2011 OASDI Trustees Report

C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS

A set of models is used to project future income and cost under the OASDI program. These models rely not only on the demographic and economic assumptions described in the previous sections, but also on a number of program-specific assumptions and methods. First, certain program parameters are calculated based on formulas described explicitly in the Social Security Act. These program parameters affect the level of payroll taxes collected and the level of benefits paid. 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, are also projected. The following subsections provide descriptions of these program-specific assumptions and methods.

1. Automatically Adjusted Program Parameters

The Social Security Act specifies that certain program parameters affecting the determination of OASDI benefits and taxes must be adjusted annually in order 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. The law bases these automatic adjustments 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 2020. 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, the AWI series, and the values of many of the wage-indexed program parameters. In each table, 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 and December 2010, there were no cost-of-living adjustments. Under all three sets of economic assumptions, 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 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, 1975-2020 

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	6 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
	2009	.0	40,711.61	-1.5	106,800	14,160	37,680
Intermediate:
	2010	g.0	41,843.71	2.8	g 106,800	g  14,160	g 37,680
	2011	.7	43,517.83	4.0	g 106,800	g 14,160	g 37,680
	2012	1.7	45,435.49	4.4	110,700	14,640	39,000
	2013	1.9	47,489.90	4.5	114,900	15,240	40,560
	2014	2.0	49,462.43	4.2	120,000	15,960	42,360
	2015	2.0	51,398.64	3.9	125,400	16,680	44,280
	2016	2.0	53,430.36	4.0	130,800	17,280	46,200
	2017	2.2	55,551.37	4.0	135,900	18,000	48,000
	2018	2.7	57,969.43	4.4	141,300	18,720	49,800
	2019	2.8	60,406.32	4.2	146,700	19,440	51,840
	2020	2.8	62,760.16	3.9	153,300	20,280	54,120
Low-cost:
	2010	g0 .0	$41,840.52	2.8	g $106,800	g $14,160	g $37,680
	2011	.6	43,599.58	4.2	g 106,800	g 14,160	g 37,680
	2012	1.2	45,522.96	4.4	110,700	14,640	39,000
	2013	1.3	47,535.08	4.4	115,200	15,240	40,680
	2014	1.4	49,370.46	3.9	120,300	15,960	42,480
	2015	1.5	51,143.06	3.6	125,700	16,680	44,400
	2016	1.6	53,057.41	3.7	130,500	17,280	46,080
	2017	1.7	55,112.98	3.9	135,000	17,880	47,760
	2018	1.8	57,323.29	4.0	140,100	18,600	49,560
	2019	1.8	59,503.79	3.8	145,500	19,320	51,360
	2020	1.8	61,577.65	3.5	151,500	20,040	53,520
High-cost:
	2010	g.0	41,836.85	2.8	g 106,800	g 14,160	g 37,680
	2011	1.2	43,363.65	3.6	g 106,800	g 14,160	g 37,680
	2012	2.4	45,401.07	4.7	110,400	14,640	39,000
	2013	2.8	47,667.29	5.0	114,600	15,240	40,440
	2014	3.0	49,918.31	4.7	120,000	15,960	42,360
	2015	3.2	52,343.69	4.9	126,000	16,680	44,520
	2016	3.2	54,993.37	5.1	132,000	17,520	46,560
	2017	3.4	57,690.56	4.9	138,300	18,360	48,840
	2018	3.6	60,485.28	4.8	145,200	19,320	51,360
	2019	3.8	63,329.45	4.7	152,400	20,280	53,880
	2020	3.8	66,140.81	4.4	159,900	21,240	56,400

---

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 2020.

c

Amounts for 1979-81 were specified by Public Law 95-216. The bases are slightly higher after 1989 due to changes in the indexing procedure that were 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 Public 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 2020. 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 2011

[D]

•	The bend points in the formula used in the computation of the maximum total amount of monthly benefits payable based on the earnings record 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 2011

[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, the old-law base 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 1978-2020

