 +.04

1999 . . . . . . . . . . . . . . . . . . . . . . . . 13.49 15.56 -2.07 +.12

 1 Values shown are based on the intermediate alternative II assumptions for 1991-99, and on the intermediate alternative II-B assumptions for 1989-90.

 2 Between -0.005 and 0.005 percent of taxable payroll.
Appendices

194

E. ACTUARIAL ANALYSIS OF BENEFIT DISBURSEMENTS

FROM THE FEDERAL OLD-AGE AND SURVIVORS

INSURANCE TRUST FUND WITH RESPECT TO

DISABLED BENEFICIARIES

(Required by section 201(c) of the Social Security Act)

Effective January 1957, monthly benefits have been payable from the

OASI Trust Fund to disabled children aged 18 and over of retired and

deceased workers in those cases for which the disability began before

age 18. The age before which disability is required to have begun was

subsequently changed to age 22. Effective February 1968, reduced

monthly benefits have been payable from this trust fund to disabled

widows and widowers at ages 50 and above. Effective January 1991,

the requirements for the disability of the widow or widower were

made less restrictive.

On December 31, 1998, about 797,000 persons were receiving monthly

benefits from the OASI Trust Fund because of their disabilities or the

disabilities of children. This total includes 39,000 mothers and fathers

(wives or husbands under age 65 of retired-worker beneficiaries and

widows or widowers of deceased insured workers) who met all other

qualifying requirements and were receiving unreduced benefits solely

because they had disabled-child beneficiaries (or disabled children

aged 16 or 17) in their care. Benefits paid from this trust fund to the

persons described above totaled $4,838 million in calendar year 1998.

Table III.E1 shows these and similar figures for selected calendar

years during 1960-98, and estimated experience for 1999-2008 based

on the intermediate set of assumptions.
195

OASI Expenditures for Disabled

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

Total benefit payments from the OASI Trust Fund with respect to disabled beneficiaries are estimated to increase from $5,020 million in

calendar year 1999 to $7,229 million in calendar year 2008, based on

the intermediate assumptions.

In calendar year 1998, benefit payments (including expenditures for

vocational rehabilitation services) with respect to disabled persons

from the OASI Trust Fund and from the DI Trust Fund (including

Table III.E1.—Benefit Disbursements From the OASI Trust Fund With Respect to 

Disabled Beneficiaries, Selected Calendar Years 1960-98 and Estimated Future 

Disbursements During 1999-2008 Based on Intermediate Assumptions

 [Beneficiaries in thousands; benefit payments in millions]

Disabled beneficiaries, end of year Amount of benefit payments 1 

Calendar year Total Children 2

Widowswidowers 3 Total Children 2Widowswidowers 4

Historical data:

1960 . . . . . . . . . . . 117 117 — $59 $59 —

1965 . . . . . . . . . . . 214 214 — 134 134 —

1970 . . . . . . . . . . . 316 281 36 301 260 $41

1975 . . . . . . . . . . . 435 376 58 664 560 104

1980 . . . . . . . . . . . 519 460 59 1,223 1,097 126

1985 . . . . . . . . . . . 594 547 47 2,072 1,885 187

1986 . . . . . . . . . . . 614 565 49 2,219 2,022 197

1987 . . . . . . . . . . . 629 580 49 2,331 2,128 203

1988 . . . . . . . . . . . 640 591 49 2,518 2,307 211

1989 . . . . . . . . . . . 651 602 49 2,680 2,459 221

1990 . . . . . . . . . . . 662 613 49 2,882 2,649 233

1991 . . . . . . . . . . . 687 627 61 3,179 2,875 304

1992 . . . . . . . . . . . 715 643 72 3,459 3,079 380

1993 . . . . . . . . . . . 740 659 81 3,752 3,296 456

1994 . . . . . . . . . . . 758 671 86 3,973 3,481 492

1995 . . . . . . . . . . . 772 681 91 4,202 3,672 531

1996 . . . . . . . . . . . 782 687 94 4,410 3,846 565

1997 . . . . . . . . . . . 789 693 96 4,646 4,050 596

1998 . . . . . . . . . . . 797 698 99 4,838 4,210 627

Estimates:

1999 . . . . . . . . . . . 809 707 102 5,020 4,358 663

2000 . . . . . . . . . . . 817 717 100 5,206 4,536 670

2001 . . . . . . . . . . . 824 725 98 5,401 4,728 673

2002 . . . . . . . . . . . 829 734 96 5,613 4,940 673

2003 . . . . . . . . . . . 834 742 93 5,829 5,157 672

2004 . . . . . . . . . . . 840 749 90 6,079 5,397 681

2005 . . . . . . . . . . . 845 756 89 6,350 5,654 696

2006 . . . . . . . . . . . 849 763 86 6,634 5,933 701

2004 . . . . . . . . . . . 851 770 81 6,924 6,225 699

2008 . . . . . . . . . . . 853 776 77 7,229 6,532 697

 1 Beginning in 1966, includes payments for vocational rehabilitation services.

 2 Also includes certain mothers and fathers (see text).

 3 In 1984 and later years, only disabled widows and widowers aged 50-59 are included because disabled

widows and widowers aged 60-64 would be eligible for the same benefit as a nondisabled aged widow or

widower; therefore, they are not receiving benefits solely because of a disability.

 4 In 1983 and prior years, reflects the offsetting effect of lower benefits payable to disabled widows and

widowers who continue to receive benefits after attaining age 60 (62, for disabled widowers, prior to 1973)

as compared to the higher nondisabled widow's and widower's benefits that would otherwise be payable.

In 1984 and later years, only benefit payments to disabled widows and widowers aged 50-59 are included

(see footnote 3).
Appendices

196

payments from the latter fund to all children and spouses of disabledworker beneficiaries) totaled $53,062 million. Of this amount, $4,838

million or 9.1 percent represented payments from the OASI Trust

Fund. These and similar figures for selected calendar years during

1960-98 and estimates for calendar years 1999-2008 are presented in

table III.E2.

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

Table III.E2.—Benefit Disbursements Under the OASDI Program With Respect to 

Disabled Beneficiaries, by Trust Fund, Selected Calendar Years 1960-98, 

and Estimated Future Disbursements During 1999-2008 

Based on Intermediate Assumptions

 [Amounts in millions]

Total 1

 1 Beginning in 1966, includes payments for vocational rehabilitation services.

DI Trust

Fund 2

 2 Benefit payments to disabled workers and their children and spouses.

OASI Trust Fund

Calendar year Amount 3

 3 Benefit payments to disabled children aged 18 and over, to certain mothers and fathers (see text), and

to disabled widows and widowers (see footnote 4, table III.E1).

Percentage

of total

Historical data:

1960 . . . . . . . . . . . . . . . . . . . . . . . . $627 $568 $59 9.4

1965 . . . . . . . . . . . . . . . . . . . . . . . . 1,707 1,573 134 7.9

1970 . . . . . . . . . . . . . . . . . . . . . . . . 3,386 3,085 301 8.9

1975 . . . . . . . . . . . . . . . . . . . . . . . . 9,169 8,505 664 7.2

1980 . . . . . . . . . . . . . . . . . . . . . . . . 16,738 15,515 1,223 7.3

1985 . . . . . . . . . . . . . . . . . . . . . . . . 20,908 18,836 2,072 9.9

1986 . . . . . . . . . . . . . . . . . . . . . . . . 22,075 19,856 2,219 10.1

1987 . . . . . . . . . . . . . . . . . . . . . . . . 22,858 20,527 2,331 10.2

1988 . . . . . . . . . . . . . . . . . . . . . . . . 24,226 21,708 2,518 10.4

1989 . . . . . . . . . . . . . . . . . . . . . . . . 25,591 22,911 2,680 10.5

1990 . . . . . . . . . . . . . . . . . . . . . . . . 27,717 24,835 2,882 10.4

1991 . . . . . . . . . . . . . . . . . . . . . . . . 30,877 27,698 3,179 10.3

1992 . . . . . . . . . . . . . . . . . . . . . . . . 34,583 31,124 3,459 10.0

1993 . . . . . . . . . . . . . . . . . . . . . . . . 38,378 34,626 3,752 9.8

1994 . . . . . . . . . . . . . . . . . . . . . . . . 41,730 37,757 3,973 9.5

1995 . . . . . . . . . . . . . . . . . . . . . . . . 45,140 40,937 4,202 9.3

1996 . . . . . . . . . . . . . . . . . . . . . . . . 48,615 44,205 4,410 9.1

1997 . . . . . . . . . . . . . . . . . . . . . . . . 50,358 45,712 4,646 9.2

1998 . . . . . . . . . . . . . . . . . . . . . . . . 53,062 48,224 4,838 9.1

Estimates:

1999 . . . . . . . . . . . . . . . . . . . . . . . . 56,265 51,245 5,020 8.9

2000 . . . . . . . . . . . . . . . . . . . . . . . . 60,227 55,021 5,206 8.6

2001 . . . . . . . . . . . . . . . . . . . . . . . . 64,603 59,203 5,401 8.4

2002 . . . . . . . . . . . . . . . . . . . . . . . . 69,637 64,024 5,613 8.1

2003 . . . . . . . . . . . . . . . . . . . . . . . . 75,256 69,427 5,829 7.7

2004 . . . . . . . . . . . . . . . . . . . . . . . . 81,655 75,577 6,079 7.4

2005 . . . . . . . . . . . . . . . . . . . . . . . . 88,725 82,375 6,350 7.2

2006 . . . . . . . . . . . . . . . . . . . . . . . . 96,510 89,876 6,634 6.9

2007 . . . . . . . . . . . . . . . . . . . . . . . . 104,835 97,910 6,924 6.6

2008 . . . . . . . . . . . . . . . . . . . . . . . . 111,365 104,136 7,229 6.5
197

Federal Register Notice

F. FEDERAL REGISTER 

NOTICE

Social Security Administration

Office of the Commissioner

1999 Cost-of-Living Increase and Other 

Determinations

AGENCY: Office of the Commissioner, 

Social Security Administration

ACTION: Notice.

