2009 OASDI Trustees Report

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 program-specific factors.

1. Automatically Adjusted Program Parameters

The Social Security Act specifies that certain program parameters affecting the determination of OASDI benefits and taxes are to be adjusted annually in a manner that reflects changes in particular economic measures. The law pre­scribes specific formulas that, when applied to reported statistics, produce automatic revisions in these program parameters and hence in the benefit and tax computations. These automatic adjustments are based on measured changes in the national average wage index (AWI) and the CPI.¹ In this sec­tion, values are shown for program parameters that are subject to automatic adjustment, from the time that such adjustments became effective through 2018. 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 parameters. 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 that have been applied to OASDI ben­efits under automatic cost-of-living adjustment provisions in the Social Security Act, based on increases in the CPI. Under all three sets of eco­nomic assumptions, no cost-of-living adjustment becomes effective for December of 2009 (and in some later years under the intermediate and low-cost assumptions).

•

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 benefit equivalent values near the time of the worker’s benefit eligibility, and these indexed values are used to calculate the worker’s benefit amount. The AWI is also used to adjust most of the other program parameters that are subject to the auto­matic-adjustment provisions.

•

The wage-indexed contribution and benefit base—the maximum amount of earnings for the specified year that are subject to the OASDI payroll tax and creditable toward benefit computation. The Social Secu­rity Act prohibits an increase in this base if there is no cost-of-living adjustment effective for December of the preceding year.

•

The wage-indexed 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. The Social Security Act prohibits an increase in these exempt amounts if there is no cost-of-living adjustment effective for December of the preceding year.

 

Table V.C1.—Cost-of-Living Benefit Increases, Average Wage Index, Contribution and
Benefit Bases, and Retirement Earnings Test Exempt Amounts, 1975-2018 

Calendar year		Cost-of-living benefit increasea (percent)	Average wage index (AWI) b		Contribution and benefit base c	Retirement earnings test exempt amount
			Amount	Increase (percent)		Under NRAd	At NRAe
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	f 2.5	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
	2006	3.3	38,651.41	4.6	94,200	12,480	33,240
	2007	2.3	40,405.48	4.5	97,500	12,960	34,440
Intermediate:
	2008	g 5.8	41,679.58	3.2	g 102,000	g 13,560	g 36,120
	2009	.0	42,041.84	.9	g 106,800	g 14,160	g 37,680
	2010	.0	43,451.28	3.4	106,800	14,160	37,680
	2011	1.4	45,194.92	4.0	106,800	14,160	37,680
	2012	2.8	47,013.95	4.0	114,900	15,240	40,560
	2013	3.1	48,969.10	4.2	119,400	15,840	42,120
	2014	3.0	50,962.45	4.1	124,200	16,440	43,920
	2015	2.8	53,085.22	4.2	129,300	17,160	45,720
	2016	2.8	55,070.22	3.7	134,700	17,880	47,520
	2017	2.8	57,165.32	3.8	140,400	18,600	49,560
	2018	2.8	59,362.72	3.8	145,500	19,320	51,360
Low-cost:
	2008	g 5.8	$41,698.13	3.2	g $102,000	g $13,560	g $36,120
	2009	.0	42,276.96	1.4	g 106,800	g 14,160	g 37,680
	2010	.0	43,659.88	3.3	106,800	14,160	37,680
	2011	.0	45,301.16	3.8	106,800	14,160	37,680
	2012	1.5	46,961.47	3.7	106,800	14,160	37,680
	2013	2.1	48,656.14	3.6	119,700	15,840	42,240
	2014	2.0	50,243.82	3.3	124,200	16,440	43,800
	2015	1.8	52,029.44	3.6	128,700	17,040	45,360
	2016	1.8	53,791.01	3.4	132,900	17,640	46,920
	2017	1.8	55,658.55	3.5	137,400	18,240	48,600
	2018	1.8	57,642.09	3.6	142,200	18,840	50,160
High-cost:
	2008	g 5.8	41,672.33	3.1	g 102,000	g 13,560	g 36,120
	2009	.0	42,100.53	1.0	g 106,800	g 14,160	g 37,680
	2010	.2	43,502.26	3.3	106,800	14,160	37,680
	2011	2.6	45,273.05	4.1	111,300	14,760	39,240
	2012	4.5	46,607.81	2.9	114,900	15,240	40,560
	2013	6.2	49,339.09	5.9	119,700	15,840	42,240
	2014	5.7	52,785.62	7.0	123,000	16,320	43,440
	2015	4.6	56,005.14	6.1	130,500	17,280	46,080
	2016	3.9	58,775.40	4.9	139,500	18,480	49,200
	2017	3.8	61,324.49	4.3	147,900	19,680	52,200
	2018	3.8	63,781.41	4.0	155,400	20,640	54,840

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a

Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982.

b

See table VI.F6 for projected dollar amounts of the AWI beyond 2018.

c

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.

d

Normal retirement age. See table V.C3 for specific values.

e

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.

f

Originally determined as 2.4 percent, but pursuant to Public Law 106-554, is effectively 2.5 percent.

g

Actual amount, as determined under automatic-adjustment provisions.

