2010 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, as well as 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 to reflect 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 2019. Projected values for future years are based on the economic assumptions described in the preceding section of this report.

Tables V.C1 and V.C2 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. In December 2009, there was no cost-of-living adjustment. Under all three sets of economic assumptions, no cost-of-living adjustment is projected for December of 2010. Cost-of-living adjustments are projected to return for December 2011 and later.

•

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 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 NRA. The retirement test does not apply beginning with the attainment of NRA. 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, 1975-2019 

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
	2008	5.8	41,334.97	2.3	102,000	13,560	36,120
Intermediate:
	2009	g .0	41,067.93	-6	g 106,800	g 14,160	g 37,680
	2010	.0	43,083.76	4.9	g 106,800	g 14,160	g 37,680
	2011	1.2	44,686.82	3.7	106,800	14,160	37,680
	2012	2.4	46,758.30	4.6	113,700	15,120	40,200
	2013	2.7	48,977.62	4.7	118,200	15,720	41,640
	2014	2.8	51,215.47	4.6	123,600	16,440	43,680
	2015	2.8	53,396.92	4.3	129,300	17,160	45,720
	2016	2.8	55,737.60	4.4	135,300	18,000	47,760
	2017	2.8	58,103.49	4.2	141,000	18,720	49,800
	2018	2.8	60,522.33	4.2	147,300	19,560	51,960
	2019	2.8	63,017.19	4.1	153,600	20,400	54,240
Low-cost:
	2009	g.0	$41,067.59	-0.6	g $106,800	g $14,160	g $37,680
	2010	.0	43,233.23	5.3	g 106,800	g 14,160	g 37,680
	2011	.4	44,759.07	3.5	106,800	14,160	37,680
	2012	1.7	46,620.50	4.2	114,300	15,120	40,320
	2013	1.8	48,494.23	4.0	118,200	15,720	41,760
	2014	1.8	50,372.83	3.9	123,300	16,320	43,440
	2015	1.8	52,169.53	3.6	128,100	17,040	45,240
	2016	1.8	54,201.02	3.9	133,200	17,640	47,040
	2017	1.8	56,224.83	3.7	137,700	18,240	48,720
	2019	1.8	60,532.75	3.8	148,500	19,680	52,440
High-cost:
	2009	g.0	41,067.51	-.6	g 106,800	g 14,160	g 37,680
	2010	.0	42,879.81	4.4	g 106,800	g 14,160	g 37,680
	2011	2.2	44,589.32	4.0	106,800	14,160	37,680
	2012	4.6	47,228.82	5.9	113,400	15,000	39,960
	2013	4.3	50,100.69	6.1	117,900	15,600	41,640
	2014	3.8	52,867.76	5.5	124,800	16,560	44,040
	2015	3.8	55,603.42	5.2	132,300	17,520	46,800
	2016	3.8	58,469.81	5.2	139,800	18,480	49,320
	2017	3.8	61,242.02	4.7	147,000	19,440	51,840
	2018	3.8	64,147.61	4.7	154,500	20,520	54,600
	2019	3.8	67,083.66	4.6	161,700	21,480	57,120

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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 2019.

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 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 Pubic 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 2010, and also shows projected amounts through 2019. 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.

 

Figure V.C1.—Primary-Insurance-Amount Formula for Those Newly Eligible in 2010

[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.

 

Figure V.C2.—Maximum-Family-Benefit Formula for Those Newly Eligible in 2010

[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 base that would have been in effect had the 1977 amendments not been enacted. 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 1978-2019

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		518	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	640	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
	2010	761	4,586		972	1,403	1,830	1,120	79,200
Intermediate:
	2011	$756	$4,556		$966	$1,394	$1,818	$1,120	$79,200
	2012	793	4,780		1,013	1,463	1,908	1,170	84,600
	2013	823	4,958		1,051	1,517	1,979	1,210	87,600
	2014	861	5,188		1,100	1,587	2,070	1,270	91,800
	2015	901	5,434		1,152	1,663	2,169	1,330	96,000
	2016	943	5,682		1,205	1,739	2,268	1,390	100,500
	2017	983	5,924		1,256	1,813	2,364	1,450	104,700
	2018	1,026	6,184		1,311	1,892	2,468	1,510	109,500
	2019	1,069	6,446		1,367	1,973	2,573	1,570	114,000
Low-cost:
	2011	756	4,556		966	1,394	1,818	1,120	79,200
	2012	796	4,797		1,017	1,468	1,914	1,170	84,900
	2013	824	4,966		1,053	1,520	1,982	1,210	87,900
	2014	858	5,172		1,096	1,583	2,064	1,260	91,500
	2015	893	5,380		1,141	1,646	2,147	1,310	95,100
	2016	927	5,589		1,185	1,710	2,230	1,360	98,700
	2017	960	5,788		1,227	1,771	2,310	1,410	102,300
	2018	998	6,013		1,275	1,840	2,400	1,470	106,200
	2019	1,035	6,238		1,322	1,909	2,489	1,520	110,400
High-cost:
	2011	756	4,556		966	1,394	1,818	1,120	79,200
	2012	789	4,757		1,008	1,456	1,899	1,160	84,000
	2013	821	4,947		1,049	1,514	1,974	1,210	87,600
	2014	869	5,240		1,111	1,603	2,091	1,280	92,700
	2015	922	5,559		1,178	1,701	2,218	1,360	98,400
	2016	973	5,866		1,243	1,795	2,341	1,430	103,800
	2017	1,023	6,169		1,308	1,888	2,462	1,510	109,200
	2018	1,076	6,487		1,375	1,985	2,589	1,580	114,600
	2019	1,127	6,795		1,440	2,079	2,712	1,660	120,300

