A period of 75 years is used to evaluate the long-range actuarial status of the program in order to obtain the full range of financial commitments that will be incurred on behalf of all current program participants. For example, a group of workers now entering the labor force at age 22 will work and pay OASDI taxes for the next 45 years before reaching age 67. At age 67, those surviving may retire and begin to receive full benefits (i.e., not reduced for early retirement). Some of them may live and receive benefits for more than 30 years. Thus, a 75-year projection period will include the entire working and retired life span of the great majority of workers now contributing to the program, as well as those now receiving benefits.
Because of the inherent uncertainty in estimates for as long as 75 years into the future, projections are shown in this report under three alternative sets of assumptions regarding future economic and demographic trends. Designated as alternatives I, II, and III, these sets range from low cost (alternative I) to high cost (alternative III), with alternative II representing the set of intermediate cost assumptions. The low cost set is more optimistic from the standpoint of OASDI financing and the high cost set is more pessimistic. In the tables in this report, the intermediate estimates, which the Board of Trustees regard as their "best estimates," will be shown first followed by the low cost and high cost estimates.
From the estimated income, expenditure, and asset amounts, a number of different measures are calculated for use in evaluating the financial status of the program. Because of the difficulty in comparing dollar values for different periods, these measures are generally based on relative scales (although financial operations in nominal and inflation-adjusted dollar amounts are also available). These relative measures include (1) the annual amounts of future income and outgo as a percentage of the amount of earnings subject to the OASDI payroll tax, (2) the annual differences between these income and outgo figures, and (3) summarized values representing these figures over various periods. The level of trust fund assets relative to annual expenditures and the year in which the trust fund is projected to be exhausted are also presented as additional measures for evaluating the financial status of the program. Careful review of these measures provides a reasonably complete picture of the financial outlook for the OASDI program.
The program is also subject to two explicit tests of financial status (see section II.F) -- a short-range test and a long-range test. The purpose of these tests is to provide objective criteria for determining whether or not the projected financial status of the OASDI program is considered satisfactory in each time period. The tests help highlight the need for corrective action when they are not met.
As usually required in the analysis of any complex subject, these summary tests
should be considered in conjunction with a full understanding of the
year-by-year patterns, trends, and other financial
characteristics revealed by the underlying actuarial projections.