110th Congress, 1st Session – – – – – – – – – – – – – – House Document 110-30

THE 2007 ANNUAL REPORT OF THE BOARD OF 

TRUSTEES OF THE FEDERAL OLD-AGE AND SURVIVORS 

INSURANCE AND FEDERAL DISABILITY INSURANCE 

TRUST FUNDS

COMMUNICATION

FROM

THE BOARD OF TRUSTEES, FEDERAL OLD-AGE AND 

SURVIVORS INSURANCE AND FEDERAL DISABILITY 

INSURANCE TRUST FUNDS

TRANSMITTING

THE 2007 ANNUAL REPORT OF THE BOARD OF TRUSTEES OF THE

FEDERAL OLD-AGE AND SURVIVORS INSURANCE AND FEDERAL

DISABILITY INSURANCE TRUST FUNDS

May 1, 2007.—Referred to the Committee on Ways and Means

 and ordered to be printed

U.S. GOVERNMENT PRINTING OFFICE

34-256 WASHINGTON: 2007
.

.
CONTENTS

(V)

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

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

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

B. TRUST FUND FINANCIAL OPERATIONS IN 2006 . . . . . . . 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 2006 . . . . . . . . . . . . 18

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

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

3. OASI and DI Trust Funds, Combined . . . . . . . . . . . . . . . . . . 25

B. SOCIAL SECURITY AMENDMENTS SINCE THE 

2006 REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

IV. ACTUARIAL ESTIMATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

A. SHORT-RANGE ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . 30

1. Operations of the OASI Trust Fund. . . . . . . . . . . . . . . . . . . . 31

2. Operations of the DI Trust Fund . . . . . . . . . . . . . . . . . . . . . . 34

3. Operations of the Combined OASI and DI Trust Funds . . . . . 38

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

Estimates From the 2006 Report . . . . . . . . . . . . . . . . . . . . . . 39

B. LONG-RANGE ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . . 41

1. Annual Income Rates, Cost Rates, and Balances . . . . . . . . . . 42

2. Comparison of Workers to Beneficiaries . . . . . . . . . . . . . . . . 47

3. Trust Fund Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

4. Summarized Income Rates, Cost Rates, and Balances . . . . . . 54

5. Additional Measures of OASDI Unfunded Obligations . . . . . 58

6. Test of Long-Range Close Actuarial Balance . . . . . . . . . . . . 61

7. Reasons for Change in Actuarial Balance From Last Report . . 65
(VI)

V. ASSUMPTIONS AND METHODS UNDERLYING

ACTUARIAL ESTIMATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

A. DEMOGRAPHIC ASSUMPTIONS AND METHODS . . . . . . . 71

1. Fertility Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

2. Mortality Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

3. Immigration Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . 74

4. Total Population Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . 77

5. Life Expectancy Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . 79

B. ECONOMIC ASSUMPTIONS AND METHODS . . . . . . . . . . . 83

1. Productivity Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . 83

2. Price Inflation Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . 84

3. Average Earnings Assumptions . . . . . . . . . . . . . . . . . . . . . . 85

4. Assumed Real-Wage Differentials . . . . . . . . . . . . . . . . . . . . 87

5. Labor Force and Unemployment Projections . . . . . . . . . . . . . 89

6. Gross Domestic Product Projections . . . . . . . . . . . . . . . . . . . 91

7. Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS . . . 96

1. Automatically Adjusted Program Amounts . . . . . . . . . . . . . . 96

2. Covered Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

3. Taxable Payroll and Payroll Tax Revenue . . . . . . . . . . . . . . . 104

4. Insured Population. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

5. Old-Age and Survivors Insurance Beneficiaries. . . . . . . . . . . 107

6. Disability Insurance Beneficiaries. . . . . . . . . . . . . . . . . . . . . 113

7. Average Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

8. Benefit Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

9. Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

10. Railroad Retirement Financial Interchange . . . . . . . . . . . . . . 121

11. Benefits to Uninsured Persons . . . . . . . . . . . . . . . . . . . . . . . 122

12. Military-Service Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . 122

13. Income From Taxation of Benefits . . . . . . . . . . . . . . . . . . . . 122
(VII)

VI. APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

A. HISTORY OF OASI AND DI TRUST FUND OPERATIONS. . 124

B. HISTORY OF ACTUARIAL BALANCE ESTIMATES . . . . . . 137

C. FISCAL YEAR HISTORICAL DATA AND

PROJECTIONS THROUGH 2016 . . . . . . . . . . . . . . . . . . . . . . 142

D. LONG-RANGE SENSITIVITY ANALYSIS . . . . . . . . . . . . . . 148

1. Total Fertility Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

2. Death Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

3. Net Immigration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

4. Real-Wage Differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

5. Consumer Price Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

6. Real Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

7. Disability Incidence Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 156

8. Disability Termination Rates . . . . . . . . . . . . . . . . . . . . . . . . 157

E. STOCHASTIC PROJECTIONS. . . . . . . . . . . . . . . . . . . . . . . . 159

1. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

2. Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

3. Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

F. ESTIMATES FOR OASDI AND HI, SEPARATE AND 

COMBINED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

1. Estimates as a Percentage of Taxable Payroll. . . . . . . . . . . . . 165

2. Estimates as a Percentage of Gross Domestic Product . . . . . . 170

3. Estimates in Dollars. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

G. ANALYSIS OF BENEFIT DISBURSEMENTS FROM THE 

OASI TRUST FUND WITH RESPECT TO DISABLED 

BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

H. GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

LIST OF FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

STATEMENT OF ACTUARIAL OPINION. . . . . . . . . . . . . . . 218
.
THE 2007 ANNUAL REPORT OF THE BOARD OF

TRUSTEES OF THE FEDERAL OLD-AGE AND

SURVIVORS INSURANCE AND FEDERAL DISABILITY

INSURANCE TRUST FUNDS

I. INTRODUCTION

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

United States makes available a basic level of monthly income upon the

attainment of retirement eligibility age, death, or disability by insured workers. The OASDI program consists of two separate parts which pay benefits to

workers and their families—Old-Age and Survivors Insurance (OASI) and

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

workers and their families and to survivors of deceased workers. Under DI,

monthly benefits are paid to disabled workers and their families.

The Board of Trustees was established under the Social Security Act to oversee the financial operations of the OASI and DI Trust Funds. The Board is

composed of six members. Four members serve 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,

John L. Palmer and Thomas R. Saving, are public representatives initially

appointed by President William J. Clinton on October 28, 2000, and reappointed by President George W. Bush on April 18, 2006. The Deputy Commissioner of the Social Security Administration (SSA) is designated as

Secretary of the Board.

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

annually to the Congress on the financial and actuarial status of the OASI

and DI Trust Funds. This annual report, for 2007, is the 67th such report.
Overview

2

II. OVERVIEW

A. HIGHLIGHTS

The report’s major findings are summarized below.

In 2006

At the end of 2006, 49 million people were receiving benefits: 34 million

retired workers and their dependents, 7 million survivors of deceased workers, and 9 million disabled workers and their dependents. During the year an

estimated 162 million people had earnings covered by Social Security and

paid payroll taxes. Total benefits paid in 2006 were $546 billion. Income was

$745 billion, and assets held in special issue U.S. Treasury securities grew to

$2.0 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 $2,048 billion at the beginning of 2007, or 345 percent of annual

expenditures, to $4,210 billion at the beginning of 2016, or 407 percent of

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

year’s report to rise to 344 percent of annual expenditures at the beginning of

2007, and 407 percent at the beginning of 2016. 

Long-Range Results

Under the intermediate assumptions, OASDI cost will increase more rapidly

than tax income between about 2010 and 2030, due to the retirement of the

large baby-boom generation. After 2030, increases in life expectancy and relatively low fertility rates will continue to increase Social Security system

costs relative to tax income, but more slowly. Annual cost will exceed tax

income starting in 2017 at which time the annual gap will be covered with

cash from redemptions of special obligations of the Treasury that make up

the trust fund assets, until these assets are exhausted in 2041. Separately, the

DI fund is projected to be exhausted in 2026 and the OASI fund in 2042. For

the 75-year projection period, the actuarial deficit is 1.95 percent of taxable

payroll, 0.06 percentage point smaller than in last year’s report. The open

group unfunded obligation for OASDI over the 75-year period is $4.7 trillion

in present value, and is $0.1 trillion above the measured level of a year ago.

In the absence of any changes in assumptions, methods, and starting values,
3

Highlights

the unfunded obligation would have risen to $4.8 trillion due to the change in

the valuation date.

The OASDI annual cost rate is projected to increase from 11.21 percent of

taxable payroll in 2007, to 16.59 percent in 2030, and to 18.55 percent in

2081, or to a level that is 5.20 percent of taxable payroll more than the projected income rate for 2081. In last year’s report the OASDI cost for 2080

was estimated at 18.74 percent, or 5.38 percent of payroll more than the

annual income rate for that year. Expressed in relation to the projected gross

domestic product (GDP), OASDI cost is estimated to rise from the current

level of 4.3 percent of GDP, to 6.2 percent in 2030, and to 6.3 percent in

2081.

Conclusion

Annual cost will begin to exceed tax income in 2017 for the combined

OASDI Trust Funds, which are projected to become exhausted and thus

unable to pay scheduled benefits in full on a timely basis in 2041 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 during the period in a manner equivalent to an immediate and

permanent increase of 1.95 percentage points, benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 13.0 percent, general revenue transfers equivalent to $4.7 trillion in

present value could be made during the period, or some combination of

approaches could be adopted. Significantly larger changes would be required

to maintain solvency beyond 75 years.

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. Making adjustments sooner will allow them to be

spread over more generations. Social Security plays a critical role in the lives

of this year’s (2007) 50 million beneficiaries and 163 million covered workers and their families. With informed discussion, creative thinking, and

timely legislative action, we will work with Congress and others to ensure

that Social Security continues to protect future generations.
Overview

4

B. TRUST FUND FINANCIAL OPERATIONS IN 2006

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

the DI and the combined OASDI Trust Funds in calendar year 2006.

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

In 2006, net contributions accounted for 84 percent of total trust fund

income. Net contributions consist of 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 $94,200 in 2006 and is increased each year automatically (to $97,500 in

2007) as the average wage increases. The tax rates scheduled under current

law for 2006 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 specified levels to Federal personal income taxation, and 14 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 2006

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

Table II.B1.—Summary of 2006 Trust Fund Financial Operations

Amounts (in billions)

OASI DI OASDI

Assets at the end of 2005 . . . . . . . . . . . . . . . . . . . . . . $1,663.0 $195.6 $1,858.7

Total income in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 642.2 102.6 744.9

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . 534.8 90.8 625.6

Taxation of benefits . . . . . . . . . . . . . . . . . . . . . . . . 15.6 1.2 16.9

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.8 10.6 102.4

Total expenditures in 2006. . . . . . . . . . . . . . . . . . . . . 461.0 94.5 555.4

Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . 454.5 91.7 546.2

Railroad Retirement financial interchange . . . . . . 3.5 .4 3.8

Administrative expenses . . . . . . . . . . . . . . . . . . . . 3.0 2.3 5.3

Net increase in assets in 2006 . . . . . . . . . . . . . . . . . . 181.3 8.2 189.5

Assets at the end of 2006 . . . . . . . . . . . . . . . . . . . . . . 1,844.3 203.8 2,048.1

Table II.B2.—Tax Rates for 2006 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 2006 Operations

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

OASDI Trust Funds in 2006 went to pay retirement, survivor, and disability

benefits totaling $546.2 billion. The financial interchange with the Railroad

Retirement program resulted in a payment of $3.8 billion from the combined

OASDI Trust Funds, or about 0.7 percent of total expenditures. The administrative expenses of the Social Security program were $5.3 billion, less than

1.0 percent of total expenditures.

Assets of the trust funds provide a reserve to pay benefits whenever total program cost exceeds income. Trust fund assets increased by $189.5 billion in

2006 because income to each fund exceeded expenditures. At the end of

2006, the combined assets of the OASI and the DI Trust Funds were

345 percent of estimated expenditures for 2007, up from an actual level of

335 percent at the end of 2005.
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

workforce, 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,

employment rates, productivity gains, wage increases, inflation, and many

other demographic, economic, and program-specific factors.

The intermediate demographic and economic assumptions shown in table

II.C1, designated as alternative II, reflect 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 (low cost) and

III (high cost) 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.—Ultimate1 Values of Key Demographic and Economic Assumptions

for the Long-Range (75-year) Projection Period

1 Ultimate values are assumed to be reached within 2 to 25 years. See chapter V for details, including historical values and projected values prior to reaching the ultimate.

Ultimate assumptions Intermediate Low Cost High Cost

Total fertility rate (children per woman) . . . . . . . . . . . 2.0 2.3 1.7

Average annual percentage reduction in total age-sexadjusted death rates from 2031 to 2081. . . . . . . . . . .70 .33 1.21

Annual net immigration (in thousands) . . . . . . . . . . . . 900 1,300 673

Annual percentage change in:

Productivity (total U.S. economy) . . . . . . . . . . . . . . 1.7 2.0 1.4

Average wage in covered employment. . . . . . . . . . . 3.9 3.4 4.4

Consumer Price Index (CPI). . . . . . . . . . . . . . . . . . . 2.8 1.8 3.8

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

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

Annual trust fund real interest rate (percent) . . . . . . . . 2.9 3.6 2.1
7

Future Financial Status

D. PROJECTIONS OF FUTURE FINANCIAL STATUS

Short-Range Actuarial Estimates

For the short range (2007-2016), the Trustees measure financial adequacy by

comparing assets at the beginning of each year to projected program cost 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 cost for 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 of financial adequacy. Figure II.D1 below shows that the

trust fund ratios for the combined OASI and DI Trust Funds reach a peak

level in 2014 and begin declining thereafter.

Long-Range Actuarial Estimates

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

terms of annual cost 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%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Calendar year

Historical Estimated

"Minimum" level for short-term financial adequacy
Overview

8

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

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

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

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

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

cost rate is projected to decline slightly in 2008 and then increase up to the

2007 level within the next 2 years. It then begins to increase rapidly and first

exceeds the income rate in 2017, producing cash-flow deficits thereafter.

Cash-flow deficits are less than trust fund interest earnings until 2027.

Redemption of trust fund assets will allow continuation of full benefit payments on a timely basis until 2041, when the trust funds will become

exhausted. This redemption process will require a flow of cash from the

General Fund of the Treasury. Pressures on the Federal Budget will thus

emerge well before 2041. 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 75 percent of scheduled benefits after trust fund exhaustion in 2041 and 70 percent of scheduled benefits in 2081.

Social Security’s cost rate generally will continue rising rapidly through

about 2030 as the baby-boom generation reaches retirement eligibility age.

Thereafter, the cost rate is estimated to rise at a slower rate for about 5 years

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

[As a percentage of taxable payroll]

0%

5%

10%

15%

20%

25%

2005 2015 2025 2035 2045 2055 2065 2075 2085

Calendar year

Cost: Scheduled and 

payable benefits

Income

Payable benefits as percent

of scheduled benefits:

2007-40: 100%

2041: 75%

2081: 70%

Cost: Scheduled but not 

fully payable benefits

Expenditures: Income = payable 

benefits starting in the year the 

trust funds are exhausted (2041)
9

Future Financial Status

and then stabilize for the next 15 years as the baby-boom ages and decreases

in size. Continued reductions in death rates and maintaining birth rates at

levels well below those from the baby-boom era and before will cause a significant upward shift in the average age of the population and will push the

cost rate from 17.3 percent of taxable payroll in 2050 to 18.5 percent by

2081 under the intermediate assumptions. In a pay-as-you-go system (with

no trust fund assets or borrowing authority), this 18.5-percent cost rate

means the combination of the payroll tax (scheduled to total 12.4 percent)

and proceeds from income taxes on benefits (expected to be 0.9 percent of

taxable payroll in 2081) would have to equal 18.5 percent of taxable payroll

to pay all currently scheduled benefits. After 2081, 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 1965 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 2006, 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

largely due to projected reductions in mortality.
Overview

10

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

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 could be added to

the current law income rate for each of the next 75 years, or subtracted from

the cost rate for each year, to bring the funds into actuarial balance. Because

the timing of any future changes is unlikely to follow this pattern, this measure should be viewed only as providing a rough indication of the average

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

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

Trust Fund Exhaustion Dates Under the Intermediate Assumptions

OASI DI OASDI

Maximum trust fund ratio (percent). . . . . . . . . . . . . . 463 200 409

Year attained. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 2007 2014

Year of trust fund exhaustion. . . . . . . . . . . . . . . . . . . 2042 2026 2041

0

1

2

3

4

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Historical Estimated
11

Future Financial Status

change that is needed over the 75-year period as a whole. In this report, the

actuarial balance under the intermediate assumptions is a deficit of

1.95 percent of taxable payroll for the combined OASI and DI Trust Funds.

The actuarial deficit was 2.02 percent in the 2006 report and has been in the

range of 1.86 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 $2.6 trillion

in 2017 (in present value) and then turns downward. This cumulative amount

continues to be positive, indicating trust fund assets, or reserves, through

2040. However, after 2040 this cumulative amount becomes negative, indicating a net unfunded obligation. Through the end of 2081, the combined

funds have a present-value unfunded obligation of $4.7 trillion. This

unfunded obligation represents 1.8 percent of future taxable payroll and

0.7 percent of future GDP, through the end of the 75-year projection period.

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

cost as a share of U.S. economic output. Figure II.D5 shows that Social

Security’s cost as a percentage of GDP will grow from 4.3 percent in 2007 to

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

and Scheduled Benefits

[Present value as of January 1, 2007, in trillions]

-$5

-$4

-$3

-$2

-$1

$0

$1

$2

$3

2006 2021 2036 2051 2066 2081

Ending year of valuation period

Unfunded obligation

(negative)

Trust fund assets

(positive)

2041
Overview

12

6.2 percent in 2030, and then slightly increase to 6.3 percent in 2081. However, Social Security’s scheduled tax income is projected to be about

4.9 percent of GDP in both 2007 and 2030, and then to decrease to

4.5 percent in 2081. Income from payroll taxes declines generally in relation

to GDP in the future because an increasing share of employee compensation

is assumed to be provided in fringe benefits, making wages a shrinking share

of GDP. Between 2010 and 2030, however, the total non-interest income

does not decline as a percent of GDP because benefits, and thus income to

the trust funds from taxation of these benefits, are rising rapidly as a percent

of GDP during the period.

Consideration of a 75-year period is not enough to provide a complete picture of Social Security’s financial condition. Figures II.D2, II.D4, and II.D5

show that the program’s financial condition is worsening at the end of the

period. Overemphasis on summary measures for a 75-year period can lead to

incorrect perceptions and to policy prescriptions that do not achieve sustainable solvency. Thus, careful consideration of the trends in annual deficits and

unfunded obligations toward the end of the 75-year period is important. In

addition, summary measures for a time period that extends to the infinite

horizon are included in this report. These measures provide an additional

indication of Social Security’s very long-run financial condition, but are subject to much greater uncertainty. These calculations show that extending the

 Figure II.D5.—OASDI Cost and Scheduled Tax Revenue as a Percentage of GDP

0%

2%

4%

6%

8%

10%

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

Historical Estimated

Cost

Scheduled Tax Revenue
13

Future Financial Status

horizon beyond 75 years increases the unfunded obligation. Over the infinite

horizon, the shortfall (unfunded obligation) is $13.6 trillion in present value,

or 3.5 percent of future taxable payroll and 1.2 percent of future GDP. These

calculations of the shortfall indicate that much larger changes may be

required to achieve solvency beyond the 75-year period as compared to

changes needed to balance 75-year period summary measures. The measured

unfunded obligation over the infinite horizon increases from $13.4 trillion in

last year’s report to $13.6 trillion in this report. In the absence of any

changes in assumptions, methods, and starting values, the unfunded obligation over the infinite horizon would have risen to $14.1 trillion due to the

change in the valuation date.

Changes From Last Year’s Report

The long-range OASDI actuarial deficit of 1.95 percent of taxable payroll for

this year’s report is smaller than the deficit of 2.02 percent of taxable payroll

shown in last year’s report under intermediate assumptions. Changes in

methodology and assumed rates of disability incidence are the main reasons

for the decrease in the deficit. For a detailed description of the specific

changes identified in table II.D2 below, see section IV.B.7 on page 65.

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

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

Under Intermediate Assumptions

[As a percentage of taxable payroll]

Item OASI DI OASDI

Shown in last year's report:

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.95 1.93 13.88

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.63 2.27 15.90

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.68 -.33 -2.02

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 2006-80, to the valuation period of

this report, 2007-81, the relatively large negative annual balance for 2081 is included. This results in a larger

long-range actuarial deficit. The fund balance at the end of 2006, i.e., at the beginning of the projection

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

-.05 -.01 -.06

Demographic data and assumptions. . . . . . . . . . . . . . -.03 .00 -.03

Economic data and assumptions. . . . . . . . . . . . . . . . . +.01 +.01 +.02

Disability data and assumptions. . . . . . . . . . . . . . . . . -.02 +.08 +.06

Programmatic data and methods . . . . . . . . . . . . . . . . +.09 -.01 +.08

Total change in actuarial balance . . . . . . . . . . . . . . . . . . -.01 +.07 +.06

Shown in this report:

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.69 -.27 -1.95

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.99 1.93 13.92

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.68 2.19 15.87
Overview

14

The open group unfunded obligation over the 75-year projection period has

increased from $4.6 trillion (present discounted value as of January 1, 2006)

to $4.7 trillion (present discounted value as of January 1, 2007). The measured increase in the unfunded obligation would be expected to be about

$0.3 trillion due to advancing the valuation date by 1 year and including the

additional year 2081. Changes in methods and assumptions offset most of

this expected increase.

Figure II.D6 shows that this year’s projections of annual balances are generally higher than those in last year’s report principally because of the changes

in methods and assumptions. Annual balances are similar between the two

reports through about 2030. Thereafter, annual balances are somewhat higher

for the rest of the long-range projection period. Section IV.B.7 on page 65

provides a detailed presentation of these changes.

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 as an indication of 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

 Figure II.D6.—OASDI Annual Balances: 2006 and 2007 Trustees Reports

[As a percentage of taxable payroll under the intermediate assumptions]

-8%

-6%

-4%

-2%

0%

2%

4%

2005 2015 2025 2035 2045 2055 2065 2075 2085

Calendar year

2006 Report

2007 Report
15

Future Financial Status

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. While it is

extremely unlikely that all of these parameters would move in the same

direction over the 75-year period relative to the intermediate projections,

there is a not-insignificant—though quite low—probability that the actual

outcome for future costs could be as extreme as either of the outcomes portrayed by the low and high cost projections. The method for constructing

these high and low cost projections does not allow for the assignment of a

specific probability to the likelihood that actual experience will lie within or

outside the range they entail. However, an alternative approach to illustrating

the uncertainty inherent in such long-term projections discussed in Appendix

E suggests that the low and high cost projections bound a range that encompasses something on the order of 95 percent of possible future financial outcomes. Given there is an equal probability that the actual outcome will be

either more or less favorable than that portrayed by the intermediate cost projection, this implies that there is something on the order of only a 2.5 percent

probability that it will be as favorable as that portrayed by the low cost projection or as unfavorable as that portrayed by the high cost projection.

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

[Assets as a percentage of annual cost]

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 soon begin to 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 estimate, program cost will exceed tax revenues

starting in 2017 and throughout the remainder of the 75-year projection

period. Social Security’s combined trust funds are projected to allow full

payment of scheduled benefits until they become exhausted in 2041. At that

time annual tax income to the trust funds is projected to equal about

75 percent of program costs. Separately, the OASI and DI funds are projected to have sufficient funds to pay full benefits on time until 2042 and

2026, respectively. By 2081, annual tax income is projected to be about

70 percent 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 1.95 percent of taxable payroll—somewhat smaller

than the 2.02 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 increases were made equivalent to increasing the Social Security

payroll tax immediately and permanently from its current level of

12.4 percent (for employees and employers combined) to 14.35 percent.

Alternatively, changes could be made equivalent to reducing all current and

future benefits 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 become exhausted in

2041, then the effects of changes would be more concentrated on fewer

years: 

 • For example, payroll taxes could be raised to finance scheduled benefits

fully in every year starting in 2041. In this case, the payroll tax would

be increased to 16.41 percent at the point of trust fund exhaustion in

2041 and continue rising to 17.60 percent in 2081.

 • Similarly, benefits could be reduced to the level that is payable with

scheduled tax rates in each year beginning in 2041. Under this scenario,

benefits would be reduced 25 percent at the point of trust fund exhaustion in 2041, with reductions reaching 30 percent in 2081.

Either of these examples would eliminate the shortfall for the 75-year period

as a whole by specifically eliminating annual deficits after trust fund exhaustion. Because of the increasing average age of the population (due to
17

Conclusion

expected improvement in life expectancy and continued low birth rates),

Social Security’s annual cost will very likely continue to grow faster than

scheduled tax revenues after 2081. As a result, ensuring solvency of the system beyond 2081 would likely require further changes beyond those

expected to be needed for 2081.

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. Making adjustments sooner will allow them to be

spread over more generations. Social Security plays a critical role in the lives

of this year’s 50 million beneficiaries, and 163 million covered workers and

their families. With informed discussion, creative thinking, and timely legislative action, we will work with Congress and others to ensure that Social

Security continues to protect future generations.

For further information related to the contents of this report, see the following websites. 

 • www.socialsecurity.gov/OACT/TR/TR07/index.html

 • www.cms.hhs.gov/ReportsTrustFunds/

 • www.treas.gov/offices/economic-policy/social_security.html
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 2006

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

during calendar year 2006 is presented in this section. Chapter IV provides

projections for calendar years 2007 through 2085.

1. OASI Trust Fund

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

Survivors Insurance Trust Fund in calendar year 2006, and of the assets of

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

III.A1. As shown in the table, total trust fund receipts in 2006 amounted to

$642.2 billion, while disbursements totaled $461.0 billion, resulting in an

increase in trust fund assets during 2006 of $181.3 billion.

The reported income and disbursements for 2006 were both affected by special transfers from the General Fund of the Treasury to the trust funds to correct the effects of a clerical error which resulted in overpayments to the

Internal Revenue Service (IRS) related to a provision in the law which permits beneficiaries to have income tax payments withheld from their Social

Security benefits.2 The overpayments to IRS began with the inception of

voluntary income tax withholding in 1999, and SSA detected and corrected

the ongoing problem in early 2006. The reimbursements to the trust funds for

the overpayments during the period 1999-2005 occurred, with interest, in

two stages; the first reimbursement was in August 2006 for overpayments in

2002-05, while the final reimbursement was in December 2006 for overpayments in 1999-2001.3 In table III.A1, the reimbursement of the nominal

amount overpaid to IRS over the period 1999-2005 (approximately $5.9 billion) is shown as a reimbursement of benefit payments, while the $0.8 billion

in interest reimbursed to the trust fund to compensate the OASI Trust Fund

for the investment income lost over that period is shown as part of interest on

reimbursements. Further details of the various components of trust fund

income and disbursements are discussed in the following paragraphs.

 1 Trust fund data are available by month, quarter, or year on the Social Security website at www.socialsecurity.gov/OACT/ProgData/fundsQuery.html.

 2 The overpayments to the IRS had no effect on beneficiaries. The correct amounts of net benefits were paid

to these beneficiaries, with the appropriate withholding amounts reported to them on their annual Forms

1099.

 3 Because the first reimbursement was limited by statute to the last 4 calendar years (2002-05), legislation

(P.L. 109-465) was required to authorize the final reimbursement.
19

Calendar Year 2006 Operations

Included in total receipts during calendar year 2006 were $536.7 billion in

employment tax contributions. These contributions were partially offset by

transfers totaling $1.9 billion to the general fund 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.

Net contributions thus amounted to $534.8 billion, an increase of 5.5 percent

over the amount in the preceding year. The increase in OASI tax contributions from calendar year 2005 to calendar year 2006 is due to increased earnings and the increase in the contribution and benefit base. (Table VI.A1

shows the tax rates and contribution and benefit bases in effect for past

years.)

Income based on taxation of benefits amounted to $15.6 billion in 2006.

About 99 percent of this income represents amounts credited to the trust

funds, on an estimated basis, generally in advance of the actual receipt of

taxes by the Treasury. The remaining 1 percent of the total income from taxation of benefits represents amounts withheld from the benefits paid to nonresident aliens.
Financial Operations & Legislative Changes

20

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

Special payments are made to uninsured persons who meet certain requirements. The costs associated with providing such payments are largely reimbursed from the General Fund of the Treasury. Accordingly, transfers

totaling $15,922 were made in 2006, reflecting costs incurred in fiscal year

2005.

The OASI Trust Fund was credited with interest netting $91.8 billion, which

consisted of (1) interest earned on the investments of the trust fund, (2) interTable III.A1.—Operations of the OASI Trust Fund, Calendar Year 2006

[In millions]

Total assets, December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,663,037

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $536,679

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

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,892

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534,787

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 143

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,485

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,628

Reimbursement from the General Fund of the Treasury for costs of payments

to uninsured persons who attained age 72 before 1968. . . . . . . . . . . . . . . . . . . . . . 1/

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,978

Interest adjustments2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 839

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 91,817

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1/1

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642,231

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461,658

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,201

Reimbursement from the general fund for excess amounts of voluntary

income tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5,912

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -52

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454,493

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . 3,458

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 4

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,458

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557

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

Miscellaneous reimbursements from the general fund 3 . . . . . . . . . . . . . . . . . . . . . -4

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,010

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460,965

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,266

Total assets, December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,844,304

1 Between -$500,000 and $500,000.

2 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 certain reimbursements to the trust fund.

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

related to administering the OASI program.
21

Calendar Year 2006 Operations

est 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 certain

reimbursements to the trust fund, including the interest on special reimbursements related to voluntary income tax withholding described earlier. The

remaining $49,668 of receipts consisted of gifts received under the provisions authorizing the deposit of money gifts or bequests in the trust funds.

Of the $461.0 billion in total OASI disbursements, $454.5 billion was for net

benefit payments. Excluding the effect of special reimbursements totaling

$5.9 billion in principal related to voluntary income tax withholding, net

benefit payments would have been $460.4 billion. This higher amount of net

benefit payments in calendar year 2006 represents an increase of 5.8 percent

over the corresponding amount in calendar year 2005. This increase is due

primarily to (1) an increase in the total number of beneficiaries and (2) an

increase in the average benefit amount. The increase in the average benefit

amount in 2006 was due in large part to the automatic cost-of-living benefit

increase of 4.1 percent which became effective for December 2005 under the

automatic-adjustment provisions in section 215(i) of the Social Security Act.

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 2006.

A disbursement of $4 million was made in 2006 to cover the costs of vocational rehabilitation services furnished to disabled widow(er) beneficiaries

and to those children of retired or deceased 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 beneficiary.

The remaining $3.0 billion of disbursements from the OASI Trust Fund represented net administrative expenses. The expenses of administering the

OASDI and Medicare programs are allocated and charged directly to each of

the various trust funds through which those programs are financed, on the

basis of provisional estimates. Similarly, the expenses 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
Financial Operations & Legislative Changes

22

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.

Over 80 percent of OASI net administrative expenses represent the cost of

administering the program and are charged to the trust fund by the Social

Security Administration ($2.5 billion in 2006). In addition, the Department

of the Treasury charges directly to the trust fund certain expenses

($0.6 billion in 2006) that it incurs in helping to administer the OASI program. In addition a relatively small adjustment to administrative expenses is

an offset ($372,967 in 2006) representing income from the sale of excess

supplies and equipment. 

Finally, certain net reimbursements are made 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. These reimbursements include the

costs associated with union activities related to administering the OASI program and providing information to participants in certain pension plans.

Such reimbursements totaled $4 million in 2006.

The assets of the OASI Trust Fund at the end of calendar year 2006 totaled

$1,844.3 billion, consisting of $1,845.3 billion in U.S. Government obligations and, as an offset, an extension of credit amounting to $1.0 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 2006 was 5.3 percent, as compared to 5.4 percent earned

during calendar year 2005. Table VI.A5, presented in appendix A, shows a

detailed listing of OASI Trust Fund holdings by type of security, interest rate,

and year of maturity at the end of each year 2005 and 2006.

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.
23

Calendar Year 2006 Operations

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, 2006, with an interest rate of 5.125 percent, were selected so that

the maturity dates of the total portfolio of special issues were spread evenly

over the 15-year period 2007-21. The amount of bonds purchased on June

30, 2006 is shown in table III.A7.

2. DI Trust Fund

A statement of the income and disbursements of the Federal Disability Insurance Trust Fund in calendar year 2006, and of the assets of the fund at the

beginning and end of the calendar year, is presented in table III.A2.

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.

Net contributions amounted to $90.8 billion, an increase of 5.5 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, which accounted for

the change in contributions to the OASI Trust Fund.

Of the $94.5 billion in total disbursements, $91.7 billion was for net benefit

payments. Excluding the effect of special reimbursements totaling $0.7 billion in principal related to voluntary income tax withholding, net benefit payments would have been $92.4 billion. This higher amount of net benefit

payments in calendar year 2006 represents an increase of 8.2 percent over

the corresponding amount of benefit payments in calendar year 2005. This

increase in DI benefit payments was 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 2006 than the number receiving benefits from the OASI

Trust Fund largely due to a) the current ages of the baby-boom generation, b)

the scheduled increase in the normal retirement age (NRA), and c) the special administrative action, undertaken by SSA beginning in 2001, to identify

and award benefits from the DI Trust Fund to a substantial number of current

and former recipients of SSI benefits whose disability-insured status under

the DI program was not previously recognized. Total DI disbursements,

which started to exceed non-interest income in 2005, continue to exceed such

income in 2006. However, as in 2005, total DI income (including interest) in

2006 exceeds total disbursements.
Financial Operations & Legislative Changes

24

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

The assets of the DI Trust Fund at the end of calendar year 2006 totaled

$203.8 billion, consisting of $203.9 billion in U.S. Government obligations

and, as an offset, an extension of credit amounting to $0.1 billion against

securities to be redeemed within the following few days. The effective

annual rate of interest earned by the assets of the DI Trust Fund during calendar year 2006 was 5.4 percent, compared to 5.5 percent earned during calendar year 2005. Table VI.A6, presented in appendix A, shows a detailed

listing of DI Trust Fund holdings by type of security, interest rate, and year

of maturity at the end of each year 2005 and 2006.

Table III.A2.—Operations of the DI Trust Fund, Calendar Year 2006

[In millions]

Total assets, December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $195,623

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $91,129

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

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -321

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,808

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 4

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,226

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,230

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,518

Interest adjustments1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 10,603

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,641

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,113

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -729

Reimbursement from the general fund for excess amounts of voluntary

income tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -678

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -26

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,680

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . 388

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 61

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,220

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Miscellaneous reimbursements from the general fund2. . . . . . . . . . . . . . . . . . . . . . 8

Total administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,326

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,456

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,185

Total assets, December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,808

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 certain

reimbursements to the trust fund.

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

related to administering the DI program.
25

Calendar Year 2006 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.A3. The

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

tables III.A1 and III.A2. 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.A3.—Operations of the Combined OASI and DI Trust Funds, 

Calendar Year 2006

[In millions]

Total assets, December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,858,660

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $627,808

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

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2,213

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625,594

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 147

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,711

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,858

Reimbursement from the General Fund of the Treasury for costs of payments

to uninsured persons who attained age 72 before 1968. . . . . . . . . . . . . . . . . . . . . . 1/

1 Between -$500,000 and $500,000.

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,496

Interest adjustments2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 Includes (1) interest on transfers between the trust funds 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 certain

reimbursements to the trust funds.

924

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 102,420

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1/1

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744,873

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554,771

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,930

Reimbursement from the general fund for excess amounts of voluntary

income tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6,590

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -78

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546,173

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . 3,846

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 65

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,677

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656

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

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.

4

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,337

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555,421

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,452

Total assets, December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,048,112
Financial Operations & Legislative Changes

26

To provide a context for estimates of future trust fund income and expenditures provided later in this report, table III.A4 compares past estimates of

contributions and benefit payments for calendar year 2006, as shown in the

2002-06 Annual Reports, with the corresponding actual amounts in 2006.1

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 assumed levels. In addition, new

legislation or other administrative initiatives that were unanticipated at the

time the earlier estimates were completed can contribute to such differences.

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

reports.

Table III.A4.—Comparison of Actual Calendar Year 2006 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 2006 reflect adjustments for prior calendar years (see appendix A on page 126

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 2002 report . . . . . . . . . . . . . . $558.3 4.4 $459.2 -0.3

Estimate in 2003 report . . . . . . . . . . . . . . 542.9 1.5 450.4 -2.2

Estimate in 2004 report . . . . . . . . . . . . . . 528.1 -1.2 443.2 -3.7

Estimate in 2005 report . . . . . . . . . . . . . . 528.8 -1.1 450.0 -2.3

Estimate in 2006 report . . . . . . . . . . . . . . 532.6 -.4 461.7 .3

Actual amount . . . . . . . . . . . . . . . . . . . . . 534.8 — 4 460.4

4 Excludes reimbursements in 2006 for excess amounts of voluntary income tax withholding in 1999-2005.

Reimbursements are $5.9 billion and $0.7 billion for OASI and DI, respectively.

—

DI Trust Fund:

Estimate in 2002 report . . . . . . . . . . . . . . 94.8 4.4 87.6 -5.2

Estimate in 2003 report . . . . . . . . . . . . . . 92.2 1.5 88.8 -4.0

Estimate in 2004 report . . . . . . . . . . . . . . 89.7 -1.2 86.4 -6.5

Estimate in 2005 report . . . . . . . . . . . . . . 89.8 -1.1 89.0 -3.7

Estimate in 2006 report . . . . . . . . . . . . . . 90.4 -.4 93.5 1.2

Actual amount . . . . . . . . . . . . . . . . . . . . . 90.8 — 4 92.4 —

OASI and DI Trust Funds, combined:

Estimate in 2002 report . . . . . . . . . . . . . . 653.2 4.4 546.7 -1.1

Estimate in 2003 report . . . . . . . . . . . . . . 635.1 1.5 539.2 -2.5

Estimate in 2004 report . . . . . . . . . . . . . . 617.8 -1.2 529.6 -4.2

Estimate in 2005 report . . . . . . . . . . . . . . 618.6 -1.1 539.0 -2.5

Estimate in 2006 report . . . . . . . . . . . . . . 623.1 -.4 555.2 .4

Actual amount . . . . . . . . . . . . . . . . . . . . . 625.6 — 4 552.8 —
27

Calendar Year 2006 Operations

At the end of calendar year 2006, about 49.1 million persons were receiving

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

40.5 million and 8.6 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 1.0 percent

and 3.7 percent, respectively, during the calendar year. The estimated distributions of benefit payments in calendar years 2005 and 2006, by type of beneficiary, are shown in table III.A5 for each trust fund separately.

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

Net administrative expenses charged to the OASI and DI Trust Funds in calendar year 2006 totaled $5.3 billion. This amount represented 0.9 percent of

contribution income and 1.0 percent of expenditures. Corresponding percentages for each trust fund separately and for the OASDI program as a whole

are shown in table III.A6 for each of the last 5 years.

Table III.A5.—Distribution of Benefit Payments by Type of Beneficiary or Payment, 

Calendar Years 2005 and 2006

[Amounts in millions]

Calendar year 2005 Calendar year 20061

1 Excludes reimbursements in 2006 for excess amounts of voluntary income tax withholding in 1999-2005.

Reimbursements are $5.9 billion and $0.7 billion for OASI and DI, respectively.

Amount

Percentage

of total Amount

Percentage

of total

Total OASDI benefit payments . . . . . . . . . . $520,699 100.0 $522,763 100.0

OASI benefit payments . . . . . . . . . . . . . . 435,325 83.6 460,405 83.3

DI benefit payments . . . . . . . . . . . . . . . . . 85,373 16.4 92,358 16.7

OASI benefit payments, total. . . . . . . . . . . . 435,325 100.0 460,405 100.0

Monthly benefits:

Retired workers and auxiliaries . . . . . . 345,056 79.3 366,911 79.7

Retired workers . . . . . . . . . . . . . . . . 321,670 73.9 342,826 74.5

Spouses . . . . . . . . . . . . . . . . . . . . . . . 20,497 4.7 21,003 4.6

Children . . . . . . . . . . . . . . . . . . . . . . 2,888 .7 3,082 .7

Survivors of deceased workers. . . . . . . 90,064 20.7 93,290 20.3

Aged widows and widowers. . . . . . . 71,745 16.5 74,134 16.1

Disabled widows and widowers . . . . 1,659 .4 1,758 .4

Parents . . . . . . . . . . . . . . . . . . . . . . . 24 2/

2 Less than 0.05 percent.

24 2/1

Children . . . . . . . . . . . . . . . . . . . . . . 15,101 3.5 15,812 3.4

Widowed mothers and fathers 

caring for child beneficiaries . . . . 1,535 .4 1,562 .3

Uninsured persons generally aged 72 

before 1968 . . . . . . . . . . . . . . . . . . . 3/

3 Less than $500,000.

2/1 3/1 2/1

Lump-sum death payments . . . . . . . . . . . 206 2/1 204 2/1

DI benefit payments, total . . . . . . . . . . . . . . 85,373 100.0 92,358 100.0

Disabled workers . . . . . . . . . . . . . . . . . 78,361 91.8 84,928 92.0

Spouses. . . . . . . . . . . . . . . . . . . . . . . . . 483 .6 509 .6

Children . . . . . . . . . . . . . . . . . . . . . . . . 6,529 7.6 6,921 7.5
Financial Operations & Legislative Changes

28

Changes in the invested assets of the OASI and DI funds between the end of

2005 and the end of 2006 are a result of the acquisition and disposition of

securities during calendar year 2006. Table III.A7 presents these investment

transactions for each trust fund separately and combined.

Note: All investments are shown at par value.

Table III.A6.—Administrative Expenses as a Percentage of Contribution Income and of 

Total Expenditures, Calendar Years 2002-06

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

2002 . . . . . . . . . . . 0.5 0.5 2.7 3.0 0.8 0.9

2003 . . . . . . . . . . . .6 .6 2.6 2.7 .9 1.0

2004 . . . . . . . . . . . .5 .6 2.7 2.7 .8 .9

2005 . . . . . . . . . . . .6 .7 2.7 2.6 .9 1.0

2006 . . . . . . . . . . . .6 .7 2.6 2.5 .9 1.0

Table III.A7.—Trust Fund Investment Transactions, Calendar Year 2006

[In millions]

OASI

Trust Fund

DI

Trust Fund

OASI and DI

Trust Funds,

combined

Invested assets, December 31, 2005 . . . . . . . . $1,663,726 $195,715 $1,859,441

Acquisitions:

Special issues:

Certificates of indebtedness . . . . . . . . . . . 605,932 98,532 704,464

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

1 Amounts shown were purchased on June 30, 2006. The interest rate on such purchases was 5.125 percent.

280,103 22,888 302,992

Total acquisitions . . . . . . . . . . . . . . . . . . . 886,036 121,420 1,007,456

Dispositions:

Special issues:

Certificates of indebtedness . . . . . . . . . . . 577,034 98,618 675,652

Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,389 14,595 141,984

Total dispositions . . . . . . . . . . . . . . . . . . . 704,423 113,213 817,636

Net increase in invested assets. . . . . . . . . . . . . 181,613 8,207 189,820

Invested assets, December 31, 2006 . . . . . . . . 1,845,339 203,922 2,049,260
29

Social Security Amendments in 2006

B. SOCIAL SECURITY AMENDMENTS SINCE THE 2006 REPORT

Since the 2006 Annual Report was transmitted to Congress on May 1, 2006,

one law was enacted that had a direct financial effect on the OASDI program.

The Social Security Trust Funds Restoration Act of 2006, Public Law 109-

465, required the General Fund of the Treasury to reimburse the combined

OASI and DI Trust Funds to fully correct the effects of a clerical error that

resulted in excess transfers to the Internal Revenue Service for years 1999

through 2005 for voluntary income tax withholding by Social Security beneficiaries. This reimbursement occurred in December 2006, and is reflected in

the reported OASI and DI Trust Fund balances as of December 31, 2006.

See section III.A.1. for more details.
Actuarial Estimates

30

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 carefully distinguish

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, economic, and programmatic factors.

Since assumptions related to these factors 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 estimate 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 (2007-16) are presented first, followed by estimates and measures of actuarial status for the long range (2007-81) and for

the infinite future. As an additional illustration of uncertainty, estimated

probability distributions of certain measures are presented in appendix E.