Values for other wage-indexed parameters 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 2009, and also shows projected amounts through 2018. These other wage-indexed program param­eters 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.

 

Primary-Insurance-Amount Formula for Those Newly Eligible in 2009

[D]

•	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.

 

Maximum-Family-Benefit Formula for Those Newly Eligible in 2009

[D]

•	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 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.—Values for Selected Wage-Indexed Program Parameters,
Calendar Years 1978-2018 

Calendar year		AIME bend points in PIA formula a			PIA bend points in maximum- family-benefit formula b			Earnings required for a quarter of coverage	Old-law contribution and benefit base c
		First	Second		First	Second	Third
Historical data:
	1978	d	d		d	d	d	e $250	e $17,700
	1979	e $180	e $1,085		e $230	e $332	e $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
	2008	711	4,288		909	1,312	1,711	1,050	75,900
	2009	744	4,483		950	1,372	1,789	1,090	79,200
Intermediate:
	2010	$767	$4,624		$980	$1,415	$1,845	$1,130	$79,200
	2011	774	4,664		989	1,427	1,861	1,140	79,200
	2012	800	4,821		1,022	1,475	1,924	1,180	85,200
	2013	832	5,014		1,063	1,534	2,001	1,220	88,800
	2014	865	5,216		1,106	1,596	2,082	1,270	92,100
	2015	901	5,433		1,152	1,662	2,168	1,330	96,000
	2016	938	5,654		1,199	1,730	2,256	1,380	99,900
	2017	977	5,890		1,248	1,802	2,350	1,440	104,100
	2018	1,014	6,110		1,295	1,870	2,438	1,490	108,000
Low-cost:
	2010	767	4,626		981	1,416	1,846	1,130	79,200
	2011	778	4,691		994	1,435	1,872	1,150	79,200
	2012	804	4,844		1,027	1,482	1,933	1,180	79,200
	2013	834	5,026		1,065	1,538	2,006	1,230	88,800
	2014	864	5,210		1,104	1,594	2,079	1,270	92,100
	2015	896	5,398		1,144	1,652	2,154	1,320	95,400
	2016	925	5,574		1,182	1,706	2,225	1,360	98,700
	2017	958	5,773		1,224	1,766	2,304	1,410	102,000
	2018	990	5,968		1,265	1,826	2,382	1,460	105,600
High-cost:
	2010	767	4,623		980	1,415	1,845	1,130	79,200
	2011	775	4,671		990	1,429	1,864	1,140	82,500
	2012	801	4,826		1,023	1,477	1,926	1,180	85,500
	2013	833	5,023		1,065	1,537	2,005	1,230	88,800
	2014	858	5,171		1,096	1,582	2,064	1,260	91,500
	2015	908	5,474		1,160	1,675	2,185	1,340	96,900
	2016	972	5,856		1,241	1,792	2,337	1,430	103,500
	2017	1,031	6,214		1,317	1,901	2,480	1,520	109,800
	2018	1,082	6,521		1,382	1,995	2,602	1,590	115,200

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a

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.

b

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.

c

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.

d

No provision in law for this amount in this year.

e

Amount specified for first year by Social Security Amendments of 1977; amounts for subsequent years subject to automatic-adjustment provisions.

In addition to the program parameters 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 parame­ters and the resulting effects on benefit levels expressed as a percentage of PIA.

 

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

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 (earnings subject to the OASDI payroll tax) at any time during the year. For those aged 16 and over, 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 and employ­ment-status 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 70.7, 70.1, and 69.7 percent for 2083 for the low-cost, intermediate, and high-cost assumptions, respectively, com­pared to the 2007 level of about 71.7 percent. (Age-adjusted covered worker rates are adjusted to the 2007 age distribution of the Social Security area population.) For females, the projected age-adjusted coverage rate changes from its 2007 level of 63.3 percent to 63.8, 63.1, and 62.4 percent for 2083 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 that, 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 self-employment 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 self-employed tax rate was less than the combined employee-employer rate, thus taxable self-employed earnings were weighted to reflect this. Also, prior to 1988, employers were exempt from paying Social Security tax on part of their employees’ tips; taxable payroll was thus reduced by half of the amount of tips to take this into account.

The computation of taxable earnings for employees, employers, and the self-employed is based on total earnings in covered employment. Covered earn­ings are summed from component sectors of the economy, including private, State and local, Federal civilian, and military. Covered earnings for each sec­tor are 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 for 2002, then fell to 82.7 for 2007. The average annual rate of change in the ratio was about -0.3 percent between 1983 and 2007. Most of this decline was due to a relative increase in wages for high earners.

The ratio is assumed to increase to about 85.2 percent for 2009 for the inter­mediate assumptions due, in part, to a recession-induced reduction in the rel­ative amount of wages of high earners. The projected taxable earnings ratios in 2018 are 83.7, 82.9, and 82.1 percent for the low-cost, intermediate, and high-cost assumptions, respectively. After 2018, the taxable-to-covered earn­ings ratio is approximately constant.