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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 NRA 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 (see Table V.B2) 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 (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 71.3, 69.8, and 68.2 percent for 2084 for the low-cost, intermediate, and high-cost assumptions, respectively, compared to the 2008 level of about 70.6 percent. (Age-adjusted covered worker rates are adjusted to the 2008 age distribution of the Social Security area population.) For females, the projected age-adjusted coverage rate changes from 62.8 percent for 2008 to 64.7, 63.5, and 62.0 percent for 2084 for the low-cost, intermediate, and high-cost assumptions, respectively.

3. Taxable Payroll and Payroll Tax Revenue

The OASDI taxable payroll (see Table VI.F6) 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. In addition, from 1983 through 2001, taxable payroll includes deemed wage credits for military service. Prior to 1984, the self-employment tax rate was less than the combined employee-employer rate; thus taxable self-employment earnings were weighted to reflect this difference in tax rate. 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, 86.8, 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 in subsequent years to reach 82.3 for 2007. The average annual rate of change in the ratio was about -0.4 percent between 1983 and 2007. Most of this decline was due to a relative increase in wages for high earners.

The ratio rose to 83.5 percent for 2008 and further to 85.3 for 2009, largely due to a recession-induced reduction in the relative amount of wages of high earners. The taxable earnings ratio is projected to decline as the economy recovers, reaching levels for 2019 of 83.6, 82.8, and 82.1 percent for the low-cost, intermediate, and high-cost assumptions, respectively. After 2019, 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 annual earnings reporting replaced quarterly 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 2010 is $1,120.

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 in 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.

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 82.5 for December 31, 2007, to 90.3, 90.0, and 89.8 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 93.2 to 90.6, while that for females is projected to increase from 74.2 to 89.5.

5. Old-Age and Survivors Insurance Beneficiaries

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

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 NRA 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, 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 lasted at least 10 years. Third, factor (3) above is not applied because, effective January 1985, a divorced person is generally no longer required to 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 for whom 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 number of children in the population and the ratio of retired workers aged 62 through 71 to the population aged 20 through 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 are projected as a proportion of the 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 lasted at least 10 years.

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 from 50 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 to 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.

The number of disabled-child-survivor beneficiaries, aged 18 and over, 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-child-survivor beneficiaries already receiving benefits. In the long-range period, disabled-child-survivor beneficiaries are projected in a manner similar to that for student-child-survivor beneficiaries, with the inclusion of a factor reflecting the probability of being disabled before age 22.

