Each table that follows shows the effects of changing a particular assumption on the OASDI summarized income rates, summarized cost rates, and actuarial balances (as defined earlier in this report) for 25-year, 50-year, and 75-year valuation periods. Because the income rate varies only slightly with changes in assumptions, it is not considered in the discussion of the tables. The change in each of the actuarial balances is approximately equal to the change in the corresponding cost rate, but in the opposite direction.
1. Total Fertility Rate
Table II.G1 shows the estimated OASDI
income rates, cost rates, and
actuarial balances, on the basis of alternative II with various assumptions
about the ultimate total fertility rate. These assumptions are
that the ultimate total fertility rate will be 1.6 children per woman (as
assumed for alternative III), 1.9 (as assumed for alternative II), and
2.2 (as assumed for alternative I). The rate is assumed to change
gradually from its current level and to reach the various ultimate
values in 2021.
Table II.G1. Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates With Various Fertility Assumptions[As a percentage of taxable payroll] | ||||
| Valuation period |
Ultimate total fertility rate 1/
| |||
| 1.6 | 1.9 | 2.2 | ||
| Summarized income rate: | ||||
| 25-year: 1997-2021 | 13.62 | 13.62 | 13.63 | |
| 50-year: 1997-2046 | 13.41 | 13.41 | 13.40 | |
| 75-year: 1997-2071 | 13.40 | 13.37 | 13.34 | |
| Summarized cost rate: | ||||
| 25-year: 1997-2021 | 13.24 | 13.28 | 13.32 | |
| 50-year: 1997-2046 | 14.94 | 14.86 | 14.78 | |
| 75-year: 1997-2071 | 15.98 | 15.60 | 15.22 | |
| Balance: | ||||
| 25-year: 1997-2021 | +.38 | +.35 | +.31 | |
| 50-year: 1997-2046 | -1.53 | -1.45 | -1.38 | |
| 75-year: 1997-2071 | -2.58 | -2.23 | -1.88 | |
| 1 The total fertility rate for any year is the average number of children who would be born to a woman in her lifetime if she were to experience the birth rates by age observed in, or assumed for, the selected year, and if she were to survive the entire childbearing period. The ultimate total fertility rate is assumed to be reached in 2021. | ||||
For the 25-year period, the cost rate for the three fertility assumptions
varies by only about 0.08 percent of taxable payroll. In contrast,
the 75-year cost rate varies over a wide range, decreasing from 15.98
to 15.22 percent, as the assumed ultimate total fertility rate increases
from 1.6 to 2.2. Similarly, while the 25-year actuarial balance varies
by only 0.07 percent of taxable payroll, the 75-year actuarial balance
varies over a much wider range, from -2.58 to -1.88 percent.
During the 25-year period, the very slight effect of changes in fertility on the working population is more than offset by increases in the number of child beneficiaries. Hence, the program cost slightly increases with higher fertility. For the 75-year long-range period, however, changes in fertility have a relatively greater impact on the labor force than on the beneficiary population. As a result, an increase in fertility significantly reduces the cost rate. Each increase of 0.1 in the ultimate total fertility rate increases the long-range actuarial balance by about 0.12 percent of taxable payroll.
2. Death Rates
Table II.G2 shows the estimated OASDI income
rates, cost rates, and
actuarial balances, on the basis of alternative II with various assumptions
about future reductions in death rates. The analysis was developed by varying
the percentage decrease assumed to occur during
1996-2071 in the death rates by age, sex, and cause of death. The
decreases assumed for this period, summarized as changes in the age-sex-adjusted
death rate, are about 16 percent (as assumed for alternative I),
35 percent (as assumed for alternative II), and 55 percent (as
assumed for alternative III). It should be noted that these reductions
do not apply uniformly to all ages, as some variation by age was
assumed (see section
II.H1) consistent with the objective of selecting
assumptions for alternatives I and III that are relatively more optimistic
and more pessimistic, respectively, in terms of the financing of
the OASDI program.