SUMMARY: The Commissioner has determined—

(1) A 1.3 percent cost-of-living increase in 

Social Security benefits under title II of the 

Social Security Act (the Act), effective for 

December 1998; 

(2) An increase in the Federal Supplemental 

Security Income (SSI) monthly benefit 

amounts under title XVI of the Act for 1999 to 

$500 for an eligible individual, $751 for an eligible individual with an eligible spouse, and 

$250 for an essential person;

(3) The national average wage index for 1997 

to be $27,426.00;

(4) The Old-Age, Survivors, and Disability 

Insurance (OASDI) contribution and benefit 

base to be $72,600 for remuneration paid in 

1999 and self-employment income earned in 

taxable years beginning in 1999;

(5) For beneficiaries under age 65, the 

monthly exempt amount under the Social 

Security retirement earnings test for taxable 

years ending in calendar year 1999 to be $800;

(6) The dollar amounts (“bend points”) used 

in the benefit formula for workers who become 

eligible for benefits in 1999 to be $505 and 

$3,043;

(7) The dollar amounts (“bend points”) used 

in the formula for computing maximum family 

benefits for workers who become eligible for 

benefits in 1999 to be $645, $931, and $1,214;

(8) The amount of earnings a person must 

have to be credited with a quarter of coverage 

in 1999 to be $740; 

(9) The “old-law” contribution and benefit 

base to be $53,700 for 1999;

(10) The monthly amount of substantial 

gainful activity applicable to statutorily blind 

individuals in 1999 to be $1,110; 

(11) The domestic worker coverage threshold 

to be $1,100 for 1999; and

(12) The OASDI fund ratio to be 171.2 percent for 1998.

 FOR FURTHER INFORMATION CONTACT: Jeffrey L. Kunkel, Office of the Chief 

Actuary, Social Security Administration, 6401 

Security Boulevard, Baltimore, MD 21235, 

(410) 965-3013. For information on eligibility 

or claiming benefits, call 1-800-772-1213. A 

summary of the information in this announcement is available in a recorded message by 

telephoning (410) 965-3053. Information relating to this announcement is also available on 

the Internet. The address is http://

www.ssa.gov/OACT/COLA/Intro.html.

SUPPLEMENTARY INFORMATION: The 

Commissioner is required by the Act to publish 

within 45 days after the close of the third calendar quarter of 1998 the benefit increase percentage and the revised table of “special 

minimum” benefits (section 215(i)(2)(D)). Also, 

the Commissioner is required to publish on or 

before November 1 the national average wage 

index for 1997 (section 215(a)(1)(D)), the 

OASDI fund ratio for 1998 

(section 215(i)(2)(C)(ii)), the OASDI contribution and benefit base for 1999 (section 230(a)), 

the amount of earnings required to be credited 

with a quarter of coverage in 1999 

(section 213(d)(2)), the monthly exempt 

amounts under the Social Security retirement 

earnings test for 1999 (section 203(f)(8)(A)), the 

formula for computing a primary insurance 

amount for workers who first become eligible 

for benefits or die in 1999 

(section 215(a)(1)(D)), and the formula for computing the maximum amount of benefits payable to the family of a worker who first 

becomes eligible for old-age benefits or dies in 

1999 (section 203(a)(2)(C)). 

Cost-of-Living Increases 

General. The cost-of-living increase is 

1.3 percent for benefits under titles II and XVI 

of the Act. 

 Under title II, OASDI benefits will increase 

by 1.3 percent beginning with December 1998 

benefits. (All benefits for a given month are 

normally payable in the following month. However, those benefits for December 1998 that are 

normally paid on the third of the following 

month will be paid on December 31, 1998, 

because January 3, 1999, is a Sunday.) This 

increase is based on the authority contained in 

section 215(i) of the Act (42 U.S.C. 415(i)).

Under title XVI, Federal SSI payment levels 

will also increase by 1.3 percent effective for 

payments made for the month of January 1999 

but paid on December 31, 1998. This is based 

on the authority contained in section 1617 of 

the Act (42 U.S.C. 1382f).

Automatic Benefit Increase Computation. 

Under section 215(i) of the Act, the third calendar quarter of 1998 is a cost-of-living computation quarter for all the purposes of the Act. 

The Commissioner is, therefore, required to 

increase benefits, effective with 

December 1998, for individuals entitled under 

section 227 or 228 of the Act, to increase primary insurance amounts of all other individu-
Appendices

198

als entitled under title II of the Act, and to 

increase maximum benefits payable to a family. For December 1998, the benefit increase is 

the percentage increase in the Consumer Price 

Index for Urban Wage Earners and Clerical 

Workers from the third quarter of 1997 

through the third quarter of 1998.

Section 215(i)(1) of the Act provides that the 

Consumer Price Index for a cost-of-living computation quarter shall be the arithmetic mean 

of this index for the 3 months in that quarter. 

The arithmetic mean is rounded, if necessary, 

to the nearest 0.1. The Department of Labor’s 

Consumer Price Index for Urban Wage Earners 

and Clerical Workers for each month in the 

quarter ending September 30, 1997, is: for 

July 1997, 157.5; for August 1997, 157.8; and 

for September 1997, 158.3. The arithmetic 

mean for this calendar quarter is 157.9. The 

corresponding Consumer Price Index for each 

month in the quarter ending September 30, 

1998, is: for July 1998, 159.8; for August 1998, 

160.0; and for September 1998, 160.2. The 

arithmetic mean for this calendar quarter is 

160.0. Thus, because the Consumer Price Index 

for the calendar quarter ending September 30, 

1998, exceeds that for the calendar quarter 

ending September 30, 1997 by 1.3 percent, a 

cost-of-living benefit increase of 1.3 percent is 

effective for benefits under title II of the Act 

beginning December 1998.

Title II Benefit Amounts. In accordance with 

section 215(i) of the Act, in the case of insured 

workers and family members for whom eligibility for benefits (i.e., the worker’s attainment of 

age 62, or disability or death before age 62) 

occurred before 1999, benefits will increase by 

1.3 percent beginning with benefits for 

December 1998 which are payable in January 

1999. In the case of first eligibility after 1998, 

the 1.3 percent increase will not apply. 

For eligibility after 1978, benefits are generally determined by a benefit formula provided 

by the Social Security Amendments of 1977 

(Pub. L. 95-216), as described later in this 

notice.

For eligibility before 1979, benefits are determined by means of a benefit table. A copy of 

this table may be obtained by writing to: Social 

Security Administration, Office of Public 

Inquiries, 4100 Annex, Baltimore, MD 21235. 

The table is also available on the Internet at 

address http://www.ssa.gov/OACT/ProgData/

tableForm.html.

Section 215(i)(2)(D) of the Act requires that, 

when the Commissioner determines an automatic increase in Social Security benefits, the 

Commissioner shall publish in the FEDERAL 

REGISTER a revision of the range of the primary insurance amounts and corresponding 

maximum family benefits based on the dollar 

amount and other provisions described in 

section 215(a)(1)(C)(i). These benefits are 

referred to as “special minimum” benefits and 

are payable to certain individuals with long 

periods of relatively low earnings. To qualify 

for such benefits, an individual must have at 

least 11 “years of coverage.” To earn a year of 

coverage for purposes of the special minimum, 

a person must earn at least a certain proportion (25 percent for years before 1991, and 15 

percent for years after 1990) of the “old-law” 

contribution and benefit base. In accordance 

with section 215(a)(1)(C)(i), the table below 

shows the revised range of primary insurance 

amounts and corresponding maximum family 

benefit amounts after the 1.3 percent benefit 

increase.

Special Minimum Primary Insurance 

Amounts and Maximum Family Benefits

Section 227 of the Act provides flat-rate benefits to a worker who became age 72 before 

1969 and was not insured under the usual 

requirements, and to his or her spouse or surviving spouse. Section 228 of the Act provides 

similar benefits at age 72 for certain uninsured 

persons. The current monthly benefit amount 

of $203.10 for an individual under sections 227 

and 228 of the Act is increased by 1.3 percent 

to obtain the new amount of $205.70. The current monthly benefit amount of $101.50 for a 

spouse under section 227 is increased by 1.3 

percent to $102.80.