A. SHORT-RANGE ESTIMATES

Financial adequacy, or solvency, of the trust funds is generally measured on a

year-by-year basis using the “trust fund ratio,” which is defined to be the

assets at the beginning of the year expressed as a percentage of the projected

cost for the year. Thus, the trust fund ratio represents the proportion of a

year’s cost 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.
31

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 within

5 years 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 2007-16, 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 2016. 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 2016. The number of persons with taxable earnings would increase

on the basis of alternatives I, II, and III from 162 million during calendar

year 2006 to about 177 million, 173 million, and 170 million, respectively, in

2016. The total annual amount of taxable earnings is projected to increase

from $5,057 billion in 2006 to $8,112 billion, $8,145 billion, and

 1 The estimates shown in this subsection reflect 12 months of benefit payments in each year of the shortrange projection period. In practice, the actual payment dates have at times been shifted over calendar year

boundaries as a result of the statutory requirement that benefit checks be delivered early when the normal

check delivery date is a Saturday, Sunday, or legal public holiday. The annual benefit figures are shown as if

those benefit checks were delivered on the usual date.
Actuarial Estimates

32

$8,463 billion, in 2016, on the basis of alternatives I, II, and III, respectively.1 These increases in taxable earnings are due primarily to (1) projected

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

increases, (2) increases in average earnings in covered employment (reflecting both real growth and price inflation), and (3) increases in the contribution

and benefit base in 2007-16 under the automatic-adjustment provisions.

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 2016, interest income to the

OASI Trust Fund is projected to be about 20 percent of total trust fund

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

14 percent in 2006.

 1 Note that the pattern, by alternative, of these nominal amounts of total taxable earnings is not what might

be expected, but the reverse, because of the varying inflation assumptions embedded in the respective estimates.

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

[Assets as a percentage of annual cost]

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

550%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Calendar year

OASI

DI

Historical Estimated

"Minimum" level for short-term financial adequacy

I

II

III

I

II

III
33

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 2002-161

[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. Transfers for the cost of pre-1957

military service noncontributory wage credits were: (1) $414 million from the General Fund of the Treasury

to the OASI Trust Fund in February 2002, and (2) $350 million from the trust fund to the general fund in

December 2005. After 2006 such transfers are estimated to be less than $500,000 in each year.

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.

Historical data:

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

2003 . . 543.8 456.1 12.5 75.2 406.0 399.8 2.6 3.6 137.8 1,355.3 300

2004 . . 566.3 472.8 14.6 79.0 421.0 415.0 2.4 3.6 145.3 1,500.6 322

2005 . . 604.3 506.9 13.8 84.0 441.9 435.4 3.0 3.6 162.4 1,663.0 340

2006 . . 642.2 534.8 15.6 91.8 461.0 454.5 3.0 3.5 181.3 1,844.3 361

Intermediate:

2007 . . 675.7 559.9 17.3 98.5 492.2 485.8 2.9 3.5 183.4 2,027.7 375

2008 . . 715.0 589.1 18.8 107.1 511.1 504.5 3.1 3.4 204.0 2,231.7 397

2009 . . 762.8 623.2 20.8 118.9 539.5 532.9 3.1 3.5 223.3 2,455.1 414

2010 . . 810.3 655.1 22.8 132.3 573.5 566.9 3.1 3.5 236.8 2,691.8 428

2011 . . 860.8 688.2 25.8 146.8 610.6 604.0 3.1 3.6 250.1 2,941.9 441

2012 . . 911.4 721.2 28.5 161.7 652.0 645.1 3.2 3.8 259.4 3,201.4 451

2013 . . 962.1 753.1 31.8 177.2 699.1 692.0 3.2 3.9 262.9 3,464.3 458

2014 . . 1,013.7 786.4 34.4 192.9 750.5 743.2 3.3 4.0 263.2 3,727.5 462

2015 . . 1,067.4 821.5 37.6 208.3 805.4 797.9 3.3 4.2 262.0 3,989.5 463

2016 . . 1,122.8 858.1 41.0 223.7 864.4 856.8 3.4 4.3 258.3 4,247.8 462

Low Cost:

2007 . . 678.2 562.2 17.2 98.7 492.0 485.5 2.9 3.5 186.2 2,030.5 375

2008 . . 721.7 595.5 18.7 107.5 509.5 503.0 3.1 3.4 212.2 2,242.7 398

2009 . . 766.1 627.7 20.6 117.8 535.0 528.5 3.1 3.4 231.1 2,473.8 419

2010 . . 810.7 658.9 22.4 129.3 563.4 556.8 3.1 3.5 247.3 2,721.1 439

2011 . . 858.2 690.7 25.0 142.5 593.6 587.0 3.1 3.5 264.6 2,985.7 458

2012 . . 906.9 722.6 27.4 156.8 627.1 620.4 3.1 3.6 279.7 3,265.5 476

2013 . . 956.7 754.1 30.3 172.3 665.6 658.8 3.1 3.7 291.0 3,556.5 491

2014 . . 1,008.4 787.2 32.4 188.9 707.4 700.5 3.2 3.8 301.0 3,857.5 503

2015 . . 1,060.8 820.4 35.1 205.3 751.9 744.8 3.2 3.9 308.9 4,166.3 513

2016 . . 1,114.8 854.7 37.9 222.1 799.4 792.3 3.2 3.9 315.4 4,481.7 521

High Cost:

2007 . . 667.6 553.0 17.3 97.3 492.5 486.0 2.9 3.5 175.2 2,019.5 375

2008 . . 696.3 571.9 18.9 105.4 515.5 508.9 3.1 3.4 180.8 2,200.2 392

2009 . . 746.9 608.6 21.0 117.3 546.6 540.0 3.1 3.5 200.3 2,400.6 403

2010 . . 788.9 635.5 23.2 130.2 583.1 576.4 3.1 3.6 205.8 2,606.3 412

2011 . . 849.3 674.4 26.7 148.2 632.1 625.2 3.2 3.7 217.2 2,823.5 412

2012 . . 931.1 724.9 30.4 175.8 694.5 687.3 3.3 4.0 236.6 3,060.1 407

2013 . . 1,000.0 768.7 34.7 196.5 763.8 756.1 3.4 4.2 236.2 3,296.3 401

2014 . . 1,058.9 809.7 38.2 211.0 833.5 825.5 3.5 4.6 225.3 3,521.7 395

2015 . . 1,115.5 850.4 42.1 223.0 902.4 893.9 3.6 4.9 213.1 3,734.7 390

2016 . . 1,172.5 891.3 46.3 234.9 976.6 967.9 3.6 5.1 195.9 3,930.6 382
Actuarial Estimates

34

Rising expenditures during 2007-16 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.

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 financial securities, generally special public-debt obligations of the U.S. Government. The cash used to make these

purchases flows to the General Fund of the Treasury and is used to meet various Federal outlays or to reduce the amount of publicly-held Federal debt.

Interest on these securities is credited to the trust fund and, when the securities mature they are reinvested in new securities if not immediately needed to

pay program costs. When securities are redeemed prior to maturity in order

to pay program costs, general fund revenues flow to the trust fund. Thus, the

investment operations of the trust fund result in various credits and cash

flows between the trust fund and the General Fund of the Treasury.

2. Operations of the DI Trust Fund

The estimated operations and financial status of the DI Trust Fund during

calendar years 2007-16 under the three sets of assumptions are shown in

table IV.A2, together with values for actual experience in 2002-06. 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 low cost

assumptions, but would peak in 2012 and then begin to decline under the

intermediate assumptions. Under the high cost assumptions, DI assets would

increase through 2007 and decline steadily thereafter until exhaustion in

2016.

Cost is estimated to increase in part due to increases in average benefit levels

resulting from (1) automatic benefit increases and (2) projected increases in

the amounts of average monthly earnings on which benefits are based. 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 2006-16, the projected annual

average growth rate in the number of DI worker beneficiaries is roughly 1.7,

2.5, and 3.9 percent under alternatives I, II, and III, respectively. Growth is
35

Short-Range Estimates

largely attributable to the gradual progression of the baby-boom generation

through ages 50 to normal retirement age, at which higher rates of disability

incidence are experienced.

Annual increases in incidence rates over the period 2001-03 represented a

notable departure from the experience of the preceding decade, which generally showed modest annual declines in the age-sex-adjusted disability incidence rate.1 During 2004 and 2005 however, this growth in the incidence

rate subsided, and the incidence rate even declined in 2006. Nevertheless,

incidence rates are still at a level somewhat higher than experienced during

the late 1990s. The increases in 2001-03 were likely due in large part to the

slowdown in economic growth experienced during that period. However, a

special administrative activity undertaken by SSA beginning in 2001 has

also contributed slightly to the upsurge in disabled worker awards. This special workload was the result of discovering a substantial 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 continues to be processed over the next

several years, the resulting disability awards will contribute to temporarily

higher incidence rates than would have been expected as part of longer term

underlying trends.

Estimates of the total size of this special workload, and the schedule for processing these cases, remain roughly the same as assumed for the 2006 report.

After the last of these special workload cases is processed in about 2010, the

incidence of disability is projected in this report to drop back somewhat from

then current levels, and to remain roughly level over the remainder of the

short-range period under the three alternative sets of assumptions.

 1 Historical and projected patterns of disability incidence rates are described in greater detail in section

V.C.6.
Actuarial Estimates

36

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

Table IV.A2.—Operations of the DI Trust Fund, Calendar Years 2002-161

[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 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 is

expected to be made in December 2007 in the amount of $7.7 million from the General Fund of the Treasury

to the DI Trust Fund. Thereafter such transfers are estimated to be less than $500,000 in each year.

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.

Historical data:

2002 . . $87.4 $77.3 $0.9 $9.2 $67.9 $65.7 $2.0 $0.2 $19.5 $160.5 208

2003 . . 88.1 77.4 .9 9.7 73.1 70.9 2.0 .2 15.0 175.4 219

2004 . . 91.4 80.3 1.1 10.0 80.6 78.2 2.2 .2 10.8 186.2 218

2005 . . 97.4 86.1 1.1 10.3 88.0 85.4 2.3 .3 9.4 195.6 212

2006 . . 102.6 90.8 1.2 10.6 94.5 91.7 2.3 .4 8.2 203.8 207

Intermediate:

2007 . . 107.2 95.1 1.4 10.7 102.1 99.3 2.5 .4 5.1 208.9 200

2008 . . 112.4 100.0 1.6 10.8 106.3 103.4 2.5 .4 6.2 215.1 197

2009 . . 118.8 105.8 1.8 11.1 113.0 110.0 2.6 .4 5.8 220.8 190

2010 . . 124.7 111.2 2.0 11.4 120.7 117.4 2.8 .5 4.0 224.8 183

2011 . . 130.9 116.9 2.3 11.7 126.8 123.3 3.0 .5 4.1 228.9 177

2012 . . 137.0 122.5 2.6 11.8 135.7 132.0 3.2 .5 1.3 230.2 169

2013 . . 142.8 127.9 3.0 11.9 143.7 139.8 3.4 .5 -.9 229.3 160

2014 . . 148.6 133.5 3.2 11.8 151.8 147.7 3.5 .5 -3.2 226.1 151

2015 . . 154.6 139.5 3.5 11.6 160.5 156.2 3.7 .5 -5.9 220.2 141

2016 . . 160.8 145.7 3.8 11.3 169.4 165.0 3.9 .5 -8.7 211.5 130

Low Cost:

2007 . . 107.6 95.5 1.4 10.7 100.6 97.8 2.5 .4 7.0 210.8 203

2008 . . 113.7 101.1 1.5 11.0 103.4 100.5 2.5 .4 10.3 221.1 204

2009 . . 119.8 106.6 1.7 11.5 108.3 105.2 2.6 .4 11.5 232.6 204

2010 . . 125.8 111.9 1.9 12.0 113.6 110.3 2.8 .5 12.3 244.9 205

2011 . . 132.1 117.3 2.1 12.7 117.2 113.8 2.9 .5 14.9 259.7 209

2012 . . 138.5 122.7 2.4 13.4 123.2 119.6 3.1 .5 15.3 275.0 211

2013 . . 145.0 128.1 2.7 14.3 128.4 124.7 3.3 .5 16.6 291.6 214

2014 . . 151.7 133.7 2.8 15.2 133.6 129.7 3.4 .5 18.1 309.7 218

2015 . . 158.5 139.3 3.0 16.2 139.3 135.2 3.6 .5 19.3 328.9 222

2016 . . 165.6 145.1 3.2 17.3 145.1 140.9 3.8 .4 20.5 349.5 227

High Cost:

2007 . . 105.9 93.9 1.5 10.5 105.4 102.5 2.5 .4 .5 204.3 193

2008 . . 109.0 97.1 1.7 10.3 112.3 109.5 2.5 .4 -3.3 201.1 182

2009 . . 115.3 103.3 1.9 10.0 121.9 118.9 2.6 .4 -6.6 194.4 165

2010 . . 119.6 107.9 2.3 9.5 132.9 129.6 2.8 .5 -13.2 181.2 146

2011 . . 125.9 114.5 2.6 8.7 143.6 140.0 3.1 .6 -17.8 163.4 126

2012 . . 133.9 123.1 3.1 7.7 159.6 155.8 3.3 .5 -25.7 137.7 102

2013 . . 140.4 130.5 3.7 6.2 174.3 170.2 3.6 .6 -33.9 103.8 79

2014 . . 146.0 137.5 4.0 4.5 188.2 183.8 3.8 .6 -42.2 61.6 55

2015 . . 151.1 144.4 4.4 2.3 202.0 197.4 4.0 .6 -50.9 10.7 30

2016 . . 4/

4 Under the high cost assumptions, the DI Trust Fund is projected to be exhausted in early 2016. Therefore,

certain trust fund operation values for that year are not meaningful under present law and are not shown in

this table.

151.4 4.9 4/1 216.7 211.9 4.2 .6 4/1 4/1 5
37

Short-Range Estimates

The proportion of DI beneficiaries whose benefits terminate in a given year

has also fluctuated 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. Declines in mortality for the general population have also led to improved mortality

experience among the DI disabled worker beneficiaries. In addition, conversions to old-age benefits are at a temporarily reduced level for years 2003

through 2008 due to the gradual increase in the normal retirement age. 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. Projected rates of recovery terminations in this year’s report are somewhat lower initially due to resource constraints which temporarily limit the number of continuing disability reviews

conducted by SSA. Following this temporary resource constraint, recovery

termination rates are projected to return to levels consistent with last year’s

report. The overall termination rate (reflecting all causes) is projected in

2007-08 to remain near levels experienced since 2003, before returning to

higher levels in 2009 when the gradual increase in the normal retirement age

temporarily ceases.

At the beginning of calendar year 2006, the assets of the DI Trust Fund represented 207 percent of annual expenditures. During 2006, DI expenditures

continued to exceed non-interest income. While total DI income exceeded DI

expenditures by $8.2 billion, the trust fund ratio for the beginning of 2007

still decreased, to about 200 percent. Under the intermediate set of assumptions, total income is estimated to exceed expenditures through 2012. The

projected expenditures in excess of income beginning in 2013 result in a

decline in the projected trust fund ratio to 130 percent by the beginning of

2016.

Under the low cost assumptions, the trust fund ratio would increase to

227 percent at the beginning of 2016. Under the high cost assumptions, the

assets of the DI Trust Fund would decline steadily, dipping below the level

of 1 year’s expenditures near the beginning of 2012, and becoming completely depleted early in 2016.

Because DI assets were greater than 1 year’s expenditures at the beginning of

2007 and would remain above that level through 2016, 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).
Actuarial Estimates

38

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 2007-16 on the basis of the three alternatives,

are shown in table IV.A3, together with figures on actual experience in

2002-06. Because 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 tend to dominate the

combined operations of the two funds. Consequently, based on the strength

of the OASI Trust Fund over the next 10 years, 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.

While combining the operations of the OASI and DI Trust Funds permits an

assessment of the short-range test for the two programs on a combined basis,

in practice assets from one trust fund cannot be shared with another trust

fund without legislative changes to the Social Security Act. For example,

under the high cost scenario, table IV.A2 shows that the DI Trust Fund

becomes exhausted in 2016. The value of the combined OASI and DI Trust

Funds in that year shown in table IV.A3 shows that OASI assets could be

made available to pay DI benefits through 2016, but only with legislation to

permit this action.

Table IV.A3.—Operations of the Combined OASI and DI Trust Funds,

Calendar Years 2002-161

[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:

2002 . . $627.1 $532.5 $13.8 $80.4 $461.7 $453.8 $4.2 $3.6 $165.4 $1,378.0 263

2003 . . 631.9 533.5 13.4 84.9 479.1 470.8 4.6 3.7 152.8 1,530.8 288

2004 . . 657.7 553.0 15.7 89.0 501.6 493.3 4.5 3.8 156.1 1,686.8 305

2005 . . 701.8 592.9 14.9 94.3 529.9 520.7 5.3 3.9 171.8 1,858.7 318

2006 . . 744.9 625.6 16.9 102.4 555.4 546.2 5.3 3.8 189.5 2,048.1 335

Intermediate:

2007 . . 782.8 655.0 18.7 109.2 594.3 585.0 5.4 3.9 188.5 2,236.6 345

2008 . . 827.5 689.2 20.4 117.9 617.3 607.9 5.6 3.8 210.2 2,446.8 362

2009 . . 881.6 729.0 22.6 130.0 652.5 642.9 5.7 3.9 229.1 2,675.9 375

2010 . . 935.0 766.3 24.9 143.7 694.2 684.3 5.9 4.0 240.7 2,916.6 385

2011 . . 991.6 805.1 28.1 158.5 737.4 727.2 6.1 4.1 254.2 3,170.8 396

2012 . . 1,048.4 843.6 31.2 173.6 787.6 777.0 6.3 4.3 260.7 3,431.5 403

2013 . . 1,104.9 881.0 34.8 189.1 842.8 831.8 6.6 4.4 262.1 3,693.6 407

2014 . . 1,162.3 920.0 37.6 204.7 902.3 890.9 6.8 4.6 260.0 3,953.6 409

2015 . . 1,221.9 961.0 41.1 219.9 965.9 954.1 7.0 4.7 256.1 4,209.7 409

2016 . . 1,283.5 1,003.8 44.8 235.0 1,033.8 1,021.8 7.3 4.8 249.7 4,459.3 407
39

Short-Range Estimates

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

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

From the 2006 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 2006 Annual Report, the trust fund

ratio for OASI was estimated to reach 462 percent at the beginning of

2015—the tenth projection year from that report. If there had been no

changes to the projections, the estimated ratio at the beginning of 2016

would be 1 percentage point lower than at the beginning of 2015, or

461 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 (2016) is 462 percent. The

net effect of changes in demographic assumptions over the short-range

period resulted in a reduction in the tenth-year trust fund ratio of 3 percentLow Cost:

2007 . . $785.8 $657.7 $18.6 $109.5 $592.6 $583.3 $5.4 $3.9 $193.2 $2,241.3 346

2008 . . 835.4 696.6 20.3 118.5 613.0 603.6 5.6 3.8 222.5 2,463.8 366

2009 . . 885.9 734.3 22.3 129.3 643.3 633.7 5.7 3.9 242.6 2,706.4 383

2010 . . 936.5 770.8 24.3 141.3 676.9 667.1 5.9 4.0 259.6 2,966.0 400

2011 . . 990.2 807.9 27.2 155.1 710.8 700.8 6.0 4.0 279.4 3,245.4 417

2012 . . 1,045.4 845.3 29.8 170.2 750.4 740.1 6.2 4.1 295.0 3,540.5 433

2013 . . 1,101.7 882.2 33.0 186.5 794.1 783.5 6.4 4.2 307.6 3,848.1 446

2014 . . 1,160.2 920.8 35.3 204.1 841.1 830.2 6.6 4.2 319.1 4,167.2 458

2015 . . 1,219.3 959.7 38.1 221.5 891.2 880.0 6.8 4.3 328.1 4,495.3 468

2016 . . 1,280.4 999.9 41.1 239.4 944.5 933.1 7.0 4.3 335.9 4,831.2 476

High Cost:

2007 . . 773.5 646.9 18.7 107.8 597.8 588.5 5.4 3.9 175.7 2,223.8 343

2008 . . 805.3 669.0 20.6 115.7 627.8 618.4 5.6 3.8 177.5 2,401.3 354

2009 . . 862.2 711.9 23.0 127.3 668.5 658.9 5.7 3.9 193.7 2,595.0 359

2010 . . 908.5 743.4 25.5 139.7 716.0 706.0 5.9 4.1 192.6 2,787.5 362

2011 . . 975.1 788.9 29.3 156.9 775.7 765.2 6.3 4.2 199.4 2,986.9 359

2012 . . 1,065.0 848.0 33.5 183.5 854.2 843.0 6.7 4.5 210.9 3,197.8 350

2013 . . 1,140.4 899.3 38.4 202.7 938.1 926.3 7.0 4.8 202.3 3,400.1 341

2014 . . 1,204.9 947.2 42.2 215.5 1,021.7 1,009.3 7.3 5.2 183.2 3,583.3 333

2015 . . 1,266.6 994.8 46.5 225.3 1,104.4 1,091.4 7.6 5.5 162.2 3,745.4 324

2016 . . 1,327.7 1,042.7 51.2 233.9 1,193.3 1,179.8 7.9 5.7 134.4 3,879.9 314

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

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.

Table IV.A3.—Operations of the Combined OASI and DI Trust Funds,

Calendar Years 2002-161 (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
Actuarial Estimates

40

age points. The cumulative net effects of changes in economic data and

assumptions resulted in essentially no change in the trust fund ratio by the

beginning of 2016. There were several relatively minor changes in the shortrange projection methodology since the 2006 report. The changes included

improvements in our methods for estimating the numbers of persons satisfying the program’s insured status requirements, and the seasonal pattern of

benefit receipt. The combined effects of these methodological improvements

was to decrease the ending trust fund ratio by about 4 percentage points.

Finally, an increase in the 2016 trust fund ratio of 8 percentage points

resulted from the correction of the clerical error related to voluntary income

tax withholding described in section III.A. A relatively small portion of that

increase is attributable to a reimbursement authorized by Public Law 109-

465 (its effect is shown in table IV.A4 attributed to “Legislation”). The

majority of the effect due to this correction, including the effect on projected

benefit levels, is shown under “Programmatic data and assumptions.”

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. The largest effect on the DI trust

fund ratio at the beginning of 2016 was due to the change in the valuation

period, making up essentially all of the total 9 percentage point reduction.

Revised economic assumptions, updates for a variety of programmatic

assumptions, and the voluntary income tax withholding correction contributed minor and offsetting changes.

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 2015 462 139 409

Change in trust fund ratio due to changes in: 

Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1/

1 Change in trust fund ratio of less than 0.5 percentage point.

1/1 1/1

Valuation period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1 -9 -2

Demographic data and assumptions. . . . . . . . . . . . . . . . . . . . -3 1/1 -2

Economic data and assumptions. . . . . . . . . . . . . . . . . . . . . . . 1/1 1 1/1

Programmatic data and assumptions . . . . . . . . . . . . . . . . . . . 8 1 6

Projection methods and data. . . . . . . . . . . . . . . . . . . . . . . . . . -4 -1 -4

Total change in trust fund ratio . . . . . . . . . . . . . . . . . . . . . . . . . 1/1 -9 -2

Trust fund ratio shown in this report for calendar year 2016. . . . . 462 130 407
41

Long-Range Estimates

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

balances and unfunded obligations. The first long-range estimates presented

are the series of projected annual balances (or net cash flow), which are the

differences between the projected annual income rates and annual cost rates

(expressed as percentages of the taxable payroll). 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 cost that could

be paid with the funds available at the beginning of the year. Particular attention should be paid to the level and year of maximum trust fund ratio, to the

year of exhaustion of the funds, and to the stability of the trust fund ratio in

cases where the ratio remains positive at the end of the long-range period.

When a program has positive trust fund ratios throughout the 75-year projection period and these ratios are stable or rising at the end of the period, the

program financing is said to achieve sustainable solvency.

The final measures discussed in this section summarize the total income and

cost over valuation periods that extend through 75 years, and to the infinite

horizon. These measures indicate whether projected income will be adequate

for the period as a whole. The first such measure, actuarial balance, indicates

the size of any surplus or 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 dollars. This section also includes a comparison of covered workers to beneficiaries, a generational decomposition of the

infinite future unfunded obligation, the test of long-range 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 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, or solvency, for each year is determined by whether the

trust fund asset level is 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, or sustainable

solvency, is the behavior of the trust fund ratio at the end of the projection
Actuarial Estimates

42

period. If 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, or the law). The actuarial balance and the open group unfunded obligation for the infinite future

provide additional measures of the financial status of the program for the

very long range.

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 sum of the tax

contribution rate and the ratio of income from 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 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. 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 current dollar amounts, are shown in table VI.F8.

The projections for OASI under the intermediate assumptions show the

income rate rising due to the gradually increasing effect of the taxation of

 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.
43

Long-Range Estimates

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 eligibility age. Thereafter, the cost rate rises steadily, but slowly,

reflecting projected reductions in death rates and continued relatively low

birth rates, reaching 16.19 percent of taxable payroll for 2081. By comparison, the income rate reaches 11.49 percent of taxable payroll for 2081.

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 increases in 2007, decreases

for the next 2 years, then rises, reaching the current level around 2012, and

peaks in 2035 at a level of 13.18 percent of payroll. The cost rate then

declines gradually, reaching a level of 11.75 percent of payroll for 2081 (at

which point the income rate reaches 11.24 percent). For the high cost

assumptions, the cost rate generally rises 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. Subsequently, the projected cost rate continues

rising and reaches 23.11 percent of payroll for 2081 (at which point the

income rate reaches 11.87 percent).

The pattern of the projected 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 11 years (through 2017) and is negative thereafter. This annual deficit rises rapidly, reaching over 2 percent of

taxable payroll by 2026, and continues rising thereafter, to a level of

4.71 percent of taxable payroll for 2081.

Under the low cost assumptions, the projected OASI annual balance is positive for 14 years (through 2020) and thereafter is negative. The annual deficit

under the low cost assumptions rises to a peak of 1.90 percent of taxable payroll for 2035, but declines over the next 15 years, as the effect of the babyboom generation diminishes and the assumed higher fertility rates increase

the size of the workforce. The deficit under the low cost assumptions continues to decline, but at a relatively slow pace over the period 2051 through

2081. Under the high cost assumptions, however, the OASI balance is projected to be positive for only 8 years (through 2014) and to be negative thereafter, with a deficit of 1.75 percent for 2020, 6.69 percent for 2050, and

11.24 percent of payroll for 2081.
Actuarial Estimates

44

Table IV.B1.—Estimated Annual Income Rates, Cost Rates, and Balances,

Calendar Years 1990-2085

[As a percentage of taxable payroll]

Calendar 

year

OASI DI OASDI

Income

rate1 Cost

rate Balance

Income

rate1 Costrate Balance

Income

rate1 Costrate Balance

Historical data:

1990. . . . . 11.32 9.66 1.66 1.17 1.09 0.09 12.49 10.74 1.75

1991. . . . . 11.44 10.15 1.29 1.21 1.18 .03 12.65 11.33 1.32

1992. . . . . 11.43 10.27 1.16 1.21 1.27 -.06 12.64 11.54 1.10

1993. . . . . 11.40 10.37 1.03 1.21 1.35 -.14 12.61 11.73 .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 9.45 1.51 1.72 1.42 .30 12.68 10.87 1.81

1999. . . . . 10.99 9.09 1.90 1.72 1.42 .30 12.71 10.51 2.20

2000. . . . . 10.89 8.98 1.91 1.80 1.42 .37 12.69 10.40 2.29

2001. . . . . 10.89 9.08 1.80 1.82 1.48 .34 12.71 10.56 2.15

2002. . . . . 10.91 9.29 1.62 1.82 1.60 .22 12.74 10.90 1.84

2003. . . . . 10.89 9.35 1.54 1.82 1.68 .14 12.71 11.03 1.68

2004. . . . . 10.92 9.26 1.66 1.82 1.77 .05 12.75 11.03 1.72

2005. . . . . 10.88 9.30 1.58 1.82 1.85 -.03 12.71 11.16 1.55

2006. . . . . 10.91 9.15 1.76 1.82 1.87 -.05 12.73 11.02 1.71

Intermediate:

2007. . . . . 10.93 9.29 1.64 1.83 1.93 -.10 12.75 11.21 1.54

2008. . . . . 10.94 9.13 1.81 1.83 1.90 -.07 12.76 11.03 1.74

2009. . . . . 10.95 9.15 1.80 1.83 1.92 -.09 12.78 11.07 1.72

2010. . . . . 10.97 9.25 1.72 1.83 1.95 -.11 12.80 11.20 1.60

2011 . . . . . 11.00 9.38 1.61 1.84 1.95 -.11 12.83 11.33 1.50

2012. . . . . 11.02 9.57 1.45 1.84 1.99 -.15 12.86 11.56 1.30

2013. . . . . 11.05 9.82 1.23 1.84 2.02 -.17 12.89 11.84 1.05

2014. . . . . 11.06 10.09 .97 1.84 2.04 -.20 12.91 12.13 .78

2015. . . . . 11.08 10.37 .72 1.84 2.06 -.22 12.93 12.43 .50

2016. . . . . 11.11 10.65 .45 1.85 2.09 -.24 12.95 12.74 .21

2020. . . . . 11.18 11.89 -.71 1.85 2.11 -.26 13.03 14.00 -.97

2025. . . . . 11.27 13.26 -1.99 1.85 2.19 -.33 13.12 15.44 -2.33

2030. . . . . 11.34 14.42 -3.08 1.85 2.18 -.32 13.19 16.59 -3.40

2035. . . . . 11.38 15.02 -3.63 1.85 2.16 -.30 13.24 17.17 -3.94

2040. . . . . 11.40 15.11 -3.71 1.86 2.17 -.31 13.25 17.27 -4.02

2045. . . . . 11.40 14.98 -3.59 1.86 2.24 -.38 13.25 17.22 -3.97

2050. . . . . 11.40 14.98 -3.58 1.86 2.27 -.42 13.26 17.26 -3.99

2055. . . . . 11.41 15.12 -3.71 1.86 2.31 -.45 13.28 17.43 -4.16

2060. . . . . 11.43 15.37 -3.94 1.86 2.30 -.44 13.29 17.67 -4.38

2065. . . . . 11.45 15.59 -4.14 1.86 2.30 -.44 13.31 17.89 -4.59

2070. . . . . 11.46 15.78 -4.32 1.86 2.32 -.45 13.32 18.10 -4.78

2075. . . . . 11.47 15.96 -4.49 1.86 2.34 -.47 13.33 18.29 -4.96

2080. . . . . 11.48 16.15 -4.67 1.86 2.35 -.49 13.35 18.50 -5.16

2085. . . . . 11.50 16.35 -4.86 1.86 2.36 -.49 13.36 18.71 -5.35

First year balance becomes

negative and remains negative

through 2085 . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . 2017

Low Cost:

2007. . . . . 10.92 9.22 1.70 1.83 1.89 -.06 12.75 11.11 1.64

2008. . . . . 10.93 9.03 1.90 1.83 1.83 -.01 12.76 10.87 1.89

2009. . . . . 10.95 9.01 1.94 1.83 1.82 .01 12.78 10.83 1.94

2010. . . . . 10.96 9.04 1.92 1.83 1.82 .01 12.79 10.86 1.93

2011 . . . . . 10.98 9.09 1.89 1.83 1.80 .04 12.82 10.89 1.93

2012. . . . . 11.00 9.18 1.82 1.84 1.80 .03 12.84 10.99 1.85

2013. . . . . 11.02 9.34 1.69 1.84 1.80 .04 12.86 11.14 1.73

2014. . . . . 11.04 9.50 1.53 1.84 1.80 .04 12.87 11.30 1.57

2015. . . . . 11.05 9.69 1.36 1.84 1.79 .04 12.89 11.49 1.41

2016. . . . . 11.07 9.89 1.18 1.84 1.80 .04 12.91 11.69 1.22
45

Long-Range Estimates

Notes:

1. The income rate excludes interest income and certain transfers from the General Fund of the Treasury.

2. Some historical values are subject to change due to revisions of taxable payroll.

3. 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 1.93 percent of taxable payroll for 2007,

Low Cost (cont.):

2020. . . . . 11.13 10.92 0.21 1.84 1.75 0.09 12.97 12.67 0.30

2025. . . . . 11.20 12.03 -.83 1.84 1.75 .09 13.04 13.78 -.74

2030. . . . . 11.26 12.89 -1.63 1.84 1.67 .17 13.10 14.56 -1.46

2035. . . . . 11.28 13.18 -1.90 1.84 1.62 .22 13.12 14.80 -1.68

2040. . . . . 11.28 12.98 -1.70 1.84 1.60 .24 13.12 14.58 -1.46

2045. . . . . 11.27 12.62 -1.36 1.84 1.63 .22 13.11 14.25 -1.14

2050. . . . . 11.26 12.39 -1.13 1.84 1.63 .21 13.10 14.02 -.91

2055. . . . . 11.26 12.27 -1.02 1.84 1.63 .21 13.10 13.90 -.80

2060. . . . . 11.26 12.23 -.98 1.84 1.60 .24 13.10 13.84 -.74

2065. . . . . 11.26 12.12 -.87 1.84 1.59 .25 13.10 13.72 -.62

2070. . . . . 11.25 11.96 -.71 1.84 1.59 .25 13.09 13.56 -.46

2075. . . . . 11.24 11.81 -.56 1.84 1.61 .23 13.09 13.42 -.33

2080. . . . . 11.24 11.75 -.51 1.84 1.63 .22 13.09 13.38 -.29

2085. . . . . 11.24 11.78 -.54 1.84 1.64 .21 13.09 13.42 -.33

First year balance becomes

negative and remains negative

through 2085 . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . 2/ . . . . . . . . . . . . . . . . 2022

High Cost:

2007. . . . . 10.93 9.48 1.46 1.83 2.03 -.20 12.76 11.50 1.26

2008. . . . . 10.95 9.42 1.53 1.83 2.05 -.22 12.78 11.47 1.31

2009. . . . . 10.97 9.50 1.47 1.83 2.12 -.28 12.80 11.61 1.19

2010. . . . . 10.99 9.70 1.28 1.84 2.21 -.37 12.82 11.91 .91

2011 . . . . . 11.02 9.90 1.12 1.84 2.25 -.41 12.86 12.15 .71

2012. . . . . 11.04 10.13 .91 1.85 2.33 -.48 12.89 12.46 .43

2013. . . . . 11.08 10.50 .58 1.85 2.40 -.55 12.93 12.90 .03

2014. . . . . 11.10 10.88 .22 1.85 2.46 -.60 12.95 13.33 -.38

2015. . . . . 11.12 11.21 -.09 1.85 2.51 -.66 12.98 13.72 -.75

2016. . . . . 11.15 11.58 -.43 1.86 2.57 -.71 13.01 14.15 -1.15

2020. . . . . 11.24 12.99 -1.75 1.86 2.66 -.80 13.10 15.65 -2.55

2025. . . . . 11.33 14.55 -3.22 1.87 2.78 -.92 13.20 17.34 -4.14

2030. . . . . 11.43 16.04 -4.61 1.87 2.79 -.92 13.30 18.83 -5.53

2035. . . . . 11.49 17.04 -5.54 1.87 2.79 -.92 13.36 19.82 -6.46

2040. . . . . 11.53 17.54 -6.02 1.87 2.83 -.95 13.40 20.37 -6.97

2045. . . . . 11.55 17.83 -6.28 1.88 2.96 -1.08 13.43 20.79 -7.36

2050. . . . . 11.58 18.27 -6.69 1.88 3.05 -1.17 13.46 21.32 -7.86

2055. . . . . 11.62 18.86 -7.24 1.88 3.15 -1.26 13.50 22.00 -8.50

2060. . . . . 11.67 19.62 -7.96 1.88 3.18 -1.29 13.55 22.80 -9.25

2065. . . . . 11.71 20.42 -8.71 1.89 3.21 -1.33 13.60 23.64 -10.04

2070. . . . . 11.76 21.29 -9.53 1.89 3.25 -1.36 13.65 24.54 -10.89

2075. . . . . 11.81 22.15 -10.34 1.89 3.26 -1.38 13.70 25.41 -11.71

2080. . . . . 11.86 22.96 -11.10 1.89 3.27 -1.39 13.75 26.23 -12.49

2085. . . . . 11.90 23.64 -11.75 1.89 3.26 -1.38 13.78 26.91 -13.12

First year balance becomes

negative and remains negative

through 2085 . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . 2014

1 Historical income rates 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 After 2008, the annual balance is projected to remain positive throughout the remainder of the projection

period.

Table IV.B1.—Estimated Annual Income Rates, Cost Rates, and Balances,

Calendar Years 1990-2085 (Cont.)

[As a percentage of taxable payroll]

Calendar 

year

OASI DI OASDI

Income rate1 Cost

rate Balance

Income rate1 Cost

rate Balance

Income rate1 Cost

rate Balance
Actuarial Estimates

46

reaching 2.35 for 2081. The income rate increases only very slightly from

1.83 percent of taxable payroll for 2007 to 1.86 percent for 2081. The annual

deficit is about 0.10 percent in 2007 and reaches 0.49 percent for 2081.

Under the low cost assumptions, the DI cost rate is fairly stable over the

long-range period, reaching 1.63 percent for 2081. The annual balance is

negative for the first 2 years and is positive throughout the remainder of the

long-range period. For the high cost assumptions, DI cost rises much more,

reaching 3.27 percent for 2081. Annual deficits began in 2005 and reach

1.38 percent for 2081.

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 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 suggested by figure

IV.B1. For each alternative, the magnitude of each of the positive balances,

as a percentage 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 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 programs as a

percentage 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.
47

Long-Range Estimates

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), which is the total value of goods and services produced

during the year in the United States. OASDI cost generally rises from about

4.3 percent of GDP currently to about 6.3 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 170.

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 will reach retirement eligibility 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%

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
Actuarial Estimates

48

Table IV.B2.—Covered Workers and Beneficiaries, Calendar Years 1945-2085

Calendar year

Covered

workers1

(in thousands)

Beneficiaries2 (in thousands) Covered

workers per

OASDI

beneficiary

OASDI

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 35,117 3.2 31

1985 . . . . . . . . . 120,575 32,776 3,874 36,650 3.3 30

1990 . . . . . . . . . 133,559 35,266 4,204 39,471 3.4 30

1995 . . . . . . . . . 141,446 37,376 5,731 43,107 3.3 30

1996 . . . . . . . . . 143,909 37,521 5,977 43,498 3.3 30

1997 . . . . . . . . . 146,736 37,705 6,087 43,792 3.4 30

1998 . . . . . . . . . 149,692 37,825 6,250 44,075 3.4 29

1999 . . . . . . . . . 152,453 37,934 6,433 44,366 3.4 29

2000 . . . . . . . . . 155,295 38,560 6,606 45,166 3.4 29

2001 . . . . . . . . . 155,546 38,888 6,780 45,668 3.4 29

2002 . . . . . . . . . 154,894 39,116 7,060 46,176 3.4 30

2003 . . . . . . . . . 154,954 39,314 7,438 46,752 3.3 30

2004 . . . . . . . . . 156,900 39,557 7,810 47,367 3.3 30

2005 . . . . . . . . . 159,081 39,961 8,172 48,133 3.3 30

2006 . . . . . . . . . 161,852 40,435 8,428 48,863 3.3 30

Intermediate:

2010 . . . . . . . . . 167,664 43,380 9,563 52,942 3.2 32

2015 . . . . . . . . . 172,465 49,838 10,524 60,362 2.9 35

2020 . . . . . . . . . 176,602 57,595 11,128 68,723 2.6 39

2025 . . . . . . . . . 179,816 65,043 11,926 76,969 2.3 43

2030 . . . . . . . . . 182,708 71,782 12,200 83,982 2.2 46

2035 . . . . . . . . . 185,889 76,370 12,436 88,806 2.1 48

2040 . . . . . . . . . 189,189 78,712 12,772 91,483 2.1 48

2045 . . . . . . . . . 192,566 80,177 13,339 93,516 2.1 49

2050 . . . . . . . . . 195,597 81,884 13,723 95,607 2.0 49

2055 . . . . . . . . . 198,487 84,090 14,099 98,188 2.0 49

2060 . . . . . . . . . 201,387 86,747 14,252 100,999 2.0 50

2065 . . . . . . . . . 204,340 89,249 14,502 103,751 2.0 51

2070 . . . . . . . . . 207,208 91,631 14,789 106,420 1.9 51

2075 . . . . . . . . . 210,101 93,935 15,106 109,042 1.9 52

2080 . . . . . . . . . 212,880 96,307 15,409 111,716 1.9 52

2085 . . . . . . . . . 215,638 98,812 15,661 114,473 1.9 53

Low Cost:

2010 . . . . . . . . . 169,179 43,365 9,237 52,602 3.2 31

2015 . . . . . . . . . 176,192 49,713 9,752 59,465 3.0 34

2020 . . . . . . . . . 181,474 57,091 9,988 67,079 2.7 37

2025 . . . . . . . . . 185,658 64,137 10,309 74,446 2.5 40

2030 . . . . . . . . . 189,940 70,350 10,203 80,553 2.4 42

2035 . . . . . . . . . 195,126 74,320 10,235 84,555 2.3 43

2040 . . . . . . . . . 201,221 76,049 10,457 86,506 2.3 43

2045 . . . . . . . . . 208,014 77,075 10,920 87,995 2.4 42

2050 . . . . . . . . . 215,112 78,510 11,278 89,789 2.4 42

2055 . . . . . . . . . 222,535 80,602 11,670 92,272 2.4 41

2060 . . . . . . . . . 230,380 83,151 11,951 95,102 2.4 41

2065 . . . . . . . . . 238,897 85,473 12,366 97,839 2.4 41

2070 . . . . . . . . . 248,002 87,597 12,879 100,476 2.5 41

2075 . . . . . . . . . 257,544 89,806 13,503 103,309 2.5 40

2080 . . . . . . . . . 267,311 92,663 14,141 106,804 2.5 40

2085 . . . . . . . . . 277,257 96,266 14,746 111,012 2.5 40
49

Long-Range Estimates

Notes: 

1. The number of beneficiaries does not include uninsured individuals who receive benefits under Section

228 of the Social Security Act. Costs are reimbursed from the General Fund of the Treasury for most of

these individuals.

2. Historical covered worker data are subject to revision.

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

The impact of the demographic shifts under the three alternatives on the

OASDI cost rates is readily seen by considering the projected number of

OASDI beneficiaries per 100 covered workers. As compared to the 2006

level of 30 beneficiaries per 100 covered workers, this ratio is estimated to

rise significantly by 2085 to 40 under the low cost assumptions, 53 under the

intermediate assumptions, and 72 under the high cost assumptions. The significance of these numbers can be seen by comparing figure IV.B1 to figure

IV.B2.

For each alternative, the shape of the curve in figure IV.B2, which shows

beneficiaries per 100 covered workers, is strikingly similar to that of the corresponding cost-rate curve in figure IV.B1, thereby emphasizing the extent

to which the cost of the OASDI program as a percentage of taxable payroll is

determined by the age distribution of the population. Because the cost rate is

basically the product of the number of beneficiaries and their average benefit, divided by the product of the number of covered workers and their average taxable earnings (and because average benefits rise at about the same

rate as average earnings), it is to be expected that the pattern of the annual

cost rates is similar to that of the annual ratios of beneficiaries to workers.

High Cost:

2010 . . . . . . . . . 164,656 43,403 10,146 53,548 3.1 33

2015 . . . . . . . . . 169,296 50,001 11,834 61,835 2.7 37

2020 . . . . . . . . . 172,920 58,163 13,092 71,255 2.4 41

2025 . . . . . . . . . 175,712 66,087 14,281 80,369 2.2 46

2030 . . . . . . . . . 177,908 73,583 14,698 88,281 2.0 50

2035 . . . . . . . . . 179,730 79,128 14,986 94,114 1.9 52

2040 . . . . . . . . . 181,026 82,481 15,351 97,833 1.9 54

2045 . . . . . . . . . 181,796 84,855 15,981 100,836 1.8 55

2050 . . . . . . . . . 181,611 87,335 16,361 103,696 1.8 57

2055 . . . . . . . . . 181,099 90,159 16,690 106,850 1.7 59

2060 . . . . . . . . . 180,145 93,339 16,675 110,015 1.6 61

2065 . . . . . . . . . 178,936 96,428 16,698 113,127 1.6 63

2070 . . . . . . . . . 177,234 99,465 16,669 116,133 1.5 66

2075 . . . . . . . . . 175,410 102,281 16,557 118,838 1.5 68

2080 . . . . . . . . . 173,278 104,625 16,399 121,025 1.4 70

2085 . . . . . . . . . 171,222 106,473 16,185 122,658 1.4 72

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 1945-2085 (Cont.)

