Short-Range Actuarial Projections of the Old-Age, Survivors, and Disability Insurance Program, 2001
Actuarial Study No. 115
Chris Motsiopoulos and Tim Zayatz, A.S.A.
Short-Range Actuarial Projections of the Old-Age, Survivors, and Disability Insurance Program, 2001
Actuarial Study No. 115
Chris Motsiopoulos and Tim Zayatz, A.S.A. |
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The average benefit in force for retired workers at the end of each year is projected on a year-to-year basis, starting with the corresponding average benefit in force at the end of the previous year. That starting average is adjusted for changes during the year, mainly due to the Automatic Cost-of-Living Benefit Increase (COLA) and benefit recomputations, and then further adjusted by adding in the effects of benefits to new awards during the year (which were described in section III.C.). In making these adjustments, the beneficiary population and their respective average benefits are split by gender and duration since entitlement. For this purpose, single year of duration is used for durations 1-7, and durations of 8 years or longer are grouped into one category. Table III.E1 summarizes the effects of these detailed calculations for the total retired worker population split only by gender. In that simplified presentation, in the columns displaying the average benefits for retired workers terminated during the year, the ratio of that average to the average benefit in force at the beginning of the year represents in effect the net residual of changes in average benefits in force during the year after the effects of the COLA.
The average benefit in force for each sex of old-age beneficiaries increases each year by the amount of the automatic benefit increase, plus an additional amount representing the net effect of new awards, terminations, and increases due to benefit recomputations and other factors.
The average benefit in current-payment status for male and female old-age beneficiaries is equal to the average benefit in force times a factor derived from the historical relationship between the two averages. Table III.E1 shows the projections of the average benefit in current-payment status for old-age beneficiaries.
The average benefit in current-payment status for each member of an old-age beneficiary family is projected based on the historical relationship of the family member's average benefit to the average old-age benefit. Tables III.E2 and III.E3 show the annual projection of average benefits in current-payment status for young and aged wives and husbands (table III.E2) and minor, disabled, and student children (table III.E3).
The factors relating the average benefit for young and aged wives to the average benefit for male old-age beneficiaries, and the average for young and aged husbands to the average for female old-age beneficiaries, are projected by a regression equation, based on the time trend of each factor. In addition, the factors are adjusted by judgment to prevent them from increasing (or decreasing) to unreasonable levels.
The factors relating the average benefit for minor, disabled, and student children of old-age beneficiaries to the average benefit for male old-age beneficiaries, are projected by a regression equation, based on the average number of dependent beneficiaries entitled on each old-age beneficiary account. These factors are also constrained to prevent them from reaching unreasonable levels.
The total benefit in force for each category of survivor beneficiary is projected in a manner similar to that for old-age beneficiaries. Tables III.E4-III.E10 show the annual projection of average benefits in force and in current-payment status for minor child survivors (table III.E4), disabled child survivors (table III.E5), student child survivors (table III.E6), aged widows and widowers (table III.E7), mothers and fathers of child survivors (table III.E8), parents of deceased workers (table III.E9), and disabled widows and widowers (table III.E10).
The average benefit in current-payment status for special age-72 beneficiaries is projected as a percent of the special age-72 PIA, which is increased at the same time and by the same percent as the regular PIAs. Table III.E11 shows the projection of average benefits in current-payment status for special age-72 beneficiaries.
Current-payment benefits for each type of old-age and survivor beneficiary are projected quarterly as the product of:
The number of beneficiaries in current-payment status at the midpoint of the quarter,
The average benefit in current-payment status at the midpoint of the quarter, and
A factor (developed from historical trends) to account for three monthly payments in the quarter plus any random fluctuations.