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	5 $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		581	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	740	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
	2011	749	4,517		957	1,382	1,803	1,120	79,200
Intermediate:
	2012	$770	$4,642		$984	$1,421	$1,853	$1,130	$82,200
	2013	801	4,828		1,023	1,477	1,927	1,180	85,500
	2014	836	5,041		1,069	1,542	2,012	1,230	89,100
	2015	874	5,269		1,117	1,612	2,103	1,290	93,300
	2016	910	5,488		1,163	1,679	2,190	1,340	96,900
	2017	946	5,703		1,209	1,745	2,276	1,390	100,800
	2018	983	5,928		1,257	1,814	2,366	1,450	104,700
	2019	1,022	6,163		1,306	1,886	2,460	1,510	108,900
	2020	1,067	6,432		1,363	1,968	2,567	1,570	113,700
Low-cost:
	2012	770	4,642		984	1,420	1,853	1,130	82,200
	2013	802	4,837		1,025	1,480	1,930	1,180	85,500
	2014	838	5,051		1,071	1,545	2,016	1,230	89,400
	2015	875	5,274		1,118	1,614	2,105	1,290	93,300
	2016	909	5,478		1,161	1,676	2,186	1,340	96,900
	2017	941	5,674		1,203	1,736	2,264	1,390	100,200
	2018	977	5,887		1,248	1,801	2,349	1,440	104,100
	2019	1,014	6,115		1,296	1,871	2,440	1,490	108,000
	2020	1,055	6,360		1,348	1,946	2,538	1,550	112,500
High-cost:
	2012	770	4,642		984	1,420	1,852	1,130	82,200
	2013	798	4,811		1,020	1,472	1,920	1,170	85,200
	2014	836	5,037		1,068	1,541	2,010	1,230	89,100
	2015	877	5,289		1,121	1,618	2,111	1,290	93,600
	2016	919	5,538		1,174	1,695	2,210	1,350	97,800
	2017	963	5,807		1,231	1,777	2,318	1,420	102,600
	2018	1,012	6,101		1,293	1,867	2,435	1,490	108,000
	2019	1,062	6,401		1,357	1,959	2,554	1,560	113,100
	2020	1,113	6,711		1,423	2,053	2,678	1,640	118,800

---

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). These projections 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 persons who have any OASDI covered earnings (subject to the OASDI payroll tax) at any time during the year. Projected covered employment is the sum of age-sex components, each of which is projected as a ratio to the CPS concept of employment.² The projection methodology accounts for changes in the business cycle, 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 69.7, 69.5, and 68.8 percent for 2085 for the low-cost, intermediate, and high-cost assumptions, respectively, compared to the 2009 level of about 66.8 percent. (Age-adjusted covered worker rates are adjusted to the 2009 age distribution of the Social Security area population.) For females, the projected age-adjusted coverage rate changes from 60.3 percent for 2009 to 63.5, 62.8, and 62.1 percent for 2085 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 payroll tax rate, yields the total amount of payroll 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 payroll 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; therefore, taxable self-employment earnings are weighted to reflect this difference in payroll tax rate. Also, prior to 1988, employers were exempt from paying Social Security payroll 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 percent for 2002, then fell in subsequent years to reach 82.4 percent for 2007. The average annual rate of change in the ratio was about -0.3 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 85.2 percent for 2009, largely due to a downturn-induced reduction in the relative amount of wages of high earners. As the economy began to recover, the ratio fell to 84.2 percent for 2010 and is projected to continue to decline until it reaches levels for 2020 of 83.6, 82.9, and 82.1 percent for the low-cost, intermediate, and high-cost assumptions, respectively. After 2020, 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. In addition, the lag between the time the payroll tax liability is incurred and payroll taxes are collected is taken into account. In the case of wages, Federal law requires employers to withhold and deposit payroll taxes with the Treasury on a schedule determined by the amount of payroll tax liability incurred.³ Federal law requires self-employed workers to make estimated payroll tax payments on their earnings four times during the year and to make up any underestimate on their individual income tax return. The pattern of actual receipts by the Treasury is taken into account when estimating self-employed payroll tax collections.

4. Insured Population

Eligibility for worker benefits under the OASDI program requires some minimal level of work in covered employment. A worker satisfies this requirement by his or her 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. As specified in the law, this amount has been adjusted each year since then according to changes in the AWI. Its value in 2011 is $1,120.