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
	2009	33,514	2,343	561		4,327	160	1,921	2	42,828
Intermediate:
	2010	34,603	2,350	575		4,314	157	1,914	2	43,914
	2015	41,236	2,343	673		4,310	147	1,936	1	50,646
	2020	49,413	2,274	747		4,268	141	1,969	2	58,813
	2025	56,969	2,224	812		4,193	130	1,946	2	66,275
	2030	63,440	2,278	849		4,160	124	1,934	2	72,786
	2035	68,027	2,186	865		4,150	122	1,929	2	77,281
	2040	70,592	2,055	878		4,090	120	1,916	2	79,652
	2045	72,296	1,959	887		3,999	116	1,892	2	81,150
	2050	74,201	1,927	915		3,879	114	1,867	2	82,905
	2055	76,703	2,030	941		3,767	111	1,849	2	85,402
	2060	79,537	2,180	964		3,687	109	1,832	2	88,310
	2065	82,354	2,349	974		3,678	107	1,809	2	91,272
	2070	85,447	2,507	995		3,742	104	1,786	2	94,583
	2075	88,761	2,623	1,019		3,838	101	1,762	2	98,106
	2080	92,154	2,713	1,041		3,941	99	1,742	2	101,692
	2085	95,693	2,801	1,068		4,020	97	1,725	2	105,405
Low-cost:
	2010	34,599	2,350	575		4,314	157	1,914	2	43,911
	2015	41,115	2,346	676		4,301	149	1,953	1	50,542
	2020	48,864	2,245	752		4,275	141	2,050	2	58,329
	2025	55,850	2,180	823		4,224	129	2,093	2	65,301
	2030	61,516	2,204	875		4,220	121	2,171	2	71,108
	2035	65,205	2,077	903		4,237	117	2,260	2	74,801
	2040	66,899	1,913	927		4,188	115	2,339	2	76,383
	2045	67,860	1,789	948		4,091	114	2,400	2	77,204
	2050	69,232	1,732	994		3,960	115	2,452	2	78,486
	2055	71,282	1,809	1,032		3,838	116	2,503	2	80,581
	2060	73,699	1,912	1,072		3,747	119	2,563	2	83,113
	2065	76,018	2,014	1,097		3,723	122	2,627	2	85,602
	2070	78,523	2,088	1,136		3,761	125	2,691	2	88,326
	2075	81,266	2,127	1,179		3,823	128	2,752	2	91,275
	2080	84,468	2,169	1,228		3,892	130	2,817	2	94,707
	2085	88,398	2,228	1,290		3,962	133	2,885	2	98,897
High-cost:
	2010	34,607	2,350	575		4,315	157	1,913	2	43,918
	2015	41,378	2,340	669		4,319	146	1,919	1	50,773
	2020	50,094	2,312	744		4,260	142	1,892	2	59,446
	2025	58,319	2,280	802		4,159	132	1,807	2	67,500
	2030	65,744	2,373	826		4,093	123	1,719	2	74,879
	2035	71,417	2,326	831		4,052	119	1,639	2	80,386
	2040	75,036	2,231	830		3,979	113	1,561	2	83,752
	2045	77,631	2,166	826		3,895	105	1,483	2	86,107
	2050	80,188	2,156	837		3,792	98	1,417	2	88,490
	2055	83,145	2,295	847		3,699	92	1,367	2	91,446
	2060	86,366	2,484	852		3,632	85	1,316	2	94,737
	2065	89,573	2,727	845		3,629	79	1,261	2	98,115
	2070	93,117	2,987	847		3,702	73	1,206	2	101,932
	2075	96,886	3,199	851		3,812	67	1,154	2	105,970
	2080	100,300	3,363	849		3,936	62	1,109	2	109,621
	2085	103,209	3,484	845		4,029	57	1,066	2	112,693

---

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 a medically determinable physical or mental impairment severe enough to satisfy the requirements of the program, and who have not yet attained NRA. 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 expressed as 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 describes 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 2019) 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. For this year’s report, all three sets of underlying economic assumptions include a gradual economic recovery with unemployment rates gradually declining to their ultimate sustainable levels. During the period of high unemployment, the projected disability incidence rates are estimated to be 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 2019, 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 2029. 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 NRA.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 disability 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 2009. 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 2010 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 substantially during the historical period since 1970. 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 show 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 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-2019) termination rates are also assumed to vary by duration of entitlement to disabled-worker benefits.

In the short-range period (through 2019), the age-sex-adjusted death rate (adjusted to the 2000 disabled-worker population) under the intermediate assumptions is projected to gradually decline from 27.2 deaths per thousand beneficiaries in 2009 to about 22.6 per thousand by 2019.⁴ The age-sex- adjusted recovery rate under the intermediate assumptions is assumed to rise from a relatively low level of 9.1 per thousand beneficiaries in 2009 (reflecting temporarily lower levels of continuing disability reviews) to 11.6 per thousand beneficiaries by 2019. Under low-cost and high-cost assumptions, total age-sex-adjusted termination rates due to death and recovery are assumed to increase or decrease, respectively, roughly 10-14 percent relative to the intermediate assumptions.

