108th Congress, 1st Session – – – – – – – – – – – – – – House Document 108-49

THE 2003 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 OLD-AGE

AND SURVIVORS INSURANCE AND DISABILITY 

INSURANCE TRUST FUNDS

TRANSMITTING

THE 2003 ANNUAL REPORT OF THE BOARD OF TRUSTEES OF THE

FEDERAL OLD-AGE AND SURVIVORS INSURANCE AND THE FEDERAL

DISABILITY INSURANCE TRUST FUNDS

March 17, 2003.—Referred to the Committee on Ways and Means

 and ordered to be printed

U.S. GOVERNMENT PRINTING OFFICE

85-730 WASHINGTON: 2003
.
LETTER OF TRANSMITTAL

BOARD OF TRUSTEES OF THE

FEDERAL OLD-AGE AND SURVIVORS INSURANCE

AND DISABILITY INSURANCE TRUST FUNDS,

Washington, D.C., March 17, 2003

The Honorable J. Dennis Hastert

Speaker of the House of Representatives

Washington, D.C.

The Honorable Richard B. Cheney

President of the Senate

Washington, D.C.

Gentlemen: 

We have the honor of transmitting to you the 2003 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 63d such report.

Respectfully,

/S/ /S/

John W. Snow, Secretary of the

Treasury, and Managing

Trustee of the Trust Funds.

Elaine L. Chao, Secretary 

of Labor, and Trustee.

/S/ /S/

Tommy G. Thompson, Secretary of

Health and Human Services,

and Trustee.

Jo Anne B. Barnhart, Commissioner

of Social Security, and Trustee.

/S/ /S/

John L. Palmer, Trustee. Thomas R. Saving, Trustee.

/S/

James B. Lockhart III, Deputy Commissioner

of Social Security, and Secretary, Board of Trustees.
.
CONTENTS

(V)

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

A. HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

B. TRUST FUND FINANCIAL OPERATIONS IN 2002 . . . . . . . 4

C. ASSUMPTIONS ABOUT THE FUTURE . . . . . . . . . . . . . . . . 6

D. PROJECTIONS OF FUTURE FINANCIAL STATUS . . . . . . . 7

E. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

III. FINANCIAL OPERATIONS OF THE TRUST FUNDS AND

LEGISLATIVE CHANGES IN THE LAST YEAR . . . . . . . . . . 18

A. OPERATIONS OF THE OLD-AGE AND SURVIVORS 

INSURANCE (OASI) AND DISABILITY INSURANCE (DI) 

TRUST FUNDS, IN CALENDAR YEAR 2002 . . . . . . . . . . . . 18

1. OASI Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2. DI Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3. OASI and DI Trust Funds, Combined . . . . . . . . . . . . . . . . . . 27

B. SOCIAL SECURITY AMENDMENTS SINCE THE 2002 

REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

IV. ACTUARIAL ESTIMATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

A. SHORT-RANGE ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . 32

1. Operations of the OASI Trust Fund. . . . . . . . . . . . . . . . . . . . 33

2. Operations of the DI Trust Fund . . . . . . . . . . . . . . . . . . . . . . 37

3. Operations of the Combined OASI and DI Trust Funds . . . . . 41

4. Factors Underlying Changes in 10-Year Trust Fund Ratio 

Estimates From the 2002 Report . . . . . . . . . . . . . . . . . . . . . . 42

B. LONG-RANGE ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . . 44

1. Annual Income Rates, Cost Rates, and Balances . . . . . . . . . . 45

2. Comparison of Workers to Beneficiaries . . . . . . . . . . . . . . . . 50

3. Trust Fund Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

4. Summarized Income Rates, Cost Rates, and Balances . . . . . . 57

5. Additional Measures of OASDI Unfunded Obligations . . . . . 61

6. Test of Long-Range Close Actuarial Balance . . . . . . . . . . . . 63

7. Income and Cost Rates by Component . . . . . . . . . . . . . . . . . 67

8. Reasons for Change in Actuarial Balance From Last Report . . 70
(VI)

V. ASSUMPTIONS AND METHODS UNDERLYING

ACTUARIAL ESTIMATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

A. DEMOGRAPHIC ASSUMPTIONS AND METHODS . . . . . . . 75

1. Fertility Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

2. Mortality Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

3. Immigration Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . 78

4. Total Population Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . 81

5. Life Expectancy Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . 83

B. ECONOMIC ASSUMPTIONS AND METHODS . . . . . . . . . . . 87

1. Productivity Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . 87

2. Price Inflation Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . 88

3. Average Earnings Assumptions . . . . . . . . . . . . . . . . . . . . . . 89

4. Assumed Real-Wage Differentials . . . . . . . . . . . . . . . . . . . . 91

5. Labor Force and Unemployment Projections . . . . . . . . . . . . . 95

6. Gross Domestic Product Projections . . . . . . . . . . . . . . . . . . . 96

7. Interest Rate Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS . . . 101

1. Automatically Adjusted Program Amounts . . . . . . . . . . . . . . 101

2. Covered Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

3. Taxable Payroll and Payroll Tax Revenue . . . . . . . . . . . . . . . 109

4. Insured Population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

5. Old-Age and Survivors Insurance Beneficiaries. . . . . . . . . . . 112

6. Disability Insurance Beneficiaries. . . . . . . . . . . . . . . . . . . . . 118

7. Average Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

8. Benefit Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

9. Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

10. Railroad Retirement Financial Interchange . . . . . . . . . . . . . . 126

11. Benefits to Uninsured Persons . . . . . . . . . . . . . . . . . . . . . . . 127

12. Military-Service Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . 127

13. Income From Taxation of Benefits . . . . . . . . . . . . . . . . . . . . 127

VI. APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

A. HISTORY OF OASI AND DI TRUST FUND OPERATIONS. . 129

B. HISTORY OF ACTUARIAL BALANCE ESTIMATES . . . . . . 140

C. FISCAL YEAR HISTORICAL DATA AND PROJECTIONS 

THROUGH 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

D. LONG-RANGE SENSITIVITY ANALYSIS . . . . . . . . . . . . . . 150

1. Total Fertility Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

2. Death Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

3. Net Immigration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

4. Real-Wage Differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

5. Consumer Price Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
(VII)

6. Real Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

7. Disability Incidence Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 157

8. Disability Termination Rates . . . . . . . . . . . . . . . . . . . . . . . . 158

E. STOCHASTIC PROJECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 160

1. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

2. Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

3. Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

F. ESTIMATES FOR OASDI AND HI, SEPARATE AND 

COMBINED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

1. Estimates as a Percentage of Taxable Payroll. . . . . . . . . . . . . 166

2. Estimates as a Percentage of Gross Domestic Product . . . . . . 172

3. Estimates in Dollars. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

G. ANALYSIS OF BENEFIT DISBURSEMENTS FROM THE 

OASI TRUST FUND WITH RESPECT TO DISABLED 

BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

H. GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

LIST OF FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

STATEMENT OF ACTUARIAL OPINION. . . . . . . . . . . . . . . 218

THE 2003 ANNUAL REPORT OF THE BOARD OF

TRUSTEES OF THE FEDERAL OLD-AGE AND

SURVIVORS INSURANCE AND DISABILITY

INSURANCE TRUST FUNDS

I. INTRODUCTION

The Board of Trustees reports each year on the current and projected financial condition of the Social Security program, which is financed through two

separate trust funds. The Old-Age and Survivors Insurance (OASI) Trust

Fund pays monthly benefits to retired workers and their families and to survivors of deceased workers. The Disability Insurance (DI) Trust Fund pays

monthly benefits to disabled workers and their families. 

The report on the current financial status of the funds includes an accounting

of the actual income and expenditures for the last year. The projections for

future years reflect the Trustees’ considered judgment about all the demographic, economic, and program factors that affect income and expenditures.

Projections are presented separately for the next 10 years (the short range)

and for the next 75 years (the long range). All projections are based on current Social Security law and do not anticipate any future changes that Congress might make.

Because any projection of future experience is uncertain, the Trustees use

three alternative sets of assumptions to show a range of possible outcomes.

The intermediate set of assumptions, designated as alternative II, reflects the

Trustees’ best estimate of the trust funds’ future financial outlook; the low

cost alternative I is more optimistic, and the high cost alternative III more

pessimistic. As a further illustration of the uncertainty associated with projections, this report includes a new stochastic, or probabilistic, projection that

provides a distribution of possible outcomes around the intermediate case.

This new projection is described in some detail in appendix E. 

In recent years the Trustees Report has characterized sustainable solvency as

maintaining a trust fund balance that is positive and either level or increasing

as a percent of the annual cost of the program at the end of the 75-year

period. In this report the Trustees provide an additional indicator that measures the degree of solvency over the infinite future.

For this report, demographic, economic, and programmatic factors have been

updated with the most recently available information. Compared to the

results shown in last year’s report, projected annual balances for the Social

Security program (income minus costs) are slightly smaller in some years

and slightly higher in others. Moving the valuation date from 2002 to 2003

has increased the program’s actuarial deficit and unfunded obligation. Overall, however, the projected financial status of the program shows little

change.
Overview

2

II. OVERVIEW

A. HIGHLIGHTS

The report’s major findings are summarized below.

In 2002

At the end of 2002, 46 million people were receiving benefits: 32 million

retired workers and their dependents, 7 million survivors of deceased workers, and 7 million disabled workers and their dependents. During the year an

estimated 153 million people had earnings covered by Social Security and

paid payroll taxes. Total benefits paid in 2002 were $454 billion. Income was

$627 billion, and assets held in special issue U.S. Treasury securities grew to

$1.4 trillion. 

Short-Range Results

The OASI and DI Trust Funds, individually and combined, are adequately

financed over the next 10 years under the intermediate assumptions. The

combined assets of the OASI and DI Trust Funds are projected to increase

from $1,378 billion at the beginning of 2003, or 288 percent of annual

expenditures, to $3,556 billion at the beginning of 2012, or 452 percent of

annual expenditures in that year. Combined assets were projected in last

year’s report to rise to 288 percent of annual expenditures at the beginning of

2003, and 505 percent at the beginning of 2012.

Long-Range Results

Under the intermediate assumptions the combined OASI and DI Trust Funds

are projected to become exhausted in 2042. The projected actuarial deficit is

1.92 percent of taxable payroll, 0.04 percentage point larger than in last

year’s report. Between about 2010 and 2030, OASDI costs will increase rapidly due to the retirement of the large baby-boom generation, and annual

costs will exceed tax income starting in 2018. After 2030, increases in life

expectancy and relatively low fertility rates will continue to increase Social

Security system costs, but more slowly. The OASDI annual cost rate is projected to increase from 10.89 percent of taxable payroll in 2003 to 19.92 percent in 2077, or 6.50 percent of taxable payroll more than the projected

income rate. Expressed in relation to the projected gross domestic product

(GDP), OASDI costs are estimated to rise from the current level of 4.4 percent of GDP to 7.0 percent in 2077. Separately, the DI fund is projected to be

exhausted in 2028 and the OASI fund in 2044. 
3

Highlights

Solvency

The combined OASDI Trust Funds are projected to become insolvent in

2042 under the long-range intermediate assumptions. For the trust funds to

remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased immediately by 1.92 percentage points, benefits could be reduced immediately by 13 percent, a transfer of $3.5 trillion in

general revenue (in net present value) could be made, or some combination

of approaches could be adopted. Significantly larger changes, would be

required to achieve solvency beyond 75 years. 
Overview

4

B. TRUST FUND FINANCIAL OPERATIONS IN 2002

The table below shows the income, expenditures, and assets for the OASI,

the DI and the combined OASDI Trust Funds in calendar year 2002.

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

In 2002, 85 percent of total trust fund income consisted of net contributions,

comprising taxes paid by employees, employers and the self-employed on

earnings covered by Social Security. These taxes were paid on covered earnings up to a specified maximum annual amount, which was $84,900 in 2002

and is increased each year automatically (to $87,000 in 2003) as the average

wage increases. The tax rates scheduled under current law for 2002 and later

are shown in table II.B2.

Two percent of OASDI Trust Fund income came from subjecting up to

50 percent of Social Security benefits above a certain level to Federal personal income taxation, and 13 percent of OASDI income came from interest

earned on investment of OASDI Trust Fund reserves. Social Security’s assets

are invested in interest-bearing securities of the U.S. Government. In 2002

the combined trust fund assets earned interest at an effective annual rate of

Table II.B1.—Summary of 2002 Trust Fund Financial Operations

Amounts (in billions)

OASI DI OASDI

Assets at the end of 2001 . . . . . . . . . . . . . . . . . . . . . . $1,071.5 $141.0 $1,212.5

Total income in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 539.7 87.4 627.1

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . 455.2 77.3 532.5

Taxation of benefits . . . . . . . . . . . . . . . . . . . . . . . . 12.9 .9 13.8

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.2 9.2 80.4

Transfer from General Fund of the Treasury . . . . . .4 — .4

Total expenditures in 2002. . . . . . . . . . . . . . . . . . . . . 393.7 67.9 461.7

Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . 388.1 65.7 453.8

Railroad Retirement financial interchange . . . . . . 3.5 .2 3.6

Administrative expenses . . . . . . . . . . . . . . . . . . . . 2.1 2.0 4.2

Net increase in assets in 2002 . . . . . . . . . . . . . . . . . . 146.0 19.5 165.4

Assets at the end of 2002 . . . . . . . . . . . . . . . . . . . . . . 1,217.5 160.5 1,378.0

Table II.B2.—Tax Rates for 2002 and Later

OASI DI OASDI

Tax rate for employees and employers, each (in percent) . . . . . . . 5.30 0.90 6.20

Tax rate for self-employed persons (in percent) . . . . . . . . . . . . . . 10.60 1.80 12.40
5

Calendar Year 2002 Operations

6.4 percent. More than 98 percent of expenditures from the combined

OASDI Trust Funds in 2002 went to pay retirement, survivor, and disability

benefits totaling $453.8 billion. The financial interchange with the Railroad

Retirement program resulted in a payment of $3.6 billion from the combined

OASDI Trust Funds, or about 0.8 percent of total expenditures. The administrative expenses of the Social Security program were $4.2 billion, or about

0.9 percent of total expenditures. 

Assets of the trust funds provide a reserve to pay benefits whenever expenditures exceed income. Assets increased by $165.4 billion in 2002 because

income to each fund exceeded expenditures, as shown in table II.B1. At the

end of 2002, the combined assets of the OASI and the DI Trust Funds were

288 percent of estimated expenditures for 2003.
Overview

6

C. ASSUMPTIONS ABOUT THE FUTURE

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

depend on many factors, including the size and characteristics of the population receiving benefits, the level of monthly benefit amounts, the size of the

work force, and the level of workers’ earnings. These factors will depend in

turn upon future birth rates, death rates, immigration, marriage and divorce

rates, retirement-age patterns, disability incidence and termination rates, productivity gains, wage increases, inflation, and many other demographic, economic, and program-specific factors. 

The intermediate set of assumptions shown in table II.C1, designated as

alternative II, reflects the Trustees’ best estimates of future experience, and

therefore most of the figures in this overview depict only the outcomes under

the intermediate assumptions. Any projection of the future is, of course,

uncertain. For this reason, alternatives I and III are included to provide a

range of possible future experience. The assumptions for these two alternatives are also shown in table II.C1, and their implications are highlighted in a

separate section on the uncertainty of the projections.

Assumptions are reexamined each year in light of recent experience and new

information. This careful review and updating of the assumptions on an

annual basis helps ensure that they provide the Trustees’ best estimate of

future possibilities. 

Table II.C1.—Ultimate Values of Key Demographic and Economic Assumptions

Ultimate assumptions Intermediate Low Cost High Cost

Total fertility rate (children per woman) . . . . . . . . . . . 1.95 2.2 1.7

Average annual percentage reduction in total age-sexadjusted death rates from 2027 to 2077. . . . . . . . . . .73 .34 1.27

Annual net immigration (in thousands) . . . . . . . . . . . . 900 1,300 672.5

Annual percentage change in:

Average wage in covered employment. . . . . . . . . . . 4.1 3.6 4.6

Consumer Price Index (CPI). . . . . . . . . . . . . . . . . . . 3.0 2.0 4.0

Real-wage differential (percent) . . . . . . . . . . . . . . . . 1.1 1.6 .6

Productivity (total U.S. economy) . . . . . . . . . . . . . . 1.6 1.9 1.3

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

Annual trust fund interest rate (percent) . . . . . . . . . . . 6.0 5.7 6.2
7

Future Financial Status

D. PROJECTIONS OF FUTURE FINANCIAL STATUS

Short-Range Actuarial Estimates

For the short range (2003-2012), the Trustees measure trust fund adequacy

by comparing assets at the beginning of each year to projected expenditures

for that year under the intermediate set of assumptions. Having a trust fund

ratio of 100 percent or more—that is, assets at the beginning of each year at

least equal to projected outgo during the year—is considered a good indication of a trust fund’s ability to cover most short-term contingencies. Both the

OASI and the DI trust fund ratios under the intermediate assumptions exceed

100 percent throughout the short-range period and therefore satisfy the Trustees’ short-term test for financial adequacy. Figure II.D1 below shows the

trust fund ratios for the combined OASI and DI Trust Funds for the next 10

years. 

Long-Range Actuarial Estimates

The financial status of the trust funds over the next 75 years is measured in

terms of costs and income as a percentage of taxable payroll, trust fund

ratios, the actuarial balance (also as a percentage of taxable payroll), and the

open group unfunded obligation (expressed in present-value dollars). Con-

 Figure II.D1.—Short-Range OASDI Trust Fund Ratios

[Assets as a percentage of annual expenditures]

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

550%

600%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Calendar year

Historical Estimated

"Adequate" level for trust fund ratio
Overview

8

sidering Social Security’s cost as a percentage of the total U.S. economy

(gross domestic product or GDP) provides an additional perspective. 

The year-by-year relationship of the income and cost rates shown in figure

II.D2 illustrates the expected pattern of cash flow for the OASDI program

over the full 75-year period. Under the intermediate assumptions, the OASDI

cost rate is projected to decline slightly and then remain flat for the next several years. It then begins to increase rapidly and first exceeds the income rate

in 2018, producing cash-flow deficits thereafter. Despite these cash-flow deficits, trust fund interest earnings and assets will allow continuation of full

benefit payments until 2042, when the trust funds will be exhausted. Pressures on the Federal Budget will thus emerge well before 2042. Even if a

trust fund’s assets are exhausted, however, tax income will continue to flow

into the fund. Present tax rates would be sufficient to pay 73 percent of

scheduled benefits after trust fund exhaustion in 2042 and 65 percent of

scheduled benefits in 2077.

Social Security’s cost rate generally will continue rising through about 2030

as the baby-boom generation reaches retirement age. Thereafter, the cost rate

is estimated to rise at a slower rate for about 15 years as the baby boom ages

and begins to decrease in size. Continued reductions in death rates and relatively low birth rates will cause a significant upward shift in the average age

 Figure II.D2.—OASDI Income and Cost Rates Under Intermediate Assumptions

0%

5%

10%

15%

20%

25%

2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Cost: Scheduled and 

payable benefits

Income

Payable benefits as percent

of scheduled benefits:

2002-41: 100%

2042: 73%

2077: 65%

Cost: Scheduled but

not payable benefits

Cost: Income = payable benefits 

starting in the year the trust fund 

is exhausted (2042)
9

Future Financial Status

of the population and will push the cost rate to nearly 20 percent of taxable

payroll by 2077 under the intermediate assumptions. In a pay-as-you-go system such as OASDI, this 20-percent cost rate means the combination of the

payroll tax (now totaling 12.4 percent) and proceeds from income taxes on

benefits (expected to be 1.0 percent of taxable payroll in 2077) would have

to equal 20 percent to pay all currently scheduled benefits. Although the

annual projections do not extend beyond 2077, the upward shift in the average age of the population is likely to continue and to increase the gap

between OASDI costs and income.

The primary reason that the OASDI cost rate will increase rapidly between

2010 and 2030 is that, as the large baby-boom generation born in the years

1946 through 1964 retires, the number of beneficiaries will increase much

more rapidly than the number of workers. The estimated number of workers

per beneficiary is shown in figure II.D3. In 2002, there were about 3.3 workers for every OASDI beneficiary. The baby-boom generation will have

largely retired by 2030, and the projected ratio of workers to beneficiaries

will be only 2.2 at that time. Thereafter, the number of workers per beneficiary will slowly decline, and the OASDI cost rate will continue to increase.

The maximum projected trust fund ratios for the OASI, DI, and combined

funds appear in table II.D1. The year in which the maximum projected trust

 Figure II.D3.—Number of Covered Workers Per OASDI Beneficiary

0

1

2

3

4

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Historical Estimated
Overview

10

fund ratio is attained and the year in which the assets are projected to be

exhausted are shown as well.

The actuarial balance is a measure of the program’s financial status for the

75-year valuation period as a whole. It is essentially the difference between

income and cost of the program expressed as a percentage of taxable payroll

over the valuation period. This single number summarizes the adequacy of

program financing for the period. When the actuarial balance is negative, the

actuarial deficit can be interpreted as the percentage that would have to be

added to the current law income rate in each of the next 75 years, or subtracted from the cost rate in each year, to bring the funds into actuarial balance. In this report, the actuarial balance under the intermediate assumptions

is a deficit of 1.92 percent of taxable payroll for the combined OASI and DI

Trust Funds. The actuarial deficit was1.87 percent in the 2002 report and has

been in the range of 1.46 percent to 2.23 percent for the last ten reports. 

Another way to illustrate the financial shortfall of the OASDI system is to

examine the cumulative value of taxes less costs, in present value. Figure

II.D4 shows the present value of cumulative OASDI taxes less costs over the

next 75 years. The balance of the combined trust funds peaks at $2.3 trillion

in 2017 (in present value) and then turns downward. Through the end of

2077, the combined funds have a present-value unfunded obligation of $3.5

trillion. 

Table II.D1.—Projected Maximum Trust Fund Ratios Achieved and

Trust Fund Exhaustion Dates Under the Intermediate Assumptions

OASI DI OASDI

Maximum trust fund ratio (percent). . . . . . . . . . . . . . 526 226 471

Year attained. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 2007 2016

Year of exhaustion . . . . . . . . . . . . . . . . . . . . . . . . . . . 2044 2028 2042
11

Future Financial Status

Still another important way to look at Social Security’s future is to view its

cost as a share of the U.S. economy. Figure II.D5 shows that Social Security’s cost as a percentage of GDP will grow 1.6 times from 4.4 percent in

2002 to 7.0 percent in 2077. Over the same period, the cost of Social Security expressed as a percentage of taxable payroll will grow from 10.95 percent to 19.92 percent.

 Figure II.D4.—Cumulative OASDI Income Less Cost, Based on Present Law Tax Rates 

and Scheduled Benefits

[Present value as of 1-1-2003, in trillions]

-$4

-$3

-$2

-$1

$0

$1

$2

$3

2002 2017 2032 2047 2062 2077

Ending year of valuation period

Before insolvency After insolvency
Overview

12

Even a 75-year period is not long enough to provide a complete picture of

Social Security’s financial condition. Figures II.D6 and II.D7 show that the

program’s financial condition continues to worsen at the end of the period.

Some experts have noted that overemphasis on summary measures for a

75-year period can lead to incorrect perceptions and to policy prescriptions

that do not move towards a sustainable system. In order to provide a more

complete description of Social Security’s very long-run financial condition

this year the Trustees present actuarial estimates over a time period that

extends to the infinite horizon. These calculations show that extending the

horizon indeed increases the unfunded obligation, indicating that much

larger changes would be required to achieve solvency over the infinite future

as compared to changes needed according to 75-year period measures. 

Changes From Last Year’s Report

This year’s projections are little changed from those in last year’s report, as

shown in figure II.D6. The long-range actuarial deficit has increased from

1.87 percent to 1.92 percent of taxable payroll—primarily because the valuation period now extends through 2077. On balance, changes in assumptions,

methods, and data have slightly lessened the negative impact of changing the

valuation period (see table II.D2). The open group unfunded obligation over

the 75-year projection period has increased from $3.3 trillion to $3.5 trillion. 

 Figure II.D5.—OASDI Cost as a Percentage of GDP

0%

2%

4%

6%

8%

10%

1975 1990 2005 2020 2035 2050 2065 2080

Calendar year

Historical Estimated
13

Future Financial Status

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

A higher assumed rate of immigration improves the projected financial situation of the trust funds in the early years, however, and delays the start of

cash-flow deficits from 2017 to 2018. The year in which the combined trust

funds will be exhausted also slips one year—from 2041 to 2042.

Table II.D2.—Reasons for Change in the 75-Year Actuarial Balance

Under Intermediate Assumptions

[As a percentage of taxable payroll]

Item OASI DI Combined

Shown in last year's report:

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.79 1.92 13.72

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.33 2.26 15.59

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.54 -.34 -1.87

Changes in actuarial balance due to changes in:

Legislation / Regulation . . . . . . . . . . . . . . . . . . . . . . . .00 .00 .00

Valuation period1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 In changing from the valuation period of last year’s report, which was 2002-76, to the valuation period of

this report, 2003-77, the relatively large negative annual balance for 2077 is included. This results in a larger

long-range actuarial deficit. The fund balance at the end of 2002, i.e., at the beginning of the projection

period, is included in the 75-year actuarial balance.

-.06 -.01 -.07

Demographic data and assumptions. . . . . . . . . . . . . . -.03 -.01 -.04

Economic data and assumptions. . . . . . . . . . . . . . . . . +.01 -.01 .00

Disability data and assumptions. . . . . . . . . . . . . . . . . .00 .00 .00

Projection methods and data. . . . . . . . . . . . . . . . . . . . +.05 +.01 +.06

Total change in actuarial balance . . . . . . . . . . . . . . . . . . -.03 -.02 -.04

Shown in this report:

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.56 -.35 -1.92

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.85 1.93 13.78

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.41 2.29 15.70
Overview

14

Uncertainty of the Projections

Significant uncertainty surrounds the intermediate assumptions. The Trustees

have traditionally used low cost (alternative I) and high cost (alternative III)

assumptions to indicate this uncertainty. Figure II.D7 shows the projected

trust fund ratios for the combined OASI and DI Trust Funds under the intermediate, low cost, and high cost assumptions. The low cost alternative is

characterized by assumptions that improve the financial condition of the trust

funds, including a higher fertility rate, slower improvement in mortality, a

higher real-wage differential, and lower unemployment. The high cost alternative, in contrast, features a lower fertility rate, more rapid declines in mortality, a lower real-wage differential, and higher unemployment.

 Figure II.D6.—OASDI Annual Income Less Cost as Percent of Taxable Payroll

2002 and 2003 Trustees Reports

-8%

-6%

-4%

-2%

0%

2%

4%

2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

2003 Report

2002 Report
15

Future Financial Status

These three alternatives have traditionally been constructed to provide a reasonable range of possible future experience. However, these alternatives do

not address the probability that actual experience will be within or outside

the range. As an additional way of illustrating uncertainty, this Trustees

Report for the first time uses a model of the trust funds that provides an

explicit probability distribution of possible future outcomes (see appendix

E). The results of this model suggest that outcomes better than the traditional

low cost alternative and outcomes worse than the high cost alternative have

very low probabilities of occurring.

 Figure II.D7.—Long-Range OASDI Trust Fund Ratios Under Alternative Assumptions

[Assets as a percentage of annual expenditures]

0%

100%

200%

300%

400%

500%

600%

700%

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Historical Estimated

III

II

I
Overview

16

E. CONCLUSION

Under current law the cost of Social Security will increase faster than the

program’s income, because of the aging of the baby-boom generation,

expected continuing low fertility, and increasing life expectancy. Based on

the Trustees’ best estimates, expenditures will exceed tax revenues starting in

2018 and throughout the remainder of the 75-year projection period. Social

Security’s combined trust funds are projected to allow full payment of benefits until they become exhausted in 2042. At that time annual tax income to

the trust funds is projected to equal about 73 percent of program costs. Separately, the OASI and DI funds are projected to have sufficient funds to pay

full benefits on time until 2044 and 2028, respectively. By 2077, however,

annual tax income is projected to be only about two-thirds as large as the

annual cost of the OASDI program. 

Over the full 75-year projection period the actuarial deficit estimated for the

combined trust funds is 1.92 percent of taxable payroll—slightly higher than

the 1.87 percent deficit projected in last year’s report. This deficit indicates

that financial adequacy of the program for the next 75 years could be

restored if the Social Security payroll tax were immediately and permanently

increased from its current level of 12.4 percent (for employees and employers combined) to 14.32 percent. Alternatively, all current and future benefits

could be immediately reduced by about 13 percent. Other ways of reducing

the deficit include making transfers from general revenues or adopting some

combination of approaches.

 • If no action were taken until the combined trust funds are exhausted in

2042, much larger changes would be required. For example, payroll

taxes could be raised to finance scheduled benefits fully in every year

starting in 2042. In this case, the payroll tax would be increased to

16.94 percent at the point of trust fund exhaustion in 2042 and continue

rising to 18.9 percent in 2077. 

 • Similarly, benefits could be reduced in every year beginning in 2042.

Under this scenario, benefits would be reduced 27 percent at the point

of trust fund exhaustion in 2042, with reductions reaching 35 percent in

2077.

Changes of this magnitude would eliminate the actuarial deficit over the

75-year period through 2077. However, because of the increasing average

age of the population, Social Security’s annual cost will very likely continue

to exceed tax revenues after 2077. As a result, ensuring the sustainability of
17

Conclusion

the system beyond 2077 would require even larger changes than those

needed to restore actuarial balance for the 75-year period. 

The projected trust fund deficits should be addressed in a timely way to

allow for a gradual phasing in of the necessary changes and to provide

advance notice to workers. The sooner adjustments are made the smaller and

less abrupt they will have to be. Social Security plays a critical role in the

lives of over 46 million beneficiaries, and over 150 million covered workers

and their families. With informed discussion, creative thinking, and timely

legislative action, we will ensure that Social Security continues to protect

future generations. 
Financial Operations & Legislative Changes

18

III. FINANCIAL OPERATIONS OF THE TRUST FUNDS AND

LEGISLATIVE CHANGES IN THE LAST YEAR

A. OPERATIONS OF THE OLD-AGE AND SURVIVORS INSURANCE

(OASI) AND DISABILITY INSURANCE (DI) TRUST FUNDS, IN 

CALENDAR YEAR 2002

Detailed information on the operations of the OASI and DI Trust Funds1

during calendar year 2002 is presented in this section. Section IV.A provides

projections for calendar years 2003-12.

1. OASI Trust Fund

A statement of the income and disbursements of the Federal Old-Age and

Survivors Insurance Trust Fund in calendar year 2002, and of the assets of

the fund at the beginning and end of the calendar year, is presented in table

III.A1. Included in total receipts during calendar year 2002 were

$456.1 billion in employment tax contributions. These contributions were

partially offset by transfers totaling $0.9 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 on total earnings in excess of the contribution and benefit base. 

Taxes that were payable on estimated deemed wage credits for military service in 2000 and 2001 have not been paid in full and no partial payment was

made in 2002. The amount that should have been received totals $482 million. Estimates presented later in this report do not include receipt of this

total amount because it is not clear at this point whether that amount will be

transferred. Although legislation eliminated deemed wage credits for military service after 2001, current law still requires payments for military service through 2001 and periodic adjustments for 1984-2001 to the extent that

estimated amounts differ from actual wage credits.

Net contributions thus amounted to $455.2 billion, an increase of 3.1 percent

over the amount in the preceding year. The increase in OASI tax contributions from calendar year 2001 to calendar year 2002 is due to increased earnings and the increases in the contribution and benefit base that became

effective on January 1 of each year 2001 and 2002. (Table VI.A1 shows the

tax rates and contribution and benefit bases in effect for past years.)

 1 Trust fund data are available by month, quarter, or year on the Internet at http://www.ssa.gov/OACT/ProgData/fundsQuery.html.
19

Calendar Year 2002 Operations

Income based on taxation of benefits amounted to $12.9 billion in 2002.

Nearly 99 percent represented amounts credited to the trust funds, based on

estimated Federal personal income taxation of benefits, generally in advance

of the actual receipt of taxes by the Treasury. The remaining 1 percent of the

total income from taxation of benefits represented amounts withheld from

the benefits paid to nonresident aliens.

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

Table III.A1.—Operations of the OASI Trust Fund, Calendar Year 2002

[In millions]

Total assets, December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,071,540

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $456,057

Payments from the General Fund of the Treasury for contributions subject to 

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -858

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,199

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 146

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,763

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,909

Reimbursement from the general fund for costs of noncontributory wage credits for 

military service before 1957 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,174

Interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 Includes (1) 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, (2) interest arising

from the revised allocation of administrative expenses among the trust funds and (3) interest on reimbursements to the trust fund for costs associated with union activities and pension reform.

10

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 71,184

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/

2 Less than $500,000.

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539,706

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389,340

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,170

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -51

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388,119

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . 3,493

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,935

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Offsetting receipts from sales of supplies, materials, etc. . . . . . . . . . . . . . . . . . . . . -1

Miscellaneous reimbursements from the general fund 3 . . . . . . . . . . . . . . . . . . . . .

3 Reimbursements for costs incurred in performing certain legislatively mandated activities not directly

related to administering the OASI program.

-6

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,137

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,749

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,957

Total assets, December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,217,497
Financial Operations & Legislative Changes

20

The OASI Trust Fund was credited with interest netting $71.2 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, and (4) interest on reimbursements to the trust fund for costs associated with union activities and pension

reform. The remaining $2,222 of receipts consisted of gifts received under

the provisions authorizing the deposit of money gifts or bequests in the trust

funds.

Of the $393.7 billion in total disbursements, $388.1 billion was for net benefit payments. The amount of net benefit payments in calendar year 2002 represents an increase of 4.2 percent over the corresponding amount in calendar

year 2001. This increase is due primarily to (1) the automatic cost-of-living

benefit increase of 2.6 percent which became effective for December 2001

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.

Provisions of the Railroad Retirement Act require an annual financial interchange between the Railroad Retirement and OASDI programs. The purpose

of such provisions is to put the OASI and DI Trust Funds in the same financial position they would have been had railroad employment always been

covered by Social Security. Under those provisions, the Railroad Retirement

Board and the Commissioner of Social Security determined that a transfer of

$3.5 billion to the Social Security Equivalent Benefit Account from the

OASI Trust Fund was required in June 2002.

The remaining $2.1 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 allocated for administering the Supplemental Security Income program are 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. As described earlier, the interest adjustments arising from the reallocation of administrative expenses are recorded in the trust fund accounting

under investment income.
21

Calendar Year 2002 Operations

The vast majority of OASI disbursements recorded as administrative

expenses represent the cost of administering the program and are charged to

the trust fund by the Social Security Administration ($1.9 billion in 2002). In

addition, the Department of the Treasury charges directly to the trust fund

certain expenses that it incurs in helping to administer the OASI program

($209 million in 2002). Finally, there are some relatively small adjustments

which reduced total administrative expenses by $7 million in 2002. The first

of these adjustments is an offset ($1 million in 2002) representing income

from the sale of excess supplies and equipment. The second adjustment represents net reimbursements from the General Fund of the Treasury for

administrative costs incurred by the Social Security Administration in performing certain legislatively mandated activities that are not directly related

to the OASI program. Such reimbursements totaled $6 million in 2002.

The assets of the OASI Trust Fund at the end of calendar year 2002 totaled

$1,217.5 billion, consisting of $1,217.7 billion in U.S. Government obligations and, as an offset, an extension of credit amounting to $0.2 billion

against securities to be redeemed within the following few days. The effective annual rate of interest earned by the assets of the OASI Trust Fund during calendar year 2002 was 6.4 percent, as compared to 6.7 percent earned

during calendar year 2001. Table III.A2 shows the total assets of the fund

and their distribution at the end of each calendar year 2001 and 2002.
Financial Operations & Legislative Changes

22

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 III.A2.—Assets of the OASI Trust Fund, End of Calendar Years 2001 and 2002

[In thousands]

December 31, 2001 December 31, 2002

Obligations sold only to the trust funds (special issues): 

Certificates of indebtedness:

4.5 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — $71,454,577

5 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54,987,439 —

5.125 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,866,909 —

5.625 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 677,850 —

Bonds:

5.25 percent, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,235,912

5.25 percent, 2005-06. . . . . . . . . . . . . . . . . . . . . . . . . . — 18,471,822

5.25 percent, 2007-15. . . . . . . . . . . . . . . . . . . . . . . . . . — 83,123,208

5.25 percent, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,235,911

5.25 percent, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 77,387,242

5.625 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,621,438 4,295,720

5.625 percent, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,621,437 9,621,437

5.625 percent, 2005-11 . . . . . . . . . . . . . . . . . . . . . . . . . 67,350,066 67,350,066

5.625 percent, 2012-15. . . . . . . . . . . . . . . . . . . . . . . . . 38,485,748 38,485,748

5.625 percent, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,151,331 68,151,331

5.875 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 783,303 —

5.875 percent, 2003-12. . . . . . . . . . . . . . . . . . . . . . . . . 61,692,730 61,692,730

5.875 percent, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,258,869 43,258,869

6 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,693,627 —

6 percent, 2003-11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,242,643 60,242,643

6 percent, 2012-13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,387,256 13,387,256

6 percent, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,952,497 49,952,497

6.25 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,975 —

6.25 percent, 2003-06. . . . . . . . . . . . . . . . . . . . . . . . . . 12,603,900 12,603,900

6.25 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,974 3,150,974

6.25 percent, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,350,034 23,350,034

6.5 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,008,649 —

6.5 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,008,649 11,008,649

6.5 percent, 2004-09. . . . . . . . . . . . . . . . . . . . . . . . . . . 66,051,900 66,051,900

6.5 percent, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,320,240 38,320,240

6.5 percent, 2011-14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,309,584 34,309,584

6.5 percent, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,529,893 58,529,893

6.875 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,975,270 —

6.875 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,975,270 3,975,270

6.875 percent, 2004-09. . . . . . . . . . . . . . . . . . . . . . . . . 23,851,626 23,851,626

6.875 percent, 2010-11 . . . . . . . . . . . . . . . . . . . . . . . . . 7,950,544 7,950,544

6.875 percent, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,089,596 37,089,596

7 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,371,481 —

7 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,371,481 3,371,481

7 percent, 2004-10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,600,360 23,600,360

7 percent, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,114,324 33,114,324

7.25 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,961,556 —

7.25 percent, 2003-06. . . . . . . . . . . . . . . . . . . . . . . . . . 15,846,224 15,846,224

7.25 percent, 2007-08. . . . . . . . . . . . . . . . . . . . . . . . . . 7,923,114 7,923,114

7.25 percent, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,311,591 27,311,591

7.375 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,575,474 —

7.375 percent, 2003-06. . . . . . . . . . . . . . . . . . . . . . . . . 14,301,896 14,301,896

7.375 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,199,060 20,199,060

8.125 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,611,348 —

8.125 percent, 2003-05. . . . . . . . . . . . . . . . . . . . . . . . . 10,834,044 10,834,044

8.125 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,623,586 16,623,586

8.625 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,672,127 —

8.75 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,099,803 —

8.75 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,099,803 7,099,803

8.75 percent, 2004-05. . . . . . . . . . . . . . . . . . . . . . . . . . 26,024,476 26,024,476

9.25 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,240,308 —

9.25 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,912,435 5,912,435

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071,794,738 1,217,701,573

Undisbursed balances1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -254,822 -204,383

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071,539,916 1,217,497,190

1 Negative figures represent an extension of credit against securities to be redeemed within the following

few days.
23

Calendar Year 2002 Operations

All securities held by the trust funds are backed by the full faith and credit of

the United States Government, as required by law. 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 on a daily basis

for 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.

Section 201(d) of the Social Security Act provides that the 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, 2002, were selected so that the maturity dates of the total portfolio of special issues were spread evenly over the 15-year period 2003-17.

The amount of bonds purchased on June 30, 2002 is shown in table III.A9.

2. DI Trust Fund

A statement of the income and disbursements of the Federal Disability Insurance Trust Fund in calendar year 2002, and of the assets of the fund at the

beginning and end of the calendar year, is presented in table III.A3.

Line entries in the DI statement are similar to those in the OASI statement

and the explanations of the OASI entries generally apply to DI as well. One

additional source of disbursements in the DI statement is $75 million 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 vocational rehabilitation services is made

only in those cases where the services contributed to the successful rehabilitation of the beneficiaries.

Net contributions amounted to $77.3 billion, an increase of 3.1 percent from

the amount in the preceding calendar 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.
Financial Operations & Legislative Changes

24

Of the $67.9 billion in total disbursements, $65.6 billion was for net benefit

payments. This represents an increase of 10.2 percent over the corresponding

amount of benefit payments in calendar year 2001. This increase in DI benefit payments is due to the same factors that resulted in the net increase in

benefit payments from the OASI Trust Fund. However, the number of persons receiving benefits from the DI Trust Fund increased more rapidly in

2002 than the number receiving benefits from the OASI Trust Fund.

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

Table III.A3.—Operations of the DI Trust Fund, Calendar Year 2002

[In millions]

Total assets, December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,993

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $77,424

Payments from the General Fund of the Treasury for contributions subject to 

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -152

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,272

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 6

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,175

Interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 Includes (1) 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, (2) interest arising

from the revised allocation of administrative expenses among the trust funds, (3) interest earned on the

investments of the trust fund, and (4) interest on reimbursements to the trust fund for costs associated with

union activities and pension reform.

3

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 9,178

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,379

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,087

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -441

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -18

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,627

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . 154

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 75

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,014

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Miscellaneous reimbursements from the general fund2. . . . . . . . . . . . . . . . . . . . . .

2 Reimbursements for costs incurred in performing certain legislatively mandated activities not directly

related to administering the DI program.

-5

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,049

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,905

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,475

Total assets, December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,468
25

Calendar Year 2002 Operations

The assets of the DI Trust Fund at the end of calendar year 2002 totaled

$160.5 billion, consisting of $160.4 billion in U.S. Government obligations

and cash totaling $88 million. The effective annual rate of interest earned by

the assets of the DI Trust Fund during calendar year 2002 was 6.3 percent,

compared to 6.5 percent earned during calendar year 2001. Table III.A4

shows the total assets of the fund and their distribution at the end of each calendar year 2001 and 2002.
Financial Operations & Legislative Changes

26

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 III.A4.—Assets of the DI Trust Fund, End of Calendar Years 2001 and 2002

[In thousands]

December 31, 2001 December 31, 2002

Investments in public-debt obligations:

Obligations sold only to the trust funds (special issues):

Certificates of indebtedness: 

4.5 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . — $8,887,553

4.75 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . — 89,454

5 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,948,770 —

5.125 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 1,011,890 —

5.25 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 275,928 —

5.625 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 497,885 —

Bonds: 

5.25 percent, 2004-06 . . . . . . . . . . . . . . . . . . . . . . . . — 4,090,224

5.25 percent, 2007-11 . . . . . . . . . . . . . . . . . . . . . . . . — 6,817,035

5.25 percent, 2012-16 . . . . . . . . . . . . . . . . . . . . . . . . — 6,817,040

5.25 percent, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,263,256

5.625 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 1,524,967 311,909

5.625 percent, 2004-06 . . . . . . . . . . . . . . . . . . . . . . . 4,574,901 4,574,901

5.625 percent, 2007-13 . . . . . . . . . . . . . . . . . . . . . . . 10,674,776 10,674,776

5.625 percent, 2014-15 . . . . . . . . . . . . . . . . . . . . . . . 3,049,934 3,049,934

5.625 percent, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . 8,899,848 8,899,848

5.875 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 116,192 —

5.875 percent, 2003-12 . . . . . . . . . . . . . . . . . . . . . . . 9,162,860 9,162,860

5.875 percent, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . 5,361,805 5,361,805

6 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,612,426 —

6 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,437,946 1,437,946

6 percent, 2004-06 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,087,895 2,087,895

6 percent, 2007-12 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,175,796 4,175,796

6 percent, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695,967 695,967

6 percent, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,057,772 6,057,772

6.5 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,464,768 —

6.5 percent, 2003-06 . . . . . . . . . . . . . . . . . . . . . . . . . 13,859,072 13,859,072

6.5 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,464,767 3,464,767

6.5 percent, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,381,228 4,381,228

6.5 percent, 2009-13 . . . . . . . . . . . . . . . . . . . . . . . . . 6,585,540 6,585,540

6.5 percent, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,317,109 1,317,109

6.5 percent, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,374,881 7,374,881

6.875 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . 265,249 —

6.875 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 265,252 265,252

6.875 percent, 2004-07 . . . . . . . . . . . . . . . . . . . . . . . 1,061,000 1,061,000

6.875 percent, 2008-09 . . . . . . . . . . . . . . . . . . . . . . . 530,498 530,498

6.875 percent, 2010-12 . . . . . . . . . . . . . . . . . . . . . . . 13,336,560 13,336,560

7 percent, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,116,151 —

7 percent, 2003-08 . . . . . . . . . . . . . . . . . . . . . . . . . . 6,696,906 6,696,906

7 percent, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,180,271 4,180,271

7.375 percent, 2004-06 . . . . . . . . . . . . . . . . . . . . . . . 142,803 142,803

7.375 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . 916,460 916,460

8.125 percent, 2004-05 . . . . . . . . . . . . . . . . . . . . . . . 300,322 300,322

8.125 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 868,859 868,859

8.75 percent, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 174,477 174,477

8.75 percent, 2004-05 . . . . . . . . . . . . . . . . . . . . . . . . 1,437,396 1,437,396

Total obligations sold only to the trust funds 

(special issues). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,907,127 160,349,372

Public issues: 

Treasury bonds: 

7.625 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 —

11.75 percent, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . 30,250 30,250

Total investments in public issues at par value, as 

shown above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,250 30,250

Unamortized premium or discount, net . . . . . . . . . . . . -146 -133

Total investments in public issues at book value . . . . . 40,104 30,117

Total investments in public-debt obligations (book value1) 140,947,231 160,379,489

Undisbursed balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,925 88,443

Total assets (book value 1) . . . . . . . . . . . . . . . . . . . . . . . . . . 140,993,156 160,467,932

1 Par value, plus unamortized premium or less discount outstanding.
27

Calendar Year 2002 Operations

3. OASI and DI 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 III.A5. The

entries in this table represent the sums of the corresponding values from

tables III.A1 and III.A3. For a discussion of the nature of these income and

expenditure transactions, reference should be made to the two preceding subsections covering OASI and DI separately.

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

Table III.A5.—Operations of the Combined OASI and DI Trust Funds, 

Calendar Year 2002

[In millions]

Total assets, December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,212,533

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $533,481

Payments from the General Fund of the Treasury for contributions subject to 

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,011

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532,471

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 152

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,687

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,839

Reimbursement from the general fund for costs of noncontributory wage credits for 

military service before 1957 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,349

Interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 Includes (1) 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, (2) interest arising

from the revised allocation of administrative expenses among the trust funds, (3) interest earned on the

investments of the trust fund, and (4) interest on reimbursements to the trust fund for costs associated with

union activities and pension reform.

13

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 80,362

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/

2 Less than $500,000.

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627,085

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,427

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,612

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -69

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453,746

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . 3,647

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 75

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,949

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

Offsetting receipts from sales of supplies, materials, etc. . . . . . . . . . . . . . . . . . . . . -1

Miscellaneous reimbursements from the general fund3. . . . . . . . . . . . . . . . . . . . . .

3 Reimbursements for costs incurred in performing certain legislatively mandated activities not directly

related to administering the OASI and DI programs.

-11

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,185

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461,653

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,432

Total assets, December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,377,965
Financial Operations & Legislative Changes

28

To provide a context for estimates of future trust fund income and expenditures provided later in this report, table III.A6 compares past estimates of

contributions and benefit payments for calendar year 2002, as shown in the

1998-2002 Annual Reports, with the corresponding actual amounts in 2002.1

A number of factors can contribute to differences between estimates and subsequent actual amounts, including actual values for key demographic, economic, and other variables that differ from previously assumed levels. For

example, the 2002 Trustees Report estimates of DI benefit payments for calendar year 2002 assumed that a one-time special disability workload would

be processed in 2002-03, and would result in the payment of over $3 billion

in retroactive benefits in 2002. In practice, as discussed later in chapter IV,

very little of the special disability workload was processed in 2002, so the

 1 Estimated amounts used to calculate percentage errors are before rounding to amounts shown in the annual

reports.

Table III.A6.—Comparison of Actual Calendar Year 2002 Trust Fund Operations

With Estimates Made in Prior Reports1

[Amounts in billions]

1 The estimates shown are based on the intermediate assumptions.

Net contributions 2

2 “Actual” contributions for 2002 reflect adjustments for prior calendar years (see appendix A on page 131

for description of these adjustments). “Estimated” contributions also include such adjustments, but on an

estimated basis.

Benefit payments 3

3 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 1998 report . . . . . . . . . . . . . . $426.0 -6.4 $383.2 -1.3

Estimate in 1999 report . . . . . . . . . . . . . . 434.9 -4.5 376.8 -2.9

Estimate in 2000 report . . . . . . . . . . . . . . 462.5 1.6 383.8 -1.1

Estimate in 2001 report . . . . . . . . . . . . . . 466.9 2.6 388.7 .1

Estimate in 2002 report . . . . . . . . . . . . . . 453.7 -.3 387.7 -.1

Actual amount . . . . . . . . . . . . . . . . . . . . . 455.2 — 388.1 —

DI Trust Fund:

Estimate in 1998 report . . . . . . . . . . . . . . 72.3 -6.4 64.1 -2.5

Estimate in 1999 report . . . . . . . . . . . . . . 73.8 -4.5 64.0 -2.6

Estimate in 2000 report . . . . . . . . . . . . . . 78.5 1.6 64.3 -2.2

Estimate in 2001 report . . . . . . . . . . . . . . 79.3 2.6 63.3 -3.6

Estimate in 2002 report . . . . . . . . . . . . . . 77.0 -.3 69.4 5.6

Actual amount . . . . . . . . . . . . . . . . . . . . . 77.3 — 65.7 —

OASI and DI Trust Funds, combined:

Estimate in 1998 report . . . . . . . . . . . . . . 498.4 -6.4 447.2 -1.5

Estimate in 1999 report . . . . . . . . . . . . . . 508.7 -4.5 440.8 -2.9

Estimate in 2000 report . . . . . . . . . . . . . . 541.0 1.6 448.1 -1.3

Estimate in 2001 report . . . . . . . . . . . . . . 546.1 2.6 452.0 -.4

Estimate in 2002 report . . . . . . . . . . . . . . 530.7 -.3 457.1 .7

Actual amount . . . . . . . . . . . . . . . . . . . . . 532.5 — 453.8 —
29

Calendar Year 2002 Operations

large retroactive payments were not made, and DI benefit payments were

overestimated by that amount. Another factor contributing to such differences is new legislation. In particular, legislation eliminating the retirement

earnings test for workers over the normal retirement age was enacted shortly

after publication of the 2000 report. Consequently, actual OASI benefit payments in 2002 were larger than estimated for the 1998-2000 reports.

At the end of calendar year 2002, about 46.4 million persons were receiving

monthly benefits under the OASDI program. Of these persons, about

39.2 million and 7.2 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 0.7 percent

and 4.5 percent, respectively, during the calendar year. The estimated distribution of benefit payments in calendar years 2001 and 2002, by type of beneficiary, is shown in table III.A7 for each trust fund separately.

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

Table III.A7.—Distribution of Benefit Payments by Type of Beneficiary or Payment, 

Calendar Years 2001 and 2002

[Amounts in millions]

Calendar year 2001 Calendar year 2002

Amount

Percentage

of total Amount

Percentage

of total

Total OASDI benefit payments . . . . . . . . . . $431,871 100.0 $453,746 100.0

OASI benefit payments . . . . . . . . . . . . . . 372,312 86.2 388,119 85.5

DI benefit payments . . . . . . . . . . . . . . . . . 59,559 13.8 65,627 14.5

OASI benefit payments, total. . . . . . . . . . . . 372,312 100.0 388,119 100.0

Monthly benefits:

Retired workers and auxiliaries . . . . . . 290,754 78.1 303,943 78.3

Retired workers . . . . . . . . . . . . . . . . 268,934 72.2 281,587 72.6

Wives and husbands . . . . . . . . . . . . . 19,488 5.2 19,882 5.1

Children . . . . . . . . . . . . . . . . . . . . . . 2,331 .6 2,474 .6

Survivors of deceased workers. . . . . . . 81,347 21.8 83,963 21.6

Aged widows and widowers. . . . . . . 65,356 17.6 67,313 17.3

Disabled widows and widowers . . . . 1,392 .4 1,461 .4

Parents . . . . . . . . . . . . . . . . . . . . . . . 26 1/

1 Less than 0.05 percent.

25 1/1

Children . . . . . . . . . . . . . . . . . . . . . . 13,132 3.5 13,688 3.5

Widowed mothers and fathers 

caring for child beneficiaries . . . . 1,441 .4 1,476 .4

Uninsured persons generally aged 72 

before 1968 . . . . . . . . . . . . . . . . . . . 2/

2 Less than $500,000.

1/1 2/1 1/1

Lump-sum death payments . . . . . . . . . . . 212 .1 213 .1

DI benefit payments, total . . . . . . . . . . . . . . 59,559 100.0 65,627 100.0

Disabled workers . . . . . . . . . . . . . . . . . 54,228 91.0 59,869 91.2

Wives and husbands . . . . . . . . . . . . . . . 415 .7 423 .6

Children . . . . . . . . . . . . . . . . . . . . . . . . 4,916 8.3 5,335 8.1
Financial Operations & Legislative Changes

30

Net administrative expenses charged to the OASI and DI Trust Funds in calendar year 2002 totaled $4.2 billion. This amount represented 0.8 percent of

contribution income and 0.9 percent of expenditures. Corresponding percentages for each trust fund separately and for the OASDI program as a whole

are shown in table III.A8 for each of the last 5 years.

Tables III.A2 and III.A4, presented earlier, showed the assets of the OASI

and DI Trust Funds at the end of calendar years 2001 and 2002. The changes

in the invested assets of the funds between those two dates are a result of the

acquisition and disposition of securities during calendar year 2002. Table

III.A9 presents these investment transactions for each trust fund separately

and combined.

Note: All investments are shown at par value.

Table III.A8.—Administrative Expenses as a Percentage of Contribution Income and of 

Total Expenditures, Calendar Years 1998-2002

Calendar year 

OASI Trust Fund DI Trust Fund

OASI and DI

Trust Funds,

combined

Contribution

income

Total

expenditures

Contribution

income

Total

expenditures

Contribution

income

Total

expenditures

1998 . . . . . . . . . . . 0.5 0.6 2.7 3.1 0.8 0.9

1999 . . . . . . . . . . . .5 .5 2.4 2.9 .7 .8

2000 . . . . . . . . . . . .5 .6 2.3 2.9 .8 .9

2001 . . . . . . . . . . . .4 .5 2.3 2.8 .7 .8

2002 . . . . . . . . . . . .5 .5 2.7 3.0 .8 .9

Table III.A9.—Trust Fund Investment Transactions, Calendar Year 2002

[In millions]

OASI

Trust Fund

DI

Trust Fund

OASI and DI

Trust Funds,

combined

Invested assets, December 31, 2001 . . . . . . . . $1,071,795 $140,947 $1,212,742

Acquisitions:

Special issues:

Certificates of indebtedness . . . . . . . . . . . 505,526 83,115 588,641

Bonds1 . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 Amounts shown were purchased on June 30, 2002. The interest rate on such purchases was 5.25 percent.

206,690 29,351 236,041

Public issues:

Treasury bonds . . . . . . . . . . . . . . . . . . . . . ———

Total acquisitions . . . . . . . . . . . . . . . . . . . 712,216 112,466 824,682

Dispositions:

Special issues:

Certificates of indebtedness . . . . . . . . . . . 498,604 83,872 582,476

Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,706 9,151 76,857

Public issues:

Treasury bonds . . . . . . . . . . . . . . . . . . . . . — 10 10

Total dispositions . . . . . . . . . . . . . . . . . . . 566,309 93,034 659,343

Net increase in invested assets. . . . . . . . . . . . . 145,907 19,432 165,339

Invested assets, December 31, 2002 . . . . . . . . 1,217,702 160,380 1,378,081
31

Social Security Amendments in 2002

B. SOCIAL SECURITY AMENDMENTS SINCE THE 2002 REPORT

Since the 2002 Annual Report was transmitted to Congress on March 26,

2002, there have been no legislative changes enacted that would have a significant effect on the financial status of the OASDI program. 
Actuarial Estimates

32

IV. ACTUARIAL ESTIMATES

This chapter presents actuarial estimates of the future financial condition of

the Social Security program. These estimates include projected income and

cost of the OASI and DI Trust Funds, in dollars over the next 10 years and as

a percentage of taxable payroll or in present-value dollars over the full

75-year period, along with a discussion of a variety of measures of the adequacy of current program financing. In this report we are more carefully distinguishing between (1) the cost (or obligations) of the program, which

includes, for the future, all benefits scheduled under current law, and (2)

expenditures (disbursements or outgo), which include actual payments for

the past and only the portion of the cost of the program that is projected to be

payable with the financing provisions in current law.

As described in the Overview section of this report, these estimates depend

upon a broad set of demographic and economic assumptions. Since these

assumptions are subject to uncertainty, the estimates presented in this section

are prepared under three sets of assumptions, to show a range of possible

outcomes. The intermediate set of assumptions, designated as alternative II,

reflects the Trustees’ best estimates of future experience; the low cost alternative I is more optimistic and the high cost alternative III more pessimistic

for the trust funds’ future financial outlook. The intermediate estimates are

shown first in the tables in this report, followed by the low cost and high cost

estimates. These sets of assumptions, along with actuarial methods used to

produce the estimates, are described in chapter V. In this chapter, the estimates and measures of trust fund financial adequacy for the short range

(2003-12) are presented first, followed by estimates and measures of actuarial status for the long range (2003-77). As an additional illustration of uncertainty, probability distributions of certain measures are presented in appendix

E. These projections are included for the first time in this year’s report.

A. SHORT-RANGE ESTIMATES

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 projected outgo during the year.

Thus, the trust fund ratio represents the proportion of a year’s outgo which

can be paid with the funds available at the beginning of the year. During periods when trust fund income exceeds disbursements, the excess is held in the

trust funds which serve to advance fund a portion of the Social Security program’s future financial obligations. 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 time for the development,

enactment, and implementation of legislation to restore financial stability to

the program.
33

Short-Range Estimates

The test of financial adequacy over the short-range projection period is applicable to the OASI and DI Trust Funds individually and on a combined basis.