Calendar year

Covered

workers1

(in thousands)

Beneficiaries2 (in thousands) Covered

workers per

OASDI

beneficiary

OASDI

beneficiaries

per 100

covered

OASI DI OASDI workers
Actuarial Estimates

50

Table IV.B2 also shows that the number of covered workers per OASDI beneficiary, which was about 3.3 in 2006, is estimated to decline in the future.

Based on the intermediate assumptions, the ratio declines to 2.1 by 2032, and

1.9 workers per beneficiary by 2070. 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 2031, and then rises back to a level of 2.5 by 2067.

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 2041, and 1.4 workers per beneficiary by 2078.

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 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.

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

 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
51

Long-Range Estimates

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.

Based on the intermediate assumptions, the OASI trust fund ratio rises

steadily from 375 percent at the beginning of 2007, reaching a peak of

463 percent at the beginning of 2015. 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 2042. The DI trust fund ratio follows a pattern that is similar but

unfolds more rapidly. The DI trust fund ratio is estimated to decline steadily

from 200 percent at the beginning of 2007 until becoming exhausted in 2026.

The trust fund ratio for the combined OASI and DI Trust Funds under the

intermediate assumptions rises from 345 percent for 2007 to a peak of

409 percent at the beginning of 2014. Thereafter, the ratio declines, with the

combined funds becoming exhausted in 2041. In last year’s report, the peak

fund ratio for the combined funds was estimated to be 409 percent for 2015

and the year of exhaustion was estimated to be 2040.

The trust fund ratio for the OASDI program under the intermediate assumptions first declines in 2015. This occurs because the increase in trust fund

assets during 2014, 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 2014 and 2015. After 2014, the dollar

amount of assets is projected to continue to rise through the beginning of

2027 because interest income more than offsets the shortfall in noninterest

income.

Beginning in 2017, the OASDI program under the intermediate assumptions

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
Actuarial Estimates

52

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 1,736 percent for 2082. At the end of the long-range

period, the DI trust fund ratio is rising by 32 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

528 percent for 2019, dropping thereafter to a level of 250 percent by 2082.

At the end of the period the OASI trust fund ratio is declining by

2 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 peaks at 490 percent for 2021, falls to 387 percent for 2060, and

increases thereafter, reaching 431 percent for 2082. 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 412 percent for 2011, thereafter declining to fund exhaustion by the end of 2033. The DI trust fund ratio is estimated to decline from

193 percent for 2007 to fund exhaustion by the end of 2016. The combined

OASDI trust fund ratio is estimated to rise to a peak of 362 percent for 2010,

declining thereafter to fund exhaustion by the end of 2030.

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.

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 23 years into the future (until 2030). Under the intermediate assumptions the combined starting funds plus estimated future income

would be able to cover cost for about 34 years into the future (until 2041).

The program would be able to cover cost for the foreseeable future under the

more optimistic low cost assumptions. In the 2006 report, the combined trust
53

Long-Range Estimates

funds were projected to become exhausted in 2030 under the high cost

assumptions and in 2040 under the intermediate assumptions.

.

Note: See definition of trust fund ratio on page 206. The combined ratios shown for years after the DI fund is

estimated to be exhausted are theoretical and are shown for informational purposes only.

A graphical 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 graphical illustration of the trust fund ratios for the combined

trust funds is shown in figure II.D7 on page 15.

Table IV.B3.—Estimated Trust Fund Ratios, Calendar Years 2007-85

[In percent]

Calendar

year

Intermediate Low Cost High Cost

OASI DI OASDI OASI DI OASDI OASI DI OASDI

2007 . . . . . . . . . . . . . 375 200 345 375 203 346 375 193 343

2008 . . . . . . . . . . . . . 397 197 362 398 204 366 392 182 354

2009 . . . . . . . . . . . . . 414 190 375 419 204 383 403 165 359

2010 . . . . . . . . . . . . . 428 183 385 439 205 400 412 146 362

2011 . . . . . . . . . . . . . 441 177 396 458 209 417 412 126 359

2012 . . . . . . . . . . . . . 451 169 403 476 211 433 407 102 350

2013 . . . . . . . . . . . . . 458 160 407 491 214 446 401 79 341

2014 . . . . . . . . . . . . . 462 151 409 503 218 458 395 55 333

2015 . . . . . . . . . . . . . 463 141 409 513 222 468 390 30 324

2016 . . . . . . . . . . . . . 462 130 407 521 227 476 382 5 314

2020 . . . . . . . . . . . . . 434 86 381 527 256 489 331 1/1 256

2025 . . . . . . . . . . . . . 371 21 321 506 304 481 232 1/1 152

2030 . . . . . . . . . . . . . 281 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.

236 464 378 454 104 1/1 22

2035 . . . . . . . . . . . . . 176 1/1 137 418 480 425 1/1 1/1 1/1

2040 . . . . . . . . . . . . . 63 1/1 28 382 593 405 1/1 1/1 1/1

2045 . . . . . . . . . . . . . 1/1 1/1 1/1 356 694 395 1/1 1/1 1/1

2050 . . . . . . . . . . . . . 1/1 1/1 1/1 336 805 390 1/1 1/1 1/1

2055 . . . . . . . . . . . . . 1/1 1/1 1/1 317 924 388 1/1 1/1 1/1

2060 . . . . . . . . . . . . . 1/1 1/1 1/1 297 1,071 387 1/1 1/1 1/1

2065 . . . . . . . . . . . . . 1/1 1/1 1/1 279 1,224 389 1/1 1/1 1/1

2070 . . . . . . . . . . . . . 1/1 1/1 1/1 266 1,378 397 1/1 1/1 1/1

2075 . . . . . . . . . . . . . 1/1 1/1 1/1 258 1,525 410 1/1 1/1 1/1

2080 . . . . . . . . . . . . . 1/1 1/1 1/1 252 1,673 425 1/1 1/1 1/1

2085 . . . . . . . . . . . . . 1/1 1/1 1/1 245 1,834 439 1/1 1/1 1/1

Trust fund is estimated to become

exhausted in. . . . . 2042 2026 2041 2/

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

2/1 2/1 2033 2016 2030
Actuarial Estimates

54

4. Summarized Income Rates, Cost Rates, and Balances

Summarized income and cost rates, along with their components, are presented in table IV.B4 for 25-year, 50-year, and 75-year valuation periods.

Income rates reflect the scheduled payroll tax rates and the projected income

from the taxation of scheduled benefits expressed as a percentage of taxable

payroll. The current combined payroll tax rate of 12.4 percent is scheduled to

remain unchanged in the future. In contrast, the projected income from taxation of benefits, expressed as a percentage of taxable payroll, is expected to

generally increase throughout the long-range period. This is because increasing income from taxation of benefits reflects not only rising benefit and

income levels, but also the fact that benefit-taxation threshold amounts are

not indexed. Summarized income rates also include the starting trust fund

balance. 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, as shown in table IV.B4, is slightly smaller than the actual tax

rates in effect for each period. This results from the fact that all OASDI

income and cost dollar amounts presented in this report are computed on a

cash basis, i.e., amounts are attributed to the year in which they are intended

to be received by, or expended from, the fund, while taxable payroll is attrib-

 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%

1,400%

1,600%

1,800%

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

Calendar year

OASI

DI

Historical Estimated

III II

I

I

III II
55

Long-Range Estimates

uted to the year in which earnings are paid. Because earnings are paid to

workers before the corresponding payroll taxes are credited to the funds,

payroll tax income for a particular year reflects a combination of the taxable

payrolls from that year and from prior years, when payroll was smaller.

Dividing payroll tax income by taxable payroll for a particular year, or

period of years, will thus generally result in an income rate that is slightly

less than the applicable tax rate for the period.

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. 

Table IV.B4 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 the following year’s 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 period, 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.

The values in table IV.B4 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

1.72 percent of taxable payroll under the low cost assumptions, 0.57 percent

under the intermediate assumptions, and -0.93 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 0.57 percent under the low cost assumptions, but would have deficits of 1.23 percent under the intermediate assumptions and 3.53 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.
Actuarial Estimates

56

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 0.36 percent of taxable payroll under the low cost assumptions,

-1.95 percent under the intermediate assumptions, and -5.05 percent under

the high cost assumptions.

Assuming the Trustees’ intermediate assumptions are realized, the deficit of

1.95 percent of payroll indicates that financial adequacy of the program for

the next 75 years could be restored if the Social Security payroll tax rate

were increased for current and future earnings from 12.4 percent (combined

employee-employer shares) to 14.35 percent. Alternatively, all current and

future benefits could be reduced by 13.0 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, large annual deficits projected under current law for the end of the

long-range period, which exceed 5 percent of payroll under the intermediate

assumptions (see table IV.B1), indicate that the annual cost will very likely

continue to exceed tax revenues after 2081. As a result, ensuring continued

adequate financing 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 3.5 percent of taxable payroll

under the intermediate assumptions. This means that the projected infinite

horizon shortfall could be eliminated with an immediate increase in the combined payroll tax rate from 12.4 percent to about 15.9 percent. This shortfall

could also be eliminated if all current and future benefits were immediately

reduced by 21.5 percent.

As may be concluded from table IV.B4, 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.
57

Long-Range Estimates

.

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

Table IV.B5 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 $4.7 trillion for the OASDI program. 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

Table IV.B4.—Components of Summarized Income Rates and Cost Rates, 

Calendar Years 2007-81

[As a percentage of taxable payroll]

Valuation period

Income rate Cost rate

Actuarial

balance

Payroll

tax

Taxation

of

benefits

Beginning

fund

balance Total

Disbursements

Ending

fund

balance Total

OASI:

Intermediate:

2007-31. . . . . 10.59 0.54 1.56 12.69 11.47 0.51 11.98 0.71

2007-56. . . . . 10.59 .65 .91 12.15 12.94 .21 13.16 -1.01

2007-81. . . . . 10.59 .69 .71 11.99 13.56 .12 13.68 -1.69

Low Cost:

2007-31. . . . . 10.59 .50 1.55 12.64 10.64 .45 11.09 1.54

2007-56. . . . . 10.59 .57 .91 12.06 11.52 .18 11.70 .37

2007-81. . . . . 10.59 .59 .70 11.87 11.64 .10 11.73 .14

High Cost:

2007-31. . . . . 10.58 .59 1.56 12.73 12.46 .59 13.05 -.31

2007-56. . . . . 10.59 .74 .90 12.22 14.70 .27 14.97 -2.75

2007-81. . . . . 10.59 .83 .70 12.12 16.09 .17 16.26 -4.15

DI:

Intermediate:

2007-31. . . . . 1.80 .05 .17 2.02 2.08 .07 2.15 -.14

2007-56. . . . . 1.80 .05 .10 1.95 2.14 .03 2.17 -.22

2007-81. . . . . 1.80 .05 .08 1.93 2.18 .02 2.19 -.27

Low Cost:

2007-31. . . . . 1.80 .04 .17 2.01 1.77 .06 1.83 .18

2007-56. . . . . 1.80 .04 .10 1.94 1.71 .02 1.73 .20

2007-81. . . . . 1.80 .04 .08 1.91 1.69 .01 1.70 .22

High Cost:

2007-31. . . . . 1.80 .06 .17 2.03 2.54 .10 2.64 -.62

2007-56. . . . . 1.80 .06 .10 1.96 2.70 .05 2.75 -.79

2007-81. . . . . 1.80 .07 .08 1.94 2.82 .02 2.84 -.90

OASDI:

Intermediate:

2007-31. . . . . 12.38 .59 1.73 14.70 13.55 .58 14.13 .57

2007-56. . . . . 12.39 .70 1.01 14.10 15.08 .25 15.33 -1.23

2007-81. . . . . 12.39 .74 .79 13.92 15.73 .14 15.87 -1.95

Low Cost:

2007-31. . . . . 12.39 .54 1.72 14.64 12.42 .50 12.92 1.72

2007-56. . . . . 12.39 .61 1.01 14.00 13.23 .20 13.43 .57

2007-81. . . . . 12.39 .63 .77 13.79 13.32 .11 13.43 .36

High Cost:

2007-31. . . . . 12.38 .65 1.73 14.76 15.00 .68 15.69 -.93

2007-56. . . . . 12.38 .80 1.00 14.19 17.40 .32 17.72 -3.53

2007-81. . . . . 12.38 .90 .78 14.06 18.91 .19 19.11 -5.05
Actuarial Estimates

58

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

-$5.1 trillion for the OASDI program. Expressed as a percentage of taxable

payroll for the period, this is the actuarial balance of -1.95 percent.

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 2007 to 2081 for this report) for the evaluation of the long-run financial status of the OASDI program on an open group basis (i.e., including

taxes and cost for past, current and future participants through the year

2081). Table IV.B6, in its second line, shows that the present value of the

open group unfunded obligation for the program over that period is

$4.7 trillion. The open group measure indicates the adequacy of financing

over the period as a whole for a program financed on a pay-as-you-go basis.

On this basis, payroll taxes and scheduled benefits of all participants are

included through 2081.

Table IV.B6 also presents the 75-year unfunded obligation as percentages of

future OASDI taxable payroll and gross domestic product (GDP) through

Table IV.B5.—Components of 75-Year Actuarial Balance

Under Intermediate Assumptions (2007-81)

Item OASI DI OASDI

Present value as of January 1, 2007 (in billions):

a. Payroll tax revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,507 $4,671 $32,178

b. Taxation of benefits revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,798 137 1,935

c. Tax income (a + b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,305 4,808 34,113

d. Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,220 5,656 40,876

e. Cost minus tax income (d - c) . . . . . . . . . . . . . . . . . . . . . . . . . . 5,915 848 6,763

f. Trust fund assets at start of period. . . . . . . . . . . . . . . . . . . . . . . 1,844 204 2,048

g. Open group unfunded obligation (e - f). . . . . . . . . . . . . . . . . . . 4,071 644 4,715

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.

315 46 361

i. Income minus cost, plus assets at start of period, minus

ending target trust fund (c - d + f - h = - g - h) . . . . . . . . . . . . . -4,386 -690 -5,076

j. Taxable payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,783 259,783 259,783

Percent of taxable payroll:

Actuarial balance (100 × i ÷ j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.69 -.27 -1.95
59

Long-Range Estimates

2081. The 75-year unfunded obligation as a percentage of taxable payroll is

less than the actuarial deficit, because it excludes the ending target trust fund

value (see table IV.B5).

However, there are limitations on what can be conveyed using summarized

measures alone. For example, overemphasis of summary measures (such as

the actuarial balance and open group unfunded obligation) for the 75-year

period can lead to incorrect perceptions and policies that fail to address

financial sustainability for the more distant future. This can be addressed by

considering the trend in trust fund ratios toward the end of the period (see

“sustainable solvency” at the beginning of section IV.B).

Another limitation is that continued, and possibly increasing, annual shortfalls after the period are not reflected in the 75-year summarized measures.

In order to address this limitation, this section presents estimates of unfunded

obligations that extend to the infinite horizon. The extension assumes that the

current-law OASDI program and the demographic and most economic trends

used for the 75-year projection continue indefinitely. The one exception is

that the ultimate assumed real-wage differential for the long-range period of

1.1 percent is increased to 1.2 percent, phased in over the 10-year period

2082 to 2091. This change essentially maintains consistency with the

assumed reduction in the growth of health care expenditures after 2081. (See

the Medicare Trustees Report.) The values in table IV.B6 indicate that

extending the calculations beyond 2081 adds $8.9 ($13.6 - $4.7) trillion in

present value to the amount of the unfunded obligation estimated through

2081. That is, over the infinite horizon, the OASDI open group unfunded

obligation is projected to be $13.6 trillion. The $8.9 trillion increment

reflects a significant financing gap projected for OASDI after 2081. Of

course, the degree of uncertainty associated with estimates beyond 2081 is

substantial.

In last year’s report the unfunded obligation over the infinite horizon was

reported as $13.4 trillion in present value as of January 1, 2006. The change

to the later valuation date (January 1, 2007), taken alone, would increase the

measured deficit by about $0.7 trillion. The net effects of changes in data,

methods, and other assumptions decreased the infinite horizon unfunded

obligation by approximately $0.5 trillion. See section IV.B.7 for details

regarding changes in data, methods, and assumptions.

As noted in the previous section, the $13.6 trillion infinite future open group

unfunded obligation may also be expressed as a percentage of the taxable

payroll over that period. This actuarial deficit for the infinite future is

3.5 percent of taxable payroll under the intermediate assumptions,

0.2 percent lower than in last year’s report. This unfunded obligation can

also be expressed as a percentage of GDP over the infinite future and is
Actuarial Estimates

60

1.2 percent on that basis. These relative measures of the unfunded obligation

over the infinite future express its magnitude in relation to the resources that

are potentially available to finance the shortfall.

Notes:

1. The present values of future taxable payroll for 2007-81 and for 2007 through the infinite horizon are

$259.8 trillion and $388.4 trillion, respectively.

2. The present values of GDP for 2007-81 and for 2007 through the infinite horizon are $708.2 trillion and

$1,117.3 trillion, respectively. Present values of GDP shown in the Medicare Trustees Report differ slightly

due to the use of interest discount rates that are specific to each program’s trust fund holdings.

b. Unfunded Obligations for Past, Current, and Future Participants

The future unfunded obligation of the OASDI program may also be viewed

from a generational perspective. This perspective is generally associated

with assessment of the financial condition of a program that is intended or

required to be financed on a fully-advance-funded basis. However, analysis

from this perspective can also provide insights into the implications of payas-you-go financing, the basis that has been used for the OASDI program.

The first line of table IV.B7 shows that the present value of future cost less

future taxes over the next 100 years for all current participants equals

$16.5 trillion. For this purpose, current participants are defined as individuals

who attain age 15 or older in 2007. Subtracting the current value of the trust

fund (the accumulated value of past OASDI taxes less cost) gives a closed

group (excluding all future participants) unfunded obligation of

$14.4 trillion. This value represents the shortfall of lifetime contributions for

all past and current participants relative to the lifetime costs associated with

their generations. For a fully-advance-funded program this value would be

equal to zero.

For Social Security benefits to be adequately financed for the infinite future,

the scheduled taxes or benefits of current and future participants in the system must be adjusted to fully offset the shortfall due to past and current participants. Future participants, as a whole, are projected to pay, in present

value, taxes that are approximately $0.8 trillion more than the cost of providing benefits they are scheduled to receive over the infinite future. For the

Table IV.B6.—Unfunded OASDI Obligations for 1935 (Program Inception)

Through the Infinite Horizon

[Present values as of January 1, 2007; dollar amounts in trillions]

Present

value

Expressed as a percentage

of future payroll and GDP

Taxable

payroll GDP

Unfunded obligation for 1935 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

2007. Expressed as percentage of payroll and GDP for the period 2007 through the infinite horizon.

$13.6 3.5 1.2

Unfunded obligation for 1935 through 20812 . . . . . . . . . . . . . . . . 

2 Present value of future cost less future taxes through 2081, reduced by the amount of trust fund assets at the

beginning of 2007. Expressed as percentage of payroll and GDP for the period 2007 through 2081.

4.7 1.8 .7
61

Long-Range Estimates

2006 report, on a present value basis, future participants were projected to

pay about $0.1 trillion less, in taxes, than the total cost of benefits they

would receive over the infinite future. This amount changed in part due to

relatively lower annual deficits late in the 75-year period that are projected to

continue. In addition, improvements in methods changed the allocation of

taxable payroll and benefits between current and future participants, resulting in more of the unfunded obligation being attributed to current participants.

Thus, the remaining long run financing gap that program reforms must ultimately close for the infinite future is estimated to be $13.6 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 is equivalent to 3.5 percent of taxable payroll or 1.2 percent of GDP.

Notes:

1. The present value of future taxable payroll for 2007 through the infinite horizon is $388.4 trillion.

2. The present value of GDP for 2007 through the infinite horizon is $1,117.3 trillion.

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

6. Test of Long-Range Close Actuarial Balance

The test of long-range close actuarial balance applies to a set of 66 separate

valuation periods beginning with the first 10-year period, and including the

periods of the first 11 years, the first 12 years, etc., up through the full

75-year projection period. Under the long-range test, the summarized income

rate and cost rate are calculated for each of these valuation periods. 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 5 percent for the full 75-year

Table IV.B7.—Present Values of OASDI Cost Less Tax Revenue and Unfunded 

Obligations for Program Participants

[Present values as of January 1, 2007; dollar amounts in trillions]

Present

value

Expressed as a 

percentage of future 

payroll and GDP

Taxable

payroll GDP

Present value of future cost less future taxes for current participants . . . $16.5 4.2 1.5

Less current trust fund

(tax accumulations minus expenditures to date for past and current 

participants). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 .5 .2

Equals unfunded obligation for past and current participants1 . . . . . . . .

1This concept is also referred to as the closed group unfunded obligation.

14.4 3.7 1.3

Plus present value of cost less taxes for future participants 

for the infinite future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -.8 -.2 -.1

Equals unfunded obligation for all participants through the infinite

horizon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 3.5 1.2
Actuarial Estimates

62

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 test of long-range 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. It is recognized that necessary changes in program financing or benefit provisions should not be put off until the last possible moment

if future beneficiaries and workers are to effectively plan for their retirement.

Table IV.B8 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 programs. Values shown for the 25-year, 50-year, and

75-year valuation periods correspond to those presented in table IV.B4.

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 through 34 years under the intermediate estimates. For valuation

periods of length greater than 34 years, the estimated actuarial balance is less

than the minimum allowable. For the full 75-year long-range period the estimated actuarial balance reaches -12.34 percent of the summarized cost rate,

for a shortfall of 7.34 percent, from the minimum allowable balance of

-5.0 percent of the summarized cost rate. Thus, although the OASI program

satisfies the test of short-range financial adequacy (as discussed earlier on

page 31), it is not in long-range close actuarial balance.
63

Long-Range Estimates

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 12 years under the intermediate estimates. For

valuation periods of length greater than 12 years, the estimated actuarial balance is less than the minimum allowable. For the full 75-year long-range

period the estimated actuarial balance reaches -12.10 percent of the summarized cost rate, for a shortfall of 7.10 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 in satisfying the test for long-range actuarial balance even though longrange actuarial deficits are more comparable over the entire 75-year period.

This occurs because much more of the increase in the long-range cost due to

the aging of the large baby-boom generation occurs earlier for the DI program than for the OASI program. As a result, tax rates that are relatively

more adequate for the OASI program during the first 25 years become relatively less adequate later in the long-range period.

For the 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 through 32 years under the intermediate estimates.

For valuation periods of length greater than 32 years, the estimated actuarial

balance is below the minimum allowable balance. The size of the shortfall

from the minimum allowable balance rises gradually, reaching 7.31 percent

of the summarized cost rate for the full 75-year long-range valuation period.

Thus, although the OASDI program satisfies the short-range test of financial

adequacy, it is out of long-range close actuarial balance.

The OASI and DI programs, both separate and combined, were also found to

be out of close actuarial balance in last year’s report. The estimated deficits

for the OASI, DI, and combined OASDI programs in this report are similar

to those shown in last year’s report.
Actuarial Estimates

64

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

Table IV.B8.—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: 2007-2016. . . . . 14.59 10.74 3.85 35.83 0.00

15 years: 2007-2021. . . . . 13.50 11.05 2.44 22.10 -.38

20 years: 2007-2026. . . . . 12.98 11.51 1.47 12.76 -.77

25 years: 2007-2031. . . . . 12.69 11.98 .71 5.92 -1.15

30 years: 2007-2036. . . . . 12.50 12.37 .13 1.06 -1.54

35 years: 2007-2041. . . . . 12.37 12.66 -.29 -2.28 -1.92

40 years: 2007-2046. . . . . 12.28 12.87 -.59 -4.58 -2.31

45 years: 2007-2051. . . . . 12.20 13.02 -.82 -6.29 -2.69

50 years: 2007-2056. . . . . 12.15 13.16 -1.01 -7.68 -3.08

55 years: 2007-2061. . . . . 12.10 13.28 -1.18 -8.87 -3.46

60 years: 2007-2066. . . . . 12.07 13.39 -1.33 -9.91 -3.85

65 years: 2007-2071. . . . . 12.04 13.50 -1.46 -10.82 -4.23

70 years: 2007-2076. . . . . 12.01 13.59 -1.58 -11.62 -4.62

75 years: 2007-2081. . . . . 11.99 13.68 -1.69 -12.34 -5.00

DI:

10 years: 2007-2016. . . . . 2.23 2.19 .04 1.90 .00

15 years: 2007-2021. . . . . 2.11 2.16 -.05 -2.26 -.38

20 years: 2007-2026. . . . . 2.05 2.16 -.11 -4.95 -.77

25 years: 2007-2031. . . . . 2.02 2.15 -.14 -6.45 -1.15

30 years: 2007-2036. . . . . 1.99 2.15 -.16 -7.33 -1.54

35 years: 2007-2041. . . . . 1.98 2.15 -.17 -8.02 -1.92

40 years: 2007-2046. . . . . 1.96 2.15 -.19 -8.78 -2.31

45 years: 2007-2051. . . . . 1.96 2.16 -.21 -9.50 -2.69

50 years: 2007-2056. . . . . 1.95 2.17 -.22 -10.15 -3.08

55 years: 2007-2061. . . . . 1.94 2.18 -.23 -10.66 -3.46

60 years: 2007-2066. . . . . 1.94 2.18 -.24 -11.07 -3.85

65 years: 2007-2071. . . . . 1.93 2.19 -.25 -11.44 -4.23

70 years: 2007-2076. . . . . 1.93 2.19 -.26 -11.78 -4.62

75 years: 2007-2081. . . . . 1.93 2.19 -.27 -12.10 -5.00

OASDI:

10 years: 2007-2016. . . . . 16.82 12.93 3.89 30.09 .00

15 years: 2007-2021. . . . . 15.61 13.21 2.39 18.12 -.38

20 years: 2007-2026. . . . . 15.03 13.67 1.36 9.97 -.77

25 years: 2007-2031. . . . . 14.70 14.13 .57 4.04 -1.15

30 years: 2007-2036. . . . . 14.50 14.52 -.03 -.19 -1.54

35 years: 2007-2041. . . . . 14.35 14.81 -.46 -3.11 -1.92

40 years: 2007-2046. . . . . 14.24 15.02 -.78 -5.18 -2.31

45 years: 2007-2051. . . . . 14.16 15.18 -1.02 -6.75 -2.69

50 years: 2007-2056. . . . . 14.10 15.33 -1.23 -8.03 -3.08

55 years: 2007-2061. . . . . 14.05 15.46 -1.41 -9.12 -3.46

60 years: 2007-2066. . . . . 14.00 15.57 -1.57 -10.08 -3.85

65 years: 2007-2071. . . . . 13.97 15.68 -1.71 -10.91 -4.23

70 years: 2007-2076. . . . . 13.94 15.78 -1.84 -11.65 -4.62

75 years: 2007-2081. . . . . 13.92 15.87 -1.95 -12.31 -5.00
65

Long-Range Estimates

7. Reasons for Change in Actuarial Balance From Last Report

The estimated effects of various changes from last year’s report to this report

on the long-range actuarial balance under the intermediate assumptions are

listed (by category) in table IV.B9.

 Figure IV.B4.—Test of Long-Range 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%

2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2066 2071 2076 2081

Ending year of valuation period

 Actuarial balance as percentage

 of summarized cost rate

 Minimum allowable actuarial balance

OASI

OASDI

DI
Actuarial Estimates

66

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

One legislative change that affects the financing of the Social Security program, the Social Security Trust Fund Restoration Act of 2006, Public Law

109-465, is included for the first time in the estimates for this report (see section III.B). This change completed the reimbursement of the trust funds for

excess transfers to the Internal Revenue Service in 1999 through 2005

related to voluntary income tax withholding for beneficiaries. The effect of

this legislation is estimated to increase (improve) the long-range actuarial

balance by a negligible amount (less than 0.005 percent of taxable payroll).

In changing from the valuation period of last year’s report, which was 2006-

80, to the valuation period of this report, 2007-81, the relatively large negative annual balance for 2081 is included. This results in a larger long-range

actuarial deficit. (Note that the fund balance at the end of 2006, 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, final mortality data for 2003 indicate a slightly larger than

expected decline in death rates for men at older ages. The updates to the mortality data result in slightly lower starting death rates and faster near-term

declines in death rates, and thus a decrease (worsening) in the long-range

actuarial balance of about 0.03 percent of taxable payroll. 

Table IV.B9.—Reasons for Change in the 75-Year Actuarial Balance

Under Intermediate Assumptions

[As a percentage of taxable payroll]

Item OASI DI OASDI

Shown in last year's report:

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.95 1.93 13.88

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.63 2.27 15.90

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.68 -.33 -2.02

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 2006-80, to the valuation period of

this report, 2007-81, the relatively large negative annual balance for 2081 is included. This results in a larger

long-range actuarial deficit. The fund balance at the end of 2006, i.e., at the beginning of the projection

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

-.05 -.01 -.06

Demographic data and assumptions. . . . . . . . . . . . . . -.03 .00 -.03

Economic data and assumptions. . . . . . . . . . . . . . . . . +.01 +.01 +.02

Disability data and assumptions. . . . . . . . . . . . . . . . . -.02 +.08 +.06

Programmatic data and methods . . . . . . . . . . . . . . . . +.09 -.01 +.08

Total change in actuarial balance . . . . . . . . . . . . . . . . . . -.01 +.07 +.06

Shown in this report:

Actuarial balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.69 -.27 -1.95

Income rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.99 1.93 13.92

Cost rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.68 2.19 15.87
67

Long-Range Estimates

Ultimate economic assumptions are unchanged from last year’s report. However, changes in starting values for the economic assumptions and in the

near-term transition to the ultimate economic assumptions have a positive

effect on the long-range actuarial balance. One of the major reasons for this

positive effect is that the growth in average real covered earnings over the

period 2006 to 2016 is projected to be somewhat greater than in last year’s

report. In addition, the average wage index starts and is assumed to remain at

a slightly lower level relative to average taxable earnings than was projected

in last year’s report. This is because the actual growth in the average wage

index for 2005, relative to growth in average taxable earnings, was less than

expected in last year’s report. Because the average wage index is important

in the indexing of benefit levels, this lower relative level means slightly

smaller benefit levels. The net effect of these economic changes is an

increase (improvement) in the long-range actuarial balance of about 0.02

percent of taxable payroll.

Disability incidence rate assumptions are revised from the levels used in last

year’s report in order to bring the rates closer to the levels and trends in incidence rates experienced since 1970. Compared to last year’s report, the ultimate age-adjusted disability incidence rates are 10 percent lower for males

and are less than 1 percent higher for females. The changes in ultimate rates

increase (improve) the long-range actuarial balance by about 0.06 percent of

taxable payroll.

Several methodological improvements and updates of program-specific data

are included for projections in the 2007 report. These changes to

programmatic data and methods result in a combined increase in the longrange OASDI actuarial balance of about 0.08 percent of taxable payroll,

including interaction among the individual changes. Two significant

improvements were made to the methods related to the projection of average

benefit levels for workers who will become eligible in the future. The first of

these improvements augments the sample of newly entitled disabled worker

beneficiaries by including records of beneficiaries who began receiving benefits after the year for which they are first found to be eligible. These additional beneficiaries had, on average, slightly lower benefit levels. The second

of these improvements reallocates total taxable earnings among sample

records. This reallocation increases the proportion of total taxable earnings

assigned to workers with earnings close to, or above, the taxable maximum.

Reallocating a higher portion of total taxable earnings to higher earners

results in lower average benefits due to the progressivity of the benefit formula. These two changes increase (improve) the OASDI actuarial balance by

about 0.07 percent of taxable payroll. In addition, two changes to improve

consistency of cohort data were made to the historical population estimates.

The first is a new smoothing technique for the historical distribution of
Actuarial Estimates

68

marriages by age-of-husband and age-of-wife. The other improvement

achieves a more consistent cohort estimate of the total U.S. population for

years after the 2000 census, by changing how the 2000 census undercount

factors are applied. These two improvements to the historical population

estimates result in an increase (improvement) in the long-range actuarial

balance of about 0.01 percent of taxable payroll. Several other smaller

changes have largely offsetting effects on the long-range actuarial balance.

If no changes in assumptions or methods were made for this report and actual

experience had met expectations since the last report, the OASDI long-range

actuarial deficit would, nonetheless, have increased by 0.06 percent of

taxable payroll from the level estimated for last year’s report due to the

change in the valuation period (see table IV.B9). The changes made in data,

assumptions, and methods for this report, together, more than offset the

increase in the deficit due to the new valuation period. This is indicated by

the total 0.06 percent decrease in the actuarial deficit, which, after rounding,

decreases the deficit from 2.02 percent in last year’s report to 1.95 percent of

taxable payroll in this report.

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.

 Figure IV.B5.—OASDI Annual Balances: 2006 and 2007 Reports

[As a percentage of taxable payroll under the intermediate assumptions]

-8%

-6%

-4%

-2%

0%

2%

4%

2005 2015 2025 2035 2045 2055 2065 2075 2085

Calendar year

2006 Report

2007 Report
69

Long-Range Estimates

The projected annual balances in this report are generally higher (less negative) than those in last year’s report largely due to the changes in methods

and assumptions. Over the period 2007 through about 2030, annual balances

are similar between the two reports. Thereafter, the annual balances in this

year’s report are higher primarily due to the impact of lower ultimate disability incidence rates and improvements in the long-range methods for projecting average benefit levels. The annual deficit for 2080 is 5.16 percent of

taxable payroll in this report compared to 5.38 percent for 2080 in last year’s

report.
Assumptions & Methods

70

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 factors 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 many 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, a range of estimates is shown in this report on the basis of

three 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. The

low and high cost sets of assumptions reflect significant potential changes in

the interrelationship among factors, as well as changes in the values for individual factors. The probability is very low that all the assumptions and interactions would differ in the same direction from those expected. Outcomes

with overall cost as low as (or lower than) the low cost scenario or as high as

(or higher than) the high cost scenario are also very low probability.

Although these three sets of demographic and economic assumptions have

been developed to provide a broad range of possible outcomes, 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,
71

Demographic Assumptions and Methods

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,

toward long-range ultimate values generally over the next 2 to 25 years. Ultimate values or trends reached by the end of the 75-year long-range period are

generally maintained at these levels or trends for extrapolations beyond 75

years. One exception is for real wage growth, as described in section IV.B.5.

The ultimate values assumed after the first 2 to 25 years (and through the end

of the 75-year long-range period) for both the demographic and the economic factors are intended to represent average annual 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 for women 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.

 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 Social Security website at www.socialsecurity.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) 965-3006. This entire report, along with supplemental year-by-year tables, may also be

found at www.socialsecurity.gov/OACT/TR/TR07/index.html.
Assumptions & Methods

72

Historically, fertility rates in the United States have fluctuated widely. The

total fertility rate1 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 2.07 for 1990. Since then, the total fertility rate has remained fairly stable,

around 2.0 children per woman.

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, such as the rising percentages of women who have never married, of

women who are divorced, and of young women who are in the labor force,

are consistent with a continued relatively low fertility rate. Based on consideration of these factors, ultimate total fertility rates of 2.3, 2.0 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 2004, reaching the selected ultimate level for 2031 and later.

Assumed total fertility rates are very similar to those in last year’s report.

Incorporating additional birth data and population data for 2004 yields a

slightly higher starting level than the level assumed in last year’s report. This

higher starting level results in slightly higher total fertility rates between

2004 and the year the ultimate levels are reached (2031).

2. Mortality Assumptions

Mortality (death rate) assumptions are developed by single year of age, sex,

and cause of death.

Death rates in the United States since 1900 have declined substantially, but at

varying rates. Historical rates (for years 1900-2003) 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).2 For ages

65 and over, Medicare final data were used for years 1968 through 2003.

 1 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.

 2 These rates reflect NCHS data on deaths and Census estimates of population.
73

Demographic Assumptions and Methods

Also used are death rates by cause of death at all ages which are produced by

the NCHS for years 1979-2003.

The total age-sex-adjusted death rate1 declined at an average rate2 of

1.06 percent per year between 1900 and 2003. Between 1979 and 2003, 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

0.74 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 0.73 percent per year between 1900 and 2003.

Between 1979 and 2003 the age-sex-adjusted death rate for these ages

declined at an average annual rate of 0.52 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 2031 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. These three sets of ultimate annual percentage

reductions are unchanged from those used in last year’s report.

After 2003, 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 1983 and 2003, to the ultimate annual

percentage reductions by age, sex, and cause of death assumed for 2031 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 1983 and 2003.

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, these projected age-sex-adjusted death rates are

 1 Calculated here as the crude rate that would occur in the enumerated total population as of April 1, 2000, 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 annual geometric rate of reduction between the first and last

years of the period.
Assumptions & Methods

74

slightly lower than the death rates in last year’s report. This is because incorporating new data for 2003 results in age-sex-adjusted death rates throughout

the projection period that are slightly lower than those in last year’s report.

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 0.33 percent, 0.70 percent, and 1.21 percent between

2031 and 2081 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 substantially 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

0.28 percent, 0.66 percent, and 1.15 percent between 2031 and 2081 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 2003 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 immigration1 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 580,0002 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 860,0002 persons per year during the

 1 Consistent with the U.S. Citizenship and Immigration Services, legal immigrants are individuals admitted

to the U.S. for legal permanent residence.

 2 Excludes those persons admitted under the Immigration Reform and Control Act of 1986.
75

Demographic Assumptions and Methods

period 1992 through 2005. The number of legal immigrants in 2005 is estimated to be about 1,122,000 persons.

For 2005, net legal immigration (after considering emigration) is estimated

to be about 842,000 persons. Net other immigration is estimated to be

400,000 persons. For 2006, net legal immigration is estimated to be 675,000

for the intermediate, 720,000 for low cost and 630,000 for the high cost

assumptions. Net other immigration for 2006 is estimated to be 400,000 persons for all three assumptions.

The ultimate annual net immigration assumptions are unchanged from those

in last year’s report. After 2006, the annual number of net legal immigrants is

projected to reach the ultimate level in 2008. The ultimate level of annual net

other immigrants is projected to be reached in 2027 under the intermediate

and low cost assumptions and in 2017 under the high cost assumptions.

The total level of net immigration (legal and other, combined) under the

intermediate projection is assumed to decrease from a level of 1,075,000 persons in 2007 to an ultimate level of 900,000 persons1 for each year after

2026. For the low cost assumptions, net immigration is assumed to be

1,270,000 persons in 2007, increase to a level of 1,400,000 persons for each

year 2008-16, and then decrease to an ultimate level in 2027 of 1,300,000

persons2. Under the high cost assumptions, net immigration is assumed to

decrease from a level of 810,000 persons in 2007 to an ultimate level in 2017

of 672,500 persons3. 

There is a very wide range of opinion about the future course of immigration

for the United States. Some, like the 2003 Technical Panel mentioned in the

previous section, believe that immigration will increase substantially in the

future. Others believe that potential immigrants may be attracted to other

countries or that the U.S. borders could be tightened in the future.

 1 600,000 net legal immigrants plus 300,000 net other immigrants.

 2 850,000 net legal immigrants plus 450,000 net other immigrants.

 3 472,500 net legal immigrants plus 200,000 net other immigrants.
Assumptions & Methods

76

Table V.A1.—Principal Demographic Assumptions, Calendar Years 1940-2085

Calendar year

Total

fertility

rate1

Age-sex-adjusted death rate2

per 100,000, by age Net immigration

Total Under 65 65 and over Legal3 Other4

Historical data:

1940 . . . . . . . . . 2.23 1,779.1 673.0 9,569.0 45,950

1945 . . . . . . . . . 2.42 1,586.6 601.8 8,522.4 55,057

1950 . . . . . . . . . 3.03 1,435.6 499.4 8,028.3 170,574

1955 . . . . . . . . . 3.50 1,334.2 442.8 7,612.2 209,766

1960 . . . . . . . . . 3.61 1,330.9 436.9 7,626.7 201,261

1965 . . . . . . . . . 2.88 1,304.6 430.0 7,464.0 232,394

1970 . . . . . . . . . 2.43 1,224.3 422.6 6,870.7 278,915

1975 . . . . . . . . . 1.77 1,099.0 369.5 6,236.4 294,292

1980 . . . . . . . . . 1.82 1,035.9 331.9 5,993.6 410,329 375,000

1985 . . . . . . . . . 1.84 984.2 303.6 5,777.6 433,443 375,000

1990 . . . . . . . . . 2.07 931.2 289.4 5,451.1 501,041 550,000

1991 . . . . . . . . . 2.06 918.8 286.2 5,373.5 547,971 550,000

1992 . . . . . . . . . 2.04 906.2 280.2 5,315.3 620,965 550,000

1993 . . . . . . . . . 2.02 928.0 283.1 5,470.0 644,685 550,000

1994 . . . . . . . . . 2.00 916.2 280.5 5,392.7 583,364 550,000

1995 . . . . . . . . . 1.98 913.9 277.3 5,397.5 574,507 550,000

1996 . . . . . . . . . 1.98 900.4 266.1 5,367.2 664,579 550,000

1997 . . . . . . . . . 1.97 885.1 253.6 5,332.5 571,243 550,000

1998 . . . . . . . . . 2.00 878.3 246.9 5,325.2 488,303 550,000

1999 . . . . . . . . . 2.01 884.3 245.0 5,386.6 520,364 550,000

2000 . . . . . . . . . 2.06 875.7 243.4 5,328.3 671,580 550,000

2001 . . . . . . . . . 2.03 867.4 243.6 5,260.7 794,240 550,000

2002 . . . . . . . . . 2.02 863.6 242.7 5,236.6 727,781 550,000

2003 . . . . . . . . . 2.05 851.3 241.2 5,148.2 575,326 550,000

20045 . . . . . . . . 2.05 852.2 232.8 5,214.4 749,237 400,000

20055 . . . . . . . . 2.04 847.8 230.0 5,199.0 841,769 400,000

20065 . . . . . . . . 2.04 843.7 227.2 5,185.2 675,000 400,000

Intermediate: 

2010 . . . . . . . . . 2.03 825.3 217.3 5,106.9 600,000 400,000

2015 . . . . . . . . . 2.03 795.7 206.6 4,944.5 600,000 400,000

2020 . . . . . . . . . 2.02 764.5 196.9 4,762.2 600,000 350,000

2025 . . . . . . . . . 2.01 734.2 187.8 4,581.7 600,000 350,000

2030 . . . . . . . . . 2.00 705.4 179.4 4,409.8 600,000 300,000

2035 . . . . . . . . . 2.00 678.3 171.5 4,247.3 600,000 300,000

2040 . . . . . . . . . 2.00 652.8 164.0 4,095.1 600,000 300,000

2045 . . . . . . . . . 2.00 629.0 157.1 3,952.5 600,000 300,000

2050 . . . . . . . . . 2.00 606.6 150.5 3,818.6 600,000 300,000

2055 . . . . . . . . . 2.00 585.5 144.3 3,692.6 600,000 300,000

2060 . . . . . . . . . 2.00 565.7 138.5 3,574.1 600,000 300,000

2065 . . . . . . . . . 2.00 547.0 133.0 3,462.4 600,000 300,000

2070 . . . . . . . . . 2.00 529.3 127.8 3,356.9 600,000 300,000

2075 . . . . . . . . . 2.00 512.6 122.9 3,257.3 600,000 300,000

2080 . . . . . . . . . 2.00 496.8 118.2 3,163.0 600,000 300,000

2085 . . . . . . . . . 2.00 481.8 113.8 3,073.6 600,000 300,000
77

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

the NCHS, projections were made of the population in the Social Security

area by age, sex, and marital status as of January 1 of each year 2006 through

Low Cost: 

2010 . . . . . . . . . 2.08 845.5 223.1 5,229.0 850,000 550,000

2015 . . . . . . . . . 2.13 836.8 217.4 5,198.5 850,000 550,000

2020 . . . . . . . . . 2.19 823.5 211.7 5,132.2 850,000 500,000

2025 . . . . . . . . . 2.24 809.1 206.1 5,055.7 850,000 500,000

2030 . . . . . . . . . 2.29 794.7 200.7 4,977.9 850,000 450,000

2035 . . . . . . . . . 2.30 780.6 195.6 4,900.8 850,000 450,000

2040 . . . . . . . . . 2.30 767.0 190.6 4,826.4 850,000 450,000

2045 . . . . . . . . . 2.30 753.9 185.9 4,754.7 850,000 450,000

2050 . . . . . . . . . 2.30 741.4 181.3 4,685.5 850,000 450,000

2055 . . . . . . . . . 2.30 729.2 177.0 4,618.7 850,000 450,000

2060 . . . . . . . . . 2.30 717.5 172.8 4,554.2 850,000 450,000

2065 . . . . . . . . . 2.30 706.3 168.7 4,492.0 850,000 450,000

2070 . . . . . . . . . 2.30 695.4 164.9 4,431.9 850,000 450,000

2075 . . . . . . . . . 2.30 684.9 161.1 4,373.8 850,000 450,000

2080 . . . . . . . . . 2.30 674.8 157.6 4,317.7 850,000 450,000

2085 . . . . . . . . . 2.30 665.0 154.1 4,263.4 850,000 450,000

High Cost:

2010 . . . . . . . . . 1.99 804.6 211.1 4,984.3 472,500 250,000

2015 . . . . . . . . . 1.92 752.5 193.8 4,687.0 472,500 250,000

2020 . . . . . . . . . 1.85 701.7 178.4 4,386.9 472,500 200,000

2025 . . . . . . . . . 1.78 654.3 164.5 4,103.6 472,500 200,000

2030 . . . . . . . . . 1.71 610.7 151.8 3,841.8 472,500 200,000

2035 . . . . . . . . . 1.70 570.6 140.3 3,601.2 472,500 200,000

2040 . . . . . . . . . 1.70 534.1 129.8 3,380.9 472,500 200,000

2045 . . . . . . . . . 1.70 500.6 120.2 3,179.1 472,500 200,000

2050 . . . . . . . . . 1.70 469.8 111.4 2,993.9 472,500 200,000

2055 . . . . . . . . . 1.70 441.6 103.4 2,823.8 472,500 200,000

2060 . . . . . . . . . 1.70 415.7 96.0 2,667.1 472,500 200,000

2065 . . . . . . . . . 1.70 391.8 89.2 2,522.8 472,500 200,000

2070 . . . . . . . . . 1.70 369.8 83.0 2,389.6 472,500 200,000

2075 . . . . . . . . . 1.70 349.4 77.2 2,266.4 472,500 200,000

2080 . . . . . . . . . 1.70 330.6 71.9 2,152.4 472,500 200,000

2085 . . . . . . . . . 1.70 313.2 67.1 2,046.7 472,500 200,000

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

2031.