Payroll tax revenue is computed by applying the scheduled tax rates to tax­able wages and self-employment income, taking into account the lag between the time the tax liability is incurred and 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 for employers with few employees to the next banking day after wages are paid for companies with very large payrolls.) Self-employed workers are required to make esti­mated tax payments on their earnings four times during the year, as well as making up any under-estimate on their individual income tax return. The pat­tern of actual receipts by the Treasury is taken into account when estimating self-employed tax collections.

4. Insured Population

Eligibility for benefits under the OASDI program requires some minimal level of work in covered employment. This requirement is established by a worker’s accumulation of quarters of coverage (QCs). Prior to 1978, one QC was credited for each calendar quarter in which at least $50 was earned. In 1978, when quarterly reporting of earnings was replaced by annual reporting, the amount required to earn a QC (up to a maximum of four per year) was set at $250. Since then, this amount has been adjusted each year according to changes in the AWI. Its value in 2009 is $1,090.

There are three types of insured status that 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 (but not less than 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. 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 that assumes that persons who have recently been out of covered employment are likely to 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, reflecting estimated future coverage rates, median earnings, and amounts required for crediting QCs.

Historical estimates 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. The disability insured population for future years is projected using this model, reflecting projections of the fully insured population.

For the 2009 Trustees Report, projections of the disability insured population reflect improvements in estimating the historical disability insured popula­tion. For historical years, disability insured status is estimated using adminis­trative records of all workers with earnings reported to the Social Security Administration. The improvements in this process generally resulted in low­ering the estimated number of people in the post-1980 Social Security area population with 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 81.3 for December 31, 2006, to 90.0, 90.2, and 90.7 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 92.7 to 90.8, while that for females is projected to increase from 72.5 to 89.6.

5. Old-Age and Survivors Insurance Beneficiaries

The number of OASI beneficiaries is projected for each type of benefit sepa­rately, by the sex of the worker on whose earnings the benefits are based, and by the age of the beneficiary. For selected types of benefits, the number of beneficiaries is also projected by marital status.

For the short-range period, the number of retired-worker beneficiaries is developed by applying award rates to the aged fully insured population less those insured persons entitled to retired-worker, disabled-worker, aged- widow(er)’s, or aged-spouse’s benefits, and by applying termination rates to the number of persons already receiving retired-worker benefits.

For the long-range period, the number of retired-worker beneficiaries not previously converted from disabled-worker beneficiary status is projected as a percentage of the exposed population, i.e., the aged fully insured popula­tion less persons entitled to or converted from disabled-worker benefits and fully insured persons entitled only to widow(er)’s benefits. For age 62, a lin­ear regression is developed based on the historical relationship between this percentage and the labor force participation rate. The regression coefficients are then used to project this 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 delayed retirement credits cannot be earned 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.

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 “earners.” In the short-range period, insured aged-spouse beneficiaries are projected in conjunction with the retired-worker beneficiaries. Uninsured aged-spouse beneficiaries are projected 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 separately for those married and divorced. The number of married aged-spouse benefi­ciaries is projected by applying a series of factors to the number of spouses aged 62 and over in the population. These factors represent the probabilities that the spouse and the earner meet all of the conditions of eligibility—i.e., the probabilities that: (1) the earner is 62 or over; (2) the earner is insured; (3) the 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 prevalence rate is applied to calculate the estimated number of aged-spouse beneficiaries.

The number of divorced aged-spouse beneficiaries is estimated by applying the same factors 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 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 earner spouse was at least 10 years in duration. Third, factor (3) above is not applied because, effective as of January 1985, a divorced person generally need not wait to receive benefits until the former 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 short-range period, the number of entitled children is developed by applying award rates to the number of children in the population where both parents are alive, and by applying termination rates to the number of children already receiving benefits.

In the long-range period, the number of entitled children is projected sepa­rately by sex of the 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 ratio of retired workers aged 62 to 71 to the population aged 20 to 71. For student beneficiaries, factors are applied to the number of children aged 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, aged 18 and over, of retired-worker benefi­ciaries is projected from the adult population. In the short-range period, award rates are applied to the population, and termination rates are applied to the number of disabled children already receiving benefits. In the long-range period, disabled children are projected in a manner similar to that for 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 young-spouses, entitled because they have a child in their care, 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 with a child in care who are already receiving ben­efits. In the long-range period, young-spouse beneficiaries with a child in their care who 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, fully insured aged-widow(er) beneficia­ries are projected in conjunction with the retired-worker beneficiaries. Unin­sured aged-widow(er) beneficiaries are projected 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 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 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 entitled 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.

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 father-survivor 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 long-range 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 persons who also receive a residual benefit con­sisting of the excess of an auxiliary benefit over their retired-worker benefit. Estimates of the number and amount of such residual payments are made separately for spouses and widow(er)s.