The requirements of this test are as follows: If the estimated trust fund ratio

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 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 legislative action is needed to improve the short-range financial adequacy of the

program.

1. Operations of the OASI Trust Fund

This subsection presents estimates of the operations and financial status of

the OASI Trust Fund for the period 2003-12, based on the assumptions

described in chapter V. No changes are assumed to occur in the present statutory provisions and regulations under which the OASDI program operates.1

These estimates are shown in table IV.A1 and indicate that the assets of the

OASI Trust Fund would continue to increase rapidly throughout the next 10

years under all three sets of assumptions. Also, based on the intermediate

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 2012. Consequently, the OASI Trust Fund satisfies the test of

short-range financial adequacy by a wide margin. The estimates in table

IV.A1 also indicate that the short-range test would be satisfied even under the

high cost assumptions (see figure IV.A1 for graphical illustration of these

results).

The increases in estimated income shown in table IV.A1 under each set of

assumptions reflect increases in estimated OASDI 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 2012 (with the exception that employment is estimated to decline

 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.
Actuarial Estimates

34

slightly in 2003 under the high cost assumptions due to an assumed continuation of the economic slowdown experienced in 2001-02). The number of persons with taxable earnings would increase on the basis of alternatives I, II,

and III from 153 million during calendar year 2002 to about 173 million,

169 million, and 166 million, respectively, in 2012. The total annual amount

of taxable earnings is projected to increase from $4,227 billion in 2002 to

$6,883 billion, $6,937 billion, and $7,262 billion, in 2012, on the basis of

alternatives I, II, and III, respectively. (In constant 2002 dollars—taking

account of assumed increases in the CPI from 2002 to 2012 under each alternative—the estimated amounts of taxable earnings in 2012 are

$5,640 billion, $5,247 billion, and $4,789 billion, respectively.) These

increases in taxable earnings are due primarily to (1) projected increases in

employment levels as the working age (20-64) population increases and in

average earnings in covered employment, (2) increases in the contribution

and benefit base in 2003-12 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 2012, interest income to the

OASI Trust Fund is projected to be about 21 percent of total trust fund

income on the basis of the intermediate assumptions, as compared to

13.2 percent in 2002.

 Figure IV.A1.—Short-Range OASI and DI Trust Fund Ratios

[Assets as a percentage of annual expenditures]

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

550%

600%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Calendar year

OASI

DI

Historical Estimated

"Adequate" level for trust fund ratio

I

II

III

I

II

III
35

Short-Range Estimates

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

Table IV.A1.—Operations of the OASI Trust Fund, Calendar Years 1998-20121

[Amounts in billions]

1 A detailed description of the components of income and cost, along with complete historical values, is presented in appendix A.

Calendar

year

Income Cost Assets

Total2

2 “Total Income” column includes transfers made between the OASI Trust Fund and the General Fund of the

Treasury that are not included in the separate components of income shown. These transfers consist of payments for (1) the cost of noncontributory wage credits for military service before 1957, and (2) the cost of

benefits to certain uninsured persons who attained age 72 before 1968. (For example, a $414 million transfer

was made in February 2002 from the General Fund of the Treasury to the OASI Trust Fund for the cost of

pre-1957 military service wage credits.) Such transfers are estimated to be less than $500,000 in each year of

the projection period.

Net

contributions

Taxation of

benefits

Net

interest Total

Benefit

payments

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

fund

ratio3

3 The “Trust fund ratio” column represents assets at the beginning of a year (which are identical to assets at

the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

See text beginning on page 36 concerning interpretation of these ratios.

Historical data:

1998 . . $424.8 $371.2 $9.1 $44.5 $332.3 $326.8 $1.9 $3.7 $92.5 $681.6 177

1999 . . 457.0 396.4 10.9 49.8 339.9 334.4 1.8 3.7 117.2 798.8 201

2000 . . 490.5 421.4 11.6 57.5 358.3 352.7 2.1 3.5 132.2 931.0 223

2001 . . 518.1 441.5 11.9 64.7 377.5 372.3 2.0 3.3 140.6 1,071.5 247

2002 . . 539.7 455.2 12.9 71.2 393.7 388.1 2.1 3.5 146.0 1,217.5 272

Intermediate:

2003 . . 552.9 463.0 12.5 77.5 404.7 398.5 2.5 3.7 148.3 1,365.8 301

2004 . . 585.0 486.0 12.6 86.4 418.8 412.6 2.5 3.7 166.2 1,531.9 326

2005 . . 625.9 514.8 13.6 97.4 436.1 429.9 2.5 3.7 189.8 1,721.7 351

2006 . . 667.5 542.9 14.4 110.1 456.4 450.4 2.5 3.5 211.1 1,932.8 377

2007 . . 713.3 573.2 15.9 124.2 480.4 474.2 2.5 3.7 232.9 2,165.7 402

2008 . . 759.2 602.8 17.4 139.0 507.7 501.5 2.5 3.7 251.6 2,417.3 427

2009 . . 807.0 633.6 19.0 154.5 537.9 531.7 2.5 3.7 269.1 2,686.4 449

2010 . . 856.8 665.2 20.8 170.7 571.8 565.5 2.5 3.7 285.0 2,971.4 470

2011 . . 910.2 698.1 24.3 187.8 609.2 603.0 2.6 3.6 301.0 3,272.4 488

2012 . . 963.6 731.2 26.6 205.7 650.3 643.8 2.6 3.9 313.3 3,585.7 503

Low Cost:

2003 . . 555.4 465.1 12.5 77.9 404.6 398.5 2.5 3.7 150.8 1,368.3 301

2004 . . 593.1 493.3 12.5 87.2 417.7 411.5 2.5 3.6 175.4 1,543.7 328

2005 . . 631.6 520.5 13.5 97.6 432.8 426.6 2.5 3.7 198.8 1,742.5 357

2006 . . 670.4 547.2 14.2 109.0 449.2 443.2 2.4 3.5 221.2 1,963.7 388

2007 . . 712.8 576.0 15.5 121.4 468.1 462.1 2.4 3.6 244.7 2,208.4 419

2008 . . 756.1 604.3 16.8 135.0 489.1 483.1 2.4 3.6 267.1 2,475.4 452

2009 . . 801.6 633.6 18.1 149.9 513.0 507.0 2.4 3.5 288.7 2,764.1 483

2010 . . 849.3 663.7 19.6 165.9 539.9 533.9 2.5 3.5 309.4 3,073.5 512

2011 . . 900.7 694.6 22.7 183.3 569.7 563.9 2.5 3.3 331.0 3,404.5 539

2012 . . 952.0 725.6 24.7 201.7 602.7 596.6 2.5 3.6 349.3 3,753.8 565

High Cost:

2003 . . 547.4 458.5 12.5 76.4 405.0 398.9 2.5 3.7 142.4 1,359.9 301

2004 . . 571.6 473.5 12.6 85.4 420.9 414.7 2.5 3.7 150.7 1,510.6 323

2005 . . 626.1 512.3 13.8 100.0 441.8 435.6 2.5 3.7 184.3 1,694.9 342

2006 . . 671.6 539.3 14.9 117.4 471.7 465.6 2.5 3.6 200.0 1,894.9 359

2007 . . 724.3 572.2 16.9 135.2 511.4 505.0 2.5 3.8 212.8 2,107.7 371

2008 . . 793.6 617.6 19.0 157.1 553.4 546.8 2.6 4.0 240.2 2,347.9 381

2009 . . 850.5 655.5 21.0 174.0 596.4 589.6 2.7 4.1 254.2 2,602.0 394

2010 . . 903.8 691.8 23.3 188.8 639.8 632.9 2.7 4.3 264.0 2,866.0 407

2011 . . 959.7 728.2 27.4 204.1 687.0 680.0 2.8 4.3 272.6 3,138.7 417

2012 . . 1,015.2 765.3 30.3 219.6 739.2 731.8 2.8 4.6 276.0 3,414.6 425
Actuarial Estimates

36

Rising expenditures during 2003-12 reflect automatic benefit increases as

well as the upward trend in the number 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.

Growth has also occurred, and will continue to occur, in the proportion of

eligible persons who receive benefits. This growth is due to several factors,

including (1) the amendments enacted since 1950 which affect the conditions

governing the receipt of benefits and (2) the increasing percentage of eligible

persons who have attained normal retirement age and who therefore may

receive benefits regardless of earnings.

The estimates under all three sets of assumptions shown in table IV.A1 indicate that income to the OASI Trust Fund would substantially exceed expenditures in every year of the short-range projection period, and assets are

therefore estimated to increase substantially.

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 publicdebt obligations of the U.S. Government. The cash used to make these purchases becomes part of the General Fund of the Treasury and can be used to

meet various Federal outlays or to reduce the amount of publicly-held Federal debt. 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 is borrowed by the general fund, resulting in a substantial net

cash flow to the general fund. As discussed in the following section on page

54, this cash flow will reverse sometime in the next 10-20 years; as increasingly larger amounts of annual interest income are used in that period 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.

In interpreting the trust fund ratios in table IV.A1, 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 6 to 7 percent of annual expenditures are sufficient for this
37

Short-Range Estimates

purpose, although this minimum requirement will decline very gradually in

the future as cycling of payments throughout the month phases in and

replaces payment of most benefits on the third of the month. 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 IV.A1 and the advance

tax transfers for January expressed as a percentage of total cost in the year

and (2) the minimum level required to pay benefits on time, represents the

reserve available to handle adverse contingencies.

2. Operations of the DI Trust Fund

The estimated operations and financial status of the DI Trust Fund during

calendar years 2003-12 under the three sets of assumptions are shown in

table IV.A2, together with figures on actual experience in 1998-2002.

Income is generally projected to increase steadily under each alternative,

reflecting most of the same factors described previously in connection with

the OASI Trust Fund. 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, but at a lower rate than for the OASI

Trust Fund. Under the high cost assumptions, DI assets would increase

through the middle of 2007 and decline steadily thereafter.

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. Over the

period 2002-12, the projected annual average growth rate in the number of

DI worker beneficiaries is roughly 2.0, 3.3, and 4.7 percent under alternatives I, II, and III, respectively. Growth is largely attributable to the gradual

progression of the baby-boom generation through ages 50-65 at which higher

rates of disability incidence are experienced.

The proportion of insured workers who are awarded disability benefits in a

given year is referred to as the disability incidence rate. 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 2002 disability incidence rate (calculated on an age-sex-adjusted basis) was 5.24 awards per

thousand insured workers. This figure was almost 7 percent higher than the

average incidence rate of 4.91 per thousand that was experienced during the

period 1975-2001. The 2002 rate represented a 6 percent increase over the
Actuarial Estimates

38

corresponding value for 2001, and follows an 8 percent increase from 2000

to 2001. These sharp annual increases over the period 2000-02 represent a

dramatic departure from the experience of the preceding 8 years which generally observed modest annual declines in the age-sex-adjusted disability

incidence rate.

The increases in the incidence rates in 2001 and 2002 are likely due in large

part to the economic downturn experienced during that period. However, as

was first discussed in the 2002 report, a special administrative activity undertaken by SSA beginning in 2001 also contributed slightly to the upsurge in

disabled worker awards. This special workload was the result of discovering

a large number of current or former recipients of Supplemental Security

Income (SSI) benefits whose disability-insured status under the DI program

was not previously recognized. As this special disability workload is processed over the next several years, the resulting disability awards will contribute to higher incidence rates than would have been expected as part of

longer term underlying trends.

Estimates for the size of this special workload, and the time required to process the claims, have been revised substantially since the 2002 report. However, after the special workload cases are processed, the incidence rates

projected in this report over the short range are expected to return to levels

roughly in line with those assumed in last year’s report. Under the intermediate assumptions, age-sex-adjusted incidence rates are assumed to continue at

the 5.2 per thousand level in 2003 and then decline to 4.8 per thousand by

2007 and remain at roughly that level for the remainder of the short-range

projection period, slightly below the average level for the past 25 years.

Under the high cost alternative, incidence rates are assumed to increase temporarily in 2003, and then decline beginning in 2004, reaching a level of 5.6

per thousand by the end of the short-range period. Under the low cost alternative, incidence rates are estimated to decline from current levels to roughly

4 per thousand by the end of the short-range period.
39

Short-Range Estimates

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

Table IV.A2.—Operations of the DI Trust Fund, Calendar Years 1998-20121

[Amounts in billions]

1 A detailed description of the components of income and cost is presented in appendix A.

Calendar

year

Income Cost Assets

Total2

2 “Total Income” column includes transfers made between the DI Trust Fund and the General Fund of the

Treasury that are not included in the separate components of income shown. These transfers consist of payments for the cost of noncontributory wage credits for military service before 1957. (For example, an

$836 million transfer was made in December 2000 from the DI Trust Fund to the General Fund of the Treasury for the cost of pre-1957 military service wage credits.) Such transfers are estimated to be less than

$500,000 in each year of the projection period.

Net

contributions

Taxation of

benefits

Net

interest Total

Benefit

payments

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

fund

ratio3

3 The “Trust fund ratio” column represents assets at the beginning of a year (which are identical to assets at

the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

See text beginning on page 36 concerning interpretation of these ratios.

Historical data:

1998 . . $64.4 $59.0 $0.6 $4.8 $49.9 $48.2 $1.6 $0.2 $14.4 $80.8 133

1999 . . 69.5 63.2 .7 5.7 53.0 51.4 1.5 .1 16.5 97.3 152

2000 . . 77.9 71.1 .7 6.9 56.8 55.0 1.6 .2 21.1 118.5 171

2001 . . 83.9 74.9 .8 8.2 61.4 59.6 1.7 4/

4 Less than $50 million.

22.5 141.0 193

2002 . . 87.4 77.3 .9 9.2 67.9 65.7 2.0 .2 19.5 160.5 208

Intermediate:

2003 . . 89.6 78.6 .9 10.0 73.2 71.2 1.9 .2 16.3 176.8 219

2004 . . 94.4 82.5 1.0 10.9 80.0 77.8 2.0 .2 14.4 191.2 221

2005 . . 100.4 87.4 1.1 11.8 86.3 84.0 2.1 .3 14.1 205.3 222

2006 . . 106.2 92.2 1.2 12.8 91.2 88.8 2.2 .3 15.0 220.2 225

2007 . . 112.5 97.3 1.3 13.8 97.5 94.8 2.3 .3 15.0 235.2 226

2008 . . 118.6 102.4 1.5 14.7 104.2 101.4 2.5 .3 14.4 249.6 226

2009 . . 124.8 107.6 1.7 15.5 112.0 109.1 2.6 .3 12.8 262.4 223

2010 . . 131.1 113.0 1.9 16.2 119.6 116.5 2.8 .4 11.5 273.9 219

2011 . . 137.7 118.5 2.3 16.8 127.6 124.3 2.9 .4 10.0 283.9 215

2012 . . 144.1 124.2 2.6 17.4 135.7 132.3 3.1 .4 8.4 292.3 209

Low Cost:

2003 . . 90.0 79.0 .9 10.1 71.6 69.6 1.9 .2 18.3 178.8 224

2004 . . 95.9 83.8 .9 11.2 76.9 74.7 2.0 .2 19.0 197.8 232

2005 . . 101.8 88.4 1.0 12.3 81.6 79.2 2.1 .3 20.2 218.0 242

2006 . . 107.6 92.9 1.1 13.5 84.7 82.2 2.2 .3 22.9 240.9 257

2007 . . 113.8 97.8 1.2 14.8 88.8 86.2 2.3 .3 25.1 266.0 271

2008 . . 120.2 102.6 1.3 16.2 92.9 90.2 2.4 .3 27.2 293.2 286

2009 . . 126.8 107.6 1.5 17.7 97.8 95.0 2.5 .3 28.9 322.1 300

2010 . . 133.6 112.7 1.6 19.3 102.3 99.4 2.7 .3 31.3 353.4 315

2011 . . 140.9 118.0 1.9 21.0 107.1 104.0 2.8 .3 33.8 387.2 330

2012 . . 148.3 123.2 2.1 22.9 111.8 108.6 3.0 .3 36.4 423.6 346

High Cost:

2003 . . 88.6 77.9 1.0 9.8 76.2 74.1 1.9 .2 12.4 172.9 211

2004 . . 91.9 80.4 1.1 10.4 85.3 83.0 2.0 .2 6.5 179.5 203

2005 . . 99.3 87.0 1.2 11.1 94.3 92.0 2.1 .3 5.0 184.4 190

2006 . . 104.6 91.6 1.4 11.7 102.7 100.2 2.2 .3 1.9 186.3 179

2007 . . 110.5 97.2 1.6 11.8 114.0 111.3 2.4 .3 -3.5 182.8 163

2008 . . 118.4 104.9 1.8 11.7 125.6 122.6 2.6 .4 -7.2 175.6 146

2009 . . 124.5 111.3 2.1 11.1 137.7 134.5 2.8 .4 -13.2 162.5 128

2010 . . 130.0 117.5 2.4 10.1 148.7 145.3 3.0 .4 -18.7 143.8 109

2011 . . 135.4 123.7 2.9 8.9 160.3 156.7 3.1 .4 -24.8 118.9 90

2012 . . 140.5 130.0 3.3 7.2 172.1 168.3 3.3 .5 -31.6 87.3 69
Actuarial Estimates

40

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 exclude drug addicts and alcoholics from the

DI rolls; the diminished 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.

In this report, termination rates due to attainment of normal retirement age

are estimated to drop in 2003, from the level of roughly 40 per thousand disabled experienced over the past several years to 33-34 per thousand, and

remain at that lower level for 5 more years as a result of the increase in the

normal retirement age. Age-specific death rates for disabled beneficiaries are

assumed to decline gradually from the current experience levels. Projected

levels of recovery terminations for this year’s report remain consistent with

last year’s report after adjusting for 2002 actual experience. The overall termination rate (reflecting all causes) is projected to decline in 2003 due

largely to the increase in the normal retirement age cited above.

At the beginning of calendar year 2002, the assets of the DI Trust Fund represented 208 percent of annual expenditures. During 2002, DI income

exceeded DI expenditures by $19.5 billion, contributing to an increase in the

trust fund ratio for the beginning of 2003 to about 219 percent. Under the

intermediate set of assumptions, total income is estimated to exceed expenditures in each year of the short-range projection period. However, the projected decline in the trust fund ratio from a peak of 226 percent in 2007 to

209 percent by the beginning of 2012 is an early warning of the eventual

shortfall in available DI Trust Fund assets needed to cover program cost—

projected under the intermediate assumptions to occur after the end of the

short-range period.

Under the low cost assumptions, the trust fund ratio would increase rapidly

to 346 percent at the beginning of 2012. Under the high cost assumptions,

the assets of the DI Trust Fund would increase through 2003 and then decline

steadily thereafter, dipping below the level of 1 year’s expenditures near the

middle of 2010.
41

Short-Range Estimates

Because DI assets were greater than 1 year’s expenditures at the beginning of

2003 and would remain above that level in 2004 and later the DI Trust Fund

satisfies the Trustees’ short-range test of financial adequacy under both the

intermediate and low cost assumptions. However, under the high cost

assumptions the DI Trust Fund fails to meet the short-range test of financial

adequacy, because assets fall below 1 year’s expenditures by the end of the

short-range period, as described above (see also figure IV.A1).

3. Operations of the Combined OASI and DI Trust Funds

The estimated operations and status of the OASI and DI Trust Funds, combined, during calendar years 2003-12 on the basis of the three alternatives,

are shown in table IV.A3, together with figures on actual experience in 1998-

2002. The dollar amounts are the sums of the corresponding figures shown in

tables IV.A1 and IV.A2. Since the income and cost for the OASI Trust Fund

represent over 80 percent of the corresponding amounts for the combined

OASI and DI Trust Funds, the operations of the OASI Trust Fund dominate

the operations of the combined two funds. Consequently, the combined

OASI and DI Trust Funds meet the requirements of the short-range test of

financial adequacy under all three alternative sets of assumptions.

Table IV.A3.—Operations of the Combined OASI and DI Trust Funds,

Calendar Years 1998-20121

[Amounts in billions]

Calendar

year

Income Cost Assets

Total2

Net

contributions

Taxation of

benefits

Net

interest Total

Benefit

payments

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

fund

ratio3

Historical data:

1998 . . $489.2 $430.2 $9.7 $49.3 $382.3 $375.0 $3.5 $3.8 $107.0 $762.5 171

1999 . . 526.6 459.6 11.6 55.5 392.9 385.8 3.3 3.8 133.7 896.1 194

2000 . . 568.4 492.5 12.3 64.5 415.1 407.6 3.8 3.7 153.3 1,049.4 216

2001 . . 602.0 516.4 12.7 72.9 438.9 431.9 3.7 3.3 163.1 1,212.5 239

2002 . . 627.1 532.5 13.8 80.4 461.7 453.8 4.2 3.6 165.4 1,378.0 263

Intermediate:

2003 . . 642.5 541.6 13.4 87.5 477.9 469.7 4.3 3.9 164.6 1,542.6 288

2004 . . 679.4 568.5 13.6 97.3 498.8 490.4 4.5 3.9 180.6 1,723.1 309

2005 . . 726.2 602.2 14.7 109.3 522.4 513.8 4.6 3.9 203.8 1,927.0 330

2006 . . 773.7 635.1 15.6 122.9 547.6 539.2 4.7 3.8 226.1 2,153.0 352

2007 . . 825.7 670.6 17.2 137.9 577.8 569.1 4.8 4.0 247.9 2,400.9 373

2008 . . 877.8 705.2 18.9 153.7 611.8 602.9 4.9 4.0 266.0 2,666.9 392

2009 . . 931.8 741.2 20.7 170.0 649.9 640.8 5.1 4.0 281.9 2,948.8 410

2010 . . 987.9 778.2 22.7 186.9 691.4 682.0 5.3 4.1 296.5 3,245.2 426

2011 . . 1,047.9 816.6 26.6 204.6 736.8 727.3 5.5 4.0 311.1 3,556.3 440

2012 . . 1,107.7 855.4 29.2 223.1 786.0 776.1 5.7 4.3 321.7 3,878.0 452
Actuarial Estimates

42

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

4. Factors Underlying Changes in 10-Year Trust Fund Ratio Estimates

From the 2002 Report

The factors underlying the changes in the intermediate estimates for the

OASI, DI and the combined funds from last year’s annual report to this

report are analyzed in table IV.A4. In the 2002 Annual Report, the trust fund

ratio for OASI was estimated to reach 491 percent at the beginning of

2011—the tenth projection year from that report. If there had been no

changes to the projections, the estimated ratio at the beginning of 2012

would be 14 percentage points higher than at the beginning of 2011, or

505 percent. There were changes, however, to reflect the latest actual data, as

well as adjustments to the assumptions for future years. The resulting ratio

shown in this report for the tenth projection year (2012) is 503 percent.

Higher estimates of the population over the short-range period resulted in an

estimated small net reduction in the tenth-year trust fund ratio. The cumulaLow Cost:

2003 . . $645.4 $544.1 $13.4 $88.0 $476.3 $468.0 $4.3 $3.9 $169.2 $1,547.1 289

2004 . . 689.0 577.1 13.5 98.5 494.6 486.2 4.5 3.9 194.4 1,741.5 313

2005 . . 733.4 608.9 14.5 110.0 514.4 505.9 4.6 3.9 219.0 1,960.5 339

2006 . . 778.0 640.2 15.3 122.5 533.8 525.5 4.6 3.7 244.1 2,204.6 367

2007 . . 826.6 673.8 16.7 136.2 556.9 548.2 4.7 3.9 269.7 2,474.4 396

2008 . . 876.3 707.0 18.1 151.2 582.0 573.3 4.8 3.9 294.3 2,768.6 425

2009 . . 928.4 741.2 19.6 167.6 610.8 602.0 5.0 3.8 317.6 3,086.2 453

2010 . . 982.9 776.4 21.3 185.2 642.2 633.3 5.1 3.8 340.7 3,426.9 481

2011 . . 1,041.6 812.6 24.6 204.3 676.8 667.9 5.3 3.7 364.8 3,791.7 506

2012 . . 1,100.3 848.8 26.8 224.6 714.5 705.2 5.4 3.9 385.7 4,177.4 531

High Cost:

2003 . . 636.0 536.3 13.4 86.3 481.2 473.0 4.3 3.9 154.8 1,532.8 286

2004 . . 663.5 553.9 13.7 95.8 506.2 497.8 4.5 3.9 157.3 1,690.1 303

2005 . . 725.4 599.3 15.0 111.1 536.1 527.6 4.6 4.0 189.2 1,879.3 315

2006 . . 776.2 630.9 16.3 129.1 574.4 565.8 4.7 3.8 201.8 2,081.1 327

2007 . . 834.8 669.3 18.5 147.0 625.5 616.3 5.0 4.2 209.4 2,290.5 333

2008 . . 912.0 722.4 20.8 168.8 679.0 669.4 5.2 4.3 233.0 2,523.5 337

2009 . . 975.0 766.8 23.1 185.1 734.0 724.1 5.5 4.5 241.0 2,764.5 344

2010 . . 1,033.9 809.3 25.7 198.9 788.6 778.2 5.7 4.7 245.3 3,009.8 351

2011 . . 1,095.1 851.9 30.3 212.9 847.3 836.7 5.9 4.7 247.8 3,257.6 355

2012 . . 1,155.7 895.3 33.6 226.8 911.3 900.1 6.1 5.1 244.4 3,502.0 357

1 A detailed description of the components of income and cost is presented in appendix A. 2 “Total Income” column includes transfers made between the OASI and DI Trust Funds and the General

Fund of the Treasury that are not included in the separate components of income shown. These transfers consist of payments for (1) the cost of noncontributory wage credits for military service before 1957, and (2) the

cost of benefits to certain uninsured persons who attained age 72 before 1968. Such transfers are estimated to

be less than $500,000 in each year of the projection period.

3 The “Trust fund ratio” column represents assets at the beginning of a year (which are identical to assets at

the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

See text beginning on page 36 concerning interpretation of these ratios.

Table IV.A3.—Operations of the Combined OASI and DI Trust Funds,

Calendar Years 1998-20121 (Cont.)

[Amounts in billions]

Calendar

year

Income Cost Assets

Total2

Net

contributions

Taxation of

benefits

Net

interest Total

Benefit

payments

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

fund

ratio3
43

Short-Range Estimates

tive net effects of changes in economic data and assumptions (including reestimates of future tax revenue consistent with recent revisions to historical

data) resulted in a reduction in the trust fund ratio of 30 percentage points by

the beginning of 2012. Roughly offsetting this economic effect over the

short-range was the net effect of various factors labeled collectively as “programmatic data and assumptions.” For OASI, the most significant factor

contributing to this change was a revised assessment of the impact of the

increasing normal retirement age on retirement patterns of old-age beneficiaries over the next 10 years.

Corresponding estimates of the factors underlying the changes in the financial projections for the DI Trust Fund, and for the OASI and DI Trust Funds

combined, are also shown in table IV.A4. Other than the effect of the revised

economic assumptions, the key factor affecting the new trust fund ratio estimates for the DI Trust Fund was the change in the projected number of beneficiaries described earlier.

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

Table IV.A4.—Reasons for Change in Trust Fund Ratios at the Beginning 

of the Tenth Year of Projection

[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 2011 491 235 447

Change in trust fund ratio due to changes in: 

Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —

Valuation period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 -5 10

Demographic data and assumptions. . . . . . . . . . . . . . . . . . . . -2 -4 -2

Economic data and assumptions. . . . . . . . . . . . . . . . . . . . . . . -30 -25 -29

Programmatic data and assumptions . . . . . . . . . . . . . . . . . . . 30 9 25

Total change in trust fund ratio . . . . . . . . . . . . . . . . . . . . . . . . . 12 -26 5

Trust fund ratio shown in this report for calendar year 2012. . . . . 503 209 452
Actuarial Estimates

44

B. LONG-RANGE ESTIMATES

Three types of financial measures are useful in assessing the actuarial status

of the Social Security trust funds under the financing approach specified in

current law: (1) annual cash-flow measures, including income and cost rates,

and balances, (2) trust fund ratios, and (3) summary measures like actuarial

balance and unfunded obligations. The first long-range estimates presented

are the series of projected annual balances, which are the differences

between the projected annual income rates and annual cost rates. In assessing

the financial condition of the program, particular attention should be paid to

the level of the annual balances at the end of the long-range period and the

time at which the annual balances may change from positive to negative values. The next measure discussed is the pattern of projected trust fund ratios.

The trust fund ratio represents the proportion of a year’s projected outgo that

can be paid with the funds available at the beginning of the year. Particular

attention should be paid to the amount and year of maximum trust fund ratio,

to the year of exhaustion of the funds, and to stability of the trust fund ratio

in cases where the ratio remains positive at the end of the long-range period.

The final measures discussed in this section summarize the total income and

cost over valuation periods that extend through 75 years, and the infinite

horizon. These measures indicate whether projected income will be adequate

for the period as a whole. Estimates for the infinite future were not included

in last year’s report, but are included in this year’s report. The first such measure, actuarial balance, indicates the size of any shortfall as a percentage of

the taxable payroll over the period. The second, open group unfunded obligation, indicates the size of any shortfall in present-value discounted dollars.

This section also includes a comparison of workers to beneficiaries, closed

group unfunded obligations, the long-range test of close actuarial balance,

and the reasons for change in the actuarial balance from the last report.

If the 75-year actuarial balance is zero (or positive) then the trust fund ratio

at the end of the period, by definition, will be at 100 percent (or greater) and

financing for the program is considered to be adequate for the 75-year period

as a whole. (Financial adequacy for each year is determined by whether the

trust fund is zero or positive throughout the year.) Whether or not financial

adequacy is stable in the sense that it is likely to continue for subsequent 75-

year periods in succeeding reports is also important when considering the

actuarial status of the program. One indication of this stability is the behavior

of the trust fund ratio at the end of the projection period. If projected trust

fund ratios for the last several years of the long-range period are positive and

constant or rising, then it is likely that subsequent Trustees Reports will also

show projections of financial adequacy (assuming no changes in demographic and economic assumptions). The actuarial balance and the open
45

Long-Range Estimates

group unfunded obligation for the infinite future provide additional measures

of the ultimate financial status of the program.

1. Annual Income Rates, Cost Rates, and Balances

Basic to the consideration of the long-range actuarial status of the trust funds

are the concepts of income rate and cost rate, each of which is expressed as a

percentage of taxable payroll. Other measures of the cash flow of the program are shown in appendix F. The annual income rate is the ratio of income

from revenues (payroll tax contributions and income from the taxation of

benefits) to the OASDI taxable payroll for the year. The OASDI taxable payroll consists of the total earnings which are subject to OASDI taxes, with

some relatively small adjustments.1 Because the taxable payroll reflects

these adjustments, the annual income rate can be defined to be the sum of the

OASDI combined employee-employer contribution rate (or the payroll-tax

rate) scheduled in the law and the rate of income from taxation of benefits

(which is, in turn, expressed as a percentage of taxable payroll). As such, it

excludes net investment income and reimbursements from the General Fund

of the Treasury for the costs associated with special monthly payments to

certain uninsured persons who attained age 72 before 1968 and who have

fewer than 3 quarters of coverage.

The annual cost rate is the ratio of the cost of the program to the taxable payroll for the year. In this context, the cost is defined to include scheduled benefit payments, special monthly payments to certain uninsured persons who

have 3 or more quarters of coverage (and whose payments are therefore not

reimbursable from the General Fund of the Treasury), administrative

expenses, net transfers from the trust funds to the Railroad Retirement program under the financial-interchange provisions, and payments for vocational rehabilitation services for disabled beneficiaries. For any year, the

income rate minus the cost rate is referred to as the balance for the year. (In

this context, the term balance does not represent the assets of the trust funds,

which are sometimes referred to as the balance in the trust funds.)

Table IV.B1 presents a comparison of the estimated annual income rates and

cost rates by trust fund and alternative. Detailed long-range projections of

trust fund operations, in nominal dollar amounts, are shown in table VI.F9.

The projections for OASI under the intermediate assumptions show the

income rate increasing slowly and steadily due to the combination of the flat

 1 Adjustments are made to include deemed wage credits based on military service for 1983-2001, 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.
Actuarial Estimates

46

payroll tax rate and the gradually increasing effect of the taxation of benefits.

The pattern of the cost rate is much different. It is projected to remain fairly

stable for the next several years. However, from about 2010 to 2030 the cost

rate increases rapidly as the baby-boom generation reaches retirement age.

Thereafter, the cost rate rises steadily, but slowly, reflecting projected reductions in death rates and continued relatively low birth rates, reaching

17.27 percent of taxable payroll for 2077. By comparison, the income rate

reaches 11.54 percent of taxable payroll for 2077.

Projected income rates under the low cost and high cost sets of assumptions

are very similar to those projected for the intermediate assumptions as they

are largely a reflection of the tax rates specified in the law. OASI cost rates

for the low cost and high cost assumptions differ significantly from those

projected for the intermediate assumptions, but follow generally similar patterns. For the low cost assumptions, the cost rate declines somewhat for the

first 5 years, and then rises, reaching the current level around 2014 and a

peak of 13.06 percent of payroll for 2035. The cost rate then declines gradually, reaching a level of 12.44 percent of payroll for 2077. For the high cost

assumptions, the cost rate rises generally throughout the 75-year period. It

rises at a relatively fast pace between 2010 and 2030 because of the aging of

the baby-boom generation. During the third 25-year subperiod, the projected

cost rate continues rising and reaches 24.87 percent of payroll for 2077.

The projected pattern of the OASI annual balance is important in the analysis

of the financial condition of the program. Under the intermediate assumptions the annual balance is positive for 15 years (through 2017) and is negative thereafter. This annual deficit rises rapidly, reaching over 2 percent of

taxable payroll by 2025, and continues rising thereafter, to a level of

5.73 percent of taxable payroll for 2077.

Under the low cost assumptions the projected OASI annual balance is positive for 19 years (through 2021) and thereafter is negative. The deficit under

the low cost assumptions rises to a peak of 1.81 percent of taxable payroll for

2035, but declines over the next 15 to 20 years, as the effect of the babyboom generation diminishes and the assumed higher fertility rates increase

the size of the work force. The deficit under the low cost assumptions continues to decline, but at a relatively slow pace over the period 2051 through

2077. Under the high cost assumptions, however, the OASI balance is projected to be positive for only 12 years (through 2014) and to be negative

thereafter, with a deficit of 1.80 percent for 2020, 7.94 percent for 2050, and

12.91 percent of payroll for 2077.
47

Long-Range Estimates

Table IV.B1.—Estimated Annual Income Rates, Cost Rates, and Balances

Calendar Years 1990-2080

[As a percentage of taxable payroll]

Calendar 

year

OASI DI Combined

Income

rate1 Cost

rate Balance2 Incomerate1 Costrate Balance2 Incomerate1 Costrate Balance2

Historical data:

1990. . . . . 11.32 9.66 1.66 1.17 1.09 0.09 12.49 10.74 1.75

1991. . . . . 11.44 10.15 1.29 1.21 1.18 .03 12.65 11.33 1.32

1992. . . . . 11.43 10.27 1.16 1.21 1.27 -.06 12.64 11.54 1.10

1993. . . . . 11.40 10.37 1.03 1.21 1.35 -.14 12.61 11.73 .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 11.67 .92

1996. . . . . 10.73 10.06 .68 1.89 1.48 .41 12.62 11.53 1.09

1997. . . . . 10.93 9.83 1.09 1.71 1.44 .28 12.64 11.27 1.37

1998. . . . . 10.96 9.46 1.50 1.72 1.42 .29 12.68 10.88 1.80

1999. . . . . 10.99 9.09 1.90 1.72 1.42 .30 12.71 10.51 2.20

2000. . . . . 10.89 9.02 1.87 1.80 1.43 .37 12.69 10.45 2.24

2001. . . . . 10.89 9.14 1.75 1.82 1.49 .33 12.71 10.63 2.08

2002. . . . . 10.92 9.34 1.58 1.82 1.61 .21 12.74 10.95 1.79

Intermediate:

2003. . . . . 10.88 9.22 1.66 1.82 1.67 .15 12.70 10.89 1.81

2004. . . . . 10.87 9.08 1.79 1.82 1.74 .09 12.69 10.82 1.88

2005. . . . . 10.88 8.96 1.92 1.82 1.77 .05 12.70 10.73 1.97

2006. . . . . 10.88 8.88 2.00 1.82 1.77 .05 12.70 10.65 2.05

2007. . . . . 10.89 8.87 2.03 1.82 1.80 .03 12.72 10.67 2.05

2008. . . . . 10.91 8.90 2.00 1.83 1.83 3/ 12.73 10.73 2.00

2009. . . . . 10.92 8.97 1.94 1.83 1.87 -.04 12.74 10.84 1.90

2010. . . . . 10.93 9.08 1.85 1.83 1.90 -.07 12.76 10.99 1.78

2011. . . . . 10.97 9.23 1.74 1.83 1.93 -.10 12.80 11.16 1.64

2012. . . . . 10.99 9.41 1.58 1.84 1.96 -.13 12.82 11.37 1.45

2015. . . . . 11.04 10.17 .86 1.84 2.01 -.16 12.88 12.18 .70

2020. . . . . 11.14 11.81 -.67 1.85 2.11 -.26 12.99 13.92 -.93

2025. . . . . 11.24 13.31 -2.08 1.85 2.30 -.45 13.09 15.61 -2.52

2030. . . . . 11.32 14.52 -3.20 1.86 2.36 -.50 13.18 16.88 -3.70

2035. . . . . 11.37 15.17 -3.80 1.86 2.37 -.51 13.23 17.54 -4.31

2040. . . . . 11.39 15.32 -3.93 1.86 2.43 -.57 13.26 17.76 -4.50

2045. . . . . 11.41 15.38 -3.97 1.87 2.52 -.66 13.27 17.91 -4.63

2050. . . . . 11.43 15.61 -4.18 1.87 2.58 -.71 13.30 18.18 -4.89

2055. . . . . 11.46 15.97 -4.52 1.87 2.59 -.72 13.32 18.57 -5.24

2060. . . . . 11.48 16.31 -4.83 1.87 2.57 -.70 13.35 18.88 -5.53

2065. . . . . 11.50 16.56 -5.06 1.87 2.59 -.72 13.37 19.15 -5.79

2070. . . . . 11.52 16.85 -5.33 1.87 2.62 -.75 13.39 19.47 -6.08

2075. . . . . 11.54 17.15 -5.62 1.87 2.64 -.77 13.41 19.79 -6.38

2080. . . . . 11.55 17.45 -5.89 1.87 2.65 -.77 13.43 20.09 -6.67

Low Cost:

2003. . . . . 10.88 9.14 1.74 1.82 1.62 .20 12.70 10.76 1.94

2004. . . . . 10.87 8.96 1.91 1.82 1.65 .17 12.69 10.61 2.08

2005. . . . . 10.87 8.80 2.08 1.82 1.66 .16 12.70 10.46 2.24

2006. . . . . 10.87 8.67 2.20 1.82 1.63 .19 12.70 10.31 2.39

2007. . . . . 10.88 8.60 2.28 1.82 1.63 .19 12.71 10.23 2.48

2008. . . . . 10.89 8.56 2.34 1.82 1.63 .20 12.72 10.18 2.53

2009. . . . . 10.90 8.56 2.34 1.82 1.63 .19 12.73 10.19 2.54

2010. . . . . 10.91 8.60 2.31 1.83 1.63 .20 12.74 10.23 2.51

2011. . . . . 10.95 8.67 2.27 1.83 1.63 .20 12.78 10.31 2.47

2012. . . . . 10.96 8.79 2.17 1.83 1.63 .20 12.79 10.42 2.37
Actuarial Estimates

48

Notes:

1. The income rate excludes interest income and certain transfers from the General Fund of the Treasury.

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

Under the intermediate assumptions, the cost rate for DI generally increases

over the long-range period from 1.67 percent of taxable payroll for 2003,

reaching 2.64 for 2077. The income rate increases only very slightly from

Low Cost (cont.):

2015. . . . . 11.00 9.39 1.61 1.83 1.68 0.15 12.83 11.07 1.76

2020. . . . . 11.08 10.74 .34 1.84 1.76 .08 12.92 12.50 .42

2025. . . . . 11.16 11.92 -.77 1.84 1.84 .01 13.00 13.76 -.76

2030. . . . . 11.22 12.77 -1.55 1.84 1.81 .03 13.06 14.58 -1.52

2035. . . . . 11.25 13.06 -1.81 1.84 1.78 .07 13.09 14.83 -1.74

2040. . . . . 11.26 12.89 -1.63 1.85 1.79 .05 13.10 14.68 -1.58

2045. . . . . 11.26 12.66 -1.40 1.85 1.83 .02 13.10 14.49 -1.39

2050. . . . . 11.26 12.60 -1.34 1.85 1.84 .01 13.11 14.44 -1.33

2055. . . . . 11.27 12.65 -1.38 1.85 1.83 .02 13.12 14.48 -1.36

2060. . . . . 11.28 12.65 -1.38 1.85 1.80 .05 13.12 14.45 -1.33

2065. . . . . 11.27 12.53 -1.26 1.85 1.80 .04 13.12 14.34 -1.21

2070. . . . . 11.27 12.44 -1.16 1.85 1.82 .03 13.12 14.26 -1.14

2075. . . . . 11.27 12.42 -1.15 1.85 1.84 .01 13.12 14.26 -1.13

2080. . . . . 11.28 12.48 -1.20 1.85 1.85 3 13.13 14.32 -1.19

High Cost:

2003. . . . . 10.89 9.44 1.45 1.82 1.77 .05 12.71 11.21 1.50

2004. . . . . 10.88 9.26 1.62 1.82 1.88 -.05 12.70 11.14 1.56

2005. . . . . 10.88 9.12 1.76 1.83 1.95 -.12 12.71 11.07 1.64

2006. . . . . 10.89 9.24 1.65 1.83 2.01 -.19 12.72 11.26 1.46

2007. . . . . 10.91 9.44 1.47 1.83 2.11 -.28 12.74 11.55 1.19

2008. . . . . 10.92 9.47 1.45 1.83 2.15 -.32 12.76 11.62 1.14

2009. . . . . 10.94 9.62 1.32 1.83 2.22 -.39 12.77 11.83 .94

2010. . . . . 10.96 9.77 1.18 1.84 2.27 -.43 12.79 12.04 .75

2011. . . . . 11.00 9.98 1.02 1.84 2.33 -.48 12.84 12.30 .54

2012. . . . . 11.02 10.22 .80 1.85 2.38 -.53 12.86 12.60 .27

2015. . . . . 11.09 11.11 -.01 1.85 2.41 -.55 12.95 13.51 -.57

2020. . . . . 11.21 13.01 -1.80 1.86 2.52 -.66 13.07 15.53 -2.46

2025. . . . . 11.33 14.84 -3.52 1.87 2.81 -.94 13.20 17.66 -4.46

2030. . . . . 11.43 16.48 -5.04 1.87 2.97 -1.09 13.31 19.45 -6.14

2035. . . . . 11.51 17.62 -6.11 1.88 3.05 -1.17 13.39 20.67 -7.28

2040. . . . . 11.56 18.28 -6.72 1.88 3.18 -1.30 13.44 21.46 -8.02

2045. . . . . 11.60 18.84 -7.24 1.89 3.36 -1.47 13.49 22.20 -8.71

2050. . . . . 11.65 19.59 -7.94 1.89 3.49 -1.59 13.54 23.08 -9.53

2055. . . . . 11.71 20.52 -8.81 1.90 3.56 -1.67 13.60 24.08 -10.48

2060. . . . . 11.77 21.48 -9.72 1.90 3.57 -1.68 13.66 25.06 -11.39

2065. . . . . 11.82 22.43 -10.61 1.90 3.63 -1.73 13.72 26.07 -12.34

2070. . . . . 11.88 23.47 -11.59 1.90 3.67 -1.77 13.78 27.15 -13.36

2075. . . . . 11.94 24.50 -12.55 1.90 3.69 -1.78 13.84 28.18 -14.34

2080. . . . . 11.99 25.39 -13.40 1.90 3.68 -1.78 13.89 29.08 -15.19

1 Income rates for DI in 2000 and for OASI in 2002 are modified to include adjustments to the lump-sum

payments received in 1983 from the General Fund of the Treasury for the cost of noncontributory wage credits for military service in 1940-56.

2 The years for which the annual balances are projected under the intermediate assumptions to become permanently negative are 2018, 2008, and 2018 for the OASI, DI, and the combined funds, respectively. Under

the high cost assumptions the corresponding years are 2015, 2004, and 2014. Under the low cost assumptions, annual balances for the OASI and the combined funds are projected to become permanently negative in

2022. Under the low cost projection the annual balance for the DI fund is projected to become negative in

2026, but return to being positive in 2028, and would be expected to remain positive until shortly after 2080. 3 Between -0.005 and 0.005 percent of taxable payroll.

Table IV.B1.—Estimated Annual Income Rates, Cost Rates, and Balances

Calendar Years 1990-2080 (Cont.)

[As a percentage of taxable payroll]

Calendar 

year

OASI DI Combined

Income

rate1 Costrate Balance2 Incomerate1 Costrate Balance2 Incomerate1 Costrate Balance2
49

Long-Range Estimates

1.82 percent of taxable payroll for 2003 to 1.87 percent for 2077. The annual

balance turns negative in 2008, and the annual deficit reaches 0.77 percent

for 2077.

Under the low cost assumptions, the DI cost rate increases much less, reaching 1.84 percent for 2077, with a positive annual balance (except for 2026

and 2027) throughout the period. For the high cost assumptions, DI cost rises

much more, reaching 3.69 percent for 2077, with an annual deficit beginning

in 2004 and reaching 1.79 percent for 2077.

Figure IV.B1 shows in graphical form the patterns of the OASI and DI

annual income rates and cost rates. The income rates shown here are only for

alternative II in order to simplify the graphical presentation and because, as

shown in table IV.B1, the variation in the income rates by alternative is very

small. Income rates increase generally, but at a slow rate for each of the alternatives over the long-range period. Both increases in the income rate and

variation among the alternatives result from the relatively small component

of income from taxation of benefits. Increases in income from taxation of

benefits reflect increases in the total amount of benefits paid and the fact that

an increasing share of individual benefits will be subject to taxation, because

benefit taxation threshold amounts are not indexed.

The patterns of the annual balances for OASI and DI are indicated in figure

IV.B1. For each alternative, the magnitude of each of the positive balances in

the early years, as a percent of taxable payroll, is represented by the distance

between the appropriate cost-rate curve and the income-rate curve above it.

The magnitude of each of the deficits in subsequent years is represented by

the distance between the appropriate cost-rate curve and the income-rate

curve below it.

In the future, the cost of OASI, DI and the combined OASDI program as a

percent of taxable payroll will not necessarily be within the range encompassed by alternatives I and III. Nonetheless, because alternatives I and III

define a reasonably wide range of demographic and economic conditions, the

resulting estimates delineate a reasonable range for consideration of potential

future program costs.
Actuarial Estimates

50

The cost of the OASDI program has been discussed in this section in relation

to taxable payroll, which is a program-related concept that is very useful in

analyzing the financial status of the OASDI program. The cost can also be

discussed in relation to broader economic concepts, such as the gross domestic product (GDP). OASDI outlays generally rise from about 4.4 percent of

GDP currently to about 7.0 percent of GDP by the end of the 75-year projection period under alternative II. Discussion of both the cost and the taxable

payroll of the OASDI program in relation to GDP is presented in appendix

VI.F.2 beginning on page 172.

2. Comparison of Workers to Beneficiaries

The primary reason that the estimated OASDI cost rate increases rapidly

after 2010 is that the number of beneficiaries is projected to increase more

rapidly than the number of covered workers. This occurs because the relatively large number of persons born during the baby-boom generation will

reach retirement age, and begin to receive benefits, while the relatively small

number of persons born during the subsequent period of low fertility rates

will comprise the labor force. A comparison of the numbers of covered

workers and beneficiaries is shown in table IV.B2.

 Figure IV.B1.—Long-Range OASI and DI Annual Income Rates and Cost Rates

[As a percentage of taxable payroll]

0%

5%

10%

15%

20%

25%

30%

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Income rates

OASI cost rates

DI cost rates

Historical Estimated

OASI

DI III

II

I

III

II

I
51

Long-Range Estimates

Table IV.B2.—Covered Workers and Beneficiaries, Calendar Years 1945-2080

Calendar year

Covered

workers1

(in thousands)

Beneficiaries2 (in thousands)

Covered

workers per

OASDI

beneficiary

Beneficiaries

per 100

covered

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 . . . . . . . . . 113,649 30,384 4,734 35,118 3.2 31

1985 . . . . . . . . . 120,565 32,776 3,874 36,650 3.3 30

1990 . . . . . . . . . 133,672 35,266 4,204 39,470 3.4 30

1991 . . . . . . . . . 132,969 35,785 4,388 40,172 3.3 30

1992 . . . . . . . . . 133,890 36,314 4,716 41,029 3.3 31

1993 . . . . . . . . . 136,117 36,758 5,083 41,840 3.3 31

1994 . . . . . . . . . 138,197 37,082 5,435 42,516 3.3 31

1995 . . . . . . . . . 141,052 37,376 5,731 43,108 3.3 31

1996 . . . . . . . . . 143,450 37,521 5,977 43,498 3.3 30

1997 . . . . . . . . . 146,145 37,705 6,087 43,793 3.3 30

1998 . . . . . . . . . 148,786 37,826 6,250 44,076 3.4 30

1999 . . . . . . . . . 151,293 37,934 6,433 44,367 3.4 29

2000 . . . . . . . . . 153,517 38,560 6,606 45,166 3.4 29

2001 . . . . . . . . . 153,743 38,888 6,780 45,668 3.4 30

2002 . . . . . . . . . 152,795 39,116 7,060 46,176 3.3 30

Intermediate:

2005 . . . . . . . . . 158,390 40,066 8,051 48,118 3.3 30

2010 . . . . . . . . . 166,932 43,408 9,336 52,744 3.2 32

2015 . . . . . . . . . 171,837 49,809 10,200 60,009 2.9 35

2020 . . . . . . . . . 175,428 57,431 11,010 68,441 2.6 39

2025 . . . . . . . . . 178,369 64,779 12,167 76,946 2.3 43

2030 . . . . . . . . . 181,372 71,301 12,717 84,018 2.2 46

2035 . . . . . . . . . 184,433 75,535 13,090 88,625 2.1 48

2040 . . . . . . . . . 187,554 77,728 13,651 91,379 2.1 49

2045 . . . . . . . . . 190,281 79,450 14,310 93,760 2.0 49

2050 . . . . . . . . . 192,700 81,742 14,763 96,504 2.0 50

2055 . . . . . . . . . 195,024 84,626 15,056 99,682 2.0 51

2060 . . . . . . . . . 197,408 87,357 15,164 102,521 1.9 52

2065 . . . . . . . . . 199,738 89,725 15,480 105,205 1.9 53

2070 . . . . . . . . . 201,907 92,265 15,803 108,067 1.9 54

2075 . . . . . . . . . 203,950 94,832 16,075 110,908 1.8 54

2080 . . . . . . . . . 205,937 97,341 16,292 113,633 1.8 55

Low Cost:

2005 . . . . . . . . . 159,711 40,075 7,763 47,837 3.3 30

2010 . . . . . . . . . 169,880 43,391 8,429 51,820 3.3 31

2015 . . . . . . . . . 176,144 49,345 9,808 59,152 3.0 34

2020 . . . . . . . . . 180,977 56,542 10,132 66,674 2.7 37

2025 . . . . . . . . . 185,341 63,393 10,598 73,990 2.5 40

2030 . . . . . . . . . 190,219 69,290 10,705 79,995 2.4 42

2035 . . . . . . . . . 195,793 72,800 10,855 83,654 2.3 43

2040 . . . . . . . . . 201,998 74,341 11,266 85,608 2.4 42

2045 . . . . . . . . . 208,408 75,594 11,813 87,407 2.4 42

2050 . . . . . . . . . 214,881 77,611 12,240 89,851 2.4 42

2055 . . . . . . . . . 221,637 80,344 12,596 92,940 2.4 42

2060 . . . . . . . . . 228,892 82,924 12,870 95,794 2.4 42

2065 . . . . . . . . . 236,633 85,047 13,373 98,420 2.4 42

2070 . . . . . . . . . 244,575 87,354 13,957 101,311 2.4 41

2075 . . . . . . . . . 252,628 90,068 14,544 104,612 2.4 41

2080 . . . . . . . . . 260,776 93,270 15,094 108,364 2.4 42
Actuarial Estimates

52

Notes: 

1. The number of beneficiaries does not include certain uninsured persons, most of whom both attained age

72 before 1968 and have fewer than 3 quarters of coverage, in which cases the costs are reimbursed by the

General Fund of the Treasury. Totals do not necessarily equal the sums of rounded components.

2. Historical covered worker data are subject to revision.

Table IV.B2 shows that the number of covered workers per beneficiary,

which was about 3.3 in 2002, is estimated to decline in the future. Based on

the low cost assumptions, for which high fertility rates and small reductions

in death rates are assumed, the ratio declines to 2.3 by 2033, and then rises

back to a level of 2.4 by 2039. Based on the high cost assumptions, for which

low fertility rates and large reductions in death rates are assumed, the decline

is much greater, reaching 1.8 by 2036, and 1.4 workers per beneficiary by

2069. Based on the intermediate assumptions, the ratio declines to 2.1 by

2031, and 1.8 workers per beneficiary by 2074.

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 2002 level of 30 beneficiaries per 100 covered workers, this ratio is estimated to rise significantly

by 2080 to 42 under the low cost assumptions, 55 under the intermediate

assumptions, and 75 under the high cost assumptions. The significance of

these numbers can be seen by comparing figure IV.B1 to figure IV.B2.

High Cost:

2005 . . . . . . . . . 157,178 40,032 8,538 48,570 3.2 31

2010 . . . . . . . . . 163,748 43,414 10,529 53,944 3.0 33

2015 . . . . . . . . . 167,948 50,356 10,745 61,101 2.7 36

2020 . . . . . . . . . 170,859 58,482 12,033 70,515 2.4 41

2025 . . . . . . . . . 172,952 66,483 13,871 80,354 2.2 46

2030 . . . . . . . . . 174,760 73,881 14,864 88,746 2.0 51

2035 . . . . . . . . . 176,060 79,179 15,472 94,651 1.9 54

2040 . . . . . . . . . 176,896 82,446 16,202 98,648 1.8 56

2045 . . . . . . . . . 176,805 85,108 16,999 102,107 1.7 58

2050 . . . . . . . . . 176,086 88,162 17,499 105,661 1.7 60

2055 . . . . . . . . . 174,997 91,681 17,724 109,405 1.6 63

2060 . . . . . . . . . 173,712 95,034 17,633 112,666 1.5 65

2065 . . . . . . . . . 172,035 98,075 17,708 115,784 1.5 67

2070 . . . . . . . . . 170,046 101,247 17,672 118,919 1.4 70

2075 . . . . . . . . . 167,858 104,098 17,516 121,614 1.4 72

2080 . . . . . . . . . 165,612 106,364 17,308 123,671 1.3 75

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 IV.B2.—Covered Workers and Beneficiaries, Calendar Years 1945-2080 (Cont.)

Calendar year

Covered

workers1

(in thousands)

Beneficiaries2 (in thousands)

Covered

workers per

OASDI

beneficiary

Beneficiaries

per 100

covered

OASI DI OASDI workers
53

Long-Range Estimates

For each alternative, the shape of the curve in figure IV.B2, which shows

beneficiaries per 100 covered workers, is strikingly similar to that of the corresponding cost-rate curve in figure IV.B1, thereby emphasizing the extent to

which the cost of the OASDI program as a percentage of taxable payroll is

determined by the age distribution of the population. Because the cost rate is

basically the product of the number of beneficiaries and their average benefit, divided by the product of the number of covered workers and their average taxable earnings (and because average benefits rise at about the same

rate as average earnings), it is to be expected that the pattern of the annual

cost rates is similar to that of the annual ratios of beneficiaries to workers.

3. Trust Fund Ratios

Trust fund ratios are useful indicators of the adequacy of the financial

resources of the Social Security program at any point in time. For any year in

which the projected trust fund ratio is positive (i.e., the trust fund holds

assets at the beginning of the year), but is not positive for the following year,

the trust fund is projected to become exhausted during the year. Under

present law, the OASI and DI Trust Funds do not currently have the authority

to borrow. Therefore, exhaustion of the assets in either fund during a year,

would mean there are no longer sufficient assets in the fund to cover the full

amount of benefits scheduled for the year under present law.

 Figure IV.B2.—Number of OASDI Beneficiaries Per 100 Covered Workers

0

10

20

30

40

50

60

70

80

90

100

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Historical Estimated

III

II

I
Actuarial Estimates

54

The trust fund ratio also serves an additional important purpose in assessing

the actuarial status of the program. When the financing is adequate for the

timely payment of full benefits throughout the long-range period, the stability of the trust fund ratio toward the end of the period indicates the likelihood

that this projected adequacy will continue for subsequent Trustees Reports. If

the trust fund ratio toward the end of the period is level (or increasing) then

projected adequacy for the long-range period is likely to continue for subsequent reports.

Table IV.B3 shows, by alternative, the estimated trust fund ratios (without

regard to advance tax transfers that would be effected after the end of the

10-year, short-range period) for the separate and combined OASI and DI

Trust Funds. Also shown in this table is the year in which a fund is estimated

to become exhausted, reflecting the effect of the provision for advance tax

transfers. The patterns of the OASI and DI trust fund ratios, over the 75-year

period, are shown graphically in figure IV.B3 for all three sets of assumptions. A graphical presentation of the combined OASDI ratios is shown in

figure II.D7 on page 15.

Based on the intermediate assumptions, the OASI trust fund ratio rises

steadily from 301 percent at the beginning of 2003, reaching a peak of

526 percent at the beginning of 2016. This increase in the OASI trust fund

ratio results from the fact that the annual income rate (which excludes interest) exceeds annual outgo for several years (see table IV.B1). Thereafter, the

OASI trust fund ratio declines steadily, with the OASI Trust Fund becoming

exhausted in 2044. 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

219 percent at the beginning of 2003 to a peak of 226 percent for 2007, and

to decline thereafter until becoming exhausted in 2028.