This procedure follows the method used in the projection of current-payment benefits for disability beneficiaries. Tables III.E12-III.E23 show the quarterly projection of current-payment benefits for male, female, and total old-age beneficiaries (table III.E12), young wives, young husbands, total young spouses, aged wives, aged husbands, total aged spouses, total wives, total husbands, and total spouses of old-age beneficiaries (tables III.E13, III.E14 and III.E15), minor, disabled, and student children of old-age beneficiaries (table III.E16), minor, disabled, and student children of deceased workers (table III.E17), total children of old-age beneficiaries, deceased workers, and total OASI children (table III.E18), aged widow(er)s by sex and total (table III.E19), mothers and fathers of children of deceased workers, by sex and total (table III.E20), parents of deceased workers, by sex and total (table III.E21), disabled widow(er)s, by sex and total (table III.E22), and special age-72 beneficiaries (table III.E23).
Female retired workers receive 42 percent of the total current-payment benefits paid to retired workers. This percentage is projected to remain steady through 2010.
Current-payment benefits to young husbands of retired workers are projected to remain at relatively low levels, of less than $100 thousand per quarter through 2010 (ranging from $38 thousand to $64 thousand).
Current-payment benefits to student children of old-age beneficiaries are projected to remain small relative to benefits to minor children. Benefits to minor and disabled children of old-age beneficiaries are both projected to continue to increase. Benefits to minor children are projected to increase slightly faster than benefits to disabled children.
Current-payment benefits to all three categories of children of deceased workers are much larger than the corresponding categories of children of old-age beneficiaries. Benefits to minor children of deceased workers are currently about $2.1 billion per quarter and they are projected to reach nearly $2.9 billion per quarter during 2010.
Benefits to aged widows make up the largest category of survivor benefits, increasing from about $11 billion per quarter in 2000 to about $16.5 billion per quarter by 2010. Benefits to mothers and disabled widows are projected to increase as well. Benefits to aged widowers, fathers, and disabled widowers are all projected to increase, but to remain small relative to such benefits for female survivors.
Benefits to parents of deceased workers are projected to decrease only slightly, as the increase in average benefits partially offsets the decrease in the number of parent beneficiaries. Benefits to special age-72 beneficiaries are projected to decline, because of the rapid decrease in the number of such beneficiaries. Quarterly benefits are projected to be less than $50 thousand by the second quarter of 2001.
One component of non-current-payment benefits to OASI beneficiaries is retroactive benefits paid as a result of benefit recomputation to take account of additional earnings after initial retirement. This component will be called AERO (Automatic Earnings Reappraisal Operation), after the name of the operation that performs most of the recomputations. This operation is normally performed twice a year. Therefore, non-current-payment benefits to OASI beneficiaries are projected annually as the sum of AERO and non-AERO benefits. Non-current-payment benefits other than AERO are projected for old-age beneficiaries and family members as the product of:
The benefit increase factor allows for the fact that retroactive benefits for some months are at a lower rate than the rate at time of first receipt, due to intervening benefit increases. Table III.E24 shows the annual projection of non-current-payment benefits other than AERO to retired workers and family members.
The "all other" factor was near 3.0 until 1978. Retroactive benefits were limited in that year, and were further limited in 1981. The "all other" factor ranged between 0.1 and 0.9 from 1984 through 1996. In 1997 and 1998, the factor exceeded 1.0 due to a special effort that was made to find aged widows who were due higher benefits. Some of these widows were fully insured and therefore were able to receive a retired worker benefit. In 1999, the "all other" factor came back down to 1.0. The elimination of the retirement earnings test caused this factor to increase sharply to 1.9 in 2000. It is projected to return to 1.0 and remain at that level throughout the projection period.
AERO benefits are projected as a total for all OASI beneficiaries and then split into amounts for:
AERO and non-AERO benefits are then added for each of the two groups to produce total non-current-payment benefits.
Non-current-payment benefits to spouses and children of retired workers are projected, by applying factors to such benefits for retired workers. The factors are projected based on historical trends. Table III.E25 shows the projection of non-current-payment benefits to retired workers and spouses and children of retired workers.
AERO benefits to retired workers and dependents declined from 1983 to 1988, and have remained relatively stable since then. The decline was caused primarily by:
The effect of the wage-indexed benefit formula, which results in smaller increases in benefits after a recomputation due to additional earnings, and
A gradual speedup in the processing of earnings, which results in fewer months of retroactive benefits.