2 The age-sex-adjusted death rate is the crude rate that would occur in the enumerated total population as of

April 1, 2000, 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 Net other annual immigration is estimated to have averaged 375,000 persons over the period 1980-89 and

550,000 over the period 1990-99.

5 Preliminary or estimated.

Table V.A1.—Principal Demographic Assumptions, Calendar Years 1940-2085 (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 Other4
Assumptions & Methods

78

2085. The starting Social Security area population for January 1, 2005, is

based on the Census Bureau’s estimate of the residents of the 50 States and

D.C., and U.S. Armed Forces overseas. 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 historical and projected population as of July 1 by

broad age group, for the three alternatives. Also shown are 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 1950-2085

Calendar year

Population (in thousands) Dependency ratio

Under 20 20-64

65 and

over Total Aged1 Total2

Historical data:

1950 . . . . . . . . . . . . . . 54,466 92,841 12,811 160,118 0.138 0.725

1960 . . . . . . . . . . . . . . 73,076 99,818 17,278 190,172 .173 .905

1965 . . . . . . . . . . . . . . 80,132 104,795 19,091 204,018 .182 .947

1970 . . . . . . . . . . . . . . 80,684 113,158 20,923 214,765 .185 .898

1975 . . . . . . . . . . . . . . 78,437 122,857 23,305 224,599 .190 .828

1980 . . . . . . . . . . . . . . 74,568 134,428 26,237 235,233 .195 .750

1985 . . . . . . . . . . . . . . 73,211 144,957 29,167 247,335 .201 .706

1990 . . . . . . . . . . . . . . 75,060 153,368 32,029 260,458 .209 .698

1995 . . . . . . . . . . . . . . 79,621 160,844 34,322 274,788 .213 .708

2000 . . . . . . . . . . . . . . 82,619 170,240 35,425 288,284 .208 .693

2005 . . . . . . . . . . . . . . 84,394 181,063 37,147 302,604 .205 .671

20063 . . . . . . . . . . . . . 84,642 183,066 37,516 305,225 .205 .667

Intermediate:

2010 . . . . . . . . . . . . . . 85,211 190,004 40,031 315,246 .211 .659

2015 . . . . . . . . . . . . . . 85,877 195,886 46,070 327,833 .235 .674

2020 . . . . . . . . . . . . . . 87,512 198,883 53,773 340,167 .270 .710

2025 . . . . . . . . . . . . . . 89,218 199,997 62,577 351,792 .313 .759

2030 . . . . . . . . . . . . . . 90,785 200,966 70,252 362,003 .350 .801

2035 . . . . . . . . . . . . . . 91,782 204,011 74,874 370,667 .367 .817

2040 . . . . . . . . . . . . . . 92,555 208,126 77,415 378,096 .372 .817

2045 . . . . . . . . . . . . . . 93,428 212,145 79,140 384,712 .373 .813

2050 . . . . . . . . . . . . . . 94,596 215,056 81,317 390,968 .378 .818

2055 . . . . . . . . . . . . . . 95,937 217,392 83,905 397,234 .386 .827

2060 . . . . . . . . . . . . . . 97,185 219,357 87,153 403,696 .397 .840

2065 . . . . . . . . . . . . . . 98,260 222,171 89,904 410,335 .405 .847

2070 . . . . . . . . . . . . . . 99,245 225,166 92,568 416,979 .411 .852

2075 . . . . . . . . . . . . . . 100,279 228,289 94,932 423,499 .416 .855

2080 . . . . . . . . . . . . . . 101,418 231,000 97,438 429,857 .422 .861

2085 . . . . . . . . . . . . . . 102,612 233,426 100,094 436,131 .429 .868
79

Demographic Assumptions and Methods

Notes:

1. Historical data are subject to revision.

2. 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

Low Cost:

2010 . . . . . . . . . . . . . . 85,798 190,821 39,988 316,607 0.210 0.659

2015 . . . . . . . . . . . . . . 87,956 198,095 45,816 331,867 .231 .675

2020 . . . . . . . . . . . . . . 91,863 202,536 53,152 347,551 .262 .716

2025 . . . . . . . . . . . . . . 96,611 205,160 61,425 363,196 .299 .770

2030 . . . . . . . . . . . . . . 101,823 207,876 68,407 378,106 .329 .819

2035 . . . . . . . . . . . . . . 106,471 213,392 72,250 392,112 .339 .838

2040 . . . . . . . . . . . . . . 110,622 220,712 74,049 405,383 .335 .837

2045 . . . . . . . . . . . . . . 114,835 228,599 75,221 418,655 .329 .831

2050 . . . . . . . . . . . . . . 119,431 236,028 77,109 432,569 .327 .833

2055 . . . . . . . . . . . . . . 124,371 243,483 79,624 447,478 .327 .838

2060 . . . . . . . . . . . . . . 129,555 251,029 82,819 463,402 .330 .846

2065 . . . . . . . . . . . . . . 134,653 260,110 85,415 480,178 .328 .846

2070 . . . . . . . . . . . . . . 139,623 270,203 87,784 497,610 .325 .842

2075 . . . . . . . . . . . . . . 144,649 281,086 89,931 515,667 .320 .835

2080 . . . . . . . . . . . . . . 149,917 291,697 92,811 534,425 .318 .832

2085 . . . . . . . . . . . . . . 155,428 302,087 96,462 553,977 .319 .834

High Cost:

2010 . . . . . . . . . . . . . . 84,687 189,356 40,086 314,129 .212 .659

2015 . . . . . . . . . . . . . . 84,051 194,321 46,391 324,764 .239 .671

2020 . . . . . . . . . . . . . . 83,666 196,387 54,561 334,614 .278 .704

2025 . . . . . . . . . . . . . . 82,659 196,518 64,059 343,235 .326 .747

2030 . . . . . . . . . . . . . . 81,069 196,374 72,663 350,105 .370 .783

2035 . . . . . . . . . . . . . . 79,020 197,682 78,370 355,072 .396 .796

2040 . . . . . . . . . . . . . . 77,131 199,375 82,033 358,539 .411 .798

2045 . . . . . . . . . . . . . . 75,548 200,350 84,763 360,660 .423 .800

2050 . . . . . . . . . . . . . . 74,381 199,616 87,720 361,717 .439 .812

2055 . . . . . . . . . . . . . . 73,402 197,827 90,859 362,088 .459 .830

2060 . . . . . . . . . . . . . . 72,150 195,351 94,599 362,099 .484 .854

2065 . . . . . . . . . . . . . . 70,747 193,249 97,899 361,894 .507 .873

2070 . . . . . . . . . . . . . . 69,397 190,733 101,245 361,375 .531 .895

2075 . . . . . . . . . . . . . . 68,225 187,936 104,227 360,389 .555 .918

2080 . . . . . . . . . . . . . . 67,200 184,852 106,766 358,818 .578 .941

2085 . . . . . . . . . . . . . . 66,225 181,696 108,795 356,715 .599 .963

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.

3 Preliminary or estimated.

Table V.A2.—Social Security Area Population as of July 1 and Dependency Ratios,

Calendar Years 1950-2085 (Cont.)

Calendar year

Population (in thousands) Dependency ratio

Under 20 20-64

65 and

over Total Aged1 Total2
Assumptions & Methods

80

year. It is thus closely related to the age-sex-adjusted death rate that is discussed 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 expectancy is 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. Cohort life expectancy is

shown in table V.A4 for those born on January 1 of each calendar year, and

for those attaining age 65 on January 1 of each calendar year.

Tables V.A3 and V.A4 present historical and projected life expectancy calculated on both period and cohort bases. Cohort life expectancy is somewhat

greater than period life expectancy for the same year. This is because death

rates for any given age tend to decline as time passes and the cohort grows

older.
81

Demographic Assumptions and Methods

Table V.A3.—Period Life Expectancy1

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 15.1 19.1

1991 . . . . 72.0 79.0 15.2 19.2

1992 . . . . 72.3 79.2 15.3 19.3

1993 . . . . 72.1 79.0 15.2 19.0

1994 . . . . 72.3 79.1 15.3 19.1

1995 . . . . 72.5 79.1 15.4 19.1

1996 . . . . 73.0 79.2 15.5 19.1

1997 . . . . 73.4 79.4 15.6 19.1

1998 . . . . 73.7 79.4 15.7 19.1

1999 . . . . 73.8 79.3 15.7 19.0

2000 . . . . 74.0 79.4 15.9 19.0

2001 . . . . 74.1 79.5 16.1 19.1

2002 . . . . 74.2 79.5 16.2 19.1

2003 . . . . 74.4 79.6 16.3 19.2

20042 . . .

2 Preliminary or estimated.

74.7 79.6 16.3 19.1

20052 . . . 74.8 79.6 16.4 19.1

20062 . . . 75.0 79.7 16.5 19.1

Projected:

2010 . . . . 75.2 79.7 16.6 19.0 75.5 79.9 16.7 19.2 75.9 80.2 16.9 19.3

2015 . . . . 75.5 79.8 16.7 19.0 76.1 80.3 17.1 19.4 76.8 80.9 17.5 19.8

2020 . . . . 75.8 80.0 16.8 19.1 76.7 80.7 17.4 19.7 77.7 81.6 18.0 20.3

2025 . . . . 76.1 80.2 16.9 19.2 77.2 81.1 17.7 19.9 78.6 82.3 18.6 20.8

2030 . . . . 76.3 80.4 17.0 19.3 77.7 81.6 18.0 20.2 79.4 83.0 19.1 21.3

2035 . . . . 76.6 80.6 17.2 19.4 78.2 82.0 18.3 20.5 80.2 83.7 19.6 21.8

2040 . . . . 76.8 80.8 17.3 19.6 78.6 82.4 18.5 20.8 81.0 84.4 20.1 22.3

2045 . . . . 77.1 81.0 17.4 19.7 79.1 82.7 18.8 21.1 81.7 85.0 20.6 22.8

2050 . . . . 77.3 81.2 17.5 19.8 79.5 83.1 19.1 21.3 82.4 85.7 21.1 23.2

2055 . . . . 77.5 81.4 17.6 19.9 79.9 83.5 19.4 21.6 83.1 86.2 21.5 23.7

2060 . . . . 77.7 81.5 17.7 20.0 80.3 83.8 19.6 21.8 83.7 86.8 22.0 24.1

2065 . . . . 78.0 81.7 17.8 20.1 80.7 84.2 19.9 22.1 84.4 87.4 22.4 24.5

2070 . . . . 78.2 81.9 17.9 20.2 81.1 84.5 20.1 22.3 85.0 87.9 22.9 25.0

2075 . . . . 78.4 82.0 18.0 20.3 81.5 84.8 20.4 22.5 85.6 88.5 23.3 25.4

2080 . . . . 78.6 82.2 18.1 20.4 81.9 85.1 20.6 22.8 86.2 89.0 23.7 25.8

2085 . . . . 78.8 82.3 18.2 20.5 82.2 85.4 20.8 23.0 86.7 89.5 24.1 26.2
Assumptions & Methods

82

Table V.A4.—Cohort Life Expectancy1

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 birth2

2 Cohort life expectancy at birth for those born on January 1 of the calendar year is based on a combination

of actual and estimated death rates for birth years prior to 2004. For birth years after 2003, these values are

based solely on estimated death rates.

At age 65 3

3 Age 65 cohort life expectancy for those attaining age 65 on January 1 of the calendar years before 1975 is

based on actual data. For 1975 through 2003, these values are based on a combination of actual and estimated death rates. After 2003, these values are based solely on estimated death rates.

At birth2 At age 653 At birth2 At age 65 3

Male Female Male Female Male Female Male Female Male Female Male Female

1940 . . . . 69.4 75.3 12.7 14.7 69.7 75.7 12.7 14.7 70.1 76.2 12.7 14.7

1945 . . . . 70.9 76.6 13.0 15.4 71.4 77.2 13.0 15.4 72.0 77.9 13.0 15.4

1950 . . . . 71.9 77.6 13.1 16.2 72.6 78.4 13.1 16.2 73.4 79.4 13.1 16.2

1955 . . . . 72.4 78.0 13.1 16.7 73.3 79.0 13.1 16.7 74.4 80.2 13.1 16.7

1960 . . . . 72.9 78.3 13.2 17.4 74.0 79.5 13.2 17.4 75.4 81.0 13.2 17.4

1965 . . . . 73.5 78.6 13.5 18.0 74.9 80.0 13.5 18.0 76.6 81.8 13.5 18.0

1970 . . . . 74.4 79.2 13.8 18.5 75.9 80.8 13.8 18.5 78.0 82.9 13.8 18.5

1975 . . . . 75.0 79.7 14.2 18.7 76.8 81.5 14.2 18.7 79.2 83.9 14.2 18.7

1980 . . . . 75.7 80.2 14.7 18.7 77.7 82.1 14.7 18.7 80.5 84.8 14.7 18.7

1985 . . . . 76.2 80.5 15.2 18.8 78.4 82.7 15.2 18.8 81.5 85.7 15.3 18.9

1990 . . . . 76.6 80.8 15.7 18.9 79.1 83.2 15.7 19.0 82.5 86.4 15.8 19.1

1991 . . . . 76.6 80.9 15.8 18.9 79.2 83.3 15.8 19.0 82.6 86.6 15.9 19.1

1992 . . . . 76.7 80.9 15.8 18.9 79.3 83.4 15.9 19.0 82.8 86.7 16.0 19.2

1993 . . . . 76.8 81.0 15.9 18.9 79.4 83.5 16.0 19.0 83.0 86.9 16.1 19.2

1994 . . . . 76.9 81.0 16.0 18.9 79.6 83.5 16.1 19.1 83.2 87.0 16.2 19.3

1995 . . . . 77.0 81.1 16.1 18.9 79.7 83.7 16.2 19.1 83.4 87.2 16.4 19.3

1996 . . . . 77.0 81.1 16.2 18.9 79.8 83.7 16.3 19.2 83.6 87.3 16.5 19.4

1997 . . . . 77.1 81.2 16.3 18.9 79.9 83.8 16.4 19.2 83.7 87.5 16.6 19.5

1998 . . . . 77.1 81.2 16.3 19.0 80.0 83.9 16.6 19.3 83.9 87.6 16.8 19.6

1999 . . . . 77.2 81.3 16.4 19.0 80.1 84.0 16.6 19.3 84.0 87.7 16.9 19.7

2000 . . . . 77.2 81.3 16.5 19.0 80.2 84.1 16.7 19.4 84.2 87.8 17.0 19.7

2001 . . . . 77.3 81.4 16.5 19.0 80.3 84.1 16.8 19.4 84.3 88.0 17.2 19.8

2002 . . . . 77.3 81.4 16.6 19.0 80.3 84.2 16.9 19.5 84.5 88.1 17.3 19.9

2003 . . . . 77.4 81.4 16.6 19.1 80.4 84.3 17.0 19.5 84.6 88.2 17.4 20.0

2004 . . . . 77.4 81.5 16.7 19.1 80.5 84.4 17.1 19.6 84.8 88.4 17.5 20.1

2005 . . . . 77.5 81.5 16.7 19.1 80.6 84.4 17.1 19.6 85.0 88.5 17.6 20.2

2006 . . . . 77.6 81.6 16.7 19.1 80.7 84.5 17.2 19.7 85.1 88.6 17.8 20.3

2010 . . . . 77.8 81.7 16.8 19.2 81.1 84.8 17.5 19.9 85.7 89.1 18.3 20.7

2015 . . . . 78.0 81.9 17.0 19.3 81.5 85.2 17.8 20.2 86.4 89.7 18.8 21.3

2020 . . . . 78.2 82.1 17.1 19.4 81.9 85.5 18.1 20.5 87.1 90.3 19.4 21.8

2025 . . . . 78.4 82.3 17.2 19.5 82.3 85.8 18.4 20.8 87.7 90.8 20.0 22.3

2030 . . . . 78.7 82.4 17.3 19.7 82.7 86.1 18.7 21.1 88.3 91.4 20.5 22.8

2035 . . . . 78.9 82.6 17.4 19.8 83.1 86.4 19.0 21.3 88.9 91.9 21.0 23.3

2040 . . . . 79.1 82.7 17.5 19.9 83.4 86.7 19.3 21.6 89.5 92.4 21.5 23.8

2045 . . . . 79.3 82.9 17.6 20.0 83.8 87.0 19.6 21.9 90.0 92.8 22.0 24.3

2050 . . . . 79.5 83.0 17.8 20.1 84.1 87.3 19.8 22.1 90.6 93.3 22.5 24.8

2055 . . . . 79.6 83.2 17.9 20.2 84.4 87.6 20.1 22.4 91.1 93.8 23.0 25.2

2060 . . . . 79.8 83.3 18.0 20.3 84.8 87.8 20.3 22.6 91.6 94.2 23.5 25.7

2065 . . . . 80.0 83.5 18.1 20.4 85.1 88.1 20.6 22.8 92.1 94.7 23.9 26.1

2070 . . . . 80.2 83.6 18.2 20.5 85.4 88.3 20.8 23.1 92.6 95.1 24.4 26.5

2075 . . . . 80.3 83.7 18.3 20.6 85.7 88.6 21.1 23.3 93.0 95.5 24.8 27.0

2080 . . . . 80.5 83.8 18.4 20.7 86.0 88.8 21.3 23.5 93.5 95.9 25.2 27.4

2085 . . . . 80.6 84.0 18.5 20.8 86.2 89.1 21.5 23.7 93.9 96.3 25.6 27.8
83

Economic Assumptions and Methods

B. ECONOMIC ASSUMPTIONS AND METHODS

The basic economic assumptions are embodied in three alternatives that are

designed to provide a reasonable range of effects on Social Security’s financial status. 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. 

Based on the latest data and estimates, the economy is assumed to have been

above its sustainable potential level of output and employment during the latter half of 2006. Under all three sets of assumptions the economy is assumed

to reach the sustainable, potential level of output by the end of the shortrange 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. 

This report also includes 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 present the principal economic assumptions for the three alternatives that are summarized in table V.B1. The subsequent sections 5 through 7 present 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- economy productivity is a major determinant in the growth of average

earnings. For the 40 years from 1965 to 2005, annual increases in total productivity averaged 1.7 percent, the result of average annual increases of 2.0,

1.3, 1.2, and 2.3 percent for the 10-year periods 1965-75, 1975-85, 1985-95,

and 1995-2005, respectively. However, it should be noted that this growth

 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 U.S. Armed Forces and civilian employment.
Assumptions & Methods

84

rate of 1.7 percent reflects a shift of employment from low (farm) to high

(nonfarm) productivity sectors that is not expected to continue in the future.

Because productivity growth can vary substantially within economic cycles,

it is more useful to consider historical average growth rates for complete economic cycles. The annual increase in total productivity averaged 1.6 percent

over the last four complete economic cycles (measured from peak to peak),

covering the 34-year period from 1966 to 2000. The annual increase in total

productivity averaged 2.2, 1.2, 1.2, and 1.6 percent over the economic cycles

1966-73, 1973-78, 1978-89, 1989-2000, respectively.

The ultimate annual increases in productivity are assumed to be 2.0, 1.7, and

1.4 percent for the low cost, intermediate, and high cost assumptions, respectively. These rates of increase are the same as those used in the 2006 report,

and reflect the belief that recent strong growth in nonfarm business productivity, after the relatively poor performance from 1973 to 1995, is consistent

with future long-term growth that mirrors the long-term trends of the past.

For the intermediate assumptions, the annual change in productivity is

assumed to average about 1.9 percent over the 2006 to 2010 period, then

gradually decline to the ultimate assumed level of 1.7 percent by 2013. For

the low cost assumptions, the annual change in productivity decreases from

an average of about 2.1 percent over the 2006 to 2012 period to the ultimate

assumed level of 2.0 percent by 2013. For the high cost assumptions, the

annual change in productivity decreases from 1.9 percent for 2006 to a cyclic

low of 0.1 percent for 2007. Thereafter, the annual change in productivity

varies with economic cycles until reaching its ultimate growth rate of

1.4 percent for 2016.

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 GDP, wages, self-employment income, average

earnings, and taxable payroll.

Historically, the CPI increased by an average of 4.6 percent for the 40 years

from 1965 to 2005, the result of average annual increases of 5.5, 7.0, 3.4, and

2.5 percent for the 10-year periods 1965-75, 1975-85, 1985-95, and 1995-

2005, respectively. The GDP deflator increased by 4.1 percent for 1965 to

2005, and by 5.4, 6.3, 2.8, and 2.0 percent annually for the same respective

10-year periods.
85

Economic Assumptions and Methods

The ultimate annual increases in the CPI are assumed to be 1.8, 2.8, and

3.8 percent for the low cost, intermediate, and high cost assumptions, respectively. These rates of increase are the same as those used in the 2006 report,

and reflect a belief that future inflationary shocks will likely be offset by succeeding periods of relatively slow inflation due to persistent international

competition, and that future monetary policy will be similar to the recent

past, with its strong emphasis on holding the growth rate in prices to relatively low levels.

For each alternative, the ultimate annual increase in the GDP deflator is

assumed to be equal to the annual increases in the CPI minus a

0.4 percentage point price differential. This differential is based primarily on

methodological differences in the construction of the two indices, and is the

same as the one used in the 2006 report. Hence, for the intermediate assumptions, the ultimate annual increase in the GDP deflator is 2.4 percent, equal

to the 2.8 percent assumed ultimate annual increase in the CPI less the

0.4 percentage point price differential. Similarly, the ultimate annual

increases in the GDP deflator are 1.4 and 3.4 percent for the low cost and

high cost assumptions, respectively.

For the intermediate assumptions, the annual change in the CPI is assumed to

decrease from 3.3 percent for 2006 to 1.9 percent for 2007, then rise gradually to the assumed ultimate rate of 2.8 percent for 2010 and later. For the

low cost assumptions, the annual change in the CPI is assumed to be

1.7 percent for 2007, 1.9 percent for 2008, and the assumed ultimate rate of

1.8 percent for 2009 and later. For the high cost assumptions, the annual

change in the CPI mostly increases from 2.6 percent for 2007 to 5.7 percent

by 2011, then decreases to its assumed ultimate rate of 3.8 percent as of

2015. The price differential, defined as the percent change in the CPI less the

GDP deflator percent change, is estimated to be 0.4 percentage point for

2006. For 2007, the price differential is assumed to be -0.1 percentage point,

reflecting the relative effects on the two price measures of the decline in oil

prices in the second half of 2006. For all three alternatives, the price differential is projected to be approximately 0.4 percentage point for 2008 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 earn-
Assumptions & Methods

86

ings test, the amount of earnings required for a quarter of coverage, and

under certain circumstances, the automatic cost-of-living benefit increases.

Average U.S. earnings is 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 rate in average

U.S. earnings for any period is equal to the combined growth rates for total

U.S. economy productivity, average hours worked, the ratio of earnings to

compensation (which includes fringe benefits), the ratio of compensation to

GDP, and the GDP deflator. Assumed future growth rates in productivity and

the GDP deflator are discussed in the previous two sections.

The average annual change in average hours worked was -0.3 percent over

the last 40 years, and -0.8, -0.1, 0.2, and -0.3 percent for the 10-year periods

1965-75, 1975-85, 1985-95 and 1995-2005, respectively. The average annual

change in average hours worked was -0.2 percent over the last four complete

economic cycles covering the period from 1966 to 2000. The annual change

in average hours worked averaged -0.7, -0.6, 0.0, and 0.1 percent over the

economic cycles 1966-73, 1973-78, 1978-89, 1989-2000, respectively. 

For the 2007 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. These ultimate annual rates of

change for average hours worked are the same as those assumed for the 2006

report.

The average annual change in the ratio of earnings to compensation was

-0.3 percent from 1965 to 2005. For wage workers, the assumed ultimate

annual rates of change in the ratio of earnings to compensation are -0.1, -0.2,

and -0.3 percent for the low cost, intermediate, and high cost assumptions,

respectively. Under the intermediate assumptions, the ratio of wages to

employee compensation is projected to decline from 0.806 for 2006 to 0.697

for 2081. 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 3.9 percent for the intermediate assumptions. This reflects assumed

ultimate annual growth rates of about 1.7, -0.2, 0.0, and 2.4 percent for productivity, the ratio of earnings to compensation, average hours worked, and

the GDP deflator, respectively. Similarly, the ultimate projected annual

growth rate in average nominal U.S. earnings is 3.4 percent for the low cost

assumptions and 4.5 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
87

Economic Assumptions and Methods

OASDI covered employment (henceforth the average covered wage). Thus,

the assumed ultimate annual growth rates in the average covered wage are

3.4, 3.9, and 4.4 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 estimated to be 4.9 percent for

2006, and assumed to fall to 4.6 percent for 2007 and 2008, then to average

about 4.2 percent from 2009 to 2012. Thereafter, the annual rate of change in

the average covered wage generally declines until reaching its assumed ultimate annual growth rate of 3.9 percent for 2015 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 sections. Over the 40-year period, 1966-2005, the real-wage differential averaged 0.9 percentage point, the result of averages of 0.7, 0.6, 0.7, and

1.6 percentage points for the 10-year periods 1966-75, 1976-85, 1986-95,

and 1996-2005, respectively. The assumed ultimate annual average covered

real-wage 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 is estimated to be

1.6 percentage points for 2006. For the intermediate assumptions, the realwage differential is projected to rise to about 2.7 percentage points for 2007.

The real-wage differential is then projected to generally decline to the ultimate assumed differential of 1.1 percentage points (3.9 percent nominal

wage growth less 2.8 percent CPI inflation) by 2015.

For the low cost assumptions, the real-wage differential is assumed to rise to

3.1 percentage points for 2007, then generally decline to the ultimate

assumed real-wage differential of 1.6 percentage points for 2014 and later.

For the high cost assumptions, the real-wage differential for the short-range

period is projected to fluctuate between -0.8 and 2.4 percentage points, eventually stabilizing at about 0.6 percentage point for 2017 and later.
Assumptions & Methods

88

Table V.B1.—Principal Economic Assumptions

Calendar year 

Annual percentage change1 in—

Realwage

differential2

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

Index

Historical data:

1960 to 1965. . . . 3.2 -0.2 0.2 1.4 3.2 1.2 2.0

1965 to 1970. . . . 2.0 -.4 -.7 4.1 5.8 4.2 1.6

1970 to 1975. . . . 2.1 -.7 -.9 6.7 6.6 6.8 -.2

1975 to 1980. . . . 1.0 -.6 -.2 7.3 8.7 8.9 -.3

1980 to 1985. . . . 1.7 -.2 .0 5.2 6.7 5.2 1.4

1985 to 1990. . . . 1.3 .1 -.1 3.2 4.7 3.8 .9

1990 to 1995. . . . 1.1 -.2 .4 2.5 3.6 3.0 .5

1995 to 2000. . . . 2.1 .4 .1 1.7 5.3 2.4 2.9

2000 to 2005. . . . 2.5 -.6 -.8 2.4 2.8 2.5 .3

1996 . . . . . . . . . . 2.4 1.1 -.1 1.9 4.0 2.9 1.1

1997 . . . . . . . . . . 1.5 .8 .7 1.7 5.6 2.3 3.4

1998 . . . . . . . . . . 2.0 .2 .7 1.1 6.1 1.3 4.8

1999 . . . . . . . . . . 2.4 .1 .5 1.4 4.8 2.2 2.6

2000 . . . . . . . . . . 2.3 .1 -1.2 2.2 6.1 3.5 2.6

2001 . . . . . . . . . . 2.0 -.3 -1.3 2.4 2.0 2.7 -.7

2002 . . . . . . . . . . 3.0 -1.5 -1.0 1.7 .8 1.4 -.6

2003 . . . . . . . . . . 3.0 -1.0 -1.4 2.1 2.7 2.2 .5

2004 . . . . . . . . . . 2.7 .4 .1 2.8 4.6 2.6 2.0

2005 . . . . . . . . . . 1.8 -.5 -.4 3.0 3.9 3.5 .3

20063 . . . . . . . . . 2.0 .0 -.4 2.9 4.9 3.3 1.6

Intermediate: 

2007 . . . . . . . . . . 1.7 .1 -.1 2.0 4.6 1.9 2.7

2008 . . . . . . . . . . 2.1 .0 .0 2.0 4.6 2.4 2.2

2009 . . . . . . . . . . 1.9 -.1 .0 2.3 4.3 2.7 1.7

2010 . . . . . . . . . . 1.9 -.1 .0 2.4 4.2 2.8 1.4

2011 . . . . . . . . . . 1.8 -.2 .0 2.4 4.1 2.8 1.3

2012 . . . . . . . . . . 1.8 -.2 .0 2.4 4.2 2.8 1.4

2013 . . . . . . . . . . 1.7 -.2 .0 2.4 4.0 2.8 1.2

2014 . . . . . . . . . . 1.7 -.2 .0 2.4 3.8 2.8 1.0

2015 . . . . . . . . . . 1.7 -.2 .0 2.4 3.9 2.8 1.1

2016 . . . . . . . . . . 1.7 -.2 .0 2.4 3.9 2.8 1.1

2015 to 2020. . . . 1.7 -.2 .0 2.4 3.9 2.8 1.1

2020 to 2081. . . . 1.7 -.2 .0 2.4 3.9 2.8 1.1

Low Cost: 

2007 . . . . . . . . . . 2.0 .1 .0 1.8 4.9 1.7 3.1

2008 . . . . . . . . . . 2.2 .0 .1 1.5 4.4 1.9 2.5

2009 . . . . . . . . . . 2.2 .0 .1 1.4 3.9 1.8 2.1

2010 . . . . . . . . . . 2.1 -.1 .1 1.4 3.7 1.8 1.9

2011 . . . . . . . . . . 2.1 -.1 .1 1.4 3.6 1.8 1.8

2012 . . . . . . . . . . 2.1 -.1 .1 1.4 3.8 1.8 2.0

2013 . . . . . . . . . . 2.0 -.1 .1 1.4 3.6 1.8 1.8

2014 . . . . . . . . . . 2.0 -.1 .1 1.4 3.4 1.8 1.6

2015 . . . . . . . . . . 2.0 -.1 .1 1.4 3.4 1.8 1.6

2016 . . . . . . . . . . 2.0 -.1 .1 1.4 3.3 1.8 1.5

2015 to 2020. . . . 2.0 -.1 .1 1.4 3.4 1.8 1.6

2020 to 2081. . . . 2.0 -.1 .1 1.4 3.4 1.8 1.6
89

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 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 1.2 percent

from 1990 to 2006. 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. Under the

intermediate assumptions, the labor force is projected to increase by about

0.8 percent per year, on average, through 2016. Thereafter, the labor force is

projected to increase much more slowly, averaging 0.4 percent over the 2016

to 2021 period, and 0.3 percent over the remainder of the 75-year projection

period.

High Cost: 

2007 . . . . . . . . . . 0.1 -0.1 -0.1 2.7 3.0 2.6 0.4

2008 . . . . . . . . . . 2.6 .0 -.1 2.4 5.2 2.8 2.4

2009 . . . . . . . . . . 1.8 -.1 -.1 2.5 4.5 2.9 1.6

2010 . . . . . . . . . . .2 -.3 -.1 4.0 3.6 4.4 -.8

2011 . . . . . . . . . . 2.0 -.2 -.1 5.3 6.7 5.7 1.0

2012 . . . . . . . . . . 2.1 -.3 -.1 5.2 7.4 5.6 1.8

2013 . . . . . . . . . . 1.3 -.4 -.1 4.3 5.4 4.7 .7

2014 . . . . . . . . . . 1.3 -.3 -.1 3.5 4.4 3.9 .4

2015 . . . . . . . . . . 1.3 -.3 -.1 3.4 4.3 3.8 .5

2016 . . . . . . . . . . 1.4 -.3 -.1 3.4 4.3 3.8 .5

2015 to 2020. . . . 1.4 -.3 -.1 3.4 4.4 3.8 .6

2020 to 2081. . . . 1.4 -.3 -.1 3.4 4.4 3.8 .6

1 For rows with a single year listed, the value is the annual percentage change from the prior year. For rows

with a range of years listed, the value is the compound average annual percentage change.

2 For rows with a single year listed, the value is the unrounded annual percentage change in the average

annual wage in covered employment less the unrounded annual percentage change in the Consumer Price

Index. For rows with a range of years listed, the value is the average of unrounded annual values of the differential.

3 Historical data are not available for the full year. Estimated values vary slightly by alternative and are

shown for the intermediate alternative.

Table V.B1.—Principal Economic Assumptions (Cont.)

Calendar year 

Annual percentage change1 in—

Realwage

differential2

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

Index
Assumptions & Methods

90

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. However, the participation rates are not highly sensitive to most of the demographic and economic assumptions. Thus, the projected labor force

participation rates vary modestly into the future and across alternatives. 

Historically, labor force participation rates have been influenced substantially by trends in demographics and pensions. Between the mid-1960s and

the mid-1980s, labor force participation rates at ages 50 and over declined

for males and were fairly stable for females. These overall declines were

facilitated by the large numbers of workers entering the labor force from the

baby-boom generation, and from the female population in general, during

this period. This increasing supply of labor allowed employers to offer earlyretirement options that were attractive. Between the mid-1980s and about

1995, these rates roughly stabilized for males and increased for females.

Since 1995, however, participation rates for both sexes at ages 50 and over

have generally risen significantly, reflecting a decrease in early-out options

and relatively strong economic growth. 

For the future, changes in available benefit levels from Social Security,

increases in the normal retirement age, and the effects of modifying the earnings test are expected to encourage work at higher ages. Some of these factors are modeled directly. However, other factors, like the trend away from

private defined-benefit pension plans (that often provided incentives to

retire) toward defined-contribution plans, are expected to provide additional

upward pressure on labor force participation rates. In addition to this shift in

private pensions, the aging of the population is expected to both increase the

demand for workers and, through improved health associated with greater

life expectancy, improve the ability of the older population to work. Longer

life expectancy will also increase the amount of assets that will be needed to

live comfortably through retirement years, also influencing workers to stay

employed longer. In order to account for these effects, which are directly or

indirectly related to increases in life expectancy, projected participation rates

for prime age and older males and females are adjusted upward in relation to

assumed increases in life expectancy. For the intermediate projections, this

adjustment for changes related to life expectancy adds about 1.4 percent to

the total labor force by 2081.

For men age 16 and over, the projected age-adjusted labor force participation

rates for 2081 are 72.8, 73.3, and 73.9 percent for the low cost, intermediate,

and high cost assumptions, respectively, compared to the 2005 level of

73.3 percent. (Age-adjusted labor force participation rates are adjusted to the
91

Economic Assumptions and Methods

2005 age distribution of the civilian noninstitutional U.S. population.) These

reflect the net effect of increases due to assumed improvements in life

expectancy, and decreases due to higher assumed disability prevalence rates

and an increasing proportion of males who are never married. For women

age 16 and over, the projected age-adjusted labor force participation rates for

2081 are 60.6, 60.8, and 60.9 percent, for the low cost, intermediate, and

high cost assumptions, respectively, compared to the 2005 level of

59.3 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 2016, total rates are presented

without adjustment for the changing age-sex distribution of the population.

For years after 2016, unemployment rates are presented as total age-sex

adjusted rates (using the age-sex distribution of the 2005 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 economic 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 2017. 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 for the 2006

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 1965 to 2005, the average

growth rate in real GDP was 3.2 percent, combining the approximate growth
Assumptions & Methods

92

rates of 1.7, 1.7, and -0.3 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 2.5 percent from 2006 to 2016, a slower rate than the

3.2 percent average observed over the historical 40-year period from 1965 to

2005. 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 3.1 percent over the decade ending in 2016. 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 first three quarters of 2007, resulting in a total decline in real GDP

for these three quarters of 1.3 percent. After 10 quarters of recovery, a second recession, with a total decline in real GDP of 1.7 percent, is assumed to

begin in the second quarter of 2010 and last 3 quarters. After the second

recession, a moderate economic recovery is assumed through 2012, with

continued modest economic growth thereafter. For the high cost assumptions, annual growth in real GDP is projected to average 1.7 percent for the

decade ending in 2016.

After 2016, 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. At the end of the

75-year projection period, the annual growth in real GDP is 1.9 percent, due

to the assumed ultimate percent changes of about 0.3, 1.7, and 0.0 for total

employment, productivity, and average hours worked, respectively. These

projected growth rates are the same as those assumed for the 2006 report.

7. Interest Rates

The average annual nominal and real interest rates are presented in table

V.B2. The nominal rate 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 compound yield rate for investments in these securities divided by the annual rate

of growth in the CPI for the first year after issuance. The real rate shown for

each year reflects the actual realized (historical) or expected (future) annual

real yield on securities issuable in the prior year.
93

Economic Assumptions and Methods

For 2006, the average annual nominal interest rate for securities newly issuable to the trust funds was 4.8 percent, an increase of 0.5 percentage point

from the average nominal rate of 4.3 percent for 2005. However, because

CPI growth is expected to be lower for 2007 than for 2006, the real interest

rate is expected to rise from 1.0 percent for 2006 to 2.9 percent for 2007.

In developing a reasonable range of assumed ultimate future real interest

rates for the three alternatives, historical experience was examined for the 40

years, 1966-2005, and for each of the 10-year subperiods, 1966-75, 1976-85,

1986-95, and 1996-2005. For the 40-year period, the real interest rate averaged 2.8 percent per year. For the four 10-year subperiods, the real interest

rates averaged 0.5, 2.9, 4.7, and 3.2 percent, respectively. The assumed ultimate real interest rates are 3.6 percent, 2.9 percent, and 2.1 percent for the

low cost, intermediate, and high cost assumptions, respectively. The ultimate

real yields, which are assumed to be reached by the end of the short-range

period, are the same as those assumed in the 2006 report. These ultimate real

interest rates, when combined with the ultimate CPI assumptions of 1.8, 2.8,

and 3.8 percent, yield ultimate nominal interest rates of about 5.4 percent for

the low cost assumptions, about 5.7 percent for the intermediate assumptions, and about 5.9 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

4.8 percent for 2006 to 5.8 percent for 2011 through 2014, reflecting a continued growing economy along with a stable rate of inflation. Thereafter, the

nominal interest rate falls to the ultimate assumed level of 5.7 percent for

2015. For the low cost assumptions, the average annual nominal interest rate

is assumed to reach an ultimate level of about 5.4 percent for 2015. For the

high cost assumptions, it is assumed to peak at 8.7 percent for 2012, and then

decline to an ultimate rate of about 5.9 percent for 2015.
Assumptions & Methods

94

Table V.B2.—Additional Economic Factors

Calendar year 

Average annual

unemployment

rate1

Annual percentage change2 in—

Average annual interest rate

Labor

force3 Total

employment4 RealGDP5 Nominal6 Real7

Historical data:

1960 to 1965. . . . . . 5.5 1.3 1.6 5.0 4.0 2.5

1965 to 1970. . . . . . 3.9 2.2 2.1 3.4 5.9 1.0

1970 to 1975. . . . . . 6.1 2.5 1.5 2.7 6.7 .0

1975 to 1980. . . . . . 6.8 2.7 2.9 3.7 8.5 -.9

1980 to 1985. . . . . . 8.3 1.5 1.5 3.2 12.1 6.9

1985 to 1990. . . . . . 5.9 1.7 2.0 3.3 8.5 5.1

1990 to 1995. . . . . . 6.6 1.0 .9 2.5 7.0 4.3

1995 to 2000. . . . . . 4.6 1.5 1.8 4.1 6.2 3.9

2000 to 2005. . . . . . 5.4 .9 .7 2.4 4.6 2.4

1996 . . . . . . . . . . . . 5.4 1.2 1.4 3.7 6.6 4.0

1997 . . . . . . . . . . . . 4.9 1.8 2.2 4.5 6.6 4.3

1998 . . . . . . . . . . . . 4.5 1.0 1.4 4.2 5.6 5.3

1999 . . . . . . . . . . . . 4.2 1.2 1.5 4.4 5.9 3.4

2000 . . . . . . . . . . . . 4.0 2.3 2.5 3.7 6.2 2.4

2001 . . . . . . . . . . . . 4.7 .8 .0 .8 5.2 3.5

2002 . . . . . . . . . . . . 5.8 .8 -.3 1.6 4.9 3.9

2003 . . . . . . . . . . . . 6.0 1.1 .9 2.5 4.1 2.6

2004 . . . . . . . . . . . . 5.5 .6 1.1 3.9 4.3 1.5

2005 . . . . . . . . . . . . 5.1 1.3 1.7 3.2 4.3 .8

20068 . . . . . . . . . . . 4.7 1.3 1.7 3.3 4.8 1.0

Intermediate: 

2007 . . . . . . . . . . . . 4.8 1.1 1.0 2.6 4.6 2.9

2008 . . . . . . . . . . . . 4.9 1.0 .8 3.0 5.2 2.2

2009 . . . . . . . . . . . . 5.0 .9 .9 2.8 5.6 2.5

2010 . . . . . . . . . . . . 5.1 .9 .8 2.6 5.7 2.8

2011 . . . . . . . . . . . . 5.2 .9 .8 2.6 5.8 2.9

2012 . . . . . . . . . . . . 5.3 .7 .6 2.4 5.8 2.9

2013 . . . . . . . . . . . . 5.4 .6 .5 2.2 5.8 3.0

2014 . . . . . . . . . . . . 5.5 .5 .4 2.1 5.8 3.0

2015 . . . . . . . . . . . . 5.5 .5 .5 2.2 5.7 3.0

2016 . . . . . . . . . . . . 5.5 .5 .5 2.2 5.7 2.9

2020 . . . . . . . . . . . . 5.5 .4 .4 2.1 5.7 2.9

2025 . . . . . . . . . . . . 5.5 .3 .3 2.0 5.7 2.9

2030 . . . . . . . . . . . . 5.5 .3 .3 2.0 5.7 2.9

2035 . . . . . . . . . . . . 5.5 .3 .3 2.0 5.7 2.9

2040 . . . . . . . . . . . . 5.5 .4 .4 2.0 5.7 2.9

2045 . . . . . . . . . . . . 5.5 .3 .3 2.0 5.7 2.9

2050 . . . . . . . . . . . . 5.5 .3 .3 2.0 5.7 2.9

2055 . . . . . . . . . . . . 5.5 .3 .3 1.9 5.7 2.9

2060 . . . . . . . . . . . . 5.5 .3 .3 1.9 5.7 2.9

2065 . . . . . . . . . . . . 5.5 .3 .3 2.0 5.7 2.9

2070 . . . . . . . . . . . . 5.5 .3 .3 1.9 5.7 2.9

2075 . . . . . . . . . . . . 5.5 .3 .3 1.9 5.7 2.9

2080 . . . . . . . . . . . . 5.5 .3 .3 1.9 5.7 2.9

2085 . . . . . . . . . . . . 5.5 .2 .2 1.9 5.7 2.9

Low Cost: 

2007 . . . . . . . . . . . . 4.5 1.3 1.4 3.4 4.7 3.1

2008 . . . . . . . . . . . . 4.6 1.1 1.0 3.4 4.9 2.7

2009 . . . . . . . . . . . . 4.7 1.1 1.0 3.4 5.0 3.2

2010 . . . . . . . . . . . . 4.7 1.0 1.0 3.3 5.1 3.2

2011 . . . . . . . . . . . . 4.7 1.1 1.0 3.2 5.3 3.4

2012 . . . . . . . . . . . . 4.7 .9 .9 3.2 5.4 3.5

2013 . . . . . . . . . . . . 4.6 .8 .8 3.0 5.4 3.6

2014 . . . . . . . . . . . . 4.5 .7 .8 2.9 5.5 3.6

2015 . . . . . . . . . . . . 4.5 .7 .7 2.8 5.4 3.7

2016 . . . . . . . . . . . . 4.5 .7 .7 2.8 5.4 3.6
95

Economic Assumptions and Methods

Low Cost: (Cont.)