The trust fund ratio for the combined OASI and DI Trust Funds rises from

288 percent for 2003 to a peak of 471 percent at the beginning of 2016.

Thereafter, the ratio declines, with the combined funds becoming exhausted

in 2042. Based on the intermediate estimates in last year’s report, the peak

fund ratio for the combined funds was estimated to be 471 percent for 2015

and the year of exhaustion was estimated to be 2041.

The trust fund ratio for the OASDI program first declines in 2017, about

1 year before annual expenditures begin to exceed noninterest income. This

occurs because the increase in trust fund assets during 2016, which reflects

interest income and a small excess of noninterest income over cost, occurs at

a slower rate than does the increase in the annual cost of the program

between 2016 and 2017.

After 2016 the dollar amount of assets is projected to continue to rise through

the beginning of 2028 because interest income more than offsets the shortfall
55

Long-Range Estimates

in noninterest income. Beginning in 2018, the OASDI program is projected

to experience increasingly large cash-flow shortfalls that will require the

trust funds to redeem special public-debt obligations of the General Fund of

the Treasury. This will differ from the experience of recent years when the

trust funds have been net lenders to the General Fund of the Treasury. 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.

Based on the low cost assumptions, the trust fund ratio for the DI program

increases throughout the long-range projection period, reaching the

extremely high level of 1,119 percent for 2078. At the end of the long-range

period, the DI trust fund ratio is rising by 15 percentage points per year.

Thus, subsequent reports are likely to contain projections of adequate longrange financing of the DI program under a similar optimistic set of assumptions. For the OASI program, the trust fund ratio rises to a peak of

636 percent for 2019, dropping thereafter to a level of 394 percent by 2078.

At the end of the period the OASI trust fund ratio is declining by 4 percentage points per year. The long-term outlook for the DI program is improved

more than for the OASI program largely because lower assumed disability

incidence rates have a substantial effect on the DI program but little net

effect on the OASI program. For the OASDI program, the trust fund ratio

follows a pattern similar to that for OASI, peaking at 606 percent for 2020,

and then falling to 488 percent for 2078, with an annual decline at a rate of

2 percentage points. Thus, due to the size of the trust fund ratios and their

near stability, subsequent Trustees Reports are likely to contain projections

of adequate long-range financing of the OASI and combined OASI and DI

program under the low cost assumptions. 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 assumptions, the OASI trust fund ratio is estimated to peak at 428 percent for 2013, thereafter declining to fund exhaustion by the end of 2033. The DI trust fund ratio is estimated to peak at

211 percent for 2003, thereafter declining to fund exhaustion by the end of

2015. The combined OASDI trust fund ratio is estimated to rise to a peak of

357 percent for 2012, declining thereafter to fund exhaustion by the end of

2031.

Thus, because large ultimate cost rates are projected under all but the low

cost assumptions, it is likely that income will eventually need to be increased

and/or program costs will need to be reduced in order to prevent the trust

funds from becoming exhausted.
Actuarial Estimates

56

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 cost for 28 years into the future (until 2031). Under the intermediate assumptions the combined starting funds plus estimated future income

would be able to cover cost for about 39 years into the future (until 2042).

The program would be able to cover cost for the foreseeable future under the

more optimistic low cost assumptions. In the 2002 report, the combined trust

funds were projected to become exhausted in 2029 under the high cost

assumptions and in 2041 under the intermediate assumptions.

.

Note: See definition of trust fund ratio on page 208. The combined ratios shown for years after the DI fund is

estimated to be exhausted are theoretical and are shown for informational purposes only.

Table IV.B3.—Estimated Trust Fund Ratios, Calendar Years 2003-80

[In percent]

Calendar

year

Intermediate Low Cost High Cost

OASI DI

Combined OASI DICombined OASI DICombined

2003 . . . . . . . . . . . . . 301 219 288 301 224 289 301 211 286

2004 . . . . . . . . . . . . . 326 221 309 328 232 313 323 203 303

2005 . . . . . . . . . . . . . 351 222 330 357 242 339 342 190 315

2006 . . . . . . . . . . . . . 377 225 352 388 257 367 359 179 327

2007 . . . . . . . . . . . . . 402 226 373 419 271 396 371 163 333

2008 . . . . . . . . . . . . . 427 226 392 452 286 425 381 146 337

2009 . . . . . . . . . . . . . 449 223 410 483 300 453 394 128 344

2010 . . . . . . . . . . . . . 470 219 426 512 315 481 407 109 351

2011 . . . . . . . . . . . . . 488 215 440 539 330 506 417 90 355

2012 . . . . . . . . . . . . . 503 209 452 565 346 531 425 69 357

2015 . . . . . . . . . . . . . 525 193 470 615 384 580 424 5 350

2020 . . . . . . . . . . . . . 500 149 447 634 431 606 361 1 284

2025 . . . . . . . . . . . . . 431 74 378 613 460 593 252 1 173

2030 . . . . . . . . . . . . . 338 1/

1 The trust fund is estimated to be exhausted by the beginning of this year. The last line of the table shows the

specific year of trust fund exhaustion.

287 575 506 567 117 1 34

2035 . . . . . . . . . . . . . 232 1 183 540 570 544 111

2040 . . . . . . . . . . . . . 120 1 69 519 625 532 111

2045 . . . . . . . . . . . . . 111 507 669 527 111

2050 . . . . . . . . . . . . . 111 492 719 521 111

2055 . . . . . . . . . . . . . 111 473 781 512 111

2060 . . . . . . . . . . . . . 111 452 862 503 111

2065 . . . . . . . . . . . . . 111 435 935 498 111

2070 . . . . . . . . . . . . . 111 421 1,004 495 111

2075 . . . . . . . . . . . . . 111 405 1,074 491 111

2080 . . . . . . . . . . . . . 111 386 1,150 484 111

Trust fund is estimated to become

exhausted in. . . . . 2044 2028 2042 2/

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

2 2 2033 2015 2031
57

Long-Range Estimates

A graphic illustration of the trust fund ratios for the separate OASI and DI

Trust Funds is shown in figure IV.B3 for each of the alternative sets of

assumptions. A graphic illustration of the trust fund ratios for the combined

trust funds is shown in figure II.D7.

4. Summarized Income Rates, Cost Rates, and Balances

Summarized values for the full 75-year period are useful in analyzing the

long-range adequacy of financing for the program over the period as a whole

under present law and under proposed modifications to the law. In order to

focus on the full 75-year period as well as on broad patterns through the

period, tables IV.B4 and IV.B5 summarize, on a present-value basis, the projected annual figures shown in table IV.B1 for various periods within the

overall 75-year projection period.

Table IV.B4 shows rates on a present-value basis summarized for each of the

25-year subperiods, excluding both the assets of the trust funds on hand at

the beginning of the period and the cost of accumulating a target trust fund

balance by the end of the period. These rates are useful for comparing the

total cash flows of tax income and cost, as an indicator of the degree to

which tax income during the period is sufficient to meet the cost estimated

for the period.

 Figure IV.B3.—Long-Range OASI and DI Trust Fund Ratios

[Assets as a percentage of annual expenditures]

0%

200%

400%

600%

800%

1,000%

1,200%

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

OASI

DI

Historical Estimated

III II

I

I

III II
Actuarial Estimates

58

For the OASDI program, a positive balance is projected for the first 25-year

subperiod under both the low cost and intermediate assumptions. A deficit is

projected for the first 25-year subperiod under the high cost assumptions.

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 IV.B5 shows summarized rates for valuation periods of the first 25, the

first 50, and the entire 75 years of the long-range projection period, including

the funds on hand at the start of the period and the cost of accumulating a target trust fund balance equal to 100 percent of annual cost 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 cost 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 cost. A negative actuarial balance indicates that, over the next 75 years, the present value of income to the program

plus the existing trust fund falls short of the present value of the cost of the

program plus the cost of reaching a target trust fund balance of 1 year’s cost

by the end of the period. Combined with a falling trust fund ratio, this signals

the possibility of continuing cash-flow deficits, implying that the current-law

level of financing is not sustainable.

Table IV.B4.—Summarized Income Rates, Cost Rates, and Balances

for 25-Year Subperiods,1 Calendar Years 2003-77

[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.

Subperiod

OASI DI Combined

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Intermediate:

2003-27 . . . . . . . 11.03 10.53 0.49 1.84 2.00 -0.16 12.86 12.53 0.33

2028-52 . . . . . . . 11.38 15.15 -3.78 1.86 2.44 -.58 13.24 17.60 -4.36

2053-77 . . . . . . . 11.49 16.52 -5.03 1.87 2.60 -.73 13.36 19.12 -5.76

Low Cost:

2003-27 . . . . . . . 10.99 9.79 1.20 1.83 1.70 .13 12.82 11.50 1.32

2028-52 . . . . . . . 11.24 12.80 -1.55 1.85 1.81 .04 13.09 14.61 -1.52

2053-77 . . . . . . . 11.27 12.55 -1.28 1.85 1.82 .03 13.12 14.37 -1.25

High Cost:

2003-27 . . . . . . . 11.07 11.43 -.36 1.85 2.37 -.52 12.92 13.80 -.88

2028-52 . . . . . . . 11.54 18.04 -6.50 1.88 3.19 -1.31 13.42 21.22 -7.80

2053-77 . . . . . . . 11.81 22.30 -10.48 1.90 3.62 -1.72 13.71 25.91 -12.20
59

Long-Range Estimates

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

The values in table IV.B5 show that the combined OASDI program is

expected to operate with a positive actuarial balance over the 25-year valuation period under the low cost and intermediate assumptions. For the 25-year

valuation period the summarized values indicate actuarial balances of

2.31 percent of taxable payroll under the low cost assumptions, 1.26 percent

under the intermediate assumptions, and -0.05 percent under the high cost

assumptions. Thus, the program is more than adequately financed for the

25-year valuation period under all but the high cost projections. For the 50-

year valuation period the OASDI program would have a positive actuarial

balance of 0.83 percent under the low cost assumptions, but would have deficits of 0.95 percent under the intermediate assumptions and 3.20 percent

under the high cost assumptions. Thus, the program is more than adequately

financed for the 50-year valuation period under only the low cost set of

assumptions.

For the entire 75-year valuation period, the combined OASDI program

would again have actuarial deficits except under the low cost set of assumptions. The actuarial balance for this long-range valuation period is projected

to be 0.42 percent of taxable payroll under the low cost assumptions,

Table IV.B5.—Summarized Income Rates, Cost Rates, and Actuarial Balances

for Valuation Periods,1 Calendar Years 2003-77

[As a percentage of taxable payroll]

1 Income rates include beginning trust fund balances and cost rates include the cost of reaching a target trust

fund level of 1 year’s cost at the end of the period.

Valuation

period

OASI DI Combined

Income

rate

Cost

rate

Actuarial

balance

Income

rate

Cost

rate

Actuarial

balance

Income

rate

Cost

rate

Actuarial

balance

Intermediate:

25 years:

2003-27. . . . . . 12.33 11.01 1.32 2.01 2.08 -0.07 14.34 13.09 1.26

50 years:

2003-52. . . . . . 11.94 12.63 -.68 1.95 2.21 -.26 13.89 14.84 -.95

75 years:

2003-77. . . . . . 11.85 13.41 -1.56 1.93 2.29 -.35 13.78 15.70 -1.92

Low Cost:

25 years:

2003-27. . . . . . 12.28 10.21 2.07 2.00 1.76 .24 14.28 11.98 2.31

50 years:

2003-52. . . . . . 11.86 11.19 .66 1.94 1.77 .17 13.80 12.97 .83

75 years:

2003-77. . . . . . 11.73 11.45 .28 1.92 1.78 .14 13.65 13.23 .42

High Cost:

25 years:

2003-27. . . . . . 12.38 11.98 .40 2.02 2.47 -.45 14.40 14.45 -.05

50 years:

2003-52. . . . . . 12.03 14.44 -2.41 1.96 2.76 -.79 14.00 17.20 -3.20

75 years:

2003-77. . . . . . 11.99 16.07 -4.09 1.95 2.93 -.98 13.93 19.00 -5.07
Actuarial Estimates

60

-1.92 percent under the intermediate assumptions, and -5.07 percent under

the high cost assumptions.

Assuming the Trustees’ intermediate assumptions are realized, the deficit of

1.92 percent of payroll indicates that financial adequacy of the program for

the next 75 years could be restored if the Social Security payroll tax were

immediately and permanently increased from its current level of 12.4 percent

(combined employee-employer shares) to 14.32 percent. Alternatively, all

current and future benefits could be reduced by about 13 percent (or there

could be some combination of tax increases and benefit reductions). Changes

of this magnitude would be sufficient to eliminate the actuarial deficit over

the 75-year projection period. However, because of the projected increase in

the average age of the population, projected annual deficits begin in 2018

and increase to levels in excess of 6 percent of taxable payroll by the end of

the 75-year period. The large annual deficits at the end of the projection

period indicate that the annual cost will very likely continue to exceed tax

revenues after 2077. As a result, ensuring the sustainability of the system

would eventually require larger changes than those needed to restore actuarial balance for the 75-year period. For the infinite future, the actuarial deficit

is estimated to be 3.8 percent of taxable payroll under the intermediate

assumptions. This means that financial adequacy of the OASDI program

could be restored permanently if the combined payroll tax rate were immediately raised from 12.4 percent to 16.2 percent, or if benefits were immediately reduced by 23 percent.

As may be concluded from tables IV.B4 and IV.B5, the financial condition of

the DI program is substantially weaker than that of the OASI program for the

first 25 years. Summarized over the full 75-year period, however, long-range

deficits for the OASI and DI programs under intermediate assumptions are

more similar, relative to the level of program costs.

Table IV.B6 presents the components and the calculation of the long-range

(75-year) actuarial balance under the intermediate assumptions. The present

value of future cost less future tax income over the long-range period, minus

the amount of trust fund assets at the beginning of the projection period,

amounts to $3.5 trillion. This amount is referred to as the 75-year “open

group unfunded obligation.” The actuarial deficit (i.e., the negative of the

actuarial balance) combines this unfunded obligation with the present value

of the “ending target trust fund,” and expresses the total as a percentage of

the present value of the taxable payroll for the period. The present value of

future tax income minus cost, plus starting trust fund assets, minus the

present value of the ending target trust fund amounts to -$3.8 trillion.

Expressed as a percentage of taxable payroll for the period, this is the actuarial balance of -1.92 percent.
61

Long-Range Estimates

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

5. Additional Measures of OASDI Unfunded Obligations

As shown in the previous section, a negative actuarial balance (or an actuarial deficit) provides one measure of the unfunded obligation of the program

over a period of time. Two additional measures of OASDI unfunded obligations under the intermediate assumptions are presented below.

a. Open Group Unfunded Obligations

Consistent with practice since 1965, this report focuses on the 75-year period

from 2003 to 2077 for the evaluation of the long-run financial status of the

OASDI program on an open group basis (i.e., including both current and

future participants). Table IV.B7 shows that the present value of open group

unfunded obligations for the program over that period is $3.5 trillion. Some

experts, however, have described the limitations of using a 75-year period.

Overemphasis of summary measures (such as the actuarial balance and open

group unfunded obligations) for the 75-year period can lead to incorrect perceptions and policy that fails to address sustainability.

In order to provide a fuller description of long-run unfunded obligations of

the OASDI program, this section presents estimates of obligations that

extend to the infinite horizon. The extension assumes that the current-law

OASDI program and the demographic and economic trends used for the

75-year projection continue indefinitely. Table IV.B7 shows that extending

the calculations beyond 2077 adds $7.0 trillion to estimated unfunded obligations, making the total open group unfunded obligation $10.5 trillion. The

$7.0 trillion increment reflects a significant financing gap for OASDI after

2077.

Table IV.B6.—Components of 75-Year OASDI Actuarial Balance

Under Intermediate Assumptions (2003-77)

Item OASI DI Combined

Present value as of January 1, 2003 (in billions):

a. Payroll tax revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,164 $3,594 $24,758

b. Taxation of benefits revenue . . . . . . . . . . . . . . . . . . . . . . . . . 1,284 106 1,389

c. Tax income (a + b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,448 3,700 26,147

d. Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,544 4,531 31,075

e. Cost minus tax income (d - c) . . . . . . . . . . . . . . . . . . . . . . . . . . 4,096 831 4,927

f. Trust fund assets at start of period. . . . . . . . . . . . . . . . . . . . . . . 1,217 160 1,378

g. Open group unfunded obligation (e - f). . . . . . . . . . . . . . . . . . . 2,879 671 3,550

h. Ending target trust fund1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

1The calculation of the actuarial balance includes the cost of accumulating a target trust fund balance equal

to 100 percent of annual cost by the end of the period.

243 37 280

i. Income minus cost, plus assets at start of period, minus

ending target trust fund (c - d + f - h) . . . . . . . . . . . . . . . . . . . . -3,121 -708 -3,829

j. Taxable payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,758 199,758 199,758

Percent of taxable payroll:

Actuarial balance (i ÷ j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.56 -.35 -1.92
Actuarial Estimates

62

b. Closed Group Unfunded Obligations

The Financial Report of the United States, consistent with recommendations

of the Federal Accounting Standards Advisory Board (FASAB), reports

present values of net future OASDI obligations over the next 75 years, separately for current participants at ages 62 and over in 2003 and for current participants at ages 15 through 61 in 2003. Combining these values yields a

closed group net obligation that excludes past and future participants.1

The first line of table IV.B8 shows the present value of future cost less future

taxes over the next 100 years for all current participants. Subtracting the current value of the trust fund (the accumulated value of past OASDI taxes less

cost) gives a closed group (excluding only future participants) unfunded

obligation of $10.5 trillion. For the Social Security benefits to be sustainable

for the infinite future, the contributions of current and future participants in

the system must fully offset the shortfall due to past and current participants.

However, future participants, as a whole, are projected to pay, in present

value, taxes that are approximately equal to the cost of providing benefits

they are scheduled to receive over the infinite future. Thus, the long run

financing gap that program reforms must ultimately close is $10.5 trillion in

present value. This can be achieved by raising additional revenue or reducing

benefits (or some combination) for current and future participants so that the

present value of the additional revenue or reduced benefits for the infinite

future equals $10.5 trillion.

Table IV.B7.—Unfunded OASDI Obligations From Program Inception

Through the Infinite Horizon

[Present values as of 1-1-2003, trillions of dollars]

Unfunded obligations through the infinite horizon1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 Present value of future cost less future taxes, reduced by the amount of trust fund assets at the beginning of

the period. This concept is also referred to as the infinite horizon open group obligation.

$10.5

Unfunded obligations from program inception through 2077 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5

Unfunded obligations from 2078 through the infinite horizon . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0

 1 Accounting for Social Insurance, Statement of Recommended Accounting Standards, Number 17, Federal

Accounting Standards Advisory Board, August 1999 (p. 36).
63

Long-Range Estimates

6. Test of Long-Range Close Actuarial Balance

The long-range test of close actuarial balance applies to a set of valuation

periods beginning with the first 10 years and continuing through the first

11 years, the first 12 years, etc., up to and including the full 75-year projection period. Under the long-range test, the summarized income rate and cost

rate are calculated for each of the 66 valuation periods in the full 75-year

long-range projection period, with the first of these periods consisting of the

next 10 years. Each succeeding period becomes longer by 1 year, culminating with the period consisting of the next 75 years. The long-range test is met

if, for each of the 66 time periods, the actuarial balance is not less than zero

or is negative by, at most, a specified percentage of the summarized cost rate

for the same time period. The percentage allowed for a negative actuarial

balance is 5 percent for the full 75-year period. For shorter periods, the

allowable percentage begins with zero for the first 10 years and increases

uniformly for longer periods, until it reaches the maximum percentage of

5 percent allowed for the 75-year period. The criterion for meeting the test is

less stringent for the longer periods in recognition of the greater uncertainty

associated with estimates for more distant years.

When a negative actuarial balance in excess of the allowable percentage of

the summarized cost rate is projected for one or more of the 66 separate valuation periods, the program fails the long-range test of close actuarial balance.

Being out of close actuarial balance indicates that the program is expected to

experience financial problems in the future and that ways of improving the

financial status of the program should be considered. The sooner the actuarial balance is less than the minimum allowable balance, expressed as a percentage of the summarized cost rate, the more urgent is the need for

corrective action. However, it is recognized that necessary changes in program financing or benefit provisions should not be put off until the last possiTable IV.B8.—Present Values of OASDI Cost Less Tax Revenue and Unfunded 

Obligations for Program Participants

[Present values as of 1-1-2003, trillions of dollars]

Present value of future cost less future taxes for current participants1 . . . . . . . . . . . . . . . . . . . 

1The Financial Report of the United States separates these obligations into two parts: current participants at

ages 62 and over in 2002 ($4.0 trillion) and current participants at ages 15 to 61 in 2002 ($7.2 trillion). The

sum of the two parts is less than the number in the table because the calculation is done over 75 years for the

Financial Report (a period that does not capture the complete lifetime of all current participants), the 75-year

valuation period begins one year earlier, and the intermediate assumptions and methods of the 2002 Trustees

Report are used.

$11.9

Less current trust fund

(tax accumulations minus expenditures to date for past and current participants) . . . . . . . . 1.4

Equals unfunded obligations for past and current participants2 . . . . . . . . . . . . . . . . . . . . . . . . 

2 This concept is also referred to as the closed group unfunded obligation.

10.5

Less present value of taxes less cost for future participants for the infinite future . . . . . . . . . . .0

Equals unfunded obligations for all participants for the infinite future. . . . . . . . . . . . . . . . . . . 10.5
Actuarial Estimates

64

ble moment if future beneficiaries and workers are to effectively plan for

their retirement.

Table IV.B9 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 estimates. Values are shown for only 14 of the valuation periods: those of length 10 years, 15 years, and continuing in 5-year

increments through 75 years. However, each of the 66 periods—those of

length 10 years, 11 years, and continuing in 1-year increments through 75

years—is considered for the test. These minimum allowable balances are calculated to show the limit for each valuation period resulting from the graduated tolerance scale. The patterns in the estimated balances as a percentage

of the summarized cost rates, as well as that for the minimum allowable balance, are presented graphically in figure IV.B4 for the OASI, DI and combined OASDI program. Values shown for the 25-year, 50-year, and 75-year

valuation periods correspond to those presented in table IV.B5.

For the OASI program, the estimated actuarial balance as a percentage of the

summarized cost rate exceeds the minimum allowable for valuation periods

of length 10 years through 42 years, under the intermediate estimates. For

valuation periods of length greater than 42 years, the estimated actuarial balance is less than the minimum allowable. For the full 75-year long-range

period the estimated actuarial balance reaches -11.65 percent of the summarized cost rate, for a shortfall of 6.65 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 on page 33), it is not in long-range close actuarial balance.

For the DI program, the estimated actuarial balance as a percentage of the

summarized cost rate exceeds the minimum allowable balance for valuation

periods of length 10 through 21 years under the intermediate estimates. For

valuation periods of length greater than 21 years, the estimated actuarial balance is less than the minimum allowable. For the full 75-year long-range

period the estimated actuarial balance reaches -15.50 percent of the summarized cost rate, for a shortfall of 10.50 percent, from the minimum allowable

balance of -5.0 percent of the summarized cost rate. Thus, the DI program,

although meeting the short-range test of financial adequacy, is not in longrange close actuarial balance. 

Financing for the DI program is much less adequate than for the OASI program during the first 25 years even though long-range actuarial deficits are

more comparable over the entire 75-year period. This occurs because much

more of the increase in the long-range cost due to the aging of the large

baby-boom generation occurs earlier for the DI program than for the OASI
65

Long-Range Estimates

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 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 39 years. For valuation periods of

length greater than 39 years, the estimated actuarial balance is below the

minimum allowable balance. The size of the shortfall from the minimum

allowable balance rises gradually, reaching 7.21 percent of the summarized

cost rate for the full 75-year long-range valuation period. Thus, although the

OASDI program satisfies the short-range test of financial adequacy, it is out

of long-range close actuarial balance.

The OASI and DI programs, both separate and combined, were also found to

be out of close actuarial balance in last year’s report. The estimated deficits

for the OASI, DI, and combined OASDI program in this report are similar to

those shown in last year’s report.
Actuarial Estimates

66

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

Table IV.B9.—Comparison of Estimated Long-Range Actuarial Balances With the 

Minimum Allowable in the Test for Close Actuarial Balance, 

Based on Intermediate Assumptions

Valuation

period

Rates

(percentage of taxable payroll)

 Values expressed as a

percentage of cost rate

Summarized

income rate

Summarized

cost rate

Actuarial

balance

Actuarial

balance

Minimum

allowable

actuarial

balance

OASI:

10 years: 2003-2012. . . . . 13.86 10.00 3.86 38.60 0.00

15 years: 2003-2017. . . . . 12.98 10.11 2.87 28.38 -.38

20 years: 2003-2022. . . . . 12.56 10.52 2.04 19.39 -.77

25 years: 2003-2027. . . . . 12.33 11.01 1.32 12.02 -1.15

30 years: 2003-2032. . . . . 12.19 11.48 .71 6.19 -1.54

35 years: 2003-2037. . . . . 12.10 11.88 .22 1.88 -1.92

40 years: 2003-2042. . . . . 12.03 12.18 -.15 -1.22 -2.31

45 years: 2003-2047. . . . . 11.98 12.42 -.44 -3.53 -2.69

50 years: 2003-2052. . . . . 11.94 12.63 -.68 -5.41 -3.08

55 years: 2003-2057. . . . . 11.91 12.81 -.90 -7.03 -3.46

60 years: 2003-2062. . . . . 11.89 12.99 -1.09 -8.43 -3.85

65 years: 2003-2067. . . . . 11.87 13.14 -1.27 -9.63 -4.23

70 years: 2003-2072. . . . . 11.86 13.28 -1.42 -10.70 -4.62

75 years: 2003-2077. . . . . 11.85 13.41 -1.56 -11.65 -5.00

DI:

10 years: 2003-2012. . . . . 2.22 2.02 .20 9.93 .00

15 years: 2003-2017. . . . . 2.10 2.01 .09 4.41 -.38

20 years: 2003-2022. . . . . 2.04 2.03 .01 .42 -.77

25 years: 2003-2027. . . . . 2.01 2.08 -.07 -3.24 -1.15

30 years: 2003-2032. . . . . 1.99 2.11 -.12 -5.76 -1.54

35 years: 2003-2037. . . . . 1.97 2.14 -.16 -7.61 -1.92

40 years: 2003-2042. . . . . 1.96 2.16 -.20 -9.21 -2.31

45 years: 2003-2047. . . . . 1.96 2.19 -.23 -10.68 -2.69

50 years: 2003-2052. . . . . 1.95 2.21 -.26 -11.92 -3.08

55 years: 2003-2057. . . . . 1.94 2.23 -.29 -12.91 -3.46

60 years: 2003-2062. . . . . 1.94 2.25 -.31 -13.69 -3.85

65 years: 2003-2067. . . . . 1.94 2.26 -.33 -14.37 -4.23

70 years: 2003-2072. . . . . 1.93 2.28 -.34 -14.97 -4.62

75 years: 2003-2077. . . . . 1.93 2.29 -.35 -15.50 -5.00

OASDI:

10 years: 2003-2012. . . . . 16.08 12.02 4.06 33.79 .00

15 years: 2003-2017. . . . . 15.07 12.12 2.96 24.40 -.38

20 years: 2003-2022. . . . . 14.60 12.55 2.05 16.32 -.77

25 years: 2003-2027. . . . . 14.34 13.09 1.26 9.60 -1.15

30 years: 2003-2032. . . . . 14.18 13.59 .59 4.34 -1.54

35 years: 2003-2037. . . . . 14.07 14.01 .06 .43 -1.92

40 years: 2003-2042. . . . . 13.99 14.34 -.35 -2.42 -2.31

45 years: 2003-2047. . . . . 13.94 14.61 -.67 -4.60 -2.69

50 years: 2003-2052. . . . . 13.89 14.84 -.95 -6.38 -3.08

55 years: 2003-2057. . . . . 13.86 15.05 -1.19 -7.90 -3.46

60 years: 2003-2062. . . . . 13.83 15.23 -1.40 -9.20 -3.85

65 years: 2003-2067. . . . . 13.81 15.40 -1.59 -10.33 -4.23

70 years: 2003-2072. . . . . 13.79 15.55 -1.76 -11.32 -4.62

75 years: 2003-2077. . . . . 13.78 15.70 -1.92 -12.21 -5.00
67

Long-Range Estimates

7. Income and Cost Rates by Component

Annual income rates and their components are shown in table IV.B10 for

each alternative set of assumptions. The annual income rates reflect the

scheduled payroll tax rates and the projected income from the taxation of

benefits expressed as a percentage of taxable payroll. (Increasing income

from taxation of benefits reflects rising benefit and income levels and the

fact that benefit-taxation threshold amounts are not indexed.)

Summarized income and cost rates, along with their components, are presented in table IV.B11 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 a target trust fund of 100 percent of annual

cost at the end of the period in addition to the cost 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 cost amounts

presented in this report are computed on a cash basis, i.e., amounts are attributed to the year in which they are actually received by, or expended (payable) from, the fund, while taxable payroll is allocated to the year in which

 Figure IV.B4.—Long-Range Test of Close Actuarial Balance

[Comparison of estimated long-range actuarial balances with the minimum 

allowable for close actuarial balance under intermediate assumptions]

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2012 2017 2022 2027 2032 2037 2042 2047 2052 2057 2062 2067 2072 2077

Ending year of valuation period

 Actuarial balance as percentage

 of summarized cost rate

 Minimum allowable actuarial balance

OASI

OASDI

DI
Actuarial Estimates

68

earnings are paid. Because earnings are paid to workers before the corresponding payroll taxes are credited to the funds, payroll tax income for a particular year reflects a combination of the taxable payrolls from that year and

from prior years, when payroll was smaller. Dividing payroll tax income by

taxable payroll for a particular year, or period of years, will thus generally

result in an income rate that is slightly less than the applicable tax rate for the

period.

Table IV.B10.—Components of Annual Income Rates, Calendar Years 2003-80

[As a percentage of taxable payroll]

Calendar year

OASI DI Combined

Payroll

tax rate

Taxation

of

benefits Total

Payroll

tax rate

Taxation

of

benefits Total

Payroll

tax rate

Taxation

of

benefits Total

Intermediate:

2003 . . . . . . 10.60 0.28 10.88 1.80 0.02 1.82 12.40 0.30 12.70

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 .30 12.70

2007 . . . . . . 10.60 .29 10.89 1.80 .02 1.82 12.40 .32 12.72

2008 . . . . . . 10.60 .31 10.91 1.80 .03 1.83 12.40 .33 12.73

2009 . . . . . . 10.60 .32 10.92 1.80 .03 1.83 12.40 .34 12.74

2010 . . . . . . 10.60 .33 10.93 1.80 .03 1.83 12.40 .36 12.76

2011 . . . . . . 10.60 .37 10.97 1.80 .03 1.83 12.40 .40 12.80

2012 . . . . . . 10.60 .39 10.99 1.80 .04 1.84 12.40 .42 12.82

2015 . . . . . . 10.60 .44 11.04 1.80 .04 1.84 12.40 .48 12.88

2020 . . . . . . 10.60 .54 11.14 1.80 .05 1.85 12.40 .59 12.99

2025 . . . . . . 10.60 .64 11.24 1.80 .05 1.85 12.40 .69 13.09

2030 . . . . . . 10.60 .72 11.32 1.80 .06 1.86 12.40 .78 13.18

2035 . . . . . . 10.60 .77 11.37 1.80 .06 1.86 12.40 .83 13.23

2040 . . . . . . 10.60 .79 11.39 1.80 .06 1.86 12.40 .86 13.26

2045 . . . . . . 10.60 .81 11.41 1.80 .07 1.87 12.40 .87 13.27

2050 . . . . . . 10.60 .83 11.43 1.80 .07 1.87 12.40 .90 13.30

2055 . . . . . . 10.60 .86 11.46 1.80 .07 1.87 12.40 .92 13.32

2060 . . . . . . 10.60 .88 11.48 1.80 .07 1.87 12.40 .95 13.35

2065 . . . . . . 10.60 .90 11.50 1.80 .07 1.87 12.40 .97 13.37

2070 . . . . . . 10.60 .92 11.52 1.80 .07 1.87 12.40 .99 13.39

2075 . . . . . . 10.60 .94 11.54 1.80 .07 1.87 12.40 1.01 13.41

2080 . . . . . . 10.60 .95 11.55 1.80 .07 1.87 12.40 1.03 13.43
69

Long-Range Estimates

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

Low Cost:

2003 . . . . . . 10.60 0.28 10.88 1.80 0.02 1.82 12.40 0.30 12.70

2004 . . . . . . 10.60 .27 10.87 1.80 .02 1.82 12.40 .29 12.69

2005 . . . . . . 10.60 .27 10.87 1.80 .02 1.82 12.40 .30 12.70

2006 . . . . . . 10.60 .27 10.87 1.80 .02 1.82 12.40 .30 12.70

2007 . . . . . . 10.60 .28 10.88 1.80 .02 1.82 12.40 .31 12.71

2008 . . . . . . 10.60 .29 10.89 1.80 .02 1.82 12.40 .32 12.72

2009 . . . . . . 10.60 .30 10.90 1.80 .02 1.82 12.40 .33 12.73

2010 . . . . . . 10.60 .31 10.91 1.80 .03 1.83 12.40 .34 12.74

2011 . . . . . . 10.60 .35 10.95 1.80 .03 1.83 12.40 .38 12.78

2012 . . . . . . 10.60 .36 10.96 1.80 .03 1.83 12.40 .39 12.79

2015 . . . . . . 10.60 .40 11.00 1.80 .03 1.83 12.40 .43 12.83

2020 . . . . . . 10.60 .48 11.08 1.80 .04 1.84 12.40 .52 12.92

2025 . . . . . . 10.60 .56 11.16 1.80 .04 1.84 12.40 .60 13.00

2030 . . . . . . 10.60 .62 11.22 1.80 .04 1.84 12.40 .66 13.06

2035 . . . . . . 10.60 .65 11.25 1.80 .04 1.84 12.40 .69 13.09

2040 . . . . . . 10.60 .66 11.26 1.80 .05 1.85 12.40 .70 13.10

2045 . . . . . . 10.60 .66 11.26 1.80 .05 1.85 12.40 .70 13.10

2050 . . . . . . 10.60 .66 11.26 1.80 .05 1.85 12.40 .71 13.11

2055 . . . . . . 10.60 .67 11.27 1.80 .05 1.85 12.40 .72 13.12

2060 . . . . . . 10.60 .68 11.28 1.80 .05 1.85 12.40 .72 13.12

2065 . . . . . . 10.60 .67 11.27 1.80 .05 1.85 12.40 .72 13.12

2070 . . . . . . 10.60 .67 11.27 1.80 .05 1.85 12.40 .72 13.12

2075 . . . . . . 10.60 .67 11.27 1.80 .05 1.85 12.40 .72 13.12

2080 . . . . . . 10.60 .68 11.28 1.80 .05 1.85 12.40 .73 13.13

High Cost:

2003 . . . . . . 10.60 .29 10.89 1.80 .02 1.82 12.40 .31 12.71

2004 . . . . . . 10.60 .28 10.88 1.80 .02 1.82 12.40 .30 12.70

2005 . . . . . . 10.60 .28 10.88 1.80 .03 1.83 12.40 .31 12.71

2006 . . . . . . 10.60 .29 10.89 1.80 .03 1.83 12.40 .32 12.72

2007 . . . . . . 10.60 .31 10.91 1.80 .03 1.83 12.40 .34 12.74

2008 . . . . . . 10.60 .32 10.92 1.80 .03 1.83 12.40 .36 12.76

2009 . . . . . . 10.60 .34 10.94 1.80 .03 1.83 12.40 .37 12.77

2010 . . . . . . 10.60 .36 10.96 1.80 .04 1.84 12.40 .39 12.79

2011 . . . . . . 10.60 .40 11.00 1.80 .04 1.84 12.40 .44 12.84

2012 . . . . . . 10.60 .42 11.02 1.80 .05 1.85 12.40 .46 12.86

2015 . . . . . . 10.60 .49 11.09 1.80 .05 1.85 12.40 .55 12.95

2020 . . . . . . 10.60 .61 11.21 1.80 .06 1.86 12.40 .67 13.07

2025 . . . . . . 10.60 .73 11.33 1.80 .07 1.87 12.40 .80 13.20

2030 . . . . . . 10.60 .83 11.43 1.80 .07 1.87 12.40 .91 13.31

2035 . . . . . . 10.60 .91 11.51 1.80 .08 1.88 12.40 .99 13.39

2040 . . . . . . 10.60 .96 11.56 1.80 .08 1.88 12.40 1.04 13.44

2045 . . . . . . 10.60 1.00 11.60 1.80 .09 1.89 12.40 1.09 13.49

2050 . . . . . . 10.60 1.05 11.65 1.80 .09 1.89 12.40 1.14 13.54

2055 . . . . . . 10.60 1.11 11.71 1.80 .10 1.90 12.40 1.20 13.60

2060 . . . . . . 10.60 1.17 11.77 1.80 .10 1.90 12.40 1.26 13.66

2065 . . . . . . 10.60 1.22 11.82 1.80 .10 1.90 12.40 1.32 13.72

2070 . . . . . . 10.60 1.28 11.88 1.80 .10 1.90 12.40 1.38 13.78

2075 . . . . . . 10.60 1.34 11.94 1.80 .10 1.90 12.40 1.44 13.84

2080 . . . . . . 10.60 1.39 11.99 1.80 .10 1.90 12.40 1.49 13.89

Table IV.B10.—Components of Annual Income Rates, Calendar Years 2003-80 (Cont.)

[As a percentage of taxable payroll]

Calendar year

OASI DI Combined

Payroll

tax rate

Taxation

of

benefits Total

Payroll

tax rate

Taxation

of

benefits Total

Payroll

tax rate

Taxation

of

benefits Total
Actuarial Estimates

70

.

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

8. Reasons for Change in Actuarial Balance From Last Report

Reasons for changes from last year’s report to this report in the long-range

actuarial balance under the intermediate assumptions are itemized in table

IV.B12. Also shown are the estimated effects associated with each reason for

change.

Table IV.B11.—Components of Summarized Income Rates and Cost Rates, 

Calendar Years 2003-77

[As a percentage of taxable payroll]

Valuation period

Income rate Cost rate

Payroll

tax

Taxation

of

benefits

Beginning

fund

balance Total

Disbursements

Ending

fund

balance Total

OASI:

Intermediate:

2003-27. . . . . . . . . 10.59 0.43 1.31 12.33 10.53 0.48 11.01

2003-52. . . . . . . . . 10.59 .57 .77 11.94 12.41 .21 12.63

2003-77. . . . . . . . . 10.59 .64 .61 11.85 13.29 .12 13.41

Low Cost:

2003-27. . . . . . . . . 10.59 .40 1.29 12.28 9.79 .42 10.21

2003-52. . . . . . . . . 10.59 .50 .77 11.86 11.02 .17 11.19

2003-77. . . . . . . . . 10.59 .54 .60 11.73 11.36 .09 11.45

High Cost:

2003-27. . . . . . . . . 10.59 .48 1.31 12.38 11.43 .55 11.98

2003-52. . . . . . . . . 10.59 .67 .77 12.03 14.17 .28 14.44

2003-77. . . . . . . . . 10.59 .79 .60 11.99 15.90 .17 16.07

DI:

Intermediate:

2003-27. . . . . . . . . 1.80 .04 .17 2.01 2.00 .08 2.08

2003-52. . . . . . . . . 1.80 .05 .10 1.95 2.18 .03 2.21

2003-77. . . . . . . . . 1.80 .05 .08 1.93 2.27 .02 2.29

Low Cost:

2003-27. . . . . . . . . 1.80 .03 .17 2.00 1.70 .06 1.76

2003-52. . . . . . . . . 1.80 .04 .10 1.94 1.75 .03 1.77

2003-77. . . . . . . . . 1.80 .04 .08 1.92 1.76 .01 1.78

High Cost:

2003-27. . . . . . . . . 1.80 .05 .17 2.02 2.37 .10 2.47

2003-52. . . . . . . . . 1.80 .06 .10 1.96 2.71 .05 2.76

2003-77. . . . . . . . . 1.80 .07 .08 1.95 2.90 .03 2.93

OASDI:

Intermediate:

2003-27. . . . . . . . . 12.39 .47 1.48 14.34 12.53 .56 13.09

2003-52. . . . . . . . . 12.39 .62 .88 13.89 14.59 .25 14.84

2003-77. . . . . . . . . 12.39 .70 .69 13.78 15.56 .14 15.70

Low Cost:

2003-27. . . . . . . . . 12.39 .43 1.47 14.28 11.50 .48 11.98

2003-52. . . . . . . . . 12.39 .54 .87 13.80 12.77 .20 12.97

2003-77. . . . . . . . . 12.39 .58 .67 13.65 13.12 .11 13.23

High Cost:

2003-27. . . . . . . . . 12.39 .53 1.48 14.40 13.80 .65 14.45

2003-52. . . . . . . . . 12.39 .74 .87 14.00 16.87 .33 17.20

2003-77. . . . . . . . . 12.39 .86 .68 13.93 18.80 .20 19.00
71

Long-Range Estimates

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

No legislative changes have been enacted since the last report that directly

affect the financing of the Social Security program (see section III.B).

In changing from the valuation period of last year’s report, which was 2002-

76, to the valuation period of this report, 2003-77, the relatively large negative annual balance for 2077 is included. This results in a larger long-range

actuarial deficit. (Note that the fund balance at the end of 2002, i.e., at the

beginning of the projection period, is included in the 75-year actuarial balance.)

Ultimate demographic assumptions are unchanged from last year’s report.

However, the starting population was updated based on tabulations from the

2000 Census, resulting in a substantially larger population and far more

other-than-legal residents. As the new census indicated a far larger than previously estimated rate of other-than-legal immigration since 1990, this

assumption was increased for the first 20 years of the projection period. Fertility rates were revised downward for recent years and at the start of the projection period, also due to the larger than expected census. In addition,

mortality rates at ages under 65 were revised downward slightly for recent

years and for the entire projection period due to the larger than expected census. However, mortality rates at ages 65 and over for the year 2000 were

replaced with slightly higher final estimates (based on data unrelated to the

census), resulting in slightly higher rates throughout the projection period. In

Table IV.B12.—Reasons for Change in the 75-Year Actuarial Balance

Under Intermediate Assumptions

[As a percentage of taxable payroll]

Item OASI DI Combined

Shown in last year's report:

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.79 1.92 13.72

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.33 2.26 15.59

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.54 -.34 -1.87

Changes in actuarial balance due to changes in:

Legislation / Regulation . . . . . . . . . . . . . . . . . . . . . . . .00 .00 .00

Valuation period1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 In changing from the valuation period of last year’s report, which was 2002-76, to the valuation period of

this report, 2003-77, the relatively large negative annual balance for 2077 is included. This results in a larger

long-range actuarial deficit. The fund balance at the end of 2002, i.e., at the beginning of the projection

period, is included in the 75-year actuarial balance.

-.06 -.01 -.07

Demographic data and assumptions. . . . . . . . . . . . . . -.03 -.01 -.04

Economic data and assumptions. . . . . . . . . . . . . . . . . +.01 -.01 .00

Disability data and assumptions. . . . . . . . . . . . . . . . . .00 .00 .00

Programmatic data and methods . . . . . . . . . . . . . . . . +.05 +.01 +.06

Total change in actuarial balance . . . . . . . . . . . . . . . . . . -.03 -.02 -.04

Shown in this report:

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.56 -.35 -1.92

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.85 1.93 13.78

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.41 2.29 15.70
Actuarial Estimates

72

total, these updates to demographic data and assumptions resulted in an

increase in the actuarial deficit of about 0.04 percent of taxable payroll.

Two ultimate economic assumptions were changed from those used in last

year’s report. First, the price differential, defined as the annual percent

change in the Gross Domestic Product (GDP) deflator less the annual percent

change in the CPI, was changed from -0.2 to -0.3, based on new research by

the Bureau of Labor Statistics. Second, the average annual percent change in

average hours worked was increased from -0.1 percent to 0.0 percent, based

on historical trends. The change in the price differential reduces the realwage differential by 0.1 percent, while the increase in average hours worked

increases the real-wage differential by 0.1 percent. Thus, compared to last

year’s report, these two changes to the ultimate economic assumptions have

no net effect on the real-wage differential and, therefore, the 75-year actuarial balance.

Two additional changes in economic assumptions are important. First, the

Bureau of Economic Analysis revised downward its estimate of historical

aggregate wages by about 3.0 percent for 2001 and 4.0 percent for 2002.

Reflecting this revision substantially reduces OASDI tax income throughout

the projection period but affects benefit levels with a significant delay, only

for newly eligible individuals in the future. The net effect of this revision is

thus an increase in the long-range actuarial deficit. Second, starting with the

2003 report, labor force participation rates are projected to increase with life

expectancy. This change increases the projected size of the labor force by

nearly 2.0 percent by the end of the 75-year period and significantly reduces

the long-range actuarial deficit. However, these two changes tend to cancel

and have a negligible net effect (i.e., less that 0.005 percent of taxable payroll) on the 75-year actuarial balance.

Two significant changes affect disability assumptions. First, the ultimate disability incidence rates were lowered somewhat from the levels used in last

year’s report in order to bring the rates closer to the average experience of

the last 30 years. Second, rates of improvement used to project long-range

death rates were increased to be more consistent with assumed improvement

in overall mortality. The net effect of these two changes roughly offset each

other, resulting in about the same disability prevalence rate and thus having

very little effect on projected cost.

Several methodological improvements and updates of program-specific data

were made for projections in the 2003 report. First, an updated sample of

new beneficiaries was used for projecting long-range average benefit levels.

Second, short-range projections were modified to reflect more of a delay in

the average age at entitlement to benefits for retired workers as a result of the

increasing normal retirement age (NRA). This change significantly reduced

the number of beneficiaries, and thus the cost of the program in the early pro-
73

Long-Range Estimates

jection years. Together these changes result in a decrease in the actuarial deficit of 0.06 percent of taxable payroll.

If no changes in assumptions or methods were made for this report and actual

experience had met expectations since the last report, the OASDI actuarial

deficit would still be increased by 0.07 percent of taxable payroll from the

level estimated for last year’s report due to the change in the valuation period

(see table IV.B12). However, changes were made in data, assumptions, and

methods for this report. The net effect of these changes is to offset a portion

of the increase in the deficit due to the new valuation period. This is indicated by the total 0.04-percent increase in the deficit, which, after rounding,

raises the deficit from 1.87 percent to 1.92 percent of payroll.

The effects of changes made in this report can also be illustrated by comparing the annual (cash-flow) balances for this and the prior year’s report. Figure IV.B5 provides this comparison for the combined OASDI program over

the long range.

The annual balance is lower, for this report, early in the projection period due

to revisions in national earnings data for 2001 and 2002. Higher annual balances from about 2010 to 2040 reflect the increases in other-than-legal immigration since 1990, reflected in the 2000 Census, and the assumption for this

report of higher annual immigration through 2022. The higher levels of

immigration for 1990 through 2022 result in additional beneficiaries which

cause a reduction in the annual balances from about 2040 to 2075.

 Figure IV.B5.—OASDI Annual Balances: 2002 and 2003 Reports

[As a percentage of taxable payroll under the intermediate assumptions]

-8%

-6%

-4%

-2%

0%

2%

4%

2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

2003 Report

2002 Report
Assumptions & Methods

74

V. ASSUMPTIONS AND METHODS UNDERLYING

ACTUARIAL ESTIMATES

The future income and cost of the OASDI program will depend on many

demographic, economic, and program-specific factors. Trust fund income

will depend on how these factors affect the size and composition of the

working population and the level and distribution of earnings. Similarly, program cost will depend on how these factors affect the size and composition

of the beneficiary population and the general level of benefits.

Basic assumptions are developed for several of these factors based on analysis of historical trends and conditions, and on expected future conditions.

These include fertility, mortality, immigration, marriage, divorce, productivity, inflation, average earnings, unemployment, retirement, and disability

incidence and termination. Other factors are projected using methods that

reflect historical and expected future relationships to the basic assumptions.

These include total population, life expectancy, labor force, gross domestic

product, interest rates, and a myriad of program-specific factors. It should be

noted that all factors included in any consistent set of assumptions are interrelated directly or indirectly. It is also important to note that these interrelationships can and do change over time.

The assumptions and methods used in this report are reexamined each year in

light of recent experience and new information about future conditions, and

are revised if warranted.

Because projections of these factors and their interrelationships 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 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 is the most optimistic, and the high cost is the most pessimistic.

Although these three sets of demographic and economic assumptions have

been developed using the best available information, the resulting estimates

should be interpreted with care. The estimates are not intended to be specific

predictions of the future financial status of the OASDI program, but rather,

they are intended to be indicators of the expected trend and a reasonable

range of future income and cost, under a variety of plausible demographic

and economic conditions.

The values for each of the demographic, economic, and program-specific

factors are assumed to move from recently experienced levels or trends,
75

Demographic Assumptions and Methods

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 demographic and the

economic factors are intended to represent average experience or growth

rates. Actual future values will exhibit fluctuations or cyclical patterns, as in

the past.

The following sections discuss in abbreviated form the various assumptions

and methods required to make the estimates of trust fund financial status

which are the heart of this report.1 There are, of course, many interrelationships among these factors that make a sequential presentation somewhat misleading. Nevertheless, the following sections roughly follow the order used

in building the trust fund estimates presented in chapter IV.

A. DEMOGRAPHIC ASSUMPTIONS AND METHODS

The principal demographic assumptions relating to fertility, mortality, and

net immigration for the three alternatives are shown in table V.A1. The

rationales for selecting these assumptions are discussed in the following

three sections.

1. Fertility Assumptions

Fertility (birth rate) assumptions are developed by single year of age, from

14 to 49. They are applied to the total number of women in the population at

each age, for all marital statuses.

Historically, fertility rates in the United States have fluctuated widely. The

total fertility rate2 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 began to rise again, reaching a level

of 2.06 for 1991. Since then, the total fertility rate has remained fairly stable.

 1 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. A complete list of available

studies may be found on the Internet at http://www.ssa.gov/OACT/NOTES/actstud.html. To obtain copies of

such Studies, or of this report, submit a request via our Internet request form; or write to: Office of the Chief

Actuary, 700 Altmeyer Building, 6401 Security Boulevard, Baltimore, MD 21235; or call (410) 965-3015.

This entire report, along with supplemental year-by-year tables, may also be found at http://www.ssa.gov/

OACT/TR/TR03/index.html.

 2 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. A rate of 2.1 would ultimately result in a nearly constant population if net immigration were zero and if death rates were constant.
Assumptions & Methods

76

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,

1.95, and 1.7 children per woman were selected for the low cost, intermediate, and high cost assumptions, respectively. For each alternative, the total

fertility rate is assumed to gradually trend from the estimated level of 2.05

for 2001, reaching the selected ultimate level for 2027 and later.

The ultimate total fertility rates are unchanged from those in last year’s

report. However, total fertility rates for the historical period since 1991 and

for about the first 20 years of the projection period are lower than those in

last year’s report due to revisions in the underlying birth rates. Birth rates are

computed by dividing the reported number of births by the estimated population of women based on the most recent census. The recently available 2000

Census showed a significantly higher population than the Census Bureau had

earlier estimated. This higher census count required an increase in the number of women of child-bearing age after 1990, resulting in a revision downward in historical birth rates back to 1991. These lower recent birth rates

cause the projected birth rates to start from a lower level, and to remain at

lower levels through about 2025.

2. Mortality Assumptions

Mortality (death rate) assumptions are developed by single year of age, sex,

and cause of death.

Over the last century, death rates in the United States have declined substantially, but at varying rates. Historical rates (for years 1900-2000) used in preparing this report were calculated for ages below 65 (and for all ages prior to

1968) using data from the National Center for Health Statistics (NCHS).1

For ages 65 and over, Medicare final data were used for years 1968 through

2000. Also used are death rates by cause of death produced by the NCHS for

years 1979-2000.

 1 These rates reflect NCHS data on deaths and Census estimates of population.
77

Demographic Assumptions and Methods

The total age-sex-adjusted death rate1 declined at an average rate2 of

1.19 percent per year between 1900 and 2000. Between 1979 and 2000, the

period for which death rates are analyzed by cause, the total age-sex-adjusted

death rate (for all causes combined) declined at an average rate of

0.77 percent per year.

Historical death rates have declined more slowly for older ages than for the

rest of the population. The age-sex-adjusted death rate for ages 65 and over

declined at an average rate of 0.84 percent per year between 1900 and 2000.

Between 1979 and 2000 the age-sex-adjusted death rate for these ages

declined at an average annual rate of 0.55 percent.

Reductions in death rates have resulted from many factors, including

increased medical knowledge and availability of health-care services, and

improvements in sanitation and nutrition. 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 2027 and later. The intermediate

set, which is used for alternative II, is considered to be the most likely to

occur. The average annual percentage reductions used for alternative I are

generally smaller than those for alternative II, while those used for alternative III are generally greater.

After 2000, the reductions in central death rates for alternative II are

assumed to change rapidly from the average annual reductions by age, sex,

and cause of death observed between 1979 and 2000, to the ultimate annual

percentage reductions by age, sex, and cause of death assumed for 2027 and

later. The reductions in death rates under alternatives I and III are also

assumed to change rapidly to their ultimate levels, but start from levels

which are, respectively, 50 or 150 percent of the average annual reductions

observed between 1979 and 2000.

Projections of age-sex-adjusted death rates are presented in table V.A1 for

the total (all ages), for under age 65, and for ages 65 and over. Under the

intermediate assumptions, projected age-adjusted death rates for the total are

slightly lower than those death rates in last year’s report, until 2077, when

the projected death rate equals that in last year’s report. New data for 2000

and 2001 resulted in age-sex adjusted death rates throughout the projection

 1 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.

 2 Average rate of decline is calculated as the complement of the exponential of the slope of the least-squares

line through the logarithms of the central death rates.
Assumptions & Methods

78

period that are lower than those in last year’s report for the age group under

65 and are higher than those in last year’s report for the age group 65 and

over.

After adjustment for changes in the age-sex distribution of the population,

the resulting total death rates are projected to decline at ultimate average

annual rates of about 0.34 percent, 0.73 percent, and 1.27 percent between

2027 and 2077 for alternatives I, II, and III, respectively. In keeping with the

patterns observed in the historical data, future rates of decline are assumed to

be greater for younger ages than for older ages, but to a lesser degree than in

the past. Accordingly, age-sex-adjusted death rates for ages 65 and over are

projected to decline at average annual rates of about 0.30 percent,

0.69 percent, and 1.22 percent between 2027 and 2077 for alternatives I, II,

and III, respectively.

There is a wide range of opinion among experts on the likely rate of future

decline in death rates. For example, the 1999 Technical Panel on Assumptions and Methods appointed by the Social Security Advisory Board believed

that ultimate rates of decline in mortality will be higher than the rates of

decline assumed for the intermediate projections in this report. Others

believe that biological and social factors may slow future rates of decline in

mortality. Evolving mortality trends and developments in health care and life

style will be closely monitored to determine what further modifications to

the assumed ultimate rates of decline in mortality may be warranted for

future reports.

3. Immigration Assumptions

Legal immigration increased after World War II to around 300,000 persons

per year and remained around that level until shortly after 1960. With the

Immigration Act of 1965 and other related changes, annual legal immigration increased to about 400,000 and remained fairly stable until 1977.

Between 1977 and 1990, legal immigration once again increased, averaging

about 580,0001 per year. The Immigration Act of 1990, which took effect in

fiscal year 1992, restructured the immigration categories and increased significantly the number of immigrants who may legally enter the United States.

Legal immigration averaged about 810,0001 persons per year during the

period 1992 through 2001. The number of legal immigrants in 2001 is estimated to be 1,064,000 persons.

 1 Excludes those persons admitted under the Immigration Reform and Control Act of 1986.
79

Demographic Assumptions and Methods

For 2001, net legal immigration (after considering emigration) is estimated

to be about 800,000 persons. Net other-than-legal immigration is estimated

to be 400,000 persons, an increase of 100,000 persons over the level estimated for 2001 in last year’s report. This increase in other-than-legal immigration is based on the 2000 Census counts that indicate a level in excess of

400,000 per year over the period 1990-2000. For 2002, net legal immigration

is estimated to be 825,000 persons for the intermediate and low cost assumptions and 750,000 persons for the high cost assumptions. Net other-than-legal

immigration for 2002 is estimated to be 400,000 persons for all three

assumptions.

After 2002, the annual number of net legal immigrants is projected to reach

an ultimate level around 2011. The ultimate level of annual net other-thanlegal immigrants is projected to be reached in 2023 under the intermediate

and low cost assumptions and in 2013 under the high cost assumptions. For

the intermediate assumptions, the ultimate levels are the same as those in last

year’s report. However, prior to 2023, the total levels of net annual immigration (legal and other-than-legal) are higher than those in last year’s report.

The total level of net immigration (legal and other-than-legal, combined)

under the intermediate projection is assumed to be 900,000 persons1 in 2023

and for each year afterward. For the low cost assumptions, net immigration is

assumed to decline from a level of 1,430,000 persons in 2003 to an ultimate

level of 1,300,000 persons2 for each year 2023 and later. Under the high cost

assumptions, net immigration is assumed to be 950,000 persons in 2003, and

672,500 persons3 for each year after 2013.

 1 600,000 net legal immigrants plus 300,000 net other-than-legal immigrants.

 2 850,000 net legal immigrants plus 450,000 net other-than-legal immigrants.