 

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				Total
		Workera	Spouse	Child		Widow- widower	Mother- father	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		4,862	372	1,918	10	33,122
	1986	22,985	3,086	450		4,927	350	1,878	9	33,685
	1987	23,444	3,090	439		4,983	329	1,837	8	34,129
	1988	23,862	3,088	432		5,013	318	1,809	7	34,529
	1989	24,331	3,095	422		5,057	312	1,782	6	35,004
	1990	24,841	3,104	421		5,098	304	1,777	6	35,551
	1991	25,293	3,106	425		5,142	301	1,792	5	36,064
	1992	25,762	3,115	431		5,187	294	1,808	5	36,603
	1993	26,109	3,098	436		5,207	289	1,837	5	36,981
	1994	26,412	3,069	440		5,218	283	1,865	4	37,292
	1995	26,679	3,027	441		5,213	275	1,884	4	37,522
	1996	26,905	2,971	442		5,199	242	1,898	4	37,661
	1997	27,282	2,926	441		5,043	230	1,893	3	37,817
	1998	27,518	2,866	439		4,981	221	1,884	3	37,911
	1999	27,784	2,811	442		4,936	212	1,885	3	38,073
	2000	28,505	2,798	459		4,901	203	1,878	3	38,747
	2001	28,843	2,742	467		4,828	197	1,890	3	38,969
	2002	29,195	2,681	477		4,771	194	1,908	2	39,227
	2003	29,537	2,622	480		4,707	190	1,910	2	39,448
	2004	29,952	2,569	482		4,643	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
	2007	31,528	2,431	494		4,436	165	1,892	2	40,947
	2008	32,274	2,370	525		4,380	160	1,915	2	41,625
Intermediate:
	2010	34,205	2,373	554		4,308	152	1,919	2	43,513
	2015	40,935	2,351	643		4,203	142	1,949	1	50,225
	2020	49,127	2,283	714		4,140	136	1,979	2	58,380
	2025	56,535	2,308	776		4,142	129	1,942	2	65,833
	2030	63,013	2,391	819		4,183	125	1,935	2	72,468
	2035	67,486	2,317	834		4,198	124	1,933	2	76,894
	2040	69,848	2,209	841		4,163	121	1,920	2	79,104
	2045	71,450	2,133	850		4,093	118	1,895	2	80,541
	2050	73,351	2,110	879		3,993	115	1,871	2	82,321
	2055	75,833	2,216	903		3,901	113	1,854	2	84,819
	2060	78,757	2,327	926		3,836	111	1,837	2	87,796
	2065	81,654	2,455	937		3,832	108	1,816	2	90,804
	2070	84,790	2,571	957		3,889	105	1,793	2	94,107
	2075	88,099	2,653	980		3,963	103	1,768	2	97,568
	2080	91,512	2,735	1,004		4,030	100	1,751	2	101,134
	2085	95,065	2,823	1,031		4,089	98	1,735	2	104,842
Low-cost:
	2010	34,201	2,374	554		4,308	153	1,921	2	43,512
	2015	40,804	2,357	648		4,194	145	1,973	1	50,122
	2020	48,559	2,260	720		4,164	135	2,072	2	57,912
	2025	55,370	2,275	790		4,195	127	2,106	2	64,865
	2030	61,016	2,336	848		4,270	122	2,191	2	70,784
	2035	64,599	2,235	876		4,314	119	2,284	2	74,429
	2040	66,104	2,093	896		4,285	117	2,363	2	75,861
	2045	67,008	1,991	919		4,207	117	2,422	2	76,665
	2050	68,369	1,947	963		4,092	117	2,472	2	77,962
	2055	70,464	2,015	1,000		3,983	119	2,524	2	80,107
	2060	72,969	2,088	1,041		3,902	122	2,588	2	82,711
	2065	75,376	2,158	1,069		3,878	125	2,652	2	85,260
	2070	77,915	2,203	1,106		3,905	128	2,717	2	87,976
	2075	80,725	2,221	1,150		3,948	131	2,778	2	90,954
	2080	84,124	2,262	1,204		4,000	134	2,845	2	94,569
	2085	88,235	2,339	1,266		4,068	137	2,914	2	98,960
High-cost:
	2010	34,216	2,373	554		4,309	152	1,917	2	43,523
	2015	41,099	2,347	639		4,214	140	1,925	1	50,365
	2020	49,813	2,319	710		4,114	138	1,892	2	58,988
	2025	57,941	2,358	763		4,087	131	1,791	2	67,072
	2030	65,318	2,478	789		4,093	125	1,705	2	74,509
	2035	70,854	2,436	792		4,076	120	1,630	2	79,910
	2040	74,274	2,352	787		4,032	113	1,554	2	83,114
	2045	76,736	2,287	781		3,972	106	1,478	2	85,362
	2050	79,263	2,276	793		3,889	99	1,415	2	87,735
	2055	82,168	2,399	802		3,812	92	1,365	2	90,640
	2060	85,504	2,539	808		3,759	86	1,315	2	94,012
	2065	88,791	2,721	801		3,759	79	1,260	2	97,413
	2070	92,394	2,907	802		3,821	73	1,206	2	101,206
	2075	96,126	3,039	805		3,902	67	1,155	2	105,096
	2080	99,476	3,145	804		3,975	62	1,111	2	108,575
	2085	102,264	3,240	802		4,023	58	1,071	2	111,459

---

a

Included among the beneficiaries who receive retired-worker benefits are persons who also receive a resid­ual benefit consisting of the excess of an auxiliary benefit over their retired-worker benefit.