Title XVI Benefit Amounts. In accordance 

with section 1617 of the Act, Federal SSI benefit amounts for the aged, blind, and disabled 

are increased by 1.3 percent effective January 

Primary 

insurance 

amount 

payable for

Dec. 1997

Number 

of years 

of 

coverage

Primary 

insurance 

amount 

payable for

Dec. 1998

Family 

benefit 

payable for

Dec. 1998

$27.60 11 $27.90 $42.20

55.40 12 56.10 84.80

83.70 13 84.70 127.40

111.40 14 112.80 169.80

139.40 15 141.20 212.00

167.50 16 169.60 255.00

195.50 17 198.00 297.70

223.50 18 226.40 340.10

251.50 19 254.70 382.70

279.40 20 283.00 425.10

307.70 21 311.70 468.00

335.50 22 339.80 510.40

363.70 23 368.40 553.60

391.80 24 396.80 595.90

419.70 25 425.10 638.00

448.00 26 453.80 681.40

475.90 27 482.00 723.70

503.80 28 510.30 766.10

531.70 29 538.60 808.80

559.80 30 567.00 851.10
199

Federal Register Notice

1999. For 1998, the monthly benefit amounts 

for an eligible individual, an eligible individual 

with an eligible spouse, and for an essential 

person—$494, $741, and $247, respectively—

were derived from corresponding yearly 

unrounded Federal SSI benefit amounts of 

$5,932.89, $8,898.33, and $2,973.24. For 1999, 

these yearly unrounded amounts are increased 

by 1.3 percent to $6,010.02, $9,014.01, and 

$3,011.89, respectively, Each of these resulting 

amounts must be rounded, when not a multiple 

of $12, to the next lower multiple of $12. 

Accordingly, the corresponding annual 

amounts, effective for 1999, are $6,000, $9,012, 

and $3,000. The corresponding monthly 

amounts for 1999 are determined by dividing 

the yearly amounts by 12, giving $500, $751, 

and $250, respectively. The monthly amount is 

reduced by subtracting monthly countable 

income. In the case of an eligible individual 

with an eligible spouse, the amount payable is 

further divided equally between the two 

spouses.

Fee for Services Performed as a Representative Payee. Sections 205(j)(4)(A)(i) and 

1631(a)(2)(D)(i) of the Act permit a qualified 

organization to collect from an individual a 

monthly fee for expenses incurred in providing 

services performed as such individual’s representative payee. Currently the fee is limited to 

the lesser of (1) 10 percent of the monthly benefit involved, or (2) $27 per month ($52 per 

month in any case in which the individual is 

entitled to disability benefits and the Commissioner has determined that payment to the representative payee would serve the interest of 

the individual because the individual has an 

alcoholism or drug addiction condition and is 

incapable of managing such benefits). The dollar fee limits are subject to increase by the 

automatic cost-of-living increase, with the 

resulting amounts rounded to the nearest 

whole dollar amount. Due to the rounding provision, the current $27 amount remains the 

same for 1999, while the current $52 amount is 

increased by 1.3 percent to $53 for 1999.

National Average Wage Index for 1997 

General. Under various provisions of the 

Act, several amounts are scheduled to increase 

automatically for 1999 based on the annual 

increase in the national average wage index. 

The amounts are (1) the OASDI contribution 

and benefit base,(2) the retirement test exempt 

amount for beneficiaries under age 65, (3) the 

dollar amounts, or “bend points,” in the primary insurance amount and maximum family 

benefit formulas,(4) the amount of earnings 

required for a worker to be credited with a 

quarter of coverage, (5) the “old-law” contribution and benefit base (as determined under 

section 230 of the Act as in effect before the 

1977 amendments), and (6) the substantial 

gainful activity amount applicable to statutorily blind individuals. Also, section 3121(x) of 

the Internal Revenue Code requires that the 

domestic employee coverage threshold be based 

on changes in the national average wage index. 

Computation. The determination of the 

national average wage index for calendar year 

1997 is based on the 1996 national average 

wage index of $25,913.90 announced in the 

FEDERAL REGISTER on October 30, 1997 (62 

FR 58762), along with the percentage increase 

in average wages from 1996 to 1997 measured 

by annual wage data tabulated by the Social 

Security Administration (SSA). The wage data 

tabulated by SSA include contributions to 

deferred compensation plans, as required by 

section 209(k) of the Act. The average amounts 

of wages calculated directly from these data 

were $24,859.17 and $26,309.73 for 1996 and 

1997, respectively. To determine the national 

average wage index for 1997 at a level that is 

consistent with the national average wage 

indexing series for 1951 through 1977 (published December 29, 1978, at 43 FR 61016), the 

1996 national average wage index of 

$25,913.90 is multiplied by the percentage 

increase in average wages from 1996 to 1997 

(based on SSA-tabulated wage data) as follows 

(with the result rounded to the nearest cent):

Amount. The national average wage index 

for 1997 is $25,913.90 times $26,309.73 divided 

by $24,859.17, which equals $27,426.00. Therefore, the national average wage index for calendar year 1997 is determined to be $27,426.00.

OASDI Contribution and Benefit Base 

General. The OASDI contribution and benefit base is $72,600 for remuneration paid in 

1999 and self-employment income earned in 

taxable years beginning in 1999.

The OASDI contribution and benefit base 

serves two purposes:

(a) It is the maximum annual amount of 

earnings on which OASDI taxes are paid. The 

OASDI tax rate for remuneration paid in 1999 

is set by statute at 6.2 percent for employees 

and employers, each. The OASDI tax rate for 

self-employment income earned in taxable 

years beginning in 1999 is 12.4 percent. (The 

Hospital Insurance tax is due on remuneration, 

without limitation, paid in 1999, at the rate of 

1.45 percent for employees and employers, 

each, and on self-employment income earned in 

taxable years beginning in 1999, at the rate of 

2.9 percent.)

(b) It is the maximum annual amount used 

in determining a person's OASDI benefits. 

Computation. Section 230(b) of the Act provides the formula used to determine the 

OASDI contribution and benefit base. Under 

the formula, the base for 1999 shall be equal to 

the larger of (1) the 1994 base of $60,600 multiplied by the ratio of the national average wage 

index for 1997 to that for 1992, or (2) the cur-
Appendices

200

rent base ($68,400). If the amount so determined is not a multiple of $300, it shall be 

rounded to the nearest multiple of $300. 

Amount. The ratio of the national average 

wage index for 1997, $27,426.00 as determined 

above, compared to that for 1992, $22,935.42, 

is 1.1957924. Multiplying the 1994 OASDI contribution and benefit base amount of $60,600 

by the ratio of 1.1957924 produces the amount 

of $72,465.02 which must then be rounded to 

$72,600. Because $72,600 exceeds the current 

base amount of $68,400, the OASDI contribution and benefit base is determined to be 

$72,600 for 1999.

Retirement Earnings Test Exempt 

Amounts 

General. Social Security benefits are withheld when a beneficiary under age 70 has earnings in excess of the retirement earnings test 

exempt amount. Since 1978, higher exempt 

amounts have applied to beneficiaries aged 65 

through 69 compared to those under age 65. 

Formulas for determining the monthly exempt 

amounts are provided in section 203(f)(8)(B) of 

the Act, as amended by section 102 of the 

“Senior Citizens’ Right to Work Act of 1996,” 

title I of Pub. L. 104-121. This amendment set 

the annual exempt amount for beneficiaries 

aged 65 through 69 to $12,500 for 1996, 

$13,500 for 1997, $14,500 for 1998, $15,500 for 

1999, $17,000 for 2000, $25,000 for 2001, and 

$30,000 for 2002. The corresponding monthly 

exempt amounts are exactly one-twelfth of the 

annual amounts. After 2002, the monthly 

exempt amount for this group of beneficiaries 

will increase under the applicable formula.

 For beneficiaries aged 65 through 69, $1 in 

benefits is withheld for every $3 of earnings in 

excess of the annual exempt amount. For beneficiaries under age 65, $1 in benefits is withheld for every $2 of earnings in excess of the 

annual exempt amount.

Computation. Under the formula applicable 

to beneficiaries under age 65, the monthly 

exempt amount for 1999 shall be the larger of 

(1) the 1994 monthly exempt amount multiplied by the ratio of the national average wage 

index for 1997 to that for 1992, or (2) the 1998 

monthly exempt amount ($760). If the amount 

so determined is not a multiple of $10, it shall 

be rounded to the nearest multiple of $10. 

Exempt Amount for Beneficiaries Under Age 

65. The ratio of the national average wage 

index for 1997, $27,426.00, compared to that 

for 1992, $22,935.42, is 1.1957924. Multiplying 

the 1994 retirement earnings test monthly 

exempt amount of $670 by the ratio 1.1957924 

produces the amount of $801.18. This must 

then be rounded to $800. Because $800 is 

larger than the corresponding current exempt 

amount of $760, the retirement earnings test 

monthly exempt amount for beneficiaries 

under age 65 is thus determined to be $800 for 

1999. The corresponding retirement earnings 

test annual exempt amount for these beneficiaries is $9,600.

Computing Benefits After 1978 

General. The Social Security Amendments 

of 1977 provided a method for computing benefits which generally applies when a worker 

first becomes eligible for benefits after 1978. 

This method uses the worker’s “average 

indexed monthly earnings” to compute the primary insurance amount. The computation formula is adjusted automatically each year to 

reflect changes in general wage levels, as measured by the national average wage index. 