 3 472,500 net legal immigrants plus 200,000 net other-than-legal immigrants.
Assumptions & Methods

80

Table V.A1.—Principal Demographic Assumptions, Calendar Years 1940-2080

Calendar year

Total

fertility rate1

Age-sex-adjusted death rate2

per 100,000, by age Net immigration

Total Under 65 65 and over Legal3 Otherthan-legal4

Historical data:

1940 . . . . . . . . . 2.23 1,672.6 656.1 8,791.1

1945 . . . . . . . . . 2.42 1,488.6 584.4 7,820.1

1950 . . . . . . . . . 3.03 1,339.9 480.0 7,361.7 170,594

1955 . . . . . . . . . 3.50 1,243.0 424.7 6,973.6 209,779

1960 . . . . . . . . . 3.61 1,237.9 418.8 6,973.1 201,276

1965 . . . . . . . . . 2.88 1,210.8 411.7 6,806.6 232,400

1970 . . . . . . . . . 2.43 1,138.4 403.7 6,283.5 278,928

1975 . . . . . . . . . 1.77 1,020.9 352.5 5,701.7 294,303

1980 . . . . . . . . . 1.82 961.1 316.8 5,473.1 410,348

1985 . . . . . . . . . 1.84 912.3 289.9 5,270.4 433,449

1990 . . . . . . . . . 2.07 865.9 277.6 4,985.5 501,065

1991 . . . . . . . . . 2.06 854.1 274.4 4,913.5 548,000

1992 . . . . . . . . . 2.04 842.5 268.4 4,862.5 620,986

1993 . . . . . . . . . 2.02 861.8 271.4 4,996.0 644,696

1994 . . . . . . . . . 2.00 850.2 268.7 4,922.3 583,390

1995 . . . . . . . . . 1.98 847.4 265.3 4,923.8 573,719

1996 . . . . . . . . . 1.98 834.1 254.3 4,894.0 662,284

1997 . . . . . . . . . 1.97 819.2 242.3 4,858.9 571,800

1998 . . . . . . . . . 2.00 812.2 235.7 4,849.5 489,360

1999 . . . . . . . . . 2.01 816.4 233.6 4,897.8 523,037

20005 . . . . . . . . 2.06 810.3 234.7 4,841.4 677,579 400,000

20015 . . . . . . . . 2.05 804.2 229.2 4,830.8 798,243 400,000

20025 . . . . . . . . 2.04 800.0 226.5 4,816.3 825,000 400,000

Intermediate: 

2005 . . . . . . . . . 2.03 786.6 218.8 4,763.0 750,000 400,000

2010 . . . . . . . . . 2.01 758.1 207.8 4,612.0 625,000 400,000

2015 . . . . . . . . . 2.00 727.3 197.8 4,435.2 600,000 350,000

2020 . . . . . . . . . 1.98 697.1 188.6 4,258.2 600,000 350,000

2025 . . . . . . . . . 1.96 668.5 180.0 4,089.1 600,000 300,000

2030 . . . . . . . . . 1.95 641.5 172.0 3,929.5 600,000 300,000

2035 . . . . . . . . . 1.95 616.2 164.4 3,780.2 600,000 300,000

2040 . . . . . . . . . 1.95 592.6 157.4 3,640.5 600,000 300,000

2045 . . . . . . . . . 1.95 570.4 150.7 3,509.6 600,000 300,000

2050 . . . . . . . . . 1.95 549.6 144.5 3,386.9 600,000 300,000

2055 . . . . . . . . . 1.95 530.1 138.6 3,271.6 600,000 300,000

2060 . . . . . . . . . 1.95 511.7 133.0 3,163.2 600,000 300,000

2065 . . . . . . . . . 1.95 494.3 127.8 3,061.1 600,000 300,000

2070 . . . . . . . . . 1.95 478.0 122.8 2,964.8 600,000 300,000

2075 . . . . . . . . . 1.95 462.5 118.2 2,873.9 600,000 300,000

2080 . . . . . . . . . 1.95 447.9 113.7 2,788.0 600,000 300,000
81

Demographic Assumptions and Methods

4. Total Population Estimates

Combining the above assumptions for future fertility, mortality, and net

immigration with assumptions on marriage and divorce based on data from

NCHS, projections were made of the population in the Social Security area

Low Cost: 

2005 . . . . . . . . . 2.06 802.2 223.5 4,854.6 925,000 550,000

2010 . . . . . . . . . 2.09 795.0 217.9 4,836.6 875,000 550,000

2015 . . . . . . . . . 2.13 782.3 212.1 4,775.2 850,000 500,000

2020 . . . . . . . . . 2.16 768.0 206.3 4,700.8 850,000 500,000

2025 . . . . . . . . . 2.19 753.5 200.8 4,624.1 850,000 450,000

2030 . . . . . . . . . 2.20 739.4 195.5 4,547.9 850,000 450,000

2035 . . . . . . . . . 2.20 725.7 190.4 4,474.3 850,000 450,000

2040 . . . . . . . . . 2.20 712.6 185.5 4,403.3 850,000 450,000

2045 . . . . . . . . . 2.20 700.0 180.9 4,334.9 850,000 450,000

2050 . . . . . . . . . 2.20 687.8 176.5 4,268.9 850,000 450,000

2055 . . . . . . . . . 2.20 676.2 172.2 4,205.2 850,000 450,000

2060 . . . . . . . . . 2.20 664.9 168.1 4,143.8 850,000 450,000

2065 . . . . . . . . . 2.20 654.1 164.2 4,084.5 850,000 450,000

2070 . . . . . . . . . 2.20 643.6 160.4 4,027.3 850,000 450,000

2075 . . . . . . . . . 2.20 633.5 156.8 3,972.0 850,000 450,000

2080 . . . . . . . . . 2.20 623.8 153.3 3,918.6 850,000 450,000

High Cost:

2005 . . . . . . . . . 2.00 770.9 213.9 4,671.2 600,000 250,000

2010 . . . . . . . . . 1.93 719.5 196.0 4,384.9 472,500 250,000

2015 . . . . . . . . . 1.87 669.0 180.3 4,090.5 472,500 200,000

2020 . . . . . . . . . 1.80 621.7 166.2 3,811.3 472,500 200,000

2025 . . . . . . . . . 1.73 578.3 153.4 3,553.5 472,500 200,000

2030 . . . . . . . . . 1.70 538.5 141.7 3,317.1 472,500 200,000

2035 . . . . . . . . . 1.70 502.2 131.1 3,101.4 472,500 200,000

2040 . . . . . . . . . 1.70 469.1 121.3 2,904.4 472,500 200,000

2045 . . . . . . . . . 1.70 438.8 112.4 2,724.3 472,500 200,000

2050 . . . . . . . . . 1.70 411.1 104.3 2,559.3 472,500 200,000

2055 . . . . . . . . . 1.70 385.6 96.8 2,408.1 472,500 200,000

2060 . . . . . . . . . 1.70 362.3 90.0 2,269.3 472,500 200,000

2065 . . . . . . . . . 1.70 340.8 83.7 2,141.6 472,500 200,000

2070 . . . . . . . . . 1.70 321.1 77.9 2,024.1 472,500 200,000

2075 . . . . . . . . . 1.70 302.8 72.5 1,915.7 472,500 200,000

2080 . . . . . . . . . 1.70 286.0 67.6 1,815.6 472,500 200,000

1The 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

2027.

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 Historical estimates of net legal immigration assume a 25 percent reduction in legal immigration due to

legal emigration. Estimates do not include persons legalized under the Immigration Reform and Control Act

of 1986.

4 Other-than-legal net annual immigration is estimated to have been between 225,000 and 550,000 persons

for years 1980 through 1999.

5 Preliminary or estimated.

Table V.A1.—Principal Demographic Assumptions, Calendar Years 1940-2080 (Cont.)

Calendar year

Total

fertility

rate1

Age-sex-adjusted death rate2

per 100,000, by age Net immigration

Total Under 65 65 and over Legal3 Otherthan-legal4
Assumptions & Methods

82

by age, sex, and marital status as of January 1 of each year 2001 through

2080. The starting Social Security area population for January 1, 2000, uses

as a basis the Census Bureau’s estimate of the residents of the 50 States and

D.C., and U.S. Armed Forces overseas. This base estimate is significantly

higher than the estimate for January 1, 2000 in last year’s report because this

estimate has been revised to reflect the higher than expected 2000 Census

counts. The base estimate is adjusted for net census undercount and

increased for other U.S. citizens living abroad (including residents of U.S.

territories) and for non-citizens living abroad who are insured for Social

Security benefits. This starting population was then projected using assumed

rates of birth, death, marriage and divorce, and assumed levels of net immigration.

Table V.A2 shows the projected population as of July 1 by broad age group,

for the three alternatives. Also shown are tabulated aged and total dependency ratios (see table footnotes for definitions).

Table V.A2.—Social Security Area Population as of July 1 and Dependency Ratios,

Calendar Years 1950-2080 

Calendar year

Population (in thousands) Dependency ratio

Under 20 20-64

65 and

over Total Aged1 Total2

Historical data:

1950 . . . . . . . . . . . . . . 54,468 92,901 12,812 160,180 0.138 0.724

1960 . . . . . . . . . . . . . . 73,076 99,859 17,279 190,215 .173 .905

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 26,149 235,150 .195 .749

1985 . . . . . . . . . . . . . . 73,248 144,897 29,065 247,210 .201 .706

1990 . . . . . . . . . . . . . . 75,326 153,060 32,022 260,408 .209 .701

1995 . . . . . . . . . . . . . . 80,486 161,290 34,572 276,348 .214 .713

2000 . . . . . . . . . . . . . . 83,492 171,657 35,866 291,015 .209 .695

Intermediate:

2005 . . . . . . . . . . . . . . 84,733 183,015 37,145 304,894 .203 .666

2010 . . . . . . . . . . . . . . 85,453 192,316 40,368 318,137 .210 .654

2015 . . . . . . . . . . . . . . 86,417 197,711 46,608 330,736 .236 .673

2020 . . . . . . . . . . . . . . 88,412 199,937 54,299 342,649 .272 .714

2025 . . . . . . . . . . . . . . 89,423 201,035 63,014 353,471 .313 .758

2030 . . . . . . . . . . . . . . 89,980 202,326 70,494 362,801 .348 .793

2035 . . . . . . . . . . . . . . 90,332 205,682 74,843 370,856 .364 .803

2040 . . . . . . . . . . . . . . 90,879 209,566 77,360 377,804 .369 .803

2045 . . . . . . . . . . . . . . 91,688 213,052 79,142 383,883 .371 .802

2050 . . . . . . . . . . . . . . 92,701 214,909 81,799 389,409 .381 .812

2055 . . . . . . . . . . . . . . 93,578 216,295 84,894 394,768 .392 .825

2060 . . . . . . . . . . . . . . 94,246 218,032 87,945 400,223 .403 .836

2065 . . . . . . . . . . . . . . 94,844 220,848 90,108 405,800 .408 .837

2070 . . . . . . . . . . . . . . 95,527 222,958 92,829 411,314 .416 .845

2075 . . . . . . . . . . . . . . 96,316 224,829 95,447 416,592 .425 .853

2080 . . . . . . . . . . . . . . 97,137 226,409 98,071 421,617 .433 .862
83

Demographic Assumptions and Methods

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

5. Life Expectancy Estimates

Life expectancy, or average remaining number of years expected prior to

death, is a useful analytical concept. Life expectancy is calculated in two different forms, for two separate purposes.

Period life expectancy is calculated for a given year using the actual or

expected death rates at each age for that year. It is a useful summary statistic

for illustrating the overall level of the death rates experienced in a single

year. It is thus closely related to the age-sex-adjusted death rate that is disLow Cost:

2005 . . . . . . . . . . . . . . 85,054 183,433 37,113 305,599 0.202 0.666

2010 . . . . . . . . . . . . . . 87,001 194,023 40,149 321,173 .207 .655

2015 . . . . . . . . . . . . . . 89,849 200,817 46,059 336,726 .229 .677

2020 . . . . . . . . . . . . . . 94,364 204,519 53,283 352,166 .261 .722

2025 . . . . . . . . . . . . . . 98,468 207,242 61,362 367,072 .296 .771

2030 . . . . . . . . . . . . . . 102,239 210,742 68,044 381,026 .323 .808

2035 . . . . . . . . . . . . . . 105,564 216,953 71,528 394,044 .330 .816

2040 . . . . . . . . . . . . . . 109,000 224,262 73,263 406,525 .327 .813

2045 . . . . . . . . . . . . . . 112,724 231,679 74,509 418,913 .322 .808

2050 . . . . . . . . . . . . . . 116,703 237,989 76,894 431,586 .323 .813

2055 . . . . . . . . . . . . . . 120,790 244,188 79,852 444,830 .327 .822

2060 . . . . . . . . . . . . . . 124,745 251,265 82,755 458,764 .329 .826

2065 . . . . . . . . . . . . . . 128,597 260,028 84,682 473,307 .326 .820

2070 . . . . . . . . . . . . . . 132,511 268,683 87,086 488,280 .324 .817

2075 . . . . . . . . . . . . . . 136,593 277,234 89,774 503,602 .324 .817

2080 . . . . . . . . . . . . . . 140,809 285,501 93,001 519,311 .326 .819

High Cost:

2005 . . . . . . . . . . . . . . 84,385 182,525 37,172 304,081 .204 .666

2010 . . . . . . . . . . . . . . 84,014 190,846 40,611 315,471 .213 .653

2015 . . . . . . . . . . . . . . 83,317 195,317 47,259 325,893 .242 .669

2020 . . . . . . . . . . . . . . 83,082 196,587 55,554 335,223 .283 .705

2025 . . . . . . . . . . . . . . 81,415 196,667 65,106 343,188 .331 .745

2030 . . . . . . . . . . . . . . 79,319 196,462 73,658 349,438 .375 .779

2035 . . . . . . . . . . . . . . 77,330 197,738 79,204 354,272 .401 .792

2040 . . . . . . . . . . . . . . 75,724 199,033 82,900 357,656 .417 .797

2045 . . . . . . . . . . . . . . 74,491 199,465 85,680 359,636 .430 .803

2050 . . . . . . . . . . . . . . 73,546 197,819 89,099 360,464 .450 .822

2055 . . . . . . . . . . . . . . 72,339 195,444 92,807 360,591 .475 .845

2060 . . . . . . . . . . . . . . 70,931 193,026 96,450 360,407 .500 .867

2065 . . . . . . . . . . . . . . 69,560 191,241 99,260 360,061 .519 .883

2070 . . . . . . . . . . . . . . 68,381 188,317 102,719 359,418 .545 .909

2075 . . . . . . . . . . . . . . 67,360 185,229 105,673 358,262 .570 .934

2080 . . . . . . . . . . . . . . 66,388 182,039 108,088 356,515 .594 .958

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 V.A2.—Social Security Area Population as of July 1 and Dependency Ratios,

Calendar Years 1950-2080 (Cont.)

Calendar year

Population (in thousands) Dependency ratio

Under 20 20-64

65 and

over Total Aged1 Total2
Assumptions & Methods

84

cussed in section V.A.2. Period life expectancy for a particular year may be

viewed as the expected remaining life at a selected age only if it is assumed

that there is no change in death rates after that year.

Cohort life expectancy truly answers the question “What is the expected

average remaining lifetime for an individual at a selected age in a given

year?” Cohort life expectancies are calculated using death rates not from a

single year, but from the series of years in which the individual will actually

reach each succeeding age if he or she survives.

Tables V.A3 and V.A4 present historical and projected life expectancies calculated on both period and cohort bases. Cohort life expectancies are somewhat greater than period life expectancies for the same year. This is because

death rates for any given age tend to decline as time passes and the cohort

grows older.
85

Demographic Assumptions and Methods

Table V.A3.—Period Life Expectancies1

1The period life expectancy at a given age for a given year represents the average number of years of life

remaining if a group of persons at that age were to experience the mortality rates for that year over the course

of their remaining lives.

Calendar

year

Low Cost Intermediate High Cost

At birth At age 65 At birth At age 65 At birth At age 65

Male Female Male Female Male Female Male Female Male Female Male Female

Historical data:

1940 . . . . 61.4 65.7 11.9 13.4

1945 . . . . 62.9 68.4 12.6 14.4

1950 . . . . 65.6 71.1 12.8 15.1

1955 . . . . 66.7 72.8 13.1 15.6

1960 . . . . 66.7 73.2 12.9 15.9

1965 . . . . 66.8 73.8 12.9 16.3

1970 . . . . 67.2 74.9 13.1 17.1

1975 . . . . 68.7 76.6 13.7 18.0

1980 . . . . 69.9 77.5 14.0 18.4

1985 . . . . 71.1 78.2 14.4 18.6

1990 . . . . 71.8 78.9 15.0 19.0

1991 . . . . 72.0 79.0 15.1 19.1

1992 . . . . 72.2 79.2 15.2 19.2

1993 . . . . 72.0 78.9 15.1 19.0

1994 . . . . 72.3 79.0 15.3 19.0

1995 . . . . 72.5 79.0 15.3 19.0

1996 . . . . 72.9 79.2 15.4 19.0

1997 . . . . 73.4 79.3 15.5 19.1

1998 . . . . 73.7 79.4 15.6 19.0

1999 . . . . 73.8 79.3 15.7 18.9

2000 2 . . .

2 Preliminary or estimated.

73.9 79.2 15.8 18.9

20012 . . . 74.1 79.4 15.8 19.0

20022 . . . 74.2 79.5 15.9 19.0

Projected:

2005 . . . . 74.3 79.4 15.9 18.9 74.6 79.6 16.1 19.0 74.9 79.9 16.2 19.2

2010 . . . . 74.6 79.5 16.0 18.9 75.2 80.0 16.4 19.3 75.8 80.6 16.8 19.7

2015 . . . . 74.9 79.7 16.2 19.0 75.7 80.5 16.7 19.6 76.8 81.4 17.3 20.2

2020 . . . . 75.2 79.9 16.3 19.1 76.3 80.9 17.0 19.9 77.7 82.2 17.9 20.8

2025 . . . . 75.4 80.2 16.4 19.2 76.8 81.4 17.3 20.2 78.5 82.9 18.4 21.3

2030 . . . . 75.7 80.4 16.5 19.3 77.3 81.8 17.7 20.5 79.4 83.6 19.0 21.8

2035 . . . . 76.0 80.6 16.7 19.5 77.8 82.2 18.0 20.8 80.2 84.3 19.5 22.4

2040 . . . . 76.2 80.8 16.8 19.6 78.3 82.6 18.3 21.1 80.9 85.0 20.1 22.9

2045 . . . . 76.5 81.0 16.9 19.7 78.7 83.0 18.5 21.4 81.7 85.7 20.6 23.4

2050 . . . . 76.7 81.2 17.0 19.8 79.2 83.4 18.8 21.7 82.4 86.3 21.1 23.9

2055 . . . . 76.9 81.4 17.1 20.0 79.6 83.8 19.1 21.9 83.1 87.0 21.6 24.3

2060 . . . . 77.2 81.6 17.2 20.1 80.0 84.2 19.4 22.2 83.8 87.6 22.1 24.8

2065 . . . . 77.4 81.7 17.4 20.2 80.5 84.5 19.6 22.5 84.5 88.1 22.5 25.3

2070 . . . . 77.6 81.9 17.5 20.3 80.8 84.9 19.9 22.7 85.1 88.7 23.0 25.7

2075 . . . . 77.8 82.1 17.6 20.4 81.2 85.2 20.2 23.0 85.7 89.3 23.4 26.2

2080 . . . . 78.0 82.2 17.7 20.5 81.6 85.5 20.4 23.2 86.3 89.8 23.9 26.6
Assumptions & Methods

86

Table V.A4.—Cohort Life Expectancies1

1The cohort life expectancy at a given age for a given year represents the average number of years of life

remaining if a group of persons at that age were to experience the mortality rates for the series of years in

which they reach each succeeding age.

Calendar

year

Low Cost Intermediate High Cost

At birth At age 65 2

2 Age 65 cohort life expectancies are based on actual data prior to 1970.

At birth At age 652 At birth At age 65 2

Male Female Male Female Male Female Male Female Male Female Male Female

1940 . . . . 69.0 75.3 12.7 14.7 69.4 75.9 12.7 14.7 70.0 76.6 12.7 14.7

1945 . . . . 70.5 76.6 13.0 15.4 71.1 77.4 13.0 15.4 71.9 78.4 13.0 15.4

1950 . . . . 71.4 77.6 13.1 16.2 72.3 78.6 13.1 16.2 73.4 79.9 13.1 16.2

1955 . . . . 72.0 78.0 13.1 16.7 73.1 79.3 13.1 16.7 74.5 80.8 13.1 16.7

1960 . . . . 72.4 78.3 13.2 17.4 73.7 79.8 13.2 17.4 75.5 81.6 13.2 17.4

1965 . . . . 73.0 78.7 13.5 18.0 74.6 80.3 13.5 18.0 76.6 82.5 13.5 18.0

1970 . . . . 73.8 79.3 13.8 18.5 75.7 81.1 13.8 18.5 78.1 83.6 13.8 18.5

1975 . . . . 74.5 79.8 14.2 18.7 76.6 81.9 14.2 18.7 79.3 84.7 14.2 18.7

1980 . . . . 75.1 80.2 14.7 18.7 77.5 82.5 14.7 18.8 80.6 85.6 14.7 18.8

1985 . . . . 75.6 80.6 15.1 18.8 78.2 83.1 15.2 18.9 81.6 86.5 15.2 19.0

1990 . . . . 76.0 80.9 15.5 18.8 78.8 83.6 15.6 19.1 82.6 87.3 15.7 19.3

1991 . . . . 76.1 80.9 15.6 18.9 78.9 83.7 15.7 19.1 82.8 87.5 15.8 19.3

1992 . . . . 76.2 81.0 15.6 18.9 79.0 83.8 15.8 19.1 83.0 87.6 15.9 19.4

1993 . . . . 76.2 81.0 15.7 18.9 79.1 83.9 15.9 19.2 83.2 87.8 16.0 19.5

1994 . . . . 76.3 81.1 15.7 18.9 79.3 84.0 15.9 19.2 83.4 87.9 16.2 19.6

1995 . . . . 76.4 81.2 15.8 18.9 79.4 84.1 16.0 19.3 83.6 88.1 16.3 19.6

1996 . . . . 76.5 81.2 15.9 18.9 79.5 84.2 16.1 19.3 83.7 88.2 16.4 19.7

1997 . . . . 76.5 81.3 15.9 18.9 79.6 84.2 16.2 19.4 83.9 88.4 16.5 19.8

1998 . . . . 76.6 81.3 16.0 19.0 79.7 84.3 16.3 19.4 84.1 88.5 16.7 19.9

1999 . . . . 76.6 81.3 16.0 19.0 79.8 84.4 16.4 19.5 84.2 88.6 16.8 20.0

2000 . . . . 76.6 81.3 16.1 19.0 79.9 84.4 16.5 19.5 84.3 88.7 16.9 20.1

2001 . . . . 76.7 81.4 16.1 19.0 80.0 84.6 16.5 19.6 84.5 88.9 17.0 20.2

2002 . . . . 76.8 81.5 16.1 19.0 80.1 84.6 16.6 19.6 84.7 89.0 17.2 20.3

2005 . . . . 76.9 81.6 16.2 19.1 80.4 84.9 16.8 19.8 85.2 89.5 17.5 20.7

2010 . . . . 77.2 81.8 16.3 19.2 80.9 85.3 17.1 20.1 86.0 90.1 18.1 21.2

2015 . . . . 77.4 82.0 16.5 19.3 81.3 85.6 17.5 20.5 86.7 90.7 18.7 21.8

2020 . . . . 77.7 82.2 16.6 19.5 81.7 86.0 17.8 20.8 87.4 91.3 19.3 22.4

2025 . . . . 77.9 82.4 16.7 19.6 82.1 86.3 18.1 21.1 88.0 91.9 19.9 23.0

2030 . . . . 78.1 82.5 16.8 19.7 82.5 86.6 18.4 21.4 88.6 92.4 20.5 23.5

2035 . . . . 78.3 82.7 16.9 19.8 82.9 87.0 18.7 21.7 89.3 92.9 21.0 24.1

2040 . . . . 78.6 82.9 17.1 19.9 83.3 87.3 19.0 22.0 89.9 93.5 21.6 24.6

2045 . . . . 78.8 83.0 17.2 20.1 83.6 87.6 19.3 22.3 90.4 94.0 22.1 25.1

2050 . . . . 78.9 83.2 17.3 20.2 84.0 87.9 19.6 22.5 91.0 94.5 22.6 25.6

2055 . . . . 79.1 83.3 17.4 20.3 84.3 88.1 19.8 22.8 91.5 94.9 23.1 26.1

2060 . . . . 79.3 83.5 17.5 20.4 84.6 88.4 20.1 23.0 92.1 95.4 23.6 26.5

2065 . . . . 79.5 83.6 17.6 20.5 85.0 88.7 20.4 23.3 92.6 95.9 24.1 27.0

2070 . . . . 79.7 83.7 17.7 20.6 85.3 89.0 20.6 23.5 93.1 96.3 24.6 27.5

2075 . . . . 79.8 83.9 17.8 20.7 85.6 89.2 20.9 23.8 93.6 96.7 25.0 27.9

2080 . . . . 80.0 84.0 17.9 20.8 85.9 89.5 21.1 24.0 94.3 97.2 25.5 28.3
87

Economic Assumptions and Methods

B. ECONOMIC ASSUMPTIONS AND METHODS

The basic economic assumptions are embodied in three alternatives that are

designed to vary Social Security’s financial status, and illustrate the likely

range of outcomes that might be encountered. The intermediate assumptions

reflect the Trustees’ consensus expectation of moderate economic growth

throughout the projection period. The low cost assumptions represent a more

optimistic outlook, with relatively strong economic growth. The high cost

assumptions represent a relatively pessimistic scenario, with weak economic

growth and two recessions in the short-range period. Economic cycles are

not included in the 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. Based on the latest estimates, the economy is assumed to be

below its potential level of output and employment in the latter half of 2002.

This report also includes, for the first time, a stochastic projection that provides a probability distribution of possible future outcomes that is centered

around the Trustees’ intermediate assumptions. Additional economic

assumptions and modeling are required for these projections. These are discussed in appendix E.

The following sections 1 through 4 discuss the principal economic assumptions for the three alternatives that are summarized in table V.B1. The subsequent sections 5 through 7 discuss additional economic factors, summarized

in table V.B2, that are critical to the projections of the future financial status

of the combined OASI and DI Trust Funds.

1. Productivity Assumptions

Total U.S. economy productivity is defined as the ratio of real gross domestic

product (GDP) to hours worked by all workers.1 The rate of change in total

productivity is a major determinant in the growth of average earnings. For

the 40 years from 1961 to 2001, annual increases in total productivity averaged 1.7 percent, the result of average annual increases of 2.7, 1.4, 1.3, and

1.5 percent for the 10-year periods 1961-71, 1971-81, 1981-91 and

1991-2001, respectively. The ultimate annual increases in productivity are

assumed to be 1.9, 1.6, and 1.3 percent for the low cost, intermediate, and

high cost assumptions, respectively. These are the same as the ultimate rates

assumed for the 2002 report.

 1 Historical levels of real GDP are from the Bureau of Economic Analysis’ (BEA) National Income and

Product Accounts (NIPA). Historical total hours worked is an unpublished series provided by the Bureau of

Labor Statistics (BLS), and is for all civilian and military wage and salary workers and the self-employed.
Assumptions & Methods

88

For the intermediate assumptions, the annual change in productivity is

assumed to decrease from 3.6 percent in 2002 to 1.9 percent for 2003, and to

increase to 2.3 percent for 2004. This pattern reflects relatively slow economic growth assumed for the last quarter of 2002, followed by gradually

accelerating economic growth through 2003. Thereafter, the annual change

in productivity gradually decreases to the ultimate assumed level of

1.6 percent by 2011. For the low cost assumptions, the annual change in productivity decreases gradually from 3.6 percent in 2002 to the ultimate

assumed level of 1.9 percent by 2010. For the high cost assumptions, the

annual change in productivity decreases from 3.4 percent in 2002 to

1.1 percent for 2003. Thereafter, the annual change in productivity varies

with the business cycle until reaching its ultimate growth rate of 1.3 percent

for 2012.

2. Price Inflation Assumptions

Future changes in the Consumer Price Index for Urban Wage Earners and

Clerical Workers (hereafter denoted as CPI) will directly affect the OASDI

program through the automatic cost-of-living benefit increases. Future

changes in the GDP chain-type price index (hereafter, the GDP deflator)

affect the nominal levels of the GDP, wages, self-employment income, average earnings, and the taxable payroll.

Historically, the CPI has increased by an average of 4.5 percent for the 40

years from 1961 to 2001, the result of average annual increases of 3.1, 8.4,

3.9, and 2.6 percent for the 10-year periods 1961-71, 1971-81, 1981-91 and

1991-2001, respectively. The GDP deflator has increased by 4.0 percent for

1961 to 2001, and by 3.1, 7.4, 3.7, and 2.0 percent annually for the same

respective 10-year periods. It should be noted that several methodological

changes made by the Bureau of Labor Statistics in methods for computing

the CPI since 1995 will tend to reduce the difference between the growth

rates of these indices in the future.

The ultimate annual increases in the CPI are assumed to be 2.0, 3.0, and

4.0 percent for the low cost, intermediate, and high cost assumptions, respectively. For each alternative, the ultimate annual increase in the GDP deflator

is assumed to be equal to the sum of the annual increases in the CPI and a

-0.3 percentage point price differential. This differential is based primarily

on methodological differences in the construction of the two indices. Hence,

for the intermediate assumptions, the ultimate annual increase in the GDP

deflator is 2.7 percent, the sum of the 3.0 percent assumed ultimate annual

increase in the CPI and the -0.3 percentage point price differential. Similarly,

the ultimate annual increases in the GDP deflator are 1.7 and 3.7 percent for
89

Economic Assumptions and Methods

the low cost and high cost assumptions, respectively. The assumed ultimate

annual rates of increase in the CPI are the same as those used in the 2002

report. The assumed ultimate annual rates of increase in the GDP deflator for

each alternative are 0.1 percentage point lower than those used in the 2002

report. Hence, for all three alternatives, the price differential was changed

from -0.2 percentage point in the 2002 report to -0.3 percentage point in the

2003 report. This change is based on new research by the BLS indicating that

the effect of one of the methodological differences (i.e. an upper-level substitution bias embedded in the CPI measure only) is now expected to be 0.1

percentage point greater than previously estimated.

For the intermediate assumptions, the annual change in the CPI is assumed to

increase from 1.4 percent for 2002 to 2.4 percent for 2003 and 2004. Thereafter, the annual change in the CPI increases gradually to the assumed ultimate rate of 3.0 percent as of 2007. For the low cost assumptions, the annual

change in the CPI increases from 1.4 percent for 2002 to 2.2 percent for

2003, then decreases to the assumed ultimate rate of 2.0 percent for 2004.

For the high cost assumptions, the annual change in the CPI increases from

1.4 percent for 2002 to 5.8 percent for 2006, and decreases to its assumed

ultimate rate of 4.0 percent as of 2010. The price differential, defined as the

percent change in the GDP deflator less the CPI percent change, is

-0.3 percentage point in 2002. For all three alternatives, the price differential

is projected to be -0.8 percentage point for 2003, -0.6 percentage point for

2004, and to move smoothly toward -0.3 percentage point as of 2009 and

later.

3. Average Earnings Assumptions

The level of average (nominal) earnings in OASDI covered employment for

each year has a direct effect on the size of the taxable payroll and on the

future level of average benefits. In addition, increases in the level of average

wages in the U.S. economy directly affect the indexation, under the automatic-adjustment provisions in the law, of the OASDI 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.

These concepts are closely linked to average U.S. earnings, defined as the

ratio of the sum of total U.S. wage and salary disbursements and proprietor

income to the sum of total U.S. military and total civilian (household)

employment. The growth rates in average U.S. earnings can be broken down

into the growth rates for total U.S. economy productivity and the GDP price

index (see previous two sections), and the growth rates for other compo-
Assumptions & Methods

90

nents, including average hours worked, the ratio of earnings to compensation

(which includes fringe benefits), and the ratio of compensation to GDP.

The average annual change in average hours worked was -0.1 percent over

the last 40 years, and -0.4, -0.5, 0.0, and 0.4 percent for the 10-year periods

1961-71, 1971-81, 1981-91 and 1991-2001, respectively. Though the historical data by 10-year periods suggest that the trend growth rate in average

hours worked may have shifted from negative to positive, other evidence

indicates differently. Some of the recent increase in the average percent

change in average hours worked is believed to be associated with changes in

the distribution of employment by age/sex and by educational attainment. In

the future, these distributions are expected to largely stabilize. Furthermore,

the percent average annual change in average hours worked over the post1990 period is expected to be revised downward when the BLS releases

revised civilian employment data reflecting higher population levels associated with the 2000 Census. Finally, it is believed that workers will take part

of their future gains in real earnings (due to the assumed growth in productivity) in increased leisure time, therefore reducing average hours worked.

However, the most recent data and analyses suggest a slightly stronger

underlying move toward a less negative growth rate in average hours worked

over the historical period. The BLS revisions to the Household Survey data

are now known and indicate that the post-1990 percent average annual

change in average hours worked, after adjusting for changes in the age-sex

and educational distribution of the workforce, was positive. Furthermore,

productivity was relatively high in the post-1990 period, suggesting a potentially less robust link between increases in real earnings and leisure. Consequently, for the 2003 report, the ultimate annual rates of change for average

hours worked are assumed to be 0.1, 0.0, and -0.1 percent for the low cost,

intermediate, and high cost assumptions, respectively. Compared to the 2002

report, these ultimate annual rates of change for average hours worked are

0.1 percentage point higher in all three alternatives.

The average annual change in the ratio of earnings to compensation was

-0.2 percent from 1961 to 2001. The assumed ultimate annual rates of change

are -0.1, -0.2, and -0.3 percent for the ratio of earnings to compensation, for

the low cost, intermediate, and high cost assumptions, respectively. The ratio

of compensation to GDP is assumed to be stable.

Thus, the ultimate projected annual growth rate in average U.S. earnings is

about 4.1 percent for the intermediate assumptions. This reflects assumed

ultimate annual growth rates of about 1.6, -0.2, 0.0, and 2.7 percent for productivity, the ratio of earnings to compensation, average hours worked, and
91

Economic Assumptions and Methods

the GDP deflator, respectively. Similarly, the ultimate projected annual

growth rate in average nominal U.S. earnings is 3.6 percent for the low cost

assumptions and 4.6 percent for the high cost assumptions.

Over long periods of time the average annual growth rates in average U.S.

earnings and average earnings in OASDI covered employment are expected

to be very close to the average annual growth rates in the average wage in

OASDI covered employment (henceforth the average covered wage). Thus,

the assumed ultimate annual growth rates in the average covered wage are

3.6, 4.1, and 4.6 percent for the low cost, intermediate, and high cost

assumptions, respectively. For the intermediate assumptions, the annual rate

of change in the average covered wage is assumed to increase from the estimated 1.9 percent increase in 2002 to 3.9 percent for 2003, and to 4.4 percent

for 2004, as the economy recovers. For 2005 and later, the annual rate of

change in the average covered wage moves gradually to its assumed ultimate

annual growth rate of 4.1 percent. (See table V.B1 for historical and assumed

future values.)

While the assumed ultimate projected annual growth rates in the average

wage in OASDI covered employment and in the average nominal U.S. earnings in the 2003 Trustees Report are the same as the assumed ultimate projected annual growth rates in last year’s report, the levels in last year’s report

are significantly higher. This occurred because the Bureau of Economic

Analysis (BEA) overestimated wages for 2001 and 2002 in its initial release

of National Income and Product Accounts (NIPA) data. Subsequently, as part

of its annual July 2002 revisions to the NIPA, the BEA lowered its previous

estimate of the level of NIPA wage and salary disbursements by about 2.9

percent for 2001 and by 3.8 percent for the first quarter of 2002. Thus, for the

2002 Trustees Report, the projected annual level of wages was overestimated

by 2.9 percent for 2001 and by about 4.0 percent for 2002, which was then

carried forward as overestimates in the average wage in OASDI covered

employment and in the average nominal U.S. earnings in 2003 and later.

4. Assumed Real-Wage Differentials

For simplicity, real increases in the average OASDI covered wage have traditionally been expressed in the form of real-wage differentials—i.e., the percentage change in the average covered wage minus the percentage change in

the CPI. This differential is closely related to assumed growth rates in average earnings and productivity, which are discussed in the previous section.

Over the 40-year period, 1962-2001, the real-wage differential averaged

1.2 percentage points, the result of averages of 1.8, -0.2, 1.0, and 1.8 percentage points for the 10-year periods 1962-71, 1972-81, 1982-91, and
Assumptions & Methods

92

1992-2001, respectively. The assumed ultimate annual average covered realwage differentials are 1.6, 1.1, and 0.6 percentage point(s) for the low cost,

intermediate, and high cost assumptions, respectively.

Based on preliminary data, the real-wage differential was 0.5 percentage

point for 2002. For the intermediate assumptions, the real-wage differential

is projected to rise to about 2.0 percentage points by 2004, as the economy

recovers. The real-wage differential is projected to fall to 1.6 percentage

points for 2005, 1.4 percentage points for 2006, and to the ultimate assumed

differential of 1.1 percentage points (4.1 percent nominal wage growth less

3.0 percent CPI inflation) by 2012.

For the low cost assumptions, the real-wage differential is assumed to be in

the range of 0.5 percentage point to 2.3 percentage points between 2002 and

2010, remaining at about the ultimate assumed real-wage differential of

1.6 percentage points thereafter. For the high cost assumptions, the real-wage

differential for the short-range period is projected to fluctuate between -1.1

and 2.5 percentage points, eventually stabilizing at about 0.6 percentage

point for 2011 and later.
93

Economic Assumptions and Methods

Table V.B1.—Principal Economic Assumptions

Calendar year 

Average annual percentage increase in—

Realwage

differential1

Productivity

(Total U.S.

economy)

Earnings as

a percent of

compensation

Average

hours

worked

GDP

price

index

Average

annual wage

in covered

employment

Consumer

Price

Index2

Historical data:

1960 to 1965. . . . 3.4 -0.2 0.0 1.4 3.2 1.2 2.0

1965 to 1970. . . . 1.9 -.4 -.7 4.1 5.8 4.2 1.6

1970 to 1975. . . . 2.1 -.7 -.9 6.6 6.6 6.8 -.1

1975 to 1980. . . . 1.0 -.6 -.2 7.3 8.7 8.9 -.2

1980 to 1985. . . . 1.6 -.2 -.1 5.3 6.7 5.2 1.4

1985 to 1990. . . . 1.2 .0 .0 3.3 4.7 3.8 .9

1990 to 1995. . . . 1.1 -.1 .3 2.5 3.4 3.0 .4

1995 to 2000. . . . 2.0 .7 .4 1.7 5.6 2.4 3.2

1992 . . . . . . . . . . 2.9 .2 -.4 2.4 4.9 2.9 2.0

1993 . . . . . . . . . . .3 -1.0 1.0 2.4 1.9 2.8 -.9

1994 . . . . . . . . . . 1.1 -.4 .7 2.1 3.4 2.5 1.0

1995 . . . . . . . . . . .4 1.0 .9 2.2 4.0 2.9 1.1

1996 . . . . . . . . . . 2.2 1.2 .0 1.9 4.4 2.9 1.5

1997 . . . . . . . . . . 1.6 1.2 .6 1.9 5.9 2.3 3.6

1998 . . . . . . . . . . 1.9 .4 .9 1.2 6.1 1.3 4.8

1999 . . . . . . . . . . 2.1 .2 .5 1.4 5.5 2.2 3.3

2000 . . . . . . . . . . 2.4 .3 .1 2.1 6.2 3.5 2.7

2001 . . . . . . . . . . .8 -.3 -.4 2.4 1.8 2.7 -.9

2002 . . . . . . . . . . 3.6 -.5 -.5 1.1 1.9 1.4 .5

Intermediate: 

2003 . . . . . . . . . . 1.9 -.1 -.1 1.6 3.9 2.4 1.5

2004 . . . . . . . . . . 2.3 -.1 .0 1.8 4.4 2.4 2.0

2005 . . . . . . . . . . 2.1 -.1 .0 2.2 4.3 2.7 1.6

2006 . . . . . . . . . . 1.9 -.1 .0 2.5 4.3 2.9 1.4

2007 . . . . . . . . . . 1.8 -.1 .0 2.6 4.4 3.0 1.4

2008 . . . . . . . . . . 1.7 -.1 .0 2.6 4.3 3.0 1.3

2009 . . . . . . . . . . 1.7 -.1 .0 2.7 4.3 3.0 1.3

2010 . . . . . . . . . . 1.7 -.1 .0 2.7 4.2 3.0 1.2

2011 . . . . . . . . . . 1.6 -.1 .0 2.7 4.2 3.0 1.2

2012 . . . . . . . . . . 1.6 -.1 .0 2.7 4.1 3.0 1.1

2015 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2020 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2025 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2030 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2035 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2040 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2045 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2050 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2055 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2060 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2065 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2070 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2075 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1

2080 . . . . . . . . . . 1.6 -.2 .0 2.7 4.1 3.0 1.1
Assumptions & Methods

94

Low Cost: 

2003 . . . . . . . . . . 2.4 0.0 -0.1 1.4 4.4 2.2 2.3

2004 . . . . . . . . . . 2.4 -.1 .0 1.4 4.2 2.0 2.2

2005 . . . . . . . . . . 2.2 .0 .0 1.5 3.9 2.0 1.9

2006 . . . . . . . . . . 2.1 .0 .0 1.6 3.7 2.0 1.7

2007 . . . . . . . . . . 2.1 .0 .1 1.6 3.8 2.0 1.8

2008 . . . . . . . . . . 2.0 -.1 .1 1.6 3.7 2.0 1.7

2009 . . . . . . . . . . 2.0 -.1 .1 1.7 3.7 2.0 1.7

2010 . . . . . . . . . . 1.9 -.1 .1 1.7 3.7 2.0 1.7

2011 . . . . . . . . . . 1.9 -.1 .1 1.7 3.7 2.0 1.7

2012 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2015 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2020 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2025 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2030 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2035 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2040 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2045 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2050 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2055 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2060 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2065 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2070 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2075 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

2080 . . . . . . . . . . 1.9 -.1 .1 1.7 3.6 2.0 1.6

High Cost: 

2003 . . . . . . . . . . 1.1 -.2 -.1 1.8 2.5 2.5 .0

2004 . . . . . . . . . . 2.7 -.1 -.1 2.4 5.5 3.0 2.5

2005 . . . . . . . . . . 1.7 -.2 -.1 4.0 5.8 4.5 1.3

2006 . . . . . . . . . . .1 -.3 -.1 5.4 4.8 5.8 -1.1

2007 . . . . . . . . . . 1.9 -.3 -.1 5.4 6.2 5.8 .4

2008 . . . . . . . . . . 2.0 -.2 -.1 4.5 6.9 4.9 2.0

2009 . . . . . . . . . . 1.2 -.3 -.1 3.8 5.0 4.1 .9

2010 . . . . . . . . . . 1.2 -.2 -.1 3.7 4.5 4.0 .5

2011 . . . . . . . . . . 1.2 -.2 -.1 3.7 4.6 4.0 .6

2012 . . . . . . . . . . 1.3 -.2 -.1 3.7 4.6 4.0 .6

2015 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2020 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2025 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2030 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2035 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2040 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2045 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2050 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2055 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2060 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2065 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2070 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2075 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

2080 . . . . . . . . . . 1.3 -.3 -.1 3.7 4.6 4.0 .6

1The 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. 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).

Table V.B1.—Principal Economic Assumptions (Cont.)

Calendar year 

Average annual percentage increase in—

Realwage

differential1

Productivity

(Total U.S.

economy)

Earnings as

a percent of

compensation

Average

hours

worked

GDP

price

index

Average

annual wage

in covered

employment

Consumer

Price

Index2
95

Economic Assumptions and Methods

5. Labor Force and Unemployment Projections

The civilian labor force is projected by age, sex, marital status, and presence

of children. Projections of the labor force participation rates for each subgroup take into account the percentages of the population that are disabled or

in the military, the levels of Social Security retirement benefits, the state of

the economy, and (starting with this report) changes in life expectancy. The

projections also include a “lagged-cohort effect” that applies changes in participation rates for a cohort at a specific age (relative to earlier cohorts at the

same age) to participation rates for that cohort at older ages.

The annual rate of growth in the size of the labor force decreased from an

average of about 2.1 percent during the 1970s and 1980s to about 1.1 percent

from 1990 to 2000. Further slowing of labor force growth is projected due to

a substantial slowing of growth in the working age population in the future—

a natural consequence of the baby-boom generation approaching retirement

and the succeeding lower-birth-rate cohorts reaching working age. The projected slowdown in labor force growth also reflects a slowdown in the relatively rapid growth in older female labor force participation rates by about

2006. Under the intermediate assumptions, after 2001 the labor force is projected to increase by about 1.0 percent per year, on average, through 2012,

and to increase much more slowly thereafter, ultimately reaching a

0.2 percent annual growth rate over the final third of the 75-year projection

period.

The ultimate projected labor force participation rates are not basic assumptions. They are derived from a historically-based structural relationship using

demographic and economic assumptions specific to each alternative. In past

Trustees reports, because little variation in the structural relationship is

assumed, and participation rates are not highly sensitive to most of the demographic and economic assumptions, the ultimate projected labor force participation rates vary only slightly into the future, and across alternatives.

However, the projected participation rates for prime-age and older males and

females are adjusted upward due to assumed increases in their life expectancies. By itself, this results in a total labor force that is about 1.8 percent

higher by 2080.

For men, the projected age-adjusted labor force participation rates for 2080

are 74.4, 74.2, and 74.3 percent for the low cost, intermediate, and high cost

assumptions, respectively, compared to the 2001 level of 74.3 percent. (Ageadjusted labor force participation rates are adjusted to the 2001 age distribution of the civilian noninstitutional U.S. population.) These are the net effect

of increases due to assumed improvements in life expectancy, and decreases
Assumptions & Methods

96

due to higher assumed disability prevalence rates and an increasing proportion of males who are never married. For women, the projected age-adjusted

labor force participation rates for 2080 are 61.1, 61.1, and 61.0 percent, for

the low cost, intermediate, and high cost assumptions, respectively, compared to the 2001 level of 60.1 percent. These projections are the net effect

of decreases due to higher assumed disability prevalence rates, increases due

to assumed improvements in life expectancy, and increases due to assumed

changes in the proportion of females who are never married, separated, widowed, or divorced.

The unemployment rate presented in table V.B2 is in the most commonly

cited form, the civilian rate. For years through 2012, total rates are presented

without adjustment for changes in the age-sex distribution of the population.

For years after 2012, unemployment rates are presented as total age-sex

adjusted rates (using the age-sex distribution of the 2001 civilian labor

force). Age-sex adjusted rates allow for more meaningful comparisons

across longer time periods.

The total unemployment rate reflects the projected levels of unemployment

for various age-sex subgroups of the population. The unemployment rate for

each subgroup is projected based on a specification (consistent with Okun’s

Law) relating changes in the unemployment rate to the changes in the business cycle, as measured by the ratio of the actual to potential GDP. For each

alternative, the total unemployment rate is projected to move toward the ultimate assumed rate as the economy moves toward the long-range sustainable

growth path.

The ultimate age-sex adjusted unemployment rate for each alternative is

assumed to be reached by 2012. After 2012, the age-sex adjusted rate is stable because the ratio of actual to potential GDP is assumed to be constant.

The ultimate assumed unemployment rates are 4.5, 5.5, and 6.5 percent for

the low cost, intermediate, and high cost assumptions, respectively. These are

the same values assumed in the 2002 report.

6. Gross Domestic Product Projections

The real growth rate in gross domestic product (GDP) equals the combined

growth rates for total employment, productivity, and average hours worked.

Total employment is the sum of the U.S. Armed Forces and total civilian

employment, which is based on the projected total civilian labor force and

unemployment rates. For the 40-year period from 1961 to 2001, the average

growth rate in real GDP was 3.4 percent, combining the growth rates of 1.7,
97

Economic Assumptions and Methods

1.7, and -0.1 percent for its components—total employment, productivity,

and average hours worked, respectively.

For the intermediate assumptions, the average annual growth in real GDP is

projected to be 2.9 percent over the short-range projection period (2003-12),

a slower rate than the 3.4 percent average observed over the historical

40-year period (1961-2001). This slowdown is primarily due to slower projected growth in total employment. For the low cost assumptions, annual

growth in real GDP is projected to average 3.4 percent over the decade ending in 2012. The relatively faster growth is due mostly to a higher assumed

rate of growth in worker productivity. For the high cost assumptions, real

GDP is assumed to fall in the fourth quarter of 2002 and in the first quarter of

2003, resulting in a total decline in real GDP of 0.9 percent. After 12 quarters

of recovery, a second recession, with a total decline in real GDP of

1.5 percent, is assumed to begin in the second quarter of 2006 and last

3 quarters. After the second recession, a moderate economic recovery is

assumed through 2009, with continued modest economic growth thereafter.

For the high cost assumptions, annual growth in real GDP is projected to

average 2.1 percent for the decade ending in 2012.

After 2012, no economic cycles are assumed for the three alternatives. Thus,

projected rates of growth in real GDP are determined by the projected fullemployment rate of growth for total employment, and the assumed fullemployment rates of growth for total U.S. economy productivity and average

hours worked. For the intermediate assumptions, the projected rate of growth

for real GDP falls toward the assumed productivity growth rate because of

the projected decline in labor force growth over the period. By 2080, the

growth in real GDP slows to about 1.8 percent, due to the assumed ultimate

percent changes of 0.2, 1.6, and 0.0 for total employment, productivity, and

average hours worked, respectively. In last year’s report, real GDP growth

was 1.6 percent by 2080, due to the assumed ultimate percent changes of 0.2,

1.6, and -0.1 for total employment, productivity, and average hours worked,

respectively.

7. Interest Rate Projections

The interest rate presented in table V.B2 for each year is the average of the

nominal interest rates for special U.S. Government obligations issuable to

the trust funds in each of the 12 months of the year. Interest for these securities is generally compounded semiannually. The real interest rate (ex post) is

defined to be the annual (compounded) yield rate for investments in these

securities divided by the annual rate of growth in the CPI for the first year

after issuance. For 2002, the average annual nominal interest rate for securi-
Assumptions & Methods

98

ties newly issued to the trust funds was 4.9 percent, a decrease of

0.3 percentage point from the average nominal interest rate of 5.2 percent for

2001.

In developing a reasonable range of assumed ultimate future real interest

rates for the three alternatives, historical experience was examined for the 40

years, 1962-2001, and for each of the 10-year subperiods, 1962-71, 1972-81,

1982-91, and 1992-2001. For the 40-year period, the real interest rate averaged 3.3 percent per year. For the four 10-year subperiods, the real interest

rates averaged 2.3, 0.2, 6.5 and 4.3 percent, respectively. The assumed ultimate real interest rates are 3.7 percent, 3.0 percent, and 2.2 percent for the

low cost, intermediate, and high cost assumptions, respectively. The ultimate

real yields are assumed to be reached by the end of the short-range period.

These annual real yields are the same as those assumed in the 2002 report.

These ultimate real interest rates, when combined with the ultimate CPI

assumptions of 2.0, 3.0, and 4.0 percent, yield ultimate nominal interest rates

of about 5.7 percent for the low cost assumptions, 6.0 percent for the intermediate assumptions, and about 6.2 percent for the high cost assumptions.

For the 10-year short-range projection period, nominal interest rates are projected based on changes in the business cycle and in the CPI. Under the intermediate assumptions, the nominal interest rate is projected to rise from

4.9 percent in 2002 to 6.4 percent in 2006, reflecting a recovering economy

along with a higher rate of inflation. Thereafter, the nominal interest rate

declines steadily to the ultimate assumed level of 6.0 percent in 2010. For the

low cost assumptions, the average annual nominal interest rate is assumed to

reach an ultimate level of about 5.7 percent in 2007. For the high cost

assumptions, it is assumed to peak at 8.3 percent in 2007, and then decline to

an ultimate rate of about 6.2 percent in 2011.
99

Economic Assumptions and Methods

Table V.B2.—Additional Economic Factors

Calendar year 

Average annual

unemployment rate1

(percent)

Average annual percentage increase in— Average annual

interest rate2

(percent)

Labor

force3 Total

employment4 RealGDP5

Historical data:

1960 to 1965. . . . . 5.5 1.3 1.6 5.0 4.0

1965 to 1970. . . . . 3.9 2.2 2.1 3.4 5.9

1970 to 1975. . . . . 6.1 2.5 1.5 2.7 6.7

1975 to 1980. . . . . 6.8 2.7 2.9 3.7 8.5

1980 to 1985. . . . . 8.3 1.5 1.5 3.1 12.1

1985 to 1990. . . . . 5.9 1.7 2.0 3.2 8.5

1990 to 1995. . . . . 6.6 1.0 .9 2.4 7.0

1995 to 2000. . . . . 4.6 1.3 1.6 4.0 6.2

1992 . . . . . . . . . . . 7.5 1.4 .5 3.1 7.1

1993 . . . . . . . . . . . 6.9 .8 1.3 2.7 6.1

1994 . . . . . . . . . . . 6.1 1.4 2.2 4.0 7.1

1995 . . . . . . . . . . . 5.6 1.0 1.4 2.7 6.9

1996 . . . . . . . . . . . 5.4 1.2 1.4 3.6 6.6

1997 . . . . . . . . . . . 4.9 1.8 2.2 4.4 6.6

1998 . . . . . . . . . . . 4.5 1.0 1.4 4.3 5.6

1999 . . . . . . . . . . . 4.2 1.2 1.5 4.1 5.9

2000 . . . . . . . . . . . 4.0 1.1 1.2 3.8 6.2

2001 . . . . . . . . . . . 4.8 .7 -.1 .3 5.2

2002 . . . . . . . . . . . 5.8 .5 -.6 2.4 4.9

Intermediate: 

2003 . . . . . . . . . . . 6.0 1.3 1.1 2.9 5.1

2004 . . . . . . . . . . . 5.9 1.2 1.3 3.6 6.2

2005 . . . . . . . . . . . 5.7 1.2 1.4 3.5 6.3

2006 . . . . . . . . . . . 5.6 1.1 1.3 3.2 6.4

2007 . . . . . . . . . . . 5.5 1.1 1.1 3.0 6.3

2008 . . . . . . . . . . . 5.5 1.0 1.0 2.8 6.2

2009 . . . . . . . . . . . 5.5 .9 .9 2.6 6.1

2010 . . . . . . . . . . . 5.5 .8 .8 2.5 6.0

2011 . . . . . . . . . . . 5.4 .7 .7 2.4 6.0

2012 . . . . . . . . . . . 5.4 .6 .6 2.2 6.0

2015 . . . . . . . . . . . 5.5 .4 .4 2.0 6.0

2020 . . . . . . . . . . . 5.5 .3 .3 1.9 6.0

2025 . . . . . . . . . . . 5.5 .3 .3 1.9 6.0

2030 . . . . . . . . . . . 5.5 .3 .3 1.9 6.0

2035 . . . . . . . . . . . 5.5 .3 .3 1.9 6.0

2040 . . . . . . . . . . . 5.5 .3 .3 1.9 6.0

2045 . . . . . . . . . . . 5.5 .3 .3 1.8 6.0

2050 . . . . . . . . . . . 5.5 .2 .2 1.8 6.0

2055 . . . . . . . . . . . 5.5 .2 .2 1.8 6.0

2060 . . . . . . . . . . . 5.5 .2 .2 1.8 6.0

2065 . . . . . . . . . . . 5.5 .2 .2 1.8 6.0

2070 . . . . . . . . . . . 5.5 .2 .2 1.8 6.0

2075 . . . . . . . . . . . 5.5 .2 .2 1.8 6.0

2080 . . . . . . . . . . . 5.5 .2 .2 1.8 6.0
Assumptions & Methods

100

Low Cost: 

2003 . . . . . . . . . . . 5.7 1.4 1.5 3.8 5.4

2004 . . . . . . . . . . . 5.4 1.4 1.7 4.1 6.1

2005 . . . . . . . . . . . 5.1 1.3 1.6 3.8 5.9

2006 . . . . . . . . . . . 5.0 1.2 1.4 3.6 5.8

2007 . . . . . . . . . . . 4.9 1.2 1.3 3.5 5.7

2008 . . . . . . . . . . . 4.8 1.1 1.3 3.4 5.7

2009 . . . . . . . . . . . 4.6 1.0 1.2 3.3 5.7

2010 . . . . . . . . . . . 4.5 .9 1.1 3.1 5.7

2011 . . . . . . . . . . . 4.4 .9 .9 3.0 5.7

2012 . . . . . . . . . . . 4.4 .8 .8 2.8 5.7

2015 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2020 . . . . . . . . . . . 4.5 .5 .5 2.5 5.7

2025 . . . . . . . . . . . 4.5 .4 .4 2.4 5.7

2030 . . . . . . . . . . . 4.5 .5 .5 2.5 5.7

2035 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2040 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2045 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2050 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2055 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2060 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2065 . . . . . . . . . . . 4.5 .7 .7 2.7 5.7

2070 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2075 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

2080 . . . . . . . . . . . 4.5 .6 .6 2.6 5.7

High Cost: 

2003 . . . . . . . . . . . 6.7 1.0 .1 1.0 4.7

2004 . . . . . . . . . . . 6.4 1.0 1.3 3.9 7.0

2005 . . . . . . . . . . . 6.0 1.1 1.5 3.1 8.0

2006 . . . . . . . . . . . 6.5 .9 .4 .4 7.9

2007 . . . . . . . . . . . 7.2 .6 -.1 1.7 8.3

2008 . . . . . . . . . . . 6.5 1.0 1.7 3.7 8.2

2009 . . . . . . . . . . . 6.3 .9 1.1 2.2 6.7

2010 . . . . . . . . . . . 6.4 .7 .6 1.7 6.3

2011 . . . . . . . . . . . 6.4 .7 .6 1.7 6.2

2012 . . . . . . . . . . . 6.4 .5 .6 1.7 6.2

2015 . . . . . . . . . . . 6.5 .3 .3 1.5 6.2

2020 . . . . . . . . . . . 6.5 .2 .2 1.4 6.2

2025 . . . . . . . . . . . 6.5 .2 .2 1.4 6.2

2030 . . . . . . . . . . . 6.5 .2 .2 1.4 6.2

2035 . . . . . . . . . . . 6.5 .1 .1 1.3 6.2

2040 . . . . . . . . . . . 6.5 .0 .0 1.2 6.2

2045 . . . . . . . . . . . 6.5 -.1 -.1 1.1 6.2

2050 . . . . . . . . . . . 6.5 -.1 -.1 1.1 6.2

2055 . . . . . . . . . . . 6.5 -.2 -.2 1.0 6.2

2060 . . . . . . . . . . . 6.5 -.2 -.2 1.0 6.2

2065 . . . . . . . . . . . 6.5 -.2 -.2 .9 6.2

2070 . . . . . . . . . . . 6.5 -.3 -.3 .9 6.2

2075 . . . . . . . . . . . 6.5 -.3 -.3 .9 6.2

2080 . . . . . . . . . . . 6.5 -.3 -.3 .9 6.2

1 Unadjusted civilian unemployment rates are shown through 2012. Thereafter, the rates are adjusted to the

age-sex distribution of the civilian labor force in 2001.