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 disabled workers 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, primarily age requirements.

The number of disabled workers receiving benefits in a given year (i.e., in current-payment status) is projected using standard actuarial methods that reflect future new benefit awards, terminations due to death and recovery, and conversions from disabled-worker to retired-worker beneficiary status after which benefits are paid from the OASI Trust Fund.

The prevalence of disability results from the likelihood of becoming disabled (incidence) as well as the likelihood that disability ceases (termination). Dis­ability prevalence is captured by the ratio of the number of disabled-worker beneficiaries in current-payment status to the disability insured population. This ratio is referred to as the disability prevalence rate. The balance of this section describes the methods and assumptions used for projecting the num­ber of disabled-worker beneficiaries. Incidence rates and termination rates are the key factors in these projections. This section illustrates these rates as well as the projected beneficiary population and prevalence rates.

a. Disability Incidence

The number of new benefit awards each year divided by the number of indi­viduals who meet insured requirements but are not yet receiving benefits (the disability exposed population) is referred to as the disability incidence rate. New awards are projected for each year by applying assumed age-sex-spe­cific disability incidence rates to the projected disability exposed population by age and sex. Projections of the disability insured population are described in section V.C.4 of this report.

For the first 10 years of the projection period (through 2018) incidence rates reflect several factors including: (1) aspects of program administration (such as efforts to reduce the disability backlog and recent changes to how claims are adjudicated); (2) assumed future unemployment rates; and (3) underlying trends in incidence. Notably for this year’s report, all three sets of underlying economic assumptions include a continuation of the current economic reces­sion, although of varying durations and severity. During the recession, the projected disability incidence rates are estimated to experience sharp tempo­rary increases above the general trend level. The elevated incidence rates are assumed to subside as the economy recovers, and to briefly drop below the general trend level on the assumption that some of the earlier additional awards will be cases that would have applied in a later year. After 2018, age-sex-specific incidence rates are assumed to trend toward the ultimate rates assumed for the long-range projections and to reach these ultimate rates in 2028. These ultimate age-sex-specific disability incidence rates were selected based on careful analysis of historical levels and patterns and expected future conditions, including the impact of scheduled increases in the normal retirement age.² The ultimate incidence rates are assumed to rep­resent the likely average rates of incidence for the future.

For the intermediate alternative, the ultimate age-sex-adjusted incidence rate (adjusted to the 50 exposed population for the year 2000) for ages through 64 is assumed to be 5.3 awards per thousand exposed population. This level is about 2 percent higher than the average rate for the historical period 1970 through 2008. The ultimate age-sex-adjusted incidence rates for the low-cost and high-cost alternatives are assumed to be 4.2 and 6.3 awards per thousand exposed, or about 19 percent lower and 21 percent higher than the average for the historical period, respectively. For the 2009 report, the ultimate assumed age-sex-adjusted incidence rates are essentially the same as in last year’s report.

Historical incidence rates and assumed incidence rates under the three alter­natives are illustrated in figure V.C3. Incidence rates have varied within a wide range over the past 35 years. This variation is attributed 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 incidence rate, age-sex adjusted to the distribution of the disability exposed population for 2000. Such adjustment facilitates meaning­ful comparisons over long periods of time by focusing on the likelihood of becoming disabled, and excluding the effects of a changing distribution of the population toward ages where disability is inherently more or less likely.

gross (unadjusted) incidence rates are also shown in figure V.C3 in dashed lines. Unadjusted rates are influenced by the changing age‑sex distribution of the exposed population over time. The gross incidence rate fell substantially below the age‑sex-adjusted rate between 1975 and 1995 as the baby-boom generation swelled the size of the younger working-age population, where disability incidence is low. After 1995, the gross rate rose relative to the age‑sex-adjusted rate, reflecting the aging of the baby-boom generation into higher ages, where disability incidence increases substantially. After 2023, the gross incidence rate declines relative to the age-sex-adjusted rate as the baby-boom generation moves above the normal retirement age (NRA), and is replaced at prime disability ages (50 to NRA) by the smaller cohorts born in the 1970s. As these smaller cohorts age past NRA, by about 2050, the gross incidence rate returns to a higher relative level under the intermediate assumptions. Thereafter, the gross rate remains higher, reflecting the persis­tently higher average age of the working-age population, which is largely due to lower birth rates since 1965.

 

Figure V.C3.—DI Disability Incidence Rates, 1970-2085
[Awards per thousand disability exposed]

[D]

b. Disability Termination

Disability benefits may be terminated if a beneficiary dies or recovers from the disabling condition (as indicated by either medical improvement or return to work). The termination rate is the ratio of the number of termina­tions to the average number of disabled-worker beneficiaries during the year.