A worker’s earnings are adjusted, or 

“indexed,” to reflect the change in general wage 

levels that occurred during the worker’s years 

of employment. Such indexation ensures that a 

worker’s future benefits reflect the general rise 

in the standard of living that occurs during his 

or her working lifetime. A certain number of 

years of earnings are needed to compute the 

average indexed monthly earnings. After the 

number of years is determined, those years 

with the highest indexed earnings are chosen, 

the indexed earnings are summed, and the 

total amount is divided by the total number of 

months in those years. The resulting average 

amount is then rounded down to the next lower 

dollar amount. The result is the average 

indexed monthly earnings.

For example, to compute the average 

indexed monthly earnings for a worker attaining age 62, becoming disabled before age 62, or 

dying before attaining age 62, in 1999, the 

national average wage index for 1997, 

$27,426.00, is divided by the national average 

wage index for each year prior to 1997 in which 

the worker had earnings. The actual wages and 

self-employment income, as defined in section 

211(b) of the Act and credited for each year, is 

multiplied by the corresponding ratio to obtain 

the worker’s indexed earnings for each year 

before 1997. Any earnings in 1997 or later are 

considered at face value, without indexing. The 

average indexed monthly earnings is then computed and used to determine the worker’s primary insurance amount for 1999.

Computing the Primary Insurance Amount. 

The primary insurance amount is the sum of 

three separate percentages of portions of the 

average indexed monthly earnings. In 1979 

(the first year the formula was in effect), these 

portions were the first $180, the amount 

between $180 and $1,085, and the amount over 

$1,085. The dollar amounts in the formula 

which govern the portions of the average 

indexed monthly earnings are frequently 

referred to as the “bend points” of the formula. 

Thus, the bend points for 1979 were $180 and 

$1,085. 
201

Federal Register Notice

The bend points for 1999 are obtained by 

multiplying the corresponding 1979 bend-point 

amounts by the ratio between the national 

average wage index for 1997, $27,426.00, and 

for 1977, $9,779.44. These results are then 

rounded to the nearest dollar. For 1999, the 

ratio is 2.8044551. Multiplying the 1979 

amounts of $180 and $1,085 by 2.8044551 produces the amounts of $504.80 and $3,042.83. 

These must then be rounded to $505 and 

$3,043. Accordingly, the portions of the average 

indexed monthly earnings to be used in 1999 

are determined to be the first $505, the amount 

between $505 and $3,043, and the amount over 

$3,043.

Consequently, for individuals who first 

become eligible for old-age insurance benefits 

or disability insurance benefits in 1999, or who 

die in 1999 before becoming eligible for benefits, their primary insurance amount will be 

the sum of:

(a) 90 percent of the first $505 of their average indexed monthly earnings, plus

(b) 32 percent of their average indexed 

monthly earnings over $505 and through 

$3,043, plus

(c) 15 percent of their average indexed 

monthly earnings over $3,043.

This amount is then rounded to the next 

lower multiple of $.10 if it is not already a multiple of $.10. This formula and the rounding 

adjustment described above are contained in 

section 215(a) of the Act (42 U.S.C. 415(a)).

Maximum Benefits Payable to a Family

General. The 1977 amendments continued 

the long established policy of limiting the total 

monthly benefits that a worker’s family may 

receive based on his or her primary insurance 

amount. Those amendments also continued the 

then existing relationship between maximum 

family benefits and primary insurance 

amounts but did change the method of computing the maximum amount of benefits that may 

be paid to a worker’s family. The Social Security Disability Amendments of 1980 

(Pub. L. 96-265) established a formula for computing the maximum benefits payable to the 

family of a disabled worker. This formula is 

applied to the family benefits of workers who 

first become entitled to disability insurance 

benefits after June 30, 1980, and who first 

become eligible for these benefits after 1978. 

For disabled workers initially entitled to disability benefits before July 1980, or whose disability began before 1979, the family maximum 

payable is computed the same as the old-age 

and survivor family maximum. 

Computing the Old-Age and Survivor Family 

Maximum. The formula used to compute the 

family maximum is similar to that used to compute the primary insurance amount. It involves 

computing the sum of four separate percentages of portions of the worker’s primary insurance amount. In 1979, these portions were the 

first $230, the amount between $230 and $332, 

the amount between $332 and $433, and the 

amount over $433. The dollar amounts in the 

formula which govern the portions of the primary insurance amount are frequently referred 

to as the “bend points” of the family-maximum 

formula. Thus, the bend points for 1979 were 

$230, $332, and $433.

The bend points for 1999 are obtained by 

multiplying the corresponding 1979 bend-point 

amounts by the ratio between the national 

average wage index for 1997, $27,426.00, and 

the average for 1977, $9,779.44. This amount is 

then rounded to the nearest dollar. For 1999, 

the ratio is 2.8044551. Multiplying the 

amounts of $230, $332, and $433 by 2.8044551 

produces the amounts of $645.02, $931.08, and 

$1,214.33. These amounts are then rounded to 

$645, $931, and $1,214. Accordingly, the portions of the primary insurance amounts to be 

used in 1999 are determined to be the first 

$645, the amount between $645 and $931, the 

amount between $931 and $1,214, and the 

amount over $1,214.

Consequently, for the family of a worker who 

becomes age 62 or dies in 1999 before age 62, 

the total amount of benefits payable to them 

will be computed so that it does not exceed:

(a) 150 percent of the first $645 of the 

worker’s primary insurance amount, plus

(b) 272 percent of the worker’s primary 

insurance amount over $645 through $931, 

plus

(c) 134 percent of the worker’s primary 

insurance amount over $931 through $1,214, 

plus

(d) 175 percent of the worker’s primary 

insurance amount over $1,214.

This amount is then rounded to the next 

lower multiple of $.10 if it is not already a multiple of $.10. This formula and the rounding 

adjustment described above are contained in 

section 203(a) of the Act (42 U.S.C. 403(a)). 

Quarter of Coverage Amount 

General. The 1999 amount of earnings 

required for a quarter of coverage is $740. A 

quarter of coverage is the basic unit for determining whether a worker is insured under the 

Social Security program. For years before 1978, 

an individual generally was credited with a 

quarter of coverage for each quarter in which 

wages of $50 or more were paid, or an individual was credited with 4 quarters of coverage for 

every taxable year in which $400 or more of 

self-employment income was earned. Beginning in 1978, wages generally are no longer 

reported on a quarterly basis; instead, annual 

reports are made. With the change to annual 

reporting, section 352(b) of the Social Security 

Amendments of 1977 amended section 213(d) 
Appendices

202

of the Act to provide that a quarter of coverage 

would be credited for each $250 of an individual’s total wages and self-employment income 

for calendar year 1978 (up to a maximum of 4 

quarters of coverage for the year). 

Computation. Under the prescribed formula, 

the quarter of coverage amount for 1999 shall 

be equal to the larger of (1) the 1978 amount of 

$250 multiplied by the ratio of the national 

average wage index for 1997 to that for 1976, 

or (2) the current amount of $700. Section 

213(d) further provides that if the amount so 

determined is not a multiple of $10, it shall be 

rounded to the nearest multiple of $10.

Quarter of Coverage Amount. The ratio of 

the national average wage index for 1997, 

$27,426.00, compared to that for 1976, 

$9,226.48, is 2.9725312. Multiplying the 1978 

quarter of coverage amount of $250 by the ratio 

of 2.9725312 produces the amount of $743.13, 

which must then be rounded to $740. Because 

$740 exceeds the current amount of $700, the 

quarter of coverage amount is determined to be 

$740 for 1999. 

“Old-Law” Contribution and Benefit Base 

General. The 1999 “old-law” contribution 

and benefit base is $53,700. This is the base 

that would have been effective under the Act 

without the enactment of the 1977 amendments. The base is computed under section 

230(b) of the Act as it read prior to the 1977 

amendments. 

The “old-law” contribution and benefit base 

is used by:

(a) the Railroad Retirement program to 

determine certain tax liabilities and tier II benefits payable under that program to supplement the tier I payments which correspond to 

basic Social Security benefits, 

(b) the Pension Benefit Guaranty Corporation to determine the maximum amount of pension guaranteed under the Employee 

Retirement Income Security Act (as stated in 

section 230(d) of the Social Security Act), 

(c) Social Security to determine a year of coverage in computing the special minimum benefit, as described earlier, and

 (d) Social Security to determine a year of 

coverage (acquired whenever earnings equal or 

exceed 25 percent of the “old-law” base for this 

purpose only) in computing benefits for persons 

who are also eligible to receive pensions based 

on employment not covered under section 210 

of the Act. 

Computation. The base is computed using 

the automatic adjustment formula in 

section 230(b) of the Act as it read prior to the 

enactment of the 1977 amendments, but with 

the revised indexing formula introduced by section 321(g) of the “Social Security Independence and Program Improvements Act of 

1994.” Under the formula, the “old-law” contribution and benefit base shall be the larger of 

(1) the 1994 “old-law” base ($45,000) multiplied 

by the ratio of the national average wage index 

for 1997 to that for 1992, or (2) the current 

“old-law” base ($50,700). If the amount so 

determined is not a multiple of $300, it shall be 

rounded to the nearest multiple of $300.

Amount. The ratio of the national average 

wage index for 1997, $27,426.00, compared to 

that for 1992, $22,935.42, is 1.1957924. Multiplying the 1994 “old-law” contribution and benefit base amount of $45,000 by the ratio of 

1.1957924 produces the amount of $53,810.66 

which must then be rounded to $53,700. 