2 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.

3 The U.S. civilian labor force concept is used here.

4 Total of civilian and military employment in the U.S. economy.

5 The real GDP (gross domestic product) is the value of total output of goods and services, expressed in 1996

dollars.

Table V.B2.—Additional Economic Factors (Cont.)

Calendar year 

Average annual

unemployment rate1

(percent)

Average annual percentage increase in— Average annual

interest rate2

(percent)

Labor

force3 Totalemployment4 RealGDP5
101

Program Assumptions and Methods

C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS

The demographic and economic assumptions and methods described in the

previous sections are used in a set of models to project future income and

cost under the OASDI program. In some cases, the economic assumptions

result in the direct calculation of program parameters as described in the following subsection. These parameters affect the level of payroll taxes collected and the level of benefits paid and are calculated using formulas

described explicitly in the Social Security Act. In other cases, the combination of demographic and economic assumptions are used indirectly to drive

more complicated models that project the numbers of future workers covered

under OASDI and the levels of their covered earnings, and the numbers of

future beneficiaries and the expected levels of their benefits. The following

subsections provide brief descriptions of the derivations of these programspecific factors.

1. Automatically Adjusted Program Amounts

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. These automatic adjustments are based upon measured changes in the national average

wage index and the CPI.1 In this section, values are shown for program

amounts that are subject to automatic adjustment, from the time that such

adjustments became effective through 2012. Projected values for future years

are based on the economic assumptions described in the preceding section of

this report.

The following two tables present the historical and projected values of the

CPI-based benefit increases, as well as the average wage index series and the

values of many of the wage-indexed program amounts. In each table, the

projections are shown under the three alternative sets of economic assumptions described in the previous section. Table V.C1 includes:

 • The annual percentage increases which have been applied to OASDI

benefits under automatic cost-of-living adjustment provisions in the

Social Security Act, based on increases in the CPI.

 1 Details of these indexation procedures are published annually in the Federal Register, and are also available on the Internet at http://www.ssa.gov/OACT/COLA/index.html.
Assumptions & Methods

102

 • The annual levels of and percentage increases in the national average

wage index. Under section 215(b)(3) of the Social Security Act, the

national average wage index for each year after 1950 is used to index

the taxable 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 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 other program amounts that are subject to the automatic-adjustment provisions.

 • The OASDI contribution and benefit base—the maximum amount of

earnings subject to the OASDI payroll tax in the specified year.

 • The retirement earnings test exempt amounts—the annual amount of

earnings below which beneficiaries are not subject to benefit withholding. A lower exempt amount applies in years before a beneficiary

attains normal retirement age (NRA). A higher amount applies for the

year in which the beneficiary attains normal retirement age. The retirement test does not apply beginning with the attainment of normal retirement age.
103

Program Assumptions and Methods

Table V.C1.—Cost-of-Living Benefit Increases, Average Wage Index, Contribution and 

Benefit Bases, and Retirement Earnings Test Exempt Amounts, 1975-2012

Calendar year

OASDI

benefit

increases1

(percent)

Average wage index 2 OASDI

contribution

and benefit

base 3

Retirement earnings

test exempt amount

Amount

Increase

(percent)

Under

NRA4 At NRA5

Historical data:

1975 . . . . . . . . . . . 8.0 $8,630.92 7.5 $14,100 $2,520 $2,520

1976 . . . . . . . . . . . 6.4 9,226.48 6.9 15,300 2,760 2,760

1977 . . . . . . . . . . . 5.9 9,779.44 6.0 16,500 3,000 3,000

1978 . . . . . . . . . . . 6.5 10,556.03 7.9 17,700 3,240 4,000

1979 . . . . . . . . . . . 9.9 11,479.46 8.7 22,900 3,480 4,500

1980 . . . . . . . . . . . 14.3 12,513.46 9.0 25,900 3,720 5,000

1981 . . . . . . . . . . . 11.2 13,773.10 10.1 29,700 4,080 5,500

1982 . . . . . . . . . . . 7.4 14,531.34 5.5 32,400 4,440 6,000

1983 . . . . . . . . . . . 3.5 15,239.24 4.9 35,700 4,920 6,600

1984 . . . . . . . . . . . 3.5 16,135.07 5.9 37,800 5,160 6,960

1985 . . . . . . . . . . . 3.1 16,822.51 4.3 39,600 5,400 7,320

1986 . . . . . . . . . . . 1.3 17,321.82 3.0 42,000 5,760 7,800

1987 . . . . . . . . . . . 4.2 18,426.51 6.4 43,800 6,000 8,160

1988 . . . . . . . . . . . 4.0 19,334.04 4.9 45,000 6,120 8,400

1989 . . . . . . . . . . . 4.7 20,099.55 4.0 48,000 6,480 8,880

1990 . . . . . . . . . . . 5.4 21,027.98 4.6 51,300 6,840 9,360

1991 . . . . . . . . . . . 3.7 21,811.60 3.7 53,400 7,080 9,720

1992 . . . . . . . . . . . 3.0 22,935.42 5.2 55,500 7,440 10,200

1993 . . . . . . . . . . . 2.6 23,132.67 .9 57,600 7,680 10,560

1994 . . . . . . . . . . . 2.8 23,753.53 2.7 60,600 8,040 11,160

1995 . . . . . . . . . . . 2.6 24,705.66 4.0 61,200 8,160 11,280

1996 . . . . . . . . . . . 2.9 25,913.90 4.9 62,700 8,280 12,500

1997 . . . . . . . . . . . 2.1 27,426.00 5.8 65,400 8,640 13,500

1998 . . . . . . . . . . . 1.3 28,861.44 5.2 68,400 9,120 14,500

1999 . . . . . . . . . . . 62.5 30,469.84 5.6 72,600 9,600 15,500

2000 . . . . . . . . . . . 3.5 32,154.82 5.5 76,200 10,080 17,000

2001 . . . . . . . . . . . 2.6 32,921.92 2.4 80,400 10,680 25,000

Intermediate:

2002 . . . . . . . . . . . 71.4 33,476.75 1.7 784,900 711,280 30,000

2003 . . . . . . . . . . . 2.3 34,730.66 3.7 787,000 711,520 730,720

2004 . . . . . . . . . . . 2.4 36,202.65 4.2 88,500 11,760 31,200

2005 . . . . . . . . . . . 2.8 37,733.96 4.2 91,800 12,120 32,400

2006 . . . . . . . . . . . 2.9 39,338.44 4.3 95,700 12,720 33,720

2007 . . . . . . . . . . . 3.0 41,033.61 4.3 99,600 13,200 35,160

2008 . . . . . . . . . . . 3.0 42,771.99 4.2 103,800 13,800 36,720

2009 . . . . . . . . . . . 3.0 44,566.15 4.2 108,300 14,400 38,280

2010 . . . . . . . . . . . 3.0 46,409.05 4.1 113,100 15,000 39,960

2011 . . . . . . . . . . . 3.0 48,325.83 4.1 117,900 15,600 41,520

2012 . . . . . . . . . . . 3.0 50,293.80 4.1 122,700 16,320 43,320

Low Cost:

2002 . . . . . . . . . . . 71.4 33,547.79 1.9 784,900 711,280 30,000

2003 . . . . . . . . . . . 2.0 34,907.44 4.1 787,000 711,520 730,720

2004 . . . . . . . . . . . 2.0 36,337.05 4.1 88,500 11,760 31,320

2005 . . . . . . . . . . . 2.0 37,740.22 3.9 92,100 12,240 32,520

2006 . . . . . . . . . . . 2.0 39,121.33 3.7 96,000 12,720 33,960

2007 . . . . . . . . . . . 2.0 40,568.05 3.7 99,600 13,200 35,160

2008 . . . . . . . . . . . 2.0 42,055.17 3.7 103,500 13,680 36,480

2009 . . . . . . . . . . . 2.0 43,599.78 3.7 107,100 14,280 37,800

2010 . . . . . . . . . . . 2.0 45,172.07 3.6 111,000 14,760 39,240

2011 . . . . . . . . . . . 2.0 46,792.70 3.6 115,200 15,240 40,680

2012 . . . . . . . . . . . 2.0 48,448.46 3.5 119,400 15,840 42,120
Assumptions & Methods

104

Other wage-indexed amounts are shown in table V.C2. The table provides

historical values from 1978, when the amount of earnings required for a

quarter of coverage was first indexed, through 2003, and also shows projected amounts through 2012. These other wage-indexed program amounts

are:

 • The bend points in the formula for computing the primary insurance

amount (PIA) for workers who reach age 62, become disabled, or die in

a given year. These bend points indicate three ranges in a worker’s average indexed monthly earnings (AIME) over which a certain percent factor, 90, 32, or 15 percent respectively, is applied to determine the

worker’s PIA. Figure V.C1 presents the PIA formula for 2003.

High Cost:

2002 . . . . . . . . . . . 71.4 $33,417.83 1.5 7$84,900 7$11,280 $30,000

2003 . . . . . . . . . . . 2.5 34,208.13 2.4 787,000 711,520 730,720

2004 . . . . . . . . . . . 3.1 36,009.40 5.3 88,200 11,760 31,200

2005 . . . . . . . . . . . 4.7 38,058.89 5.7 90,300 12,000 31,920

2006 . . . . . . . . . . . 6.0 39,853.26 4.7 95,100 12,600 33,600

2007 . . . . . . . . . . . 5.6 42,279.32 6.1 100,500 13,320 35,520

2008 . . . . . . . . . . . 4.8 45,170.39 6.8 105,300 13,920 37,200

2009 . . . . . . . . . . . 4.1 47,441.85 5.0 111,600 14,880 39,480

2010 . . . . . . . . . . . 4.0 49,588.16 4.5 119,400 15,840 42,120

2011 . . . . . . . . . . . 4.0 51,840.85 4.5 125,400 16,680 44,280

2012 . . . . . . . . . . . 4.0 54,216.93 4.6 131,100 17,400 46,320

1 Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982. 2 See table VI.F7 for projected dollar amounts of the average wage index beyond 2012. 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. 4 Normal retirement age. See table V.C3 for specific values.

5 In 1955-82, the retirement earnings test did not apply at ages 72 and over; in 1983-99, the test did not apply

at ages 70 and over; beginning in 2000, it does not apply beginning with the month of attainment of NRA. In

the year of attainment of NRA, the higher exempt amount applies to earnings in the year prior to the month

of NRA attainment. Amounts for 1978-82 specified by Public Law 95-216; for 1996-2002, Public Law

104-121.

6 Originally determined as 2.4 percent, but pursuant to Public Law 106-554, is effectively 2.5 percent. 7 Actual amount, as determined under automatic-adjustment provisions.

Table V.C1.—Cost-of-Living Benefit Increases, Average Wage Index, Contribution and 

Benefit Bases, and Retirement Earnings Test Exempt Amounts, 1975-2012 (Cont.)

Calendar year

OASDI

benefit

increases1

(percent)

Average wage index 2 OASDI

contribution

and benefit

base 3

Retirement earnings

test exempt amount

Amount

Increase

(percent)

Under

NRA4 At NRA5
105

Program Assumptions and Methods

 • Bend points in the formula used to compute the maximum total amount

of monthly benefits payable on the basis of the earnings of a retired or

deceased worker. This formula is a function of the worker’s PIA, and

relies on four intervals and percentages. Figure V.C2 presents the maximum-family-benefit formula for 2003.

 Figure V.C1.—Primary-Insurance-Amount Formula for the 2003 Cohort

 Figure V.C2.—Maximum-Family-Benefit Formula for the 2003 Cohort

90%

15%

32%

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000

Average Indexed Monthly Earnings

Primary Insurance Amount .

First

bend point

($606)

Second

bend point

($3,653)

272%

150%

175%

134%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$0 $500 $1,000 $1,500 $2,000

Primary Insurance Amount

Maximum family benefit .

Third

bend point

($1,458)

Second

bend point

($1,118)

First

bend point

($774)
Assumptions & Methods

106

 • The amount of earnings required in a year to be credited with a quarter

of coverage (QC). The number and timing of QCs earned is used to

determine an individual’s insured status—the basic requirement for

benefit eligibility under OASDI.

 • The old-law contribution and benefit base—the OASDI contribution

and benefit base 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. 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 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 V.C2.—Selected Wage-Indexed Program Amounts, 

Calendar Years 1978-2012

Calendar year

AIME bend

points in PIA

formula1

PIA bend points

in maximumfamily-benefit formula2

Earnings

required for

a quarter of

coverage

Old-law

contribution

and benefit

base3 First Second First Second Third

Historical data:

1978 . . . . . . . . . 4/ 4/1 4/1 4/1 4/1 5 $250 4/1

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

2000 . . . . . . . . . 531 3,202 679 980 1,278 780 56,700

2001 . . . . . . . . . 561 3,381 717 1,034 1,349 830 59,700

2002 . . . . . . . . . 592 3,567 756 1,092 1,424 870 63,000

2003 . . . . . . . . . 606 3,653 774 1,118 1,458 890 64,500
107

Program Assumptions and Methods

Intermediate:

2004 . . . . . . . . . $616 $3,714 $787 $1,136 $1,482 $910 $65,700

2005 . . . . . . . . . 639 3,853 817 1,179 1,538 940 68,100

2006 . . . . . . . . . 666 4,017 851 1,229 1,603 980 71,100

2007 . . . . . . . . . 695 4,186 887 1,281 1,671 1,020 74,100

2008 . . . . . . . . . 724 4,364 925 1,335 1,742 1,070 77,100

2009 . . . . . . . . . 755 4,553 965 1,393 1,817 1,110 80,400

2010 . . . . . . . . . 787 4,745 1,006 1,452 1,894 1,160 84,000

2011 . . . . . . . . . 820 4,944 1,048 1,513 1,973 1,210 87,300

2012 . . . . . . . . . 854 5,149 1,091 1,576 2,055 1,260 91,200

Low Cost:

2004 . . . . . . . . . 617 3,722 789 1,139 1,485 910 65,700

2005 . . . . . . . . . 643 3,873 821 1,185 1,546 950 68,400

2006 . . . . . . . . . 669 4,031 855 1,234 1,609 980 71,400

2007 . . . . . . . . . 695 4,187 888 1,281 1,671 1,020 74,100

2008 . . . . . . . . . 720 4,340 920 1,328 1,732 1,060 76,800

2009 . . . . . . . . . 747 4,501 954 1,377 1,796 1,100 79,500

2010 . . . . . . . . . 774 4,666 989 1,428 1,862 1,140 82,500

2011 . . . . . . . . . 802 4,837 1,025 1,480 1,930 1,180 85,500

2012 . . . . . . . . . 831 5,012 1,062 1,534 2,000 1,220 88,500

High Cost:

2004 . . . . . . . . . 615 3,708 786 1,134 1,480 910 65,700

2005 . . . . . . . . . 630 3,795 805 1,161 1,515 930 67,200

2006 . . . . . . . . . 663 3,995 847 1,222 1,594 980 70,800

2007 . . . . . . . . . 701 4,223 895 1,292 1,685 1,030 74,700

2008 . . . . . . . . . 734 4,422 937 1,353 1,765 1,080 78,300

2009 . . . . . . . . . 778 4,691 994 1,435 1,872 1,150 83,100

2010 . . . . . . . . . 831 5,012 1,062 1,533 2,000 1,220 88,500

2011 . . . . . . . . . 873 5,264 1,116 1,611 2,101 1,290 93,000

2012 . . . . . . . . . 913 5,502 1,166 1,683 2,196 1,340 97,200

1 The formula to compute a PIA is (1) 90% of AIME below the first bend point, plus (2) 32% of AIME in

excess of the first bend point but not in excess of the second, plus (3) 15% of AIME in excess of the second

bend point. The bend points pertain to the first year a beneficiary becomes eligible for benefits. 2 The formula to compute a family maximum is (1) 150% of PIA below the first bend point, plus (2) 272% of

PIA in excess of the first bend point but not in excess of the second, plus (3) 134% of PIA in excess of the

second bend point but not in excess of the third, plus (4) 175% of PIA in excess of the third bend point. 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. 4 No provision in law for this amount in this year.

5 Amount specified for first year by Social Security Amendments of 1977; amounts for subsequent years

subject to automatic-adjustment provisions.

Table V.C2.—Selected Wage-Indexed Program Amounts, 

Calendar Years 1978-2012 (Cont.)

Calendar year

AIME bend

points in PIA

formula1

PIA bend points

in maximumfamily-benefit formula2

Earnings

required for

a quarter of

coverage

Old-law

contribution

and benefit

base3 First Second First Second Third
Assumptions & Methods

108

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. Two such changes are

the scheduled increases in the normal retirement age and in the delayed

retirement credits. Table V.C3 shows the scheduled changes in these two

important items and their effect on benefits expressed as a percentage of PIA.

2. Covered Employment

Projections of the total labor force and unemployment rate are based on

Bureau of Labor Statistics definitions from the Current Population Survey

(CPS), and thus represent the average weekly number of employed and

unemployed persons, aged 16 and over, in the U.S. in a calendar year. Total

covered workers in a year are the number of persons who have any OASDI

covered earnings at any time during the year. For those aged 16 and over,

projected covered employment is the sum of age-sex components, each of

Table V.C3.—Legislated Changes in Normal Retirement Age and Delayed Retirement 

Credits, 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
109

Program Assumptions and Methods

which is projected as a ratio to the CPS concept of employment. For those

under age 16, projected covered employment is the sum of age-sex components, each of which is projected as a ratio to the Social Security area population. The projection methodology accounts for changes in the business cycle,

the quarterly pattern of growth in employment within each year, changes in

non-OASDI covered employment, 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.

Covered worker rates are defined as the ratio of OASDI covered workers to

the Social Security area population. The projected age-adjusted coverage rate

for men, aged 16 and over, changes from its 2001 level of 73.0 percent to

73.2, 72.4, and 71.9 percent for 2080 for the low cost, intermediate, and high

cost assumptions, respectively. (Age-adjusted covered worker rates are

adjusted to the 2001 age distribution of the Social Security area population.)

For women, it changes from its 2001 level of 61.7 percent to 62.9, 62.3, and

61.7 percent for 2080 for the low cost, intermediate, and high cost assumptions, respectively.

3. Taxable Payroll and Payroll Tax Revenue

The OASDI taxable payroll is the amount of earnings in a year which, when

multiplied by the combined employee-employer tax rate, yields the total

amount of taxes due from wages and self-employed income in the year. Taxable payroll is used in estimating OASDI income and in determining income

and cost rates and actuarial balances. (See section IV.B.1, Annual Income

Rates, Cost Rates, and Balances, for definitions of these terms.) Taxable payroll is computed from taxable earnings, defined as the sum of wages and selfemployment earnings subject to the Social Security tax. Wages are adjusted

to take into account the “excess wages” earned by workers with multiple jobs

whose combined wages exceed the taxable earnings base. Also, from 1983

through 2001, taxable payroll includes deemed wage credits for military service. Prior to 1984, the self-employed tax rate was less than the combined

employee-employer rate, thus taxable self-employed earnings were weighted

to reflect this. Also, prior to 1988, employers were exempt from Social Security tax on part of their employees’ tips; taxable payroll was reduced by half

of this exempt amount to take this into account.

Taxable earnings for employees, employers, and the self-employed are estimated from total earnings in covered employment. Covered earnings are

summed from component sectors, each of which is based on the projected

growth of U.S. earnings and a factor that reflects any projected change in
Assumptions & Methods

110

coverage (e.g., the increase in coverage in the Federal civilian sector due to

mandatory coverage of newly hired employees). The level of taxable earnings, that is, covered earnings at or below the taxable earnings base, is then

estimated based on adjustments to the latest available historical earnings distributions for wage and self-employed workers. The ratio of taxable to covered earnings decreased from about 90.2 percent in 1983 to 87.9 percent in

1994, or by an average annual rate of -0.2 percent. The ratio decreased further to 83.4 in 2000, then increased to 85.0 in 2001, and to 85.4 in 2002. The

decline from 1994 through 2000 was mainly due to a relative increase in

wages for high wage earners. At least some of this decline and subsequent

increase is believed to be due to stock option activity surrounding the stock

market bubble in 2000 and is not likely to recur.

However, some of the decline since 1983 is believed to be due to the change

in the age-sex distribution of the workforce and other trend-like factors that

are expected to continue through 2012 in all three alternatives. The projected

taxable earnings ratios in 2012 are 84.5, 83.8, and 83.1 for the low cost,

intermediate, and high cost assumptions, respectively. This represents average annual rates of change from 2002 of -0.1, -0.2, and -0.3 percent. After

2012, the taxable to covered ratio is held approximately constant.

Payroll tax revenue is computed by applying the appropriate tax rates to taxable wages and self-employment income, taking into account the lag

between the time the tax liability is incurred and when the taxes are collected. In the case of wages, employers are required to deposit withholding

taxes with the Treasury on a schedule determined by the amount of tax liability incurred. (Generally, the higher the amount of liability, the sooner the

taxes must be paid—ranging from the middle of the following month to, for

companies with very large payrolls, the next banking day after wages are

paid.) Self-employed workers are required to make estimated tax payments

on their earnings four times during the year, as well as making up any underestimate on their individual income tax return. The pattern of actual receipts

by the Treasury is taken into account when estimating self-employed tax collections.

4. Insured Population

Eligibility for benefits under the OASDI program requires some minimal

level of work in covered employment. This requirement is established by a

worker’s accumulation of quarters of coverage (QCs). Prior to 1978, one QC

was credited for each calendar quarter in which at least $50 was earned. In

1978, when quarterly reporting of earnings was replaced by annual reporting,

the amount required to earn a QC (up to a maximum of four per year) was set
111

Program Assumptions and Methods

at $250. Since then, this amount has been adjusted each year according to the

Average Wage Index. Its value in 2003 is $890.

There are three types of insured status which can be acquired by a worker

under the OASDI program. Each of these statuses is determined by the number and recency of QCs earned. Fully insured status is acquired by any

worker whose total number of QCs is greater than or equal to the number of

years elapsed after the year of attainment of age 21 (and at least 6). Once a

worker has accumulated 40 QCs, he or she remains permanently fully

insured. Disability-insured status is acquired by any fully insured worker

over age 30 who has accumulated 20 QCs during the 40-quarter period ending with the current quarter; any fully insured worker aged 24-30 who has

accumulated QCs during one-half of the quarters elapsed after the quarter of

attainment of age 21 and up to and including the current quarter; and any

fully insured worker under age 24 who has accumulated 6 QCs during the

12-quarter period ending with the current quarter. Currently insured status is

acquired by any worker who has accumulated 6 QCs during the 13-quarter

period ending with the current quarter. Periods of disability are excluded

from the above described QC requirements for insured status (but do not

reduce the minimum of 6 QCs).

There are many types of benefits payable to workers and their family members under the OASDI program. One of the requirements of eligibility for

these benefits is the insured status of the worker. A worker must be fully

insured to be eligible for a primary retirement benefit, and for his or her

spouse or children to be eligible for auxiliary benefits. A deceased worker

must have been either currently insured or fully insured at the time of death

for his or her children (and their mother or father) to be eligible for benefits.

If there are no eligible surviving children, the deceased worker must have

been fully insured at the time of death for his or her surviving spouse to be

eligible. A worker must be disability insured to be eligible for a primary disability benefit, and for his or her spouse or children to be eligible for auxiliary benefits.

Projections of the fully insured population, as a percentage of the Social

Security area population, are made by age and sex for each birth cohort

beginning with 1900. These percentages are based on 30,000 simulated work

histories for each sex and birth cohort, which are constructed from past and

projected coverage rates, median earnings, and amounts required for crediting QCs. These work histories are developed by a model which assumes that

persons who have recently been out of covered employment are likely to

remain out of covered employment. This model is driven by two sets of agesex-specific parameters which are empirically set such that the simulated
Assumptions & Methods

112

fully insured percentages reproduce fairly closely the fully insured percentages estimated from the Continuous Work History Sample from 1970 to date.

Projections of the disability-insured population, as a percentage of the fully

insured population, are made by age and sex for each birth cohort beginning

with 1900. These percentages are based on the same simulated work histories

used to project the fully insured percentages. Additional adjustments are

made to bring the simulated disability-insured percentages into close agreement with those estimated from the Continuous Work History Sample. The

principal adjustment is for periods of disability (which are not explicitly

taken into account in the model). These periods (which reduce the normally

applicable QC requirements) have a negligible effect on fully insured status

at retirement age, but a substantial effect on disability-insured status.

Projections of the currently insured population are not made. This is because

the number of beneficiaries who are entitled to benefits based solely on currently insured status has been very small, and is expected to remain small in

the future.

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 78.2 for December 31, 1998, to 89.4, 90.3, and 91.1 for

December 31, 2080, under alternatives I, II, and III, respectively. The percentage for females is projected to increase significantly, while that for males

is projected to remain relatively unchanged. Under alternative II, for example, the percentage for males is projected to increase slightly during this

period from 92.1 to 92.5, while that for females is projected to increase from

68.1 to 88.5.

5. Old-Age and Survivors Insurance Beneficiaries

The number of OASI beneficiaries is 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 is also projected by marital status.

For the short-range period, the number of retired-worker beneficiaries is

developed by applying award rates to the aged fully insured population less

those insured persons entitled to retired-worker, disabled-worker, aged

widow(er)’s, or aged spouse’s benefits, and by applying termination rates to

the number of persons already receiving retired-worker benefits.

For the long-range period, the number of retired-worker beneficiaries not

previously converted from disabled-worker beneficiary status is projected as
113

Program Assumptions and Methods

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. For age 62, a linear regression is

developed based on the relationship between the historical exposed percentage and the labor force participation rate. The regression coefficients are then

used to project the percentage based on the projected labor force participation rate for age 62. The percentage for ages 70 and over is assumed to be

nearly 100, because the retirement earnings test and delayed retirement credit

do not apply after age 70, but is adjusted for the statistical difference

between in-force data and in-current-payment data. The percentage for each

age 63 through 69 is projected from the December 31, 2001 retired-worker

beneficiaries data which reflects the elimination of the earnings test after

normal retirement age, with an adjustment for changes in the portion of the

primary insurance amount that is payable at each age of entitlement. As the

normal retirement age increases, the number of retired-worker beneficiaries

not automatically converted from disabled-worker beneficiary status as a

percentage of the exposed population is gradually adjusted downward at

each age 63 through 69.

For the long-range period also, the number of retired-worker beneficiaries

previously converted from disabled-worker beneficiaries is calculated separately in a manner consistent with the calculation of disabled-worker beneficiaries.

The number of aged-spouse beneficiaries is 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, insured aged-spouse beneficiaries

are projected concurrently with the retired-worker beneficiaries. Uninsured

aged-spouse beneficiaries are projected, on the other hand, by applying

award rates to the aged uninsured male or female population, and by applying termination rates to the population already receiving such benefits. In the

long-range period, aged-spouse beneficiaries are 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 are 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
Assumptions & Methods

114

the resulting number of spouses a projected prevalence rate is applied to calculate the estimated number of aged-spouse beneficiaries.

In addition, the same factors are 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 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 is at least 10 years in

duration. Third, factor (3) above is not applied because, effective for January

1985, a divorced person generally need not wait to receive benefits until the

former wage-earner 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, are based

on the projected number of children in the population. In the short-range

period, the number of entitled children is 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 is projected separately by sex of the wage-earner parent. To the number of children in the

population, factors are applied representing the probabilities that the parent is

alive, aged 62 or over, insured, and receiving a retired-worker benefit.

Another factor is applied representing the probability that the child is not

entitled to a benefit based on the other parent’s earnings. In addition, a factor

is 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 is also applied.

The number of disabled children aged 18 and over of retired-worker beneficiaries is projected from the adult population. In the short-range period,

award rates are applied to the population, and termination rates are applied to

the number of disabled children already receiving benefits. In the long-range

period, disabled children are 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

is 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
115

Program Assumptions and Methods

receiving benefits. In the long-range period, young-spouse beneficiaries are

projected as a proportion of the projected number of child beneficiaries of

retired workers, taking into account projected changes in average family

size.

The number of aged-widow(er) beneficiaries is projected from the population by age and sex. In the short-range period, insured aged-widow(er) beneficiaries are projected concurrently with the retired-worker beneficiaries.

Uninsured aged-widow(er) beneficiaries are projected, on the other hand, by

applying award rates to the aged uninsured male or female population, and

by applying termination rates to the population already receiving such benefits. In the long-range period, aged-widow(er) beneficiaries are projected

from the population by age, sex, and marital status. Four factors are 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 is 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)’s benefits. Also, the same factors are

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 is at least 10

years in duration.

In the short-range period, the number of disabled-widow(er) beneficiaries is

developed by applying award rates to the uninsured male or female population, and by applying termination rates to the population already receiving a

disabled widow(er) benefit. In the long-range period, the number is 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, are 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 is developed by applying award rates to the number of orphaned children, and by

applying termination rates to the number of children already receiving benefits.
Assumptions & Methods

116

In the long-range period, the number of child-survivor beneficiaries is 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 represents the probability that the parent is

deceased.

In the short-range period, the numbers of entitled mother-survivor and fathersurvivor beneficiaries are 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 longrange period, mother-survivor and father-survivor beneficiaries are estimated

from the number of child-survivor beneficiaries, taking into account projected changes in average family size.

The number of parent-survivor beneficiaries is projected based on the historical pattern of the number of such beneficiaries.

Table V.C4 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 are made separately

for spouses and widow(er)s.
117

Program Assumptions and Methods

Table V.C4.—OASI Beneficiaries With Benefits in Current-Payment Status 

at the End of Calendar Years 1945-2080

[In thousands]

Calendar year

Retired workers and auxiliaries Survivors

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

1999 . . . . . . . . . . 27,784 2,811 442 4,944 212 1,885 3 38,081

2000 . . . . . . . . . . 28,505 2,798 459 4,901 203 1,878 3 38,748

2001 . . . . . . . . . . 28,843 2,742 467 4,828 197 1,890 3 38,969

2002 . . . . . . . . . . 29,195 2,681 477 4,770 194 1,908 2 39,226

Intermediate:

2005 . . . . . . . . . . 30,353 2,616 496 4,739 182 1,911 2 40,299

2010 . . . . . . . . . . 33,975 2,617 500 4,812 168 1,860 2 43,934

2015 . . . . . . . . . . 40,250 2,616 679 4,904 160 1,903 2 50,514

2020 . . . . . . . . . . 47,858 2,635 762 4,922 158 1,901 2 58,237

2025 . . . . . . . . . . 54,868 2,677 851 5,009 160 1,903 2 65,470

2030 . . . . . . . . . . 61,130 2,664 917 5,081 159 1,902 2 71,854

2035 . . . . . . . . . . 65,078 2,625 946 5,146 155 1,885 2 75,836

2040 . . . . . . . . . . 67,115 2,627 952 5,196 150 1,850 2 77,891

2045 . . . . . . . . . . 68,837 2,639 958 5,245 145 1,821 2 79,646

2050 . . . . . . . . . . 71,119 2,701 977 5,265 141 1,799 2 82,003

2055 . . . . . . . . . . 73,937 2,788 1,009 5,271 137 1,771 2 84,914

2060 . . . . . . . . . . 76,595 2,833 1,026 5,266 133 1,740 2 87,596

2065 . . . . . . . . . . 78,888 2,878 1,042 5,317 129 1,712 2 89,967

2070 . . . . . . . . . . 81,341 2,915 1,057 5,397 125 1,687 2 92,523

2075 . . . . . . . . . . 83,796 2,962 1,074 5,470 121 1,664 2 95,088

2080 . . . . . . . . . . 86,214 3,016 1,091 5,504 117 1,643 2 97,587
Assumptions & Methods

118

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

6. Disability Insurance Beneficiaries

Benefits are paid from the DI Trust Fund to individuals who satisfy the disability-insured requirements, who are unable to engage in substantial gainful

activity due to medically determinable physical or mental impairment severe

enough to satisfy the requirements of the program, and have not yet attained

normal retirement age. Spouses and children of such disabled workers may

also receive DI benefits provided they satisfy certain criteria, mostly depending upon age or the age of a child in the care of the non-disabled spouse. In

projecting future benefit outlays from the DI Trust Fund, the number of DI

Low Cost:

2005 . . . . . . . . . . 30,356 2,617 496 4,738 182 1,917 2 40,308

2010 . . . . . . . . . . 33,923 2,624 503 4,799 172 1,895 2 43,918

2015 . . . . . . . . . . 39,644 2,582 682 4,937 160 2,005 2 50,011

2020 . . . . . . . . . . 46,730 2,588 771 4,982 158 2,069 2 57,299

2025 . . . . . . . . . . 53,145 2,603 871 5,101 159 2,149 2 64,030

2030 . . . . . . . . . . 58,688 2,548 954 5,195 159 2,226 2 69,772

2035 . . . . . . . . . . 61,858 2,474 1,002 5,255 159 2,280 2 73,029

2040 . . . . . . . . . . 63,240 2,434 1,030 5,276 157 2,308 2 74,447

2045 . . . . . . . . . . 64,501 2,421 1,058 5,286 156 2,330 2 75,755

2050 . . . . . . . . . . 66,487 2,474 1,100 5,272 157 2,362 2 77,853

2055 . . . . . . . . . . 69,111 2,537 1,160 5,256 159 2,395 2 80,620

2060 . . . . . . . . . . 71,527 2,570 1,206 5,250 161 2,429 2 83,144

2065 . . . . . . . . . . 73,472 2,606 1,245 5,308 163 2,464 2 85,260

2070 . . . . . . . . . . 75,595 2,652 1,285 5,407 164 2,498 2 87,603

2075 . . . . . . . . . . 78,117 2,699 1,330 5,519 165 2,533 2 90,365

2080 . . . . . . . . . . 81,112 2,761 1,380 5,620 166 2,572 2 93,612

High Cost:

2005 . . . . . . . . . . 30,323 2,615 495 4,740 181 1,905 2 40,261

2010 . . . . . . . . . . 34,005 2,613 496 4,827 164 1,825 2 43,933

2015 . . . . . . . . . . 40,926 2,682 679 4,862 158 1,794 2 51,102

2020 . . . . . . . . . . 49,140 2,735 759 4,837 153 1,722 2 59,348

2025 . . . . . . . . . . 56,888 2,842 839 4,877 150 1,649 2 67,246

2030 . . . . . . . . . . 64,091 2,906 893 4,917 145 1,581 2 74,535

2035 . . . . . . . . . . 69,107 2,943 904 4,990 135 1,508 2 79,589

2040 . . . . . . . . . . 72,178 3,008 889 5,080 124 1,430 2 82,710

2045 . . . . . . . . . . 74,780 3,072 873 5,180 115 1,368 2 85,388

2050 . . . . . . . . . . 77,792 3,166 867 5,244 106 1,317 2 88,493

2055 . . . . . . . . . . 81,246 3,280 870 5,273 97 1,259 2 92,028

2060 . . . . . . . . . . 84,593 3,334 860 5,257 89 1,201 2 95,336

2065 . . . . . . . . . . 87,640 3,387 856 5,273 81 1,148 2 98,387

2070 . . . . . . . . . . 90,779 3,439 852 5,311 74 1,101 2 101,558

2075 . . . . . . . . . . 93,572 3,477 848 5,331 68 1,058 2 104,355

2080 . . . . . . . . . . 95,837 3,502 843 5,292 62 1,020 2 106,558

Table V.C4.—OASI Beneficiaries With Benefits in Current-Payment Status 

at the End of Calendar Years 1945-2080 (Cont.)

[In thousands]

Calendar year

Retired workers and auxiliaries Survivors

Worker Total

Wifehusband ChildWidowwidowerMotherfather Child Parent
119

Program Assumptions and Methods

beneficiaries is projected for each type of beneficiary separately, by the sex

of the disabled worker on whose earnings the benefits are based, and the age

of the beneficiary. Such projections are accomplished using standard actuarial methods reflecting future additions to the DI rolls through awards of new

benefits, and subtractions from the rolls due to death, recovery, or administrative conversion upon attainment of normal retirement age from status as a

disabled-worker beneficiary to status as a retired-worker beneficiary. The

long-range and short-range models used to make these projections are both

constructed from this basic outline, but differ in some details reflecting their

respective uses.

The number of new entitlements to disabled-worker benefits during each

year is projected by applying assumed age-sex specific disability incidence

rates to the projected disability-exposed population.1 Long-range ultimate

disability incidence rates are selected based on careful analysis of historical

patterns and expected future conditions, including the impact of scheduled

increases in the normal retirement age.2 Incidence rates for the first half of

the short-range period reflect the most recent actual experience along with

consideration of other factors expected to affect the processing of disability

claims in the near term. Over the latter half of the short-range period, incidence rates are assumed to trend into levels consistent with the long-range

ultimate incidence rate assumptions.

These assumed incidence rates are summarized in figure V.C3 and table

V.C5. As illustrated in figure V.C3, incidence rates have varied within a wide

range over the past 30 years. Although not completely understood, this variation is attributed in large part to a variety of demographic and economic factors, along with the effects of changes due to legislation and program

administration.3 The solid lines in figure V.C3 illustrate values of the summarized incidence rate, age-sex adjusted to the distribution of the disabilityexposed population for 1998. Such adjustment facilitates meaningful comparisons over long periods of time. From a historically high level of about 7

awards per thousand insured in 1975, age-sex-adjusted rates declined to

about 3.6 per thousand by 1982. Following a gradual trend upward, rates

 1 The disability-exposed population is the disability-insured population that is not currently entitled for disabled-worker benefits.

 2 Incidence rates are adjusted upward to account for the additional 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.

 3 A more detailed discussion of the recent history of the DI program is presented in Actuarial Study 114,

“Social Security Disability Insurance Program Worker Experience”, June 1999. This study can be found on

the Internet at http://www.ssa.gov/OACT/NOTES/AS114/as114Foreword.html.
Assumptions & Methods

120

increased to about 5.7 per thousand by 1992, but declined from that point to

about 4.6 per thousand in 2000. As described in chapter IV, in the discussion

of the short-range DI estimates, the incidence rate experience for 2001-02,

and the projections for 2003-07, are affected by a one-time special workload.

In addition to historical values, figure V.C3 displays the age-sex-adjusted

short-range incidence rates under the three alternative sets of assumptions.

Gross (unadjusted) incidence rates are also shown in figure V.C3 in dashed

lines. These unadjusted rates are heavily influenced by the changing age-sex

distribution of the exposed population over time. This is especially noticeable in the period 2003 to 2012 when the aging baby-boom generation will

be concentrated in the ages of highest disability incidence.

Table V.C5 presents the long-range ultimate incidence rate assumptions agesex adjusted to the disability-exposed population as of January 1, 1996. The

table also indicates the year in which the ultimate values are attained, along

with an indication of the relationship between those ultimate rates and the

rates for the base period (1994-96) that was used to develop relative levels of

disability incidence by age and sex for long-range assumptions.

For the 2003 report, two modifications were made in the way the base disabled-worker incidence rates are calculated. Incidence rates for the base

 Figure V.C3.—DI Disabled Worker Incidence Rates, 1970-2012

[Awards per thousand disability exposed]

0

1

2

3

4

5

6

7

8

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Calendar year

Gross incidence rates

Age-sex adjusted

incidence rates

Historical Projected

II

III

I
121

Program Assumptions and Methods

period (1994-96) reflect individuals who become newly entitled to benefits

within the base period. Last year, these entitlements included persons

awarded benefits during the period 1994-99. This year, the entitlements were

updated to include individuals awarded benefits during the period 2000-02.

The base incidence rates were also changed due to modifications in the calculation of the exposed population. The ultimate age-sex adjusted incidence

rate under the intermediate assumptions in last year’s report was 5.5 per

thousand. However, the rate for last year’s report would have been shown as

5.7 per thousand if calculated on the same basis as used for this year’s report.

Under the intermediate assumptions in this year’s report, the ultimate agesex adjusted incidence rate is 5.6 per thousand, slightly lower than the ultimate revised level of last year’s report.

The number of disabled-worker beneficiaries having their benefits terminated during each year is projected by applying assumed termination rates to

the disabled-worker population. The termination rates are developed by age,

sex, and reason for termination.1 In addition, in the long-range period, termination rates are also assumed to vary by duration of entitlement to disabledworker benefits. To this number of terminations is added the number of disabled-worker beneficiaries who would be automatically converted to retiredworker beneficiaries upon attainment of the normal retirement age.

In the short-range period, gross death rates under the intermediate assumptions are projected to remain between 31 and 33 deaths per thousand disabled

workers. The pattern of projected recovery rates under the intermediate

Table V.C5.—Long-Range Ultimate Disabled Worker Age-Sex Adjusted 

Incidence Rates1

1 Number of annual new disabled-worker entitlements per thousand disability-exposed, age-sex adjusted to

the disability-exposed population as of January 1, 1996.

Ultimate

incidence rate

Year ultimate

rate is attained2

2 The transition to ultimate incidence rates is generally completed in 2022. However, for ages 61 through 66

incidence rates are adjusted through 2027 in order to reflect increases in the normal retirement age (NRA)

that are scheduled in the law.

Percent change from

base period 3 to ultimate rate

3 Base period rate for long-range incidence rate assumptions is 5.2 per thousand representing the average

age-sex adjusted incidence rate for 1994-96.

Intermediate assumption . . . . . . . . . 5.6 2027 +8

Low cost assumption . . . . . . . . . . . . 4.5 2027 -13

High cost assumption. . . . . . . . . . . . 6.7 2027 +30

 1 Reasons for termination include death, recovery and (in the short range only) a small residual category of

terminations for special administrative reasons.
Assumptions & Methods

122

assumptions is consistent with assumed levels of continuing disability

reviews required to fulfill the legislative mandate for regular reviews of all

disabled beneficiaries. Under low cost (high cost) assumptions, terminations

due to death, recovery, and other reasons increase (decrease) to levels

roughly 8 percent higher (lower) than those under the intermediate assumptions.

For the long-range period, projection of death rates and recovery rates begins

with an analysis of such rates split by age, sex, and duration of entitlement

over the base period 1991-95.1 Under the intermediate assumptions, recovery rates for both males and females, are assumed to remain approximately

constant after 2022. Death rates over the long-range period are assumed to

change gradually, at about the same trend as for death rates in the general

population, reaching levels in 2080 which are lower than the base period

level by 58 percent for males and 49 percent for females.

Under the low cost assumptions, recovery rates and death rates are assumed

to be higher than the corresponding levels assumed for the intermediate

assumptions. Ultimate recovery rates are assumed to be higher than the base

period rate by 125 percent for males and by 89 percent for females, while

death rates are assumed to change gradually reaching levels for 2080 which

are lower than the base period level by 42 percent for males and 31 percent

for females.

Under the high cost assumptions, recovery rates and death rates are assumed

to be lower than the corresponding levels assumed for the intermediate

assumptions. Ultimate recovery rates are assumed to be higher than the base

period rate by 50 percent for males and by 26 percent for females, while

death rates are assumed to change gradually reaching levels for 2080 which

are lower than the base period level by 75 percent for males and 71 percent

for females.

These detailed projections of disabled-worker entitlements and terminations

are combined using standard multiple decrement techniques to produce projections of numbers of disabled workers in current-payment status over the

75-year projection period. These projections are presented in table V.C6. As

indicated in that table, the number of disabled workers in current-payment

status is projected to grow from 5.5 million at the end of 2002, to

11.6 million, 12.9 million, or 14.1 million at the end of 2080, under the low

cost, intermediate, or high cost assumptions, respectively. Of course, much

 1 The termination rate analysis was based on work presented in Actuarial Study 114 referenced previously.
123

Program Assumptions and Methods

of this growth is a direct result of the growth and aging of the population

described earlier in this chapter.

Another way to view this projected growth in disabled workers is to compare

the size of the projected disabled-worker population to the size of the underlying disability-insured population reflecting the age-sex distribution of the

insured population as of January 1, 1996. Such a ratio eliminates the effects

of the aging population and is referred to as the disabled worker age-sex

adjusted prevalence rate. Expressed in these terms, the prevalence of disability is projected to grow from 34.5 per thousand disability insured at the

beginning of 2002, to 45.9 per thousand, and 59.0 per thousand at the beginning of 2080, under the intermediate, and high cost assumptions, respectively. Under the low cost assumptions, the disability prevalence rate is

projected to remain fairly constant, at 34.5 per thousand.

Table V.C6 also presents projections of the numbers of auxiliary beneficiaries paid from the DI Trust Fund. As indicated at the beginning of this subsection, such auxiliary beneficiaries consist of qualifying spouses and

children of disabled workers. In the case of children, the child must be either

(1) under age 18, (2) age 18 and still a student in high school, or (3) over age

18 and disabled prior to age 22. In the case of spouses, the spouse must either

be at least age 62, or have an eligible child beneficiary who is either under

age 16 or disabled in his or her care. 

In general, such auxiliary beneficiaries are projected in a manner that is

related to the projected number of disabled-worker beneficiaries. In the

short-range period, this is accomplished for family members of disabledworker beneficiaries by projecting incidence and termination rates for each

category of auxiliary beneficiary. In the long-range period, the child beneficiaries at ages 18 and under are projected in relation to the projected number

of children in the population, by applying factors representing the probability

that either of their parents is insured and disabled. Spouses eligible because

they have an eligible child in care are projected relative to the projected number of such children. The remaining categories of children and spouses are

projected in relation to the projected number of disabled-worker beneficiaries.
Assumptions & Methods

124

Table V.C6.—DI Beneficiaries With Benefits in Current-Payment Status at the End of 

Calendar Years 1960-2080

[In thousands]

Calendar year

Disabled

worker

Auxiliaries

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

1999. . . . . . . . . . . . . . . . . . . . . . . . . . 4,870 176 1,468 6,514

2000. . . . . . . . . . . . . . . . . . . . . . . . . . 5,036 165 1,466 6,667

2001. . . . . . . . . . . . . . . . . . . . . . . . . . 5,268 157 1,482 6,907

2002. . . . . . . . . . . . . . . . . . . . . . . . . . 5,539 152 1,526 7,217

Intermediate:

2005. . . . . . . . . . . . . . . . . . . . . . . . . . 6,369 156 1,659 8,184

2010. . . . . . . . . . . . . . . . . . . . . . . . . . 7,400 165 1,863 9,428

2015. . . . . . . . . . . . . . . . . . . . . . . . . . 8,101 174 2,004 10,279

2020. . . . . . . . . . . . . . . . . . . . . . . . . . 8,721 192 2,171 11,084

2025. . . . . . . . . . . . . . . . . . . . . . . . . . 9,651 225 2,401 12,278

2030. . . . . . . . . . . . . . . . . . . . . . . . . . 9,931 233 2,579 12,743

2035. . . . . . . . . . . . . . . . . . . . . . . . . . 10,202 239 2,699 13,140

2040. . . . . . . . . . . . . . . . . . . . . . . . . . 10,689 250 2,774 13,713

2045. . . . . . . . . . . . . . . . . . . . . . . . . . 11,283 260 2,832 14,374

2050. . . . . . . . . . . . . . . . . . . . . . . . . . 11,635 268 2,891 14,794

2055. . . . . . . . . . . . . . . . . . . . . . . . . . 11,856 272 2,950 15,078

2060. . . . . . . . . . . . . . . . . . . . . . . . . . 11,914 272 2,997 15,183

2065. . . . . . . . . . . . . . . . . . . . . . . . . . 12,206 277 3,038 15,520

2070. . . . . . . . . . . . . . . . . . . . . . . . . . 12,477 281 3,073 15,831

2075. . . . . . . . . . . . . . . . . . . . . . . . . . 12,705 286 3,110 16,100

2080. . . . . . . . . . . . . . . . . . . . . . . . . . 12,871 289 3,151 16,311
125

Program Assumptions and Methods

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

7. Average Benefits

Average benefits are 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 are 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 are calculated

from projected earnings histories, which are developed from the actual earnings histories associated with a sample of awards made in 2002. A sample of

2001 awards was used for the 2002 report.

Low Cost:

2005. . . . . . . . . . . . . . . . . . . . . . . . . . 6,108 148 1,584 7,840

2010. . . . . . . . . . . . . . . . . . . . . . . . . . 6,648 146 1,663 8,458

2015. . . . . . . . . . . . . . . . . . . . . . . . . . 7,776 154 1,923 9,853

2020. . . . . . . . . . . . . . . . . . . . . . . . . . 7,983 157 2,006 10,146

2025. . . . . . . . . . . . . . . . . . . . . . . . . . 8,339 170 2,137 10,645

2030. . . . . . . . . . . . . . . . . . . . . . . . . . 8,271 164 2,268 10,703

2035. . . . . . . . . . . . . . . . . . . . . . . . . . 8,343 162 2,382 10,887

2040. . . . . . . . . . . . . . . . . . . . . . . . . . 8,674 166 2,476 11,316

2045. . . . . . . . . . . . . . . . . . . . . . . . . . 9,136 173 2,560 11,868

2050. . . . . . . . . . . . . . . . . . . . . . . . . . 9,439 179 2,655 12,274

2055. . . . . . . . . . . . . . . . . . . . . . . . . . 9,677 184 2,768 12,628

2060. . . . . . . . . . . . . . . . . . . . . . . . . . 9,839 187 2,883 12,908

2065. . . . . . . . . . . . . . . . . . . . . . . . . . 10,244 193 2,997 13,434

2070. . . . . . . . . . . . . . . . . . . . . . . . . . 10,709 201 3,106 14,016

2075. . . . . . . . . . . . . . . . . . . . . . . . . . 11,176 207 3,217 14,601

2080. . . . . . . . . . . . . . . . . . . . . . . . . . 11,600 214 3,332 15,147

High Cost:

2005. . . . . . . . . . . . . . . . . . . . . . . . . . 6,793 172 1,793 8,759

2010. . . . . . . . . . . . . . . . . . . . . . . . . . 8,364 190 2,112 10,666

2015. . . . . . . . . . . . . . . . . . . . . . . . . . 8,536 204 2,117 10,857

2020. . . . . . . . . . . . . . . . . . . . . . . . . . 9,573 242 2,353 12,167

2025. . . . . . . . . . . . . . . . . . . . . . . . . . 11,084 303 2,659 14,045

2030. . . . . . . . . . . . . . . . . . . . . . . . . . 11,733 330 2,857 14,920

2035. . . . . . . . . . . . . . . . . . . . . . . . . . 12,240 346 2,956 15,542

2040. . . . . . . . . . . . . . . . . . . . . . . . . . 12,926 362 2,991 16,279

2045. . . . . . . . . . . . . . . . . . . . . . . . . . 13,689 375 3,012 17,076

2050. . . . . . . . . . . . . . . . . . . . . . . . . . 14,116 381 3,030 17,527

2055. . . . . . . . . . . . . . . . . . . . . . . . . . 14,326 382 3,025 17,733

2060. . . . . . . . . . . . . . . . . . . . . . . . . . 14,261 373 2,996 17,630

2065. . . . . . . . . . . . . . . . . . . . . . . . . . 14,392 373 2,957 17,722

2070. . . . . . . . . . . . . . . . . . . . . . . . . . 14,372 371 2,915 17,658

2075. . . . . . . . . . . . . . . . . . . . . . . . . . 14,253 367 2,878 17,498

2080. . . . . . . . . . . . . . . . . . . . . . . . . . 14,071 363 2,849 17,284

Table V.C6.—DI Beneficiaries With Benefits in Current-Payment Status at the End of 

Calendar Years 1960-2080 (Cont.)

[In thousands]

Calendar year

Disabled

worker

Auxiliaries

Total

Wifehusband Child
Assumptions & Methods

126

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 are based on projections of age

distributions at initial entitlement.

8. Benefit Payments

For each type of benefit, benefit payments are calculated as the product of a

number of beneficiaries and a corresponding average monthly benefit. In the

short-range period, benefit payments are calculated on a quarterly basis. In

the long-range period, all benefit payments are calculated on an annual basis,

using the number of beneficiaries on December 31. These amounts are

adjusted to include retroactive payments to newly awarded beneficiaries, and

other amounts not reflected in the regular monthly benefit payments.

Lump-sum death payments are calculated as the product of (1) the number of

such payments, which is 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).

9. Administrative Expenses

The projection of administrative expenses through 2012 is based on historical experience and the expected growth in average wages. Additionally, estimates for the first several years of the projection are provided by the Office

of Budget. For years after 2012, 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.

10.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 administrative expenses

associated with these benefits, and (2) the amount of OASDI payroll tax and

income tax that would be received with allowances for interest from railroad

workers.
127

Program Assumptions and Methods

The effect of the financial interchange with the Railroad Retirement program

is evaluated on the basis of trends similar to those used in estimating the cost

of OASDI benefits. The resulting effect is annual short-range costs of about

$3-5 billion and a long-range summarized cost of 0.04 percent of taxable

payroll to the OASDI program.

11. Benefits to Uninsured Persons

Some older persons had little or no chance to become fully insured for Social

Security benefits during their working lifetimes. Special payments from the

OASI Trust Fund may be granted to uninsured persons who either:

(1) attained age 72 before 1968, or (2) attained age 72 in 1968 or later and

had 3 quarters of coverage for each year after 1966 and before the year of

attainment of age 72. Benefits and costs associated with uninsured persons of

the first type above are reimbursable from the General Fund of the Treasury.

All projected costs associated with reimbursable and non-reimbursable payments to uninsured persons are insignificant.

12.Military-Service Transfers

Beginning in 1966, the OASI and DI Trust Funds were reimbursed annually

for the cost (including administrative expenses) of providing additional benefit payments resulting from noncontributory wage credits for military service

performed prior to 1957. The 1983 amendments modified the reimbursement

mechanism and the timing of the reimbursements, and required a transfer in

1983 to include all future costs attributable to the wage credits. The amendments also require adjustments to that 1983 transfer every fifth year, beginning with 1985, to account for actual data.

The adjustments for 2000 included a transfer of $836 million from the DI

Trust Fund to the General Fund of the Treasury. The $393 million that was

scheduled to be transferred from the general fund to the OASI Trust Fund did

not occur in 2000, but was transferred with an allowance for interest in February 2002. 

13.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 up to the first 50 percent of

OASI and DI benefit payments. (The remainder of the income taxes attributable to the taxation of up to 85 percent of OASI and DI benefit payments is

credited to the HI Trust Fund.)
Assumptions & Methods

128

For the short-range period, income to the trust funds from such taxation is

estimated by 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 marginal tax rate applicable to those benefits.

For the long-range period, income to the trust funds from such taxation is

estimated by applying projected ratios of taxation of OASI and DI benefits 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 gradually. The ultimate ratios of taxation of OASI and DI benefits are estimated by

the Office of Tax Analysis, Department of the Treasury, relating the Current

Population Survey income distribution of OASDI beneficiaries to tax rates in

a sample of recent tax returns. 
129

History of Trust Fund Operations

VI. APPENDICES

A. HISTORY OF OASI AND DI TRUST FUND OPERATIONS

The Federal Old-Age and Survivors Insurance (OASI) Trust Fund was established on January 1, 1940, as a separate account in the United States Treasury. The Federal Disability Insurance (DI) Trust Fund, another separate

account in the United States Treasury was established on August 1, 1956. All

the financial operations of the OASI and DI programs are handled through

these respective funds. The Board of Trustees1 is responsible for overseeing

the financial operations of these funds. The following paragraphs describe

the various components of trust fund income and outgo. The tables at the end

of this section present the historical operations of the separate trust funds

since their inception, as well as the operations of the combined trust funds

during the period when they have co-existed.

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 self-employment 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 between 1957

and 2001 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

 1 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: John L.

Palmer and Thomas R. Saving are currently serving 4-year terms that began on October 28, 2000.
Appendices

130

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.

The contribution, or tax, rates applicable under current law in each calendar

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

are shown in table VI.A1.1 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 2003 is also shown in table VI.A1.

 1 The contribution rates for the Hospital Insurance (HI) program, and for the OASDI and HI programs combined, are shown in table VI.F1.

Table VI.A1.—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
131

History of Trust Fund Operations

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.

1981. . . . . . . . . . . . $29,700 5.350 4.700 0.650 8.0000 7.0250 0.9750

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

19841. . . . . . . . . . . 37,800 5.700 5.200 .500 11.4000 10.4000 1.0000

19851. . . . . . . . . . . 39,600 5.700 5.200 .500 11.4000 10.4000 1.0000

19861. . . . . . . . . . . 42,000 5.700 5.200 .500 11.4000 10.4000 1.0000

19871. . . . . . . . . . . 43,800 5.700 5.200 .500 11.4000 10.4000 1.0000

19881. . . . . . . . . . . 45,000 6.060 5.530 .530 12.1200 11.0600 1.0600

19891. . . . . . . . . . . 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

1991. . . . . . . . . . . . 53,400 6.200 5.600 .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. . . . . . . . . . . . 76,200 6.200 5.300 .900 12.4000 10.6000 1.8000

2001. . . . . . . . . . . . 80,400 6.200 5.300 .900 12.4000 10.6000 1.8000

2002. . . . . . . . . . . . 84,900 6.200 5.300 .900 12.4000 10.6000 1.8000

2003. . . . . . . . . . . . 87,000 6.200 5.300 .900 12.4000 10.6000 1.8000

2004 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 selfemployment in 1984, 1985, and 1986-89, respectively. Beginning in 1990, self-employed 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 VI.A1.—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
Appendices

132

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.1 Subsequent 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.2

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 is not

required to meet current cost of 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 the

interest rate on new special obligations will be the average market yield, as

of the last business day of a month, on all of the outstanding marketable U.S.

obligations that are due or callable more than 4 years in the future. The rate

so calculated is rounded to the nearest one-eighth of one percent and applies

to new issues in the following 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.

 1 The additional tax revenues resulting from the increase to 85 percent are transferred to the HI Trust Fund. 2 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.
133

History of Trust Fund Operations

Although the special issues cannot be bought or sold in the open market, they

are nonetheless redeemable at any time at par value and thus bear no risk of

fluctuations in principal value due to changes in market yield rates. Just as in

the case of marketable Treasury securities held by the public, all of the

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 also include (1) the 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) net costs resulting from 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.
Appendices

134

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 report. This is

because the value of fixed capital assets is not available in the form of a

financial asset redeemable for the payment of benefits or administrative

expenditures, and therefore is not considered in assessing the actuarial status

of the trust funds.