There are three types of insured status that a worker can acquire under the OASDI program. Each status is determined by the number and recency of QCs earned. A worker acquires fully insured status when his or her 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. A worker acquires disability-insured status if he or she is: (1) a fully insured worker who has accumulated 20 QCs during the 40-quarter period ending with the current quarter; (2) a 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; or (3) a fully insured worker under age 24 who has accumulated six QCs during the 12-quarter period ending with the current quarter. A worker acquires currently insured status when he or she 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.

Estimates of the fully insured population, as a percentage of the Social Security area population, are made by single year of age and sex starting in 1969. The short-range projections are based on an extrapolation of the historical trend in these rates starting with data in the Continuous Work History Sample (CWHS). The model uses information on quarters of coverage earned due to employment covered by Social Security that is derived from tabulations of the CWHS. The model also uses historical administrative data on beneficiaries in force and estimated historical mortality rates. This information is combined to estimate the proportion of individuals who were alive and fully insured as of the end of each historical year. Using projected mortality rates and covered workers, these rates are extrapolated to the future and applied to the historical and projected population to arrive at the fully insured population by age and sex through the end of the short-range period.

The long-range model for projecting the fully insured population as a percentage of the Social Security area population uses 30,000 simulated work histories for each sex and birth cohort. These simulated work histories are constructed from past coverage rates, median earnings, and amounts required for crediting QCs, and are developed in a manner that replicates historical individual variations in tendency to work. Specifically, persons who have recently been out of covered employment are less likely to be in covered employment. This model is designed to produce simulated fully insured percentages that are close to the historical fully insured percentages estimated from the CWHS and the short-range model starting in 1970, and projections from the short-range model through the end of the short-range period.

Estimates of the disability-insured population, as a percentage of the fully insured population, are made by age and sex starting in 1970. Historical values are based on a tabulation of the disability-insured population from the CWHS and estimates of the fully insured population. Through the end of the short-range period, these percentages are projected by modeling the relationship between the historical percentages and labor force participation rates. After the short-range period, these percentages are projected using the same simulated work histories used to project the fully insured percentages in the long-range model. Additional adjustments are made to the long-range model simulation in order to bring the disability-insured percentages in the historical and short-range periods into close agreement with those estimated from the CWHS and the short-range model.

No projections are made of the currently insured population, 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.

Using these insured models, 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 82.9 for December 31, 2008, to 89.7, 89.8, and 89.8 for December 31, 2085, under alternatives I, II, and III, respectively. The percentage for females is projected to increase significantly, and the percentage 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 90.4, and the percentage for females is projected to increase from 74.8 to 89.2.

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. For 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 reduced by 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 in current-payment status who were not previously converted from disabled-worker beneficiary status is projected as a percentage of the exposed population, i.e., the fully insured population age 62 and over reduced by 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. These percentages for ages 62 through 69 are adjusted to reflect changes in the NRA.

For the long-range period, the number of retired-worker beneficiaries previously converted from disabled-worker beneficiary status is calculated using an extension of disabled-worker death rates by age, sex, and duration.

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, by age and sex, 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, by age and sex, is estimated by applying the same factors to the number of divorced persons aged 62 and over in the population, with three differences. First, a factor is applied to reflect the probability that the earner (former spouse) is still alive (otherwise, the person may be entitled to a divorced widow(er)’s benefit). Second, a factor is applied to reflect the probability that the marriage to the former spouse lasted at least 10 years. Third, factor (3) in the previous paragraph is not applied because, effective January 1985, a divorced person is generally no longer required to wait to receive divorced spouse benefits until the earner (former 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. For each age under 18, the number of entitled children is projected from the latest beneficiary data by incorporating 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 that represent the probabilities that the parent is alive, aged 62 or over, insured, and receiving a retired-worker benefit. Another factor is applied that represents 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, the number of disabled children is projected in a manner similar to that used for student children except that a factor that reflects the probability of being disabled before age 22 is included.

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, in cases 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 their care who are already receiving benefits. In the long-range period, the number of young-spouse beneficiaries with a child in their care is projected as a proportion of the number of child beneficiaries of retired workers, including 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. The number of uninsured aged-widow(er) beneficiaries is 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, uninsured 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. Also, the same factors are applied to the number of divorced persons aged 60 and over in the population and include additional factors representing the probability that the person’s former earner spouse is deceased and that the marriage lasted at least 10 years. The number of insured aged-widow(er) beneficiaries who are ages 60 to 70 is projected in a manner similar to that for uninsured aged-widow(er) beneficiaries. In addition, some insured widow(er)s who had not applied for their retired-worker benefits are assumed to receive widow(er)’s benefits. Insured aged-widow(er) beneficiaries over age 70 are projected by applying termination rates to the population that started receiving such benefits prior to age 70.