Table II.G2. Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates With Various Death-Rate Assumptions[As a percentage of taxable payroll] | ||||
| Valuation period |
Reduction in death rates 1/
| |||
| 16 percent | 35 percent | 55 percent | ||
| Summarized income rate: | ||||
| 25-year: 1997-2021 | 13.62 | 13.62 | 13.63 | |
| 50-year: 1997-2046 | 13.39 | 13.41 | 13.42 | |
| 75-year: 1997-2071 | 13.34 | 13.37 | 13.40 | |
| Summarized cost rate: | ||||
| 25-year: 1997-2021 | 13.08 | 13.28 | 13.47 | |
| 50-year: 1997-2046 | 14.41 | 14.86 | 15.32 | |
| 75-year: 1997-2071 | 14.94 | 15.60 | 16.34 | |
| Balance: | ||||
| 25-year: 1997-2021 | +.54 | +.35 | +.16 | |
| 50-year: 1997-2046 | -1.02 | -1.45 | -1.90 | |
| 75-year: 1997-2071 | -1.60 | -2.23 | -2.93 | |
| 1 The measure of the reduction in death rates is the decrease in the age-sex-adjusted death rate during 1996-2071. | ||||
The variation in cost for the 25-year period is less pronounced than
the variation for the 75-year period because the decreases in death
rates are assumed to occur gradually. The 25-year cost rate increases
from 13.08 percent (for 16-percent lower ultimate death rates) to
13.47 percent (for 55-percent lower ultimate rates). The 75-year cost
rate increases from 14.94 to 16.34 percent. The actuarial balance
decreases from +0.54 to +0.16 percent for the 25-year period, and from
-1.60 to -2.93 percent for the 75-year period.
Lower death rates cause both the income (as well as taxable payroll) and the outgo of the OASDI program to be higher than they would otherwise be. The relative increase in outgo, however, exceeds the relative increase in taxable payroll. For any given year, reductions in the death rates for people who have attained the retirement eligibility age of 62 (people whose death rates are the highest) increase the number of retired-worker beneficiaries (and, therefore, the amount of retirement benefits paid) without adding significantly to the number of covered workers (and, therefore, to the taxable payroll). Although reductions for people aged 50 to retirement eligibility age do result in significant increases to the taxable payroll, those increases are not large enough to offset the sum of the additional retirement benefits mentioned above and the disability benefits paid to additional beneficiaries in this pre-retirement age group. At ages under 50, death rates are so low that even substantial reductions would not result in significant increases in the numbers of covered workers or beneficiaries. Consequently, if death rates for all ages are lowered by about the same relative amount, outgo increases at a rate greater than the rate of growth in payroll, thereby resulting in higher cost rates. Each additional 10-percentage-point reduction in the age-sex-adjusted death rate assumed to occur in 1996-2071, relative to the 35-percent reduction assumed for alternative II, decreases the long-range actuarial balance by about 0.34 percent of taxable payroll.
3. Net Immigration
Table II.G3 shows the estimated OASDI
income rates, cost rates, and
actuarial balances, under alternative II with various assumptions
about the magnitude of net immigration. These assumptions are that
the annual net immigration will be 750,000 persons (as assumed for
alternative III), 900,000 persons (as assumed for alternative II), and
1,150,000 persons (as assumed for alternative I).
Table II.G3. Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates With Various Net-Immigration Assumptions[As a percentage of taxable payroll] | ||||
| Valuation period |
Net immigration per year
| |||
| 750,000 | 900,000 | 1,150,000 | ||
| Summarized income rate: | ||||
| 25-year: 1997-2021 | 13.63 | 13.62 | 13.61 | |
| 50-year: 1997-2046 | 13.42 | 13.41 | 13.39 | |
| 75-year: 1997-2071 | 13.39 | 13.37 | 13.36 | |
| Summarized cost rate: | ||||
| 25-year: 1997-2021 | 13.34 | 13.28 | 13.21 | |
| 50-year: 1997-2046 | 14.97 | 14.86 | 14.74 | |
| 75-year: 1997-2071 | 15.72 | 15.60 | 15.45 | |
| Balance: | ||||
| 25-year: 1997-2021 | +.30 | +.35 | +.40 | |
| 50-year: 1997-2046 | -1.55 | -1.45 | -1.34 | |
| 75-year: 1997-2071 | -2.33 | -2.23 | -2.10 | |
For all three periods, the cost rate decreases with increasing rates of
net immigration. For the 25-year period, the cost rate decreases from
13.34 percent of taxable payroll (for annual net immigration of
750,000 persons) to 13.21 percent (for annual net immigration of
1,150,000 persons). For the 50-year period, it decreases from 14.97
percent to 14.74 percent, and for the 75-year period, it decreases from
15.72 percent to 15.45 percent. The actuarial balance increases from
+0.30 to +0.40 percent for the 25-year period, from -1.55 to -1.34 for
the 50-year period, and from -2.33 to -2.10 percent for the 75-year
period.
The cost rate decreases with increasing rates of net immigration because immigration occurs at relatively young ages, thereby increasing the numbers of covered workers earlier than the numbers of beneficiaries. Each additional group of 100,000 immigrants relative to the 900,000 net immigration assumed for alternative II, increases the long-range actuarial balance by about 0.06 percent of taxable payroll.