Table VI.A2.—Historical Operations of the OASI Trust Fund, 

Calendar Years 1937-2002

[Amounts in billions]

Calendar

year

Income Expenditures Assets

Total1

Net

contributions2

Taxation of

benefits

Net

interest3 Total

Benefit

pay- ments4

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

Fund

ratio5

1937 . . . $0.8 $0.8 — 6/ 6/1 6/1 — — $0.8 $0.8 100

1938 . . . .4 .4 — 6/1 6/1 6/1 — — .4 1.1 7,660

1939 . . . .6 .6 — 6/1 6/1 6/1 — — .6 1.7 8,086

1940 . . . .4 .3 — 6/1 $0.1 6/1 6/1 — .3 2.0 2,781

1941 . . . .8 .8 — $0.1 .1 $0.1 6/1 — .7 2.8 1,782

1942 . . . 1.1 1.0 — .1 .2 .1 6/1 — .9 3.7 1,737

1943 . . . 1.3 1.2 — .1 .2 .2 6/1 — 1.1 4.8 1,891

1944 . . . 1.4 1.3 — .1 .2 .2 6/1 — 1.2 6.0 2,025

1945 . . . 1.4 1.3 — .1 .3 .3 6/1 — 1.1 7.1 1,975

1946 . . . 1.4 1.3 — .2 .4 .4 6/1 — 1.0 8.2 1,704

1947 . . . 1.7 1.6 — .2 .5 .5 6/1 — 1.2 9.4 1,592

1948 . . . 2.0 1.7 — .3 .6 .6 $0.1 — 1.4 10.7 1,542

1949 . . . 1.8 1.7 — .1 .7 .7 .1 — 1.1 11.8 1,487

1950 . . . 2.9 2.7 — .3 1.0 1.0 .1 — 1.9 13.7 1,156

1951 . . . 3.8 3.4 — .4 2.0 1.9 .1 — 1.8 15.5 698

1952 . . . 4.2 3.8 — .4 2.3 2.2 .1 — 1.9 17.4 681

1953 . . . 4.4 3.9 — .4 3.1 3.0 .1 — 1.3 18.7 564

1954 . . . 5.6 5.2 — .4 3.7 3.7 .1 6/1 1.9 20.6 500

1955 . . . 6.2 5.7 — .5 5.1 5.0 .1 6/1 1.1 21.7 405

1956 . . . 6.7 6.2 — .5 5.8 5.7 .1 6/1 .9 22.5 371

1957 . . . 7.4 6.8 — .6 7.5 7.3 .2 6/1 -.1 22.4 300

1958 . . . 8.1 7.6 — .6 8.6 8.3 .2 $0.1 -.5 21.9 259

1959 . . . 8.6 8.1 — .5 10.3 9.8 .2 .3 -1.7 20.1 212

1960 . . . 11.4 10.9 — .5 11.2 10.7 .2 .3 .2 20.3 180

1961 . . . 11.8 11.3 — .5 12.4 11.9 .2 .3 -.6 19.7 163

1962 . . . 12.6 12.1 — .5 14.0 13.4 .3 .4 -1.4 18.3 141

1963 . . . 15.1 14.5 — .5 14.9 14.2 .3 .4 .1 18.5 123

1964 . . . 16.3 15.7 — .6 15.6 14.9 .3 .4 .6 19.1 118

1965 . . . 16.6 16.0 — .6 17.5 16.7 .3 .4 -.9 18.2 109

1966 . . . 21.3 20.6 — .6 19.0 18.3 .3 .4 2.3 20.6 96

1967 . . . 24.0 23.1 — .8 20.4 19.5 .4 .5 3.7 24.2 101

1968 . . . 25.0 23.7 — .9 23.6 22.6 .5 .4 1.5 25.7 103

1969 . . . 29.6 27.9 — 1.2 25.2 24.2 .5 .5 4.4 30.1 102

1970 . . . 32.2 30.3 — 1.5 29.8 28.8 .5 .6 2.4 32.5 101

1971 . . . 35.9 33.7 — 1.7 34.5 33.4 .5 .6 1.3 33.8 94

1972 . . . 40.1 37.8 — 1.8 38.5 37.1 .7 .7 1.5 35.3 88

1973 . . . 48.3 46.0 — 1.9 47.2 45.7 .6 .8 1.2 36.5 75

1974 . . . 54.7 52.1 — 2.2 53.4 51.6 .9 .9 1.3 37.8 68

1975 . . . 59.6 56.8 — 2.4 60.4 58.5 .9 1.0 -.8 37.0 63

1976 . . . 66.3 63.4 — 2.3 67.9 65.7 1.0 1.2 -1.6 35.4 54

1977 . . . 72.4 69.6 — 2.2 75.3 73.1 1.0 1.2 -2.9 32.5 47

1978 . . . 78.1 75.5 — 2.0 83.1 80.4 1.1 1.6 -5.0 27.5 39

1979 . . . 90.3 87.9 — 1.8 93.1 90.6 1.1 1.4 -2.9 24.7 30
135

History of Trust Fund Operations

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

1980 . . . $105.8 $103.4 — $1.8 $107.7 $105.1 $1.2 $1.4 -$1.8 $22.8 23

1981 . . . 125.4 122.6 — 2.1 126.7 123.8 1.3 1.6 -1.3 21.5 18

1982 . . . 125.2 123.7 — .8 142.1 138.8 1.5 1.8 .6 22.1 15

1983 . . . 150.6 138.3 — 6.7 153.0 149.2 1.5 2.3 -2.4 19.7 14

1984 . . . 169.3 164.1 $2.8 2.3 161.9 157.8 1.6 2.4 7.4 27.1 20

1985 . . . 184.2 177.0 3.2 1.9 171.2 167.2 1.6 2.3 78.7 35.8 24

1986 . . . 197.4 190.7 3.4 3.1 181.0 176.8 1.6 2.6 7 3.2 39.1 28

1987 . . . 210.7 202.7 3.3 4.7 187.7 183.6 1.5 2.6 23.1 62.1 30

1988 . . . 240.8 229.8 3.4 7.6 200.0 195.5 1.8 2.8 40.8 102.9 41

1989 . . . 264.7 250.2 2.4 12.0 212.5 208.0 1.7 2.8 52.2 155.1 59

1990 . . . 286.7 267.5 4.8 16.4 227.5 223.0 1.6 3.0 59.1 214.2 78

1991 . . . 299.3 272.6 5.9 20.8 245.6 240.5 1.8 3.4 53.7 267.8 87

1992 . . . 311.2 281.0 5.9 24.3 259.9 254.9 1.8 3.1 51.3 319.2 103

1993 . . . 323.3 290.9 5.3 27.0 273.1 267.8 2.0 3.4 50.2 369.3 117

1994 . . . 328.3 293.3 5.0 29.9 284.1 279.1 1.6 3.4 44.1 413.5 130

1995 . . . 342.8 304.6 5.5 32.8 297.8 291.6 2.1 4.1 45.0 458.5 139

1996 . . . 363.7 321.6 6.5 35.7 308.2 302.9 1.8 3.6 55.5 514.0 149

1997 . . . 397.2 349.9 7.4 39.8 322.1 316.3 2.1 3.7 75.1 589.1 160

1998 . . . 424.8 371.2 9.1 44.5 332.3 326.8 1.9 3.7 92.5 681.6 177

1999 . . . 457.0 396.4 10.9 49.8 339.9 334.4 1.8 3.7 117.2 798.8 201

2000 . . . 490.5 421.4 11.6 57.5 358.3 352.7 2.1 3.5 132.2 931.0 223

2001 . . . 518.1 441.5 11.9 64.7 377.5 372.3 2.0 3.3 140.6 1,071.5 247

2002 . . . 539.7 455.2 12.9 71.2 393.7 388.1 2.1 3.5 146.0 1,217.5 272

1 Includes payments from the General Fund of the Treasury to the trust funds for (1) in 1947-51 and in 1966 and

later, costs of noncontributory wage credits for military service performed before 1957; (2) in 1971-82, costs of

deemed wage credits for military service performed after 1956; and (3) in 1968 and later, costs of benefits to

certain uninsured persons who attained age 72 before 1968. Differences in past year total income and sum of

individual column amounts are due to these payments. OASI historical payments from the General Fund of the

Treasury may be found on the Internet at http://www.ssa.gov/OACT/STATS/t4a1Income.html.

2 Beginning in 1983, includes transfers from the General Fund of the Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 through 2001, if such credits were

considered to be covered wages.

3 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged 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.

4 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.

5 The “Trust fund ratio” column represents assets at the beginning of a year as a percentage of expenditures during the year. For years 1984-90, assets at the beginning of a year include January advance tax transfers.

6 Less than $50 million.

7 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 $4.4 billion; in 1986, the amount was $13.2 billion.

Table VI.A2.—Historical Operations of the OASI Trust Fund, 

Calendar Years 1937-2002 (Cont.)

[Amounts in billions]

Calendar

year

Income Expenditures Assets

Total1

Net

contributions2

Taxation of

benefits

Net

interest3 Total

Benefit

payments4

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

Fund

ratio5
Appendices

136

Table VI.A3.—Historical Operations of the DI Trust Fund, 

Calendar Years 1957-2002

[Amounts in billions]

Calendar

year

Income Expenditures Assets

Total 1

1 Includes payments from the General Fund of the Treasury to the trust funds for (1) beginning in 1966 and later,

costs of noncontributory wage credits for military service performed before 1957 and (2) in 1971-82, costs of

deemed wage credits for military service performed after 1956. Differences in past year total income and sum of

individual column amounts are due to these payments. DI historical payments from the General Fund of the Treasury may be found on the Internet at http://www.ssa.gov/OACT/STATS/t4a2Income.html.

Net

contributions2

Taxation of

benefits

Net

interest3 Total

Benefit

payments4

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

Fund

ratio5

1957. . . $0.7 $0.7 — 6/ $0.1 $0.1 6/1 — $0.6 $0.6 100

1958. . . 1.0 1.0 — 6/1 .3 .2 6/1 — .7 1.4 249

1959. . . .9 .9 — 6/1 .5 .5 $0.1 6/1 .4 1.8 284

1960. . . 1.1 1.0 — $0.1 .6 .6 6/1 6/1 .5 2.3 304

1961. . . 1.1 1.0 — .1 1.0 .9 .1 6/1 .1 2.4 239

1962. . . 1.1 1.0 — .1 1.2 1.1 .1 6/1 -.1 2.4 206

1963. . . 1.2 1.1 — .1 1.3 1.2 .1 6/1 -.1 2.2 183

1964. . . 1.2 1.2 — .1 1.4 1.3 .1 6/1 -.2 2.0 159

1965. . . 1.2 1.2 — .1 1.7 1.6 .1 6/1 -.4 1.6 121

1966. . . 2.1 2.0 — .1 1.9 1.8 .1 6/1 .1 1.7 82

1967. . . 2.4 2.3 — .1 2.1 2.0 .1 6/1 .3 2.0 83

1968. . . 3.5 3.3 — .1 2.5 2.3 .1 6/1 1.0 3.0 83

1969. . . 3.8 3.6 — .2 2.7 2.6 .1 6/1 1.1 4.1 111

1970. . . 4.8 4.5 — .3 3.3 3.1 .2 6/1 1.5 5.6 126

1971. . . 5.0 4.6 — .4 4.0 3.8 .2 6/1 1.0 6.6 140

1972. . . 5.6 5.1 — .4 4.8 4.5 .2 6/1 .8 7.5 140

1973. . . 6.4 5.9 — .5 6.0 5.8 .2 6/1 .5 7.9 125

1974. . . 7.4 6.8 — .5 7.2 7.0 .2 6/1 .2 8.1 110

1975. . . 8.0 7.4 — .5 8.8 8.5 .3 6/1 -.8 7.4 92

1976. . . 8.8 8.2 — .4 10.4 10.1 .3 6/1 -1.6 5.7 71

1977. . . 9.6 9.1 — .3 11.9 11.5 .4 6/1 -2.4 3.4 48

1978. . . 13.8 13.4 — .3 13.0 12.6 .3 6/1 .9 4.2 26

1979. . . 15.6 15.1 — .4 14.2 13.8 .4 6/1 1.4 5.6 30

1980. . . 13.9 13.3 — .5 15.9 15.5 .4 6/1 -2.0 3.6 35

1981. . . 17.1 16.7 — .2 17.7 17.2 .4 6/1 -.6 3.0 21

1982. . . 22.7 22.0 — .5 18.0 17.4 .6 6/1 -.4 2.7 17

1983. . . 20.7 18.0 — 1.6 18.2 17.5 .6 6/1 2.5 5.2 15

1984. . . 17.3 15.9 $0.2 1.2 18.5 17.9 .6 6/1 -1.2 4.0 35

1985. . . 19.3 17.2 .2 .9 19.5 18.8 .6 6/1 72.4 6.3 27

1986. . . 19.4 18.4 .2 .8 20.5 19.9 .6 $0.1 7 1.5 7.8 38

1987. . . 20.3 19.7 6/1 .6 21.4 20.5 .8 .1 -1.1 6.7 44

1988. . . 22.7 22.0 .1 .6 22.5 21.7 .7 .1 .2 6.9 38

1989. . . 24.8 24.0 .1 .7 23.8 22.9 .8 .1 1.0 7.9 38

1990. . . 28.8 28.5 .1 .9 25.6 24.8 .7 .1 3.2 11.1 40

1991. . . 30.4 29.1 .2 1.1 28.6 27.7 .8 .1 1.8 12.9 39

1992. . . 31.4 30.1 .2 1.1 32.0 31.1 .8 .1 -.6 12.3 40

1993. . . 32.3 31.2 .3 .8 35.7 34.6 1.0 .1 -3.4 9.0 35

1994. . . 52.8 51.4 .3 1.2 38.9 37.7 1.0 .1 14.0 22.9 23

1995. . . 56.7 54.4 .3 2.2 42.1 40.9 1.1 .1 14.6 37.6 55

1996. . . 60.7 57.3 .4 3.0 45.4 44.2 1.2 6/1 15.4 52.9 83

1997. . . 60.5 56.0 .5 4.0 47.0 45.7 1.3 .1 13.5 66.4 113

1998. . . 64.4 59.0 .6 4.8 49.9 48.2 1.6 .2 14.4 80.8 133

1999. . . 69.5 63.2 .7 5.7 53.0 51.4 1.5 .1 16.5 97.3 152

2000. . . 77.9 71.1 .7 6.9 56.8 55.0 1.6 .2 21.1 118.5 171

2001. . . 83.9 74.9 .8 8.2 61.4 59.6 1.7 6/1 22.5 141.0 193

2002. . . 87.4 77.3 .9 9.2 67.9 65.7 2.0 .2 19.5 160.5 208
137

History of Trust Fund Operations

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

2 Beginning in 1983, includes transfers from the General Fund of the Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 through 2001, if such credits were

considered to be covered wages.

3 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged 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.

4 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.

5 The “Trust fund ratio” column represents assets at the beginning of a year as a percentage of expenditures during the year. For years 1984-90, assets at the beginning of a year include January advance tax transfers.

6 Less than $50 million.

7 Reflects offset for repayment from the OASI Trust Fund of amounts borrowed from the DI Trust Fund in 1982.

An amount of $2.5 billion was repaid in each year 1985 and 1986.
Appendices

138

Table VI.A4.—Historical Operations of the Combined OASI and DI Trust Funds,

Calendar Years 1957-2002

[Amounts in billions]

Calendar

year

Income Expenditures Assets

Total1

Net

contributions2

Taxation of

benefits

Net

interest3 Total

Benefit

payments4

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

Fund

ratio5

1957 . . . $8.1 $7.5 — $0.6 $7.6 $7.4 $0.2 6/ $0.5 $23.0 298

1958 . . . 9.1 8.5 — .6 8.9 8.6 .2 $0.1 .2 23.2 259

1959 . . . 9.5 8.9 — .6 10.8 10.3 .2 .3 -1.3 22.0 215

1960 . . . 12.4 11.9 — .6 11.8 11.2 .2 .3 .6 22.6 186

1961 . . . 12.9 12.3 — .6 13.4 12.7 .3 .3 -.5 22.2 169

1962 . . . 13.7 13.1 — .6 15.2 14.5 .3 .4 -1.5 20.7 146

1963 . . . 16.2 15.6 — .6 16.2 15.4 .3 .4 6/1 20.7 128

1964 . . . 17.5 16.8 — .6 17.0 16.2 .4 .4 .5 21.2 122

1965 . . . 17.9 17.2 — .7 19.2 18.3 .4 .5 -1.3 19.8 110

1966 . . . 23.4 22.6 — .7 20.9 20.1 .4 .5 2.5 22.3 95

1967 . . . 26.4 25.4 — .9 22.5 21.4 .5 .5 3.9 26.3 99

1968 . . . 28.5 27.0 — 1.0 26.0 25.0 .6 .5 2.5 28.7 101

1969 . . . 33.3 31.5 — 1.3 27.9 26.8 .6 .5 5.5 34.2 103

1970 . . . 37.0 34.7 — 1.8 33.1 31.9 .6 .6 3.9 38.1 103

1971 . . . 40.9 38.3 — 2.0 38.5 37.2 .7 .6 2.4 40.4 99

1972 . . . 45.6 42.9 — 2.2 43.3 41.6 .9 .7 2.3 42.8 93

1973 . . . 54.8 51.9 — 2.4 53.1 51.5 .8 .8 1.6 44.4 80

1974 . . . 62.1 58.9 — 2.7 60.6 58.6 1.1 .9 1.5 45.9 73

1975 . . . 67.6 64.3 — 2.9 69.2 67.0 1.2 1.0 -1.5 44.3 66

1976 . . . 75.0 71.6 — 2.7 78.2 75.8 1.2 1.2 -3.2 41.1 57

1977 . . . 82.0 78.7 — 2.5 87.3 84.7 1.4 1.2 -5.3 35.9 47

1978 . . . 91.9 88.9 — 2.3 96.0 93.0 1.4 1.6 -4.1 31.7 37

1979 . . . 105.9 103.0 — 2.2 107.3 104.4 1.5 1.5 -1.5 30.3 30

1980 . . . 119.7 116.7 — 2.3 123.6 120.6 1.5 1.4 -3.8 26.5 25

1981 . . . 142.4 139.4 — 2.2 144.4 141.0 1.7 1.6 -1.9 24.5 18

1982 . . . 147.9 145.7 — 1.4 160.1 156.2 2.1 1.8 .2 24.8 15

1983 . . . 171.3 156.3 — 8.3 171.2 166.7 2.2 2.3 .1 24.9 14

1984 . . . 186.6 180.1 $3.0 3.4 180.4 175.7 2.3 2.4 6.2 31.1 21

1985 . . . 203.5 194.1 3.4 2.7 190.6 186.1 2.2 2.4 711.1 42.2 24

1986 . . . 216.8 209.1 3.7 3.9 201.5 196.7 2.2 2.7 7 4.7 46.9 29

1987 . . . 231.0 222.4 3.2 5.3 209.1 204.1 2.4 2.6 21.9 68.8 31

1988 . . . 263.5 251.8 3.4 8.2 222.5 217.1 2.5 2.9 41.0 109.8 41

1989 . . . 289.4 274.2 2.5 12.7 236.2 230.9 2.4 2.9 53.2 163.0 57

1990 . . . 315.4 296.1 5.0 17.2 253.1 247.8 2.3 3.0 62.3 225.3 75

1991 . . . 329.7 301.7 6.1 21.9 274.2 268.2 2.6 3.5 55.5 280.7 82

1992 . . . 342.6 311.1 6.1 25.4 291.9 286.0 2.7 3.2 50.7 331.5 96

1993 . . . 355.6 322.1 5.6 27.9 308.8 302.4 3.0 3.4 46.8 378.3 107

1994 . . . 381.1 344.7 5.3 31.1 323.0 316.8 2.7 3.5 58.1 436.4 117

1995 . . . 399.5 359.0 5.8 35.0 339.8 332.6 3.1 4.1 59.7 496.1 128

1996 . . . 424.5 378.9 6.8 38.7 353.6 347.1 3.0 3.6 70.9 567.0 140

1997 . . . 457.7 406.0 7.9 43.8 369.1 362.0 3.4 3.7 88.6 655.5 154

1998 . . . 489.2 430.2 9.7 49.3 382.3 375.0 3.5 3.8 107.0 762.5 171

1999 . . . 526.6 459.6 11.6 55.5 392.9 385.8 3.3 3.8 133.7 896.1 194

2000 . . . 568.4 492.5 12.3 64.5 415.1 407.6 3.8 3.7 153.3 1,049.4 216

2001 . . . 602.0 516.4 12.7 72.9 438.9 431.9 3.7 3.3 163.1 1,212.5 239

2002 . . . 627.1 532.5 13.8 80.4 461.7 453.8 4.2 3.6 165.4 1,378.0 263
139

History of Trust Fund Operations

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

1 Includes payments from the General Fund of the Treasury to the trust funds for (1) beginning in 1966 and later,

costs of noncontributory wage credits for military service performed before 1957; (2) in 1971-82, costs of

deemed wage credits for military service performed after 1956; and (3) in 1968 and later, costs of benefits to certain uninsured persons who attained age 72 before 1968. Differences in past year total income and sum of individual column amounts are due to these payments. OASDI historical payments from the General Fund of the

Treasury may be found on the Internet at http://www.ssa.gov/OACT/STATS/t4a3Income.html.

2 Beginning in 1983, includes transfers from the General Fund of the Treasury representing contributions that

would have been paid on deemed wage credits for military service in 1957 through 2001, if such credits were

considered to be covered wages.

3 Net interest includes net profits or losses on marketable investments. Beginning in 1967, administrative

expenses are charged 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.

4 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.

5 The “Trust fund ratio” column represents assets at the beginning of a year as a percentage of expenditures during the year. For years 1984-90, assets at the beginning of a year include January advance tax transfers.

6 Less than $50 million.

7 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 $1.8 billion; in 1986, the amount was $10.6 billion.
Appendices

140

B. HISTORY OF ACTUARIAL BALANCE ESTIMATES

This appendix chronicles the history of the principal summary measure of

long-range actuarial status, namely the actuarial balance, since 1983. The

1983 report was the last report for which the actuarial balance was positive.

Actuarial balance is defined in detail in chapter IV, 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 cost 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, as shown in the reports for 1988 and later, and

 • The present value of a target trust fund balance equal to 100 percent of

the amount of annual cost 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 averagecost 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 demographic and economic 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-asyou-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), the average-cost method produces the same result as the

present-value method. However, by 1988, neither of these situations still

existed.
141

History of Actuarial Balances

As a result of legislation enacted in 1977 and in 1983, substantial increases

in the trust funds were estimated to occur well into the 21st century, so that

the program was partially advance funded, rather than being funded on a

pay-as-you-go basis. Also, because of reductions 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 reintroduced.

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 VI.B1 shows the estimated OASDI actuarial balances, as well as the

summarized income and cost rates, for the annual reports 1983-2002, along

with the estimates for the current report. The values shown are based on the

alternative II assumptions, or alternative II-B for years prior to 1991.
Appendices

142

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

For several of the years included in the table, significant legislative changes

or definitional changes affected the estimated actuarial balance. The Social

Security Amendments of 1983 accounted for the largest single change in

recent history. The actuarial balance of -1.82 for the 1982 report improved to

+0.02 for the 1983 report. In 1985, the estimated actuarial balance changed

largely because of an adjustment made to the method for estimating the age

distribution of immigrants.

Rebenchmarking of the National Income and Product Accounts and changes

in demographic assumptions contributed to the change in the actuarial balance for 1987. Various changes in assumptions and methods for the 1988

report had roughly offsetting effects on the actuarial balance. 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

the actuarial balance. In 1992, changes in disability assumptions and the

method for projecting average benefit levels accounted for most of the

Table VI.B1.—Long-Range OASDI Actuarial Balances 1 as Shown 

in the Trustees Reports for 1983-2003

[As a percentage of taxable payroll]

1 Values shown are based on the alternative II assumptions for 1991-2003, and on the alternative II-B

assumptions for 1982-90.

Year of report

Summarized

income rate

Summarized

cost rate

Actuarial

balance

Change from

previous year

1983 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.87 12.84 +0.02 +1.84

1984 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.90 12.95 -.06 -.08

1985 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.94 13.35 -.41 -.35

1986 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.96 13.40 -.44 -.03

1987 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.89 13.51 -.62 -.18

1988 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.94 13.52 -.58 +.04

1989 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.02 13.72 -.70 -.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/

2 Between -0.005 and 0.005 percent of taxable payroll.

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

2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.51 15.40 -1.89 +.17

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.58 15.44 -1.86 +.03

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.72 15.59 -1.87 -.01

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.78 15.70 -1.92 -.04
143

History of Actuarial Balances

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 assumptions, 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 demographic and economic 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. In

1999, increases caused by changes in the economic assumptions related to

improvements in the CPI by the Bureau of Labor Statistics accounted for

most of the changes in the estimated actuarial balance. For the 2000 report,

changes in the actuarial balance resulted from changes in economic assumptions and methodology; however, these increases in the balance were partially offset by reductions caused by the change in valuation period and

changes in demographic assumptions. For the 2001 report, increases caused

by changes in the demographic starting values, although partially offset by a

decrease produced by the change in the valuation period, accounted for most

of the changes in the estimated actuarial balance. For the 2002 report, the

changes in the valuation period and the demographic assumptions—both

decreases in the actuarial balance—were offset by changes in the economic

assumptions, while the increase due to disability assumptions was slightly

more than offset by the decrease due to changes in the projection methods

and data. Changes affecting the actuarial balance shown for the 2003 report

are described in section IV.B.8.
Appendices

144

C. FISCAL YEAR HISTORICAL DATA AND 

PROJECTIONS THROUGH 2012

Tables VI.C1, VI.C2, and VI.C3 present detailed operations of the OASI, DI,

and the combined OASI and DI Trust Funds, respectively, for fiscal

year 2002, the most recent fiscal year for which complete actual information

is available. These tables are similar to the calendar year operations tables in

section III.A. Please see that section for a description of the various items of

income and outgo.

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

Table VI.C1.—Operations of the OASI Trust Fund, Fiscal Year 2002

[In millions]

Total assets, September 30, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,033,840

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $448,991

Payments from the General Fund of the Treasury for contributions subject to 

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -858

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448,133

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 145

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,452

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,597

Transfer from General Fund of the Treasury to adjust previous determinations of costs 

attributable to noncontributory wage credits for military service before 1957 . . . . . 414

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,105

Interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

1 Includes (1) 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, (2) interest arising

from the revised allocation of administrative expenses among the trust funds and (3) interest on reimbursements to the trust fund for costs associated with union activities and pension reform.

8

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 68,113

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/

2 Less than $500,000.

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529,257

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385,119

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,128

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -50

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,942

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . . 3,493

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,893

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

Offsetting receipts from sales of supplies, materials, etc. . . . . . . . . . . . . . . . . . . . . -1

Miscellaneous reimbursements from the general fund 3 . . . . . . . . . . . . . . . . . . . . . 

3 Reimbursements for costs incurred in performing certain legislatively mandated activities not directly

related to administering the OASI program.

-5

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,111

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389,546

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,711

Total assets, September 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,173,551
145

Fiscal Year Operations and Projections

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

Table VI.C2.—Operations of the DI Trust Fund, Fiscal Year 2002

[In millions]

Total assets, September 30, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $135,901

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,220

Payments from the General Fund of the Treasury for contributions subject to 

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -152

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,067

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 6

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930

Total income from taxation of benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 936

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,714

Interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 Includes (1) 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, (2) interest arising

from the revised allocation of administrative expenses among the trust funds, (3) interest earned on the

investments of the trust fund, and (4) interest on reimbursements to the trust fund for costs associated with

union activities and pension reform.

3

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 8,717

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,720

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,569

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -413

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -18

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,138

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . . 154

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 67

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,966

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Miscellaneous reimbursements from the general fund2. . . . . . . . . . . . . . . . . . . . . .

2 Reimbursements for costs incurred in performing certain legislatively mandated activities not directly

related to administering the DI program.

-3

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,005

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,364

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,356

Total assets, September 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,258
Appendices

146

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

Estimates of the operations and status of the OASI, DI and the combined

OASI and DI Trust Funds during fiscal years (12 months ending on

September 30) 1998-2012 are presented in tables VI.C4, VI.C5 and VI.C6,

respectively. 

Table VI.C3.—Operations of the Combined OASI and DI Trust Funds, Fiscal Year 2002

[In millions]

Total assets, September 30, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,169,741

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $525,211

Payments from the General Fund of the Treasury for contributions subject to 

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,011

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524,200

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 151

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,382

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,533

Transfer from General Fund of the Treasury to adjust previous determinations of costs 

attributable to noncontributory wage credits for military service before 1957 . . . . . 414

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,819

Interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 Includes (1) 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, (2) interest arising

from the revised allocation of administrative expenses among the trust funds, (3) interest earned on the

investments of the trust fund, and (4) interest on reimbursements to the trust fund for costs associated with

union activities and pension reform.

10

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 76,830

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/

2 Less than $500,000.

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,977

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449,688

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,540

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -67

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448,080

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . . 3,647

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 67

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,859

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267

Offsetting receipts from sales of supplies, materials, etc. . . . . . . . . . . . . . . . . . . . . -1

Miscellaneous reimbursements from the general fund3 . . . . . . . . . . . . . . . . . . . . . .

3 Reimbursements for costs incurred in performing certain legislatively mandated activities not directly

related to administering the OASI and DI programs.

-9

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,116

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,910

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,067

Total assets, September 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,328,808
147

Fiscal Year Operations and Projections

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

Table VI.C4.—Operations of the OASI Trust Fund in Fiscal Years 1998-2012

[Amounts in billions]

Fiscal year

Income Cost Assets

Total1

1 “Total Income” column includes transfers made between the OASI Trust Fund and the General Fund of the

Treasury that are not included in the separate components of income shown. These transfers consist of payments for (1) the cost of noncontributory wage credits for military service before 1957, and (2) the cost of benefits to certain uninsured persons who attained age 72 before 1968. In February 2002, $414 million was

transferred from the General Fund of the Treasury to the OASI Trust Fund for the cost of pre-1957 military

service wage credits. Otherwise, these transfers are estimated to be less than $500,000 in each year of the projection period.

Net

contributions

Taxation of

benefits

Net

interest Total

Benefit

payments

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

fund

ratio2

2 The “Trust fund ratio” column represents assets at the beginning of a year (which are identical to assets at the

end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year. See

text beginning on page 36 concerning interpretation of these ratios.

Historical data:

1998. . . $415.7 $364.9 $8.6 $42.2 $330.0 $324.3 $2.0 $3.7 $85.7 $653.1 172

1999. . . 447.0 389.9 10.2 46.8 337.9 332.4 1.8 3.7 109.1 762.2 193

2000. . . 484.2 418.2 12.5 53.5 353.4 347.9 2.0 3.5 130.8 893.0 216

2001. . . 513.8 440.8 11.8 61.2 373.0 367.7 2.1 3.3 140.8 1,033.8 239

2002. . . 529.3 448.1 12.6 68.1 389.5 383.9 2.1 3.5 139.7 1,173.6 265

Intermediate:

2003. . . 547.2 460.2 12.9 74.1 402.3 396.2 2.4 3.7 145.0 1,318.5 292

2004. . . 573.4 479.2 12.4 81.8 414.8 408.7 2.5 3.7 158.6 1,477.1 318

2005. . . 616.3 511.3 13.3 91.7 431.8 425.6 2.5 3.7 184.5 1,661.6 342

2006. . . 654.4 536.5 14.2 103.7 451.0 445.0 2.5 3.5 203.4 1,864.9 368

2007. . . 699.1 566.7 15.5 117.0 474.1 468.0 2.5 3.7 225.0 2,090.0 393

2008. . . 744.0 595.4 17.0 131.6 500.8 494.6 2.5 3.7 243.2 2,333.2 417

2009. . . 789.7 624.5 18.6 146.6 530.1 523.9 2.5 3.7 259.7 2,592.8 440

2010. . . 841.9 659.1 20.3 162.5 563.1 556.8 2.5 3.7 278.9 2,871.7 460

2011 . . . 895.7 693.2 23.4 179.2 599.5 593.4 2.6 3.6 296.2 3,167.9 479

2012. . . 946.6 723.9 26.0 196.7 639.9 633.4 2.6 3.9 306.8 3,474.7 495

Low Cost:

2003. . . 548.5 461.3 12.9 74.3 402.1 396.1 2.4 3.7 146.4 1,319.9 292

2004. . . 581.2 486.3 12.3 82.5 414.1 408.0 2.5 3.6 167.0 1,486.9 319

2005. . . 622.6 517.0 13.2 92.3 429.0 422.8 2.5 3.7 193.6 1,680.5 347

2006. . . 658.2 541.0 14.0 103.2 444.9 438.9 2.4 3.5 213.3 1,893.9 378

2007. . . 699.8 569.6 15.1 115.0 463.2 457.2 2.4 3.6 236.5 2,130.4 409

2008. . . 741.4 597.0 16.4 128.0 483.6 477.6 2.4 3.6 257.8 2,388.2 441

2009. . . 785.2 625.0 17.7 142.5 506.7 500.7 2.4 3.5 278.5 2,666.7 471

2010. . . 834.9 658.0 19.2 157.7 532.9 527.0 2.5 3.5 302.0 2,968.7 500

2011 . . . 886.6 690.1 21.9 174.5 562.0 556.2 2.5 3.3 324.6 3,293.4 528

2012. . . 935.3 718.7 24.2 192.4 594.3 588.2 2.5 3.6 341.0 3,634.4 554

High Cost:

2003. . . 544.5 457.6 12.9 74.0 402.4 396.3 2.4 3.7 142.2 1,315.7 292

2004. . . 558.5 466.0 12.4 80.1 416.6 410.5 2.5 3.7 141.9 1,457.6 316

2005. . . 613.4 508.0 13.5 91.9 436.5 430.3 2.5 3.7 176.9 1,634.5 334

2006. . . 659.2 535.4 14.6 109.1 464.0 457.9 2.5 3.6 195.1 1,829.6 352

2007. . . 703.4 561.7 16.4 125.3 501.4 495.0 2.5 3.8 202.0 2,031.6 365

2008. . . 773.5 608.2 18.5 146.9 542.8 536.2 2.6 4.0 230.8 2,262.4 374

2009. . . 832.0 645.3 20.5 166.2 585.4 578.6 2.7 4.1 246.7 2,509.0 387

2010. . . 887.9 684.0 22.7 181.2 628.8 621.8 2.7 4.3 259.1 2,768.2 399

2011 . . . 945.1 722.4 26.4 196.4 674.9 667.9 2.7 4.3 270.2 3,038.3 410

2012. . . 998.6 757.1 29.6 211.9 726.0 718.6 2.8 4.6 272.6 3,311.0 419
Appendices

148

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

Table VI.C5.—Operations of the DI Trust Fund in Fiscal Years 1998-2012

[Amounts in billions]

Fiscal year

Income Cost Assets

Total1

1 “Total Income” column includes transfers made between the DI Trust Fund and the General Fund of the

Treasury that are not included in the separate components of income shown. These transfers consist of payments for the cost of noncontributory wage credits for military service before 1957. In particular, a transfer

was made in December 2000 in the amount of $836 million from the DI Trust Fund to the General Fund of the

Treasury. Such transfers are estimated to be less than $500,000 in each year of the projection period.

Net

contributions

Taxation of

benefits

Net

interest Total

Benefit

payments

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

fund

ratio2

2 The “Trust fund ratio” column represents assets at the beginning of a year (which are identical to assets at

the end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year.

See text beginning on page 36 concerning interpretation of these ratios.

Historical data:

1998. . . $62.9 $58.0 $0.5 $4.4 $49.3 $47.6 $1.6 $0.2 $13.6 $77.1 129

1999. . . 67.8 61.9 .6 5.2 52.1 50.5 1.5 .1 15.7 92.7 148

2000. . . 77.0 70.0 .8 6.3 56.0 54.2 1.6 .2 21.0 113.8 166

2001. . . 82.1 74.6 .7 7.6 59.9 58.2 1.8 3/

3 Less than $50 million.

22.1 135.9 190

2002. . . 85.7 76.1 .9 8.7 66.4 64.2 2.0 .2 19.4 155.3 205

Intermediate:

2003. . . 88.7 78.1 1.0 9.6 71.7 69.7 1.8 .2 17.0 172.2 217

2004. . . 92.8 81.4 1.0 10.5 78.5 76.2 2.0 .2 14.4 186.6 219

2005. . . 99.3 86.8 1.1 11.4 84.7 82.4 2.1 .3 14.6 201.1 220

2006. . . 104.6 91.1 1.2 12.3 90.0 87.6 2.2 .3 14.6 215.7 223

2007. . . 110.8 96.2 1.3 13.3 95.9 93.3 2.3 .3 14.9 230.6 225

2008. . . 116.8 101.1 1.5 14.3 102.5 99.8 2.4 .3 14.3 245.0 225

2009. . . 122.8 106.1 1.7 15.1 110.1 107.2 2.6 .3 12.7 257.7 223

2010. . . 129.6 111.9 1.9 15.9 117.7 114.6 2.7 .4 11.9 269.6 219

2011. . . 136.4 117.7 2.2 16.5 125.6 122.4 2.9 .4 10.8 280.5 215

2012. . . 142.6 122.9 2.5 17.1 133.7 130.3 3.0 .4 8.8 289.3 210

Low Cost:

2003. . . 88.9 78.3 1.0 9.6 70.6 68.6 1.8 .2 18.2 173.5 220

2004. . . 94.2 82.6 .9 10.7 75.7 73.5 2.0 .2 18.5 192.0 229

2005. . . 100.6 87.8 1.0 11.8 80.4 78.1 2.1 .3 20.2 212.2 239

2006. . . 105.9 91.9 1.1 12.9 84.0 81.5 2.2 .3 21.9 234.1 253

2007. . . 112.1 96.7 1.2 14.1 87.7 85.1 2.3 .3 24.4 258.5 267

2008. . . 118.2 101.4 1.3 15.5 91.9 89.2 2.4 .3 26.3 284.7 281

2009. . . 124.5 106.1 1.4 16.9 96.7 93.8 2.5 .3 27.9 312.6 295

2010. . . 131.8 111.7 1.6 18.5 101.2 98.2 2.6 .3 30.6 343.2 309

2011. . . 139.2 117.2 1.8 20.1 105.9 102.8 2.8 .3 33.3 376.4 324

2012. . . 146.1 122.0 2.1 22.0 110.7 107.4 2.9 .3 35.4 411.8 340

High Cost:

2003. . . 88.2 77.7 1.0 9.6 73.7 71.6 1.8 .2 14.6 169.8 211

2004. . . 90.2 79.1 1.0 10.1 83.2 81.0 2.0 .2 7.0 176.8 204

2005. . . 98.2 86.3 1.2 10.7 92.1 89.7 2.1 .3 6.1 182.9 192

2006. . . 103.7 90.9 1.3 11.4 100.7 98.2 2.2 .3 3.0 185.9 182

2007. . . 108.6 95.4 1.5 11.8 111.2 108.5 2.4 .3 -2.5 183.4 167

2008. . . 116.9 103.3 1.8 11.8 122.7 119.8 2.6 .4 -5.8 177.5 149

2009. . . 123.0 109.6 2.0 11.4 134.7 131.6 2.7 .4 -11.7 165.9 132

2010. . . 129.1 116.2 2.3 10.7 145.9 142.6 2.9 .4 -16.8 149.1 114

2011. . . 135.0 122.7 2.8 9.6 157.4 153.8 3.1 .4 -22.4 126.7 95

2012. . . 139.9 128.6 3.2 8.1 169.2 165.4 3.3 .5 -29.3 97.4 75
149

Fiscal Year Operations and Projections

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

Table VI.C6.—Operations of the Combined OASI and DI Trust Funds

in Fiscal Years 1998-2012

[Amounts in billions]

Fiscal year

Income Cost Assets

Total1

1 “Total Income” column includes transfers made between the OASI and DI Trust Funds and the General Fund

of the Treasury that are not included in the separate components of income shown. These transfers consist of

payments for (1) the cost of noncontributory wage credits for military service before 1957, and (2) the cost of

benefits to certain uninsured persons who attained age 72 before 1968. In particular, a transfer was made in

December 2000 in the amount of $836 million from the DI Trust Fund to the General Fund of the Treasury. In

February 2002, $414 million was transferred from the General Fund of the Treasury to the OASI Trust Fund

for the cost of pre-1957 military service wage credits. Otherwise, these transfers are estimated to be less than

$500,000 in each year of the projection period.

Net

contributions

Taxation of

benefits

Net

interest Total

Benefit

payments

Administrative

costs

RRB

interchange

Net

increase

during

year

Amount

at end

of year

Trust

fund

ratio2

2 The “Trust fund ratio” column represents assets at the beginning of a year (which are identical to assets at the

end of the prior year shown in the “Amount at end of year” column) as a percentage of cost for the year. See

text beginning on page 36 concerning interpretation of these ratios.

Historical data:

1998. . . $478.6 $422.9 $9.1 $46.6 $379.3 $371.9 $3.6 $3.8 $99.3 $730.2 166

1999. . . 514.7 451.9 10.8 52.1 390.0 382.8 3.4 3.8 124.7 854.9 187

2000. . . 561.3 488.2 13.2 59.8 409.4 402.1 3.6 3.7 151.8 1,006.8 209

2001. . . 595.9 515.4 12.5 68.8 432.9 425.8 3.8 3.3 163.0 1,169.7 233

2002. . . 615.0 524.2 13.5 76.8 455.9 448.1 4.1 3.6 159.1 1,328.8 257

Intermediate:

2003. . . 635.9 538.3 13.9 83.7 474.0 465.9 4.2 3.9 161.9 1,490.7 280

2004. . . 666.3 560.6 13.3 92.3 493.3 484.9 4.5 3.9 172.9 1,663.7 302

2005. . . 715.6 598.1 14.4 103.0 516.5 508.0 4.6 3.9 199.1 1,862.7 322

2006. . . 759.0 627.6 15.4 116.0 541.1 532.6 4.6 3.8 217.9 2,080.6 344

2007. . . 809.9 662.9 16.8 130.2 570.0 561.2 4.8 4.0 240.0 2,320.6 365

2008. . . 860.9 696.5 18.5 145.9 603.3 594.4 4.9 4.0 257.6 2,578.2 385

2009. . . 912.5 730.6 20.2 161.7 640.2 631.1 5.1 4.0 272.4 2,850.6 403

2010. . . 971.6 771.0 22.2 178.4 680.8 671.5 5.2 4.1 290.8 3,141.3 419

2011. . . 1,032.2 810.9 25.6 195.7 725.2 715.7 5.4 4.0 307.0 3,448.3 433

2012. . . 1,089.2 846.8 28.6 213.8 773.6 763.7 5.6 4.3 315.6 3,763.9 446

Low Cost:

2003. . . 637.3 539.6 13.9 83.9 472.8 464.7 4.2 3.9 164.6 1,493.4 281

2004. . . 675.4 568.8 13.3 93.2 489.9 481.5 4.5 3.9 185.5 1,678.9 305

2005. . . 723.2 604.8 14.3 104.1 509.4 500.9 4.6 3.9 213.8 1,892.7 330

2006. . . 764.1 632.9 15.1 116.1 528.8 520.5 4.6 3.7 235.3 2,128.0 358

2007. . . 811.8 666.3 16.3 129.2 550.9 542.3 4.7 3.9 260.9 2,388.9 386

2008. . . 859.6 698.4 17.7 143.5 575.5 566.9 4.8 3.9 284.1 2,673.0 415

2009. . . 909.7 731.1 19.2 159.4 603.3 594.5 5.0 3.8 306.3 2,979.3 443

2010. . . 966.7 769.7 20.8 176.2 634.1 625.2 5.1 3.8 332.6 3,311.9 470

2011. . . 1,025.8 807.3 23.8 194.7 667.9 659.0 5.3 3.7 357.9 3,669.8 496

2012. . . 1,081.4 840.8 26.3 214.4 704.9 695.6 5.4 3.9 376.4 4,046.2 521

High Cost:

2003. . . 632.8 535.3 13.9 83.5 476.0 467.9 4.2 3.9 156.7 1,485.5 279

2004. . . 648.8 545.1 13.4 90.2 499.9 491.5 4.5 3.9 148.9 1,634.4 297

2005. . . 711.5 594.2 14.7 102.7 528.6 520.0 4.6 4.0 183.0 1,817.4 309

2006. . . 762.8 626.3 16.0 120.6 564.7 556.2 4.7 3.8 198.1 2,015.5 322

2007. . . 812.0 657.0 17.9 137.1 612.5 603.5 4.9 4.2 199.5 2,215.0 329

2008. . . 890.4 711.4 20.2 158.7 665.5 656.0 5.2 4.3 224.9 2,439.9 333

2009. . . 955.0 754.8 22.5 177.7 720.1 710.2 5.4 4.5 235.0 2,674.9 339

2010. . . 1,017.1 800.2 25.0 191.9 774.7 764.4 5.6 4.7 242.3 2,917.2 345

2011. . . 1,080.1 845.0 29.1 205.9 832.3 821.8 5.8 4.7 247.8 3,165.0 350

2012. . . 1,138.4 885.7 32.7 220.0 895.1 884.0 6.1 5.1 243.3 3,408.4 354
Appendices

150

D. LONG-RANGE SENSITIVITY ANALYSIS

This appendix presents estimates which illustrate the sensitivity of the longrange actuarial status of the OASDI program to changes in selected individual assumptions. The estimates based on the three alternative sets of assumptions (see sections IV.B, V.A, and V.B) 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 appendix, the

intermediate alternative II projection is used as the reference point, and one

assumption at a time is varied within that alternative. The variation used for

each individual assumption reflects the levels used for that assumption in the

low cost alternative I and high cost alternative III projections. 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 for 25-year, 50-year, and 75-year valuation periods. Because the

annual payroll tax rate is constant for the entire 75-year valuation period, the

income rate varies only slightly with changes in assumptions and, therefore,

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 VI.D1 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 1.7, 1.95, 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 2027.
151

Long-Range Sensitivity Analysis

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 16.00 to 15.40 percent, as the

assumed ultimate total fertility rate increases from 1.7 to 2.2. Similarly,

while the 25-year actuarial balance varies by only 0.05 percent of taxable

payroll, the 75-year actuarial balance varies over a much wider range, from

-2.19 to -1.65 percent.

During the 25-year period, the very slight increases in the working population resulting from increases in fertility are more than offset by decreases in

the female labor force and 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 VI.D2 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 for the period 2002-77. These assumptions

Table VI.D1.—Sensitivity to Varying Fertility Assumptions

[As a percentage of taxable payroll]

Valuation period

Ultimate total fertility rate1,2

1The 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

2027.

2 Ultimate total fertility rates used for this analysis are 1.7 from the alternative III assumptions, 1.95 from the

alternative II assumptions, and 2.2 from the alternative I assumptions. All other assumptions used for this

analysis are from alternative II.

1.7 1.95 2.2

Summarized income rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34 14.34 14.34

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.90 13.89 13.89

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.81 13.78 13.75

Summarized cost rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.06 13.09 13.11

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.90 14.84 14.78

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.00 15.70 15.40

Actuarial balance:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.28 +1.26 +1.23

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.00 -.95 -.90

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.19 -1.92 -1.65

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2042 2042 2042
Appendices

152

are the same as those used for alternatives I, II, and III, which are described

in section V.A.2. The age-sex-adjusted death rates decline at average annual

rates of 0.35 percent, 0.76 percent, and 1.33 percent 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 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 12.92 percent (for an

average annual death-rate reduction of 0.35 percent) to 13.26 percent (for an

average annual death-rate reduction of 1.33 percent). The 75-year cost rate

increases from 15.01 to 16.51 percent. The actuarial balance decreases from

+1.41 to +1.09 percent for the 25-year period, and from -1.26 to -2.69 percent for the 75-year period.

Lower death rates cause both the income (as well as taxable payroll) and the

cost of the OASDI program to be higher than they would otherwise be. The

relative increase in cost, however, exceeds the relative increase in taxable

payroll. For any given year, reductions in the death rates for people who are

age 62 and over (people whose death rates are the highest) increase the numTable VI.D2.—Sensitivity to Varying Death-Rate Assumptions

[As a percentage of taxable payroll]

Valuation period

Average annual death-rate reduction1, 2

1The average annual death-rate reduction is the average annual decline in the age-sex-adjusted death rate

during 2002-77. The overall decreases from the age-sex-adjusted death rate in 2002 to the corresponding

rate in 2077 are, in order, 21 percent, 43 percent, and 63 percent. 2 The average annual death-rate reductions used for this analysis are 0.35 percent from the alternative I

assumptions, 0.76 percent from the alternative II assumptions, and 1.33 percent from the alternative III

assumptions. All other assumptions used for this analysis are from alternative II.

0.35 percent 0.76 percent 1.33 percent

Summarized income rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34 14.34 14.35

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.87 13.89 13.91

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.75 13.78 13.82

Summarized cost rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.92 13.09 13.26

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.39 14.84 15.36

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.01 15.70 16.51

Actuarial balance:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.41 +1.26 +1.09

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -.51 -.95 -1.44

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.26 -1.92 -2.69

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2047 2042 2039
153

Long-Range Sensitivity Analysis

ber 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 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 at these pre-retirement ages, which are ages of high

disability incidence. 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, cost increases at a rate greater

than the rate of growth in payroll, thereby resulting in higher cost rates and,

therefore, lower actuarial balances. Each additional 0.1-percentage-point

reduction in the average annual death-rate reduction, relative to the 0.76-percent reduction assumed for alternative II, decreases the long-range actuarial

balance by about 0.14 percent of taxable payroll.

3. Net Immigration

Table VI.D3 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 672,500 persons, 900,000 persons, and 1,300,000 persons as assumed for alternatives III, II, and I, respectively.

Table VI.D3.—Sensitivity to Varying Net-Immigration Assumptions

[As a percentage of taxable payroll]

Valuation period

Net immigration per year1, 2

1 Net immigration per year is the assumed annual net immigration to the Social Security area, including both

legal and other-than-legal immigration.

2 The net immigration per year assumptions used for this analysis are 672,500 from the alternative III

assumptions, 900,000 from the alternative II assumptions, and 1,300,000 from the alternative I assumptions.

All other assumptions used for this analysis are from alternative II.

672,500 900,000 1,300,000

Summarized income rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.36 14.34 14.31

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.92 13.89 13.86

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.81 13.78 13.74

Summarized cost rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20 13.09 12.95

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.04 14.84 14.58

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.92 15.70 15.40

Actuarial balance:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.17 +1.26 +1.37

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.12 -.95 -.72

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.12 -1.92 -1.66

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2041 2042 2045
Appendices

154

For all three periods, the cost rate decreases with increasing rates of net

immigration. For the 25-year period, the cost rate decreases from

13.20 percent of taxable payroll (for annual net immigration of 672,500 persons) to 12.95 percent (for annual net immigration of 1,300,000 persons).

For the 50-year period, it decreases from 15.04 percent to 14.58 percent, and

for the 75-year period, it decreases from 15.92 percent to 15.40 percent. The

actuarial balance increases from +1.17 to +1.37 percent for the 25-year

period, from -1.12 to -0.72 for the 50-year period, and from -2.12 to

-1.66 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 VI.D4 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 0.6 percentage point, 1.1 percentage points, and 1.6 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 3.0 percent (as

assumed for alternative II), yielding ultimate percentage increases in average

annual wages in covered employment of 3.6, 4.1, and 4.6 percent.

For the 25-year period, the cost rate decreases from 13.49 percent (for a realwage differential of 0.6 percentage point) to 12.69 percent (for a differential

of 1.6 percentage points). For the 50-year period, it decreases from 15.43 to

14.25 percent, and for the 75-year period it decreases from 16.32 to

15.06 percent. The actuarial balance increases from +0.94 to +1.57 percent

for the 25-year period, from -1.43 to -0.46 for the 50-year period, and from

-2.42 to -1.40 percent for the 75-year period.
155

Long-Range Sensitivity Analysis

The cost rate decreases with increasing real-wage differentials, because,

higher wages affect the taxable payroll immediately but increase benefit levels only gradually as new beneficiaries become entitled. In addition, cost-ofliving adjustments (COLAs) to benefits are not affected by changes in

wages, but only in prices. Each 0.5-percentage-point increase in the assumed

real-wage differential increases the long-range actuarial balance by about

0.51 percent of taxable payroll.

5. Consumer Price Index

Table VI.D5 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 2.0 percent,

3.0 percent, and 4.0 percent as assumed for alternatives I, II, and III, respectively. In each case, the ultimate real-wage differential is assumed to be

1.1 percentage points (as assumed for alternative II), yielding ultimate percentage increases in average annual wages in covered employment of 3.1,

4.1, and 5.1 percent.

Table VI.D4.—Sensitivity to Varying Real-Wage Assumptions

[As a percentage of taxable payroll]

Valuation period

Ultimate percentage increase in wages-CPI1, 2

1The 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 ultimate real-wage differential. 2 The ultimate real-wage differentials of 0.6, 1.1, and 1.6 percentage points are the same as in alternatives

III, II, and I, respectively. All other assumptions used for this analysis are from alternative II.

3.6-3.0 4.1-3.0 4.6-3.0

Summarized income rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.43 14.34 14.26

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.00 13.89 13.79

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.90 13.78 13.66

Summarized cost rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.49 13.09 12.69

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.43 14.84 14.25

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.32 15.70 15.06

Actuarial balance:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.94 +1.26 +1.57

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.43 -.95 -.46

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.42 -1.92 -1.40

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2038 2042 2049
Appendices

156

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

13.24 (for CPI increases of 2.0 percent) to 12.94 percent (for CPI increases

of 4.0 percent). For the 50-year period, it decreases from 15.06 to

14.62 percent, and for the 75-year period, it decreases from 15.94 to

15.45 percent. The actuarial balance increases from +1.14 to +1.37 percent

for the 25-year period, from -1.14 to -0.76 for the 50-year period, and from

-2.14 to -1.70 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 combination with a constant real-wage differential), the effect on taxable payroll due to a greater rate

of increase in average wages is experienced immediately, while the effect on

benefits due to a larger COLA is experienced with a lag of about 1 year.

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-percentagepoint increase in the rate of change assumed for the CPI is an increase in the

long-range actuarial balance of about 0.22 percent of taxable payroll.

6. Real Interest Rate

Table VI.D6 shows the estimated OASDI income rates, cost rates, and actuarial balances, on the basis of alternative II with various assumptions about

Table VI.D5.—Sensitivity to Varying CPI-Increase Assumptions

[As a percentage of taxable payroll]

Valuation period

Ultimate percentage increase in wages-CPI1, 2

1The 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 ultimate real-wage differential. 2 The ultimate CPI increases of 2.0, 3.0, and 4.0 percent are the same as in alternatives I, II, and III, respectively. The ultimate real-wage differential of 1.1 percentage points is the same as in alternative II. All other

assumptions used for this analysis are also from alternative II.

3.1-2.0 4.1-3.0 5.1-4.0

Summarized income rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.38 14.34 14.31

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.92 13.89 13.87

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.80 13.78 13.75

Summarized cost rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.24 13.09 12.94

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.06 14.84 14.62

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.94 15.70 15.45

Actuarial balance: 

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.14 +1.26 +1.37

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.14 -.95 -.76

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.14 -1.92 -1.70

Year of combined trust fund exhaustion . . . . . . . . . . . 2040 2042 2044
157

Long-Range Sensitivity Analysis

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 3.0 percent (as

assumed for alternative II), resulting in ultimate annual yields of 5.3, 6.1, and

6.8 percent.

For the 25-year period, the cost rate decreases slightly with increasing real

interest rates from 13.23 percent (for an ultimate real interest rate of 2.2 percent) to 12.96 percent (for an ultimate real interest rate of 3.7 percent). For

the 50-year period, it decreases from 15.19 to 14.54 percent, and for the

75-year period, it decreases from 16.22 to 15.26 percent. The actuarial balance increases from +1.03 to +1.45 percent for the 25-year period, from

-1.39 to -0.56 percent for the 50-year period, and from -2.54 to -1.38 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

0.39 percent of taxable payroll.

7. Disability Incidence Rates

Table VI.D7 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

Table VI.D6.—Sensitivity to Varying Real-Interest Assumptions

[As a percentage of taxable payroll]

Valuation period

Ultimate annual real interest rate1, 2

1The ultimate real interest rate is defined to be the effective annual yield on assets held by the trust funds

divided by the annual rate of growth in the CPI.

2 The ultimate annual real interest rates used for this analysis are 2.2 percent from the alternative III assumptions, 3.0 percent from the alternative II assumptions, and 3.7 percent from the alternative I assumptions. All

other assumptions used for this analysis are from alternative II.

2.2 percent 3.0 percent 3.7 percent

Summarized income rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.26 14.34 14.41

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.80 13.89 13.98

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.68 13.78 13.87

Summarized cost rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.23 13.09 12.96

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.19 14.84 14.54

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.22 15.70 15.26

Actuarial balance:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.03 +1.26 +1.45

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.39 -.95 -.56

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.54 -1.92 -1.38

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2039 2042 2046
Appendices

158

rates by age and sex are assumed to vary during the early years of the projection period before attaining ultimate levels in 2027. The ultimate levels

attained vary by sex. In comparison to the corresponding annual rates experienced during the base period 1994-96, the ultimate rates for men are about

14 percent lower for alternative I, about 8 percent higher for alternative II,

and about 29 percent higher for alternative III. For women they are about

19 percent lower for alternative I, 2 percent higher for alternative II, and

22 percent higher for alternative III. 

For the 25-year period, the cost rate increases with increasing disability incidence rates from 12.97 percent (for the relatively low rates assumed for alternative I) to 13.21 percent (for the relatively high rates assumed for

alternative III). For the 50-year period, it increases from 14.62 to 15.06 percent, and for the 75-year period, it increases from 15.45 to 15.94 percent.

The actuarial balance decreases from +1.37 to +1.13 percent for the 25-year

period, from -0.74 to -1.16 percent for the 50-year period, and from -1.68 to

-2.16 percent for the 75-year period.