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 exception that the factor representing the probability that the parent is aged 62 or over is 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, the number of disabled-child-survivor beneficiaries is projected in a manner similar to that for student-child-survivor beneficiaries, with the exception that a factor reflecting the probability of being disabled before age 22 is included.

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, in cases 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, the numbers of mother-survivor and father-survivor beneficiaries, assuming they are not remarried, are estimated from the number of child-survivor beneficiaries.

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 those persons who receive a residual auxiliary benefit in addition to their retired-worker benefit. Estimates of the number and amount of 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
		Worker1	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
	1990	24,841	3,104	421		5,098	304	1,777	6	35,551
	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
	2010	34,593	2,316	580		4,285	159	1,913	2	43,847
Intermediate:
	2011	35,705	2,319	596		4,261	156	1,911	2	44,949
	2015	41,446	2,328	676		4,203	152	1,953	1	50,760
	2020	49,860	2,287	755		4,113	151	2,026	1	59,194
	2025	57,784	2,301	821		3,852	139	2,032	2	66,930
	2030	64,549	2,440	851		3,602	129	2,030	2	73,602
	2035	69,256	2,334	867		3,461	128	2,022	2	78,069
	2040	71,903	2,178	881		3,299	125	2,002	2	80,390
	2045	73,707	2,084	894		3,147	122	1,975	2	81,930
	2050	75,808	2,087	928		2,998	119	1,953	2	83,894
	2055	78,395	2,192	953		2,873	117	1,938	2	86,469
	2060	81,095	2,373	972		2,783	114	1,922	2	89,261
	2065	83,622	2,555	977		2,763	112	1,899	2	91,930
	2070	86,497	2,695	998		2,794	109	1,876	2	94,971
	2075	89,630	2,793	1,021		2,856	107	1,851	2	98,258
	2080	92,878	2,857	1,042		2,916	104	1,828	2	101,627
	2085	96,356	2,913	1,068		2,954	102	1,809	2	105,204
Low-cost:
	2011	35,702	2,319	596		4,260	157	1,911	2	44,947
	2015	41,354	2,331	681		4,197	153	1,968	1	50,686
	2020	49,431	2,301	768		4,092	157	2,080	1	58,830
	2025	56,847	2,269	835		3,869	136	2,168	2	66,126
	2030	62,863	2,376	880		3,647	125	2,255	2	72,148
	2035	66,715	2,237	910		3,538	121	2,345	2	75,869
	2040	68,495	2,061	936		3,400	118	2,420	2	77,431
	2045	69,618	1,950	964		3,262	117	2,482	2	78,395
	2050	71,239	1,930	1,018		3,123	117	2,542	2	79,971
	2055	73,452	2,008	1,060		3,007	119	2,600	2	82,247
	2060	75,734	2,146	1,093		2,924	121	2,661	2	84,681
	2065	77,804	2,258	1,115		2,902	124	2,725	2	86,930
	2070	80,199	2,308	1,157		2,923	127	2,789	2	89,507
	2075	82,807	2,330	1,202		2,963	130	2,853	2	92,287
	2080	85,905	2,346	1,251		3,008	133	2,918	2	95,563
	2085	89,818	2,383	1,316		3,049	136	2,988	2	99,692
High-cost:
	2011	35,710	2,319	596		4,261	156	1,911	2	44,955
	2015	41,549	2,325	673		4,210	150	1,940	1	50,849
	2020	50,343	2,277	744		4,141	146	1,976	1	59,628
	2025	58,911	2,354	809		3,838	141	1,902	2	67,956
	2030	66,612	2,524	826		3,557	130	1,819	2	75,470
	2035	72,375	2,455	831		3,384	126	1,731	2	80,903
	2040	76,091	2,323	832		3,199	119	1,643	2	84,209
	2045	78,774	2,246	831		3,035	111	1,558	2	86,557
	2050	81,514	2,256	845		2,879	104	1,488	2	89,088
	2055	84,533	2,385	855		2,747	97	1,436	2	92,055
	2060	87,618	2,609	857		2,649	90	1,384	2	95,209
	2065	90,528	2,866	845		2,620	84	1,325	2	98,269
	2070	93,860	3,108	846		2,645	77	1,268	2	101,805
	2075	97,449	3,303	849		2,714	71	1,213	2	105,601
	2080	100,817	3,432	846		2,791	66	1,163	2	109,117
	2085	103,723	3,511	842		2,831	61	1,116	2	112,085