2020 . . . . . . . . . . . . 4.5 0.5 0.5 2.6 5.4 3.6

2025 . . . . . . . . . . . . 4.5 .4 .4 2.5 5.4 3.6

2030 . . . . . . . . . . . . 4.5 .4 .4 2.5 5.4 3.6

2035 . . . . . . . . . . . . 4.5 .6 .6 2.7 5.4 3.6

2040 . . . . . . . . . . . . 4.5 .6 .6 2.7 5.4 3.6

2045 . . . . . . . . . . . . 4.5 .7 .7 2.8 5.4 3.6

2050 . . . . . . . . . . . . 4.5 .6 .6 2.7 5.4 3.6

2055 . . . . . . . . . . . . 4.5 .7 .7 2.8 5.4 3.6

2060 . . . . . . . . . . . . 4.5 .7 .7 2.8 5.4 3.6

2065 . . . . . . . . . . . . 4.5 .7 .7 2.8 5.4 3.6

2070 . . . . . . . . . . . . 4.5 .8 .8 2.9 5.4 3.6

2075 . . . . . . . . . . . . 4.5 .7 .7 2.9 5.4 3.6

2080 . . . . . . . . . . . . 4.5 .7 .7 2.8 5.4 3.6

2085 . . . . . . . . . . . . 4.5 .7 .7 2.8 5.4 3.6

High Cost: 

2007 . . . . . . . . . . . . 5.7 .8 -.2 -.2 4.1 2.2

2008 . . . . . . . . . . . . 6.1 .6 .1 2.6 5.6 1.3

2009 . . . . . . . . . . . . 5.8 .9 1.2 2.9 5.9 2.7

2010 . . . . . . . . . . . . 6.4 .7 .1 .2 6.0 1.5

2011 . . . . . . . . . . . . 7.2 .5 -.3 1.6 7.9 .4

2012 . . . . . . . . . . . . 6.6 .8 1.4 3.4 8.7 2.4

2013 . . . . . . . . . . . . 6.4 .7 .8 2.0 7.2 4.0

2014 . . . . . . . . . . . . 6.5 .5 .4 1.6 6.2 3.2

2015 . . . . . . . . . . . . 6.5 .5 .5 1.7 5.9 2.4

2016 . . . . . . . . . . . . 6.5 .4 .5 1.7 5.9 2.1

2020 . . . . . . . . . . . . 6.5 .3 .3 1.6 5.9 2.1

2025 . . . . . . . . . . . . 6.5 .2 .2 1.5 5.9 2.1

2030 . . . . . . . . . . . . 6.5 .2 .2 1.5 5.9 2.1

2035 . . . . . . . . . . . . 6.5 .2 .2 1.5 5.9 2.1

2040 . . . . . . . . . . . . 6.5 .1 .1 1.4 5.9 2.1

2045 . . . . . . . . . . . . 6.5 .0 .0 1.3 5.9 2.1

2050 . . . . . . . . . . . . 6.5 -.1 -.1 1.2 5.9 2.1

2055 . . . . . . . . . . . . 6.5 -.1 -.1 1.2 5.9 2.1

2060 . . . . . . . . . . . . 6.5 -.2 -.2 1.1 5.9 2.1

2065 . . . . . . . . . . . . 6.5 -.2 -.2 1.1 5.9 2.1

2070 . . . . . . . . . . . . 6.5 -.2 -.2 1.1 5.9 2.1

2075 . . . . . . . . . . . . 6.5 -.2 -.2 1.0 5.9 2.1

2080 . . . . . . . . . . . . 6.5 -.3 -.3 1.0 5.9 2.1

2085 . . . . . . . . . . . . 6.5 -.3 -.3 1.0 5.9 2.1

1The unemployment rates for 2017 and later are adjusted to the age-sex distribution of the civilian labor

force in 2005. All other rates are unadjusted.

2 For rows with a single year listed, the value is the annual percentage change from the prior year. For rows

with a range of years listed, the value is the compounded average annual percentage change.

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 in 2000 dollars.

6 The average annual nominal 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.

7 The average annual real interest rate reflects the realized or expected annual real yield for each year on

securities issuable in the prior year.

8 Historical data are not available for the full year. Estimated values vary slightly by alternative and are

shown for the intermediate assumptions.

Table V.B2.—Additional Economic Factors (Cont.)

Calendar year 

Average annual

unemployment

rate1

Annual percentage change2 in—

Average annual interest rate

Labor

force3 Total

employment4 RealGDP5 Nominal6 Real7
Assumptions & Methods

96

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 (AWI) 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 2016. 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 AWI 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 Social Security website at www.socialsecurity.gov/OACT/COLA/index.html.
97

Program Assumptions and Methods

 • The annual levels of and percentage increases in the AWI. Under section 215(b)(3) of the Social Security Act, the AWI 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 AWI 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.
Assumptions & Methods

98

Table V.C1.—Cost-of-Living Benefit Increases, Average Wage Index, Contribution and 

Benefit Bases, and Retirement Earnings Test Exempt Amounts, 1975-2016

Calendar year

OASDI

benefit

increases1

(percent)

Average

wage index (AWI) 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

2002 . . . . . . . . . . . 1.4 33,252.09 1.0 84,900 11,280 30,000

2003 . . . . . . . . . . . 2.1 34,064.95 2.4 87,000 11,520 30,720

2004 . . . . . . . . . . . 2.7 35,648.55 4.6 87,900 11,640 31,080

2005 . . . . . . . . . . . 4.1 36,952.94 3.7 90,000 12,000 31,800

Intermediate:

2006 . . . . . . . . . . . 7 3.3 38,726.37 4.8 794,200 712,480 733,240

2007 . . . . . . . . . . . 1.4 40,461.69 4.5 797,500 712,960 734,440

2008 . . . . . . . . . . . 2.3 42,286.35 4.5 102,300 13,560 36,120

2009 . . . . . . . . . . . 2.7 44,100.37 4.3 106,800 14,160 37,800

2010 . . . . . . . . . . . 2.8 45,946.76 4.2 111,600 14,880 39,480

2011 . . . . . . . . . . . 2.8 47,830.33 4.1 116,400 15,480 41,160

2012 . . . . . . . . . . . 2.8 49,809.01 4.1 121,500 16,080 42,840

2013 . . . . . . . . . . . 2.8 51,785.43 4.0 126,300 16,800 44,640

2014 . . . . . . . . . . . 2.8 53,759.30 3.8 131,700 17,520 46,440

2015 . . . . . . . . . . . 2.8 55,820.55 3.8 136,800 18,120 48,360

2016 . . . . . . . . . . . 2.8 57,963.56 3.8 141,900 18,840 50,160

Low Cost:

2006 . . . . . . . . . . . 73.3 38,753.43 4.9 794,200 712,480 733,240

2007 . . . . . . . . . . . 1.2 40,590.02 4.7 797,500 712,960 734,440

2008 . . . . . . . . . . . 1.8 42,334.80 4.3 102,300 13,560 36,120

2009 . . . . . . . . . . . 1.8 43,947.36 3.8 107,100 14,280 37,920

2010 . . . . . . . . . . . 1.8 45,547.60 3.6 111,900 14,880 39,480

2011 . . . . . . . . . . . 1.8 47,151.60 3.5 116,100 15,360 41,040

2012 . . . . . . . . . . . 1.8 48,896.81 3.7 120,300 15,960 42,480

2013 . . . . . . . . . . . 1.8 50,616.69 3.5 124,500 16,560 44,040

2014 . . . . . . . . . . . 1.8 52,331.64 3.4 129,300 17,160 45,600

2015 . . . . . . . . . . . 1.8 54,077.95 3.3 133,800 17,760 47,280

2016 . . . . . . . . . . . 1.8 55,862.08 3.3 138,300 18,360 48,840
99

Program Assumptions and Methods

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 2007, and also shows projected amounts through 2016. 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. As illustrated in figure V.C1, 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.

High Cost:

2006 . . . . . . . . . . . 73.3 $38,702.80 4.7 7$94,200 7$12,480 7$33,240

2007 . . . . . . . . . . . 2.2 39,852.18 3.0 797,500 712,960 734,440

2008 . . . . . . . . . . . 2.7 41,860.51 5.0 102,300 13,560 36,120

2009 . . . . . . . . . . . 3.0 43,722.09 4.4 105,300 13,920 37,200

2010 . . . . . . . . . . . 4.6 45,294.95 3.6 110,700 14,640 39,000

2011 . . . . . . . . . . . 5.8 48,246.05 6.5 115,500 15,360 40,800

2012 . . . . . . . . . . . 5.5 51,759.46 7.3 119,700 15,840 42,240

2013 . . . . . . . . . . . 4.6 54,564.68 5.4 127,500 16,920 45,000

2014 . . . . . . . . . . . 3.8 56,969.23 4.4 136,800 18,120 48,240

2015 . . . . . . . . . . . 3.8 59,388.31 4.2 144,300 19,080 50,880

2016 . . . . . . . . . . . 3.8 61,920.82 4.3 150,600 19,920 53,160

1 Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982.

2 See table VI.F6 for projected dollar amounts of the AWI beyond 2016.

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, 1975-2016 (Cont.)

Calendar year

OASDI

benefit

increases1

(percent)

Average

wage index (AWI) 2 OASDI

contribution

and benefit

base 3

Retirement earnings

test exempt amount

Amount

Increase

(percent)

Under

NRA4 At NRA5
Assumptions & Methods

100

 • 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, as

shown in figure V.C2, relies on four intervals and percentages.

 Figure V.C1.—Primary-Insurance-Amount Formula for the 2007 Cohort

 Figure V.C2.—Maximum-Family-Benefit Formula for the 2007 Cohort

32% 

15% 

90% 

$0

$500

$1,000

$1,500

$2,000

$2,500

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000

Average Indexed Monthly Earnings

Primary Insurance Amount .

First

bend point

($680)

Second

bend point

($4,100)

134% 175% 

150% 

272% 

$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

($1,636)

Second

bend point

($1,255)

First

bend point

($869)
101

Program Assumptions and Methods

 • 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 1977

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 1978-2016

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 5 $17,700

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

2004 . . . . . . . . . 612 3,689 782 1,129 1,472 900 65,100

2005 . . . . . . . . . 627 3,779 801 1,156 1,508 920 66,900

2006 . . . . . . . . . 656 3,955 838 1,210 1,578 970 69,900

2007 . . . . . . . . . 680 4,100 869 1,255 1,636 1,000 72,600
Assumptions & Methods

102

Intermediate:

2008 . . . . . . . . . $713 $4,297 $911 $1,315 $1,715 $1,050 $75,900

2009 . . . . . . . . . 745 4,489 952 1,374 1,792 1,100 79,500

2010 . . . . . . . . . 778 4,692 995 1,436 1,872 1,150 83,100

2011 . . . . . . . . . 812 4,893 1,037 1,497 1,953 1,190 86,400

2012 . . . . . . . . . 846 5,098 1,081 1,560 2,034 1,240 90,000

2013 . . . . . . . . . 880 5,307 1,125 1,624 2,118 1,300 93,900

2014 . . . . . . . . . 917 5,526 1,171 1,691 2,205 1,350 97,800

2015 . . . . . . . . . 953 5,745 1,218 1,758 2,293 1,400 101,700

2016 . . . . . . . . . 989 5,964 1,264 1,825 2,380 1,460 105,600

Low Cost:

2008 . . . . . . . . . 713 4,300 911 1,316 1,716 1,050 75,900

2009 . . . . . . . . . 747 4,503 955 1,378 1,797 1,100 79,500

2010 . . . . . . . . . 779 4,697 996 1,437 1,874 1,150 83,100

2011 . . . . . . . . . 809 4,876 1,034 1,492 1,946 1,190 86,100

2012 . . . . . . . . . 838 5,053 1,071 1,546 2,017 1,230 89,400

2013 . . . . . . . . . 868 5,231 1,109 1,601 2,088 1,280 92,400

2014 . . . . . . . . . 900 5,425 1,150 1,660 2,165 1,320 96,000

2015 . . . . . . . . . 932 5,616 1,190 1,718 2,241 1,370 99,300

2016 . . . . . . . . . 963 5,806 1,231 1,777 2,317 1,420 102,600

High Cost:

2008 . . . . . . . . . 712 4,294 910 1,314 1,714 1,050 75,900

2009 . . . . . . . . . 734 4,421 937 1,353 1,765 1,080 78,300

2010 . . . . . . . . . 770 4,644 985 1,421 1,853 1,130 82,200

2011 . . . . . . . . . 805 4,851 1,028 1,484 1,936 1,180 85,800

2012 . . . . . . . . . 834 5,025 1,065 1,538 2,006 1,230 88,800

2013 . . . . . . . . . 888 5,353 1,135 1,638 2,136 1,310 94,800

2014 . . . . . . . . . 953 5,743 1,217 1,757 2,292 1,400 101,700

2015 . . . . . . . . . 1,004 6,054 1,283 1,852 2,416 1,480 107,100

2016 . . . . . . . . . 1,049 6,321 1,340 1,934 2,522 1,540 111,900

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 1978-2016 (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
103

Program Assumptions and Methods

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,

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
Assumptions & Methods

104

projected covered employment is the sum of age-sex components, each of

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 immigrants 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 age-adjusted coverage rate for males

age 16 and over is projected to be 72.5, 72.5, and 72.6 percent for 2081 for

the low cost, intermediate, and high cost assumptions, respectively, or

approximately unchanged from the 2005 level of about 72.5 percent. (Ageadjusted covered worker rates are adjusted to the 2005 age distribution of the

Social Security area population.) For females, the projected age-adjusted

coverage rate changes from its 2005 level of 62.1 percent to 63.6, 63.3, and

63.0 percent for 2081 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. In computing taxable payroll, wages are adjusted to take into account the “excess wages”

earned by workers with multiple jobs whose combined wages exceed the

contribution and benefit base. Also, from 1983 through 2001, taxable payroll

includes deemed wage credits for military service. Prior to 1984, the selfemployed 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.
105

Program Assumptions and Methods

The computation of taxable earnings for employees, employers, and the selfemployed is based on 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 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 reflects only the portion of covered earnings that is at or below the contribution and benefit base. The portion of covered earnings that is taxable

(i.e., at or below the base) was about 89.5, 86.9, and 82.8 percent for 1983,

1994, and 2000, respectively. This ratio of taxable earnings to covered earnings rose to about 85.8 in 2002, then fell to 83.7 by 2005. Our preliminary

estimate for 2006 is 83.2 percent. The average annual rate of change in the

ratio was about -0.3 percent between 1983 and 2006.

Most of this decline was due to a relative increase in wages for high wage

earners. We expect some of this shifting to continue for the intermediate and

high cost assumptions. We also expect some additional decline due to the

change in the age-sex distribution of the workforce (as the baby-boom generation moves into ages of higher relative earnings). The projected taxable

earnings ratios in 2016 are 83.8, 83.0, and 82.2 percent for the low cost,

intermediate, and high cost assumptions, respectively. After 2016, 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
Assumptions & Methods

106

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

at $250. Since then, this amount has been adjusted each year according to

changes in the AWI. Its value in 2007 is $1,000.

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 six). 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 six QCs during the

12-quarter period ending with the current quarter. Currently insured status is

acquired by any worker who has accumulated six 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 six 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.

Historical estimates 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 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
107

Program Assumptions and Methods

remain out of covered employment. This model is aligned such that the simulated fully insured percentages reproduce fairly closely the fully insured

percentages estimated from the Continuous Work History Sample from 1970

to date. The fully insured population for future years is projected using this

model with the additional inputs of estimated future coverage rates, median

earnings, and amounts required for crediting QCs.

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 80.5 for December 31, 2004, to 89.5, 90.2, and 90.9 for

December 31, 2085, under alternatives I, II, and III, respectively. The percentage for females is projected to increase significantly, while that for males

is projected to decline somewhat. Under alternative II, for example, the percentage for males is projected to decrease slightly during this period from

92.4 to 92.1, while that for females is projected to increase from 71.4 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.
Assumptions & Methods

108

For the long-range period, the number of retired-worker beneficiaries not

previously converted from disabled-worker beneficiary status is projected as

a percentage of the exposed population, i.e., the aged fully insured population less persons entitled to or converted from disability benefits and insured

persons entitled to widow(er)’s benefits. 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 does not apply after normal

retirement age and the delayed retirement credit does not apply after age 70.

The percentage for each age 63 through 69 is projected based on historical

experience 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 during

the transition period.

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 (excluding those who are also

receiving a retired-worker benefit) 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 by 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 the resulting number of spouses a projected
109

Program Assumptions and Methods

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 was 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 and

19, who are eligible for benefits as children of retired-worker beneficiaries,

are based on the projected number of children in the population. In the shortrange 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. The number of entitled children is

projected for each age under 18 from the latest beneficiary data by reflecting

changes in the following: the number of children in the population and the

proportion of retired workers age 62 to 71 to the population age 20 to 71. For

student beneficiaries, factors are applied to the number of children age 18

and 19 in the population, 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 attending a secondary school.

The number of disabled children, age 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 student

children with the inclusion of a factor reflecting the probability of being disabled before age 22.

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 receiv-
Assumptions & Methods

110

ing 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 (excluding those who are also

receiving a retired-worker benefit) 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 by 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 was 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 up to NRA as percentages of the widowed and divorced populations, adjusted for the insured status of the deceased spouse, the prevalence of disability, and the probability that the disabled spouse is not

receiving another type of benefit.

The projected numbers of children under age 18, and students aged 18 and

19, 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.
111

Program Assumptions and Methods

In the long-range period, the number of child-survivor beneficiaries is projected in a manner analogous to that for student 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, assuming

they are not remarried, 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.
Assumptions & Methods

112

Table V.C4.—OASI Beneficiaries With Benefits in Current-Payment Status 

at the End of Calendar Years 1945-2085

[In thousands]

Calendar year

Retired workers and auxiliaries Survivors

Worker Spouse Child Total

WidowwidowerMotherfather 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 5,028 318 1,809 7 34,542

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 5,225 275 1,884 4 37,534

1996 . . . . . . . . . . 26,905 2,970 442 5,211 242 1,898 4 37,672

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

2003 . . . . . . . . . . 29,537 2,622 480 4,705 190 1,910 2 39,446

2004 . . . . . . . . . . 29,952 2,569 482 4,642 184 1,901 2 39,733

2005 . . . . . . . . . . 30,461 2,524 488 4,569 178 1,903 2 40,126

2006 . . . . . . . . . . 30,976 2,476 490 4,494 171 1,899 2 40,508

Intermediate:

2010 . . . . . . . . . . 34,297 2,433 547 4,458 156 1,865 1 43,758

2015 . . . . . . . . . . 40,989 2,353 627 4,414 146 1,862 1 50,392

2020 . . . . . . . . . . 49,123 2,259 695 4,334 142 1,869 2 58,423

2025 . . . . . . . . . . 56,335 2,347 747 4,298 143 1,876 2 65,748

2030 . . . . . . . . . . 62,888 2,353 787 4,305 144 1,891 2 72,369

2035 . . . . . . . . . . 67,256 2,292 791 4,308 142 1,892 2 76,683

2040 . . . . . . . . . . 69,507 2,266 788 4,284 139 1,873 2 78,857

2045 . . . . . . . . . . 71,004 2,293 791 4,267 134 1,840 2 80,330

2050 . . . . . . . . . . 72,682 2,387 813 4,244 130 1,808 2 82,064

2055 . . . . . . . . . . 74,850 2,520 829 4,235 127 1,779 2 84,341

2060 . . . . . . . . . . 77,413 2,623 849 4,243 124 1,751 2 87,004

2065 . . . . . . . . . . 79,796 2,702 853 4,293 120 1,724 2 89,491

2070 . . . . . . . . . . 82,066 2,755 862 4,369 117 1,698 2 91,868

2075 . . . . . . . . . . 84,256 2,805 873 4,445 114 1,672 2 94,165

2080 . . . . . . . . . . 86,545 2,863 890 4,493 110 1,649 2 96,552

2085 . . . . . . . . . . 88,963 2,932 909 4,527 108 1,627 2 99,067
113

Program Assumptions and Methods

Notes: 

1. The number of beneficiaries does not include uninsured individuals who receive benefits under Section

228 of the Social Security Act. Costs are reimbursed from the General Fund of the Treasury for most of

these individuals.

2. 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 who have not yet

attained normal retirement age. Spouses and children of such disabled workers may also receive DI benefits provided they satisfy certain criteria, principally meeting age requirements. In projecting future benefit outlays from the

Low Cost:

2010 . . . . . . . . . . 34,272 2,434 549 4,455 157 1,872 1 43,741

2015 . . . . . . . . . . 40,809 2,361 635 4,399 150 1,899 1 50,255

2020 . . . . . . . . . . 48,458 2,236 704 4,367 138 1,978 2 57,883

2025 . . . . . . . . . . 55,134 2,318 769 4,370 137 2,065 2 64,795

2030 . . . . . . . . . . 61,022 2,306 827 4,416 134 2,170 2 70,877

2035 . . . . . . . . . . 64,674 2,215 848 4,443 131 2,259 2 74,573

2040 . . . . . . . . . . 66,262 2,152 859 4,416 129 2,321 2 76,140

2045 . . . . . . . . . . 67,303 2,147 878 4,377 128 2,360 2 77,194

2050 . . . . . . . . . . 68,716 2,204 916 4,320 128 2,386 2 78,672

2055 . . . . . . . . . . 70,778 2,298 950 4,272 129 2,418 2 80,846

2060 . . . . . . . . . . 73,206 2,365 989 4,241 131 2,461 2 83,395

2065 . . . . . . . . . . 75,394 2,397 1,009 4,250 133 2,509 2 85,693

2070 . . . . . . . . . . 77,392 2,407 1,035 4,281 135 2,556 2 87,808

2075 . . . . . . . . . . 79,500 2,422 1,066 4,324 137 2,601 2 90,052

2080 . . . . . . . . . . 82,256 2,463 1,115 4,369 139 2,647 2 92,989

2085 . . . . . . . . . . 85,680 2,542 1,168 4,429 141 2,696 2 96,657

High Cost:

2010 . . . . . . . . . . 34,332 2,432 546 4,462 155 1,858 1 43,786

2015 . . . . . . . . . . 41,197 2,351 621 4,433 143 1,826 1 50,571

2020 . . . . . . . . . . 49,831 2,313 683 4,309 144 1,755 2 59,036

2025 . . . . . . . . . . 57,640 2,435 722 4,227 142 1,682 2 66,850

2030 . . . . . . . . . . 65,076 2,497 748 4,186 139 1,614 2 74,261

2035 . . . . . . . . . . 70,475 2,487 742 4,163 132 1,540 2 79,541

2040 . . . . . . . . . . 73,764 2,507 729 4,142 123 1,459 2 82,724

2045 . . . . . . . . . . 76,151 2,581 718 4,146 113 1,379 2 85,089

2050 . . . . . . . . . . 78,581 2,712 727 4,150 104 1,313 2 87,589

2055 . . . . . . . . . . 81,336 2,882 730 4,165 96 1,251 2 90,461

2060 . . . . . . . . . . 84,429 3,028 732 4,181 88 1,190 2 93,651

2065 . . . . . . . . . . 87,402 3,152 723 4,240 80 1,132 2 96,731

2070 . . . . . . . . . . 90,331 3,243 720 4,322 73 1,077 2 99,768

2075 . . . . . . . . . . 93,007 3,320 715 4,401 67 1,027 2 102,538

2080 . . . . . . . . . . 95,269 3,384 710 4,430 61 982 2 104,837

2085 . . . . . . . . . . 97,067 3,433 705 4,426 56 940 2 106,629

Table V.C4.—OASI Beneficiaries With Benefits in Current-Payment Status 

at the End of Calendar Years 1945-2085 (Cont.)

[In thousands]

Calendar year

Retired workers and auxiliaries Survivors

Worker Spouse Child Total

WidowwidowerMotherfather Child Parent
Assumptions & Methods

114

DI Trust Fund, the number of DI 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 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 explained, 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 2000. Such adjustment facilitates meaningful comparisons over long periods of time. From a historically high level of about

7.2 awards per thousand insured in 1975, age-sex-adjusted rates declined to

about 3.7 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 118,

“Social Security Disability Insurance Program Worker Experience,” June 2005. This study can be found at

www.socialsecurity.gov/OACT/NOTES/s2000s.html.
115

Program Assumptions and Methods

increased to about 5.8 per thousand by 1992, but declined from that point to

about 4.7 per thousand in 2000. As described in chapter IV, in the discussion

of the short-range DI estimates, the incidence rate experience for 2001-06,

and the projections for 2007-10, 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 after 2000 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, 2000 for

ages through 64. 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.

 Figure V.C3.—DI Disabled Worker Incidence Rates, 1970-2016

[Awards per thousand disability exposed]

0

1

2

3

4

5

6

7

8

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Calendar year

Gross incidence rates

Age-sex adjusted

incidence rates

Historical Projected

II

III

I
Assumptions & Methods

116

For the 2007 report, the ultimate age-sex-adjusted incidence rates for all

three assumptions are lower than in last year’s report. The reduction in the

assumed age-sex-adjusted incidence rates reflects the trend over the last 30

years, including a closing differential between male and female incidence

rates. The ultimate male age-adjusted incidence rates are 10 percent lower

than last year’s rates; while the ultimate female age-adjusted incidence rates

are less than 1 percent higher than last year’s rates.

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 gradually decline to about 27 deaths per thousand disabled workers. The pattern of projected recovery rates under the intermediate

assumptions is consistent with the temporarily lower levels of continuing

disability reviews assumed in the preparation of the President’s FY 2008

Budget. Following temporary resource constraints over the period 2006-07,

projected recovery rates return to levels required to fulfill the legislative

mandate for regular reviews of all disabled beneficiaries. Under low cost

(high cost) assumptions, total termination rates due to death, recovery, and

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, 2000.

Ultimate

incidence rate

Year ultimate

rate is attained2

2 The transition to ultimate incidence rates is generally completed in 2026. 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 5.4 per thousand representing the average

age-sex-adjusted incidence rate for 1994-96.

Intermediate assumption . . . . . . . . . 5.5 2027 +2

Low cost assumption . . . . . . . . . . . . 4.4 2027 -19

High cost assumption. . . . . . . . . . . . 6.6 2027 +22

 1 Reasons for termination reflected in the projections include death, recovery and (in the short range only) a

small residual category of terminations for special administrative reasons.
117

Program Assumptions and Methods

other reasons increase (decrease) to levels roughly 5-10 percent higher

(lower) than those under the intermediate assumptions.

For the long-range period, projection of death and recovery rates begins with

an analysis of such rates by age, sex, and duration of entitlement over the

base period 1996-20001. For all three sets of assumptions, the ultimate

recovery rates are reached in the twentieth year of the projection period. In

contrast, death rates by age and sex are assumed to change throughout the

long-range period at the same rate as for death rates in the general population.

For the 2007 report, the projection methods for death and recovery rates are

improved. Under the prior method, the base-period death and recovery rates

were multiplied by projection factors by sex and year to estimate future death

and recovery rates. Under the new method, these projection factors are determined by age group, sex and year. The new methodology has a negligible

effect on the long-range actuarial balance (less than 0.005 percent of taxable

payroll).

In 2006, the age-adjusted2 recovery rates were 9 and 8 per thousand disabled

beneficiaries for men and women, respectively, and the age-adjusted2 death

rates were 29.1 and 21.4 per thousand disabled beneficiaries for men and

women, respectively. Under the intermediate assumptions, the age-adjusted

recovery rates are projected to remain relatively stable, reaching ultimate

levels of 10 and 9 per thousand disabled beneficiaries for men and women,

respectively. In addition, the age-adjusted death rates are projected to gradually decline to levels of 14.7 and 11.5 per thousand disabled beneficiaries for

men and women, respectively, in 2085.

Under the low cost assumptions, recovery rates and death rates are assumed

to be higher than the corresponding levels assumed for the intermediate

assumptions. The ultimate age-adjusted recovery rates are 12 and 11 per

thousand disabled beneficiaries for men and women, respectively. The ageadjusted death rates are projected to gradually decline to levels of 22.3 and

17.1 per thousand disabled beneficiaries for men and women, respectively, in

2085.

 1 The termination rate analysis was based on work presented in Actuarial Study 118, “Social Security Disability Insurance Program Worker Experience,” June 2005. This study can be found on the Social Security

website at www.socialsecurity.gov/OACT/NOTES/s2000s.html.

 2 Males are age adjusted to the male disabled workers in current-pay as of January 1, 2000. Females are age

adjusted to the female disabled workers in current-pay as of January 1, 2000.
Assumptions & Methods

118

Under the high cost assumptions, recovery rates and death rates are assumed

to be lower than the corresponding levels assumed for the intermediate

assumptions. The ultimate age-adjusted recovery rates are 8 and 7 per thousand disabled beneficiaries for men and women, respectively. The ageadjusted death rates are projected to gradually decline to levels of 7.8 and 6.0

per thousand disabled beneficiaries for men and women, respectively, in

2085.

These detailed projections of disabled-worker entitlements and terminations

are combined using standard multiple decrement techniques to produce numbers of disabled workers in current-payment status over the 75-year projection period. The projection is presented in table V.C6. As indicated in that

table, the number of disabled workers in current-payment status is projected

to grow from 6.8 million at the end of 2006, to 11.6 million, 12.7 million, or

13.5 million at the end of 2085, under the low cost, intermediate, or high cost

assumptions, respectively. Of course, much 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, 2000. Such a ratio eliminates the effects

of the aging population and is referred to as the disabled worker age-sexadjusted prevalence rate. Expressed in these terms, the prevalence of disability for ages through 64 is projected to grow from 39.0 per thousand disability

insured at the beginning of 2006, to 46.6 per thousand, and 59.5 per thousand

at the beginning of 2085, under the intermediate, and high cost assumptions,

respectively. Under the low cost assumptions, the disability prevalence rate is

projected to decrease to 35.0 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 or 19 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
119

Program Assumptions and Methods

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.

Table V.C6.—DI Beneficiaries With Benefits in Current-Payment Status at the End of 

Calendar Years 1960-2085

[In thousands]

Calendar year

Disabled

worker

Auxiliaries

Spouse Child Total

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

2003. . . . . . . . . . . . . . . . . . . . . . . . . . 5,869 151 1,571 7,590

2004. . . . . . . . . . . . . . . . . . . . . . . . . . 6,198 153 1,599 7,950

2005. . . . . . . . . . . . . . . . . . . . . . . . . . 6,519 157 1,633 8,309

2006. . . . . . . . . . . . . . . . . . . . . . . . . . 6,807 156 1,652 8,615

Intermediate:

2010. . . . . . . . . . . . . . . . . . . . . . . . . . 7,769 158 1,747 9,674

2015. . . . . . . . . . . . . . . . . . . . . . . . . . 8,613 156 1,825 10,594

2020. . . . . . . . . . . . . . . . . . . . . . . . . . 9,091 162 1,924 11,176

2025. . . . . . . . . . . . . . . . . . . . . . . . . . 9,755 193 2,055 12,003

2030. . . . . . . . . . . . . . . . . . . . . . . . . . 9,830 195 2,182 12,206

2035. . . . . . . . . . . . . . . . . . . . . . . . . . 9,999 195 2,276 12,470

2040. . . . . . . . . . . . . . . . . . . . . . . . . . 10,286 204 2,338 12,828

2045. . . . . . . . . . . . . . . . . . . . . . . . . . 10,794 216 2,380 13,389

2050. . . . . . . . . . . . . . . . . . . . . . . . . . 11,115 226 2,420 13,762

2055. . . . . . . . . . . . . . . . . . . . . . . . . . 11,422 235 2,471 14,129

2060. . . . . . . . . . . . . . . . . . . . . . . . . . 11,511 235 2,523 14,269

2065. . . . . . . . . . . . . . . . . . . . . . . . . . 11,718 239 2,573 14,530

2070. . . . . . . . . . . . . . . . . . . . . . . . . . 11,959 243 2,615 14,817

2075. . . . . . . . . . . . . . . . . . . . . . . . . . 12,238 249 2,652 15,139

2080. . . . . . . . . . . . . . . . . . . . . . . . . . 12,491 254 2,692 15,436

2085. . . . . . . . . . . . . . . . . . . . . . . . . . 12,691 258 2,735 15,684
Assumptions & Methods

120

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 using a combination

of the actual earnings histories associated with a sample of awards made in

Low Cost:

2010. . . . . . . . . . . . . . . . . . . . . . . . . . 7,480 150 1,673 9,302

2015. . . . . . . . . . . . . . . . . . . . . . . . . . 7,959 142 1,684 9,784

2020. . . . . . . . . . . . . . . . . . . . . . . . . . 8,111 137 1,745 9,993

2025. . . . . . . . . . . . . . . . . . . . . . . . . . 8,352 153 1,832 10,336

2030. . . . . . . . . . . . . . . . . . . . . . . . . . 8,111 142 1,931 10,183

2035. . . . . . . . . . . . . . . . . . . . . . . . . . 8,092 132 2,029 10,253

2040. . . . . . . . . . . . . . . . . . . . . . . . . . 8,253 133 2,114 10,500

2045. . . . . . . . . . . . . . . . . . . . . . . . . . 8,636 139 2,189 10,964

2050. . . . . . . . . . . . . . . . . . . . . . . . . . 8,908 144 2,263 11,316

2055. . . . . . . . . . . . . . . . . . . . . . . . . . 9,198 150 2,359 11,706

2060. . . . . . . . . . . . . . . . . . . . . . . . . . 9,362 150 2,472 11,983

2065. . . . . . . . . . . . . . . . . . . . . . . . . . 9,670 152 2,592 12,414

2070. . . . . . . . . . . . . . . . . . . . . . . . . . 10,071 156 2,708 12,935

2075. . . . . . . . . . . . . . . . . . . . . . . . . . 10,585 162 2,822 13,569

2080. . . . . . . . . . . . . . . . . . . . . . . . . . 11,098 169 2,936 14,203

2085. . . . . . . . . . . . . . . . . . . . . . . . . . 11,573 177 3,056 14,805

High Cost:

2010. . . . . . . . . . . . . . . . . . . . . . . . . . 8,277 173 1,886 10,336

2015. . . . . . . . . . . . . . . . . . . . . . . . . . 9,718 178 2,067 11,963

2020. . . . . . . . . . . . . . . . . . . . . . . . . . 10,741 205 2,238 13,184

2025. . . . . . . . . . . . . . . . . . . . . . . . . . 11,762 254 2,372 14,388

2030. . . . . . . . . . . . . . . . . . . . . . . . . . 11,983 267 2,459 14,709

2035. . . . . . . . . . . . . . . . . . . . . . . . . . 12,256 275 2,495 15,025

2040. . . . . . . . . . . . . . . . . . . . . . . . . . 12,632 291 2,490 15,414

2045. . . . . . . . . . . . . . . . . . . . . . . . . . 13,256 310 2,470 16,035

2050. . . . . . . . . . . . . . . . . . . . . . . . . . 13,614 321 2,463 16,398

2055. . . . . . . . . . . . . . . . . . . . . . . . . . 13,919 330 2,462 16,711

2060. . . . . . . . . . . . . . . . . . . . . . . . . . 13,899 327 2,446 16,672

2065. . . . . . . . . . . . . . . . . . . . . . . . . . 13,952 329 2,420 16,701

2070. . . . . . . . . . . . . . . . . . . . . . . . . . 13,946 329 2,385 16,660

2075. . . . . . . . . . . . . . . . . . . . . . . . . . 13,869 328 2,348 16,544

2080. . . . . . . . . . . . . . . . . . . . . . . . . . 13,737 326 2,317 16,380

2085. . . . . . . . . . . . . . . . . . . . . . . . . . 13,545 323 2,293 16,161

Table V.C6.—DI Beneficiaries With Benefits in Current-Payment Status at the End of 

Calendar Years 1960-2085 (Cont.)

[In thousands]

Calendar year

Disabled

worker

Auxiliaries

Spouse Child Total
121

Program Assumptions and Methods

2003, and more recent actual earnings levels by age and sex for covered

workers.

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 2016 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 2016, 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
Assumptions & Methods

122

income tax that would be received with allowances for interest from railroad

workers.

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

$4-5 billion and a long-range summarized cost of 0.03 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.

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.)

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.
123

Program Assumptions and Methods

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. Ultimate tax ratios for OASI and DI benefits are estimated by eliminating the current threshold amounts for taxation of OASDI benefits completely

and adjusting the OASDI beneficiary distribution in a recent Current Population Survey for the projected 75th year age-sex distribution of the SSA beneficiary population.
Appendices

124

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 Trustees 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

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 per-
125

History of Trust Fund Operations

sons 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 2006 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

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

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

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

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
Appendices

126

All contributions are collected by the Internal Revenue Service and deposited in the General Fund of the Treasury. The contributions are immediately

and automatically appropriated to the trust funds on an estimated basis. The

exact amount of contributions received is not known initially because the

OASDI and HI contributions and individual income taxes are not separately

identified in collection reports received by the Internal Revenue Service.

Periodic adjustments are subsequently made to the extent that the estimates

are found to differ from the amounts of contributions actually payable as

determined from reported earnings. Adjustments are also made to account

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

Beginning in 1984, up to one-half of an individual’s or couple’s OASDI benefits was subject to Federal income taxation under certain circumstances.

Effective for taxable years beginning after 1993, the maximum percentage of

benefits subject to taxation was increased from 50 percent to 85 percent. The

19891. . . . . . . . . . . $48,000 6.060 5.530 0.530 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. . . . . . . . . . . . 87,900 6.200 5.300 .900 12.4000 10.6000 1.8000

2005. . . . . . . . . . . . 90,000 6.200 5.300 .900 12.4000 10.6000 1.8000

2006. . . . . . . . . . . . 94,200 6.200 5.300 .900 12.4000 10.6000 1.8000

2007. . . . . . . . . . . . 97,500 6.200 5.300 .900 12.4000 10.6000 1.8000

2008 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
127

History of Trust Fund Operations

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 the 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.

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

 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.
Appendices

128

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.

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
129

History of Trust Fund Operations

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 1937-2006

[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

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
Appendices

130

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

1980 . . . $105.8 $103.5 — $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

2003 . . . 543.8 456.1 12.5 75.2 406.0 399.8 2.6 3.6 137.8 1,355.3 300

2004 . . . 566.3 472.8 14.6 79.0 421.0 415.0 2.4 3.6 145.3 1,500.6 322

2005 . . . 604.3 506.9 13.8 84.0 441.9 435.4 3.0 3.6 162.4 1,663.0 340

2006 . . . 642.2 534.8 15.6 91.8 461.0 454.5 3.0 3.5 181.3 1,844.3 361

1 Includes payments from the General Fund of the Treasury to the trust funds (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 www.socialsecurity.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 1937-2006 (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
131

History of Trust Fund Operations

Table VI.A3.—Historical Operations of the DI Trust Fund, 

Calendar Years 1957-2006

[Amounts in billions]

Calendar

year

Income Expenditures Assets

Total 1

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 71.5 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

2003. . . 88.1 77.4 .9 9.7 73.1 70.9 2.0 .2 15.0 175.4 219

2004. . . 91.4 80.3 1.1 10.0 80.6 78.2 2.2 .2 10.8 186.2 218

2005. . . 97.4 86.1 1.1 10.3 88.0 85.4 2.3 .3 9.4 195.6 212

2006. . . 102.6 90.8 1.2 10.6 94.5 91.7 2.3 .4 8.2 203.8 207
Appendices

132

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 (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 www.socialsecurity.gov/OACT/STATS/t4a2Income.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 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.
133

History of Trust Fund Operations

Table VI.A4.—Historical Operations of the Combined OASI and DI Trust Funds,

Calendar Years 1957-2006

[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

2003 . . . 631.9 533.5 13.4 84.9 479.1 470.8 4.6 3.7 152.8 1,530.8 288

2004 . . . 657.7 553.0 15.7 89.0 501.6 493.3 4.5 3.8 156.1 1,686.8 305

2005 . . . 701.8 592.9 14.9 94.3 529.9 520.7 5.3 3.9 171.8 1,858.7 318

2006 . . . 744.9 625.6 16.9 102.4 555.4 546.2 5.3 3.8 189.5 2,048.1 335
Appendices

134

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

Tables VI.A5 and VI.A6 show the total assets of the OASI Trust Fund and

the DI Trust Fund, respectively, at the end of each calendar year 2005 and

2006. These assets are separated by interest rate and year of maturity. Assets

grouped with multiple years of maturity are distributed evenly across those

years. Bonds issued to the trust funds in 2006 had an interest rate of 5.125

percent, compared with an interest rate of 4.125 percent for bonds issued in

2005.

1 Includes payments from the General Fund of the Treasury to the trust funds (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 www.socialsecurity.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.
135

History of Trust Fund Operations

Note: Amounts of special issues are shown at par value. Special issues are always purchased and redeemed

at par value. Where equal amounts mature in two or more years at a given interest rate, they are grouped.

Table VI.A5.—Assets of the OASI Trust Fund, End of Calendar Years 2005 and 2006

[In thousands]

December 31, 2005 December 31, 2006

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

Certificates of indebtedness:

4.500 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . — $69,954,173

4.625 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . $94,140,199 —

4.750 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,593,669

5.250 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . — 41,491,126

Bonds:

3.500 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,513,751 —

3.500 percent, 2008-15. . . . . . . . . . . . . . . . . . . . . . . . . 76,110,008 76,110,008

3.500 percent, 2016-17. . . . . . . . . . . . . . . . . . . . . . . . . 19,027,504 19,027,504

3.500 percent, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,900,994 86,900,994

4.125 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,516,947 —

4.125 percent, 2008-19. . . . . . . . . . . . . . . . . . . . . . . . . 126,203,352 126,203,352

4.125 percent, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,585,700 106,585,700

4.625 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,167,662 —

4.625 percent, 2008-15. . . . . . . . . . . . . . . . . . . . . . . . . 73,341,312 73,341,312

4.625 percent, 2016-18. . . . . . . . . . . . . . . . . . . . . . . . . 27,502,989 27,502,989

4.625 percent, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,068,657 96,068,657

5.125 percent, 2008-09. . . . . . . . . . . . . . . . . . . . . . . . . — 23,135,730

5.125 percent, 2010-19. . . . . . . . . . . . . . . . . . . . . . . . . — 115,678,660

5.125 percent, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,567,769

5.125 percent, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . — 118,153,469

5.250 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,235,911 —

5.250 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,235,912 —

5.250 percent, 2008-15. . . . . . . . . . . . . . . . . . . . . . . . . 73,887,296 73,887,296

5.250 percent, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,235,911 9,235,911

5.250 percent, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,387,242 77,387,242

5.625 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,621,438 —

5.625 percent, 2007-11 . . . . . . . . . . . . . . . . . . . . . . . . . 48,107,190 48,107,190

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

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

5.875 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,169,273 —

5.875 percent, 2007-12. . . . . . . . . . . . . . . . . . . . . . . . . 37,015,638 37,015,638

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

6.000 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,693,627 —

6.000 percent, 2007-11 . . . . . . . . . . . . . . . . . . . . . . . . . 33,468,135 33,468,135

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

6.000 percent, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,952,497 49,952,497

6.250 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,975 —

6.250 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150,974 3,150,974

6.250 percent, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,350,034 23,350,034

6.500 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,008,650 —

6.500 percent, 2007-09. . . . . . . . . . . . . . . . . . . . . . . . . 33,025,950 33,025,950

6.500 percent, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,320,240 38,320,240

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

6.500 percent, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,529,893 58,529,893

6.875 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,975,271 —

6.875 percent, 2007-09. . . . . . . . . . . . . . . . . . . . . . . . . 11,925,813 11,925,813

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

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

7.000 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,371,480 —

7.000 percent, 2007-10. . . . . . . . . . . . . . . . . . . . . . . . . 13,485,920 13,485,920

7.000 percent, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,114,324 33,114,324

7.250 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,961,556 —

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

7.250 percent, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,311,591 27,311,591

7.375 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,575,474 —

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

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

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,663,725,978 1,845,338,862

Undisbursed balances1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

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

few days.