Termination rates are projected by age, sex, and reason for termination. In addition, in the long-range period (post-2018) termination rates are also assumed to vary by duration of entitlement to disabled-worker benefits.

In the short-range period (through 2018), the age-sex-adjusted death rate (adjusted to the 2000 disabled-worker population) under the intermediate assumptions is projected to gradually decline from 27.7 deaths per thousand beneficiaries in 2008 to about 23.6 per thousand by 2018.⁴ The age-sex- adjusted recovery rate under the intermediate assumptions is assumed to rise from a relatively low level of 10.5 per thousand beneficiaries in 2008 (reflecting temporarily lower levels of continuing disability reviews) to 11.5 per thousand beneficiaries by 2018. Under low-cost (high-cost) assumptions, total age-sex-adjusted termination rates due to death and recovery are assumed to increase (decrease) to levels roughly 10-16 percent higher (lower) than those under the intermediate assumptions.

For the long-range period (post-2018), death and recovery rates are projected relative to rates by age, sex, and duration of entitlement over the base period 1996-2000.⁵ The ultimate age-sex-adjusted recovery rate for disabled work­ers is assumed to be about 10.8 per thousand beneficiaries. Ultimate age-sex- adjusted recovery rates for low-cost and high-cost alternatives are assumed to reach about 13.1 and 8.6 recoveries per thousand beneficiaries, respec­tively. For all three sets of assumptions, the ultimate recovery rates are reached in the twentieth year of the projection period (2028). 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. From the age-sex- adjusted death rate of 27.7 per thousand beneficiaries in 2008, rates of 20.3, 11.4, and 7.3 per thousand disabled-worker beneficiaries are pro­jected for 2085 under the low-cost, intermediate, and high-cost assumptions, respectively.

Figure V.C4 illustrates gross and age-sex-adjusted total termination rates for disabled-worker beneficiaries for the historical period since 1970, and for the projection period through 2085. In the near term, between 2011 and 2014, recovery terminations are projected to be elevated as SSA works down the current pending backlog of continuing disability reviews. As with incidence rates, the age-sex-adjusted termination rate provides an illustration of the real change in the tendency to terminate benefits. The gross rate is influenced by changes in the age-sex distribution of the beneficiary population. A shift in the beneficiary population to older ages, as when the baby-boom generation moves into pre-retirement ages, results in an increase in the gross death ter­mination rate as long as death rates by age and sex are constant or declining.

 

Figure V.C4.—DI Disability Termination Rates, 1970-2085
[Terminations per thousand disabled-worker beneficiaries]

[D]

c. Comparison of Incidence, Termination, and Conversion

Incidence and termination rates are the foundation for development of the projected levels of disabled-worker beneficiaries in current-payment status up to the normal retirement age (NRA) at which time beneficiaries are con­verted to retired-worker status and thereby leave the DI rolls. For all dis­abled-worker beneficiaries reaching the NRA in a given year, the disability “conversion” rate is, by definition 100 percent. For beneficiaries at all other ages this rate is zero. Conversions are simply a transfer of beneficiaries at NRA from the DI Trust Fund account to the OASI Trust Fund account. After conversion, recovery from the disabling condition is no longer considered. Conversions do represent a form of exit from the DI rolls and therefore must be accounted for in disabled-worker beneficiary totals.

Figure V.C5 compares the historical and projected (intermediate) levels of incidence, termination, and conversion on both gross and age-sex-adjusted bases. The rates for incidence and termination (death and recovery) are described above. The conversion ratio is the number of conversions in a given year (i.e., beneficiaries who reach the NRA) divided by the average number of disabled-worker beneficiaries at all ages in that year. The ratio is a constant on an age-sex-adjusted basis, except for the two periods during which the NRA increases under current law. But on a gross basis, the conver­sion ratio rises and falls with the changing proportion of all disabled-worker beneficiaries who attain the NRA in a given year.

Termination rates have declined and are expected to continue to fall, largely because of declines in death rates. Incidence rates have varied widely and are assumed for the intermediate projection (on an age-sex-adjusted basis) to remain near the middle of the high and low extremes experienced since 1970. The gross conversion ratio increases in the future due to aging of the beneficiary population.

 

Figure V.C5.—Comparison of DI Disability Incidence Rates, Termination Rates and
                Conversion Ratios Under Intermediate Assumptions, 1970-2085
                [Awards per thousand disability exposed; terminations and
                conversions per thousand disabled-worker beneficiaries]

[D]

d. DI Beneficiaries and Disability Prevalence Rates

The detailed projections of disabled-worker awards, terminations, and con­versions are combined using standard actuarial methods to project the num­ber of disabled workers receiving benefits (i.e., in current-payment status) over the next 75 years. The projected numbers of disabled workers in cur­rent-payment status are presented in table V.C5. The number of disabled workers in current-payment status is projected to grow from 7.4 million at the end of 2008, to 12.0 million, 13.9 million, and 14.7 million at the end of 2085, under the low-cost, intermediate, and 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. Also shown in table V.C5 are disability prevalence rates on both gross and age-sex-adjusted bases. Discussion of auxiliary beneficiary projections appears below.

