This section presents long-range projections in dollars of the operations of the combined OASI and DI Trust Funds and in some cases the HI Trust Fund. Meaningful comparison of current dollar values over long periods of time can be difficult because of the effect of
inflation. Some means of removing inflation is thus generally desirable. Several economic series or indices are provided to allow
current dollars to be adjusted for changes in prices, wages, and certain other aspects of economic growth during the projection period.
Table VI.F6 presents five indices that may be used to adjust dollar amounts, over time, to produce appropriately comparable values. Any series of values can be adjusted by dividing the value for each year by the corresponding index values for the year.
One of the most common forms of standardization is based on some measure of change in the prices of consumer goods. The Bureau of Labor Statistics, Department of Labor, publishes one such price index, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W, hereafter referred to as
CPI). This index is used to determine annual increases in OASDI monthly benefits payable after the year of initial eligibility. The CPI is assumed to increase ultimately at annual rates of 1.8, 2.8, and 3.8 percent for the low-cost, intermediate, and high-cost sets of
assumptions, respectively. Constant-dollar values (those adjusted using the CPI index in table
VI.F6) indicate the relative purchasing power of the values over time, and are provided in table
VI.F7.
Another type of standardization combines the effects of price inflation and real-wage growth. The wage index presented here is the
national average wage index, as defined in section 215(i)(1)(G) of the Social Security Act. This index is used to make annual adjustments to many earnings-related quantities embodied in the Social Security Act, such as the
contribution and benefit base. The growth in the average annual wage is assumed to average 3.6, 4.0, and 4.4 percent under the low-cost, intermediate, and high-cost assumptions, respectively, between 2020 and 2085. Wage-indexed values indicate the level of a series relative to the standard of living of workers over time.
The taxable payroll index adjusts for the effects of changes in the number of workers and changes in the proportion of earnings that are taxable, as well as for the effects of price inflation and real-wage growth. The OASDI taxable payroll consists of all earnings subject to OASDI taxation, adjusted for the lower effective tax rate on multiple-employer
excess wages. A series of values, divided by the taxable payroll, indicates the percentage of payroll that each value represents, and thus the extent to which the series of values increases or decreases as a percent of payroll over time.
The GDP index adjusts for the growth in the aggregate amount of goods and services produced in the United States. Values adjusted by GDP (see appendix
VI.F.2) indicate their relative share of the total output of the economy. No explicit assumptions are made about growth in taxable payroll or GDP. These series are computed reflecting the other more basic
demographic and
economic assumptions, as discussed in sections
V.A and
V.B, respectively.
Discounting at the rate of interest is another way of adjusting current dollars. The series of interest-rate factors included here is based on the average of the assumed annual interest rates for special public-debt obligations issuable to the trust funds for each year. This series is slightly different from the interest rates used to create summarized values elsewhere in this report, where the actual yield on currently-held trust fund assets is used for each year. Ultimate nominal interest rates, which in practice are compounded semiannually, are assumed to be approximately 5.4, 5.7, and 5.9 percent for the low-cost, intermediate, and high-cost assumptions, respectively.
Table VI.F7 shows estimated operations of the combined OASI and DI Trust Funds in constant 2011 dollars (i.e., adjusted by the CPI indexing series as discussed above). The following items are presented in the table: income excluding interest, interest income, total income, total cost, and assets at the end of the year. Income excluding interest consists of payroll tax contributions, income from taxation of benefits,
and reimbursements from the General Fund of the Treasury, if any. Cost consists of benefit payments, administrative expenses, financial interchange with the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries. These estimates are based on the low-cost, intermediate, and high-cost sets of assumptions.
Figure VI.F1 provides a comparison of annual cost with total annual income (including interest) and annual income excluding interest, for the OASDI program under intermediate assumptions. All values are expressed in constant dollars, consistent with table
VI.F7. The difference between the income values for each year is equal to the trust fund interest earnings. The figure illustrates that, under intermediate assumptions: (1) annual cost will exceed non-interest income in each year of the projection period; (2) total annual income, which includes interest earnings on trust fund assets, will be sufficient to cover annual cost for years 2011 through 2022; and (3) total annual income will not be sufficient to cover annual cost for years beginning in 2023. From 2023 through 2035 (the year preceding the year of trust fund exhaustion), annual cost will be covered by drawing down combined trust fund assets.