-688,652 -1,035,134

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,663,037,326 1,844,303,728
Appendices

136

Note: Amounts of special issues are shown at par value. Special issues are always purchased and redeemed

at par value. Where equal amounts mature in two or more years at a given interest rate, they are grouped.

Table VI.A6.—Assets of the DI Trust Fund, End of Calendar Years 2005 and 2006

[In thousands]

December 31, 2005 December 31, 2006

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

Certificates of indebtedness: 

4.500 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . — $8,252,811

4.625 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . $8,339,100 —

3.500 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,115,128 —

3.500 percent, 2008-11. . . . . . . . . . . . . . . . . . . . . . . . 4,460,512 4,460,512

3.500 percent, 2012-15. . . . . . . . . . . . . . . . . . . . . . . . 4,460,508 4,460,508

3.500 percent, 2016-17. . . . . . . . . . . . . . . . . . . . . . . . 2,230,256 2,230,256

3.500 percent, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . 11,378,384 11,378,384

4.125 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 677,386 --

4.125 percent, 2008-11. . . . . . . . . . . . . . . . . . . . . . . . 2,709,544 2,709,544

4.125 percent, 2012-17. . . . . . . . . . . . . . . . . . . . . . . . 4,064,310 4,064,310

4.125 percent, 2018-19. . . . . . . . . . . . . . . . . . . . . . . . 1,354,772 1,354,772

4.125 percent, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . 12,911,283 12,911,283

4.625 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 855,496 —

4.625 percent, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . 855,496 855,496

4.625 percent, 2009-11. . . . . . . . . . . . . . . . . . . . . . . . 2,566,491 2,566,491

4.625 percent, 2012-15. . . . . . . . . . . . . . . . . . . . . . . . 3,421,992 3,421,992

4.625 percent, 2016-18. . . . . . . . . . . . . . . . . . . . . . . . 2,566,491 2,566,491

4.625 percent, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . 12,233,881 12,233,881

5.125 percent, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . — 665,132

5.125 percent, 2009-17. . . . . . . . . . . . . . . . . . . . . . . . — 5,986,179

5.125 percent, 2018-19. . . . . . . . . . . . . . . . . . . . . . . . — 1,330,260

5.125 percent, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . — 665,115

5.125 percent, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . — 13,576,398

5.250 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,363,407 —

5.250 percent, 2008-11. . . . . . . . . . . . . . . . . . . . . . . . 5,453,628 5,453,628

5.250 percent, 2012-16. . . . . . . . . . . . . . . . . . . . . . . . 6,817,040 6,817,040

5.250 percent, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . 10,263,256 10,263,256

5.625 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524,968 —

5.625 percent, 2008-13. . . . . . . . . . . . . . . . . . . . . . . . 9,149,808 9,149,808

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

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

5.875 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 159,252 —

5.875 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 916,286 —

5.875 percent, 2008-12. . . . . . . . . . . . . . . . . . . . . . . . 4,581,430 4,581,430

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

6.000 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 695,965 —

6.000 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 695,966 —

6.000 percent, 2008-12. . . . . . . . . . . . . . . . . . . . . . . . 3,479,830 3,479,830

6.000 percent, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . 695,967 695,967

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

6.500 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,464,768 —

6.500 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,464,767 3,301,315

6.500 percent, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,381,228 4,381,228

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

6.500 percent, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,317,109 1,317,109

6.500 percent, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . 7,374,881 7,374,881

6.875 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 265,250 —

6.875 percent, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 265,250 265,250

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

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

7.000 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,116,151 —

7.000 percent, 2007-08. . . . . . . . . . . . . . . . . . . . . . . . 2,232,302 2,232,302

7.000 percent, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,180,271 4,180,271

7.375 percent, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 47,601 —

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

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

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,714,687 203,921,547

Undisbursed balances1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

days.

-91,890 -113,509

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,622,797 203,808,038
137

History of Actuarial Balances

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 section IV.B.4 Summarized Income

Rates, Cost Rates, and Balances. 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.
Appendices

138

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 1982-2006, 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.
139

History of Actuarial Balances

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

Table VI.B1.—Long-Range OASDI Actuarial Balances 1 as Shown 

in the Trustees Reports for 1982-2007

[As a percentage of taxable payroll]

1 Values shown are based on the alternative II assumptions for 1991-2007, 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

1982 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.27 14.09 -1.82 2/1

1983 . . . . . . . . . . . . . . . . . . . . . . . . . . 12.87 12.84 +.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

2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.84 15.73 -1.89 +.03

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.87 15.79 -1.92 -.04

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.88 15.90 -2.02 -.09

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 13.92 15.87 -1.95 +.06
Appendices

140

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 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. For the 2003 report, the increase

due to the change in program assumptions was more than offset by decreases

due to the change in valuation period and changes in demographic assumptions. For the 2004 report, increases due to changing the method of project-
141

History of Actuarial Balances

ing benefit levels for higher earners more than offset decreases in the

actuarial balance arising from the change in the valuation period and the net

effect of other changes in programmatic data and methods. For the 2005

report, the increase due to changing the method of projecting future average

benefit levels was more than offset by decreases due to changes in the valuation period, updated starting values for the economic assumptions, and other

methodological changes.

In 2006, decreases in the actuarial balance due to the change in the valuation

period, a reduction in the ultimate annual real interest rate, and improvements in calculating mortality for disabled workers, were greater in aggregate than increases in the actuarial balance due to changes in demographic

starting values and the ultimate total fertility rate, as well as other programmatic data and method changes.

Changes affecting the actuarial balance shown for the 2007 report are

described in section IV.B.7 Reasons for Change in Actuarial Balance From

Last Report.
Appendices

142

0

C. FISCAL YEAR HISTORICAL DATA AND

PROJECTIONS THROUGH 2016

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 2006, 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 2006

[In millions]

Total assets, September 30, 2005 $1,615,623

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $531,899

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

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,892

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,006

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 144

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,032

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,176

Reimbursement from the general fund for costs of noncontributory wage credits

for military service before 1957 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -350

Reimbursement from the general fund for costs of payments to uninsured persons who attained age 72 before 1968 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1/

1 Between -$500,000 and $500,000.

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,810

Interest adjustments2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 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 certain reimbursements to the trust fund.

514

Total investment income and interest adjustments . . . . . . . . . . . . . . . . . . . . . . . . 87,324

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1/1

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632,157

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,487

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,183

Reimbursement from general fund for excess amounts of voluntary 

income tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5,063

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

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449,191

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . . 3,458

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 3

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,288

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625

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

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.

-4

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,908

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,560

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,597

Total assets, September 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,792,220
143

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 2006

[In millions]

Total assets, September 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $193,298

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $90,322

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

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -321

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,001

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 4

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,170

Total income from taxation of benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,174

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,347

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 certain

reimbursements to the trust fund.

49

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 10,396

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,571

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,371

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -695

Reimbursement from general fund for excess amounts of voluntary

income tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -588

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -25

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,064

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . . 388

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 65

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,298

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

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.

6

Total administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,415

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,932

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,640

Total assets, September 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,938
Appendices

144

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

Table VI.C3.—Operations of the Combined OASI and DI Trust Funds, Fiscal Year 2006

[In millions]

Total assets, September 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,808,922

Receipts:

Contributions:

Employment taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $622,221

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

refund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2,213

Net contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620,007

Income based on taxation of benefit payments:

Withheld from benefit payments to nonresident aliens . . . . . . . . . . . . . . . . . . . . . . 149

All other, not subject to withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,202

Total income from taxation of benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,351

Reimbursement from the general fund for costs of noncontributory wage credits

for military service before 1957 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -350

Reimbursement from the general fund for costs of payments to uninsured persons who attained age 72 before 1968 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1/

1 Between -$500,000 and $500,000.

Investment income and interest adjustments:

Interest on investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,157

Interest adjustments2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 Includes (1) interest on transfers between the trust funds 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 certain reimbursements to the trust fund.

564

Total investment income and interest adjustments. . . . . . . . . . . . . . . . . . . . . . . . 97,720

Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1/1

Total receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,728

Disbursements:

Benefit payments:

Gross benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546,859

Offset for collected overpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1,878

Reimbursement from general fund for excess amounts of voluntary

income tax withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5,651

Reimbursement from the general fund for unnegotiated checks . . . . . . . . . . . . . . . -76

Net benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539,254

Transfer to the Railroad Retirement “Social Security Equivalent Benefit Account” . . 3,846

Payment for costs of vocational rehabilitation services for disabled beneficiaries . . . 68

Administrative expenses:

Costs incurred by:

Social Security Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,586

Department of the Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735

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

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.

2

Net administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,323

Total disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548,492

Net increase in assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,237

Total assets, September 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,994,158
145

Fiscal Year Operations and Projections

September 30) 2002-16 are presented in tables VI.C4, VI.C5 and VI.C6,

respectively. 

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

Table VI.C4.—Operations of the OASI Trust Fund in Fiscal Years 2002-16

[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. Transfers for the cost of pre-1957

military service noncontributory wage credits were: (1) $414 million from the General Fund of the Treasury

to the OASI Trust Fund in February 2002, and (2) $350 million from the trust fund to the general fund in

December 2005. After fiscal year 2006, such transfers are estimated to be less than $500,000 in each year.

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. 

Historical data:

2002 . . $529.3 $448.1 $12.6 $68.1 $389.5 $383.9 $2.1 $3.5 $139.7 $1,173.6 265

2003 . . 542.3 456.0 12.3 74.0 402.8 396.7 2.5 3.6 139.5 1,313.1 291

2004 . . 556.5 466.8 13.3 76.4 417.1 411.2 2.3 3.6 139.5 1,452.6 315

2005 . . 600.0 503.0 15.3 81.7 436.9 430.4 2.9 3.6 163.1 1,615.6 332

2006 . . 632.2 530.0 15.2 87.3 455.6 449.2 2.9 3.5 176.6 1,792.2 355

Intermediate:

2007 . . 665.0 552.7 16.8 95.5 484.9 478.4 3.0 3.5 180.1 1,972.3 370

2008 . . 701.2 580.5 18.4 102.3 506.0 499.5 3.1 3.4 195.1 2,167.5 390

2009 . . 747.1 614.2 20.2 112.7 532.0 525.4 3.1 3.5 215.1 2,382.6 407

2010 . . 796.6 648.9 22.3 125.4 564.9 558.3 3.1 3.5 231.7 2,614.3 422

2011 . . 847.8 683.2 25.0 139.6 601.3 594.6 3.1 3.6 246.5 2,860.7 435

2012 . . 895.9 713.8 27.8 154.2 641.3 634.4 3.1 3.8 254.6 3,115.4 446

2013 . . 946.3 746.0 31.0 169.4 687.0 680.0 3.2 3.9 259.3 3,374.6 453

2014 . . 996.5 777.7 33.7 185.1 737.5 730.3 3.2 4.0 259.0 3,633.6 458

2015 . . 1,048.3 810.8 36.8 200.7 791.5 784.0 3.3 4.2 256.8 3,890.4 459

2016 . . 1,110.2 854.1 40.1 216.0 849.4 841.8 3.4 4.3 260.8 4,151.2 458

Low Cost:

2007 . . 666.0 553.6 16.8 95.6 484.8 478.3 3.0 3.5 181.2 1,973.5 370

2008 . . 708.4 587.4 18.3 102.7 504.8 498.3 3.1 3.4 203.6 2,177.0 391

2009 . . 751.2 618.4 20.1 112.7 528.3 521.7 3.1 3.4 222.9 2,400.0 412

2010 . . 798.0 652.7 22.0 123.3 556.2 549.6 3.1 3.5 241.8 2,641.8 431

2011 . . 846.1 686.0 24.4 135.8 586.0 579.4 3.1 3.5 260.2 2,901.9 451

2012 . . 891.7 715.5 26.8 149.4 618.4 611.7 3.1 3.6 273.4 3,175.3 469

2013 . . 941.1 747.1 29.5 164.4 655.7 648.9 3.1 3.7 285.4 3,460.6 484

2014 . . 990.9 778.5 31.9 180.5 696.9 690.0 3.2 3.8 294.0 3,754.7 497

2015 . . 1,041.8 810.1 34.4 197.3 740.6 733.6 3.2 3.9 301.2 4,055.8 507

2016 . . 1,101.9 851.2 37.2 213.5 787.3 780.2 3.2 3.9 314.6 4,370.4 515

High Cost:

2007 . . 661.2 549.0 16.8 95.4 485.1 478.6 3.0 3.5 176.1 1,968.3 369

2008 . . 681.5 562.9 18.5 100.1 509.4 502.8 3.1 3.4 172.0 2,140.4 386

2009 . . 732.1 600.0 20.5 111.6 538.4 531.8 3.1 3.5 193.6 2,334.0 398

2010 . . 778.4 632.0 22.7 123.8 573.9 567.2 3.1 3.6 204.5 2,538.5 407

2011 . . 827.0 664.5 25.8 136.8 619.8 612.9 3.2 3.7 207.3 2,745.8 410

2012 . . 908.6 716.2 29.4 163.0 678.5 671.3 3.3 4.0 230.1 2,975.9 405

2013 . . 980.6 759.6 33.6 187.4 746.2 738.5 3.4 4.2 234.4 3,210.3 399

2014 . . 1,040.3 798.6 37.3 204.4 816.0 807.9 3.5 4.6 224.3 3,434.6 393

2015 . . 1,096.2 838.0 41.1 217.0 885.0 876.6 3.5 4.9 211.1 3,645.7 388

2016 . . 1,160.6 886.5 45.2 228.8 957.9 949.2 3.6 5.1 202.7 3,848.4 381
Appendices

146

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

Table VI.C5.—Operations of the DI Trust Fund in Fiscal Years 2002-16

[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 is

expected to be made in December 2007 in the amount of $7.7 million from the General Fund of the Treasury

to the DI Trust Fund. Thereafter such transfers are estimated to be less than $500,000 in each year.

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. 

Historical data:

2002 . . $85.7 $76.1 $0.9 $8.7 $66.4 $64.2 $2.0 $0.2 $19.4 $155.3 205

2003 . . 87.9 77.4 .9 9.6 71.9 69.8 2.0 .2 16.0 171.3 216

2004 . . 90.1 79.3 1.0 9.8 78.5 76.2 2.1 .2 11.6 182.9 218

2005 . . 96.8 85.4 1.2 10.2 86.4 83.7 2.3 .3 10.4 193.3 212

2006 . . 101.6 90.0 1.2 10.4 92.9 90.1 2.4 .4 8.6 201.9 208

Intermediate:

2007 . . 105.9 93.8 1.4 10.7 100.1 97.4 2.4 .4 5.8 207.7 202

2008 . . 110.8 98.6 1.5 10.7 105.2 102.4 2.5 .4 5.6 213.4 197

2009 . . 117.0 104.3 1.7 11.0 111.3 108.3 2.6 .4 5.7 219.1 192

2010 . . 123.5 110.2 2.0 11.3 118.7 115.5 2.8 .5 4.7 223.8 185

2011 . . 129.8 116.0 2.2 11.5 125.2 121.8 2.9 .5 4.6 228.4 179

2012 . . 135.6 121.2 2.6 11.8 133.5 129.8 3.1 .5 2.1 230.4 171

2013 . . 141.5 126.7 2.9 11.9 141.7 137.9 3.3 .5 -.2 230.2 163

2014 . . 147.1 132.1 3.2 11.9 149.7 145.7 3.5 .5 -2.6 227.6 154

2015 . . 152.9 137.7 3.4 11.7 158.3 154.1 3.7 .5 -5.4 222.2 144

2016 . . 160.2 145.0 3.7 11.4 167.2 162.8 3.9 .5 -7.0 215.1 133

Low Cost:

2007 . . 106.0 94.0 1.4 10.7 99.1 96.4 2.4 .4 6.9 208.9 204

2008 . . 112.1 99.7 1.5 10.8 102.7 99.8 2.5 .4 9.4 218.3 203

2009 . . 118.0 105.0 1.7 11.3 107.1 104.1 2.6 .4 10.9 229.2 204

2010 . . 124.5 110.8 1.9 11.7 112.2 109.0 2.7 .5 12.3 241.5 204

2011 . . 130.9 116.5 2.1 12.3 116.3 112.9 2.9 .5 14.6 256.1 208

2012 . . 136.9 121.5 2.3 13.0 121.8 118.2 3.1 .5 15.1 271.2 210

2013 . . 143.3 126.9 2.6 13.8 127.2 123.4 3.2 .5 16.2 287.3 213

2014 . . 149.7 132.2 2.8 14.7 132.3 128.4 3.4 .5 17.4 304.8 217

2015 . . 156.3 137.6 3.0 15.7 137.8 133.8 3.6 .5 18.4 323.2 221

2016 . . 164.4 144.5 3.2 16.7 143.6 139.4 3.7 .4 20.8 344.0 225

High Cost:

2007 . . 105.3 93.2 1.4 10.7 102.3 99.6 2.4 .4 3.0 204.9 197

2008 . . 107.5 95.6 1.6 10.3 110.6 107.8 2.5 .4 -3.1 201.8 185

2009 . . 113.9 101.9 1.9 10.2 119.5 116.5 2.6 .4 -5.6 196.2 169

2010 . . 119.3 107.3 2.2 9.8 130.1 126.9 2.7 .5 -10.8 185.4 151

2011 . . 124.5 112.8 2.5 9.1 140.9 137.4 3.0 .6 -16.4 169.0 132

2012 . . 132.9 121.6 3.0 8.3 155.7 151.9 3.3 .5 -22.8 146.2 109

2013 . . 139.5 129.0 3.5 7.0 170.7 166.6 3.5 .6 -31.2 115.0 86

2014 . . 144.9 135.6 3.9 5.3 184.7 180.4 3.7 .6 -39.8 75.2 62

2015 . . 150.2 142.3 4.3 3.5 198.6 194.0 3.9 .6 -48.4 26.8 38

2016 . . 3/

3 Under the high cost assumptions, the DI Trust Fund is projected to be exhausted in 2016. Therefore, certain

trust fund operation values for that year are not meaningful under present law and are not shown in this table.

150.5 4.7 3/1 213.0 208.2 4.2 .6 3/1 3/1 13
147

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 2002-16

[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.

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. 

Historical data:

2002. . $615.0 $524.2 $13.5 $76.8 $455.9 $448.1 $4.1 $3.6 $159.1 $1,328.8 257

2003. . 630.3 533.4 13.3 83.5 474.7 466.5 4.5 3.7 155.5 1,484.3 280

2004. . 646.6 546.1 14.3 86.2 495.5 487.3 4.3 3.8 151.1 1,635.4 300

2005. . 696.8 588.4 16.5 91.8 523.3 514.2 5.2 3.9 173.5 1,808.9 313

2006. . 733.7 620.0 16.4 97.7 548.5 539.3 5.3 3.8 185.2 1,994.2 330

Intermediate:

2007. . 770.9 646.6 18.2 106.2 585.0 575.8 5.4 3.9 185.9 2,180.1 341

2008. . 812.0 679.1 19.9 113.0 611.2 601.9 5.6 3.8 200.8 2,380.8 357

2009. . 864.1 718.5 22.0 123.7 643.3 633.7 5.7 3.9 220.8 2,601.7 370

2010. . 920.1 759.1 24.3 136.7 683.7 673.8 5.9 4.0 236.4 2,838.1 381

2011. . 977.6 799.2 27.3 151.1 726.5 716.4 6.1 4.1 251.0 3,089.1 391

2012. . 1,031.4 835.1 30.4 166.0 774.8 764.2 6.3 4.3 256.7 3,345.8 399

2013. . 1,087.8 872.7 33.9 181.3 828.8 817.8 6.5 4.4 259.1 3,604.8 404

2014. . 1,143.6 909.7 36.9 197.0 887.3 876.0 6.7 4.6 256.4 3,861.2 406

2015. . 1,201.2 948.5 40.2 212.5 949.8 938.1 7.0 4.7 251.4 4,112.5 407

2016. . 1,270.4 999.1 43.8 227.5 1,016.6 1,004.6 7.2 4.8 253.8 4,366.3 405

Low Cost:

2007. . 772.1 647.6 18.1 106.3 583.9 574.6 5.4 3.9 188.2 2,182.3 342

2008. . 820.5 687.2 19.8 113.5 607.5 598.1 5.6 3.8 213.0 2,395.3 359

2009. . 869.2 723.4 21.8 124.0 635.3 625.8 5.7 3.9 233.8 2,629.2 377

2010. . 922.5 763.6 23.8 135.1 668.4 658.6 5.8 4.0 254.1 2,883.2 393

2011. . 977.0 802.4 26.5 148.1 702.3 692.3 6.0 4.0 274.8 3,158.0 411

2012. . 1,028.6 837.0 29.1 162.5 740.2 729.9 6.2 4.1 288.5 3,446.5 427

2013. . 1,084.4 874.0 32.2 178.3 782.9 772.4 6.4 4.2 301.5 3,748.0 440

2014. . 1,140.6 910.7 34.7 195.2 829.2 818.4 6.6 4.2 311.5 4,059.4 452

2015. . 1,198.1 947.7 37.4 213.0 878.5 867.4 6.8 4.3 319.6 4,379.0 462

2016. . 1,266.3 995.7 40.4 230.2 930.9 919.6 7.0 4.3 335.4 4,714.4 470

High Cost:

2007. . 766.5 642.2 18.2 106.0 587.4 578.1 5.4 3.9 179.1 2,173.2 339

2008. . 789.0 658.5 20.1 110.4 620.0 610.6 5.6 3.8 169.0 2,342.2 351

2009. . 846.0 701.9 22.4 121.8 657.9 648.3 5.7 3.9 188.0 2,530.2 356

2010. . 897.7 739.3 24.8 133.6 703.9 694.0 5.8 4.1 193.7 2,724.0 359

2011. . 951.5 777.3 28.3 145.9 760.7 750.3 6.2 4.2 190.8 2,914.8 358

2012. . 1,041.5 837.8 32.4 171.3 834.2 823.2 6.6 4.5 207.3 3,122.1 349

2013. . 1,120.1 888.5 37.2 194.3 916.9 905.2 6.9 4.8 203.2 3,325.3 341

2014. . 1,185.2 934.2 41.3 209.7 1,000.6 988.3 7.2 5.2 184.5 3,509.8 332

2015. . 1,246.3 980.3 45.4 220.5 1,083.6 1,070.6 7.5 5.5 162.7 3,672.5 324

2016. . 1,316.5 1,037.0 50.0 229.5 1,170.9 1,157.4 7.8 5.7 145.6 3,818.1 314
Appendices

148

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, V.B, and V.C) 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 in this section 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, 2.0, and 2.3 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 2031.
149

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 16.25 to 15.51 percent, as the

assumed ultimate total fertility rate increases from 1.7 to 2.3. 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

-2.29 to -1.63 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.

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

2031.

2 Ultimate total fertility rates used for this analysis are 1.7 from the alternative III assumptions, 2.0 from the

alternative II assumptions, and 2.3 from the alternative I assumptions. All other assumptions used for this

analysis are from alternative II.

1.7 2.0 2.3

Summarized income rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70 14.70 14.71

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.11 14.10 14.09

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.96 13.92 13.88

Summarized cost rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.11 14.13 14.16

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.41 15.33 15.25

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.25 15.87 15.51

Actuarial balance:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.59 +.57 +.54

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.31 -1.23 -1.16

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.29 -1.95 -1.63

Annual balance for 2081 . . . . . . . . . . . . . . . . . . . . . . . . . . -7.59 -5.20 -3.23

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2041 2041 2041
Appendices

150

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 2006-81. These assumptions

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 0.30 percent, 0.71 percent, and 1.26 percent for alternatives I, II, and

III, respectively.

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 13.97 percent (for an

average annual death-rate reduction of 0.30 percent) to 14.30 percent (for an

average annual death-rate reduction of 1.26 percent). The 75-year cost rate

increases from 15.26 to 16.60 percent. The actuarial balance decreases from

+0.73 to +0.40 percent for the 25-year period, and from -1.36 to -2.65 percent for the 75-year period.

Lower death rates cause both the income (through increased 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

Table 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 geometric rate of decline in the age-sexadjusted death rate between 2006 and 2081. The overall decreases from the age-sex-adjusted death rate in

2006 to the corresponding rate in 2081 are, in order, 20 percent, 41 percent, and 61 percent.

2 The average annual death-rate reductions used for this analysis are 0.30 percent from the alternative I

assumptions, 0.71 percent from the alternative II assumptions, and 1.26 percent from the alternative III

assumptions. All other assumptions used for this analysis are from alternative II.

0.30 percent 0.71 percent 1.26 percent

Summarized income rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70 14.70 14.70

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.08 14.10 14.11

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.90 13.92 13.95

Summarized cost rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.97 14.13 14.30

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.91 15.33 15.80

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.26 15.87 16.60

Actuarial balance:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.73 +.57 +.40

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -.83 -1.23 -1.69

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.36 -1.95 -2.65

Annual balance for 2081 . . . . . . . . . . . . . . . . . . . . . . . . . . -3.72 -5.20 -6.97

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2044 2041 2038
151

Long-Range Sensitivity Analysis

taxable payroll. For any given year, reductions in the death rates for people

who are age 62 and over (ages at which death rates are the highest) increase

the number of retired-worker beneficiaries (and, therefore, the amount of

retirement benefits paid) without adding significantly to the number of covered workers (and, therefore, to the taxable payroll). Although reductions for

people at ages 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

decreases the long-range actuarial balance by about 0.13 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.
Appendices

152

For all three periods, the cost rate decreases with increasing rates of net

immigration. For the 25-year period, the cost rate decreases from

14.26 percent of taxable payroll (for annual net immigration of 672,500 persons) to 13.96 percent (for annual net immigration of 1,300,000 persons).

For the 50-year period, it decreases from 15.53 percent to 15.05 percent, and

for the 75-year period, it decreases from 16.09 percent to 15.57 percent. The

actuarial balance increases from +0.47 to +0.70 percent for the 25-year

period, from -1.40 to -1.00 percent for the 50-year period, and from -2.14 to

-1.70 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

100,000 net immigrants 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

Table VI.D3.—Sensitivity to Varying Net-Immigration Assumptions

[As a percentage of taxable payroll]

Valuation period

Ultimate 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 immigration.

2 The ultimate 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: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.73 14.70 14.67

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.13 14.10 14.05

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.95 13.92 13.87

Summarized cost rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.26 14.13 13.96

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.53 15.33 15.05

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.09 15.87 15.57

Actuarial balance:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.47 +.57 +.70

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.40 -1.23 -1.00

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.14 -1.95 -1.70

Annual balance for 2081 . . . . . . . . . . . . . . . . . . . . . . . . . . -5.55 -5.20 -4.71

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2039 2041 2043
153

Long-Range Sensitivity Analysis

case, the ultimate annual increase in the CPI is assumed to be 2.8 percent (as

assumed for alternative II), yielding ultimate percentage increases in average

annual wages in covered employment of 3.4, 3.9, and 4.4 percent.

For the 25-year period, the cost rate decreases from 14.57 percent (for a realwage differential of 0.6 percentage point) to 13.71 percent (for a differential

of 1.6 percentage points). For the 50-year period, it decreases from 15.98 to

14.69 percent, and for the 75-year period it decreases from 16.58 to

15.18 percent. The actuarial balance increases from +0.24 to +0.89 percent

for the 25-year period, from -1.75 to -0.72 percent for the 50-year period,

and from -2.51 to -1.40 percent for the 75-year period.

The cost rate decreases with increasing real-wage differentials. This is

because higher wages increase taxable payroll immediately, but increase

benefit levels only gradually as new beneficiaries become entitled. In addition, cost-of-living 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 0.56 percent of taxable payroll.

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.

3.4-2.8 3.9-2.8 4.4-2.8

Summarized income rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.81 14.70 14.60

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.23 14.10 13.97

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.07 13.92 13.78

Summarized cost rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.57 14.13 13.71

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.98 15.33 14.69

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.58 15.87 15.18

Actuarial balance:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.24 +.57 +.89

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.75 -1.23 -.72

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.51 -1.95 -1.40

Annual balance for 2081 . . . . . . . . . . . . . . . . . . . . . . . . . . -6.66 -5.20 -3.90

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2037 2041 2047
Appendices

154

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 1.8 percent,

2.8 percent, and 3.8 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 2.9,

3.9, and 4.9 percent.

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

14.29 (for CPI increases of 1.8 percent) to 13.98 percent (for CPI increases

of 3.8 percent). For the 50-year period, it decreases from 15.55 to

15.12 percent, and for the 75-year period, it decreases from 16.12 to

15.64 percent. The actuarial balance increases from +0.45 to +0.68 percent

for the 25-year period, from -1.42 to -1.05 percent for the 50-year period,

and from -2.17 to -1.74 percent for the 75-year period.

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 1.8, 2.8, and 3.8 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.

2.9-1.8 3.9-2.8 4.9-3.8

Summarized income rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.75 14.70 14.66

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.13 14.10 14.06

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.95 13.92 13.89

Summarized cost rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.29 14.13 13.98

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.55 15.33 15.12

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.12 15.87 15.64

Actuarial balance: 

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.45 +.57 +.68

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.42 -1.23 -1.05

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.17 -1.95 -1.74

Annual balance for 2081 . . . . . . . . . . . . . . . . . . . . . . . . . . -5.53 -5.20 -4.87

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2039 2041 2042
155

Long-Range Sensitivity Analysis

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

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 2.1 percent, 2.9 percent, and

3.6 percent as assumed for alternatives III, II, and I, respectively. In each

case, the ultimate annual increase in the CPI is assumed to be 2.8 percent (as

assumed for alternative II), resulting in ultimate annual yields of 5.0, 5.8, and

6.5 percent.

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 2.1 percent from the alternative III assumptions, 2.9 percent from the alternative II assumptions, and 3.6 percent from the alternative I assumptions. All

other assumptions used for this analysis are from alternative II.

2.1 percent 2.9 percent 3.6 percent

Summarized income rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.61 14.70 14.79

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.97 14.10 14.21

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.79 13.92 14.05

Summarized cost rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.29 14.13 14.01

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.61 15.33 15.09

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.26 15.87 15.55

Actuarial balance:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.32 +.57 +.78

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.63 -1.23 -.88

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2.47 -1.95 -1.50

Annual balance for 2081 . . . . . . . . . . . . . . . . . . . . . . . . . . -5.20 -5.20 -5.20

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2038 2041 2044
Appendices

156

For the 25-year period, the cost rate decreases slightly with increasing real

interest rates from 14.29 percent (for an ultimate real interest rate of 2.1 percent) to 14.01 percent (for an ultimate real interest rate of 3.6 percent). For

the 50-year period, it decreases from 15.61 to 15.09 percent, and for the

75-year period, it decreases from 16.26 to 15.55 percent. The actuarial balance increases from +0.32 to +0.78 percent for the 25-year period, from

-1.63 to -0.88 percent for the 50-year period, and from -2.47 to -1.50 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

0.32 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

rates by age and sex are assumed to vary during the early years of the projection period before attaining ultimate levels in 2027. In comparison to the corresponding annual rates experienced during the base period 1994-96, the

ultimate age-sex-adjusted incidence rate is 2 percent higher for alternative II,

19 percent lower for alternative I, and 22 percent higher for alternative III.

For the 25-year period, the cost rate increases with increasing disability incidence rates from 13.97 percent (for the relatively low rates assumed for

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: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70 14.70 14.71

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.09 14.10 14.10

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.91 13.92 13.93

Summarized cost rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.97 14.13 14.39

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.09 15.33 15.61

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.62 15.87 16.17

Actuarial balance:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.73 +.57 +.32

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.00 -1.23 -1.51

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.70 -1.95 -2.24

Annual balance for 2081 . . . . . . . . . . . . . . . . . . . . . . . . . . -4.87 -5.20 -5.51

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2043 2041 2038
157

Long-Range Sensitivity Analysis

alternative I) to 14.39 percent (for the relatively high rates assumed for

alternative III). For the 50-year period, it increases from 15.09 to 15.61 percent, and for the 75-year period, it increases from 15.62 to 16.17 percent.

The actuarial balance decreases from +0.73 to +0.32 percent for the 25-year

period, from -1.00 to -1.51 percent for the 50-year period, and from -1.70 to

-2.24 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 all three alternatives, deaths rates are

assumed to decline throughout the long-range period. For alternative II, the

age-sex-adjusted1 death rate is assumed to decline to a level at the end of the

75-year period that is about 47 percent lower than the level in 2006. For

alternative I, the age-sex-adjusted death rate is assumed to decline to a level

at the end of the 75-year period that is about 22 percent lower than the level

in 2006. For alternative III, the age-sex-adjusted death rate is assumed to

decline to a level at the end of the 75-year period that is about 71 percent

lower than the level in 2006.

For all three alternatives, ultimate recovery-termination rates by age, sex,

and duration are assumed to be attained in the twentieth year of the projection period. For alternative II, the age-sex-adjusted1 recovery rate in 2026 is

about 10 recoveries per thousand disabled-worker beneficiaries. For

alternative I, the age-sex-adjusted recovery rate in 2026 is about 11 recoveries per thousand disabled worker beneficiaries. For alternative III, the agesex-adjusted recovery rate in 2026 is about 8 recoveries per thousand disabled-worker beneficiaries.

 1 Age adjusted to the total disabled workers in current-pay as of January 1, 2000.
Appendices

158

For the 25-year period, the cost rate increases with decreasing disability termination rates from 14.09 percent (for the relatively high rates assumed for

alternative I) to 14.17 percent (for the relatively low rates assumed for

alternative III). For the 50-year period, it increases from 15.28 to

15.37 percent, and for the 75-year period, it increases from 15.83 to

15.91 percent. The actuarial balance decreases from +0.61 to +0.53 percent

for the 25-year period, from -1.19 to -1.27 percent for the 50-year period,

and from -1.91 to -1.99 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: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.70 14.70 14.70

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.10 14.10 14.10

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.92 13.92 13.92

Summarized cost rate:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.09 14.13 14.17

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.28 15.33 15.37

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.83 15.87 15.91

Actuarial balance:

25-year: 2007-31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +.61 +.57 +.53

50-year: 2007-56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.19 -1.23 -1.27

75-year: 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.91 -1.95 -1.99

Annual balance for 2081 . . . . . . . . . . . . . . . . . . . . . . . . . . -5.16 -5.20 -5.20

Year of combined trust fund exhaustion . . . . . . . . . . . . . 2041 2041 2040
159

Stochastic Projections 

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.

1. Background

The Trustees Report has traditionally shown additional estimates using the

low cost and high cost sets 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. This appendix presents the results of a 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 subject to further development. Future

improvements and refinements are expected to be more likely to expand

rather than reduce the indicated range of uncertainty.

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 other

immigration levels, the Consumer Price Index, average real wages, 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 5,000 independent stochastic simulations are presented in this appendix. Each of the 5,000 simulations is determined by

allowing the above variables to vary throughout the long-range period. The

fluctuation in each 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
Appendices

160

variables, the equations additionally reflect relationships with other variables. Parameters for the equations are estimated using historical data for

periods between 20 years and 110 years depending on the nature and quality

of data available. 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. More detail on this

model, and stochastic modeling in general, is available on the Social Security

website.1

For each simulation of the model, values of the variables listed above are

determined by using Monte Carlo techniques to randomly assign the year-byyear 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 5,000 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 are very sensitive to equation specifications, degrees of interdependence among variables, and the historical periods used for the estimates. 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 random variations had been applied to additional variables other than those mentioned above (such as labor force participation

rates, retirement rates, marriage rates, and divorce rates). 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

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.

 1 www.socialsecurity.gov/OACT/stochastic/index.html
161

Stochastic Projections 

3. Results

Simulated probability distributions of the annual trust fund ratios for the

combined OASI and DI Trust Funds are 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 the end of 2040 with a

probability of 50 percent. This exhaustion date is 1 year earlier than the year

of exhaustion projected under the intermediate assumptions. Figure VI.E1

shows that the 95-percent confidence interval for the trust fund ratio in 2030

ranges from 406 to 83 percent of annual cost. In comparison, the 2030 trust

fund ratios for the low cost and high cost alternatives are each outside this

range, at 454 and 22 percent, respectively. By 2081, the range represented by

the low cost and high cost projections increases substantially beyond the

boundaries of the 95-percent stochastic confidence interval, as seen from the

values for the open group unfunded obligation in table VI.E1. This increased

variation of the alternatives relative to the stochastic confidence interval is

also seen in the positive trust fund ratio for the low cost scenario for 2081.
Appendices

162

The probability distribution of the year-by-year OASDI cost rates (i.e., cost

as a percentage of taxable payroll) is 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 figure 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 figure VI.E2 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. The projected cost rates for the year 2035

for the low cost and high cost alternatives described earlier are 14.80 percent

of payroll and 19.82 percent of payroll, respectively. These are close to the

limits of the 95-percent confidence interval, as can be seen in figure VI.E2.

By 2081, the cost rates for these alternatives, 13.38 and 26.38 percent of payroll, are still fairly close to the limits of the 95-percent confidence interval

(14.17 and 26.39 percent of payroll).

 Figure VI.E1.—Annual Trust Fund Ratios

0%

100%

200%

300%

400%

500%

600%

2007 2022 2037 2052 2067 2082

Projection year

50%

97.5%

2.5%

90%

10%
163

Stochastic Projections 

Table VI.E1 displays long-range actuarial estimates that illustrate uncertainty for the combined OASDI program using both the deterministic and

stochastic approaches. Actuarial estimates included in the table are for the

long-range period, 2007-81. 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 individual stochastic estimate displayed in the table represents the level at that percentile from the distribution

of the 5,000 simulations. However, for each 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. The

median estimate of the long-range actuarial balance is -2.05 percent of taxable payroll, about 0.10 percentage point lower than projected under the

intermediate assumptions. The median estimate for the first year cost

exceeds tax income is 2017. This is the same as projected under the intermediate assumptions. The median estimate for the year assets first become

exhausted is 2040. This is 1 year earlier than the year projected under the

intermediate assumptions. The median estimate for the annual cost in the

75th year of the projection period is 19.30 as a percentage of taxable payroll

 Figure VI.E2.—Annual Cost Rates

5%

10%

15%

20%

25%

30%

2007 2022 2037 2052 2067 2082

Projection year

50%

97.5%

2.5%

90%

10%

Income Rate
Appendices

164

and 6.51 as a percentage of GDP. The comparable estimates using the intermediate assumptions are 18.55 and 6.29, 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 three of the measures in table

VI.E1 (the actuarial balance, the open group unfunded obligation, and the

year assets become 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 percentage of GDP), the 95-percent stochastic projection range includes the estimates under the low cost 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 percentage of

taxable payroll), the 95-percent stochastic projection range includes the estimate under the high cost alternative, but does not include the low cost estimate.

Table VI.E1.—Long-Range Estimates Relating to the Actuarial Status of the Combined 

OASDI Program

[Comparison of deterministic and stochastic results]

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 . . . . . . -1.95 0.36 -5.05 -2.05 -3.24 -1.04 -3.89 -0.56

Open group unfunded 

obligation (in trillions) $4.7 -$1.2 $12.8 $5.0 $8.3 $2.4 $10.2 $1.1

First year cost exceeds 

tax income . . . . . . . . . 2017 2022 2013 2017 2014 2020 2013 2022

Year assets become 

exhausted . . . . . . . . . . 2041 1/

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

2030 2040 2035 2051 2033 2062

Annual cost in 75th year 

(percent of taxable 

payroll) . . . . . . . . . . . . 18.55 13.37 26.38 19.30 15.74 23.61 14.15 26.69

Annual cost in 75th year 

(percent of GDP) . . . . 6.29 4.90 8.23 6.51 5.31 7.96 4.77 9.00
165

OASDI & HI: Percent of Payroll

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 require 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.
Appendices

166

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. 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 three and a half times its current level by the end of the projection

period. Under the intermediate assumptions, annual deficits begin in 2016,

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

about 34 percent, by the end of the period, with annual deficits beginning in

2022.

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
167

OASDI & HI: Percent of Payroll

Table VI.F2.—Estimated OASDI and HI Annual Income Rates, Cost Rates,

and Balances, Calendar Years 2007-85

[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:

2007 . . . . . . 12.75 11.21 1.54 3.09 3.11 -0.02 15.84 14.32 1.52

2008 . . . . . . 12.76 11.03 1.74 3.09 3.16 -.07 15.86 14.19 1.67

2009 . . . . . . 12.78 11.07 1.72 3.11 3.22 -.11 15.89 14.28 1.61

2010 . . . . . . 12.80 11.20 1.60 3.12 3.28 -.16 15.92 14.48 1.44

2011 . . . . . . 12.83 11.33 1.50 3.13 3.33 -.20 15.96 14.66 1.30

2012 . . . . . . 12.86 11.56 1.30 3.15 3.40 -.25 16.00 14.95 1.05

2013 . . . . . . 12.89 11.84 1.05 3.16 3.48 -.32 16.05 15.31 .74

2014 . . . . . . 12.91 12.13 .78 3.17 3.57 -.39 16.08 15.70 .38

2015 . . . . . . 12.93 12.43 .50 3.19 3.65 -.46 16.12 16.08 .04

2016 . . . . . . 12.95 12.74 .21 3.20 3.74 -.54 16.15 16.48 -.33

2020 . . . . . . 13.03 14.00 -.97 3.25 4.21 -.96 16.28 18.22 -1.94

2025 . . . . . . 13.12 15.44 -2.33 3.30 4.99 -1.69 16.41 20.43 -4.02

2030 . . . . . . 13.19 16.59 -3.40 3.34 5.91 -2.57 16.53 22.50 -5.97

2035 . . . . . . 13.24 17.17 -3.94 3.36 6.82 -3.46 16.59 23.99 -7.40

2040 . . . . . . 13.25 17.27 -4.02 3.36 7.60 -4.23 16.62 24.87 -8.25

2045 . . . . . . 13.25 17.22 -3.97 3.37 8.23 -4.87 16.62 25.45 -8.83

2050 . . . . . . 13.26 17.26 -3.99 3.37 8.77 -5.40 16.63 26.02 -9.39

2055 . . . . . . 13.28 17.43 -4.16 3.37 9.26 -5.89 16.65 26.70 -10.04

2060 . . . . . . 13.29 17.67 -4.38 3.38 9.79 -6.41 16.68 27.47 -10.79

2065 . . . . . . 13.31 17.89 -4.59 3.39 10.34 -6.95 16.70 28.23 -11.53

2070 . . . . . . 13.32 18.10 -4.78 3.40 10.85 -7.45 16.72 28.95 -12.23

2075 . . . . . . 13.33 18.29 -4.96 3.40 11.31 -7.91 16.74 29.60 -12.86

2080 . . . . . . 13.35 18.50 -5.16 3.41 11.71 -8.30 16.76 30.21 -13.46

2085 . . . . . . 13.36 18.71 -5.35

Low Cost:

2007 . . . . . . 12.75 11.11 1.64 3.08 3.00 .09 15.83 14.10 1.73

2008 . . . . . . 12.76 10.87 1.89 3.09 2.99 .10 15.85 13.86 1.99

2009 . . . . . . 12.78 10.83 1.94 3.10 2.99 .11 15.88 13.82 2.06

2010 . . . . . . 12.79 10.86 1.93 3.11 2.99 .12 15.90 13.85 2.06

2011 . . . . . . 12.82 10.89 1.93 3.12 2.98 .14 15.94 13.87 2.07

2012 . . . . . . 12.84 10.99 1.85 3.14 2.98 .16 15.97 13.97 2.00

2013 . . . . . . 12.86 11.14 1.73 3.15 3.00 .16 16.02 14.13 1.88

2014 . . . . . . 12.87 11.30 1.57 3.16 3.01 .15 16.03 14.31 1.73

2015 . . . . . . 12.89 11.49 1.41 3.17 3.02 .15 16.06 14.51 1.55

2016 . . . . . . 12.91 11.69 1.22 3.18 3.04 .14 16.09 14.73 1.36

2020 . . . . . . 12.97 12.67 .30 3.22 3.17 .05 16.19 15.84 .35

2025 . . . . . . 13.04 13.78 -.74 3.26 3.41 -.15 16.30 17.19 -.89

2030 . . . . . . 13.10 14.56 -1.46 3.29 3.67 -.38 16.39 18.23 -1.85

2035 . . . . . . 13.12 14.80 -1.68 3.30 3.85 -.55 16.42 18.65 -2.23

2040 . . . . . . 13.12 14.58 -1.46 3.30 3.98 -.68 16.42 18.56 -2.14

2045 . . . . . . 13.11 14.25 -1.14 3.29 4.08 -.79 16.40 18.33 -1.93

2050 . . . . . . 13.10 14.02 -.91 3.29 4.20 -.91 16.39 18.22 -1.83

2055 . . . . . . 13.10 13.90 -.80 3.29 4.38 -1.10 16.39 18.28 -1.90

2060 . . . . . . 13.10 13.84 -.74 3.29 4.63 -1.35 16.39 18.47 -2.08

2065 . . . . . . 13.10 13.72 -.62 3.28 4.89 -1.61 16.38 18.61 -2.22

2070 . . . . . . 13.09 13.56 -.46 3.28 5.13 -1.85 16.37 18.69 -2.32

2075 . . . . . . 13.09 13.42 -.33 3.27 5.35 -2.07 16.36 18.77 -2.40

2080 . . . . . . 13.09 13.38 -.29 3.27 5.54 -2.27 16.36 18.92 -2.56

2085 . . . . . . 13.09 13.42 -.33
Appendices

168

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.