Because $53,700 exceeds the current amount of 

$50,700, the “old-law” contribution and benefit 

base is determined to be $53,700 for 1999.

Substantial Gainful Activity Amount for 

Blind Individuals

General. A finding of disability under titles 

II and XVI of the Act requires that a person be 

unable to engage in substantial gainful activity 

(SGA). Under current regulations, a person 

who is not statutorily blind and who is earning 

more than $500 a month (net of impairmentrelated work expenses) is ordinarily considered 

to be engaging in SGA. Section 223(d)(4)(A) of 

the Act specifies a higher SGA amount for statutorily blind individuals. This higher SGA 

amount increases in accordance with increases 

in the national average wage index.

Computation. The monthly SGA amount for 

statutorily blind individuals for 1999 shall be 

the larger of (1) such amount for 1994 multiplied by the ratio of the national average wage 

index for 1997 to that for 1992, or (2) such 

amount for 1998. If the amount so determined 

is not a multiple of $10, it shall be rounded to 

the nearest multiple of $10. 

SGA Amount for Statutorily Blind Individuals. The ratio of the national average wage 

index for 1997, $27,426.00, compared to that 

for 1992, $22,935.42, is 1.1957924. Multiplying 

the 1994 monthly SGA amount for statutorily 

blind individuals of $930 by the ratio of 

1.1957924 produces the amount of $1,112.09. 

This must then be rounded to $1,110. Because 

$1,110 is larger than the current amount of 

$1,050, the monthly SGA amount for statutorily blind individuals is determined to be 

$1,110 for 1999.

Domestic Employee Coverage Threshold

General. Section 2 of the “Social Security 

Domestic Employment Reform Act of 1994” 

(Pub. L. 103-387) increased the threshold for 

coverage of a domestic employee's wages paid 

per employer from $50 per calendar quarter to 

$1,000 in calendar year 1994. The statute 

holds the coverage threshold at the $1,000 

level for 1995 and then increases the threshold 

in $100 increments for years after 1995. The 
203

Federal Register Notice

formula for increasing the threshold is provided in section 3121(x) of the Internal Revenue Code.

Computation. Under the formula, the 

domestic employee coverage threshold amount 

for 1999 shall be equal to the 1995 amount of 

$1,000 multiplied by the ratio of the national 

average wage index for 1997 to that for 1993. If 

the amount so determined is not a multiple of 

$100, it shall be rounded to the next lower multiple of $100.

Domestic Employee Coverage Threshold 

Amount. The ratio of the national average 

wage index for 1997, $27,426.00, compared to 

that for 1993, $23,132.67, is 1.1855960. Multiplying the 1995 domestic employee coverage 

threshold amount of $1,000 by the ratio of 

1.1855960 produces the amount of $1,185.60, 

which must then be rounded to $1,100. Accordingly, the domestic employee coverage threshold amount is determined to be $1,100 for 

1999.

OASDI Fund Ratio 

General. In addition to providing an annual 

automatic cost-of-living increase in OASDI 

benefits, section 215(i) of the Act also includes 

a “stabilizer” provision that can limit such benefit increase under certain circumstances. If 

the combined assets of the OASI and DI Trust 

Funds, as a percentage of annual expenditures, 

are below a specified threshold, the automatic 

benefit increase is equal to the lesser of (1) the 

increase in the national average wage index or 

(2) the increase in prices. The threshold specified for the OASDI fund ratio is 20.0 percent 

for benefit increases for December of 1989 and 

later. The law also provides for subsequent 

“catch-up” benefit increases for beneficiaries 

whose previous benefit increases were affected 

by this provision. “Catch-up” benefit increases 

can occur only when trust fund assets exceed 

32.0 percent of annual expenditures.

Computation. Section 215(i) specifies the 

computation and application of the OASDI 

fund ratio. The OASDI fund ratio for 1998 is 

the ratio of (1) the combined assets of the OASI 

and DI Trust Funds at the beginning of 1998 to 

(2) the estimated expenditures of the OASI and 

DI Trust Funds during 1998, excluding transfer payments between the OASI and DI Trust 

Funds, and reducing any transfers to the Railroad Retirement Account by any transfers from 

that account into either trust fund. 

Ratio. The combined assets of the OASI and 

DI Trust Funds at the beginning of 1998 

equaled $655,510 million, and the expenditures are estimated to be $382,871 million. 

Thus, the OASDI fund ratio for 1998 is 

171.2 percent, which exceeds the applicable 

threshold of 20.0 percent. Therefore, the stabilizer provision does not affect the benefit 

increase for December 1998. Although the 

OASDI fund ratio exceeds the 32.0-percent 

threshold for potential “catch-up” benefit 

increases, no past benefit increase has been 

reduced under the stabilizer provision. Thus, 

no “catch-up” benefit increase is required. 

(Catalog of Federal Domestic Assistance: 

Program Nos. 96.001 Social Security-Disability Insurance; 96.002 Social Security-Retirement Insurance; 96.003 Social Security-Special 

Benefits for Persons Aged 72 and Over; 96.004 

Social Security-Survivors Insurance; 96.006 

Supplemental Security Income.)

Dated: October 21, 1998.

Kenneth S. Apfel

Commissioner,

Social Security Administration

[FR Doc. 98-28988 Filed 10-29-98; 8:45 am]

BILLING CODE 4190-29-P

This material was published in the Federal Register on October 30, 1998, at 63 FR 58446.
Appendices

204

G. GLOSSARY

Actuarial balance. The difference between the summarized income rate

and the summarized cost rate over a given valuation period.

Actuarial deficit. A negative actuarial balance.

Adjusted gross income—AGI. Amount of income potentially subject to

Federal income taxation, before consideration of exemptions and deductions.

Administrative expenses. Expenses incurred by the Social Security

Administration and the Department of the Treasury in administering the

OASDI program and the provisions of the Internal Revenue Code relating

to the collection of contributions. Such administrative expenses are paid

from the OASI and DI Trust Funds.

Advance tax transfers. Amounts representing the estimated total

OASDI tax contributions for a given month. From May 1983 through

November 1990, such amounts were credited to the OASI and DI Trust

Funds at the beginning of each month. Reimbursements were made from

the trust funds to the general fund of the Treasury for the associated loss

of interest. Advance tax transfers are no longer made unless needed in

order to pay benefits.

Alternatives I, II, or III. See “Assumptions.”

Annual balance. The difference between the income rate and the cost

rate in a given year.

Assets. Treasury notes and bonds, other securities guaranteed by the

Federal Government, certain Federally sponsored agency obligations, and

cash, held by the trust funds for investment purposes.

Assumptions. Values relating to future trends in certain key factors

which affect the balance in the trust funds. Demographic assumptions

include fertility, mortality, net immigration, marriage, divorce, retirement

patterns, disability incidence and termination rates, and changes in the

labor force. Economic assumptions include unemployment, average earnings, inflation, interest rates, and productivity. Three sets of economic

assumptions are presented in this report—

 • Alternative I is characterized as a “low cost” set—it assumes relatively rapid economic growth, low inflation, and favorable (from the

standpoint of program financing) demographic conditions.

 • Alternative II is the “intermediate” set of assumptions, and represents the Trustees’ “best estimates” of likely future economic and

demographic conditions.

 • Alternative III, characterized as a “high cost” set, assumes slow economic growth, more rapid inflation, and financially disadvantageous

demographic conditions.

See tables II.D1 and II.D2.
205

Glossary

Automatic cost-of-living increase. The annual increase in benefits,

effective for December, reflecting the increase in the cost of living. The

benefit increase equals the percentage increase in the Consumer Price

Index for Urban Wage Earners and Clerical Workers measured from the

average over July, August, and September of the preceding year to the

average for the same 3 months in the current year. If the increase is less

than one-tenth of 1 percent, when rounded, there is no automatic increase

for the current year; the increase for the next year would reflect the

increase in the cost of living over a 2-year period. See table II.E2. If the

“stabilizer provision” applies, the increase may be less than the cost-ofliving increase.

Auxiliary beneficiary. Monthly benefits payable to a spouse or child of

a retired or disabled worker, or to a survivor of a deceased worker.

Average indexed monthly earnings—AIME. The amount of earnings

used in determining the primary insurance amount (PIA) for most workers who attain age 62, become disabled, or die after 1978. A worker’s

actual past earnings are adjusted by changes in the “average wage index,”

in order to bring them up to their approximately equivalent value at the

time of retirement or other eligibility for benefits.

Average wage index. The average amount of total wages for each year

after 1950, including wages in noncovered employment and wages in covered employment in excess of the OASDI contribution and benefit base.

These amounts are used to index the earnings of most workers first

becoming eligible for benefits in 1979 or later, and for automatic adjustments in the contribution and benefit base, bend points, earnings test

exempt amounts, and other wage-indexed amounts. See tables II.E1,

II.E2, and III.B1.

Award. An administrative determination that an individual is entitled to

receive a specified type of OASDI benefit. Awards can represent not only

new entrants to the benefit rolls but also persons already on the rolls who

become entitled to a different type of benefit. Awards usually result in the

immediate payment of benefits, although payments may be deferred or

withheld depending on the individual’s particular circumstances.

Baby boom. The period from the end of World War II through the mid1960s marked by unusually high birth rates.