4. Real-Wage Differential
Table II.G4 shows the estimated OASDI
income rates, cost rates, and
actuarial balances, on the basis of alternative II with various
assumptions about the real-wage differential. These assumptions are that the
ultimate real-wage differential will be 0.4 percentage point (as
assumed for alternative III), 0.9 percentage point (as assumed for
alternative II), and 1.4 percentage points (as assumed for alternative
I). In each case, the ultimate annual increase in the CPI is assumed to
be 3.5 percent (as assumed for alternative II), yielding ultimate
percentage increases in average annual wages in covered employment of
3.9, 4.4, and 4.9 percent under alternatives III, II, and I, respectively.
For the 25-year period, the cost rate decreases from 13.68 percent (for
a real-wage differential of 0.4 percentage point) to 12.89 percent (for a
differential of 1.4 percentage points). For the 50-year period, it
decreases from 15.43 to 14.30 percent, and for the 75-year period it
decreases from 16.20 to 14.99 percent. The actuarial balance
increases from about 0 to +0.68 percent for the 25-year period, from
-1.95 to -0.96 for the 50-year period, and from -2.75 to -1.69 percent for
the 75-year period.
Table II.G4. Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates With Various Real-Wage Assumptions[As a percentage of taxable payroll] | ||||
| Valuation period |
Ultimate percentage increase in wages-CPI 1/
| |||
| 3.9-3.5 | 4.4-3.5 | 4.9-3.5 | ||
| Summarized income rate: | ||||
| 25-year: 1997-2021 | 13.68 | 13.62 | 13.57 | |
| 50-year: 1997-2046 | 13.48 | 13.41 | 13.34 | |
| 75-year: 1997-2071 | 13.45 | 13.37 | 13.30 | |
| Summarized cost rate: | ||||
| 25-year: 1997-2021 | 13.68 | 13.28 | 12.89 | |
| 50-year: 1997-2046 | 15.43 | 14.86 | 14.30 | |
| 75-year: 1997-2071 | 16.20 | 15.60 | 14.99 | |
| Balance: | ||||
| 25-year: 1997-2021 | (2/) | +.35 | +.68 | |
| 50-year: 1997-2046 | -1.95 | -1.45 | -.96 | |
| 75-year: 1997-2071 | -2.75 | -2.23 | -1.69 | |
| 1 The first value in each pair is the assumed ultimate annual percentage increase in average wages in covered employment. The second value is the assumed ultimate annual percentage increase in the Consumer Price Index. The difference between the two values is the real-wage differential. 2 Between zero and 0.05 percent. | ||||
The cost rate decreases with increasing real-wage differentials,
because the higher real-wage levels increase the taxable payroll,
while benefit increases are not affected. Although the initial benefit
levels are higher because of the higher wages, these increases are
more than offset by the increases in the taxable payroll of future
workers. Each 0.5-percentage-point increase in the assumed real-wage
differential increases the long-range actuarial balance by about
0.53 percent of taxable payroll.
5. Consumer Price Index
Table II.G5 shows the estimated OASDI
income rates, cost rates, and
actuarial balances, on the basis of alternative II with various
assumptions about the rate of increase for the Consumer Price Index (CPI).
These assumptions are that the ultimate annual increase in the CPI
will be 2.5 percent (as assumed for alternative I), 3.5 percent (as
assumed for alternative II), and 4.5 percent (as assumed for
alternative III). In each case, the ultimate real-wage differential is assumed
to be 0.9 percentage point (as assumed for alternative II), yielding
ultimate percentage increases in average annual wages in covered
employment of 3.4, 4.4, and 5.4 percent under alternatives I, II, and
III, respectively.
Table II.G5. Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates With Various CPI-Increase Assumptions[As a percentage of taxable payroll] | ||||
| Valuation period |
Ultimate percentage increase in wages-CPI 1/
| |||
| 3.4-2.5 | 4.4-3.5 | 5.4-4.5 | ||
| Summarized income rate: | ||||
| 25-year: 1997-2021 | 13.65 | 13.62 | 13.60 | |
| 50-year: 1997-2046 | 13.43 | 13.41 | 13.38 | |
| 75-year: 1997-2071 | 13.39 | 13.37 | 13.35 | |
| Summarized cost rate: | ||||
| 25-year: 1997-2021 | 13.42 | 13.28 | 13.14 | |
| 50-year: 1997-2046 | 15.06 | 14.86 | 14.66 | |
| 75-year: 1997-2071 | 15.83 | 15.60 | 15.37 | |
| Balance: | ||||
| 25-year: 1997-2021 | +.23 | +.35 | +.46 | |
| 50-year: 1997-2046 | -1.63 | -1.45 | -1.28 | |
| 75-year: 1997-2071 | -2.43 | -2.23 | -2.02 | |
| 1 The first value in each pair is the assumed ultimate annual percentage increase in average wages in covered employment. The second value is the assumed ultimate annual percentage increase in the Consumer Price Index. | ||||
For all three periods, the cost rate decreases with greater assumed
rates of increase in the CPI. For the 25-year period, the cost rate
decreases from 13.42 (for CPI increases of 2.5 percent) to 13.14
percent (for CPI increases of 4.5 percent). For the 50-year period, it
decreases from 15.06 to 14.66 percent, and for the 75-year period, it
decreases from 15.83 to 15.37 percent. The actuarial balance
increases from +0.23 to +0.46 percent for the 25-year period, from
-1.63 to -1.28 for the 50-year period, and from -2.43 to -2.02 percent for
the 75-year period.
