A Stochastic Model
of the Long-Range Financial Status
of the OASDI Program—September 2004

IV. RESULTS

B. ACTUARIAL ESTIMATES

The tables in the following subsections contain estimates for the OASDI program. A row in the tables contains estimates of a particular measure. For each measure, the columns show results from both the OSM and the 2004 Trustees Report. The value from the TR04II and the median from the OSM are shown first since they both provide an estimate of the central case. The TR04I and TR04III values are shown next followed by the 95-, 90-, and 80-percent confidence intervals from the OSM. These pairs of values provide ranges of the uncertainty for each measure. Where necessary, the limits of the confidence intervals have been inverted to simplify the visual comparison of these to the TR04I and TR04III values.

1. Annual Measures

Table IV.17 shows selected measures of the OASDI program for the 75^th projection year, 2078. The median estimates shown from the OSM are slightly more pessimistic (from the OASDI program perspective) than those from the TR04II. For each measure in the table, the upper bound of the 95-percent confidence interval (the second value listed under the 95-percent confidence interval) is more pessimistic than the TR04III value. Thus, the 95-percent confidence interval includes the values of these measures under the TR04III. In contrast (with the exception of the cost rate as a percent of GDP), the 95-percent confidence interval does not include the values of these measures under the TR04I.

Figure IV.17 shows the estimated probability distribution of the annual trust fund ratio for the OASDI program from the OSM. Note that the smooth curves which result do not represent the path of any particular simulation. Instead, for each given year, the curved lines represent the distribution of trust fund ratios based on all stochastic simulation results for that year. The two extreme curves in this figure comprise a 95-percent confidence interval,1 and deciles are shown for the range of the 10^th through the 90^th percentiles.

Figure IV.17—Annual Trust Fund Ratio, Calendar Years 2004-78

[D]

An estimate of the exhaustion year of the combined OASDI Trust Funds can be obtained from figure IV.17 by inspecting the x-intercept of a given curve. The x-intercept of the median curve indicates that according to the OSM, there is about the same chance of trust fund exhaustion prior to 2042 as there is after 2042. This exhaustion year is exactly the same as that indicated by the TR04II. Furthermore, the lower limit of the 95-percent confidence interval of the trust fund exhaustion year indicated by the OSM is only 1 year greater than that of the TR04III (2032 vs. 2031). However, the upper limit, as indicated by the OSM is more pessimistic than that of the TR04I (2071 vs. no exhaustion during the 75-year projection).

Figure IV.18 shows the estimated probability distribution of the annual cost and income rates for the OASDI program from the OSM. As before, the smooth curves which result do not represent the path of any particular simulation. Once again, the two extreme curves in this figure comprise a 95-percent confidence interval, and deciles are shown for the range of the 10^th through the 90^th percentiles. Note that for the annual income rate, the range of the 95-percent confidence interval is too narrow to resolve the decile values.

Figure IV.18—Annual Cost and Income Rates, Calendar Years 2004-78

[D]

Notice that the upper limit of the 95-percent confidence interval for the income rate never exceeds the lower limit of the 95-percent confidence interval for the cost rate after about 2025.

2. Summary Measures

Table IV.18 shows selected measures of the OASDI program for the 75-year projection period. The median estimates shown from the OSM are equal to or slightly more pessimistic than those from the TR04II. Estimates of the long-range actuarial balance, summarized cost rate, open group unfunded obligation, and exhaustion year measures under the TR04I and TR04III fall outside the bounds of the 95-percent confidence intervals from the OSM. Estimates of the summarized income rate and the first year cost exceeds tax income under the TR04I and TR04III fall inside or on the bounds of the 95-percent confidence intervals.

Figure IV.19 shows a frequency distribution of the long-range actuarial balances estimated from the OSM. The width of each bar on the figure is 0.2 percent and the actuarial balance is expressed as a percentage of taxable payroll. It is interesting to note that only 34 of the 5,000 simulations resulted in a positive long-range actuarial balance. In other words, according to the OSM, there is a 99.3 percent probability that the OASDI program has a negative actuarial balance for the period 2004-78.

Figure IV.19—Frequency Distribution of the Long-Range Actuarial Balance, Calendar Years 2004-78

[D]

Figure IV.20 shows a cumulative frequency distribution of the long-range actuarial balances estimated from the OSM. The scale on the horizontal axis is the same as in figure IV.19. The TR04III, TR04II, and TR04I have each been identified on the figure and labeled with the probability (according to the OSM) that the actuarial balance is less than or equal to this level.

Figure IV.20—Cumulative Distribution of the Long-Range Actuarial Balance, Calendar Years 2004-78

[D]

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Footnote—

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1Note that bounds of the 95-percent confidence interval are the 2.5^th and 97.5^th percentiles.

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