Bend points. The dollar amounts defining the AIME or PIA brackets in

the benefit formulas. For the bend points for years 1979 and later, see

table II.E3.

Beneficiary. A person who has been awarded benefits on the basis of his

or her own or another’s earnings record. The benefits may be either in

current-payment status or withheld.

Benefit award. See “Award.”
Appendices

206

Benefit payments. The amounts disbursed for OASI and DI benefits by

the Department of the Treasury in specified periods.

Benefit termination. See “Termination.”

Best estimate assumptions. See “Assumptions.”

Board of Trustees. A Board established by the Social Security Act to

oversee the financial operations of the Federal Old-Age and Survivors

Insurance Trust Fund and the Federal Disability Insurance Trust Fund.

The Board is composed of six members, four of whom serve automatically

by virtue of their positions in the Federal Government: the Secretary of

the Treasury, who is the Managing Trustee, the Secretary of Labor, the

Secretary of Health and Human Services, and the Commissioner of Social

Security. The other two members are appointed by the President and confirmed by the Senate to serve as public representatives. Stephen G. Kellison and Marilyn Moon began serving 4-year terms on July 20, 1995. 

Book value. A bond’s value between its price at purchase and its value

at maturity. Book value is calculated as par value plus unamortized premium, if purchased at a price above its par value, or less unamortized discount, if purchased below par.

COLA. See “Automatic cost-of-living increase.”

Constant dollars. Amounts adjusted by the CPI to the value of the dollar in a particular year.

Consumer Price Index—CPI. Relative measure of inflation. In this

report, all references to the CPI relate to the Consumer Price Index for

Urban Wage Earners and Clerical Workers (CPI-W). See table II.D1.

Contribution and benefit base. Annual dollar amount above which

earnings in employment covered under the OASDI program are neither

taxable nor creditable for benefit computation purposes. (Also referred to

as “maximum contribution and benefit base,” “annual creditable maximum,” “taxable maximum,” and “maximum taxable.”) See tables II.B1

and II.E2. See also, “HI contribution base.”

Contributions. The amount based on a percent of earnings, up to an

annual maximum, that must be paid by—

 • employers and employees on wages from employment under the Federal Insurance Contributions Act,

 • the self-employed on net earnings from self-employment under the

Self-Employment Contributions Act, and

 • States on the wages of State and local government employees covered under the Social Security Act through voluntary agreements

under section 218 of the Act.

Generally, employers withhold contributions from wages, add an equal

amount of contributions, and pay both on a current basis. Also referred to

as “taxes.”
207

Glossary

Cost-of-living increase. See “Automatic cost-of-living increase.”

Cost rate. The cost rate for a year is the ratio of the cost (also called

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; it excludes

special monthly payments to certain uninsured persons whose payments

are reimbursable from the general fund of the Treasury (as described

above), and transfers under the interfund borrowing provisions.

Covered earnings. Earnings in employment covered by the OASDI program.

Covered employment. All employment and self-employment creditable

for Social Security purposes. Almost every kind of employment and selfemployment is covered under the program. In a few employment situations, for example, religious orders under a vow of poverty, foreign affiliates of American employers, or State and local governments, coverage

must be elected by the employer. However, effective July 1991, coverage is

mandatory for State and local employees who are not participating in a

public employee retirement system. In a few situations, for example, ministers or self-employed members of certain religious groups, workers can

opt out of coverage.

Covered worker. A person who has earnings creditable for Social Security purposes on the basis of services for wages in covered employment

and/or on the basis of income from covered self-employment.

Current-cost financing. See “Pay-as-you-go financing.”

Current dollars. Amounts expressed in nominal dollars with no adjustment for inflationary changes in the value of the dollar over time.

Current-payment status. Status of a beneficiary to whom a benefit is

being paid for a given month (with or without deductions, provided the

deductions add to less than a full month’s benefit). A benefit in currentpayment status for a month is usually payable on the third day of the following month.

Deemed wage credit. See “Military service wage credits.”

Delayed Retirement Credit. Increases the benefit amount for certain

individuals who did not receive benefits for months after attainment of

the normal retirement age but before age 70. Delayed retirement credit

increases apply for benefits beginning January of the year following the

year the individual attains the normal retirement age. See table II.E4.

Demographic assumptions. See “Assumptions.”
Appendices

208

Disability. For Social Security purposes, the inability to engage in substantial gainful activity (see “Substantial gainful activity—SGA”) by reason of any medically determinable physical or mental impairment that

can be expected to result in death or to last for a continuous period of not

less than 12 months. Special rules apply for workers age 55 or older

whose disability is based on blindness.

The law generally requires that a person be disabled continuously for 5

months before he or she can qualify for a disabled-worker benefit.

Disability incidence rate. The proportion of workers in a given year,

insured for but not receiving disability benefits, who apply for and are

awarded disability benefits.

Disability Insurance (DI) Trust Fund. See “Trust fund.”

Disability termination rate. The proportion of disabled-worker beneficiaries in a given year whose disability benefits terminate as a result of

the individual’s recovery, death, or attainment of normal retirement age.

Disabled-worker benefit. A monthly benefit payable to a disabled

worker under normal retirement age and insured for disability. Before

November 1960, disability benefits were limited to disabled workers aged

50-64.

Earnings. Unless otherwise qualified, all wages from employment and

net earnings from self-employment, whether or not taxable or covered.

Earnings test. The provision requiring the withholding of benefits if

beneficiaries under age 70 have earnings in excess of certain exempt

amounts. See table II.E2.

Economic assumptions. See “Assumptions.”

Effective interest rate. See “Interest rate.”

Excess wages. Wages in excess of the contribution and benefit base on

which a worker initially pays taxes (usually as a result of working for

more than one employer during a year). Employee taxes on excess wages

are refunded to affected employees, while the employer taxes are not

refunded.

Federal Insurance Contributions Act—FICA. Provision authorizing

taxes on the wages of employed persons to provide for Retirement, Survivors, and Disability Insurance, and for Hospital Insurance. The tax is

paid in equal amounts by workers and their employers.

Financial interchange. Provisions of the Railroad Retirement Act providing for transfers between the trust funds and the Social Security

Equivalent Benefit Account of the Railroad Retirement program in order

to place each trust fund in the same position it would have been in if railroad employment had always been covered under Social Security.

Fiscal year. The accounting year of the United States Government. Since

1976, a fiscal year is the 12-month period ending September 30. For
209

Glossary

example, fiscal year 1999 began October 1, 1998 and will end September

30, 1999.

Full advance funding. A financing scheme where taxes or contributions

are established to match the full cost of future benefits as these costs are

incurred through current service. Such financing methods also provide for

amortization over a fixed period of any financial liability that is incurred

at the beginning of the program (or subsequent modification) as a result

of granting credit for past service.

General fund of the Treasury. Funds held by the Treasury of the

United States, other than receipts collected for a specific purpose (such as

Social Security) and maintained in a separate account for that purpose.

General fund reimbursements. Transfers from the general fund of the

Treasury to the trust funds for specific purposes defined in the law, such

as:

 • The costs associated with providing special payments made to uninsured persons who attained age 72 before 1968, and who had fewer

than 3 quarters of coverage.

 • Payments corresponding to the employee-employer taxes on deemed

wage credits for military personnel.

 • Interest on checks which are not negotiated 6 months after the

month of issue. (For checks issued before October, 1989, the principal

was returned to the trust funds as a general fund reimbursement;

since that time, the principal amount is automatically returned to

the issuing fund when the check is uncashed after a year.)

 • Administrative expenses incurred as a result of furnishing information on deferred vested benefits to pension plan participants, as

required by the Employee Retirement Income Security Act of 1974

(Public Law 93-406).

Gross Domestic Product—GDP. The total dollar value of all goods and

services produced by labor and property located in the United States,

regardless of who supplies the labor or property.

HI contribution base. Annual dollar amount above which earnings in

employment covered under the HI program are not taxable. (Also referred

to as “maximum contribution base,” “taxable maximum,” and “maximum

taxable.”) Beginning in 1994, the HI contribution base was eliminated.

High cost assumptions. See “Assumptions.”

Hospital Insurance (HI) Trust Fund. See “Trust fund.”

Income rate. Ratio of income from tax revenues on a liability basis (payroll-tax contributions and income from the taxation of benefits) to the

OASDI taxable payroll for the year.
Appendices

210

Inflation. An increase in the volume of money and credit relative to

available goods, resulting in an increase in the general price level.

Insured status. The state or condition of having sufficient quarters of

coverage to meet the eligibility requirements for retired-worker or disabled-worker benefits, or to permit the worker’s spouse and children or

survivors to establish eligibility for benefits in the event of his or her disability, retirement, or death. See “Quarters of coverage.”

Interest. A payment in exchange for the use of money during a specified

period.

Interest rate. Interest rates on new public-debt obligations issuable to

Federal trust funds (see “Special public-debt obligation”) are determined

monthly. Such rates are set equal to the average market yield on all outstanding marketable U.S. securities not due to mature for at least 4 years

from the date of the determination. See table II.D1 for historical and

assumed future interest rates on new special-issue securities. The “effective” interest rate for a trust fund is the ratio of the interest earned by the

fund over a given period of time to the average level of assets held by the

fund during the period. The effective rate of interest thus represents a

measure of the overall average interest earnings on the fund’s portfolio of

assets.