In table VI.F3 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:

2007 . . . . . . 12.76 11.50 1.26 3.09 3.27 -0.18 15.85 14.78 1.07

2008 . . . . . . 12.78 11.47 1.31 3.10 3.38 -.28 15.88 14.85 1.03

2009 . . . . . . 12.80 11.61 1.19 3.11 3.49 -.38 15.91 15.11 .80

2010 . . . . . . 12.82 11.91 .91 3.13 3.66 -.53 15.95 15.57 .39

2011 . . . . . . 12.86 12.15 .71 3.14 3.78 -.64 16.00 15.93 .07

2012 . . . . . . 12.89 12.46 .43 3.16 3.90 -.74 16.05 16.36 -.31

2013 . . . . . . 12.93 12.90 .03 3.18 4.08 -.90 16.11 16.97 -.86

2014 . . . . . . 12.95 13.33 -.38 3.19 4.26 -1.07 16.15 17.60 -1.45

2015 . . . . . . 12.98 13.72 -.75 3.21 4.45 -1.24 16.19 18.17 -1.98

2016 . . . . . . 13.01 14.15 -1.15 3.23 4.65 -1.42 16.23 18.80 -2.57

2020 . . . . . . 13.10 15.65 -2.55 3.28 5.65 -2.37 16.38 21.30 -4.92

2025 . . . . . . 13.20 17.34 -4.14 3.33 7.36 -4.02 16.54 24.70 -8.16

2030 . . . . . . 13.30 18.83 -5.53 3.38 9.59 -6.20 16.68 28.42 -11.74

2035 . . . . . . 13.36 19.82 -6.46 3.42 12.15 -8.73 16.78 31.97 -15.19

2040 . . . . . . 13.40 20.37 -6.97 3.44 14.58 -11.14 16.84 34.96 -18.11

2045 . . . . . . 13.43 20.79 -7.36 3.45 16.69 -13.24 16.88 37.48 -20.60

2050 . . . . . . 13.46 21.32 -7.86 3.47 18.39 -14.92 16.93 39.71 -22.78

2055 . . . . . . 13.50 22.00 -8.50 3.49 19.68 -16.19 16.99 41.68 -24.69

2060 . . . . . . 13.55 22.80 -9.25 3.51 20.81 -17.29 17.06 43.60 -26.54

2065 . . . . . . 13.60 23.64 -10.04 3.54 21.96 -18.42 17.14 45.60 -28.46

2070 . . . . . . 13.65 24.54 -10.89 3.57 23.05 -19.49 17.22 47.59 -30.38

2075 . . . . . . 13.70 25.41 -11.71 3.59 24.03 -20.44 17.29 49.44 -32.15

2080 . . . . . . 13.75 26.23 -12.49 3.61 24.89 -21.27 17.36 51.12 -33.76

2085 . . . . . . 13.78 26.91 -13.12

1 The taxable payroll for HI is significantly larger than the taxable payroll for OASDI because the HI taxable

maximum amount was eliminated beginning in 1994, and because HI covers all Federal civilian employees,

including those hired before 1984, all State and local government employees hired after April 1, 1986, and

railroad employees. Combined OASDI and HI rates are computed as the sum of the separately derived rates

for each program.

Table VI.F2.—Estimated OASDI and HI Annual Income Rates, Cost Rates,

and Balances, Calendar Years 2007-85 (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
169

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. Under the intermediate assumptions, actuarial deficits smaller than those for the high cost assumptions are projected for all

three valuation periods. Under the low cost assumptions, the combined

OASDI and HI system is projected to have positive actuarial balances for the

25-year and the 50-year valuation periods, and a very small negative actuarial balance for the 75-year valuation period.

Table VI.F3.—Summarized OASDI and HI Income Rates and Cost Rates for Valuation 

Periods,1 Calendar Years 2007-81

[As a percentage of taxable payroll2]

1 Income rates include beginning trust fund balances and cost rates include the cost of reaching an ending

fund target equal to 100 percent of annual cost by the end of the period.

2 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.

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:

2007-31 . . . . . . 14.70 14.13 0.57 3.42 4.43 -1.01 18.12 18.56 -0.44

50-years:

2007-56 . . . . . . 14.10 15.33 -1.23 3.40 5.90 -2.50 17.50 21.23 -3.73

75-years:

2007-81 . . . . . . 13.92 15.87 -1.95 3.40 6.95 -3.55 17.32 22.82 -5.50

Low Cost:

25-years:

2007-31 . . . . . . 14.64 12.92 1.72 3.40 3.33 .08 18.05 16.25 1.80

50-years:

2007-56 . . . . . . 14.00 13.43 .57 3.36 3.62 -.26 17.36 17.05 .31

75-years:

2007-81 . . . . . . 13.79 13.43 .36 3.34 3.95 -.61 17.13 17.37 -.25

High Cost:

25-years:

2007-31 . . . . . . 14.76 15.69 -.93 3.45 6.13 -2.68 18.21 21.82 -3.61

50-years:

2007-56 . . . . . . 14.19 17.72 -3.53 3.45 10.27 -6.82 17.64 27.99 -10.35

75-years:

2007-81 . . . . . . 14.06 19.11 -5.05 3.47 13.00 -9.53 17.53 32.11 -14.58
Appendices

170

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.F4 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.F4. 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 2035,

and decrease thereafter. The OASDI balance is projected to be positive until

2017 on the basis of the intermediate assumptions and until 2013 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 2021 on the basis of the low cost

assumptions. The HI balance is projected to be negative in the first projection year under the intermediate and high cost assumptions, with deficits

increasing steadily thereafter. The combined OASDI and HI balance as a percentage of GDP is projected to be positive through 2021 under the low cost

assumptions, through 2014 under the intermediate assumptions, and through

2010 under the high cost assumptions. Between 2010 and about 2035, under

all three sets of assumptions, both the OASDI and HI balances as percentages of GDP are projected to decline (or deficits increase) substantially
171

OASDI & HI: Percent of GDP

because the baby-boom generation reaches retirement eligibility 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

combined OASDI and HI programs.

By 2080, the combined OASDI and HI balances as percentages of GDP, are

projected to range from a deficit of 1.15 percent for the low cost assumptions

to a deficit of 12.39 percent for the high cost assumptions. Projected balances

differ by a much smaller amount for the tenth year, 2016, ranging from a

positive balance of 0.53 percent for the low cost assumptions to a deficit of

1.11 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 deficit of 0.15 percent, based on the low

cost assumptions, to a deficit of 6.02 percent, based on the high cost assumptions). The 25-year summarized balance varies by a smaller amount (from a

positive balance of 0.70 percent to a deficit of 1.61 percent). Summarized

rates are calculated on the present-value basis including the trust fund balances on January 1, 2007 and the cost of reaching a target trust fund level

equal to 100 percent of the following year’s annual cost at the end of the

period. (See section IV.B.4 for further explanation.)
Appendices

172

Table VI.F4.—OASDI and HI Annual and Summarized Income, Cost, and Balance

as a Percentage of GDP, Calendar Years 2007-85

Calendar year

Percentage of GDP GDP in

dollars

(billions)

OASDI HI Combined

Income1 Cost Balance Income1 Cost Balance Income1 Cost Balance

Intermediate:

2007 . . . . . . 4.86 4.29 0.57 1.47 1.49 -0.01 6.34 5.77 0.56 $13,858

2008 . . . . . . 4.88 4.24 .63 1.49 1.52 -.03 6.36 5.76 .60 14,550

2009 . . . . . . 4.91 4.26 .65 1.50 1.55 -.05 6.41 5.81 .59 15,302

2010 . . . . . . 4.92 4.32 .60 1.50 1.58 -.08 6.42 5.90 .53 16,083

2011 . . . . . . 4.93 4.36 .57 1.51 1.60 -.10 6.44 5.97 .47 16,900

2012 . . . . . . 4.94 4.44 .49 1.51 1.63 -.12 6.45 6.08 .37 17,721

2013 . . . . . . 4.94 4.54 .39 1.52 1.67 -.15 6.46 6.22 .24 18,550

2014 . . . . . . 4.94 4.65 .29 1.52 1.71 -.19 6.46 6.36 .10 19,398

2015 . . . . . . 4.94 4.76 .18 1.53 1.75 -.22 6.46 6.50 -.04 20,304

2016 . . . . . . 4.93 4.86 .07 1.53 1.79 -.26 6.46 6.65 -.19 21,253

2020 . . . . . . 4.93 5.31 -.38 1.54 2.00 -.46 6.47 7.31 -.84 25,415

2025 . . . . . . 4.92 5.80 -.88 1.55 2.35 -.80 6.47 8.15 -1.68 31,596

2030 . . . . . . 4.90 6.17 -1.28 1.55 2.75 -1.20 6.45 8.93 -2.47 39,216

2035 . . . . . . 4.87 6.33 -1.46 1.55 3.15 -1.60 6.42 9.48 -3.06 48,782

2040 . . . . . . 4.83 6.31 -1.48 1.54 3.48 -1.94 6.37 9.79 -3.42 60,729

2045 . . . . . . 4.79 6.24 -1.45 1.53 3.74 -2.21 6.32 9.98 -3.66 75,592

2050 . . . . . . 4.75 6.20 -1.44 1.52 3.95 -2.43 6.27 10.14 -3.88 93,857

2055 . . . . . . 4.71 6.20 -1.49 1.51 4.13 -2.63 6.22 10.34 -4.12 116,365

2060 . . . . . . 4.68 6.23 -1.55 1.50 4.33 -2.83 6.17 10.56 -4.39 144,256

2065 . . . . . . 4.64 6.25 -1.61 1.49 4.53 -3.04 6.12 10.78 -4.66 178,920

2070 . . . . . . 4.60 6.26 -1.66 1.48 4.71 -3.24 6.08 10.98 -4.90 221,875

2075 . . . . . . 4.56 6.27 -1.71 1.47 4.87 -3.40 6.03 11.14 -5.11 275,164

2080 . . . . . . 4.52 6.28 -1.76 1.45 5.00 -3.54 5.98 11.28 -5.30 340,992

2085 . . . . . . 4.49 6.30 -1.81 422,371

Summarized rates:2

25-year:

 2007-31 . . . 5.58 5.37 .22 1.63 2.11 -.48 7.21 7.48 -.26

50-year:

 2007-56 . . . 5.26 5.71 -.46 1.59 2.75 -1.17 6.85 8.46 -1.63

75-year

 2007-81 . . . 5.11 5.82 -.72 1.56 3.19 -1.63 6.67 9.01 -2.35

Low Cost:

2007 . . . . . . 4.85 4.25 .60 1.47 1.43 .04 6.32 5.68 .64 13,951

2008 . . . . . . 4.90 4.19 .71 1.49 1.44 .05 6.38 5.62 .76 14,643

2009 . . . . . . 4.93 4.19 .74 1.50 1.44 .05 6.42 5.63 .79 15,350

2010 . . . . . . 4.95 4.21 .74 1.50 1.44 .06 6.45 5.65 .80 16,074

2011 . . . . . . 4.96 4.22 .74 1.51 1.44 .07 6.47 5.66 .81 16,825

2012 . . . . . . 4.97 4.26 .71 1.51 1.44 .08 6.48 5.70 .78 17,601

2013 . . . . . . 4.98 4.32 .66 1.52 1.44 .08 6.50 5.76 .73 18,386

2014 . . . . . . 4.98 4.38 .60 1.52 1.45 .07 6.50 5.83 .67 19,190

2015 . . . . . . 4.99 4.45 .53 1.52 1.45 .07 6.51 5.91 .60 20,007

2016 . . . . . . 4.99 4.53 .46 1.53 1.46 .07 6.52 5.99 .53 20,851

2020 . . . . . . 5.00 4.89 .11 1.54 1.52 .02 6.54 6.41 .13 24,481

2025 . . . . . . 5.00 5.29 -.29 1.55 1.62 -.07 6.55 6.92 -.37 29,729

2030 . . . . . . 5.00 5.57 -.57 1.56 1.74 -.18 6.55 7.30 -.75 36,082

2035 . . . . . . 4.98 5.63 -.65 1.56 1.82 -.26 6.54 7.45 -.91 43,996

2040 . . . . . . 4.96 5.52 -.56 1.55 1.87 -.32 6.51 7.39 -.88 53,887

2045 . . . . . . 4.93 5.38 -.44 1.54 1.91 -.37 6.47 7.28 -.81 66,154

2050 . . . . . . 4.91 5.27 -.35 1.53 1.96 -.43 6.44 7.22 -.78 81,203

2055 . . . . . . 4.89 5.20 -.31 1.52 2.03 -.51 6.41 7.23 -.82 99,714

2060 . . . . . . 4.87 5.16 -.29 1.52 2.14 -.62 6.39 7.30 -.91 122,541

2065 . . . . . . 4.85 5.09 -.24 1.51 2.25 -.74 6.36 7.34 -.98 150,897

2070 . . . . . . 4.83 5.01 -.18 1.50 2.35 -.85 6.33 7.36 -1.03 186,104

2075 . . . . . . 4.80 4.94 -.13 1.49 2.44 -.95 6.30 7.38 -1.08 229,655

2080 . . . . . . 4.78 4.90 -.12 1.49 2.52 -1.03 6.27 7.42 -1.15 283,213

2085 . . . . . . 4.77 4.90 -.13 348,928
173

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.F5. HI taxable payroll is about 25 percent

larger than the OASDI taxable payroll throughout the long-range period (see

Low Cost (cont.):

Summarized rates: 2

25-year:

 2007-31 . . . 5.65 4.98 0.66 1.63 1.59 0.04 7.28 6.57 0.70

50-year:

 2007-56 . . . 5.36 5.14 .22 1.59 1.72 -.12 6.95 6.86 .10

75-year

 2007-81 . . . 5.23 5.10 .14 1.57 1.86 -.29 6.80 6.96 -.15

High Cost:

2007 . . . . . . 4.91 4.41 .50 1.47 1.56 -.09 6.39 5.97 .41 $13,548

2008 . . . . . . 4.84 4.41 .43 1.49 1.62 -.13 6.33 6.03 .30 14,238

2009 . . . . . . 4.89 4.45 .44 1.50 1.68 -.18 6.39 6.13 .26 15,015

2010 . . . . . . 4.91 4.58 .34 1.50 1.75 -.25 6.42 6.33 .09 15,646

2011 . . . . . . 4.89 4.63 .25 1.50 1.81 -.30 6.39 6.44 -.05 16,747

2012 . . . . . . 4.84 4.69 .15 1.51 1.86 -.35 6.35 6.55 -.20 18,215

2013 . . . . . . 4.84 4.84 3/ 1.52 1.94 -.43 6.36 6.79 -.43 19,369

2014 . . . . . . 4.86 5.01 -.16 1.52 2.03 -.51 6.37 7.04 -.67 20,375

2015 . . . . . . 4.86 5.15 -.29 1.52 2.11 -.59 6.38 7.26 -.88 21,429

2016 . . . . . . 4.85 5.29 -.44 1.53 2.20 -.67 6.38 7.49 -1.11 22,540

2020 . . . . . . 4.84 5.79 -.96 1.53 2.64 -1.11 6.37 8.43 -2.06 27,505

2025 . . . . . . 4.81 6.33 -1.52 1.54 3.40 -1.86 6.35 9.73 -3.38 35,109

2030 . . . . . . 4.78 6.78 -2.00 1.54 4.37 -2.83 6.32 11.15 -4.83 44,722

2035 . . . . . . 4.74 7.04 -2.31 1.54 5.47 -3.93 6.28 12.51 -6.23 56,911

2040 . . . . . . 4.69 7.14 -2.46 1.53 6.48 -4.95 6.22 13.62 -7.40 72,223

2045 . . . . . . 4.64 7.19 -2.56 1.51 7.32 -5.80 6.15 14.51 -8.36 91,338

2050 . . . . . . 4.58 7.27 -2.69 1.50 7.95 -6.45 6.08 15.23 -9.14 114,856

2055 . . . . . . 4.53 7.40 -2.87 1.49 8.40 -6.91 6.02 15.80 -9.78 144,039

2060 . . . . . . 4.48 7.56 -3.08 1.48 8.76 -7.28 5.96 16.31 -10.35 180,174

2065 . . . . . . 4.43 7.73 -3.29 1.47 9.12 -7.65 5.90 16.84 -10.94 225,107

2070 . . . . . . 4.39 7.90 -3.52 1.46 9.44 -7.98 5.85 17.34 -11.49 280,547

2075 . . . . . . 4.34 8.07 -3.73 1.45 9.70 -8.25 5.79 17.77 -11.98 349,413

2080 . . . . . . 4.29 8.21 -3.92 1.44 9.91 -8.47 5.73 18.12 -12.39 434,368

2085 . . . . . . 4.25 8.30 -4.06 540,196

Summarized rates: 2

25-year:

 2007-31 . . . 5.49 5.84 -.35 1.62 2.87 -1.26 7.11 8.71 -1.61

50-year:

 2007-56 . . . 5.12 6.40 -1.28 1.57 4.68 -3.11 6.69 11.08 -4.39

75-year

 2007-81 . . . 4.95 6.73 -1.78 1.55 5.79 -4.24 6.50 12.52 -6.02

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, 2007 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.F4.—OASDI and HI Annual and Summarized Income, Cost, and Balance

as a Percentage of GDP, Calendar Years 2007-85 (Cont.)

Calendar year

Percentage of GDP GDP in

dollars

(billions)

OASDI HI Combined

Income1 Cost Balance Income1 Cost Balance Income1 Cost Balance
Appendices

174

appendix VI.F.1 for a detailed description of the difference). The cost as a

percentage of GDP is 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 growth in taxable payroll differs from

projected growth 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 0.27 percent for the 40 years from 1965 to 2005. For the 10-year periods 1965-75, 1975-85, 1985-95, and 1995-2005, the average annual rates of

decline were 0.54, 0.39, 0.07, and 0.07 percent, respectively. Ultimate future

annual rates of decline in the ratio of wages to employee compensation are

assumed to be 0.1, 0.2, and 0.3 percent for 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 earning above the contribution and

benefit base. This decline in the taxable ratio is assumed to continue at a

slower pace through 2016, with no further decline thereafter.

Table VI.F5.—Ratio of OASDI Taxable Payroll to GDP, Calendar Years 2007-85 

Calendar year Intermediate Low Cost High Cost

2007 . . . . . . . . . . . . . . . . . . . . . . . . . 0.382 0.382 0.384

2008 . . . . . . . . . . . . . . . . . . . . . . . . . .385 .385 .385

2009 . . . . . . . . . . . . . . . . . . . . . . . . . .385 .387 .383

2010 . . . . . . . . . . . . . . . . . . . . . . . . . .385 .388 .384

2011 . . . . . . . . . . . . . . . . . . . . . . . . . .385 .388 .381

2012 . . . . . . . . . . . . . . . . . . . . . . . . . .385 .388 .376

2013 . . . . . . . . . . . . . . . . . . . . . . . . . .384 .388 .376

2014 . . . . . . . . . . . . . . . . . . . . . . . . . .383 .388 .376

2015 . . . . . . . . . . . . . . . . . . . . . . . . . .383 .388 .376

2016 . . . . . . . . . . . . . . . . . . . . . . . . . .382 .388 .374

2020 . . . . . . . . . . . . . . . . . . . . . . . . . .379 .386 .370

2025 . . . . . . . . . . . . . . . . . . . . . . . . . .376 .384 .365

2030 . . . . . . . . . . . . . . . . . . . . . . . . . .372 .382 .360

2035 . . . . . . . . . . . . . . . . . . . . . . . . . .369 .380 .355

2040 . . . . . . . . . . . . . . . . . . . . . . . . . .365 .379 .351

2045 . . . . . . . . . . . . . . . . . . . . . . . . . .362 .377 .346

2050 . . . . . . . . . . . . . . . . . . . . . . . . . .359 .376 .341

2055 . . . . . . . . . . . . . . . . . . . . . . . . . .356 .374 .336

2060 . . . . . . . . . . . . . . . . . . . . . . . . . .352 .373 .332

2065 . . . . . . . . . . . . . . . . . . . . . . . . . .349 .371 .327

2070 . . . . . . . . . . . . . . . . . . . . . . . . . .346 .369 .322

2075 . . . . . . . . . . . . . . . . . . . . . . . . . .343 .368 .317

2080 . . . . . . . . . . . . . . . . . . . . . . . . . .340 .366 .313

2085 . . . . . . . . . . . . . . . . . . . . . . . . . .337 .365 .309
175

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. Meaningful comparison of current dollar values over long periods of

time can be difficult because of the effect of 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.F6 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 1.8, 2.8, and

3.8 percent for the low cost, intermediate, and high cost sets of assumptions,

respectively. Constant-dollar values (those calculated by dividing by the

adjusted CPI in table VI.F6) indicate the relative purchasing power of the

values over time. Constant-dollar values are provided in table VI.F7.

Another type of standardization combines the effects of price inflation and

real-wage growth. The wage index presented here is the national 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

3.4, 3.9, and 4.4 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.

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
Appendices

176

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 5.4, 5.7, and 5.9 percent for the low cost, intermediate, and high cost assumptions, respectively.
177

OASDI & HI: Estimates in Dollars

Table VI.F6.—Selected Economic Variables, Calendar Years 2006-85

[GDP and taxable payroll in billions]

Calendar year

Adjusted

CPI1 Average

wage index2 Taxablepayroll3

Gross

domestic

product

Compound

interest-rate

factor4

Intermediate:

2006 . . . . . . . . . . . . . 98.14 $38,726.37 $5,038 $13,245 0.9556

2007 . . . . . . . . . . . . . 100.00 40,461.69 5,301 13,858 1.0000

2008 . . . . . . . . . . . . . 102.37 42,286.35 5,597 14,550 1.0525

2009 . . . . . . . . . . . . . 105.11 44,100.37 5,896 15,302 1.1121

2010 . . . . . . . . . . . . . 108.05 45,946.76 6,198 16,083 1.1766

2011 . . . . . . . . . . . . . 111.08 47,830.33 6,507 16,900 1.2453

2012 . . . . . . . . . . . . . 114.19 49,809.01 6,816 17,721 1.3179

2013 . . . . . . . . . . . . . 117.39 51,785.43 7,121 18,550 1.3948

2014 . . . . . . . . . . . . . 120.67 53,759.30 7,438 19,398 1.4761

2015 . . . . . . . . . . . . . 124.05 55,820.55 7,771 20,304 1.5616

2016 . . . . . . . . . . . . . 127.52 57,963.56 8,115 21,253 1.6520

2020 . . . . . . . . . . . . . 142.42 67,513.90 9,633 25,415 2.0685

2025 . . . . . . . . . . . . . 163.50 81,630.57 11,866 31,596 2.7396

2030 . . . . . . . . . . . . . 187.71 98,753.66 14,591 39,216 3.6285

2035 . . . . . . . . . . . . . 215.51 119,654.40 17,986 48,782 4.8059

2040 . . . . . . . . . . . . . 247.41 145,147.30 22,196 60,729 6.3653

2045 . . . . . . . . . . . . . 284.05 176,008.57 27,385 75,592 8.4306

2050 . . . . . . . . . . . . . 326.10 213,251.30 33,696 93,857 11.1661

2055 . . . . . . . . . . . . . 374.39 258,202.86 41,398 116,365 14.7891

2060 . . . . . . . . . . . . . 429.82 312,601.72 50,850 144,256 19.5878

2065 . . . . . . . . . . . . . 493.46 378,580.63 62,488 178,920 25.9435

2070 . . . . . . . . . . . . . 566.52 458,626.89 76,771 221,875 34.3614

2075 . . . . . . . . . . . . . 650.41 555,604.14 94,320 275,164 45.5106

2080 . . . . . . . . . . . . . 746.71 672,984.32 115,787 340,992 60.2775

2085 . . . . . . . . . . . . . 857.27 815,650.39 142,183 422,371 79.8358

Low Cost:

2006 . . . . . . . . . . . . . 98.31 38,753.43 5,044 13,260 .9549

2007 . . . . . . . . . . . . . 100.00 40,590.02 5,335 13,951 1.0000

2008 . . . . . . . . . . . . . 101.93 42,334.80 5,641 14,643 1.0501

2009 . . . . . . . . . . . . . 103.77 43,947.36 5,939 15,350 1.1030

2010 . . . . . . . . . . . . . 105.63 45,547.60 6,234 16,074 1.1605

2011 . . . . . . . . . . . . . 107.53 47,151.60 6,530 16,825 1.2222

2012 . . . . . . . . . . . . . 109.47 48,896.81 6,829 17,601 1.2888

2013 . . . . . . . . . . . . . 111.45 50,616.69 7,130 18,386 1.3597

2014 . . . . . . . . . . . . . 113.45 52,331.64 7,444 19,190 1.4352

2015 . . . . . . . . . . . . . 115.49 54,077.95 7,759 20,007 1.5134

2016 . . . . . . . . . . . . . 117.57 55,862.08 8,082 20,851 1.5959

2020 . . . . . . . . . . . . . 126.27 63,813.85 9,452 24,481 1.9744

2025 . . . . . . . . . . . . . 138.05 75,302.48 11,421 29,729 2.5761

2030 . . . . . . . . . . . . . 150.93 88,824.63 13,792 36,082 3.3612

2035 . . . . . . . . . . . . . 165.01 104,912.06 16,739 43,996 4.3857

2040 . . . . . . . . . . . . . 180.41 124,119.79 20,414 53,887 5.7224

2045 . . . . . . . . . . . . . 197.24 146,853.21 24,957 66,154 7.4664

2050 . . . . . . . . . . . . . 215.64 173,656.50 30,506 81,203 9.7421

2055 . . . . . . . . . . . . . 235.76 205,382.69 37,305 99,714 12.7113

2060 . . . . . . . . . . . . . 257.76 242,925.34 45,655 122,541 16.5854

2065 . . . . . . . . . . . . . 281.81 287,418.38 55,985 150,897 21.6403

2070 . . . . . . . . . . . . . 308.10 340,191.80 68,758 186,104 28.2359

2075 . . . . . . . . . . . . . 336.84 402,703.66 84,489 229,655 36.8417

2080 . . . . . . . . . . . . . 368.27 476,574.03 103,744 283,213 48.0703

2085 . . . . . . . . . . . . . 402.63 564,262.93 127,361 348,928 62.7212
Appendices

178

Table VI.F7 shows estimated operations of the combined OASI and DI Trust

Funds in constant 2007 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

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.

High Cost:

2006 . . . . . . . . . . . . . 97.47 $38,702.80 $5,033 $13,232 0.9599

2007 . . . . . . . . . . . . . 100.00 39,852.18 5,197 13,548 1.0000

2008 . . . . . . . . . . . . . 102.81 41,860.51 5,475 14,238 1.0564

2009 . . . . . . . . . . . . . 105.79 43,722.09 5,756 15,015 1.1193

2010 . . . . . . . . . . . . . 110.44 45,294.95 6,010 15,646 1.1879

2011 . . . . . . . . . . . . . 116.74 48,246.05 6,384 16,747 1.2841

2012 . . . . . . . . . . . . . 123.23 51,759.46 6,855 18,215 1.3986

2013 . . . . . . . . . . . . . 129.00 54,564.68 7,273 19,369 1.5008

2014 . . . . . . . . . . . . . 134.08 56,969.23 7,663 20,375 1.5949

2015 . . . . . . . . . . . . . 139.17 59,388.31 8,047 21,429 1.6907

2016 . . . . . . . . . . . . . 144.46 61,920.82 8,432 22,540 1.7915

2020 . . . . . . . . . . . . . 167.70 73,537.32 10,179 27,505 2.2600

2025 . . . . . . . . . . . . . 202.08 91,138.23 12,820 35,109 3.0215

2030 . . . . . . . . . . . . . 243.50 113,106.23 16,110 44,722 4.0395

2035 . . . . . . . . . . . . . 293.42 140,587.61 20,225 56,911 5.4007

2040 . . . . . . . . . . . . . 353.57 174,866.42 25,327 72,223 7.2204

2045 . . . . . . . . . . . . . 426.06 217,292.63 31,600 91,338 9.6533

2050 . . . . . . . . . . . . . 513.40 269,678.53 39,186 114,856 12.9060

2055 . . . . . . . . . . . . . 618.65 334,238.19 48,452 144,039 17.2547

2060 . . . . . . . . . . . . . 745.47 414,085.65 59,744 180,174 23.0687

2065 . . . . . . . . . . . . . 898.29 513,052.61 73,576 225,107 30.8418

2070 . . . . . . . . . . . . . 1,082.44 635,788.72 90,377 280,547 41.2339

2075 . . . . . . . . . . . . . 1,304.33 787,898.07 110,939 349,413 55.1277

2080 . . . . . . . . . . . . . 1,571.72 976,353.82 135,919 434,368 73.7031

2085 . . . . . . . . . . . . . 1,893.92 1,211,072.06 166,726 540,196 98.5374

1The adjusted CPI is the CPI-W indexed to calendar year 2007.

2 The average wage index is used to automatically adjust the contribution and benefit base and other wageindexed program amounts. (See “Average wage index” in the glossary.)

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.F6.—Selected Economic Variables, Calendar Years 2006-85 (Cont.)

[GDP and taxable payroll in billions]

Calendar year

Adjusted

CPI1 Average

wage index2 Taxablepayroll3

Gross

domestic

product

Compound

interest-rate

factor4
179

OASDI & HI: Estimates in Dollars

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

Table VI.F7.—Operations of the Combined OASI and DI Trust Funds, 

in Constant 2007 Dollars,1 Calendar Years 2007-85

[In billions]

1The adjustment from current to constant dollars is by the adjusted CPI indexing series shown in table

VI.F6.

Calendar year

Income

excluding

interest

Interest

income

Total

income Cost

Assets at

end of year

Intermediate:

2007 . . . . . . . . . . . . . $673.7 $109.2 $782.8 $594.3 $2,236.6

2008 . . . . . . . . . . . . . 693.1 115.2 808.3 603.0 2,390.0

2009 . . . . . . . . . . . . . 715.0 123.7 838.7 620.7 2,545.7

2010 . . . . . . . . . . . . . 732.3 133.0 865.3 642.5 2,699.3

2011 . . . . . . . . . . . . . 750.0 142.7 892.7 663.9 2,854.5

2012 . . . . . . . . . . . . . 766.1 152.0 918.1 689.8 3,005.0

2013 . . . . . . . . . . . . . 780.1 161.1 941.2 718.0 3,146.5

2014 . . . . . . . . . . . . . 793.6 169.6 963.2 747.7 3,276.3

2015 . . . . . . . . . . . . . 807.8 177.3 985.0 778.6 3,393.5

2016 . . . . . . . . . . . . . 822.2 184.2 1,006.5 810.7 3,496.9

2020 . . . . . . . . . . . . . 879.4 206.4 1,085.8 947.2 3,752.1

2025 . . . . . . . . . . . . . 949.9 204.4 1,154.3 1,120.8 3,634.2

2030 . . . . . . . . . . . . . 1,023.2 169.9 1,193.1 1,289.7 2,951.7

2035 . . . . . . . . . . . . . 1,102.2 105.3 1,207.5 1,433.1 1,734.9

20402 . . . . . . . . . . . .

2 Estimates for later years are not shown because the combined OASI and DI Trust Funds are estimated to

become exhausted in 2041 under the intermediate assumptions and in 2030 under the high cost assumptions.

1,186.1 16.3 1,202.5 1,549.5 89.6

Low Cost: 

2007 . . . . . . . . . . . . . 676.3 109.5 785.8 592.6 2,241.3

2008 . . . . . . . . . . . . . 703.3 116.3 819.6 601.3 2,417.1

2009 . . . . . . . . . . . . . 729.1 124.6 853.7 619.9 2,608.2

2010 . . . . . . . . . . . . . 752.8 133.8 886.6 640.8 2,807.8

2011 . . . . . . . . . . . . . 776.6 144.3 920.8 661.0 3,018.0

2012 . . . . . . . . . . . . . 799.5 155.5 955.0 685.5 3,234.2

2013 . . . . . . . . . . . . . 821.1 167.4 988.5 712.5 3,452.9

2014 . . . . . . . . . . . . . 842.7 179.9 1,022.6 741.4 3,673.1

2015 . . . . . . . . . . . . . 864.0 191.8 1,055.8 771.6 3,892.4

2016 . . . . . . . . . . . . . 885.4 203.6 1,089.0 803.3 4,109.1

2020 . . . . . . . . . . . . . 969.1 253.3 1,222.4 948.7 4,915.8

2025 . . . . . . . . . . . . . 1,076.9 299.1 1,376.0 1,140.1 5,716.4

2030 . . . . . . . . . . . . . 1,194.4 328.0 1,522.3 1,330.5 6,233.4

2035 . . . . . . . . . . . . . 1,328.3 345.8 1,674.1 1,501.1 6,556.2

2040 . . . . . . . . . . . . . 1,481.4 362.6 1,844.0 1,649.8 6,877.9

2045 . . . . . . . . . . . . . 1,655.1 387.1 2,042.2 1,802.9 7,357.3

2050 . . . . . . . . . . . . . 1,849.5 421.6 2,271.2 1,982.7 8,027.0

2055 . . . . . . . . . . . . . 2,068.5 465.6 2,534.1 2,200.0 8,870.1

2060 . . . . . . . . . . . . . 2,315.6 517.2 2,832.8 2,451.1 9,858.4

2065 . . . . . . . . . . . . . 2,596.6 579.1 3,175.7 2,725.1 11,050.5

2070 . . . . . . . . . . . . . 2,915.4 656.9 3,572.3 3,025.3 12,554.2

2075 . . . . . . . . . . . . . 3,275.2 755.9 4,031.1 3,365.5 14,465.0

2080 . . . . . . . . . . . . . 3,678.1 877.5 4,555.6 3,768.1 16,802.3

2085 . . . . . . . . . . . . . 4,131.1 1,019.3 5,150.4 4,243.7 19,517.2

High Cost:

2007 . . . . . . . . . . . . . 665.7 107.8 773.5 597.8 2,223.8

2008 . . . . . . . . . . . . . 670.8 112.5 783.3 610.6 2,335.5

2009 . . . . . . . . . . . . . 694.7 120.4 815.0 631.9 2,452.9

2010 . . . . . . . . . . . . . 696.1 126.5 822.6 648.3 2,523.9

2011 . . . . . . . . . . . . . 700.9 134.4 835.3 664.5 2,558.6

2012 . . . . . . . . . . . . . 715.4 148.9 864.3 693.2 2,595.1

2013 . . . . . . . . . . . . . 726.9 157.1 884.0 727.2 2,635.8

2014 . . . . . . . . . . . . . 737.9 160.7 898.6 762.0 2,672.5

2015 . . . . . . . . . . . . . 748.2 161.9 910.1 793.6 2,691.2

2016 . . . . . . . . . . . . . 757.2 161.9 919.1 826.1 2,685.8

2020 . . . . . . . . . . . . . 793.1 143.3 936.4 949.9 2,418.5

2025 2 . . . . . . . . . . . . 835.5 93.3 928.7 1,099.9 1,502.3
Appendices

180

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.F7. 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 2016,

(2) current tax income plus amounts from the trust funds that are less than

annual interest income for years 2017 through 2026, and (3) current tax

income plus amounts from the trust funds that are greater than annual interest

income for years 2027 through 2040, i.e., through the year preceding the year

of trust fund exhaustion.

Table VI.F8 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

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2005 2010 2015 2020 2025 2030 2035 2040 2045

Calendar year

Cost

Total income

Income excluding interest
181

OASDI & HI: Estimates in Dollars

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

Table VI.F8.—Operations of the Combined OASI and DI Trust Funds, 

in Current Dollars, Calendar Years 2007-85

[In billions]

Calendar year

Income

excluding

interest

Interest

income

Total

income Cost

Assets at

end of year

Intermediate:

2007 . . . . . . . . . . . . . $673.7 $109.2 $782.8 $594.3 $2,236.6

2008 . . . . . . . . . . . . . 709.5 117.9 827.5 617.3 2,446.8

2009 . . . . . . . . . . . . . 751.6 130.0 881.6 652.5 2,675.9

2010 . . . . . . . . . . . . . 791.2 143.7 935.0 694.2 2,916.6

2011 . . . . . . . . . . . . . 833.1 158.5 991.6 737.4 3,170.8

2012 . . . . . . . . . . . . . 874.8 173.6 1,048.4 787.6 3,431.5

2013 . . . . . . . . . . . . . 915.8 189.1 1,104.9 842.8 3,693.6

2014 . . . . . . . . . . . . . 957.6 204.7 1,162.3 902.3 3,953.6

2015 . . . . . . . . . . . . . 1,002.0 219.9 1,221.9 965.9 4,209.7

2016 . . . . . . . . . . . . . 1,048.5 235.0 1,283.5 1,033.8 4,459.3

2020 . . . . . . . . . . . . . 1,252.5 293.9 1,546.4 1,349.0 5,343.6

2025 . . . . . . . . . . . . . 1,553.1 334.3 1,887.4 1,832.6 5,942.1

2030 . . . . . . . . . . . . . 1,920.6 318.9 2,239.5 2,420.9 5,540.7

2035 . . . . . . . . . . . . . 2,375.3 226.8 2,602.1 3,088.5 3,738.9

20401 . . . . . . . . . . . .

1 Estimates for later years are not shown because the combined OASI and DI Trust Funds are estimated to

become exhausted in 2041 under the intermediate assumptions and in 2030 under the high cost assumptions.

