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 (2008-17) are presented first, followed by estimates and
measures of actuarial status for the long range (2008‑82) and for the infinite future. As an additional illustration of uncertainty, estimated probability distributions of certain measures are presented in Appendix E.
Financial adequacy, or solvency, of the trust funds reflects the ability to pay scheduled benefits in full on a timely basis and is generally assessed using the “
trust fund ratio,” which is defined as the
assets at the beginning of a 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. A trust fund ratio of 100 percent of annual program cost is generally assumed to provide a reasonable “contingency reserve.” During periods when trust fund income exceeds disbursements, the excess is held in the trust funds. To the extent that trust fund assets exceed 100 percent of annual cost, the excess is dedicated 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.
The short-range test of financial adequacy 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.
This subsection presents estimates of the operations and financial status of the OASI Trust Fund for the period 2008-17, 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 large amount through the end of 2017. 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 2017, except for two periods of economic recession in alternative III. The number of persons with taxable earnings would increase on the basis of alternatives I, II, and III from 163 million during calendar year 2007 to about 178 million, 175 million, and 172 million, respectively, in 2017. The total annual amount of taxable earnings is projected to increase from $5,300 billion in 2007 to $8,329 billion, $8,422 billion, and $8,758 billion, in 2017, on the basis of alternatives I, II, and III, respectively.
2 These increases in taxable earnings are due primarily to (1) projected increases in employment levels as the working age
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 2008-17 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 2017, 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 2007.