Interfund borrowing. The borrowing of assets by a trust fund (OASI,

DI, or HI) from another of the trust funds when the first fund is in danger

of exhaustion. Interfund borrowing was permitted by the Social Security

Act only during 1982 through 1987; all amounts borrowed were to be

repaid prior to the end of 1989. The only exercise of this authority

occurred in 1982, when the OASI Trust Fund borrowed assets from the DI

and HI Trust Funds. The final repayment of borrowed amounts occurred

in 1986.

Intermediate assumptions. See “Assumptions.”

Long range. The next 75 years. Long-range actuarial estimates are

made for this period because it is approximately the maximum remaining

lifetime of current Social Security participants.

Low cost assumptions. See “Assumptions.”

Lump-sum death benefit. A lump sum, generally $255, payable on the

death of a fully or currently insured worker. The lump sum is payable to

the surviving spouse of the worker, under most circumstances, or to the

worker’s children.

Maximum family benefit. The maximum monthly amount that can be

paid on a worker’s earnings record. Whenever the total of the individual

monthly benefits payable to all the beneficiaries entitled on one earnings

record exceeds the maximum, each dependent’s or survivor’s benefit is

proportionately reduced to bring the total within the maximum. Benefits

payable to divorced spouses or surviving divorced spouses are not reduced

under the family maximum provision.
211

Glossary

Medicare. A nationwide, Federally administered health insurance program authorized in 1965 to cover the cost of hospitalization, medical care,

and some related services for most people over age 65, people receiving

Social Security Disability Insurance payments for 2 years, and people

with End-Stage Renal Disease. Medicare consists of two separate but

coordinated programs—Part A (Hospital Insurance, HI) and Part B (Supplementary Medical Insurance, SMI). All persons entitled to HI are eligible to enroll in the SMI program on a voluntary basis by paying a

monthly premium. Health insurance protection is available to Medicare

beneficiaries without regard to income.

Military service wage credits. Credits recognizing that military personnel receive wages in kind (such as food and shelter) in addition to their

basic pay and other cash payments. Noncontributory wage credits of $160

were provided for each month of active military service from September

16, 1940, through December 31, 1956. For years after 1956, the basic pay

of military personnel is covered under the Social Security program on a

contributory basis. In addition to the contributory credits for basic pay,

noncontributory wage credits of $300 were granted for each calendar

quarter, from January 1957 through December 1977, in which a person

received pay for military service. In years after 1977, noncontributory

wage credits of $100 are granted for each $300 of military wages, up to a

maximum credit of $1,200 per calendar year.

National average wage index. See “Average wage index.”

Non-Accelerating Inflation Rate of Unemployment. The rate of

unemployment associated with no upward or downward pressure on the

rate of inflation.

Normal retirement age. The age at which a person may first become

entitled to unreduced retirement benefits. Currently age 65, but scheduled under present law to increase gradually to 67 for persons reaching

that age in 2027 or later, beginning with an increase to 65 years and 2

months for persons reaching age 65 in 2003. See table II.E4.

Old-Age and Survivors Insurance (OASI) Trust Fund. See “Trust

fund.”

Old-law base. Amount the contribution and benefit base would have

been if the discretionary increases in the base under the 1977 amendments had not been enacted. The Social Security Amendments of 1972

provided for automatic annual indexing of the contribution and benefit

base. The Social Security Amendments of 1977 provided ad hoc increases

to the bases for 1979-81, with subsequent bases updated in accordance

with the normal indexing procedure. See table II.E3.

Par value. The value printed on the face of a bond. For both public and

special issues held by the trust funds, par value is also the redemption

value at maturity.
Appendices

212

Partial advance funding. A financing scheme where taxes are scheduled to provide a substantial accumulation of trust fund assets, thereby

generating additional interest income to the trust funds and reducing the

need for payroll tax increases in periods when costs are relatively high.

(Higher general taxes or additional borrowing may be required, however,

to support the payment of such interest.) While substantial, the trust

fund buildup under partial advance funding is much smaller than it

would be with full advance funding.

Pay-as-you-go financing. A financing scheme where taxes are scheduled to produce just as much income as required to pay current benefits,

with trust fund assets built up only to the extent needed to prevent

exhaustion of the fund by random economic fluctuations.

Payment cycling. Beneficiaries on the rolls before May 1, 1997, are paid

on the third of the month. Persons applying for OASDI benefits after

April 1997, however, generally are paid on the second, third, or fourth

Wednesday of the month following the month for which payment is due.

The particular Wednesday payment date is based on the wage earner’s

date of birth. For those born on the first through tenth, the benefit payment day is the second Wednesday of the month; for those born on the

eleventh through the twentieth, the benefit payment day is the third

Wednesday of the month; and for those born after the twentieth of the

month, the payment day is the fourth Wednesday of the month.

Payroll taxes. A tax levied on the gross wages of workers. See tables

II.B1 and III.A1.

Population in the Social Security Area. The population comprised of

(i) residents of the 50 States and the District of Columbia (adjusted for

net census undercount); (ii) civilian residents of Puerto Rico, the Virgin

Islands, Guam, and American Samoa; (iii) Federal civilian employees and

persons in the Armed Forces abroad and their dependents; (iv) crew members of merchant vessels; and (v) all other U.S. citizens abroad.

Present value. The equivalent value, at the present time, of a future

stream of payments (either income or expenditures). The present value of

a future stream of payments may be thought of as the lump-sum amount

that, if invested today, together with interest earnings would be just

enough to meet each of the payments as they fell due. At the time of the

last payment, the invested fund would be exactly zero. For example, a

home mortgage of $100,000 represents the present value at 8 percent

interest of future monthly payments of $714.40 for the next 30 years.

Present values are widely used in calculations involving financial transactions over long periods of time to account for the time value of money

(interest) and the changing value of the dollar (inflation).
213

Glossary

Primary insurance amount—PIA. The monthly amount payable to a

retired worker who begins to receive benefits at normal retirement age or

(generally) to a disabled worker. This amount, which is related to the

worker’s average monthly wage or average indexed monthly earnings, is

also the amount used as a base for computing all types of benefits payable

on the basis of one individual’s earnings record.

Primary insurance amount formula. The mathematical formula

relating the PIA to the AIME for workers who attain age 62, become disabled, or die after 1978. The PIA is equal to the sum of 90 percent of

AIME up to the first bend point, plus 32 percent of AIME above the first

bend point up to the second bend point, plus 15 percent of AIME in excess

of the second bend point. Automatic benefit increases are applied beginning with the year of eligibility. See table II.E3 for historical and assumed

future bend points and table II.E2 for historical and assumed future benefit increases.

Quarters of coverage. Basic unit of measurement for determining

insured status. In 1999, a worker receives one quarter of coverage (up to a

total of four) for each $740 of annual covered earnings. The amount of

earnings required for a quarter of coverage is subject to annual automatic

increases in proportion to increases in average wages. For amounts applicable for years after 1978, see table II.E3. 

Railroad retirement. A Federal insurance program, somewhat similar

to Social Security, designed for workers in the railroad industry. The provisions of the Railroad Retirement Act provide for a system of coordination and financial interchange between the Railroad Retirement program

and the Social Security program.

Reallocation of tax rates. An increase in the tax rate payable to either

the OASI or DI Trust Fund, with a corresponding reduction in the rate for

the other fund, so that the total OASDI tax rate is not changed. 

Real-wage differential. The difference between the percentage

increases in (1) the average annual wage in covered employment and (2)

the average annual Consumer Price Index. See table II.D1.

Recession. A period of adverse economic conditions; in particular, two or

more successive calendar quarters of negative growth in Gross Domestic

Product.

Retired-worker benefit. A monthly benefit payable to a fully insured

retired worker aged 62 or older or to a person entitled under the transitionally insured status provision in the law. Retired-worker benefit data

do not include special age-72 benefits.

Retirement age. The age at which an individual establishes entitlement

to retirement benefits. See also, “Normal retirement age.”

Retirement earnings test. See “Earnings test.”

Retirement test. See “Earnings test.”
Appendices

214

Self-employment. Operation of a trade or business by an individual or

by a partnership in which an individual is a member.

Self-Employment Contributions Act—SECA. Provision authorizing

Social Security taxes on the net earnings of most self-employed persons.

Short range. The next 10 years. Short-range actuarial estimates are prepared for this period because of the short-range test of financial adequacy.

The Social Security Act requires estimates for 5 years; estimates are prepared for an additional 5 years to help clarify trends which are only starting to develop in the mandated first 5-year period. 

Social Security Act. Provisions of the law governing most operations of

the Social Security program. Original Social Security Act is Public Law

74-271, enacted August 14, 1935. With subsequent amendments, the

Social Security Act consists of 20 titles, of which four have been repealed.

The Old-Age, Survivors, and Disability Insurance program is authorized

by title II of the Social Security Act. 

Special public-debt obligation. Securities of the United States Government issued exclusively to the OASI, DI, HI, and SMI Trust Funds

and other Federal trust funds. Section 201(d) of the Social Security Act

provides that the public-debt obligations issued for purchase by the OASI

and DI Trust Funds shall have maturities fixed with due regard for the

needs of the funds. The usual practice in the past has been to spread the

holdings of special issues, as of each June 30, so that the amounts maturing in each of the next 15 years are approximately equal. Special publicdebt obligations are redeemable at par value at any time and carry interest rates determined by law (see “Interest rate”). See also tables II.C2 and

II.C4 for a listing of the obligations held by the OASI and DI Trust Funds,

respectively.