2,934.7 40.4 2,975.1 3,833.6 221.6

Low Cost:

2007 . . . . . . . . . . . . . 676.3 109.5 785.8 592.6 2,241.3

2008 . . . . . . . . . . . . . 716.9 118.5 835.4 613.0 2,463.8

2009 . . . . . . . . . . . . . 756.6 129.3 885.9 643.3 2,706.4

2010 . . . . . . . . . . . . . 795.2 141.3 936.5 676.9 2,966.0

2011 . . . . . . . . . . . . . 835.1 155.1 990.2 710.8 3,245.4

2012 . . . . . . . . . . . . . 875.2 170.2 1,045.4 750.4 3,540.5

2013 . . . . . . . . . . . . . 915.1 186.5 1,101.7 794.1 3,848.1

2014 . . . . . . . . . . . . . 956.1 204.1 1,160.2 841.1 4,167.2

2015 . . . . . . . . . . . . . 997.8 221.5 1,219.3 891.2 4,495.3

2016 . . . . . . . . . . . . . 1,041.0 239.4 1,280.4 944.5 4,831.2

2020 . . . . . . . . . . . . . 1,223.7 319.9 1,543.5 1,197.9 6,207.2

2025 . . . . . . . . . . . . . 1,486.6 412.9 1,899.5 1,574.0 7,891.5

2030 . . . . . . . . . . . . . 1,802.7 495.0 2,297.7 2,008.1 9,408.0

2035 . . . . . . . . . . . . . 2,191.8 570.6 2,762.4 2,476.9 10,818.5

2040 . . . . . . . . . . . . . 2,672.6 654.1 3,326.7 2,976.4 12,408.2

2045 . . . . . . . . . . . . . 3,264.6 763.5 4,028.1 3,556.0 14,511.5

2050 . . . . . . . . . . . . . 3,988.4 909.2 4,897.6 4,275.6 17,309.5

2055 . . . . . . . . . . . . . 4,876.8 1,097.6 5,974.4 5,186.8 20,912.1

2060 . . . . . . . . . . . . . 5,968.7 1,333.1 7,301.8 6,318.0 25,410.7

2065 . . . . . . . . . . . . . 7,317.3 1,632.0 8,949.3 7,679.5 31,140.8

2070 . . . . . . . . . . . . . 8,982.3 2,024.0 11,006.3 9,321.0 38,679.1

2075 . . . . . . . . . . . . . 11,032.3 2,546.2 13,578.4 11,336.3 48,724.2

2080 . . . . . . . . . . . . . 13,545.3 3,231.6 16,776.9 13,876.6 61,877.8

2085 . . . . . . . . . . . . . 16,632.9 4,104.1 20,737.0 17,086.4 78,581.6

High Cost:

2007 . . . . . . . . . . . . . 665.7 107.8 773.5 597.8 2,223.8

2008 . . . . . . . . . . . . . 689.6 115.7 805.3 627.8 2,401.3

2009 . . . . . . . . . . . . . 734.9 127.3 862.2 668.5 2,595.0

2010 . . . . . . . . . . . . . 768.9 139.7 908.5 716.0 2,787.5

2011 . . . . . . . . . . . . . 818.2 156.9 975.1 775.7 2,986.9

2012 . . . . . . . . . . . . . 881.5 183.5 1,065.0 854.2 3,197.8

2013 . . . . . . . . . . . . . 937.7 202.7 1,140.4 938.1 3,400.1

2014 . . . . . . . . . . . . . 989.4 215.5 1,204.9 1,021.7 3,583.3

2015 . . . . . . . . . . . . . 1,041.3 225.3 1,266.6 1,104.4 3,745.4

2016 . . . . . . . . . . . . . 1,093.9 233.9 1,327.7 1,193.3 3,879.9

2020 . . . . . . . . . . . . . 1,330.1 240.3 1,570.4 1,593.0 4,055.9

2025 1 . . . . . . . . . . . . 1,688.3 188.5 1,876.8 2,222.7 3,035.9
Appendices

182

Table VI.F9 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.F9 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.
183

OASDI & HI: Estimates in Dollars

Table VI.F9.—OASDI and HI Annual Income Excluding Interest, Cost, and

Balance in Current Dollars, Calendar Years 2007-85

[In billions]

Calendar

year

OASDI HI Combined

Income

excluding

interest Cost Balance

Income

excluding

interest Cost Balance

Income

excluding

interest Cost Balance

Intermediate:

2007 . . . . . . $674 $594 $79 $204 $206 -$1 $878 $800 $78

2008 . . . . . . 710 617 92 216 221 -5 926 838 88

2009 . . . . . . 752 652 99 229 237 -8 981 890 91

2010 . . . . . . 791 694 97 242 254 -12 1,033 948 85

2011 . . . . . . 833 737 96 255 271 -16 1,088 1,009 79

2012 . . . . . . 875 788 87 268 290 -22 1,143 1,077 66

2013 . . . . . . 916 843 73 282 310 -28 1,198 1,153 45

2014 . . . . . . 958 902 55 295 332 -36 1,253 1,234 19

2015 . . . . . . 1,002 966 36 310 355 -45 1,312 1,321 -9

2016 . . . . . . 1,049 1,034 15 325 380 -55 1,374 1,414 -40

2020 . . . . . . 1,252 1,349 -97 392 508 -116 1,644 1,857 -213

2025 . . . . . . 1,553 1,833 -279 490 741 -251 2,043 2,574 -531

2030 . . . . . . 1,921 2,421 -500 609 1,080 -470 2,530 3,501 -971

2035 . . . . . . 2,375 3,089 -713 757 1,537 -780 3,132 4,625 -1,493

2040 . . . . . . 2,935 3,834 -899 936 2,113 -1,177 3,871 5,947 -2,076

2045 . . . . . . 3,622 4,716 -1,094 1,155 2,826 -1,671 4,777 7,542 -2,765

2050 . . . . . . 4,459 5,815 -1,356 1,423 3,705 -2,282 5,882 9,520 -3,637

2055 . . . . . . 5,484 7,217 -1,733 1,752 4,810 -3,057 7,236 12,027 -4,790

2060 . . . . . . 6,745 8,988 -2,243 2,159 6,248 -4,089 8,904 15,236 -6,332

2065 . . . . . . 8,298 11,182 -2,883 2,660 8,107 -5,447 10,958 19,289 -8,331

2070 . . . . . . 10,206 13,896 -3,690 3,275 10,459 -7,184 13,481 24,355 -10,874

2075 . . . . . . 12,550 17,254 -4,704 4,032 13,398 -9,365 16,582 30,652 -14,070

2080 . . . . . . 15,421 21,423 -6,002 4,961 17,040 -12,080 20,382 38,463 -18,082

2085 . . . . . . 18,954 26,602 -7,648

Low Cost:

2007 . . . . . . 676 593 84 206 200 6 882 792 90

2008 . . . . . . 717 613 104 218 211 7 935 824 111

2009 . . . . . . 757 643 113 230 221 8 986 864 122

2010 . . . . . . 795 677 118 241 232 10 1,037 909 128

2011 . . . . . . 835 711 124 253 242 12 1,089 953 136

2012 . . . . . . 875 750 125 266 253 13 1,141 1,003 138

2013 . . . . . . 915 794 121 279 265 14 1,194 1,059 135

2014 . . . . . . 956 841 115 292 278 14 1,248 1,119 129

2015 . . . . . . 998 891 107 305 291 14 1,303 1,182 121

2016 . . . . . . 1,041 944 97 319 305 14 1,360 1,249 111

2020 . . . . . . 1,224 1,198 26 377 371 6 1,601 1,569 32

2025 . . . . . . 1,487 1,574 -87 461 483 -22 1,948 2,057 -109

2030 . . . . . . 1,803 2,008 -205 562 627 -65 2,365 2,636 -271

2035 . . . . . . 2,192 2,477 -285 685 800 -115 2,877 3,276 -400

2040 . . . . . . 2,673 2,976 -304 835 1,007 -173 3,507 3,984 -476

2045 . . . . . . 3,265 3,556 -291 1,018 1,263 -244 4,283 4,819 -536

2050 . . . . . . 3,988 4,276 -287 1,243 1,589 -346 5,232 5,865 -633

2055 . . . . . . 4,877 5,187 -310 1,520 2,027 -507 6,397 7,213 -817

2060 . . . . . . 5,969 6,318 -349 1,860 2,623 -762 7,829 8,940 -1,112

2065 . . . . . . 7,317 7,679 -362 2,280 3,395 -1,115 9,597 11,074 -1,477

2070 . . . . . . 8,982 9,321 -339 2,797 4,377 -1,580 11,779 13,698 -1,919

2075 . . . . . . 11,032 11,336 -304 3,433 5,607 -2,174 14,465 16,943 -2,478

2080 . . . . . . 13,545 13,877 -331 4,215 7,131 -2,917 17,760 21,008 -3,248

2085 . . . . . . 16,633 17,086 -453
Appendices

184

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

Table VI.F10 shows projected future benefit amounts payable upon retirement at either the normal retirement age (NRA) or age 65, for workers attaining age 65 in 2007 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 2007 dollars (adjusted to 2007 levels by the CPI indexing series shown in table VI.F6). Benefit amounts are also shown as percentages of the 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, was increased to age 66 during the period 2000-05 (at a rate of 2

months per year as workers attained age 62) and is scheduled to increase to

age 67 during the period 2017-22 (also by 2 months per year as workers

High Cost:

2007 . . . . . . $666 $598 $68 $200 $212 -$12 $865 $809 $56

2008 . . . . . . 690 628 62 212 231 -19 901 859 43

2009 . . . . . . 735 669 66 225 252 -28 960 921 39

2010 . . . . . . 769 716 53 235 274 -39 1,004 990 13

2011 . . . . . . 818 776 42 252 303 -51 1,070 1,079 -9

2012 . . . . . . 882 854 27 275 339 -64 1,156 1,193 -37

2013 . . . . . . 938 938 1/ 293 376 -83 1,231 1,314 -83

2014 . . . . . . 989 1,022 -32 309 413 -103 1,299 1,435 -136

2015 . . . . . . 1,041 1,104 -63 326 452 -126 1,368 1,556 -189

2016 . . . . . . 1,094 1,193 -99 344 495 -152 1,438 1,689 -251

2020 . . . . . . 1,330 1,593 -263 422 727 -305 1,752 2,320 -567

2025 . . . . . . 1,688 2,223 -534 541 1,193 -653 2,229 3,416 -1,187

2030 . . . . . . 2,137 3,033 -897 690 1,954 -1,265 2,827 4,988 -2,161

2035 . . . . . . 2,696 4,009 -1,313 875 3,111 -2,235 3,571 7,120 -3,548

2040 . . . . . . 3,386 5,160 -1,773 1,103 4,677 -3,574 4,490 9,837 -5,348

2045 . . . . . . 4,234 6,570 -2,336 1,383 6,682 -5,299 5,617 13,252 -7,635

2050 . . . . . . 5,264 8,355 -3,091 1,724 9,134 -7,411 6,987 17,490 -10,502

2055 . . . . . . 6,528 10,661 -4,133 2,145 12,094 -9,949 8,673 22,755 -14,082

2060 . . . . . . 8,078 13,620 -5,542 2,664 15,775 -13,111 10,742 29,395 -18,653

2065 . . . . . . 9,983 17,390 -7,406 3,306 20,519 -17,212 13,290 37,908 -24,619

2070 . . . . . . 12,310 22,176 -9,867 4,094 26,474 -22,380 16,404 48,650 -32,247

2075 . . . . . . 15,165 28,193 -13,028 5,065 33,893 -28,828 20,230 62,086 -41,856

2080 . . . . . . 18,644 35,658 -17,014 6,250 43,037 -36,786 24,894 78,694 -53,800

2085 . . . . . . 22,933 44,862 -21,929

1 Between -$500 million and $500 million.

Table VI.F9.—OASDI and HI Annual Income Excluding Interest, Cost, and

Balance in Current Dollars, Calendar Years 2007-85 (Cont.)

[In billions]

Calendar

year

OASDI HI Combined

Income

excluding

interest Cost Balance

Income

excluding

interest Cost Balance

Income

excluding

interest Cost Balance
185

OASDI & HI: Estimates in Dollars

attain age 62). Thus, for the illustrative cases shown in table VI.F10, benefit

levels shown for retirement at 65 are lower than the levels shown for retirement at NRA, primarily because of the actuarial reduction for “early” (preNRA) retirement.

Four different pre-retirement earnings patterns are represented in table

VI.F10. Three of these cases 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 1991-2003. The general, careeraverage level of earnings for the scaled cases is set relative to the national

average wage index (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 those of the corresponding

steady low, average, and high earners that were illustrated in the 2000 and

earlier Trustees Reports. 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 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 scaled-earnings patterns in the Social Security Administration Actuarial Note

Number 2006.3, located at the following internet address: www.socialsecurity.gov/OACT/NOTES/ran3/

an2006-3.html.
Appendices

186

Table VI.F10.—Estimated Annual Scheduled Benefit Amounts1 for Retired Workers

With Various Pre-Retirement Earnings Patterns Based on

Intermediate Assumptions, Calendar Years 2007-85 

Year attain age 652

Retirement at normal retirement age Retirement at age 65

Age at

retirement

Constant

2007

dollars 3 Percent of

earnings

Age at

retirement

Constant

2007

dollars3 Percent ofearnings

 Scaled low earnings:4

2007 . . . . . . . . . . . 65:10 $9,921 56.0 65:0 $9,443 54.2

2010 . . . . . . . . . . . 66:0 9,941 53.4 65:0 9,284 50.5

2015 . . . . . . . . . . . 66:0 10,979 55.7 65:0 10,249 52.6

2020 . . . . . . . . . . . 66:2 11,618 55.9 65:0 10,709 52.1

2025 . . . . . . . . . . . 67:0 12,244 55.5 65:0 10,608 49.0

2030 . . . . . . . . . . . 67:0 12,891 55.4 65:0 11,175 49.0

2035 . . . . . . . . . . . 67:0 13,589 55.3 65:0 11,776 49.0

2040 . . . . . . . . . . . 67:0 14,339 55.2 65:0 12,426 48.9

2045 . . . . . . . . . . . 67:0 15,154 55.3 65:0 13,135 48.9

2050 . . . . . . . . . . . 67:0 16,009 55.3 65:0 13,872 49.0

2055 . . . . . . . . . . . 67:0 16,894 55.4 65:0 14,640 49.0

2060 . . . . . . . . . . . 67:0 17,816 55.4 65:0 15,439 49.0

2065 . . . . . . . . . . . 67:0 18,789 55.3 65:0 16,285 49.0

2070 . . . . . . . . . . . 67:0 19,819 55.3 65:0 17,178 49.0

2075 . . . . . . . . . . . 67:0 20,914 55.3 65:0 18,125 49.0

2080 . . . . . . . . . . . 67:0 22,070 55.3 65:0 19,127 49.0

2085 . . . . . . . . . . . 67:0 23,286 55.3 65:0 20,180 49.0

Scaled medium earnings:5

2007 . . . . . . . . . . . 65:10 16,361 41.5 65:0 15,570 40.2

2010 . . . . . . . . . . . 66:0 16,394 39.6 65:0 15,295 37.5

2015 . . . . . . . . . . . 66:0 18,099 41.3 65:0 16,891 39.0

2020 . . . . . . . . . . . 66:2 19,143 41.4 65:0 17,652 38.7

2025 . . . . . . . . . . . 67:0 20,173 41.1 65:0 17,479 36.4

2030 . . . . . . . . . . . 67:0 21,240 41.1 65:0 18,409 36.3

2035 . . . . . . . . . . . 67:0 22,388 41.0 65:0 19,406 36.3

2040 . . . . . . . . . . . 67:0 23,627 41.0 65:0 20,477 36.3

2045 . . . . . . . . . . . 67:0 24,968 41.0 65:0 21,638 36.3

2050 . . . . . . . . . . . 67:0 26,372 41.0 65:0 22,857 36.3

2055 . . . . . . . . . . . 67:0 27,832 41.1 65:0 24,121 36.3

2060 . . . . . . . . . . . 67:0 29,353 41.1 65:0 25,437 36.3

2065 . . . . . . . . . . . 67:0 30,955 41.0 65:0 26,827 36.3

2070 . . . . . . . . . . . 67:0 32,655 41.0 65:0 28,299 36.3

2075 . . . . . . . . . . . 67:0 34,456 41.0 65:0 29,863 36.3

2080 . . . . . . . . . . . 67:0 36,360 41.0 65:0 31,511 36.3

2085 . . . . . . . . . . . 67:0 38,363 41.0 65:0 33,247 36.3

Scaled high earnings:6

2007 . . . . . . . . . . . 65:10 21,640 34.6 65:0 20,604 33.5

2010 . . . . . . . . . . . 66:0 21,732 32.8 65:0 20,282 31.1

2015 . . . . . . . . . . . 66:0 23,995 34.3 65:0 22,388 32.3

2020 . . . . . . . . . . . 66:2 25,386 34.3 65:0 23,411 32.0

2025 . . . . . . . . . . . 67:0 26,745 34.1 65:0 23,180 30.1

2030 . . . . . . . . . . . 67:0 28,164 34.0 65:0 24,407 30.1

2035 . . . . . . . . . . . 67:0 29,682 34.0 65:0 25,724 30.1

2040 . . . . . . . . . . . 67:0 31,327 33.9 65:0 27,151 30.1

2045 . . . . . . . . . . . 67:0 33,102 34.0 65:0 28,689 30.1

2050 . . . . . . . . . . . 67:0 34,965 34.0 65:0 30,304 30.1

2055 . . . . . . . . . . . 67:0 36,897 34.0 65:0 31,979 30.1

2060 . . . . . . . . . . . 67:0 38,913 34.0 65:0 33,726 30.1

2065 . . . . . . . . . . . 67:0 41,037 34.0 65:0 35,565 30.1

2070 . . . . . . . . . . . 67:0 43,291 34.0 65:0 37,518 30.1

2075 . . . . . . . . . . . 67:0 45,680 34.0 65:0 39,588 30.1

2080 . . . . . . . . . . . 67:0 48,202 34.0 65:0 41,775 30.1

2085 . . . . . . . . . . . 67:0 50,857 34.0 65:0 44,076 30.1
187

OASDI & HI: Estimates in Dollars

Steady maximum earnings:7

2007 . . . . . . . . . . . 65:10 $25,213 28.5 65:0 $24,004 27.9

2010 . . . . . . . . . . . 66:0 25,944 27.0 65:0 24,011 25.6

2015 . . . . . . . . . . . 66:0 29,163 27.6 65:0 27,071 26.0

2020 . . . . . . . . . . . 66:2 30,999 27.5 65:0 28,487 25.6

2025 . . . . . . . . . . . 67:0 32,870 27.3 65:0 28,278 24.0

2030 . . . . . . . . . . . 67:0 34,652 27.3 65:0 29,821 24.0

2035 . . . . . . . . . . . 67:0 36,537 27.2 65:0 31,445 23.9

2040 . . . . . . . . . . . 67:0 38,527 27.2 65:0 33,160 23.9

2045 . . . . . . . . . . . 67:0 40,719 27.2 65:0 35,049 23.9

2050 . . . . . . . . . . . 67:0 42,950 27.3 65:0 36,969 24.0

2055 . . . . . . . . . . . 67:0 45,327 27.3 65:0 39,018 24.0

2060 . . . . . . . . . . . 67:0 47,799 27.3 65:0 41,147 24.0

2065 . . . . . . . . . . . 67:0 50,406 27.3 65:0 43,392 24.0

2070 . . . . . . . . . . . 67:0 53,171 27.3 65:0 45,770 24.0

2075 . . . . . . . . . . . 67:0 56,105 27.3 65:0 48,296 24.0

2080 . . . . . . . . . . . 67:0 59,203 27.3 65:0 50,963 24.0

2085 . . . . . . . . . . . 67:0 62,464 27.3 65:0 53,770 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.F6.

4 Career-average earnings at about 45 percent of the national 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.F10.—Estimated Annual Scheduled Benefit Amounts1 for Retired Workers

With Various Pre-Retirement Earnings Patterns Based on

Intermediate Assumptions, Calendar Years 2007-85 (Cont.) 

Year attain age 652

Retirement at normal retirement age Retirement at age 65

Age at

retirement

Constant

2007

dollars 3 Percent of

earnings

Age at

retirement

Constant

2007

dollars3 Percent of

earnings
Appendices

188

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, 2006, about 839,000 persons were receiving monthly benefits from the OASI Trust Fund because of their disabilities or the disabilities

of children. This total includes 27,000 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 $6,737 million in

calendar year 2006. Table VI.G1 shows these and similar figures for selected

calendar years during 1960-2006, and estimated experience for 2007-16

based on the intermediate set of assumptions.
189

OASI Expenditures for Disabled

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

Total benefit payments from the OASI Trust Fund with respect to disabled

beneficiaries are estimated to increase from $7,102 million in calendar year

2007 to $10,843 million in calendar year 2016, 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 48 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 5,203 4,523 680

2001 . . . . . . . . . 817 712 105 5,520 4,802 718

2002 . . . . . . . . . 823 717 106 5,773 5,024 749

2003 . . . . . . . . . 826 721 105 5,746 4,979 764

2004 . . . . . . . . . 828 723 105 5,945 5,162 781

2005 . . . . . . . . . 835 727 108 6,288 5,386 843

2006 . . . . . . . . . 839 732 108 6,737 5,848 885

Estimates:

2007 . . . . . . . . . 849 743 106 7,102 6,200 890

2008 . . . . . . . . . 859 754 105 7,370 6,461 899

2009 . . . . . . . . . 871 767 104 7,687 6,756 918

2010 . . . . . . . . . 882 779 103 8,056 7,101 940

2011 . . . . . . . . . 894 792 101 8,539 7,556 964

2012 . . . . . . . . . 904 804 100 8,989 7,977 989

2013 . . . . . . . . . 913 816 98 9,447 8,407 1,015

2014 . . . . . . . . . 922 826 96 9,896 8,839 1,030

2015 . . . . . . . . . 929 836 93 10,363 9,286 1,047

2016 . . . . . . . . . 936 845 91 10,843 9,749 1,060
Appendices

190

In calendar year 2006, 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

$99,182 million. Of this amount, $6,737 million or 6.8 percent represented

payments from the OASI Trust Fund. These and similar figures for selected

calendar years during 1960-2006 and estimates for calendar years 2007-16

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 . . . . . . . . . 60,204 55,001 5,203 8.6

2001 . . . . . . . . . 65,157 59,637 5,520 8.5

2002 . . . . . . . . . 71,493 65,721 5,773 8.1

2003 . . . . . . . . . 76,698 70,952 5,746 7.5

2004 . . . . . . . . . 84,197 78,251 5,945 7.1

2005 . . . . . . . . . 91,674 85,386 6,288 6.9

2006 . . . . . . . . . 99,182 4 92,446

4 Excludes reimbursement in 2006 of $0.7 billion for excess amounts of voluntary income tax withholding in

1999-2005.

6,737 6.8

Estimates:

2007 . . . . . . . . . 106,405 99,303 7,102 6.7

2008 . . . . . . . . . 110,792 103,422 7,370 6.7

2009 . . . . . . . . . 117,680 109,993 7,687 6.5

2010 . . . . . . . . . 125,536 117,480 8,056 6.4

2011 . . . . . . . . . 131,834 123,294 8,539 6.5

2012 . . . . . . . . . 141,011 132,022 8,989 6.4

2013 . . . . . . . . . 149,271 139,824 9,447 6.3

2014 . . . . . . . . . 157,672 147,776 9,896 6.3

2015 . . . . . . . . . 166,618 156,255 10,363 6.2

2016 . . . . . . . . . 175,901 165,059 10,843 6.2
191

Glossary

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.
Appendices

192

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—AWI. 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.”
193

Glossary

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 to serve as public representatives.

Cash flow. The cash flow for the OASI and DI Trust Funds is defined generally as actual or projected revenue and costs reflecting the levels of tax rates

and benefits scheduled in the law. Net cash flow is the difference between tax

revenue and cost on this basis.

Closed group unfunded obligation. This measure is computed like the

open group unfunded obligation except that individuals under the age of 15

(or not yet born) are excluded. In other words, only persons who attain age

15 or older during the first year of the projection period are included in the

calculations.

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). Historical values for the CPI-W are published by the Bureau of Labor Statistics, Department of Labor.

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
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194

 • States on the wages of State and local government employees covered

under the Social Security Act through voluntary agreements under section 218 of the Act.

Generally, employers withhold contributions from wages, add an equal

amount of contributions, and pay both on a current basis. Also referred to as

taxes.

Cost. The cost for a year 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.

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.

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 an

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.”
195

Glossary

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).

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 credits are

applicable for January benefits of the year following the year they are earned

or for the month of attainment of age 70, whichever comes first. 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 bene-
Appendices

196

ficiaries; 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.

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 2007 began October 1, 2006 and will end September 30,

2007.

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:
197

Glossary

 • The costs associated with providing special payments made to uninsured persons who attained age 72 before 1968, and who had fewer than

3 quarters of coverage.

 • Payments corresponding to the employee-employer taxes on deemed

wage credits for military personnel.

 • Interest on checks which are not negotiated 6 months after the month of

issue. (For checks issued before October, 1989, the principal was

returned to the trust funds as a general fund reimbursement; since that

time, the principal amount is automatically returned to the issuing fund

when the check is uncashed after a year.)

 • Administrative expenses incurred as a result of furnishing information

on deferred vested benefits to pension plan participants, as required by

the Employee Retirement Income Security Act of 1974 (Public Law 93-

406).

Gross domestic product—GDP. The total dollar value of all goods and services produced by labor and property located in the United States, regardless

of who supplies the labor or property.

HI contribution base. Annual dollar amount above which earnings in

employment covered under the HI program are not taxable. (Also referred to

as maximum contribution base, taxable maximum, and maximum taxable.)

Beginning in 1994, the HI contribution base was eliminated.

High cost assumptions. See “Assumptions.”

Hospital Insurance (HI) Trust Fund. See “Trust fund.”

Immigration. See “Legal immigration” and “Other immigration.”

Income. Income for a given year is the sum of tax revenues on a liability

basis (payroll-tax contributions and income from the taxation of scheduled

benefits) and interest credited to the trust funds.

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.
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198

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 or callable until after 4 years from the

date the rate is determined. 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.

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.”

Legal immigration. Consistent with the U.S. Citizenship and Immigration

Services, legal immigrants are individuals who are admitted to the United

States for legal permanent residence.

Life expectancy. Average remaining number of years expected prior to

death. Period life expectancy is calculated for a given year using the actual or

expected death rates at each age for that year. Cohort life expectancy, sometimes referred to as generational life expectancy, is calculated for individuals

at a specific age in a given year using actual or expected death rates from the

years in which the individuals would actually reach each succeeding age if

he or she survives.

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 proportion-
199

Glossary

ately 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 age 65 and over. In 1972, coverage

was extended to people receiving Social Security Disability Insurance payments for 2 years, and people with End-Stage Renal Disease. In 2006, prescription drug coverage was also added. Medicare consists of two separate

but coordinated programs—Hospital Insurance (HI, Part A) and Supplementary Medical Insurance (SMI). The SMI program is composed of three separate accounts—the Part B Account, the Part D Account, and the Transitional

Assistance Account. Almost all persons who are aged 65 and over or disabled and who are entitled to HI are eligible to enroll in Part B and Part D on

a voluntary basis by paying monthly premiums. Health insurance protection

is available to Medicare beneficiaries without regard to income.

Military service wage credits. Credits recognizing that military personnel

receive wages in kind (such as food and shelter) in addition to their basic pay

and other cash payments. Noncontributory wage credits of $160 were provided for each month of active military service from September 16, 1940,

through December 31, 1956. For years after 1956, the basic pay of military

personnel is covered under the Social Security program on a contributory

basis. In addition to the contributory credits for basic pay, noncontributory

wage credits of $300 were granted for each calendar quarter, from January

1957 through December 1977, in which a person received pay for military

service. 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—AWI. See “Average wage index—AWI.”

Normal retirement age. The age at which a person may first become entitled to retirement benefits without reduction based on age. 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
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200

1979-81, with subsequent bases updated in accordance with the normal

indexing procedure. See table V.C2.

Open group unfunded obligation. This measure is computed as the excess

of the present value of the projected cost of the program over a specified

time period (for example the next 75 years or the infinite future) over the

sum of (1) the value of trust fund assets at the beginning of the period and (2)

the present value of the projected tax income of the program, assuming

scheduled tax rates and benefit levels.

Other immigration. Individuals who enter the United States and are not

admitted for legal permanent residence. This includes individuals who are

legally admitted, but not seeking permanent residence as well as those who

are unauthorized.

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

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 cen-
201

Glossary

sus 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 2007, a worker receives one quarter of coverage (up to a total of

four) for each $1,000 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

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. 
Appendices

202

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 earnings test. See “Earnings test.”

Retirement eligibility age. The age (62) at which a fully insured individual

first becomes eligible to receive retired-worker benefits.

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. 

Solvency. A program is solvent at a point in time if it is able to pay scheduled benefits when due with scheduled financing. For example, the OASDI

program is considered solvent over any period for which the trust funds

maintain a positive balance throughout the period.

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 has been to spread the holdings of special issues, as of each

June 30, so that the amounts maturing in each of the next 15 years are

approximately equal. Special public-debt obligations are redeemable at par
203

Glossary

value at any time and carry interest rates determined by law (see “Interest

rate”). See tables VI.A5 and VI.A6 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

adjusted to include assets on hand at the beginning of the period. Accord-
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204

ingly, 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.

Sustainable solvency. Sustainable solvency for the financing of the program

is achieved when the program has positive trust fund ratios throughout the

75-year projection period and these ratios are stable or rising at the end of the

period.

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
205

Glossary

benefit (such as the conversion of a disabled-worker beneficiary at normal

retirement age to a retired-worker beneficiary).

Test of long-range close actuarial balance. Summarized income rates and

cost rates are calculated for each of 66 valuation periods within the full 75-

year long-range projection period. The first of these periods consists of the

next 10 years. Each succeeding period becomes longer by 1 year, culminating with the period consisting of the next 75 years. The long-range test is met

if, for each of the 66 valuation periods, the actuarial balance is not less than

zero or is negative by, at most, a specified percentage of the summarized cost

rate for the same time period. The percentage allowed for a negative actuarial balance is 0 percent for the 10-year period, grading uniformly to 5 percent

for the full 75-year period. The criterion for meeting the test is less stringent

for the longer periods in recognition of the greater uncertainty associated

with estimates for more distant years. The test is applied to OASI and DI

separately, as well as combined, based on the intermediate 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

and the Self-Employment Contributions Act, as well as taxes 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 interestbearing Federal securities, as required by law; the interest earned is also

deposited in the trust funds.
Appendices

206

 • 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. Also known as

Medicare Part A.

 • Supplementary Medical Insurance (SMI). The Medicare trust fund

composed of the Part B Account, the Part D Account, and the Transitional Assistance Account. The Part B Account pays for a portion of the

costs of physicians’ services, outpatient hospital services, and other

related medical and health services for voluntarily enrolled aged and

disabled individuals. The Part D Account pays private plans to provide

prescription drug coverage, beginning in 2006. The Transitional Assistance Account paid for transitional assistance under the prescription

drug card program in 2004 and 2005.

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.

Unfunded obligation. See “Open group unfunded obligation” and “Closed

group unfunded obligation”.

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.
207

Glossary

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

208

II. OVERVIEW

II.B1 Summary of 2006 Trust Fund Financial Operations . . . . . . . . 4

II.B2 Tax Rates for 2006 and Later . . . . . . . . . . . . . . . . . . . . . . . . 4

II.C1 Ultimate Values of Key Demographic and Economic 

Assumptions for the Long-Range (75-year) Projection Period . 6

II.D1 Projected Maximum Trust Fund Ratios Attained 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 2006 . . . . 20

III.A2 Operations of the DI Trust Fund, Calendar Year 2006 . . . . . . . 24

III.A3 Operations of the Combined OASI and DI Trust Funds, 

Calendar Year 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

III.A4 Comparison of Actual Calendar Year 2006 Trust Fund 

Operations With Estimates Made in Prior Reports . . . . . . . . . 26

III.A5 Distribution of Benefit Payments by Type of Beneficiary or 

Payment, Calendar Years 2005 and 2006 . . . . . . . . . . . . . . . . 27

III.A6 Administrative Expenses as a Percentage of Contribution 

Income and of Total Expenditures, Calendar Years 2002-06 . . 28

III.A7 Trust Fund Investment Transactions, Calendar Year 2006 . . . . 28

IV. ACTUARIAL ESTIMATES

IV.A1 Operations of the OASI Trust Fund, Calendar Years 2002-16 . 33

IV.A2 Operations of the DI Trust Fund, Calendar Years 2002-16. . . . 36

IV.A3 Operations of the Combined OASI and DI Trust Funds,

Calendar Years 2002-16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

IV.A4 Reasons for Change in Trust Fund Ratios at the Beginning 

of the Tenth Year of Projection . . . . . . . . . . . . . . . . . . . . . . . 40

IV.B1 Estimated Annual Income Rates, Cost Rates, and Balances,

Calendar Years 1990-2085 . . . . . . . . . . . . . . . . . . . . . . . . . . 44

IV.B2 Covered Workers and Beneficiaries, Calendar Years 1945-2085 48

IV.B3 Estimated Trust Fund Ratios, Calendar Years 2007-85 . . . . . . 53

IV.B4 Components of Summarized Income Rates and Cost Rates, 

Calendar Years 2007-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

IV.B5 Components of 75-Year Actuarial Balance

Under Intermediate Assumptions (2007-81). . . . . . . . . . . . . . 58
List of Tables

209

IV.B6 Unfunded OASDI Obligations for 1935 (Program Inception)

Through the Infinite Horizon . . . . . . . . . . . . . . . . . . . . . . . . 60

IV.B7 Present Values of OASDI Cost Less Tax Revenue and 

Unfunded Obligations for Program Participants . . . . . . . . . . . 61

IV.B8 Comparison of Estimated Long-Range Actuarial Balances 

With the Minimum Allowable in the Test for Close Actuarial 

Balance, Based on Intermediate Assumptions . . . . . . . . . . . . 64

IV.B9 Reasons for Change in the 75-Year Actuarial Balance

Under Intermediate Assumptions . . . . . . . . . . . . . . . . . . . . . 66

V. ASSUMPTIONS AND METHODS UNDERLYING

ACTUARIAL ESTIMATES

V.A1 Principal Demographic Assumptions, Calendar Years 1940-2085 76

V.A2 Social Security Area Population as of July 1 and Dependency 

Ratios, Calendar Years 1950-2085 . . . . . . . . . . . . . . . . . . . . 78

V.A3 Period Life Expectancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

V.A4 Cohort Life Expectancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

V.B1 Principal Economic Assumptions . . . . . . . . . . . . . . . . . . . . . 88

V.B2 Additional Economic Factors . . . . . . . . . . . . . . . . . . . . . . . . 94

V.C1 Cost-of-Living Benefit Increases, Average Wage Index, 

Contribution and Benefit Bases, and Retirement Earnings 

Test Exempt Amounts, 1975-2016 . . . . . . . . . . . . . . . . . . . . 98

V.C2 Selected Wage-Indexed Program Amounts, 

Calendar Years 1978-2016 . . . . . . . . . . . . . . . . . . . . . . . . . . 101

V.C3 Legislated Changes in Normal Retirement Age and Delayed 

Retirement Credits, for Persons Reaching Age 62 in 

Each Year 1986 and Later. . . . . . . . . . . . . . . . . . . . . . . . . . . 103

V.C4 OASI Beneficiaries With Benefits in Current-Payment Status 

at the End of Calendar Years 1945-2085 . . . . . . . . . . . . . . . . 112

V.C5 Long-Range Ultimate Disabled Worker Age-Sex-Adjusted 

Incidence Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

V.C6 DI Beneficiaries With Benefits in Current-Payment Status 

at the End of Calendar Years 1960-2085 . . . . . . . . . . . . . . . . 119
List of Tables

210

VI. APPENDICES

A. HISTORY OF OASI AND DI TRUST FUND OPERATIONS

VI.A1 Contribution and Benefit Base and Contribution Rates . . . . . . 125

VI.A2 Historical Operations of the OASI Trust Fund, 

Calendar Years 1937-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 129

VI.A3 Historical Operations of the DI Trust Fund, 

Calendar Years 1957-2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 131

VI.A4 Historical Operations of the Combined OASI and DI Trust 

Funds, Calendar Years 1957-2006 . . . . . . . . . . . . . . . . . . . . . 133

VI.A5 Assets of the OASI Trust Fund, End of Calendar Years 

2005 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

VI.A6 Assets of the DI Trust Fund, End of Calendar Years 

2005 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

B. HISTORY OF ACTUARIAL BALANCE ESTIMATES

VI.B1 Long-Range OASDI Actuarial Balances as Shown in the 

Trustees Reports for 1982-2007 . . . . . . . . . . . . . . . . . . . . . . 139

C. FISCAL YEAR HISTORICAL DATA AND

PROJECTIONS THROUGH 2016

VI.C1 Operations of the OASI Trust Fund, Fiscal Year 2006. . . . . . . 142

VI.C2 Operations of the DI Trust Fund, Fiscal Year 2006 . . . . . . . . . 143

VI.C3 Operations of the Combined OASI and DI Trust Funds, 

Fiscal Year 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

VI.C4 Operations of the OASI Trust Fund in Fiscal Years 2002-16 . . 145

VI.C5 Operations of the DI Trust Fund in Fiscal Years 2002-16 . . . . 146

VI.C6 Operations of the Combined OASI and DI Trust Funds

in Fiscal Years 2002-16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

D. LONG-RANGE SENSITIVITY ANALYSIS

VI.D1 Sensitivity to Varying Fertility Assumptions . . . . . . . . . . . . . 149

VI.D2 Sensitivity to Varying Death-Rate Assumptions . . . . . . . . . . . 150

VI.D3 Sensitivity to Varying Net-Immigration Assumptions . . . . . . . 152

VI.D4 Sensitivity to Varying Real-Wage Assumptions . . . . . . . . . . . 153

VI.D5 Sensitivity to Varying CPI-Increase Assumptions. . . . . . . . . . 154

VI.D6 Sensitivity to Varying Real-Interest Assumptions . . . . . . . . . . 155

VI.D7 Sensitivity to Varying Disability Incidence Assumptions. . . . . 156

VI.D8 Sensitivity to Varying Disability Termination Assumptions. . . 158
List of Tables

211

E. STOCHASTIC PROJECTIONS

VI.E1 Long-Range Estimates Relating to the Actuarial Status of the 

Combined OASDI Program . . . . . . . . . . . . . . . . . . . . . . . . . 164

F. ESTIMATES FOR OASDI AND HI, SEPARATE AND COMBINED

VI.F1 Contribution Rates for the OASDI and HI Programs. . . . . . . . 166

VI.F2 Estimated OASDI and HI Annual Income Rates, Cost Rates, 

and Balances, Calendar Years 2007-85 . . . . . . . . . . . . . . . . . 167

VI.F3 Summarized OASDI and HI Income Rates and Cost Rates for 

Valuation Periods, Calendar Years 2007-81 . . . . . . . . . . . . . . 169

VI.F4 OASDI and HI Annual and Summarized Income, Cost, and 

Balance as a Percentage of GDP, Calendar Years 2007-85 . . . 172

VI.F5 Ratio of OASDI Taxable Payroll to GDP, 

Calendar Years 2007-85 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

VI.F6 Selected Economic Variables, Calendar Years 2006-85 . . . . . . 177

VI.F7 Operations of the Combined OASI and DI Trust Funds, 

in Constant 2007 Dollars, Calendar Years 2007-85 . . . . . . . . . 179

VI.F8 Operations of the Combined OASI and DI Trust Funds, 

in Current Dollars, Calendar Years 2007-85 . . . . . . . . . . . . . . 181

VI.F9 OASDI and HI Annual Income Excluding Interest, Cost, and

Balance in Current Dollars, Calendar Years 2007-85 . . . . . . . 183

VI.F10 Estimated Annual Scheduled Benefit Amounts for Retired 

Workers With Various Pre-Retirement Earnings Patterns Based 

on Intermediate Assumptions, Calendar Years 2007-85 . . . . . 186

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 . . . . . . . . . . . . . . . . . . . . . 189

VI.G2 Benefit Disbursements Under the OASDI Program With 

Respect to Disabled Beneficiaries . . . . . . . . . . . . . . . . . . . . . 190
List of Figures

212

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. . . . . . . 10

II.D4 Cumulative OASDI Income Less Cost, Based on Present Law 

Tax Rates and Scheduled Benefits. . . . . . . . . . . . . . . . . . . . . 11

II.D5 OASDI Cost and Scheduled Tax Revenue as a Percentage 

of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

II.D6 OASDI Annual Balances: 2006 and 2007 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. . . . . . . . . . . . . 32

IV.B1 Long-Range OASI and DI Annual Income Rates and Cost Rates 47

IV.B2 Number of OASDI Beneficiaries Per 100 Covered Workers . . 50

IV.B3 Long-Range OASI and DI Trust Fund Ratios. . . . . . . . . . . . . 54

IV.B4 Test of Long-Range Close Actuarial Balance . . . . . . . . . . . . . 65

IV.B5 OASDI Annual Balances: 2006 and 2007 Reports . . . . . . . . . 68

V. ASSUMPTIONS AND METHODS UNDERLYING

ACTUARIAL ESTIMATES

V.C1 Primary-Insurance-Amount Formula for the 2007 Cohort . . . . 100

V.C2 Maximum-Family-Benefit Formula for the 2007 Cohort . . . . . 100

V.C3 DI Disabled Worker Incidence Rates, 1970-2016 . . . . . . . . . . 115

VI. APPENDICES

VI.E1 Annual Trust Fund Ratios. . . . . . . . . . . . . . . . . . . . . . . . . . . 162

VI.E2 Annual Cost Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

VI.F1 Estimated OASDI Income and Cost in Constant Dollars,

Based on Intermediate Assumptions . . . . . . . . . . . . . . . . . . . 180
213

Index

A

Actuarial balance 7, 10, 41, 104, 137, 148

Actuarial balance, long-range test 64

Actuarial deficit 2, 10, 16, 56, 169

Actuarial estimates, LR 41

Actuarial estimates, SR 30

Adjusted program amounts 96

Administrative expenses 4, 27, 42, 121, 128, 142, 170, 178

Advance tax transfers 51, 130

Amendments 29

Annual balance 13, 41, 66

Assets 2, 4, 7, 22, 30, 42, 128, 142, 155, 165, 176

Assumptions 2, 7, 42, 70, 83, 96, 137, 148, 166, 170, 175, 188

Automatic cost-of-living benefit increase 4, 34, 84, 96

Auxiliary benefits 106

Average benefits 120

Average earnings assumptions 85

Average indexed monthly earnings (AIME) 99

Average wage index 96, 175

Award 107

B

Baby-boom generation 2, 8, 16, 35, 43, 89, 115, 171

Bend points 99

Beneficiaries, DI 113

Beneficiary 9, 34, 47, 70, 97, 140, 149, 170, 178, 188

Beneficiary, OASI 107

Benefit payments 4, 8, 31, 42, 121, 128, 142, 155, 170, 178, 189

Benefit termination 6, 37

Best estimate 6, 16, 30, 70

Board of Trustees 30, 83, 124

C

Close actuarial balance 41, 61

Closed group unfunded obligation 60, 61, 193

Constant dollars 180

Consumer Price Index 84, 154, 175, 192

Contribution and benefit base 32, 85, 97, 125, 175, 192

Contributions 4, 124, 142, 165, 170, 178, 191

Cost rate 3, 8, 42, 104, 165

Cost-of-living adjustment 96

Covered earnings 4, 96, 174

Covered employment 6, 32, 85, 103, 124, 153

Covered worker 47, 103, 151
Index

214

Creditable earnings 194

Current dollars 175

Current-payment status 34, 118, 192

D

Deemed wage credit 42, 104, 124

Delayed retirement credit 103

Demographic assumptions 6, 13, 30, 42, 71, 90, 96, 137, 176, 191

Deterministic model 159, 164, 195

DI beneficiaries 113

Disability 124, 151, 188

Disability incidence rate 52, 70, 114, 151, 156, 191

Disability Insurance Trust Fund 193

Disability termination rate 157

Disabled-worker benefit 114, 195

Disbursements 18, 20, 21, 23, 24, 25, 30, 142, 143, 144, 189, 190

E

Earnings 2, 4, 31, 42, 85, 97, 124, 138, 165, 174, 175, 191

Earnings test 85, 97, 192

Economic assumptions 6, 13, 30, 40, 42, 83, 90, 96, 137, 176, 191

Excess wages 42, 104, 176

Expenditures 2, 4, 6, 22, 26, 28, 30, 34, 37, 128, 129, 131, 133, 195

F

Federal Insurance Contributions Act 165, 193

Fertility assumptions 71

Financial interchange 4, 121, 128

Fiscal year 74, 130, 142

Full advance funding 196

G

General Fund of the Treasury 33, 34, 122, 126, 170, 178, 191, 194

General fund reimbursement 196

Gross domestic product 3, 47, 70, 83, 170

Gross domestic product projections 91

H

High cost assumptions 6, 14, 31, 43, 70, 83, 116, 148, 166, 170, 175, 191

Hospital Insurance program 125, 165, 199

Hospital Insurance Trust Fund 170

I

Immigration 6, 70, 71, 74, 76, 151, 159, 191, 197

Immigration assumptions 74

Income rate 3, 8, 42, 165
215

Index

Inflation 6, 70, 84, 175, 191

Inflation assumptions 84

Insured population 6, 105

Insured status 35, 101

Interest 31, 92, 127, 137, 142, 166, 170, 176, 191

Interest rate 32, 70, 127, 137, 155, 176, 191

Interest rate projections 92

Interfund borrowing 130, 194

Intermediate assumptions 30, 32, 34, 43, 70, 116, 148, 166, 170, 175, 179,

180, 188, 191

L

Labor force projections 89

Legal immigration 74, 77, 198

Life expectancy 2, 16, 70, 80, 89, 198

Life expectancy estimates 79

Long range 7, 41, 71, 83, 108, 137, 165, 170, 175

Low cost assumptions 6, 14, 34, 43, 70, 116, 148, 166, 175, 191

Lump-sum death payment 121

M

Medicare 72, 199

Military service 33, 42, 86, 104, 122, 124, 197

N

National average wage index 96, 175

Normal retirement age 97, 184, 195

O

OASI beneficiaries 107

Old-Age and Survivors Insurance Trust Fund 124, 193

Old-law base 101

Open group unfunded obligation 2, 7, 14, 41, 57, 58, 164, 193, 200

Other immigration 75, 152, 159, 200

P

Par value 127

Partial advance funding 200

Pay-as-you-go financing 137

Payroll taxes 2, 16, 55, 56, 96, 104, 140, 148, 165, 178

Population estimates 77

Population in the Social Security area 32, 49, 77, 89, 104, 152

Present value 137

Primary insurance amount (PIA) 99

Productivity assumptions 83
Index

216

Q

Quarters of coverage 42, 194

R

Railroad Retirement 42, 101, 121, 128, 142, 165, 170, 178, 194

Reallocation of tax rates 201

Real-wage differential 87, 152

Recession 30, 83

Retired-worker benefit 107, 151, 188

Retirement age 37, 97, 184, 195

Retirement earnings test 85, 97

Retirement eligibility age 1, 8, 43, 47, 151, 171

S

Self-employment 42, 84, 104, 124, 166, 193

Self-Employment Contributions Act 193

Sensitivity analysis 148

Short range 7, 30, 51, 83, 107, 116

Social Security Act 96, 127, 175, 188, 193

Social Security amendments 29

Solvency 13, 31, 41, 202

Special public-debt obligation 34, 95, 127, 155, 176

Stochastic projections 83, 159

Substantial gainful activity 113, 195

Summarized balance 171

Summarized income and cost rates 55, 137, 148, 168, 191

Supplemental Security Income 35, 142

Supplementary Medical Insurance program 165, 199

Survivor benefit 2, 5, 111, 192

T

Taxable earnings 31, 49, 97, 124, 138, 174, 192

Taxable payroll 2, 7, 16, 42, 84, 104, 137, 149, 165, 170, 175, 194

Taxable self-employment income 124, 204

Taxable wages 105, 126, 204

Taxation of benefits 4, 42, 122, 170, 178, 197

Taxes 4, 96, 124, 166, 194

Termination 37, 70

Termination rate 6, 37, 107, 157, 191

Test of short-range financial adequacy 31, 62, 202

Total fertility rate 72, 148

Trust fund financial operations 4, 18, 31, 124

Trust fund ratio 7, 30, 41, 50, 130, 145, 206
217

Index

U

Unemployment projections 89

Unfunded obligation 2, 7, 11, 13, 14, 41, 57, 58, 61, 164, 193, 200, 206

Uninsured persons 122

Unnegotiated check 130, 142

V

Valuation period 10, 41, 137, 148, 168, 191

Vocational rehabilitation 42, 128, 143, 170, 178, 190, 194

Y

Year of exhaustion 8, 10, 16, 41, 53
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.

Stephen C. Goss,

Associate of the Society of Actuaries,

Member of the American Academy of Actuaries,

Chief Actuary, Social Security Administration