For the long-range period (post-2019), 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 10.9 per thousand beneficiaries. Ultimate age-sex-adjusted recovery rates for low-cost and high-cost alternatives are assumed to reach about 13.2 and 8.7 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 (2029). In contrast, death rates by age and sex are assumed to change throughout the long-range period at the same rate as death rates in the general population. From the age-sex-adjusted death rate of 27.2 per thousand beneficiaries in 2009, rates of 19.4, 11.0, and 7.0 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 2013 and 2018, 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 projecting the number of disabled-worker beneficiaries in current-payment status up to the NRA at which time beneficiaries are converted to retired-worker status and thereby leave the DI rolls. For disabled-worker beneficiaries reaching 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 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 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 NRA increases under current law. On a gross basis, however, the conversion ratio rises and falls with the changing proportion of all disabled-worker beneficiaries who attain 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 is projected to generally increase 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 7.8 million at the end of 2009, to 12.0 million, 13.8 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. Table V.C5 presents disability prevalence rates on both gross and age-sex-adjusted bases. Auxiliary beneficiary projections are discussed 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
	2009	7,788	159	1,749	9,695	51	43
Intermediate:
	2010	8,227	165	1,847	10,240	54	44
	2015	9,290	168	2,034	11,492	59	46
	2020	9,669	158	2,096	11,923	60	46
	2025	10,312	179	2,202	12,692	58	47
	2030	10,281	183	2,282	12,746	56	48
	2040	10,518	170	2,397	13,085	55	48
	2045	10,985	175	2,444	13,604	56	48
	2050	11,398	187	2,499	14,084	56	48
	2055	11,760	209	2,571	14,540	57	48
	2060	11,997	214	2,645	14,856	57	48
	2070	12,768	232	2,780	15,781	58	49
	2075	13,150	235	2,841	16,226	58	49
	2080	13,513	242	2,904	16,659	59	49
	2085	13,842	248	2,971	17,060	59	49
Low-cost:
	2010	8,129	162	1,816	10,107	53	44
	2015	8,547	151	1,857	10,555	54	43
	2030	8,376	139	1,963	10,477	45	38
	2035	8,225	126	2,028	10,380	43	38
	2040	8,279	116	2,100	10,496	42	37
	2045	8,585	117	2,178	10,879	42	36
	2050	8,883	123	2,266	11,272	41	36
	2055	9,178	137	2,367	11,683	41	36
	2060	9,420	138	2,488	12,047	40	36
	2065	9,795	142	2,620	12,556	40	37
	2070	10,276	146	2,753	13,175	40	37
	2075	10,808	150	2,886	13,844	41	37
	2080	11,394	157	3,019	14,570	41	37
	2085	11,965	164	3,157	15,286	41	37
High-cost:
	2010	8,325	169	1,879	10,373	55	45
	2015	10,038	186	2,211	12,435	64	51
	2020	10,913	183	2,349	13,445	68	53
	2025	11,972	217	2,503	14,692	69	55
	2030	12,207	234	2,572	15,013	68	58
	2035	12,420	234	2,590	15,244	68	59
	2040	12,747	231	2,578	15,555	69	59
	2045	13,341	243	2,557	16,140	71	59
	2050	13,824	258	2,552	16,635	73	60
	2055	14,203	289	2,577	17,069	74	60
	2060	14,362	294	2,587	17,242	75	60
	2065	14,593	307	2,577	17,476	77	61
	2070	14,823	323	2,555	17,701	78	61
	2075	14,875	324	2,531	17,730	79	61
	2080	14,799	326	2,511	17,637	79	61
	2085	14,676	324	2,500	17,500	79	61

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 incidence and termination rates in figure V.C5 are helpful for understanding the trend in prevalence rates. Annual incidence and termination rates are not directly comparable and cannot simply be combined because their denominators differ.

Prevalence rates have increased primarily because termination rates have declined, and incidence rates at younger ages have increased relative to rates at older ages. Gross prevalence rates have increased more than age-sex-adjusted prevalence rates since the baby-boom generation began to reach 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 based on assumed stabilization in three factors: the age distribution of the general population, the age distribution of the disability insured population, and relative incidence rates by age. As these factors gradually stabilize, the declining death termination rate is projected to continue to have a small influence toward higher disability prevalence rates.

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, without reflecting changes in the age distribution of the population. As with incidence rates, gross disability prevalence rates declined relative to the age-sex-adjusted rate when the baby-boom generation reached working age between 1975 and 1995, reflecting the lower disability prevalence rates associated with 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 42.6 per thousand disability insured at the end of 2009, to 49.1 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 37.0 per thousand and increase to 61.5 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 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 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) age 18 or older and disabled prior to age 22.

The projection of auxiliary beneficiaries is generally based on the projected number of disabled-worker beneficiaries. In the short-range period (2010-19), incidence and termination rates are projected for each category of auxiliary beneficiary. After 2019, 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 for each benefit type 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 2006 initial entitlements, and more recent actual earnings levels by age and sex for covered workers.

For 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 2019 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 2019, 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 reflects 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, plus 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. Accordingly, 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 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 may be found at www.socialsecurity.gov/OACT/NOTES/s2000s.html.

4

Projections are developed separately for the short range (through 2019) and for the long range (after 2019). While short-range assumptions vary within the 10-year short-range period, the full phase-in to the ultimate assumptions is not achieved until 2029. 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 may be found at
www.socialsecurity.gov/OACT/NOTES/s2000s.html.