Stabilizer provision. Section 215(i)(1)(C) of the Act, which provides that

if the combined assets of the OASI and DI Trust Funds, as a percentage of

estimated annual expenditures, fall below a specified level, automatic

benefit increases will be limited to the lower of the increases in wages or

prices. The specified level is 20 percent for benefit increases in 1989 and

later.

Statutory blindness. Central visual acuity of 20/200 or less in the better eye with the use of a correcting lens or tunnel vision of 20o or less.

Substantial gainful activity—SGA. The level of work activity used to

establish disability. A finding of disability requires that a person be

unable to engage in substantial gainful activity. Under current regulations, a person who is not statutorily blind and is actually earning more

than $500 a month (net of impairment-related work expenses) is ordinarily considered to be engaging in substantial gainful activity. SSA published in the Federal Register on February 16, 1999 (64 FR 7559) a notice

of proposed rulemaking indicating the intent to raise this SGA amount for
215

Glossary

the nonblind to $700, effective this year. A person who is statutorily blind

(see “Statutory blindness”) is not considered to be engaging in substantial

gainful activity, for the purpose of determining a condition of disability,

unless the person’s earnings are more than $1,110 a month in 1999 (net of

impairment-related work expenses). This amount for the blind is subject

to adjustment each year to reflect increases in average wage levels.

Summarized balance. The difference between the summarized cost rate

and the summarized income rate, expressed as a percentage of taxable

payroll.

Summarized cost rate. The ratio of the present value of expenditures to

the present value of the taxable payroll for the years in a given period.

This ratio can be used as a measure of the relative level of expenditures

during the period in question. For purposes of evaluating the financial

adequacy of the program, the summarized cost rate is adjusted to include

the cost of reaching and maintaining a “target” trust fund level. Because a

trust fund level of about 1 year’s expenditures is considered to be an adequate reserve for unforeseen contingencies, the targeted trust fund ratio

used in determining summarized cost rates is 100 percent of annual

expenditures. Accordingly, the adjusted summarized cost rate is equal to

the ratio of (a) the sum of the present value of the outgo during the period

plus the present value of the targeted ending trust fund level, to (b) the

present value of the taxable payroll during the projection period.

Summarized income rate. The ratio of the present value of tax income

to the present value of taxable payroll for the years in a given period. This

ratio can be used as a measure of the relative level of income during the

period in question. For purposes of evaluating the financial adequacy of

the program, the summarized income rate is adjusted to include assets on

hand at the beginning of the period. Accordingly, the adjusted summarized income rate equals the ratio of (a) the sum of the trust fund balance

at the beginning of the period plus the present value of the total income

from taxes during the period, to (b) the present value of the taxable payroll for the years in the period.

Supplemental Security Income—SSI. A Federally administered program (often with State supplementation) of cash assistance for needy

aged, blind, or disabled persons. SSI is funded through the general fund

of the Treasury and administered by the Social Security Administration.

Supplementary Medical Insurance (SMI) Trust Fund. See “Trust

fund.”

Survivor benefit. Benefit payable to a survivor of a deceased worker.

Taxable earnings. Wages and/or self-employment income, in employment covered by the OASDI and/or HI programs, that is under the applicable annual maximum taxable limit. For 1994 and later, no maximum

taxable limit applies to the HI program.
Appendices

216

Taxable payroll. A weighted average of taxable wages and taxable selfemployment income. When multiplied by the combined employeeemployer tax rate, it yields the total amount of taxes incurred by employees, employers, and the self-employed for work during the period.

Taxable self-employment income. The maximum amount of net earnings from self employment by an earner which, when added to any taxable wages, does not exceed the contribution and benefit base. For HI

beginning in 1994, all of net earnings from self employment.

Taxable wages. See “Taxable earnings.”

Taxation of benefits. During 1984-93, up to one-half of an individual’s

or a couple’s OASDI benefits was potentially subject to Federal income

taxation under certain circumstances. The revenue derived from this provision was allocated to the OASI and DI Trust Funds on the basis of the

income taxes paid on the benefits from each fund. Beginning in 1994, the

maximum portion of OASDI benefits potentially subject to taxation was

increased to 85 percent. The additional revenue derived from taxation of

benefits in excess of one-half, up to 85 percent, is allocated to the HI Trust

Fund.

Taxes. See “Contributions.”

Termination. Cessation of payment of a specific type of benefit because

the beneficiary is no longer entitled to receive it. For example, benefits

might terminate as a result of the death of the beneficiary, the recovery of

a disabled beneficiary, or the attainment of age 18 by a child beneficiary.

In some cases, the individual may become immediately entitled to

another type of benefit (such as the conversion of a disabled-worker beneficiary at normal retirement age to a retired-worker beneficiary).

Test of Long-Range Close Actuarial Balance. Summarized income

rates and cost rates are calculated for each of 66 valuation periods within

the full 75-year long-range projection period. The first of these periods

consists 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 valuation 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 0 percent for the

10-year period, grading uniformly to 5 percent for the full 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. The test is applied to OASI and DI separately, as well

as combined, based on the intermediate (alternative II) set of assumptions.
217

Glossary

Test of Short-Range Financial Adequacy. The conditions required to

meet this test are as follows:

 • If the trust fund ratio for a fund exceeds 100 percent at the beginning of the projection period, then it must be projected to remain at

or above 100 percent throughout the 10-year projection period;

 • Alternatively, if the fund ratio is initially less than 100 percent, it

must be projected to reach a level of at least 100 percent within 5

years (and not be depleted at any time during this period) and then

remain at or above 100 percent throughout the remainder of the 10-

year period.

These conditions apply to each trust fund separately, as well as to the

combined funds, and are evaluated based on the intermediate (alternative

II) set of assumptions.

Total fertility rate. The average number of children who would be born

to a woman in her lifetime if she were to experience the birth rates by age

observed in, or assumed for, a specified year, and if she were to survive

the entire childbearing period.

Trust fund. Separate accounts in the United States Treasury in which

are deposited the taxes received under the Federal Insurance Contributions Act, the Self-Employment Contributions Act, contributions resulting

from coverage of State and local government employees; any sums

received under the financial interchange with the railroad retirement

account; voluntary hospital and medical insurance premiums; and transfers of Federal general revenues. Funds not withdrawn for current

monthly or service benefits, the financial interchange, and administrative

expenses are invested in interest-bearing Federal securities, as required

by law; the interest earned is also deposited in the trust funds.

 • Old-Age and Survivors Insurance (OASI). The trust fund used

for paying monthly benefits to retired-worker (old-age) beneficiaries

and their spouses and children and to survivors of deceased insured

workers.

 • Disability Insurance (DI). The trust fund used for paying monthly

benefits to disabled-worker beneficiaries and their spouses and children and for providing rehabilitation services to the disabled.

 • Hospital Insurance (HI). The trust fund used for paying part of

the costs of inpatient hospital services and related care for aged and

disabled individuals who meet the eligibility requirements.

 • Supplementary Medical Insurance (SMI). The trust fund used

for paying part of the costs of physician’s services, outpatient hospital services, and other related medical and health services for voluntarily enrolled aged and disabled individuals.
Appendices

218

Trust fund ratio. A measure of the adequacy of the trust fund level.

Defined as the assets at the beginning of the year, including advance tax

transfers (if any), expressed as a percentage of the outgo during the year.

The trust fund ratio represents the proportion of a year’s outgo which

could be paid with the funds available at the beginning of the year.

Unnegotiated check. A check which has not been cashed 6 months after

the end of the month in which the check was issued. When a check has

been outstanding for a year (i) the check is administratively cancelled by

the Department of the Treasury and (ii) the issuing trust fund is reimbursed separately for the amount of the check and interest for the period

the check was outstanding. The appropriate trust fund also receives an

interest adjustment for the time the check was outstanding if it is cashed

6-12 months after the month of issue. If a check is presented for payment

after it is administratively cancelled, a replacement check is issued.

Valuation period. A period of years which is considered as a unit for

purposes of calculating the financial status of a trust fund.

Vocational rehabilitation. Services provided to disabled persons to

help enable them to return to gainful employment. Reimbursement from

the trust funds for the costs of such services is made only in those cases

where the services contributed to the successful rehabilitation of the beneficiaries.

Year of exhaustion. The year in which a trust fund would become

unable to pay benefits when due because the assets of the fund were

exhausted.
219

Opinion Letter

H. STATEMENT OF ACTUARIAL OPINION

It is my opinion that (1) the techniques and methodology used herein

to evaluate the financial and actuarial status of the Federal Old-Age

and Survivors Insurance and Disability Insurance Trust Funds are

generally accepted within the actuarial profession; and (2) the

assumptions used and the resulting actuarial estimates are, in the

aggregate, reasonable for the purpose of evaluating the financial and

actuarial status of the trust funds, taking into consideration the experience and expectations of the program.

Harry C. Ballantyne,

Associate of the Society of Actuaries,

Member of the American Academy of Actuaries,

Chief Actuary, Social Security Administration