 

Table V.C5.—DI Beneficiaries With Benefits in Current-Payment Status at the End of Calendar Years 1960-2085 
[Beneficiaries in thousands; prevalence rates per thousand disability insured]

Calendar year		Disabled‑ worker beneficiaries	Auxiliary beneficiaries		Total beneficiaries	Disability prevalence rates
			Spouse	Child		Gross	Age-sex- adjusted
Historical data:
	1960	455	77	155	687
	1965	988	193	558	1,739
	1970	1,493	283	889	2,665	20	18
	1975	2,488	453	1,411	4,351	29	29
	1980	2,856	462	1,359	4,677	28	31
	1985	2,653	306	945	3,904	24	26
	1986	2,725	301	965	3,991	25	27
	1987	2,782	291	968	4,041	25	27
	1988	2,826	281	963	4,070	25	27
	1989	2,891	271	962	4,124	25	27
	1990	3,007	266	989	4,261	25	28
	1991	3,191	266	1,052	4,509	26	29
	1992	3,464	271	1,151	4,886	28	31
	1993	3,721	273	1,255	5,249	30	33
	1994	3,958	271	1,350	5,579	32	34
	1995	4,179	264	1,409	5,852	33	35
	1996	4,378	224	1,463	6,065	34	36
	1997	4,501	207	1,438	6,146	34	36
	1998	4,691	190	1,446	6,327	35	36
	1999	4,870	176	1,468	6,514	36	36
	2000	5,036	165	1,466	6,667	37	37
	2001	5,268	157	1,482	6,907	38	37
	2002	5,539	152	1,526	7,217	39	38
	2003	5,869	151	1,571	7,590	41	39
	2004	6,198	153	1,599	7,950	43	39
	2005	6,519	157	1,633	8,309	45	40
	2006	6,807	156	1,652	8,615	46	40
	2007	7,099	154	1,665	8,918	48	41
	2008	7,427	155	1,692	9,273	49	41
Intermediate:
	2010	8,177	161	1,838	10,176	53	44
	2015	8,989	154	1,872	11,015	57	45
	2020	9,525	154	1,971	11,650	58	46
	2025	10,126	179	2,113	12,418	56	47
	2030	10,068	183	2,236	12,487	54	47
	2035	10,132	177	2,325	12,634	54	48
	2040	10,397	173	2,399	12,969	54	48
	2045	10,919	179	2,461	13,559	55	48
	2050	11,365	189	2,528	14,081	56	48
	2055	11,761	208	2,607	14,576	56	49
	2060	12,023	209	2,685	14,917	56	49
	2065	12,386	217	2,758	15,360	57	49
	2070	12,806	224	2,824	15,855	57	49
	2075	13,204	230	2,887	16,321	58	50
	2080	13,574	236	2,951	16,762	58	50
	2085	13,899	242	3,020	17,161	58	50
Low-cost:
	2010	7,955	153	1,770	9,878	52	42
	2015	8,125	135	1,677	9,938	51	40
	2020	8,620	136	1,808	10,565	50	39
	2025	8,703	147	1,875	10,725	47	39
	2030	8,288	140	1,955	10,383	44	39
	2035	8,110	128	2,030	10,268	42	38
	2040	8,186	118	2,111	10,416	41	37
	2045	8,515	119	2,196	10,830	41	37
	2050	8,826	124	2,289	11,240	41	37
	2055	9,139	136	2,398	11,673	40	37
	2060	9,400	135	2,525	12,060	40	37
	2065	9,786	138	2,660	12,584	40	37
	2070	10,276	142	2,795	13,214	40	37
	2075	10,837	147	2,929	13,913	40	37
	2080	11,428	155	3,065	14,648	41	38
	2085	11,991	162	3,206	15,359	41	38
High-cost:
	2010	8,387	168	1,902	10,456	55	45
	2015	9,982	178	2,107	12,267	63	50
	2020	10,403	175	2,125	12,702	67	53
	2025	11,519	214	2,327	14,060	66	55
	2030	11,825	231	2,466	14,522	65	56
	2035	12,132	233	2,533	14,898	66	58
	2040	12,574	233	2,560	15,367	68	59
	2045	13,268	245	2,566	16,079	70	60
	2050	13,815	260	2,582	16,657	72	60
	2055	14,251	285	2,614	17,150	74	61
	2060	14,445	284	2,624	17,353	75	61
	2065	14,679	294	2,615	17,588	77	62
	2070	14,890	304	2,593	17,788	78	62
	2075	14,927	305	2,570	17,803	78	62
	2080	14,857	307	2,553	17,716	79	62
	2085	14,737	306	2,544	17,587	79	62

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

Figure V.C6 illustrates the historical and projected disability prevalence rates on both a gross basis and on an age-sex-adjusted basis (adjusted to the age-sex distribution of the insured population for the year 2000).