AERO benefits increased sharply in 2000 due to an extra run of the AERO operation. AERO benefits are projected to begin increasing from about $300 million in recent years to $459 million in 2010.
Non-current-payment benefits other than AERO are projected for survivors of deceased workers in a manner parallel to that for old-age beneficiaries and dependents. Table III.E26 shows the annual projection of non-current-payment benefits other than AERO for survivors of deceased workers.
Non-current-payment benefits, including AERO benefits to survivors, are split among the various types of survivors by applying factors that are projected based on historical trends. Table III.E27 shows the projection of non-current-payment benefits to survivors of deceased workers.
The number of lump-sum death benefit payments is estimated by applying mortality rates to the fully insured population (shown earlier), and then applying a factor for the percentage of insured deaths that result in a lump-sum death benefit. The total amount of lump-sum death benefits is estimated by multiplying the number of lump-sum deaths by the average benefit amount. Table III.E28 shows the number and amount of lump-sum death benefits.
The number of lump-sum deaths dropped by about half in 1982 when the law changed to restrict the types of lump-sum beneficiaries who are allowed. The number remained relatively steady at slightly over 800 thousand per year until 1993 when it increased for a few years and then leveled off at roughly 870 thousand. In 2000, there were 879 thousand lump-sum deaths. During the projection period, the number of lump-sum deaths is expected to increase gradually, reaching 939 thousand by 2010. The average amount is projected to remain constant at its recent average value.
Current-payment benefits to retired workers include reduced secondary benefits, if any, for dually-entitled spouse, widow(er), or parent beneficiaries. Tables III.E29, III.E30, and III.E31 show the number, average amount, and total amount, respectively, of reduced secondary benefits.
Table III.E29 shows that the number of dual entitlements has been increasing steadily for female workers. The number of dual entitlements for male workers has remained relatively stable since 1994. Throughout the projection period, nearly 0.8 percent of male retired workers and 42.4 percent of female retired workers are expected to be dually entitled. Most of the dually-entitled beneficiaries have a reduced widow(er) benefit. Widow(er)s currently account for about 57 percent of female dual entitlements and about 80 percent of male dual entitlements.
Table III.E30 shows the projection of the average reduced secondary benefit for dually-entitled workers. The average reduced amounts for widow(er)s and parents are greater than those for spouses, in part because the unreduced benefit is a larger percent of the PIA for those categories.
Table III.E31 shows the projection of the total amount of reduced secondary benefits. The percentage of current-payment benefits to retired workers that are actually reduced secondary benefits has been increasing steadily, reaching 8.5 percent in 2000. That percentage is projected to continue increasing, to 9.2 percent in the last quarter of 2010.
Projected quarterly non-current-payment benefits are derived from annual totals by applying an interpolation formula. Quarterly historical and projected current-payment benefits are adjusted for amounts paid to dually-entitled beneficiaries by subtracting the total reduced secondary benefits amount from current-payment benefits to retired workers and adding the spouse, widow(er), and parent reduced secondary benefit amounts to the spouse, widow(er), and parent current-payment amounts. Table III.E32 shows quarterly current-payment benefits which have been adjusted for amounts paid to dually-entitled beneficiaries, non-current-payment benefits, and total benefits for total retired workers, total dependents of retired workers, total survivors, special age-72 beneficiaries, lump-sum death payments, and total OASI beneficiaries.
Total quarterly benefit payments from the OASI Trust Fund are projected to increase from $92.3 billion in the first quarter of 2001 to $153.6 billion in the last quarter of 2010.
Tables III.E33, III.E34 and III.E35 summarize OASDI current-payment, non-current-payment, and total benefit payments, respectively.
Total OASDI benefit payments are projected to increase from $106.9 billion in the first quarter of 2001 to $184.5 billion in the last quarter of 2010.
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List of Studies
December 26, 2001