8. Disability Termination Rates

Table VI.D8 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 57 percent and 48 percent lower than those experienced during the base period

Table VI.D7.—Sensitivity to Varying Disability Incidence Assumptions

[As a percentage of taxable payroll]

Valuation period

Disability incidence rates

based on alternative—

I II III

Summarized income rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34 14.34 14.34

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.89 13.89 13.90

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.77 13.78 13.78

Summarized cost rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.97 13.09 13.21

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.62 14.84 15.06

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.45 15.70 15.94

Actuarial balance:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.37 +1.26 +1.13

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -.74 -.95 -1.16

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.68 -1.92 -2.16

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2045 2042 2040
159

Long-Range Sensitivity Analysis

1991-95. 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 41 percent and

74 percent lower than those experienced during the base period; for women

the corresponding rates are about 30 percent and 69 percent lower than those

experienced during the base period.

For all three alternatives, ultimate recovery-termination rates by age and sex

are assumed to be attained in 2022. For alternative II, such rates are assumed

to be 87 percent higher for men and 58 percent higher for women than those

experienced in the base period, 1991-95. The ultimate rates for alternative I

are assumed to be 125 percent higher for men and 89 percent higher for

women than those experienced in the base period. The ultimate rates for

alternative III are assumed to be 50 percent higher for men and 26 percent

higher for women than those experienced in the base period.

For the 25-year period, the cost rate increases with decreasing disability termination rates from 13.06 percent (for the relatively high rates assumed for

alternative I) to 13.11 percent (for the relatively low rates assumed for alternative III). For the 50-year period, it increases from 14.81 to 14.87 percent,

and for the 75-year period, it increases from 15.67 to 15.72 percent. The

actuarial balance decreases from +1.28 to +1.23 percent for the 25-year

period, from -0.92 to -0.98 percent for the 50-year period, and from -1.89 to

-1.95 percent for the 75-year period.

Table VI.D8.—Sensitivity to Varying Disability Termination Assumptions

[As a percentage of taxable payroll]

Valuation period

Disability termination rates

based on alternative—

I II III

Summarized income rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34 14.34 14.34

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.89 13.89 13.89

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.78 13.78 13.78

Summarized cost rate:

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.06 13.09 13.11

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.81 14.84 14.87

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.67 15.70 15.72

Actuarial balance: 

25-year: 2003-27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.28 +1.26 +1.23

50-year: 2003-52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -.92 -.95 -.98

75-year: 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.89 -1.92 -1.95

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2043 2042 2042
Appendices

160

E. STOCHASTIC PROJECTIONS

Significant uncertainty surrounds the estimates under the intermediate

assumptions, especially for a period as long as 75 years. This appendix presents a way to illustrate the uncertainty of these estimates. It is intended to

supplement the traditional methods of examining such uncertainty and to

illustrate the potential value of new techniques.

Due to time constraints, results presented reflect the intermediate assumptions and the methods of the 2002 Trustees Report. Updating to the assumptions and methods of the 2003 Trustees Report is not expected to materially

change the results.

1. Background

The Trustees Report has traditionally shown additional estimates using a low

cost and a high cost set of specified assumptions to reflect the presence of

uncertainty. These additional estimates provide a range of possible outcomes

for the projections. However, they provide no indication of the probability

that actual future experience will be inside or outside the range of these estimates. For the first time, this Trustees Report presents the results of a new

model, based on stochastic modeling techniques, that estimates a probability

distribution of future outcomes of the financial status of the combined OASI

and DI Trust Funds. It should be noted that this model is in its first stage of

development. Future improvements and refinements to the model are

expected. In particular, future revisions are expected to reflect a fuller range

of uncertainty about the future, as is discussed below.

2. Methodology

Other sections of this report provide estimates of the financial status of the

combined OASI and DI Trust Funds using a “deterministic” model. For the

deterministic model, certain assumptions are made regarding levels of fertility, changes in mortality, immigration levels, emigration levels, net otherthan-legal immigration levels, changes in average real wages, changes in the

consumer price index, unemployment rates, trust fund real yield rates, and

disability incidence and recovery rates. Each of these variables will reach an

assumed ultimate value at a specific point during the long-range period and

will maintain that value throughout the remainder of the period. As mentioned above, three deterministic scenarios are developed assuming separate,

specified values for each of these variables.

In contrast, the results of five thousand independent stochastic simulations

are presented in this appendix. Each of the five thousand simulations is

determined by allowing the above variables to vary throughout the long-
161

Stochastic Projections 

range period. The fluctuation in the variable is projected by using standard

time-series modeling, a method designed to help make inferences based on

historical data. Generally, each variable is modeled by an equation that captures a relationship between current and prior years’ values of the variable

and introduces year by year random variation, as reflected in the historical

period. For some variables, the equations additionally establish relationships

with other variables. Parameters for the equations are fitted to historical data

for periods ranging from the past 16 years to the past 100 years depending on

the nature and quality of data available. More detail on these equations, this

model, and stochastic modeling in general is available on the internet at

www.ssa.gov/OACT/stochastic/index.html. Each time-series equation is

designed such that, in the absence of random variation, the value of the variable would equal the value assumed under the intermediate set of assumptions.

For each simulation of the model, values of the variables listed above are

determined by using Monte Carlo techniques to randomly assign the year by

year variations. Each simulation produces an estimate of the financial status

of the combined OASI and DI Trust Funds. Results shown in this section,

based on the five thousand simulations of the model, reflect the distribution

of results.

The results from this model should be interpreted with caution and with a full

understanding of the inherent limitations. Results could differ significantly if

any of several alternative equations were specified for one of the variables,

the degree of covariance among variables were modified, or the historical

period used in fitting any of the equations to the variable values were

changed. For some variables, using the variations exhibited in a relatively

recent historical period may not provide a realistic representation of the

potential variation for the future. In addition, results would differ if additional variables other than those mentioned above (such as labor force participation rates, retirement rates, marriage rates, and divorce rates) were

included in the modeling. Generally, adding additional variables would

increase the variability of the results. Furthermore, additional variability

could result from incorporating statistical approaches that would more fully

model change in the long-range central tendencies of the variables. The historical period available for most variables is relatively homogeneous and

does not reflect many substantial shifts. The time-series modeling reflects

what occurred in the historical period. As a result, the variation indicated in

this appendix should be viewed as the minimum plausible potential variation

for the future. Substantial shifts, as predicted by many experts and as seen in

prior centuries, are not fully reflected in the current model.
Appendices

162

3. Results

The probability distribution of the annual trust fund ratios for the combined

OASI and DI Trust Funds is shown in figure VI.E1. The two extreme lines in

this figure illustrate the range within which future annual trust fund ratios are

estimated to occur 95 percent of the time (i.e., a 95-percent confidence interval). In other words, actual future trust fund ratios in a given year would be

expected to exceed the upper bound only 2.5 percent of the time or to fall

below the lower bound 2.5 percent of the time. Other lines in the figure display additional confidence intervals (80-percent, 60-percent, 40-percent, and

20-percent) around future annual trust fund ratios. The median estimate for

each year indicates the trust fund ratio which is projected by this model to

fall exactly in the middle of possible outcomes for that year. It is important to

note that these lines do not represent the results of individual stochastic simulations. Instead, for each given year, they represent the percentile distribution of trust fund ratios based on all stochastic simulations for that year.

The median estimate for each year indicates that the assets of the combined

OASI and DI Trust Funds would be exhausted by 2041 with a probability of

50 percent. This exhaustion date is the same as the year of exhaustion projected under the intermediate assumptions in the 2002 Trustees Report. Figure VI.E1 also shows that there is a 2.5 percent chance that the trust funds

will become exhausted after 2074. In comparison, the assets of the combined

OASI and DI Trust Funds are not projected to exhaust during the 75-year

period under the low cost assumptions of the 2002 Trustees Report. Figure

VI.E1 also shows that there is a 2.5 percent chance of the trust funds becoming exhausted by 2032. This year is 3 years later than 2029, the year of

exhaustion projected under the high cost assumptions of the 2002 Trustees

Report. Thus, results from the stochastic model show that the 95-percent

confidence interval does not include the exhaustion date under the low cost

or high cost alternatives.
163

Stochastic Projections 

The probability distribution of the year-by-year OASDI cost rates (i.e., cost

as a percentage of taxable payroll) are shown in figure VI.E2. The range of

the cost rates widens as the projections move further into the future, reflecting increasing uncertainty. The income rate under the intermediate assumptions is also included in the graph in order to give some indication of the

patterns of cash flow for the OASDI program. Only this income rate is

included because of the relatively small variation in income rates throughout

the projection period. The lines in the figure display the median set (50th

percentile) of estimated annual cost rates and the 95-percent, 80-percent,

60-percent, 40-percent, and 20-percent confidence intervals expected for

future annual cost rates. It is important to note that these lines do not represent the results of individual stochastic simulations. Instead, for each given

year, they represent the percentile distribution of cost rates based on all stochastic simulations for that year.

 Figure VI.E1.—Annual Trust Fund Ratios

0%

100%

200%

300%

400%

500%

600%

700%

2002 2017 2032 2047 2062 2077

Projection year

50%

97.5%

2.5%

90%

10%
Appendices

164

Table VI.E1 displays long-range actuarial estimates for the combined

OASDI program resulting from using both the deterministic and stochastic

approaches reflecting the assumptions of the 2002 Trustees Report. Actuarial

estimates included in the table are for the long-range period, 2002-76. Stochastic estimates are shown for the median (50th percentile) and for the 95-

percent and 80-percent confidence intervals. For comparison, deterministic

estimates are shown for the intermediate, low cost, and high cost assumptions. Each stochastic estimate displayed in the table does represent the

results of one stochastic simulation. However, for a given percentile, the stochastic estimates shown for the different long-range actuarial measures are

generally not from the same stochastic simulation.

Median stochastic estimates for the actuarial measures displayed in table

VI.E1 are the same or slightly more pessimistic for the combined OASI and

DI Trust Funds than those projected under the intermediate assumptions in

the 2002 Trustees Report. The median estimate of the long-range actuarial

balance is -1.92 percent of taxable payroll, 0.05 percentage points lower than

projected under the intermediate assumptions. The median estimate for the

first year cost exceeds tax income is 2017 and for the year assets first

become exhausted is 2041. These are the same as those projected under the

intermediate assumptions. The median estimate for the annual cost in the

75th year of the projection period is 20.33 as a percent of taxable payroll and

 Figure VI.E2.—Annual Cost Rates

5%

10%

15%

20%

25%

30%

2002 2017 2032 2047 2062 2077

Projection year

50%

97.5%

2.5%

90%

10%

Income Rate
165

Stochastic Projections 

7.17 as a percent of GDP. The comparable estimates using the intermediate

assumptions are 19.84 and 7.00, respectively.

The 95-percent confidence interval determined by the stochastic modeling

projections can be compared to the range of variation defined by the traditional low cost and high cost alternatives. For two of the measures in table

VI.E1 (the actuarial balance and the year assets become first exhausted), the

95-percent stochastic projection range is narrower than the range defined by

the low cost and high cost alternatives. That is, for these measures, the estimates under the low cost and high cost alternatives fall outside the 95-percent confidence interval determined by the stochastic modeling projections.

In contrast, for two other measures in the table (the first year cost exceeds tax

income and the annual cost in the 75th year of the projection period

expressed as a percent of GDP), the 95-percent stochastic projection range

includes the estimates under the low and high cost alternatives. For the

remaining measure in the table (the annual cost in the 75th year of the projection period expressed as a percent of taxable payroll), the 95-percent stochastic projection range includes the estimates under the high cost

alternative, but does not include the low cost estimates.

Table VI.E1.—Long-Range1 Estimates Relating to the Actuarial Status of the Combined 

OASDI Program Reflecting the Assumptions of the 2002 Trustees Report

[Comparison of deterministic results and stochastic results]

1 75-year period: 2002-2076.

Traditional

deterministic model Stochastic model

IntermediateLow

Cost

High

Cost

Median

50th

percentile

80-Percent

confidence interval

95-Percent

confidence interval

10th

percentile

90th

percentile

2.5th

percentile

97.5th

percentile

Actuarial balance . . . . . . -1.87 0.44 -5.00 -1.92 -3.28 -0.71 -4.07 -0.17

Open group unfunded 

obligation (in trillions) $3.3 -$1.1 $9.3 $3.5 $6.3 $1.1 $8.2 2/

2 Less than $50 billion.

First year cost exceeds 

tax income . . . . . . . . . 2017 2021 2013 2017 2014 2020 2013 2022

Year assets become 

exhausted . . . . . . . . . . 2041 3/

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

2029 2041 2034 2057 2032 2075

Annual cost in 75th year 

(percent of taxable 

payroll) . . . . . . . . . . . . 19.84 14.24 28.51 20.33 16.32 25.72 14.53 29.98

Annual cost in 75th year 

(percent of GDP) . . . . 7.00 5.43 9.28 7.17 5.76 9.08 5.13 10.23
Appendices

166

F. ESTIMATES FOR OASDI AND HI, SEPARATE AND COMBINED

In this appendix, long-range actuarial estimates for the OASDI and Hospital

Insurance (HI) programs are presented separately and on a combined basis.

These estimates facilitate analysis of the adequacy of the income and assets

of these programs relative to their cost under current law. Estimates for the

Supplementary Medical Insurance (SMI) program are not included in this

appendix because adequate financing is guaranteed in the law, and because

the SMI program is not financed through a payroll tax.

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.

1. Estimates as a Percentage of Taxable Payroll

Comparing and combining cost and income rates for the OASDI and HI programs 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 section 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.

As with the OASI and DI Trust Funds, income to the HI Trust Fund comes

primarily from contributions paid by employees, employers, and selfemployed persons. The combined OASDI and HI contribution rate for

employees and their employers is often referred to as the FICA tax, because

it is authorized by the Federal Insurance Contributions Act. Contribution

rates for the OASDI and HI programs are shown in table VI.F1.
167

OASDI & HI: Percent of Payroll

Table VI.F2 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 ending target trust fund balances. Table

VI.F2 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 borrowing by or transfers among

these trust funds.

Under all three sets of assumptions, the combined OASDI and HI cost rate is

projected to rise above current levels, with the sharpest increase occurring

during the period 2010-30. Under the high cost set of assumptions, annual

deficits are projected to occur beginning in 2012, and to continue for the

remainder of the 75-year projection period. The cost rate is projected to rise

to about four times its current level by the end of the projection period.

Under the intermediate assumptions, annual deficits begin in 2017, with the

cost rate more than doubling by the end of the projection period. Under the

low cost assumptions, the cost rate is projected to increase by nearly

50 percent, by the end of the period, with annual deficits beginning in 2024.

Table VI.F1.—Contribution Rates for the OASDI and HI Programs

[In percent]

Calendar years

Employees and employers, each Self employed

OASDI HI Combined OASDI HI Combined

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

19841 . . . . . . . . . . . . . 

1 See footnote 1 under table VI.A1 in the appendix titled “History of OASI and DI Trust Fund Operations”

for a description of tax credits allowed against the combined OASDI and HI taxes on net earnings from selfemployment 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
Appendices

168

Table VI.F2.—Estimated OASDI and HI Annual Income Rates, Cost Rates, 

and Balances,1 Calendar Years 2003-80

[As a percentage of taxable payroll1]

Calendar year

OASDI HI Combined

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Intermediate:

2003 . . . . . . 12.70 10.89 1.81 3.05 2.92 0.13 15.76 13.81 1.94

2004 . . . . . . 12.69 10.82 1.88 3.06 2.92 .15 15.76 13.73 2.02

2005 . . . . . . 12.70 10.73 1.97 3.07 2.90 .17 15.77 13.63 2.14

2006 . . . . . . 12.70 10.65 2.05 3.07 2.89 .17 15.77 13.55 2.22

2007 . . . . . . 12.72 10.67 2.05 3.08 2.90 .18 15.79 13.57 2.23

2008 . . . . . . 12.73 10.73 2.00 3.09 2.92 .17 15.82 13.65 2.17

2009 . . . . . . 12.74 10.84 1.90 3.10 2.96 .14 15.84 13.80 2.04

2010 . . . . . . 12.76 10.99 1.78 3.11 3.00 .10 15.87 13.99 1.88

2011 . . . . . . 12.80 11.16 1.64 3.13 3.06 .07 15.93 14.22 1.71

2012 . . . . . . 12.82 11.37 1.45 3.14 3.11 .03 15.96 14.49 1.48

2015 . . . . . . 12.88 12.18 .70 3.17 3.31 -.14 16.05 15.49 .56

2020 . . . . . . 12.99 13.92 -.93 3.23 3.78 -.56 16.21 17.70 -1.49

2025 . . . . . . 13.09 15.61 -2.52 3.28 4.39 -1.11 16.37 20.01 -3.63

2030 . . . . . . 13.18 16.88 -3.70 3.33 5.10 -1.77 16.50 21.98 -5.48

2035 . . . . . . 13.23 17.54 -4.31 3.35 5.81 -2.46 16.58 23.35 -6.77

2040 . . . . . . 13.26 17.76 -4.50 3.36 6.46 -3.09 16.62 24.21 -7.60

2045 . . . . . . 13.27 17.91 -4.63 3.37 7.04 -3.67 16.64 24.94 -8.30

2050 . . . . . . 13.30 18.18 -4.89 3.38 7.59 -4.20 16.68 25.77 -9.09

2055 . . . . . . 13.32 18.57 -5.24 3.39 8.16 -4.76 16.72 26.72 -10.00

2060 . . . . . . 13.35 18.88 -5.53 3.41 8.80 -5.40 16.75 27.68 -10.93

2065 . . . . . . 13.37 19.15 -5.79 3.41 9.53 -6.11 16.78 28.68 -11.90

2070 . . . . . . 13.39 19.47 -6.08 3.42 10.34 -6.92 16.81 29.81 -13.00

2075 . . . . . . 13.41 19.79 -6.38 3.43 11.19 -7.75 16.84 30.98 -14.14

2080 . . . . . . 13.43 20.09 -6.67 3.44 12.10 -8.67 16.87 32.20 -15.33

Low Cost:

2003 . . . . . . 12.70 10.76 1.94 3.05 2.83 .22 15.75 13.59 2.16

2004 . . . . . . 12.69 10.61 2.08 3.06 2.78 .28 15.75 13.39 2.36

2005 . . . . . . 12.70 10.46 2.24 3.06 2.72 .35 15.76 13.17 2.59

2006 . . . . . . 12.70 10.31 2.39 3.07 2.66 .40 15.76 12.97 2.79

2007 . . . . . . 12.71 10.23 2.48 3.07 2.62 .46 15.78 12.85 2.93

2008 . . . . . . 12.72 10.18 2.53 3.08 2.58 .50 15.80 12.77 3.03

2009 . . . . . . 12.73 10.19 2.54 3.09 2.57 .52 15.81 12.76 3.06

2010 . . . . . . 12.74 10.23 2.51 3.10 2.56 .54 15.84 12.79 3.04

2011 . . . . . . 12.78 10.31 2.47 3.12 2.56 .56 15.89 12.87 3.02

2012 . . . . . . 12.79 10.42 2.37 3.13 2.56 .57 15.92 12.98 2.94

2015 . . . . . . 12.83 11.07 1.76 3.15 2.57 .57 15.98 13.65 2.33

2020 . . . . . . 12.92 12.50 .42 3.19 2.68 .52 16.11 15.17 .94

2025 . . . . . . 13.00 13.76 -.76 3.24 2.83 .41 16.24 16.59 -.35

2030 . . . . . . 13.06 14.58 -1.52 3.27 2.98 .29 16.33 17.57 -1.23

2035 . . . . . . 13.09 14.83 -1.74 3.29 3.14 .15 16.38 17.97 -1.59

2040 . . . . . . 13.10 14.68 -1.58 3.29 3.28 .01 16.39 17.96 -1.57

2045 . . . . . . 13.10 14.49 -1.39 3.29 3.44 -.16 16.39 17.93 -1.54

2050 . . . . . . 13.11 14.44 -1.33 3.29 3.65 -.36 16.40 18.09 -1.69

2055 . . . . . . 13.12 14.48 -1.36 3.29 3.92 -.63 16.41 18.40 -1.99

2060 . . . . . . 13.12 14.45 -1.33 3.29 4.23 -.94 16.42 18.68 -2.26

2065 . . . . . . 13.12 14.34 -1.21 3.29 4.58 -1.29 16.41 18.91 -2.50

2070 . . . . . . 13.12 14.26 -1.14 3.29 4.97 -1.68 16.41 19.23 -2.82

2075 . . . . . . 13.12 14.26 -1.13 3.29 5.38 -2.09 16.41 19.63 -3.22

2080 . . . . . . 13.13 14.32 -1.19 3.29 5.83 -2.53 16.42 20.15 -3.73
169

OASDI & HI: Percent of Payroll

Notes:

1. The income rate excludes interest income and certain transfers from the General Fund of the Treasury.

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

Tables VI.F3 and VI.F4 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 VI.F3 values are summarized over the

three 25-year subperiods (excluding the beginning fund balances and the cost

of accumulating ending fund targets). In table VI.F4 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 cost

of accumulating an ending fund balance equal to 100 percent of annual cost

by the end of the period is included in the summarized cost rates). Estimates

shown for the combined trust funds are theoretical because no authority currently exists for borrowing by or transfers among these trust funds.

High Cost:

2003 . . . . . . 12.71 11.21 1.50 3.05 3.05 2/ 15.77 14.26 1.50

2004 . . . . . . 12.70 11.14 1.56 3.07 3.09 -0.02 15.77 14.22 1.54

2005 . . . . . . 12.71 11.07 1.64 3.07 3.10 -.03 15.78 14.18 1.60

2006 . . . . . . 12.72 11.26 1.46 3.07 3.18 -.10 15.79 14.43 1.36

2007 . . . . . . 12.74 11.55 1.19 3.09 3.25 -.17 15.83 14.80 1.03

2008 . . . . . . 12.76 11.62 1.14 3.10 3.31 -.21 15.85 14.93 .93

2009 . . . . . . 12.77 11.83 .94 3.11 3.42 -.31 15.88 15.25 .63

2010 . . . . . . 12.79 12.04 .75 3.12 3.55 -.42 15.91 15.59 .32

2011 . . . . . . 12.84 12.30 .54 3.15 3.68 -.53 15.99 15.98 2/1

2012 . . . . . . 12.86 12.60 .27 3.16 3.82 -.66 16.02 16.41 -.39

2015 . . . . . . 12.95 13.51 -.57 3.20 4.30 -1.10 16.15 17.81 -1.66

2020 . . . . . . 13.07 15.53 -2.46 3.27 5.40 -2.13 16.34 20.92 -4.58

2025 . . . . . . 13.20 17.66 -4.46 3.33 6.89 -3.56 16.53 24.55 -8.02

2030 . . . . . . 13.31 19.45 -6.14 3.39 8.80 -5.41 16.70 28.25 -11.55

2035 . . . . . . 13.39 20.67 -7.28 3.43 10.86 -7.43 16.82 31.52 -14.71

2040 . . . . . . 13.44 21.46 -8.02 3.46 12.79 -9.34 16.90 34.25 -17.35

2045 . . . . . . 13.49 22.20 -8.71 3.48 14.48 -11.00 16.97 36.68 -19.71

2050 . . . . . . 13.54 23.08 -9.53 3.50 15.87 -12.37 17.05 38.95 -21.90

2055 . . . . . . 13.60 24.08 -10.48 3.53 17.09 -13.55 17.14 41.17 -24.03

2060 . . . . . . 13.66 25.06 -11.39 3.56 18.43 -14.87 17.22 43.49 -26.27

2065 . . . . . . 13.72 26.07 -12.34 3.59 19.95 -16.36 17.31 46.02 -28.71

2070 . . . . . . 13.78 27.15 -13.36 3.62 21.66 -18.04 17.40 48.81 -31.41

2075 . . . . . . 13.84 28.18 -14.34 3.65 23.43 -19.78 17.49 51.61 -34.12

2080 . . . . . . 13.89 29.08 -15.19 3.67 25.34 -21.67 17.56 54.42 -36.85

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 Between -0.005 and 0.005 percent of taxable payroll.

Table VI.F2.—Estimated OASDI and HI Annual Income Rates, Cost Rates, 

and Balances,1 Calendar Years 2003-80 (Cont.)

[As a percentage of taxable payroll1]

Calendar year

OASDI HI Combined

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance
Appendices

170

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

Deficits are projected for each 25-year subperiod of the 75-year projection

period under the high cost assumptions for the combined OASDI and HI system (table VI.F3, excluding beginning trust fund balances and the cost of

ending fund targets). Under the intermediate assumptions, deficits of smaller

magnitude than those for the high cost set of assumptions are projected for

the second and third 25-year subperiods and a positive balance is projected

for the first 25-year subperiod. Under the low cost assumptions, the combined OASDI and HI system is projected to show a positive balance for the

first 25-year subperiod and relatively small deficits for the second and third

25-year subperiods.

Table VI.F3.—Summarized OASDI and HI Income Rates, Cost Rates, 

and Balances1 for 25-Year Subperiods,2 Calendar Years 2003-77

[As a percentage of taxable payroll1]

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.

Subperiod

OASDI HI Combined

Income

rate

 Cost

rate Balance

Income

rate

Cost

rate Balance

Income

rate

Cost

rate Balance

Intermediate:

2003-27 . . . . . . 12.86 12.53 0.33 3.16 3.44 -0.27 16.03 15.97 0.06

2028-52 . . . . . . 13.24 17.60 -4.36 3.36 6.30 -2.94 16.60 23.90 -7.30

2053-77 . . . . . . 13.36 19.12 -5.76 3.41 9.48 -6.07 16.77 28.60 -11.83

Low Cost:

2003-27 . . . . . . 12.82 11.50 1.32 3.14 2.67 .47 15.96 14.17 1.79

2028-52 . . . . . . 13.09 14.61 -1.52 3.28 3.28 .01 16.38 17.89 -1.51

2053-77 . . . . . . 13.12 14.37 -1.25 3.29 4.57 -1.28 16.42 18.94 -2.53

High Cost:

2003-27 . . . . . . 12.92 13.80 -.88 3.19 4.56 -1.37 16.11 18.36 -2.25

2028-52 . . . . . . 13.42 21.22 -7.80 3.45 12.30 -8.85 16.87 33.52 -16.65

2053-77 . . . . . . 13.71 25.91 -12.20 3.58 19.85 -16.26 17.29 45.76 -28.46
171

OASDI & HI: Percent of Payroll

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

Under the high cost assumptions, the combined OASDI and HI system is

projected to experience large actuarial deficits for the 25-year, 50-year, and

75-year valuation periods (table VI.F4, including beginning trust fund balances and the cost of ending fund targets). Under the intermediate assumptions, actuarial deficits smaller than those for the high cost assumptions are

projected for the 50-year and the 75-year valuation periods, and a positive

actuarial balance is projected for the 25-year valuation period. Under the low

cost assumptions, the combined OASDI and HI system is projected to have

positive actuarial balances for each of the three valuation periods.

Table VI.F4.—Summarized OASDI and HI Income Rates and Cost Rates1 for Valuation 

Periods,2 Calendar Years 2003-77

[As a percentage of taxable payroll1]

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 cost by the end of the period.

Valuation

period 

OASDI HI Combined

Income

rate

 Cost

rate

Actuarial

balance

Income

rate

 Cost

rate

Actuarial

balance

Income

rate

 Cost

rate

Actuarial

balance

Intermediate:

25-years:

2003-27 . . . . . . 14.34 13.09 1.26 3.37 3.60 -0.23 17.71 16.69 1.03

50-years:

2003-52 . . . . . . 13.89 14.84 -.95 3.36 4.73 -1.36 17.25 19.57 -2.32

75-years:

2003-77 . . . . . . 13.78 15.70 -1.92 3.37 5.77 -2.40 17.15 21.47 -4.32

Low Cost:

25-years:

2003-27 . . . . . . 14.28 11.98 2.31 3.33 2.77 .56 17.61 14.75 2.86

50-years:

2003-52 . . . . . . 13.80 12.97 .83 3.31 2.98 .33 17.11 15.95 1.16

75-years:

2003-77 . . . . . . 13.65 13.23 .42 3.31 3.35 -.04 16.96 16.58 .38

High Cost:

25-years:

2003-27 . . . . . . 14.40 14.45 -.05 3.39 4.84 -1.45 17.79 19.29 -1.50

50-years:

2003-52 . . . . . . 14.00 17.20 -3.20 3.41 8.08 -4.67 17.41 25.28 -7.87

75-years:

2003-77 . . . . . . 13.93 19.00 -5.07 3.45 10.73 -7.28 17.38 29.73 -12.35
Appendices

172

2. Estimates as a Percentage of Gross Domestic Product

This section 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 IV.B1 and section

IV.B.1), 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 VI.F5 shows estimated income excluding interest, total cost, 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 VI.F5. 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 cost 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) and proceeds from taxation of OASDI benefits. Total cost consists of outlays (benefits and administrative expenses) for insured beneficiaries. Both the HI income and cost are on an incurred basis.

The OASDI annual balance (income excluding interest, less cost) as a percentage of GDP is projected to be positive on the basis of the low cost

assumptions until 2022. After 2021, deficits increase to a peak in about 2034,

and decrease thereafter. The OASDI balance is projected to be positive until

2018 on the basis of the intermediate assumptions and until 2014 on the basis

of the high cost assumptions, at which time balances become permanently

negative, with generally increasing deficits. The projected HI balance as a

percentage of GDP, is positive through 2040 on the basis of the low cost

alternative. The HI balance is projected to remain positive through 2012

under the intermediate alternative and 2003 under the high cost alternative,

with deficits increasing steadily thereafter. The combined OASDI and HI

balance as a percentage of GDP is projected to be positive through 2023

under the low cost assumptions, through 2016 under the intermediate

assumptions, and through 2010 under the high cost assumptions. Between

2010 and about 2035, under all three assumptions, both the OASDI and HI

balances as percentages of GDP are projected to decline (or deficits increase)
173

OASDI & HI: Percent of GDP

substantially because the baby-boom generation reaches retirement age during these years. After balances cease to be positive under the intermediate

and high cost assumptions, the annual deficits increase fairly steadily for the

OASDI and HI programs, both separately and combined.

By 2080, the combined OASDI and HI balances as percentages of GDP, are

projected to range from a deficit of 1.64 percent for the low cost assumptions

to a deficit of 13.65 percent for the high cost assumptions. Projected balances

differ by a much smaller amount for the tenth year, 2012, ranging from a

positive balance of 1.22 percent for the low cost assumptions to a deficit of

0.23 percent for the high cost assumptions.

The summarized long-range (75-year) balance as a percentage of GDP for

the combined OASDI and HI programs varies among the three alternatives,

by a relatively large amount (from a positive balance of 0.16 percent, based

on the low cost assumptions, to a deficit of 5.09 percent, based on the high

cost assumptions). The 25-year summarized balance varies by a smaller

amount (from a positive balance of 1.20 percent to a deficit of 0.71 percent).

Summarized rates are calculated on the present-value basis including the

trust fund balances on January 1, 2003 and the cost of reaching a target trust

fund level equal to 100 percent of annual cost at the end of the period. (See

section IV.B.4 for further explanation.)
Appendices

174

Table VI.F5.—OASDI and HI Annual and Summarized Income, Cost, and Balance 

as a Percentage of GDP, Calendar Years 2003-80 

Calendar year

Percentage of GDP GDP in

dollars

(billions)

OASDI HI Combined

Income1 Cost Balance Income1 Cost Balance Income1 Cost Balance

Intermediate:

2003 . . . . . . 5.08 4.38 0.71 1.51 1.44 0.07 6.59 5.82 0.77 $10,915

2004 . . . . . . 5.05 4.33 .72 1.51 1.44 .07 6.57 5.77 .79 11,518

2005 . . . . . . 5.06 4.29 .78 1.52 1.43 .08 6.58 5.72 .86 12,182

2006 . . . . . . 5.05 4.25 .80 1.52 1.43 .09 6.57 5.68 .89 12,888

2007 . . . . . . 5.05 4.24 .81 1.52 1.43 .09 6.57 5.67 .89 13,625

2008 . . . . . . 5.04 4.26 .78 1.52 1.44 .08 6.56 5.70 .86 14,372

2009 . . . . . . 5.03 4.29 .74 1.53 1.46 .07 6.56 5.75 .81 15,137

2010 . . . . . . 5.03 4.34 .69 1.53 1.48 .05 6.56 5.82 .74 15,925

2011 . . . . . . 5.04 4.40 .64 1.54 1.50 .04 6.57 5.90 .67 16,740

2012 . . . . . . 5.03 4.47 .56 1.54 1.53 .01 6.57 6.00 .58 17,575

2015 . . . . . . 5.03 4.77 .27 1.55 1.62 -.07 6.58 6.39 .20 20,245

2020 . . . . . . 5.03 5.40 -.37 1.56 1.83 -.27 6.59 7.23 -.64 25,453

2025 . . . . . . 5.03 6.00 -.98 1.57 2.11 -.53 6.60 8.11 -1.51 31,911

2030 . . . . . . 5.01 6.43 -1.42 1.58 2.43 -.84 6.59 8.86 -2.26 40,025

2035 . . . . . . 4.99 6.62 -1.64 1.58 2.74 -1.16 6.57 9.36 -2.80 50,280

2040 . . . . . . 4.95 6.65 -1.69 1.57 3.02 -1.45 6.53 9.66 -3.14 63,113

2045 . . . . . . 4.92 6.64 -1.73 1.56 3.26 -1.70 6.48 9.90 -3.43 79,037

2050 . . . . . . 4.88 6.68 -1.80 1.55 3.48 -1.93 6.43 10.17 -3.73 98,759

2055 . . . . . . 4.85 6.76 -1.92 1.54 3.71 -2.17 6.39 10.47 -4.08 123,302

2060 . . . . . . 4.81 6.81 -2.00 1.54 3.97 -2.43 6.34 10.78 -4.44 154,043

2065 . . . . . . 4.77 6.85 -2.08 1.53 4.26 -2.73 6.30 11.10 -4.81 192,407

2070 . . . . . . 4.73 6.89 -2.16 1.52 4.58 -3.06 6.25 11.47 -5.22 240,146

2075 . . . . . . 4.70 6.94 -2.25 1.51 4.91 -3.40 6.20 11.85 -5.65 299,479

2080 . . . . . . 4.66 6.98 -2.32 1.50 5.26 -3.77 6.15 12.24 -6.09 373,322

Summarized rates:2

25-year:

 2003-27 . . . 5.63 5.13 .49 1.64 1.76 -.11 7.27 6.89 .38

50-year:

 2003-52 . . . 5.35 5.71 -.36 1.61 2.26 -.65 6.96 7.97 -1.01

75-year

 2003-77 . . . 5.22 5.95 -.73 1.59 2.70 -1.11 6.82 8.65 -1.84

Low Cost:

2003 . . . . . . 5.07 4.33 .74 1.51 1.40 .11 6.57 5.73 .85 11,003

2004 . . . . . . 5.08 4.26 .83 1.52 1.38 .14 6.60 5.63 .96 11,622

2005 . . . . . . 5.09 4.20 .89 1.52 1.35 .17 6.61 5.54 1.06 12,250

2006 . . . . . . 5.08 4.14 .94 1.52 1.32 .20 6.60 5.46 1.14 12,892

2007 . . . . . . 5.09 4.11 .99 1.52 1.30 .23 6.61 5.40 1.21 13,560

2008 . . . . . . 5.09 4.08 1.00 1.53 1.28 .25 6.61 5.36 1.25 14,250

2009 . . . . . . 5.09 4.08 1.00 1.53 1.27 .26 6.61 5.35 1.26 14,961

2010 . . . . . . 5.08 4.09 .99 1.53 1.27 .26 6.62 5.36 1.26 15,688

2011 . . . . . . 5.10 4.12 .98 1.54 1.27 .27 6.64 5.39 1.25 16,426

2012 . . . . . . 5.10 4.16 .94 1.54 1.26 .28 6.64 5.42 1.22 17,173

2015 . . . . . . 5.10 4.41 .69 1.55 1.27 .28 6.65 5.68 .98 19,532

2020 . . . . . . 5.12 4.96 .16 1.57 1.31 .25 6.68 6.27 .41 24,028

2025 . . . . . . 5.13 5.43 -.31 1.58 1.38 .20 6.71 6.81 -.11 29,481

2030 . . . . . . 5.13 5.73 -.61 1.59 1.45 .14 6.72 7.18 -.47 36,248

2035 . . . . . . 5.11 5.80 -.69 1.59 1.52 .07 6.70 7.32 -.62 44,756

2040 . . . . . . 5.10 5.72 -.62 1.58 1.58 3/ 6.68 7.30 -.62 55,348

2045 . . . . . . 5.08 5.62 -.55 1.58 1.65 -.08 6.65 7.27 -.62 68,445

2050 . . . . . . 5.06 5.58 -.52 1.57 1.74 -.17 6.63 7.32 -.69 84,582

2055 . . . . . . 5.04 5.57 -.53 1.57 1.86 -.30 6.60 7.44 -.83 104,553

2060 . . . . . . 5.02 5.53 -.52 1.56 2.00 -.44 6.58 7.54 -.96 129,465

2065 . . . . . . 5.00 5.47 -.47 1.55 2.16 -.61 6.55 7.63 -1.08 160,503

2070 . . . . . . 4.98 5.41 -.44 1.55 2.33 -.79 6.52 7.75 -1.23 198,967

2075 . . . . . . 4.95 5.39 -.44 1.54 2.51 -.98 6.49 7.91 -1.41 246,464

2080 . . . . . . 4.93 5.39 -.46 1.53 2.71 -1.18 6.47 8.11 -1.64 305,072
175

OASDI & HI: Percent of GDP

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 understood by analyzing the estimated ratios of OASDI taxable payroll to GDP,

which are presented in table VI.F6. HI taxable payroll is about 25 percent

larger than the OASDI taxable payroll throughout the long-range period (see

appendix F.1 for a detailed description of the difference). The cost as a perLow Cost (cont.):

Summarized rates: 2

25-year:

 2003-27 . . . 5.70 4.78 0.92 1.65 1.36 0.28 7.34 6.14 1.20

50-year:

 2003-52 . . . 5.45 5.12 .33 1.62 1.45 .17 7.07 6.57 .50

75-year

 2003-77 . . . 5.35 5.19 .16 1.61 1.61 -.01 6.96 6.80 .16

High Cost:

2003 . . . . . . 5.13 4.49 .64 1.50 1.50 3/1 6.64 5.99 .64 $10,707

2004 . . . . . . 4.98 4.44 .54 1.51 1.52 -.01 6.49 5.96 .53 11,398

2005 . . . . . . 5.02 4.39 .64 1.51 1.53 -.02 6.54 5.92 .62 12,227

2006 . . . . . . 5.00 4.44 .56 1.51 1.56 -.05 6.51 6.00 .51 12,937

2007 . . . . . . 4.96 4.51 .45 1.51 1.59 -.08 6.47 6.10 .37 13,868

2008 . . . . . . 4.95 4.52 .43 1.51 1.62 -.10 6.46 6.14 .32 15,025

2009 . . . . . . 4.96 4.61 .35 1.52 1.67 -.15 6.48 6.28 .20 15,936

2010 . . . . . . 4.97 4.69 .28 1.53 1.73 -.21 6.49 6.42 .07 16,809

2011 . . . . . . 4.98 4.78 .20 1.53 1.79 -.26 6.51 6.57 -.06 17,731

2012 . . . . . . 4.97 4.87 .09 1.54 1.86 -.32 6.51 6.73 -.23 18,703

2015 . . . . . . 4.96 5.19 -.23 1.55 2.08 -.53 6.51 7.27 -.76 21,866

2020 . . . . . . 4.95 5.89 -.94 1.56 2.57 -1.02 6.51 8.46 -1.96 28,177

2025 . . . . . . 4.93 6.61 -1.68 1.57 3.25 -1.68 6.50 9.85 -3.36 36,206

2030 . . . . . . 4.90 7.18 -2.27 1.58 4.09 -2.52 6.48 11.27 -4.79 46,481

2035 . . . . . . 4.87 7.52 -2.66 1.57 4.98 -3.41 6.44 12.50 -6.06 59,575

2040 . . . . . . 4.82 7.71 -2.89 1.56 5.79 -4.22 6.38 13.50 -7.11 76,081

2045 . . . . . . 4.77 7.87 -3.09 1.55 6.47 -4.91 6.32 14.33 -8.01 96,656

2050 . . . . . . 4.72 8.06 -3.34 1.54 6.99 -5.45 6.27 15.05 -8.79 122,273

2055 . . . . . . 4.68 8.29 -3.62 1.53 7.42 -5.89 6.21 15.72 -9.50 154,303

2060 . . . . . . 4.63 8.51 -3.87 1.53 7.90 -6.37 6.16 16.40 -10.25 194,554

2065 . . . . . . 4.58 8.72 -4.14 1.52 8.43 -6.91 6.10 17.15 -11.05 244,766

2070 . . . . . . 4.54 8.95 -4.41 1.51 9.03 -7.52 6.05 17.98 -11.93 307,391

2075 . . . . . . 4.49 9.16 -4.67 1.50 9.63 -8.13 5.99 18.79 -12.80 385,540

2080 . . . . . . 4.44 9.31 -4.87 1.49 10.27 -8.78 5.93 19.58 -13.65 483,424

Summarized rates: 2

25-year:

 2003-27 . . . 5.55 5.57 -.02 1.64 2.33 -.69 7.19 7.89 -.71

50-year:

 2003-52 . . . 5.24 6.44 -1.20 1.61 3.75 -2.15 6.85 10.19 -3.34

75-year

 2003-77 . . . 5.09 6.94 -1.85 1.59 4.83 -3.24 6.68 11.77 -5.09

1 Income for individual years excludes interest on the trust funds. Interest is implicitly reflected in all summarized values.

2 Summarized rates are calculated on the present-value basis including the value of the trust funds on January

1, 2003 and the cost of reaching a target trust fund level equal to 100 percent of annual cost at the end of the

period.

3 Between -0.005 and 0.005 percent of GDP.

Table VI.F5.—OASDI and HI Annual and Summarized Income, Cost, and Balance 

as a Percentage of GDP, Calendar Years 2003-80 (Cont.)

Calendar year

Percentage of GDP GDP in

dollars

(billions)

OASDI HI Combined

Income1 Cost Balance Income1 Cost Balance Income1 Cost Balance
Appendices

176

centage of GDP is approximately equal to the cost as a percentage of taxable

payroll multiplied by the ratio of taxable payroll to GDP.

Projections of GDP are 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 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 earnings to total worker compensation declined at an average annual

rate of 0.20 percent for the 40 years from 1961 to 2001. For the 10-year periods 1961-71, 1971-81, 1981-91 the ratio declined by 0.34, 0.60, and

0.13 percent, respectively. For the 10-year period 1991-2001 the ratio

increased by 0.29 percent. Ultimate future annual rates of decline in the ratio

of earnings to employee compensation are assumed to be 0.1, 0.2, and

0.3 percent for the low cost, intermediate, and high cost assumptions, respectively. An additional factor that has made the overall ratio of taxable payroll

to GDP decline in recent years is the decline in the ratio of taxable wages to

covered wages, as a result of the relatively greater increases in wages for persons with wages above the contribution and benefit base. This decline in the

taxable ratio is assumed to continue at a slower pace through 2012, with no

further decline thereafter.

Table VI.F6.—Ratio of OASDI Taxable Payroll to GDP, Calendar Years 2003-80 

Calendar year Intermediate Low Cost High Cost

2003 . . . . . . . . . . . . . . . . . . . . . . . . . 0.402 0.402 0.401

2004 . . . . . . . . . . . . . . . . . . . . . . . . . .400 .401 .399

2005 . . . . . . . . . . . . . . . . . . . . . . . . . .399 .402 .396

2006 . . . . . . . . . . . . . . . . . . . . . . . . . .399 .402 .394

2007 . . . . . . . . . . . . . . . . . . . . . . . . . .398 .401 .391

2008 . . . . . . . . . . . . . . . . . . . . . . . . . .397 .401 .389

2009 . . . . . . . . . . . . . . . . . . . . . . . . . .396 .401 .389

2010 . . . . . . . . . . . . . . . . . . . . . . . . . .395 .400 .390

2011 . . . . . . . . . . . . . . . . . . . . . . . . . .394 .400 .388

2012 . . . . . . . . . . . . . . . . . . . . . . . . . .393 .399 .387

2015 . . . . . . . . . . . . . . . . . . . . . . . . . .391 .398 .384

2020 . . . . . . . . . . . . . . . . . . . . . . . . . .388 .397 .379

2025 . . . . . . . . . . . . . . . . . . . . . . . . . .385 .395 .374

2030 . . . . . . . . . . . . . . . . . . . . . . . . . .381 .393 .369

2035 . . . . . . . . . . . . . . . . . . . . . . . . . .378 .391 .364

2040 . . . . . . . . . . . . . . . . . . . . . . . . . .374 .390 .359

2045 . . . . . . . . . . . . . . . . . . . . . . . . . .371 .388 .354

2050 . . . . . . . . . . . . . . . . . . . . . . . . . .368 .386 .349

2055 . . . . . . . . . . . . . . . . . . . . . . . . . .364 .385 .344

2060 . . . . . . . . . . . . . . . . . . . . . . . . . .361 .383 .339

2065 . . . . . . . . . . . . . . . . . . . . . . . . . .357 .381 .335

2070 . . . . . . . . . . . . . . . . . . . . . . . . . .354 .380 .330

2075 . . . . . . . . . . . . . . . . . . . . . . . . . .351 .378 .325

2080 . . . . . . . . . . . . . . . . . . . . . . . . . .347 .376 .320
177

OASDI & HI: Estimates in Dollars

3. Estimates in Dollars

This section 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 VI.F7 presents five such indices for adjustment.

Adjustment of any series of values is accomplished by dividing the value for

each year by the corresponding index values for the year. This adjustment

removes the inflation in the index from the series of values.

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 2.0, 3.0, and

4.0 percent for the low cost, intermediate, and high cost sets of assumptions,

respectively. Constant-dollar values (those adjusted by dividing by the CPI)

indicate the relative purchasing power of the values over time. Constant-dollar values are provided in table VI.F8.

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 3.6, 4.1,

and 4.6 percent under the low cost, intermediate, and high cost assumptions,

respectively. Wage-indexed values indicate the level of a series relative to the

standard-of-living of workers over time.
Appendices

178

The taxable payroll index adjusts for the effects of changes in the number of

workers and changes in the proportion of earnings that are 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 multiple-employer excess wages. Values adjusted

by dividing by the taxable payroll indicate the percentage of payroll that each

value represents, and thus the extent to which the series of values increases

or decreases as a percent of payroll over time.

The 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 VI.F.2) 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 demographic and

economic assumptions, as discussed in sections V.A and V.B, respectively.

Discounting at the rate of 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 for each year. 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 5.7, 6.0, and 6.2 percent for the low cost, intermediate, and high cost assumptions, respectively.
179

OASDI & HI: Estimates in Dollars

Table VI.F7.—Selected Economic Variables, Calendar Years 2002-80

[GDP and taxable payroll in billions]

Calendar year

Adjusted

CPI1 SSA average

wage index2 Taxablepayroll3

Gross

domestic

product

Compound

interest-rate

factor4

Intermediate:

2002 . . . . . . . . . . . . . 97.70 $33,476.75 $4,213 $10,445 0.9531

2003 . . . . . . . . . . . . . 100.00 34,730.66 4,387 10,915 1.0000

2004 . . . . . . . . . . . . . 102.39 36,202.65 4,612 11,518 1.0626

2005 . . . . . . . . . . . . . 105.15 37,733.96 4,866 12,182 1.1311

2006 . . . . . . . . . . . . . 108.22 39,338.44 5,140 12,888 1.2044

2007 . . . . . . . . . . . . . 111.47 41,033.61 5,418 13,625 1.2817

2008 . . . . . . . . . . . . . 114.81 42,771.99 5,702 14,372 1.3621

2009 . . . . . . . . . . . . . 118.26 44,566.15 5,994 15,137 1.4468

2010 . . . . . . . . . . . . . 121.80 46,409.05 6,294 15,925 1.5352

2011 . . . . . . . . . . . . . 125.45 48,325.83 6,601 16,740 1.6287

2012 . . . . . . . . . . . . . 129.22 50,293.80 6,911 17,575 1.7279

2015 . . . . . . . . . . . . . 141.20 56,704.95 7,923 20,245 2.0632

2020 . . . . . . . . . . . . . 163.69 69,129.89 9,876 25,453 2.7728

2025 . . . . . . . . . . . . . 189.77 84,436.77 12,272 31,911 3.7264

2030 . . . . . . . . . . . . . 219.99 103,181.85 15,253 40,025 5.0080

2035 . . . . . . . . . . . . . 255.03 126,323.87 18,987 50,280 6.7303

2040 . . . . . . . . . . . . . 295.65 154,612.31 23,622 63,113 9.0450

2045 . . . . . . . . . . . . . 342.74 189,219.39 29,320 79,037 12.1557

2050 . . . . . . . . . . . . . 397.33 231,372.27 36,302 98,759 16.3362

2055 . . . . . . . . . . . . . 460.61 282,819.44 44,906 123,302 21.9545

2060 . . . . . . . . . . . . . 533.97 345,826.67 55,582 154,043 29.5050

2065 . . . . . . . . . . . . . 619.02 422,895.04 68,778 192,407 39.6522

2070 . . . . . . . . . . . . . 717.62 517,152.80 85,037 240,146 53.2893

2075 . . . . . . . . . . . . . 831.91 632,286.63 105,046 299,479 71.6164

2080 . . . . . . . . . . . . . 964.42 772,985.34 129,710 373,322 96.2464

Low Cost:

2002 . . . . . . . . . . . . . 97.87 33,547.79 4,213 10,447 .9531

2003 . . . . . . . . . . . . . 100.00 34,907.44 4,425 11,003 1.0000

2004 . . . . . . . . . . . . . 101.98 36,337.05 4,664 11,622 1.0617

2005 . . . . . . . . . . . . . 104.02 37,740.22 4,920 12,250 1.1255

2006 . . . . . . . . . . . . . 106.11 39,121.33 5,180 12,892 1.1914

2007 . . . . . . . . . . . . . 108.22 40,568.05 5,443 13,560 1.2604

2008 . . . . . . . . . . . . . 110.39 42,055.17 5,716 14,250 1.3333

2009 . . . . . . . . . . . . . 112.60 43,599.78 5,994 14,961 1.4105

2010 . . . . . . . . . . . . . 114.84 45,172.07 6,278 15,688 1.4922

2011 . . . . . . . . . . . . . 117.15 46,792.70 6,567 16,426 1.5786

2012 . . . . . . . . . . . . . 119.49 48,448.46 6,857 17,173 1.6700

2015 . . . . . . . . . . . . . 126.80 53,839.99 7,781 19,532 1.9772

2020 . . . . . . . . . . . . . 140.00 64,068.47 9,532 24,028 2.6198

2025 . . . . . . . . . . . . . 154.57 76,333.35 11,642 29,481 3.4713

2030 . . . . . . . . . . . . . 170.66 90,964.55 14,246 36,248 4.5995

2035 . . . . . . . . . . . . . 188.42 108,612.69 17,509 44,756 6.0943

2040 . . . . . . . . . . . . . 208.03 129,692.93 21,561 55,348 8.0750

2045 . . . . . . . . . . . . . 229.69 154,886.85 26,552 68,445 10.6995

2050 . . . . . . . . . . . . . 253.59 184,945.36 32,673 84,582 14.1769

2055 . . . . . . . . . . . . . 279.99 220,819.42 40,217 104,553 18.7846

2060 . . . . . . . . . . . . . 309.13 263,768.82 49,587 129,465 24.8898

2065 . . . . . . . . . . . . . 341.30 315,097.23 61,212 160,503 32.9791

2070 . . . . . . . . . . . . . 376.82 376,440.49 75,555 198,967 43.6977

2075 . . . . . . . . . . . . . 416.04 449,605.62 93,181 246,464 57.8998

2080 . . . . . . . . . . . . . 459.35 536,886.80 114,829 305,072 76.7178
Appendices

180

Table VI.F8 shows estimated operations of the combined OASI and DI Trust

Funds in constant 2003 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 cost, 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. Cost consists of benefit payments, administrative

expenses, net transfers from the OASI and DI Trust Funds to the Railroad

High Cost:

2002 . . . . . . . . . . . . . 97.54 $33,417.83 $4,203 $10,417 0.9531

2003 . . . . . . . . . . . . . 100.00 34,208.13 4,292 10,707 1.0000

2004 . . . . . . . . . . . . . 102.99 36,009.40 4,545 11,398 1.0713

2005 . . . . . . . . . . . . . 107.60 38,058.89 4,842 12,227 1.1585

2006 . . . . . . . . . . . . . 113.89 39,853.26 5,103 12,937 1.2513

2007 . . . . . . . . . . . . . 120.44 42,279.32 5,416 13,868 1.3568

2008 . . . . . . . . . . . . . 126.32 45,170.39 5,844 15,025 1.4705

2009 . . . . . . . . . . . . . 131.55 47,441.85 6,202 15,936 1.5708

2010 . . . . . . . . . . . . . 136.81 49,588.16 6,548 16,809 1.6710

2011 . . . . . . . . . . . . . 142.28 51,840.85 6,887 17,731 1.7763

2012 . . . . . . . . . . . . . 147.97 54,216.93 7,234 18,703 1.8883

2015 . . . . . . . . . . . . . 166.44 62,031.34 8,398 21,866 2.2684

2020 . . . . . . . . . . . . . 202.50 77,491.44 10,683 28,177 3.0796

2025 . . . . . . . . . . . . . 246.38 97,067.37 13,548 36,206 4.1807

2030 . . . . . . . . . . . . . 299.75 121,656.90 17,157 46,481 5.6756

2035 . . . . . . . . . . . . . 364.70 152,703.44 21,692 59,575 7.7051

2040 . . . . . . . . . . . . . 443.71 191,535.30 27,329 76,081 10.4602

2045 . . . . . . . . . . . . . 539.84 240,156.90 34,245 96,656 14.2004

2050 . . . . . . . . . . . . . 656.80 300,665.66 42,713 122,273 19.2781

2055 . . . . . . . . . . . . . 799.10 376,175.17 53,136 154,303 26.1714

2060 . . . . . . . . . . . . . 972.22 470,698.27 66,038 194,554 35.5294

2065 . . . . . . . . . . . . . 1,182.86 588,940.29 81,887 244,766 48.2337

2070 . . . . . . . . . . . . . 1,439.13 736,885.62 101,354 307,391 65.4806

2075 . . . . . . . . . . . . . 1,750.92 921,996.23 125,284 385,540 88.8945

2080 . . . . . . . . . . . . . 2,130.26 1,153,884.89 154,821 483,424 120.6805

1The CPI used to adjust OASDI benefits is the Consumer Price Index for Urban Wage Earners and Clerical

Workers (CPI-W), 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 2003, and multiplying

the result by 100, thereby initializing the CPI at 100 for 2003.

2 The “SSA average wage index” is defined in the glossary as “Average wage index;” it is used in the calculations of initial benefits and the automatic adjustment of the contribution and benefit base and other wageindexed program amounts.

3 Taxable payroll consists of total earnings subject to OASDI contribution rates, adjusted to include deemed

wages based on military service through calendar year 2001 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 VI.F7.—Selected Economic Variables, Calendar Years 2002-80 (Cont.)

[GDP and taxable payroll in billions]

Calendar year

Adjusted

CPI1 SSA average

wage index2 Taxablepayroll3

Gross

domestic

product

Compound

interest-rate

factor4
181

OASDI & HI: Estimates in Dollars

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.

Table VI.F8.—Operations of the Combined OASI and DI Trust Funds, 

in Constant 2003 Dollars,1 Calendar Years 2003-80

[In billions]

Calendar year

Income

excluding

interest

Interest

income

Total

income Cost

Assets at

end of year

Intermediate:

2003 . . . . . . . . . . . . . $555.0 $87.5 $642.5 $477.9 $1,542.6

2004 . . . . . . . . . . . . . 568.5 95.1 663.5 487.2 1,682.9

2005 . . . . . . . . . . . . . 586.7 103.9 690.7 496.8 1,832.7

2006 . . . . . . . . . . . . . 601.3 113.6 714.9 506.0 1,989.5

2007 . . . . . . . . . . . . . 617.0 123.7 740.8 518.4 2,153.9

2008 . . . . . . . . . . . . . 630.7 133.9 764.6 532.9 2,322.9

2009 . . . . . . . . . . . . . 644.2 143.7 787.9 549.6 2,493.5

2010 . . . . . . . . . . . . . 657.6 153.5 811.1 567.7 2,664.4

2011 . . . . . . . . . . . . . 672.1 163.1 835.2 587.3 2,834.7

2012 . . . . . . . . . . . . . 684.6 172.6 857.2 608.3 3,001.1

2015 . . . . . . . . . . . . . 721.5 198.7 920.2 683.4 3,452.0

2020 . . . . . . . . . . . . . 782.3 227.7 1,009.9 839.8 3,920.6

2025 . . . . . . . . . . . . . 845.2 228.8 1,074.0 1,009.7 3,885.2

2030 . . . . . . . . . . . . . 912.0 198.1 1,110.1 1,170.2 3,300.2

2035 . . . . . . . . . . . . . 983.3 136.9 1,120.2 1,305.8 2,199.9

20402 . . . . . . . . . . . . 1,057.4 49.7 1,107.1 1,418.8 660.5

Low Cost: 

2003 . . . . . . . . . . . . . 557.4 88.0 645.4 476.2 1,547.1

2004 . . . . . . . . . . . . . 579.1 96.6 675.6 485.0 1,707.7

2005 . . . . . . . . . . . . . 599.3 105.7 705.0 494.5 1,884.7

2006 . . . . . . . . . . . . . 617.8 115.4 733.2 503.1 2,077.8

2007 . . . . . . . . . . . . . 638.0 125.8 763.8 514.6 2,286.3

2008 . . . . . . . . . . . . . 656.8 137.0 793.8 527.2 2,508.0

2009 . . . . . . . . . . . . . 675.6 148.8 824.4 542.4 2,740.7

2010 . . . . . . . . . . . . . 694.6 161.3 855.8 559.2 2,983.9

2011 . . . . . . . . . . . . . 714.7 174.4 889.1 577.7 3,236.6

2012 . . . . . . . . . . . . . 732.8 188.0 920.8 598.0 3,496.0

2015 . . . . . . . . . . . . . 786.2 231.4 1,017.6 679.4 4,277.0

2020 . . . . . . . . . . . . . 878.2 299.5 1,177.8 850.9 5,482.2

2025 . . . . . . . . . . . . . 977.6 354.4 1,332.0 1,036.5 6,440.3

2030 . . . . . . . . . . . . . 1,088.7 396.2 1,485.0 1,217.3 7,168.7

2035 . . . . . . . . . . . . . 1,214.9 429.7 1,644.6 1,378.4 7,762.1

2040 . . . . . . . . . . . . . 1,355.8 464.5 1,820.2 1,521.6 8,393.7

2045 . . . . . . . . . . . . . 1,512.3 507.1 2,019.4 1,675.0 9,172.5

2050 . . . . . . . . . . . . . 1,686.4 557.1 2,243.5 1,860.5 10,079.2

2055 . . . . . . . . . . . . . 1,881.6 611.5 2,493.0 2,080.3 11,057.7

2060 . . . . . . . . . . . . . 2,102.1 669.6 2,771.7 2,318.0 12,109.2

2065 . . . . . . . . . . . . . 2,350.0 736.4 3,086.4 2,571.1 13,324.2

2070 . . . . . . . . . . . . . 2,627.0 814.4 3,441.4 2,859.1 14,741.5

2075 . . . . . . . . . . . . . 2,935.0 902.6 3,837.6 3,193.4 16,336.0

2080 . . . . . . . . . . . . . 3,277.4 997.5 4,274.9 3,581.0 18,043.6
Appendices

182

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

Figure VI.F1 provides a comparison of annual cost 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 VI.F8. 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 cost will be payable from (1) current tax income alone through 2017,

(2) current tax income plus amounts from the trust funds that are less than

annual interest income for years 2018 through 2027, and (3) current tax

income plus amounts from the trust funds that are greater than annual interest

income for years 2028 through 2041, i.e., through the year preceding the year

of trust fund exhaustion.