 

Figure V.C6.—DI Disability Prevalence Rates, 1970-2085
        [Rate per thousand disability insured]

[D]

Changes in prevalence rates are a direct result of changes in incidence rates and termination rates. The patterns depicted for these rates in figure V.C5 are helpful for understanding the trend in prevalence rates. (Annual rates are not directly comparable and cannot be simply combined because their denomina­tors differ.)

Prevalence rates have increased primarily because: (1) termination rates have declined; and (2) incidence rates at younger ages have increased relative to rates at higher ages. Gross prevalence rates have increased more than age-sex-adjusted prevalence rates since the baby-boom generation began to move into the ages 50 through NRA, where incidence rates are relatively high. With this upward shift in the age distribution of the disabled population, gross conversions to retired worker status at NRA have naturally increased as well. In the future, prevalence rates are projected to grow at a slower pace reflecting assumed stabilization in three factors: the age distribution of the general population, the age distribution of the disability insured population, and relative rates of incidence by age. With these factors gradually stabiliz­ing, the remaining force influencing prevalence rates is the declining death termination rate, which is projected to continue to have a small influence toward higher disability prevalence rates in the future.

As mentioned above in the discussion of incidence and termination rates, the age-sex-adjusted prevalence rate isolates the changing trend in the true likeli­hood of receiving benefits for the insured population, free from the effects of an aging population. For disability prevalence rates, like incidence rates, the entrance of the baby-boom generation into working ages caused the gross rate of disability to decline relative to the age-sex-adjusted rate between 1975 and 1995, due to lower disability prevalence rates at younger ages. Conversely, the gross rate of disability prevalence increases relative to the age-sex-adjusted rate after 1995 due to the aging of the baby-boom genera­tion into ages with higher disability prevalence rates.

The age-sex-adjusted disability prevalence rate for ages through 64 is pro­jected to grow from 41.3 per thousand disability insured at the end of 2008, to 50.0 per thousand at the end of 2085 under the intermediate assumptions. As mentioned above, the growth in prevalence is expected to slow relative to the historical period.

Under the low-cost and high-cost assumptions, the age-sex-adjusted disabil­ity prevalence rate is projected to decrease to 37.7 per thousand and increase to 62.5 per thousand insured workers at the end of 2085, respectively.

Table V.C5 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, in his or her care, an eligible child benefi­ciary who is either under age 16 or disabled prior to age 22.

In general, the number of such auxiliary beneficiaries is projected in a man­ner that is related to the projected number of disabled-worker beneficiaries. In the short-range period (2009-18), this is accomplished for family members of disabled-worker beneficiaries by projecting incidence and termination rates for each category of auxiliary beneficiary. After 2018, the child benefi­ciaries at ages 18 and under are projected in relation to the projected number of children in the population, by applying factors representing the probability that either of their parents is a disabled-worker beneficiary. The remaining categories of children and spouses are projected in a similar manner.

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 initial entitlement, average PIAs at initial entitlement, and increases in PIAs since the year of initial entitlement, reflecting automatic benefit increases, recomputations to reflect additional covered earnings, and other factors. Future average PIAs at initial entitlement are calculated from projected earn­ings histories, which are developed using a combination of the actual earn­ings histories associated with a sample of 2004 initial entitlements, and more recent actual earnings levels by age and sex for covered workers.

For several types of benefits—retired-worker, aged-spouse, and aged-widow(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 2018 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 of the Social Security Administration. For years after 2018, administrative expenses are assumed to increase because of increases in the number of beneficiaries and increases in the average wage, which will more than offset assumed improvements in administrative productivity.

10. Railroad Retirement Financial Interchange

Railroad workers are covered under a separate multi-tiered plan, the first tier being very similar to OASDI coverage. An annual financial interchange between the Railroad Retirement fund and the OASI and DI funds is made reflecting the difference between: (1) the amount of OASDI benefits that would be paid to railroad workers and their families if railroad employment had been covered under the OASDI program and administrative expenses associated with these benefits; and (2) the amount of OASDI payroll tax and income tax that would be received with allowances for interest from railroad workers.

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 0.04 percent of taxable payroll to the OASDI program.

11. 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.

12. 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.

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 used in the projection are based on information from the Office of Tax Analysis (OTA) in the Depart­ment of the Treasury, by eliminating the current threshold amounts com­pletely for taxation of Social Security benefits in its tax model. Subsequently, based on recent Current Population Survey data, the Office of the Chief Actuary makes a downward adjustment to OTA’s ultimate ratios for relative changes in the projected 75th year OASDI beneficiary population in the most recent Trustees Report.

---

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.

2

Incidence rates are adjusted upward to account for additional workers who are expected to file for disabil­ity benefits (rather than retirement benefits) in response to greater reductions in retirement benefits as the NRA rises.

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.

4

Projections are developed separately for the short range (through 2018) and for the long range (after 2018). While short-range assumptions vary within the 10-year short-range period, the full phase in to the ultimate assumptions is not achieved until 2028. Death rates differ in this regard as explained in the text.

5

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.