Table VI.F8 shows estimated operations of the combined OASI and DI Trust Funds in current dollars — that is, in dollars unadjusted for price inflation. The following items are presented in the table: income excluding interest, interest income, total income, total cost, and assets at the end of the year. These estimates, based on the low-cost, intermediate, and high-cost sets of demographic and economic assumptions, are presented to facilitate independent analysis.
Table VI.F9 shows, in current dollars, estimated annual income (excluding interest) and estimated annual cost of the combined OASI and DI Trust Funds, of the HI Trust Fund, and of the combined OASI, DI, and HI Trust Funds, based on the low-cost, intermediate, and high-cost sets of assumptions described earlier in this report. For OASDI, income excluding interest consists of payroll tax contributions, proceeds from taxation of OASDI benefits,
and reimbursements from the General Fund of the Treasury, if any. Cost consists of benefit payments, administrative expenses, financial interchange with the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries. For HI, income excluding interest consists of payroll tax contributions (including contributions from railroad employment), up to an additional 0.9 percent tax on earned income for relatively high earners, proceeds from the taxation of OASDI benefits,
and reimbursements from the General Fund of the Treasury, if any. Total cost consists of outlays (scheduled benefits and administrative expenses) for insured beneficiaries. Income and cost estimates are shown on a cash basis for the OASDI program and on an incurred basis for the HI program.
Table VI.F9 also shows the difference between income excluding interest and cost, which is called the balance. The balance indicates the size of the difference between non-interest income and cost.
Table VI.F10 shows projected future benefit amounts payable upon retirement at either the normal retirement age (NRA) or age 65, for workers attaining age 65 in 2011 and subsequent years. Illustrative benefit levels are shown for workers with four separate pre-retirement earnings patterns. All estimates are based on the intermediate assumptions in this report. Benefit amounts are shown in constant 2011 dollars (adjusted to 2011 levels by the CPI indexing series shown in table
VI.F6). Benefit amounts are also shown as percentages of the career-average relative earnings level for each case, wage indexed to the year prior to retirement. These percentages thus represent the benefit “replacement rate” of the career-average level of earnings.
The NRA was 65 for individuals who reached age 62 before 2000, was then increased to age 66 during the period 2000-05 (at a rate of 2 months per year as workers attained age 62), and is scheduled to increase to age 67 during the period 2017-22 (also by 2 months per year as workers attain age 62). Thus, for the illustrative cases shown in table
VI.F10, the benefit levels shown for retirement at 65 are lower than the levels shown for retirement at NRA, primarily because of the actuarial reduction for early (pre-NRA) retirement.
Four different pre-retirement earnings patterns are represented in table VI.F10. Three of these cases are workers with scaled-earnings patterns,
1 reflecting low, medium, and high career-average levels of pre-retirement earnings starting at age 21. The fourth case is the steady maximum earner. The three scaled-earnings cases have earnings patterns that reflect differences by age in the probability of work and in average earnings levels experienced by insured workers during the period 1991‑2007. The general, career-average level of earnings for the scaled cases is set relative to the national average wage index (AWI) so that benefit levels are consistent with levels for “steady-earnings” cases presented in the 2000 and earlier Trustees Reports. For the scaled medium earner, the general, career-average earnings level is set at about equal to the AWI. For the scaled low and high earners, the general, career-average earnings level is set at about 45 percent and 160 percent of the AWI, respectively. The steady maximum earner is assumed to have earnings at (or above) the contribution and benefit base for each year starting at age 22 and prior to retirement.
As noted above, the scaled-earnings cases were constructed so that their career-average earnings levels are consistent with those of the corresponding steady low, average, and high earners presented in the 2000 and earlier Trustees Reports. As a result, values in this table are essentially comparable to those in earlier reports. Scaled-earnings cases are now used instead of steady-earnings cases because they more accurately illustrate the differences in benefit levels under the wide variety of reform proposals considered in recent years.