The patterns described above result primarily from the time lag between the effects of the CPI changes on taxable payroll and on benefit payments. When assuming a greater rate of increase in the CPI (in conjunction with a constant real-wage differential), the effect on taxable payroll of the implied greater rate of increase in average wages is experienced immediately, while the effect on benefits of the greater rate of increase in the CPI is experienced with a lag of about 1 year. In addition, the effect on benefits of the greater rate of increase in average wages is experienced no sooner than 2 years later. Thus, the higher taxable payrolls have a stronger effect than the higher benefits, thereby resulting in lower cost rates. The effect of each 1.0-percentage-point increase in the rate of change assumed for the CPI is an increase in the long-range actuarial balance of about 0.20 percent of taxable payroll.
6. Real Interest Rate
Table II.G6 shows the estimated OASDI
income rates, cost rates, and
actuarial balances, on the basis of alternative II with various
assumptions about the annual real interest rate for special
public-debt obligations issuable to the trust funds, which are compounded
semiannually. These assumptions are that the ultimate annual real
interest rate will be 1.9 percent (as assumed for alternative III), 2.7
percent (as assumed for alternative II), and 3.4 percent (as assumed
for alternative I). In each case, the ultimate annual increase in the
CPI is assumed to be 3.5 percent (as assumed for alternative II),
resulting in ultimate annual yields of 5.5, 6.3, and 7.0 percent under
alternatives III, II, and I, respectively.
Table II.G6. Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates With Various Real-Interest Assumptions[As a percentage of taxable payroll] | ||||
| Valuation period |
Ultimate annual real interest rate
| |||
| 1.9 percent | 2.7 percent | 3.4 percent | ||
| Summarized income rate: | ||||
| 25-year: 1997-2021 | 13.58 | 13.62 | 13.67 | |
| 50-year: 1997-2046 | 13.35 | 13.41 | 13.45 | |
| 75-year: 1997-2071 | 13.32 | 13.37 | 13.42 | |
| Summarized cost rate: | ||||
| 25-year: 1997-2021 | 13.38 | 13.28 | 13.19 | |
| 50-year: 1997-2046 | 15.17 | 14.86 | 14.61 | |
| 75-year: 1997-2071 | 16.06 | 15.60 | 15.22 | |
| Balance: | ||||
| 25-year: 1997-2021 | +.19 | +.35 | +.47 | |
| 50-year: 1997-2046 | -1.81 | -1.45 | -1.15 | |
| 75-year: 1997-2071 | -2.73 | -2.23 | -1.80 | |
For the 25-year period, the cost rate decreases slightly with
increasing real interest rates from 13.38 percent (for an ultimate
real interest rate of 1.9 percent) to 13.19 percent
(for an ultimate real interest
rate of 3.4 percent). For the 50-year period, it decreases from 15.17 to
14.61 percent, and for the 75-year period, it decreases from 16.06 to
15.22 percent. The actuarial balance increases from +0.19 to +0.47
percent for the 25-year period, from -1.81 to -1.15 percent for the 50-year
period, and from -2.73 to -1.80 percent for the 75-year period.
Each 0.5-percentage-point increase in the assumed real interest rate
increases the long-range actuarial balance by about 0.31 percent of
taxable payroll.
7. Disability Incidence Rates
Table II.G7 shows the estimated OASDI
income rates, cost rates, and
actuarial balances, on the basis of alternative II with various
assumptions concerning future disability incidence rates. For all
three alternatives, incidence rates by age and sex are assumed to vary during
the early years of the projection period before attaining ultimate
levels in 2011. The ultimate levels attained vary by sex. In comparison to
the corresponding annual rates experienced during the base period
1984-86, the ultimate rates for men are about the same for alternative
I, about 25 percent higher for alternative II, and about 50 percent
higher for alternative III. For women they are higher by about 17
percent for alternative I, 47 percent for alternative II, and 76 percent for
alternative III.