High Cost:

2003 . . . . . . . . . . . . . $549.7 $86.3 $636.0 $481.2 $1,532.8

2004 . . . . . . . . . . . . . 551.1 93.0 644.2 491.5 1,640.9

2005 . . . . . . . . . . . . . 570.8 103.3 674.1 498.3 1,746.5

2006 . . . . . . . . . . . . . 568.2 113.4 681.6 504.4 1,827.4

2007 . . . . . . . . . . . . . 571.1 122.1 693.1 519.3 1,901.8

2008 . . . . . . . . . . . . . 588.4 133.6 722.0 537.5 1,997.7

2009 . . . . . . . . . . . . . 600.5 140.7 741.2 558.0 2,101.5

2010 . . . . . . . . . . . . . 610.3 145.4 755.7 576.4 2,200.0

2011 . . . . . . . . . . . . . 620.0 149.7 769.7 595.5 2,289.6

2012 . . . . . . . . . . . . . 627.8 153.3 781.0 615.9 2,366.7

2015 . . . . . . . . . . . . . 652.0 155.6 807.6 681.8 2,509.7

2020 . . . . . . . . . . . . . 688.3 142.8 831.1 819.1 2,334.2

2025 . . . . . . . . . . . . . 724.3 98.9 823.2 970.9 1,533.0

2030 2 . . . . . . . . . . . . 760.3 13.8 774.1 1,113.0 39.3

1The adjustment from current to constant dollars is by the adjusted CPI indexing series shown in table

VI.F7.

2 Estimates for later years are not shown because the combined OASI and DI Trust Funds are estimated to

become exhausted in 2042 under the intermediate assumptions and in 2031 under the high cost assumptions.

Table VI.F8.—Operations of the Combined OASI and DI Trust Funds, 

in Constant 2003 Dollars,1 Calendar Years 2003-80 (Cont.)

[In billions]

Calendar year

Income

excluding

interest

Interest

income

Total

income Cost

Assets at

end of year
183

OASDI & HI: Estimates in Dollars

Table VI.F9 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 cost, and assets at the end of the year. These estimates,

based on the low cost, intermediate, and high cost sets of demographic and

economic assumptions, are presented to facilitate independent analysis.

 Figure VI.F1.—Estimated OASDI Income and Cost in Constant Dollars,

Based on Intermediate Assumptions

[In billions]

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

Calendar year

Cost

Total income

Income excluding interest
Appendices

184

Table VI.F9.—Operations of the Combined OASI and DI Trust Funds, 

in Current Dollars, Calendar Years 2003-80

[In billions]

Calendar year

Income

excluding

interest

Interest

income

Total

income Cost

Assets at

end of year

Intermediate:

2003 . . . . . . . . . . . . . $555.0 $87.5 $642.5 $477.9 $1,542.6

2004 . . . . . . . . . . . . . 582.1 97.3 679.4 498.8 1,723.1

2005 . . . . . . . . . . . . . 616.9 109.3 726.2 522.4 1,927.0

2006 . . . . . . . . . . . . . 650.8 122.9 773.7 547.6 2,153.0

2007 . . . . . . . . . . . . . 687.8 137.9 825.7 577.8 2,400.9

2008 . . . . . . . . . . . . . 724.1 153.7 877.8 611.8 2,666.9

2009 . . . . . . . . . . . . . 761.8 170.0 931.8 649.9 2,948.8

2010 . . . . . . . . . . . . . 800.9 186.9 987.9 691.4 3,245.2

2011 . . . . . . . . . . . . . 843.2 204.6 1,047.9 736.8 3,556.3

2012 . . . . . . . . . . . . . 884.6 223.1 1,107.7 786.0 3,878.0

2015 . . . . . . . . . . . . . 1,018.8 280.6 1,299.4 965.0 4,874.3

2020 . . . . . . . . . . . . . 1,280.5 372.7 1,653.1 1,374.7 6,417.7

2025 . . . . . . . . . . . . . 1,603.8 434.2 2,038.1 1,916.0 7,372.9

2030 . . . . . . . . . . . . . 2,006.4 435.7 2,442.1 2,574.3 7,260.1

2035 . . . . . . . . . . . . . 2,507.8 349.0 2,856.8 3,330.3 5,610.4

20401 . . . . . . . . . . . . 3,126.2 146.9 3,273.1 4,194.7 1,952.8

Low Cost:

2003 . . . . . . . . . . . . . 557.4 88.0 645.4 476.2 1,547.1

2004 . . . . . . . . . . . . . 590.5 98.5 689.0 494.6 1,741.5

2005 . . . . . . . . . . . . . 623.4 110.0 733.4 514.4 1,960.5

2006 . . . . . . . . . . . . . 655.5 122.5 778.0 533.8 2,204.6

2007 . . . . . . . . . . . . . 690.4 136.2 826.6 556.9 2,474.4

2008 . . . . . . . . . . . . . 725.1 151.2 876.3 582.0 2,768.6

2009 . . . . . . . . . . . . . 760.8 167.6 928.4 610.8 3,086.2

2010 . . . . . . . . . . . . . 797.7 185.2 982.9 642.2 3,426.9

2011 . . . . . . . . . . . . . 837.2 204.3 1,041.6 676.8 3,791.7

2012 . . . . . . . . . . . . . 875.6 224.6 1,100.3 714.5 4,177.4

. 2015 . . . . . . . . . . . . . 996.9 293.5 1,290.3 861.5 5,423.3

2020 . . . . . . . . . . . . . 1,229.5 419.4 1,648.9 1,191.3 7,675.1

2025 . . . . . . . . . . . . . 1,511.2 547.8 2,058.9 1,602.1 9,954.9

2030 . . . . . . . . . . . . . 1,858.0 676.2 2,534.2 2,077.5 12,234.0

2035 . . . . . . . . . . . . . 2,289.2 809.7 3,098.9 2,597.3 14,625.6

2040 . . . . . . . . . . . . . 2,820.4 966.2 3,786.7 3,165.4 17,461.7

2045 . . . . . . . . . . . . . 3,473.6 1,164.7 4,638.3 3,847.3 21,067.8

2050 . . . . . . . . . . . . . 4,276.6 1,412.8 5,689.4 4,718.0 25,560.1

2055 . . . . . . . . . . . . . 5,268.1 1,712.0 6,980.1 5,824.6 30,960.0

2060 . . . . . . . . . . . . . 6,498.0 2,070.0 8,568.0 7,165.6 37,432.7

2065 . . . . . . . . . . . . . 8,020.5 2,513.4 10,533.8 8,775.3 45,475.5

2070 . . . . . . . . . . . . . 9,899.1 3,069.0 12,968.1 10,773.7 55,549.6

2075 . . . . . . . . . . . . . 12,210.9 3,755.2 15,966.1 13,286.0 67,965.0

2080 . . . . . . . . . . . . . 15,054.5 4,581.9 19,636.4 16,449.2 82,882.5
185

OASDI & HI: Estimates in Dollars

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

Table VI.F10 shows, in current dollars, estimated income (excluding interest) and estimated total cost (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 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. Cost 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) and proceeds from the taxation of OASDI benefits. Total cost

consists of outlays (scheduled benefits and administrative expenses) for

insured beneficiaries. Income and cost estimates are shown on a cash basis

for the OASDI program and on an incurred basis for the HI program.

Table VI.F10 also shows the difference between income excluding interest

and cost, which is called the balance. The balance indicates the size of the

difference between tax income and cost.

High Cost:

2003 . . . . . . . . . . . . . $549.7 $86.3 $636.0 $481.2 $1,532.8

2004 . . . . . . . . . . . . . 567.6 95.8 663.5 506.2 1,690.1

2005 . . . . . . . . . . . . . 614.3 111.1 725.4 536.1 1,879.3

2006 . . . . . . . . . . . . . 647.1 129.1 776.2 574.4 2,081.1

2007 . . . . . . . . . . . . . 687.8 147.0 834.8 625.5 2,290.5

2008 . . . . . . . . . . . . . 743.2 168.8 912.0 679.0 2,523.5

2009 . . . . . . . . . . . . . 789.9 185.1 975.0 734.0 2,764.5

2010 . . . . . . . . . . . . . 834.9 198.9 1,033.9 788.5 3,009.8

2011 . . . . . . . . . . . . . 882.2 212.9 1,095.1 847.3 3,257.6

2012 . . . . . . . . . . . . . 928.9 226.8 1,155.7 911.3 3,502.0

2015 . . . . . . . . . . . . . 1,085.2 258.9 1,344.1 1,134.8 4,177.2

2020 . . . . . . . . . . . . . 1,393.8 289.2 1,682.9 1,658.6 4,726.8

2025 . . . . . . . . . . . . . 1,784.5 243.7 2,028.2 2,392.1 3,777.0

2030 1 . . . . . . . . . . . . 2,279.0 41.4 2,320.4 3,336.3 117.9

1 Estimates for later years are not shown because the combined OASI and DI Trust Funds are estimated to

become exhausted in 2042 under the intermediate assumptions and in 2031 under the high cost assumptions.

Table VI.F9.—Operations of the Combined OASI and DI Trust Funds, 

in Current Dollars, Calendar Years 2003-80 (Cont.)

[In billions]

Calendar year

Income

excluding

interest

Interest

income

Total

income Cost

Assets at

end of year
Appendices

186

Table VI.F10.—OASDI and HI Annual Income Excluding Interest, Cost, and

Balance in Current Dollars, Calendar Years 2003-80

[In billions]

Calendar

year

OASDI HI Combined

Income

excluding

interest Cost Balance

Income

excluding

interest Cost Balance

Income

excluding

interest Cost Balance

Intermediate:

2003 . . . . . . $555 $478 $77 $164 $157 $7 $719 $635 $84

2004 . . . . . . 582 499 83 174 166 8 756 665 92

2005 . . . . . . 617 522 95 185 174 10 802 697 105

2006 . . . . . . 651 548 103 195 184 11 846 732 114

2007 . . . . . . 688 578 110 207 195 12 895 773 122

2008 . . . . . . 724 612 112 219 207 12 943 819 124

2009 . . . . . . 762 650 112 231 220 11 993 870 122

2010 . . . . . . 801 691 110 243 235 8 1,044 927 118

2011 . . . . . . 843 737 106 257 251 6 1,101 988 112

2012 . . . . . . 885 786 99 271 268 3 1,156 1,054 101

2015 . . . . . . 1,019 965 54 314 328 -14 1,332 1,293 40

2020 . . . . . . 1,280 1,375 -94 398 466 -69 1,678 1,841 -163

2025 . . . . . . 1,604 1,916 -312 503 673 -170 2,106 2,589 -482

2030 . . . . . . 2,006 2,574 -568 633 971 -338 2,639 3,545 -906

2035 . . . . . . 2,508 3,330 -823 795 1,377 -583 3,302 4,708 -1,405

2040 . . . . . . 3,126 4,195 -1,069 992 1,904 -912 4,118 6,099 -1,981

2045 . . . . . . 3,886 5,250 -1,365 1,234 2,577 -1,343 5,120 7,827 -2,707

2050 . . . . . . 4,819 6,601 -1,782 1,533 3,439 -1,906 6,353 10,040 -3,688

2055 . . . . . . 5,974 8,337 -2,363 1,904 4,576 -2,672 7,879 12,914 -5,035

2060 . . . . . . 7,408 10,496 -3,088 2,366 6,114 -3,748 9,774 16,610 -6,836

2065 . . . . . . 9,180 13,174 -3,994 2,935 8,191 -5,256 12,115 21,365 -9,250

2070 . . . . . . 11,367 16,555 -5,188 3,640 10,999 -7,358 15,007 27,554 -12,546

2075 . . . . . . 14,063 20,791 -6,727 4,510 14,701 -10,190 18,574 35,491 -16,917

2080 . . . . . . 17,389 26,062 -8,673 5,583 19,648 -14,065 22,972 45,709 -22,738

Low Cost:

2003 . . . . . . 557 476 81 166 154 12 723 630 93

2004 . . . . . . 591 495 96 176 160 16 767 655 112

2005 . . . . . . 623 514 109 186 165 21 809 679 130

2006 . . . . . . 655 534 122 196 170 26 851 704 147

2007 . . . . . . 690 557 134 206 176 31 897 733 164

2008 . . . . . . 725 582 143 217 182 35 942 764 178

2009 . . . . . . 761 611 150 229 190 39 989 801 189

2010 . . . . . . 798 642 155 240 199 42 1,038 841 197

2011 . . . . . . 837 677 160 253 208 45 1,090 885 206

2012 . . . . . . 876 715 161 265 217 48 1,141 932 209

2015 . . . . . . 997 861 135 303 248 55 1,300 1,109 190

2020 . . . . . . 1,230 1,191 38 377 315 61 1,606 1,507 99

2025 . . . . . . 1,511 1,602 -91 466 407 59 1,977 2,009 -32

2030 . . . . . . 1,858 2,078 -219 576 525 51 2,434 2,603 -169

2035 . . . . . . 2,289 2,597 -308 712 679 33 3,001 3,276 -275

2040 . . . . . . 2,820 3,165 -345 877 875 1 3,697 4,041 -344

2045 . . . . . . 3,474 3,847 -374 1,079 1,131 -52 4,553 4,978 -425

2050 . . . . . . 4,277 4,718 -441 1,328 1,474 -146 5,605 6,192 -587

2055 . . . . . . 5,268 5,825 -557 1,637 1,950 -312 6,905 7,774 -869

2060 . . . . . . 6,498 7,166 -668 2,020 2,594 -574 8,518 9,760 -1,242

2065 . . . . . . 8,020 8,775 -755 2,492 3,467 -975 10,512 12,242 -1,729

2070 . . . . . . 9,899 10,774 -875 3,075 4,646 -1,571 12,974 15,419 -2,446

2075 . . . . . . 12,211 13,286 -1,075 3,792 6,198 -2,406 16,003 19,484 -3,481

2080 . . . . . . 15,054 16,449 -1,395 4,676 8,277 -3,601 19,731 24,726 -4,996
187

OASDI & HI: Estimates in Dollars

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

Table VI.F11 shows projected future benefit amounts payable upon retirement at either the normal retirement age (NRA) or age 65, for workers attaining age 65 in 2003 and subsequent years. Illustrative benefit levels are shown

for workers with four separate pre-retirement earnings patterns. All estimates

are based on the intermediate assumptions in this report. The benefit amounts

are shown in constant 2003 dollars (adjusted to 2003 levels by the CPI indexing series shown in table VI.F7). Benefit amounts are also shown as percentages of the general, career-average relative earnings level for each case,

wage indexed to the year prior to retirement. These percentages thus represent the benefit “replacement rate” of the career-average level of earnings.

The normal retirement age is 65 for individuals who reached age 62 before

2000 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). Thus,

for illustrative cases attaining age 65 after 2002, benefit levels shown for

High Cost:

2003 . . . . . . $550 $481 $69 $161 $161 1/ $711 $642 $69

2004 . . . . . . 568 506 61 172 174 -$1 740 680 60

2005 . . . . . . 614 536 78 185 187 -2 799 723 76

2006 . . . . . . 647 574 73 196 202 -7 843 777 66

2007 . . . . . . 688 625 62 209 220 -11 897 846 51

2008 . . . . . . 743 679 64 228 243 -16 971 922 49

2009 . . . . . . 790 734 56 242 267 -24 1,032 1,001 32

2010 . . . . . . 835 789 46 256 291 -35 1,091 1,080 12

2011 . . . . . . 882 847 35 272 318 -46 1,154 1,165 -11

2012 . . . . . . 929 911 18 288 348 -60 1,217 1,259 -42

2015 . . . . . . 1,085 1,135 -50 339 454 -116 1,424 1,589 -166

2020 . . . . . . 1,394 1,659 -265 439 726 -286 1,833 2,384 -551

2025 . . . . . . 1,784 2,392 -608 568 1,176 -607 2,353 3,568 -1,215

2030 . . . . . . 2,279 3,336 -1,057 732 1,901 -1,169 3,011 5,238 -2,227

2035 . . . . . . 2,899 4,483 -1,584 937 2,967 -2,029 3,836 7,449 -3,613

2040 . . . . . . 3,668 5,865 -2,198 1,190 4,404 -3,214 4,858 10,270 -5,412

2045 . . . . . . 4,612 7,603 -2,991 1,501 6,250 -4,749 6,113 13,854 -7,740

2050 . . . . . . 5,776 9,857 -4,081 1,887 8,550 -6,663 7,663 18,407 -10,744

2055 . . . . . . 7,217 12,797 -5,580 2,368 11,454 -9,086 9,585 24,251 -14,666

2060 . . . . . . 9,009 16,547 -7,539 2,969 15,368 -12,400 11,978 31,916 -19,938

2065 . . . . . . 11,219 21,345 -10,126 3,713 20,638 -16,925 14,932 41,983 -27,051

2070 . . . . . . 13,948 27,513 -13,565 4,636 27,750 -23,114 18,584 55,263 -36,680

2075 . . . . . . 17,315 35,305 -17,991 5,778 37,122 -31,345 23,093 72,428 -49,336

2080 . . . . . . 21,477 45,021 -23,544 7,192 49,635 -42,442 28,669 94,655 -65,986

1 Less than $500 million.

Table VI.F10.—OASDI and HI Annual Income Excluding Interest, Cost, and

Balance in Current Dollars, Calendar Years 2003-80 (Cont.)

[In billions]

Calendar

year

OASDI HI Combined

Income

excluding

interest Cost Balance

Income

excluding

interest Cost Balance

Income

excluding

interest Cost Balance
Appendices

188

retirement at 65 are lower than the levels shown for retirement at NRA, primarily because of the actuarial reduction for “early” (pre-NRA) retirement.

Four different pre-retirement earnings patterns are represented in table

VI.F11. Three of these patterns are for workers with scaled-earnings patterns,1 reflecting low, medium, and high career-average levels of pre-retirement earnings starting at age 21. The fourth case is the steady maximum

earner. The three scaled-earnings cases have earnings patterns that reflect

differences by age in the probability of work and in average earnings levels

experienced by insured workers during the period 1990-99. The general,

career-average level of earnings for the scaled cases is set relative to the SSA

average wage indexing series (AWI) so that benefit levels are consistent with

levels for “steady-earnings” cases that were shown in the 2000 and earlier

Trustees Reports. For the scaled medium earner, the general, career-average

earnings level is about equal to the AWI. For the scaled low and high earners,

the general, career-average earnings level is set at about 45 percent and 160

percent of the AWI, respectively. The steady maximum earner is assumed to

have earnings at (or above) the OASDI contribution and benefit base for

each year prior to retirement starting at age 22.

As noted above, the scaled-earnings cases were constructed so that their

career-average earnings levels are consistent with the corresponding steady

low, average, and high earners that were illustrated in the 2000 Trustees

Report. As a result, values in this table for benefits under the present-law

Social Security benefit formula are essentially comparable to those in earlier

reports. Scaled-earnings cases are now generally being used instead of

steady-earnings cases because they more accurately illustrate the differences

in benefit levels under the wide variety of reform proposals considered in

recent years.

 1 More details are provided on the development of scaled-earnings patterns in the Social Security Administration Actuarial Note Number 144, located at the following internet address: http://www.ssa.gov/OACT/

NOTES/note144.html.
189

OASDI & HI: Estimates in Dollars

Table VI.F11.—Estimated Annual Scheduled Benefit Amounts1 for Retired Workers

With Various Pre-Retirement Earnings Patterns Based on

Intermediate Assumptions, Calendar Years 2003-80 

Year attain age 652

Retirement at normal retirement age Retirement at age 65

Age at

retirement

Constant

2003

dollars 3 Percent ofearnings

Age at

retirement

Constant

2003

dollars 3 Percent ofearnings

 Scaled low earnings:4

2003 . . . . . . . . . . . 65:2 $8,475 56.1 65:0 $8,380 55.6

2005 . . . . . . . . . . . 65:6 8,852 56.8 65:0 8,557 55.2

2010 . . . . . . . . . . . 66:0 9,244 55.5 65:0 8,622 52.4

2015 . . . . . . . . . . . 66:0 9,801 55.9 65:0 9,142 52.6

2020 . . . . . . . . . . . 66:2 10,331 55.9 65:0 9,525 52.1

2025 . . . . . . . . . . . 67:0 10,863 55.3 65:0 9,414 48.9

2030 . . . . . . . . . . . 67:0 11,448 55.3 65:0 9,920 48.9

2035 . . . . . . . . . . . 67:0 12,068 55.2 65:0 10,458 48.9

2040 . . . . . . . . . . . 67:0 12,745 55.2 65:0 11,047 48.9

2045 . . . . . . . . . . . 67:0 13,459 55.2 65:0 11,664 48.9

2050 . . . . . . . . . . . 67:0 14,210 55.3 65:0 12,314 48.9

2055 . . . . . . . . . . . 67:0 14,987 55.3 65:0 12,988 48.9

2060 . . . . . . . . . . . 67:0 15,804 55.3 65:0 13,695 48.9

2065 . . . . . . . . . . . 67:0 16,668 55.2 65:0 14,445 48.9

2070 . . . . . . . . . . . 67:0 17,584 55.3 65:0 15,238 48.9

2075 . . . . . . . . . . . 67:0 18,548 55.3 65:0 16,076 48.9

2080 . . . . . . . . . . . 67:0 19,563 55.3 65:0 16,954 48.9

Scaled medium earnings:5

2003 . . . . . . . . . . . 65:2 13,970 41.6 65:0 13,814 41.3

2005 . . . . . . . . . . . 65:6 14,579 42.1 65:0 14,104 41.0

2010 . . . . . . . . . . . 66:0 15,228 41.2 65:0 14,213 38.8

2015 . . . . . . . . . . . 66:0 16,146 41.4 65:0 15,071 39.0

2020 . . . . . . . . . . . 66:2 17,024 41.4 65:0 15,698 38.7

2025 . . . . . . . . . . . 67:0 17,902 41.0 65:0 15,513 36.3

2030 . . . . . . . . . . . 67:0 18,860 41.0 65:0 16,345 36.3

2035 . . . . . . . . . . . 67:0 19,884 40.9 65:0 17,236 36.2

2040 . . . . . . . . . . . 67:0 20,999 40.9 65:0 18,201 36.2

2045 . . . . . . . . . . . 67:0 22,173 40.9 65:0 19,217 36.2

2050 . . . . . . . . . . . 67:0 23,408 41.0 65:0 20,289 36.3

2055 . . . . . . . . . . . 67:0 24,692 41.0 65:0 21,398 36.3

2060 . . . . . . . . . . . 67:0 26,035 41.0 65:0 22,563 36.3

2065 . . . . . . . . . . . 67:0 27,461 41.0 65:0 23,799 36.3

2070 . . . . . . . . . . . 67:0 28,969 41.0 65:0 25,105 36.3

2075 . . . . . . . . . . . 67:0 30,558 41.0 65:0 26,483 36.3

2080 . . . . . . . . . . . 67:0 32,228 41.0 65:0 27,931 36.3

Scaled high earnings:6

2003 . . . . . . . . . . . 65:2 18,357 35.1 65:0 18,154 34.8

2005 . . . . . . . . . . . 65:6 19,230 35.2 65:0 18,601 34.3

2010 . . . . . . . . . . . 66:0 20,185 34.1 65:0 18,845 32.2

2015 . . . . . . . . . . . 66:0 21,414 34.3 65:0 19,987 32.4

2020 . . . . . . . . . . . 66:2 22,569 34.3 65:0 20,813 32.0

2025 . . . . . . . . . . . 67:0 23,735 34.0 65:0 20,571 30.1

2030 . . . . . . . . . . . 67:0 25,009 34.0 65:0 21,671 30.1

2035 . . . . . . . . . . . 67:0 26,362 33.9 65:0 22,850 30.0

2040 . . . . . . . . . . . 67:0 27,842 33.9 65:0 24,129 30.0

2045 . . . . . . . . . . . 67:0 29,399 33.9 65:0 25,479 30.0

2050 . . . . . . . . . . . 67:0 31,034 33.9 65:0 26,895 30.0

2055 . . . . . . . . . . . 67:0 32,735 34.0 65:0 28,369 30.1

2060 . . . . . . . . . . . 67:0 34,517 33.9 65:0 29,914 30.1

2065 . . . . . . . . . . . 67:0 36,408 33.9 65:0 31,553 30.1

2070 . . . . . . . . . . . 67:0 38,404 33.9 65:0 33,283 30.0

2075 . . . . . . . . . . . 67:0 40,513 33.9 65:0 35,110 30.1

2080 . . . . . . . . . . . 67:0 42,725 34.0 65:0 37,029 30.1
Appendices

190

Steady maximum earnings:7

2003 . . . . . . . . . . . 65:2 $20,929 29.8 65:0 $20,692 29.6

2005 . . . . . . . . . . . 65:6 22,145 29.4 65:0 21,415 28.8

2010 . . . . . . . . . . . 66:0 24,088 28.0 65:0 22,292 26.5

2015 . . . . . . . . . . . 66:0 26,022 27.7 65:0 24,162 26.1

2020 . . . . . . . . . . . 66:2 27,557 27.6 65:0 25,317 25.6

2025 . . . . . . . . . . . 67:0 29,166 27.3 65:0 25,079 24.0

2030 . . . . . . . . . . . 67:0 30,752 27.3 65:0 26,456 24.0

2035 . . . . . . . . . . . 67:0 32,422 27.2 65:0 27,897 23.9

2040 . . . . . . . . . . . 67:0 34,197 27.3 65:0 29,427 24.0

2045 . . . . . . . . . . . 67:0 36,109 27.3 65:0 31,070 24.0

2050 . . . . . . . . . . . 67:0 38,080 27.3 65:0 32,766 24.0

2055 . . . . . . . . . . . 67:0 40,165 27.3 65:0 34,561 24.0

2060 . . . . . . . . . . . 67:0 42,349 27.3 65:0 36,443 24.0

2065 . . . . . . . . . . . 67:0 44,665 27.3 65:0 38,434 24.0

2070 . . . . . . . . . . . 67:0 47,114 27.3 65:0 40,542 24.0

2075 . . . . . . . . . . . 67:0 49,697 27.3 65:0 42,764 24.0

2080 . . . . . . . . . . . 67:0 52,414 27.3 65:0 45,103 24.0

1 Annual scheduled benefit amounts are the total 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 for constant dollars is made using the adjusted CPI indexing series shown in table VI.F7. 4 Career-average earnings at about 45 percent of the SSA average wage index (AWI). 5 Career-average earnings at about 100 percent of the AWI.

6 Career-average earnings at about 160 percent of the AWI.

7 Earnings for each year equal to the OASDI contribution and benefit base.

Table VI.F11.—Estimated Annual Scheduled Benefit Amounts1 for Retired Workers

With Various Pre-Retirement Earnings Patterns Based on

Intermediate Assumptions, Calendar Years 2003-80 (Cont.) 

Year attain age 652

Retirement at normal retirement age Retirement at age 65

Age at

retirement

Constant

2003

dollars 3 Percent of

earnings

Age at

retirement

Constant

2003

dollars 3 Percent ofearnings
191

OASI Expenditures for Disabled

G. ANALYSIS OF BENEFIT DISBURSEMENTS FROM THE OASI 

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

over. Effective January 1991, the requirements for the disability of the

widow or widower were made less restrictive.

On December 31, 2002, about 824,000 persons were receiving monthly benefits from the OASI Trust Fund because of their disabilities or the disabilities

of children. This total includes 33,000 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 $5,746 million in

calendar year 2002. Table VI.G1 shows these and similar figures for selected

calendar years during 1960-2002, and estimated experience for 2003-12

based on the intermediate set of assumptions.
Appendices

192

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 $5,920 million in calendar year

2003 to $8,678 million in calendar year 2012, based on the intermediate

assumptions.

Table VI.G1.—Benefit Disbursements From the OASI Trust Fund 

With Respect to Disabled Beneficiaries

[Beneficiaries in thousands; benefit payments in millions]

Calendar year

Disabled beneficiaries, end of year Amount of benefit payments1

1 Beginning in 1966, includes payments for vocational rehabilitation services.

Total Children 2

2 Also includes certain mothers and fathers (see text).

Widowswidowers 3

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.

Total Children2 Widowswidowers 4

4 In 1983 and prior years, reflects the offsetting effect of lower benefits payable to disabled widows and widowers who continued 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).

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

1999 . . . . . . . . . 805 702 102 4,991 4,336 655

2000 . . . . . . . . . 811 707 104 5,194 4,514 680

2001 . . . . . . . . . 817 712 105 5,500 4,782 718

2002 . . . . . . . . . 824 718 106 5,746 4,997 749

Estimates:

2003 . . . . . . . . . 832 727 106 5,920 5,154 767

2004 . . . . . . . . . 841 735 106 6,167 5,375 792

2005 . . . . . . . . . 849 743 106 6,428 5,606 822

2006 . . . . . . . . . 855 750 105 6,712 5,869 843

2007 . . . . . . . . . 860 757 103 7,003 6,145 858

2008 . . . . . . . . . 864 764 101 7,311 6,435 876

2009 . . . . . . . . . 868 770 99 7,632 6,739 893

2010 . . . . . . . . . 872 775 96 7,964 7,053 911

2011 . . . . . . . . . 875 780 94 8,322 7,380 942

2012 . . . . . . . . . 877 785 92 8,678 7,712 966
193

OASI Expenditures for Disabled

In calendar year 2002, 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 payments from the latter

fund to all children and spouses of disabled-worker beneficiaries) totaled

$71,481 million. Of this amount, $5,746 million or 8.0 percent represented

payments from the OASI Trust Fund. These and similar figures for selected

calendar years during 1960-2002 and estimates for calendar years 2003-12

are presented in table VI.G2.

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

Table VI.G2.—Benefit Disbursements Under the OASDI Program 

With Respect to Disabled Beneficiaries

[Amounts in millions]

Calendar year Total1

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

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 VI.G1).

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

1999 . . . . . . . . . 56,390 51,399 4,991 8.9

2000 . . . . . . . . . 60,195 55,001 5,194 8.6

2001 . . . . . . . . . 65,137 59,637 5,500 8.4

2002 . . . . . . . . . 71,481 65,736 5,746 8.0

Estimates:

2003 . . . . . . . . . 77,118 71,198 5,920 7.7

2004 . . . . . . . . . 83,978 77,811 6,167 7.3

2005 . . . . . . . . . 90,439 84,011 6,428 7.1

2006 . . . . . . . . . 95,534 88,822 6,712 7.0

2007 . . . . . . . . . 101,902 94,899 7,003 6.9

2008 . . . . . . . . . 108,763 101,452 7,311 6.7

2009 . . . . . . . . . 116,772 109,141 7,632 6.5

2010 . . . . . . . . . 124,561 116,597 7,964 6.4

2011 . . . . . . . . . 132,738 124,416 8,322 6.3

2012 . . . . . . . . . 141,016 132,338 8,678 6.2
Appendices

194

H. 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.

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, and divorce. Economic assumptions include unemployment rates, average earnings, inflation, interest rates,

and productivity. Program-specific assumptions include retirement patterns,

and disability incidence and termination rates. Three sets of demographic,

economic, and program-specific assumptions are presented in this report—

 • Alternative II is the intermediate set of assumptions, and represents the

Trustees’ best estimates of likely future demographic, economic, and

program-specific conditions.

 • 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 III is characterized as a high cost set—it assumes relatively

slow economic growth, high inflation, and unfavorable (from the standpoint of program financing) demographic conditions.

See tables V.A1, V.B1, and V.B2.
195

Glossary

Automatic cost-of-living benefit 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 (CPI-W) 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 onetenth of 1 percent, when rounded, there is no automatic increase for the current year; the increase for the next year would reflect the net increase in the

CPI over a 2-year period. See table V.C1.

Auxiliary benefits. 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. (See

Title 20, Chapter III, section 404.211(c) of the Code of Federal Regulations

for a more precise definition.) These average wage amounts are used to

index the taxable 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 wageindexed amounts. See table V.C1.

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 V.C2.

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 currentpayment status or withheld.

Benefit award. See “Award.”
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196

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. 

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.

Constant dollars. Amounts adjusted by the CPI to the value of the dollar in

a particular year.

Consumer Price Index—CPI. An official measure of inflation in consumer

prices. 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

V.B1.

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 V.C1 and VI.A1. See “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.
197

Glossary

Generally, employers withhold contributions from wages, add an equal

amount of contributions, and pay both on a current basis. Also referred to as

taxes.

Cost-of-living adjustment. See “Automatic cost-of-living benefit increase.”

Cost rate. The cost rate for a year is the ratio of the cost of the program to

the taxable payroll for the year. In this context, the cost is defined to include

scheduled 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 for which earnings are creditable

for Social Security purposes. Almost all employment is covered under the

program. Some exceptions are:

 • State and local government employees whose employer has not elected

to be covered under Social Security and who are participating in a

employer-provided pension plan.

 • Current Federal civilian workers hired before 1984 who have not

elected to be covered.

 • Self-employed workers earning less than $400 in a calendar year.

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.

Creditable earnings. Wage or self-employment earnings posted to a

worker’s earnings record, upon which eligibility for and amount of benefits

on that worker’s record is based. The maximum amount of creditable earnings for each worker in a calendar year is determined by the contribution and

benefit base.

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).
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198

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 V.C3.

Demographic assumptions. See “Assumptions.”

Deterministic model. A model with specified assumptions for and relationships among variables. Under such a model, any specified set of assumptions

determines a single outcome directly reflecting the specifications.

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 at ages 55 and over 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.

Disbursements. Actual expenditures (outgo) made or expected to be made

under current law, including benefits paid or payable, 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.

Earnings. Unless otherwise qualified, all wages from employment and net

earnings from self-employment, whether or not taxable or covered.
199

Glossary

Earnings test. The provision requiring the withholding of benefits if beneficiaries under normal retirement age have earnings in excess of certain

exempt amounts. See table V.C1.

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

refundable to affected employees, while the employer taxes are not refundable.

Expenditures. See “Disbursements.”

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 example, fiscal year 2003 began October 1, 2002 and will end September 30,

2003.

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.
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200

 • 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 (payrolltax contributions and income from the taxation of scheduled benefits) to the

OASDI taxable payroll for the year.

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 V.B2 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.
201

Glossary

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.

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 EndStage 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
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202

service. Noncontributory wage credits of $100 were granted for each $300 of

military wages, up to a maximum credit of $1,200 per calendar year, from

January 1978 through December 2001.

National average wage index. See “Average wage index.”

Normal retirement age. The age at which a person may first become entitled to unreduced retirement benefits. For persons reaching age 62 before

2000, the normal retirement age is 65. It will 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 V.C3.

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 V.C2.

Outgo. See “Disbursements.”

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.

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
203

Glossary

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 VI.A1

and VI.F1.

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, American Samoa and the Northern Mariana Islands; (iii) Federal

civilian employees and persons in the U.S. 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 cost). 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. Present values are widely used in calculations involving financial transactions over long periods of time to account for the time

value of money (interest). For the purpose of present-value calculations for

this report, values are discounted by the effective yield on trust fund assets.

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 V.C2 for historical and assumed future bend points and table V.C1

for historical and assumed future benefit increases.

Quarters of coverage. Basic unit of measurement for determining insured

status. In 2003, a worker receives one quarter of coverage (up to a total of

four) for each $890 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 V.C2. 

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
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204

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 V.B1.

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 “Normal retirement age.”

Retirement earnings test. See “Earnings test.”

Retirement test. See “Earnings test.”

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
205

Glossary

are approximately equal. Special public-debt obligations are redeemable at

par value at any time and carry interest rates determined by law (see “Interest

rate”). See tables III.A2 and III.A4 for a listing of the obligations held by the

OASI and DI Trust Funds, respectively.

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.

Stochastic model. A model used for projecting a probability distribution of

potential outcomes. Such models allow for random variation in one or more

variables through time. The random variation is generally based on fluctuations observed in historical data for a selected period. Distributions of potential outcomes are derived from a large number of simulations, each of which

reflects random variation in the variable(s).

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. A person who is earning more than a

certain monthly amount (net of impairment-related work expenses) is ordinarily considered to be engaging in SGA. The amount of monthly earnings

considered as SGA depends on the nature of a person’s disability. The Social

Security Act specifies a higher SGA amount for statutorily blind individuals;

Federal regulations specify a lower SGA amount for non-blind individuals.

Both SGA amounts increase with increases in the national average wage

index.

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 cost to the present

value of the taxable payroll for the years in a given period, expressed as a

percentage. This percentage can be used as a measure of the relative level of

cost 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 cost 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 cost. Accordingly, the

adjusted summarized cost rate is equal to the ratio of (a) the sum of the

present value of the cost 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 scheduled tax

income to the present value of taxable payroll for the years in a given period,

expressed as a percentage. This percentage 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
Appendices

206

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.

Taxable payroll. A weighted average of taxable wages and taxable selfemployment income. When multiplied by the combined employee-employer

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).
207

Glossary

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 set of assumptions.

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 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.
Appendices

208

 • 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.

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 cost during the year. The trust fund

ratio represents the proportion of a year’s cost 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.
List of Tables

209

II. OVERVIEW

II.B1 Summary of 2002 Trust Fund Financial Operations . . . . . . . . 4

II.B2 Tax Rates for 2002 and Later . . . . . . . . . . . . . . . . . . . . . . . . 4

II.C1 Ultimate Values of Key Demographic and Economic 

Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

II.D1 Projected Maximum Trust Fund Ratios Achieved and Trust 

Fund Exhaustion Dates Under the Intermediate Assumptions . 10

II.D2 Reasons for Change in the 75-Year Actuarial Balance

Under Intermediate Assumptions . . . . . . . . . . . . . . . . . . . . . 13

III. FINANCIAL OPERATIONS OF THE TRUST FUNDS AND

LEGISLATIVE CHANGES IN THE LAST YEAR

III.A1 Operations of the OASI Trust Fund, Calendar Year 2002 . . . . 19

III.A2 Assets of the OASI Trust Fund, End of Calendar Years 

2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

III.A3 Operations of the DI Trust Fund, Calendar Year 2002 . . . . . . . 24

III.A4 Assets of the DI Trust Fund, End of Calendar Years 

2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

III.A5 Operations of the Combined OASI and DI Trust Funds, 

Calendar Year 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

III.A6 Comparison of Actual Calendar Year 2002 Trust Fund 

Operations With Estimates Made in Prior Reports . . . . . . . . . 28

III.A7 Distribution of Benefit Payments by Type of Beneficiary or 

Payment, Calendar Years 2001 and 2002 . . . . . . . . . . . . . . . . 29

III.A8 Administrative Expenses as a Percentage of Contribution 

Income and of Total Expenditures, Calendar Years 1998-2002 30

III.A9 Trust Fund Investment Transactions, Calendar Year 2002 . . . . 30

IV. ACTUARIAL ESTIMATES

IV.A1 Operations of the OASI Trust Fund, Calendar Years 1998-2012 35

IV.A2 Operations of the DI Trust Fund, Calendar Years 1998-2012 . . 39

IV.A3 Operations of the Combined OASI and DI Trust Funds,

Calendar Years 1998-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . 41

IV.A4 Reasons for Change in Trust Fund Ratios at the Beginning 

of the Tenth Year of Projection . . . . . . . . . . . . . . . . . . . . . . . 43

IV.B1 Estimated Annual Income Rates, Cost Rates, and Balances

Calendar Years 1990-2080 . . . . . . . . . . . . . . . . . . . . . . . . . . 47

IV.B2 Covered Workers and Beneficiaries, Calendar Years 1945-2080 51

IV.B3 Estimated Trust Fund Ratios, Calendar Years 2003-80 . . . . . . 56
List of Tables

210

IV.B4 Summarized Income Rates, Cost Rates, and Balances

for 25-Year Subperiods, Calendar Years 2003-77 . . . . . . . . . . 58

IV.B5 Summarized Income Rates, Cost Rates, and Actuarial 

Balances for Valuation Periods, Calendar Years 2003-77 . . . . 59

IV.B6 Components of 75-Year OASDI Actuarial Balance

Under Intermediate Assumptions (2003-77). . . . . . . . . . . . . . 61

IV.B7 Unfunded OASDI Obligations From Program Inception

Through the Infinite Horizon . . . . . . . . . . . . . . . . . . . . . . . . 62

IV.B8 Present Values of OASDI Cost Less Tax Revenue and 

Unfunded Obligations for Program Participants . . . . . . . . . . . 63

IV.B9 Comparison of Estimated Long-Range Actuarial Balances 

With the Minimum Allowable in the Test for Close Actuarial 

Balance, Based on Intermediate Assumptions . . . . . . . . . . . . 66

IV.B10 Components of Annual Income Rates, Calendar Years 

2003-80. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

IV.B11 Components of Summarized Income Rates and Cost Rates, 

Calendar Years 2003-77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

IV.B12 Reasons for Change in the 75-Year Actuarial Balance

Under Intermediate Assumptions . . . . . . . . . . . . . . . . . . . . . 71

V. ASSUMPTIONS AND METHODS UNDERLYING

ACTUARIAL ESTIMATES

V.A1 Principal Demographic Assumptions, Calendar Years 

1940-2080 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

V.A2 Social Security Area Population as of July 1 and Dependency 

Ratios, Calendar Years 1950-2080. . . . . . . . . . . . . . . . . . . . . 82

V.A3 Period Life Expectancies . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

V.A4 Cohort Life Expectancies . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

V.B1 Principal Economic Assumptions . . . . . . . . . . . . . . . . . . . . . 93

V.B2 Additional Economic Factors . . . . . . . . . . . . . . . . . . . . . . . . 99

V.C1 Cost-of-Living Benefit Increases, Average Wage Index, 

Contribution and Benefit Bases, and Retirement Earnings 

Test Exempt Amounts, 1975-2012 . . . . . . . . . . . . . . . . . . . . 103

V.C2 Selected Wage-Indexed Program Amounts, Calendar 

Years 1978-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

V.C3 Legislated Changes in Normal Retirement Age and Delayed 

Retirement Credits, for Persons Reaching Age 62 in Each 

Year 1986 and Later . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

V.C4 OASI Beneficiaries With Benefits in Current-Payment Status 

at the End of Calendar Years 1945-2080 . . . . . . . . . . . . . . . . 117
List of Tables

211

V.C5 Long-Range Ultimate Disabled Worker Age-Sex Adjusted 

Incidence Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

V.C6 DI Beneficiaries With Benefits in Current-Payment Status at 

the End of Calendar Years 1960-2080 . . . . . . . . . . . . . . . . . . 124

VI. APPENDICES

A. HISTORY OF OASI AND DI TRUST FUND OPERATIONS

VI.A1 Contribution and Benefit Base and Contribution Rates . . . . . . 130

VI.A2 Historical Operations of the OASI Trust Fund, Calendar 

Years 1937-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

VI.A3 Historical Operations of the DI Trust Fund, Calendar 

Years 1957-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

VI.A4 Historical Operations of the Combined OASI and DI Trust 

Funds, Calendar Years 1957-2002 . . . . . . . . . . . . . . . . . . . . . 138

B. HISTORY OF ACTUARIAL BALANCE ESTIMATES

VI.B1 Long-Range OASDI Actuarial Balances as Shown in the 

Trustees Reports for 1983-2003 . . . . . . . . . . . . . . . . . . . . . . 142

C. FISCAL YEAR HISTORICAL DATA AND PROJECTIONS 

THROUGH 2012

VI.C1 Operations of the OASI Trust Fund, Fiscal Year 2002. . . . . . . 144

VI.C2 Operations of the DI Trust Fund, Fiscal Year 2002 . . . . . . . . . 145

VI.C3 Operations of the Combined OASI and DI Trust Funds, 

Fiscal Year 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

VI.C4 Operations of the OASI Trust Fund in Fiscal Years 1998-2012 147

VI.C5 Operations of the DI Trust Fund in Fiscal Years 1998-2012. . . 148

VI.C6 Operations of the Combined OASI and DI Trust Funds in 

Fiscal Years 1998-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

D. LONG-RANGE SENSITIVITY ANALYSIS

VI.D1 Sensitivity to Varying Fertility Assumptions . . . . . . . . . . . . . 151

VI.D2 Sensitivity to Varying Death-Rate Assumptions . . . . . . . . . . . 152

VI.D3 Sensitivity to Varying Net-Immigration Assumptions . . . . . . . 153

VI.D4 Sensitivity to Varying Real-Wage Assumptions . . . . . . . . . . . 155

VI.D5 Sensitivity to Varying CPI-Increase Assumptions. . . . . . . . . . 156

VI.D6 Sensitivity to Varying Real-Interest Assumptions . . . . . . . . . . 157

VI.D7 Sensitivity to Varying Disability Incidence Assumptions. . . . . 158

VI.D8 Sensitivity to Varying Disability Termination Assumptions. . . 159
List of Tables

212

E. STOCHASTIC PROJECTIONS

VI.E1 Long-Range Estimates Relating to the Actuarial Status of 

the Combined OASDI Program Reflecting the Assumptions 

of the 2002 Trustees Report . . . . . . . . . . . . . . . . . . . . . . . . . 165

F. ESTIMATES FOR OASDI AND HI, SEPARATE AND COMBINED

VI.F1 Contribution Rates for the OASDI and HI Programs. . . . . . . . 167

VI.F2 Estimated OASDI and HI Annual Income Rates, Cost Rates, 

and Balances, Calendar Years 2003-80 . . . . . . . . . . . . . . . . . 168

VI.F3 Summarized OASDI and HI Income Rates, Cost Rates, 

and Balances for 25-Year Subperiods, Calendar Years 2003-77 170

VI.F4 Summarized OASDI and HI Income Rates and Cost Rates for 

Valuation Periods, Calendar Years 2003-77 . . . . . . . . . . . . . . 171

VI.F5 OASDI and HI Annual and Summarized Income, Cost, and 

Balance as a Percentage of GDP, Calendar Years 2003-80. . . . 174

VI.F6 Ratio of OASDI Taxable Payroll to GDP, Calendar Years 

2003-80. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

VI.F7 Selected Economic Variables, Calendar Years 2002-80 . . . . . . 179

VI.F8 Operations of the Combined OASI and DI Trust Funds, 

in Constant 2003 Dollars, Calendar Years 2003-80 . . . . . . . . . 181

VI.F9 Operations of the Combined OASI and DI Trust Funds, 

in Current Dollars, Calendar Years 2003-80 . . . . . . . . . . . . . . 184

VI.F10 OASDI and HI Annual Income Excluding Interest, Cost, and

Balance in Current Dollars, Calendar Years 2003-80 . . . . . . . 186

VI.F11 Estimated Annual Scheduled Benefit Amounts for Retired 

Workers With Various Pre-Retirement Earnings Patterns Based 

on Intermediate Assumptions, Calendar Years 2003-80 . . . . . 189

G. ANALYSIS OF BENEFIT DISBURSEMENTS FROM THE OASI 

TRUST FUND WITH RESPECT TO DISABLED BENEFICIARIES

VI.G1 Benefit Disbursements From the OASI Trust Fund With 

Respect to Disabled Beneficiaries . . . . . . . . . . . . . . . . . . . . . 192

VI.G2 Benefit Disbursements Under the OASDI Program With 

Respect to Disabled Beneficiaries . . . . . . . . . . . . . . . . . . . . . 193
List of Figures

213

II. OVERVIEW

II.D1 Short-Range OASDI Trust Fund Ratios . . . . . . . . . . . . . . . . . 7

II.D2 OASDI Income and Cost Rates Under Intermediate 

Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

II.D3 Number of Covered Workers Per OASDI Beneficiary. . . . . . . 9

II.D4 Cumulative OASDI Income Less Cost, Based on Present Law 

Tax Rates and Scheduled Benefits. . . . . . . . . . . . . . . . . . . . . 11

II.D5 OASDI Cost as a Percentage of GDP . . . . . . . . . . . . . . . . . . 12

II.D6 OASDI Annual Income Less Cost as Percent of Taxable 

Payroll 2002 and 2003 Trustees Reports . . . . . . . . . . . . . . . . 14

II.D7 Long-Range OASDI Trust Fund Ratios Under Alternative 

Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

IV. ACTUARIAL ESTIMATES

IV.A1 Short-Range OASI and DI Trust Fund Ratios. . . . . . . . . . . . . 34

IV.B1 Long-Range OASI and DI Annual Income Rates and 

Cost Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

IV.B2 Number of OASDI Beneficiaries Per 100 Covered Workers . . 53

IV.B3 Long-Range OASI and DI Trust Fund Ratios. . . . . . . . . . . . . 57

IV.B4 Long-Range Test of Close Actuarial Balance . . . . . . . . . . . . . 67

IV.B5 OASDI Annual Balances: 2002 and 2003 Reports . . . . . . . . . 73

V. ASSUMPTIONS AND METHODS UNDERLYING

ACTUARIAL ESTIMATES

V.C1 Primary-Insurance-Amount Formula for the 2003 Cohort . . . . 105

V.C2 Maximum-Family-Benefit Formula for the 2003 Cohort . . . . . 105

V.C3 DI Disabled Worker Incidence Rates, 1970-2012 . . . . . . . . . . 120

VI. APPENDICES

VI.E1 Annual Trust Fund Ratios. . . . . . . . . . . . . . . . . . . . . . . . . . . 163

VI.E2 Annual Cost Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

VI.F1 Estimated OASDI Income and Cost in Constant Dollars,

Based on Intermediate Assumptions . . . . . . . . . . . . . . . . . . . 183
Index

214

A

Actuarial balance 7, 10, 17, 44, 109, 140, 150, 171

Actuarial balance, long-range test 66

Actuarial deficit 1, 2, 10, 16, 59, 171

Actuarial estimates, LR 44

Actuarial estimates, SR 32

Adjusted program amounts 101

Administrative expenses 4, 30, 45, 126, 133, 144, 172, 180

Advance tax transfers 37, 54, 135

Amendments 31

Annual balance 1, 13, 44, 71

Assets 2, 4, 7, 21, 32, 45, 134, 144, 157, 166, 178

Assumptions 1, 2, 6, 7, 32, 44, 74, 87, 101, 140, 150, 167, 172, 177, 191

Automatic cost-of-living benefit increase 4, 36, 88, 101

Average benefits 125

Average earnings assumptions 89

Average indexed monthly earnings (AIME) 104

Average wage index 101, 177

Award 37, 112

B

Baby-boom generation 2, 8, 16, 37, 46, 95, 120, 173

Bend points 104

Beneficiaries, DI 118

Beneficiary 9, 36, 50, 74, 102, 143, 151, 172, 181, 191

Beneficiary, OASI 112

Benefit payments 4, 8, 33, 36, 45, 126, 133, 144, 156, 172, 180, 192

Benefit termination 6, 40

Best estimate 1, 6, 16, 32, 74

Board of Trustees 1, 32, 87, 129

Book value 22

C

Close actuarial balance 44, 63

Constant dollars 182

Consumer Price Index 88, 155, 177, 195

Contribution and benefit base 34, 89, 102, 130, 177, 195

Contributions 4, 45, 129, 144, 166, 172, 180, 194

Cost rate 2, 8, 45, 109, 166

Cost-of-living adjustment 101

Covered earnings 4, 101, 176

Covered employment 6, 34, 89, 108, 129, 154

Covered worker 50, 108, 153

Current dollars 177

Current-payment status 37, 122, 195
215

Index

D

Deemed wage credit 45, 109, 129

Delayed retirement credit 108

Demographic assumptions 1, 6, 13, 32, 44, 75, 95, 101, 140, 178, 194

DI beneficiaries 118

Disability 37, 129, 153, 191

Disability incidence rate 37, 55, 74, 119, 153, 157, 194

Disability Insurance Trust Fund 1, 196

Disability termination rate 158

Disabled-worker benefit 119, 198

E

Earnings 2, 4, 33, 45, 89, 102, 129, 141, 166, 176, 177, 178, 194

Earnings test 89, 102, 195

Economic assumptions 1, 6, 13, 32, 43, 44, 87, 95, 101, 140, 178, 194

Excess wages 45, 109, 178

F

Federal Insurance Contributions Act 166, 196

Fertility assumptions 75

Financial interchange 4, 126, 133

Fiscal year 78, 135, 144

G

General Fund of the Treasury 4, 35, 36, 127, 131, 172, 180, 194, 197

Gross domestic product 2, 50, 74, 87, 172

Gross domestic product projections 96

H

High cost assumptions 1, 6, 14, 33, 46, 74, 87, 122, 150, 167, 172, 177, 194

Hospital Insurance program 130, 166, 201

Hospital Insurance Trust Fund 172

I

Immigration assumptions 78

Income rate 2, 8, 45, 166

Inflation 6, 74, 88, 177, 194

Inflation assumptions 88

Insured population 6, 110

Insured status 38, 106

Interest 8, 33, 97, 132, 140, 144, 167, 172, 178, 194

Interest rate 34, 74, 132, 140, 156, 178, 194

Interest rate projections 97

Interfund borrowing 135, 197
Index

216

L

Labor force projections 95

Life expectancy 84

Life expectancy estimates 83

Long range 7, 44, 75, 87, 112, 140, 166, 172, 177

Low cost assumptions 1, 6, 14, 37, 46, 74, 122, 150, 167, 170, 177, 194

Lump-sum death payment 126

M

Maximum family benefit 105

Medicare 76, 201

Military service 35, 45, 89, 109, 127, 129, 199

N

National average wage index 101, 177

Normal retirement age 36, 102, 187, 198

O

OASI beneficiaries 112

Old-Age and Survivors Insurance Trust Fund 1, 129, 196

Old-law base 106

P

Par value 133, 196

Pay-as-you-go financing 140

Payment cycling 33

Payroll taxes 2, 16, 45, 60, 68, 101, 109, 143, 150, 166, 180

Population estimates 81

Population in the Social Security area 34, 53, 81, 95, 109, 153

Present value 140

Primary insurance amount (PIA) 104

Productivity assumptions 87

Q

Quarters of coverage 45, 197

R

Railroad Retirement 45, 106, 126, 133, 144, 166, 172, 180, 197

Real-wage differential 91, 154

Recession 32, 87

Retired-worker benefit 112, 153, 191

Retirement age 8, 40, 46, 102, 173, 187, 198

Retirement earnings test 89, 102
217

Index

S

Self-employment 45, 88, 109, 129, 167, 196

Self-Employment Contributions Act 196

Sensitivity analysis 150

Short range 7, 32, 54, 87, 112, 121

Social Security Act 37, 101, 132, 177, 191, 196

Social Security amendments 31

Special public-debt obligation 36, 100, 132, 157, 178

Stochastic projections 1, 87, 160

Substantial gainful activity 118, 198

Summarized balance 173

Summarized income and cost rates 58, 140, 150, 169, 194

Supplemental Security Income 38, 144

Supplementary Medical Insurance program 166, 201

Survivor benefit 2, 5, 116, 195

T

Taxable earnings 33, 53, 102, 130, 141, 176, 195

Taxable payroll 2, 7, 16, 45, 88, 109, 140, 151, 166, 172, 178, 197

Taxable self-employment income 129, 206

Taxable wages 110, 131, 206

Taxation of benefits 4, 45, 127, 172, 180, 200

Taxes 4, 37, 101, 129, 167, 197

Termination 40, 74

Termination rate 6, 40, 112, 158, 194

Test of short-range financial adequacy 33, 204

Total fertility rate 75, 150

Trust fund financial operations 4, 18, 33, 129

Trust fund financial operations, FY 144

Trust fund ratio 7, 32, 44, 53, 135, 147, 208

Trust fund ratios, DI, CY, SR, all alts. 39

U

Unemployment projections 95

Uninsured persons 127

Unnegotiated check 135, 144

V

Valuation period 1, 10, 12, 44, 140, 150, 169, 194

Vocational rehabilitation 45, 133, 145, 172, 181, 193, 197

Y

Year of exhaustion 8, 10, 16, 44, 56
218

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 based upon sound principles of actuarial practice and are generally accepted within the actuarial profession; and (2) the assumptions used and the resulting actuarial estimates

are, individually and in the aggregate, reasonable for the purpose of evaluating the financial and actuarial status of the trust funds, taking into consideration the past experience and future expectations for the population, the

economy, and the program.

This report presents estimates for several additional measures of the

unfunded obligation of the Social Security program that were not included in

last year’s report. These estimates are based on extensions of the assumptions and methods used for other projections shown in this report, and are

consistent with them.

In addition, this report presents, for the first time, results of a new stochastic

model for projecting probability distributions of financial measures for the

Social Security program. Results presented from this model reflect the intermediate assumptions and methods of last year’s report. It should be noted

that the model is in its first stage of development and will continue to be

improved and refined. As indicated in appendix E of this report, future model

revisions are expected to reflect a fuller range of uncertainty about the future.

Stephen C. Goss,

Associate of the Society of Actuaries,

Member of the American Academy of Actuaries,

Chief Actuary, Social Security Administration