Table II.G7. Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates With Various Disability Incidence Assumptions[As a percentage of taxable payroll] | ||||
| Valuation period |
Disability incidence rates based on alternative-
| |||
| I | II | III | ||
| Summarized income rate: | ||||
| 25-year: 1997-2021 | 13.62 | 13.62 | 13.63 | |
| 50-year: 1997-2046 | 13.40 | 13.41 | 13.41 | |
| 75-year: 1997-2071 | 13.37 | 13.37 | 13.38 | |
| Summarized cost rate: | ||||
| 25-year: 1997-2021 | 13.05 | 13.28 | 13.50 | |
| 50-year: 1997-2046 | 14.57 | 14.86 | 15.14 | |
| 75-year: 1997-2071 | 15.28 | 15.60 | 15.90 | |
| Balance: | ||||
| 25-year: 1997-2021 | +.57 | +.35 | +.12 | |
| 50-year: 1997-2046 | -1.17 | -1.45 | -1.73 | |
| 75-year: 1997-2071 | -1.92 | -2.23 | -2.53 | |
For the 25-year period, the cost rate increases with increasing
disability incidence rates from 13.05 percent (for the relatively low rates
assumed for alternative I) to 13.50 percent (for the relatively high
rates assumed for alternative III). For the 50-year period, it increases
from 14.57 to 15.14 percent, and for the 75-year period, it increases
from 15.28 to 15.90 percent. The actuarial balance decreases from
+0.57 to +0.12 percent for the 25-year period, from -1.17 to -1.73
percent for the 50-year period, and from -1.92 to -2.53 percent
for the 75-year period.
8. Disability Termination Rates
Table II.G8 shows the estimated OASDI
income rates, cost rates, and actuarial balances, on the basis of
alternative II with various assumptions about future disability
termination rates.
For alternative II, death-termination rates by age and sex are assumed to decline until they reach levels by the end of the 75-year period that, in comparison to the corresponding annual rates experienced during the base period 1977-80, are lower by about 49 percent for men and 40 percent for women. For the other alternatives, the rates are assumed to spread gradually from the rates for alternative II. By the end of the projection period, for men the rates are 32 percent lower for alternative I and 64 percent lower for alternative III, and for women they are 20 percent lower for alternative I and 58 percent lower for alternative III.
For alternative II, ultimate recovery-termination rates by age and sex
are assumed to be attained in 2011; such rates are assumed to be
about 50 percent of those experienced in the base period, 1977-80. The
ultimate rates for alternatives I and III are also assumed to be
attained in 2011; they are assumed to be about 60 percent and 40
percent, respectively, of those experienced in the base period.
In the earlier years, the rates for alternatives I and III are
assumed to be 20
percent higher and lower, respectively, than the rates for alternative
II, which are the same relative percentages implied by the ultimate
values.
Table II.G8. Estimated OASDI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates With Various Disability Termination Assumptions[As a percentage of taxable payroll] | ||||
| Valuation period |
Disability termination rates based on alternative-
| |||
| I | II | III | ||
| Summarized income rate: | ||||
| 25-year: 1997-2021 | 13.62 | 13.62 | 13.62 | |
| 50-year: 1997-2046 | 13.41 | 13.41 | 13.41 | |
| 75-year: 1997-2071 | 13.37 | 13.37 | 13.37 | |
| Summarized cost rate: | ||||
| 25-year: 1997-2021 | 13.24 | 13.28 | 13.31 | |
| 50-year: 1997-2046 | 14.80 | 14.86 | 14.92 | |
| 75-year: 1997-2071 | 15.53 | 15.60 | 15.66 | |
| Balance: | ||||
| 25-year: 1997-2021 | +.38 | +.35 | +.31 | |
| 50-year: 1997-2046 | -1.40 | -1.45 | -1.51 | |
| 75-year: 1997-2071 | -2.16 | -2.23 | -2.29 | |
For the 25-year period, the cost rate increases with decreasing
disability termination rates from 13.24 percent (for the relatively
high rates
assumed for alternative I) to 13.31 percent (for the relatively low rates
assumed for alternative III). For the 50-year period, it increases from
14.80 to 14.92 percent, and for the 75-year period, it increases from
15.53 to 15.66 percent. The actuarial balance decreases from +0.38 to
+0.31 percent for the 25-year period, from -1.40 to -1.51 percent for
the 50-year period, and from -2.16 to -2.29 percent for the 75-year
period.