---

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: (1) satisfy the disability-insured requirements; (2) 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 (3) have not yet attained NRA. Spouses and children of such disabled workers may also receive DI benefits provided they satisfy certain criteria, primarily age and earnings requirements.

The number of disabled-worker beneficiaries in current-payment status (disability prevalence) is projected for each future year. The projections start with the number in current-payment status as of December 2010. The number of new beneficiaries awarded benefits each year (disability incidence) and the number of beneficiaries leaving the disability rolls each year are then projected. Beneficiaries leave the rolls due to death and recovery (disability terminations) and due to conversions from disabled-worker to retired-worker beneficiary status, after which benefits are paid from the OASI Trust Fund. The concepts of disability incidence, termination, and prevalence are described in the remainder of this section.

a. Disability Incidence

The disability incidence rate is determined by dividing the number of new beneficiaries awarded benefits each year by the number of individuals who meet insured requirements but are not yet receiving benefits (the disability-exposed population⁴). The number of newly awarded beneficiaries is projected for each future year by multiplying assumed age-sex-specific disability incidence rates and the projected disability-exposed population by age and sex.

Figure V.C3 illustrates the historical and estimated incidence rates under the three alternatives. Incidence rates have varied substantially during the historical period since 1970, due to a variety of demographic and economic factors, along with changes in legislation and program administration. The solid lines in figure V.C3 show the incidence rate, adjusted to the age-sex distribution of the disability-exposed population for 2000. This adjustment allows a comparison of incidence rates over time by focusing on the likelihood of becoming disabled, and by excluding the effects of a changing distribution of the population toward ages where disability is more or less likely.

The dashed lines in figure V.C3 represent the gross (unadjusted) incidence rates. The changing age‑sex distribution of the exposed population over time influences these unadjusted rates. 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 the disability incidence is lower than in older populations. After 1995, the gross rate rose relative to the age‑sex-adjusted rate, due to 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 lower-birth-rate cohorts of the 1970s. As these smaller cohorts age beyond NRA, by about 2050, the gross incidence rate returns to a higher relative level under the intermediate assumptions. Thereafter, the gross rate remains higher and reflects the persistently higher average age of the working-age population, which is largely due to lower birth rates since 1965.

For the first 10 years of the projection period (through 2020), 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 then briefly drop below the general trend level since some of the earlier additional awards would have occurred in a later year. After 2020, 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 2030. 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.⁵ 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 5.2 awards per thousand exposed population, essentially the same as in last year’s report. Figure V.C3 illustrates that the estimated age-sex-adjusted incidence level of 5.2 approximates the average rate for the historical period 1970 through 2010. However, a similar comparison using gross incidence rates gives a different result. The estimated ultimate gross incidence rate is greater than the average gross rate over the historical period due to the changing age-sex distribution of the disability-exposed population.

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. These ultimate assumed age-sex-adjusted incidence rates are the same as in last year’s report.

 

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, termination rates in the long-range period (post-2020) are assumed to vary by duration of entitlement to disabled-worker benefits.

In the short-range period (through 2020), the age-sex-adjusted death rate (adjusted to the 2000 disabled-worker population) under the intermediate assumptions is projected to gradually decline from 26.3 deaths per thousand beneficiaries in 2010 to about 20.6 per thousand by 2020. The age-sex-adjusted recovery rate under the intermediate assumptions is assumed to rise from a relatively low level of 10.5 per thousand beneficiaries in 2010 (reflecting temporarily lower levels of continuing disability reviews) to 11.7 per thousand beneficiaries by 2020. Under the low-cost and high-cost assumptions, total age-sex-adjusted termination rates due to death and recovery are assumed to increase or decrease, respectively, by roughly 10-15 percent relative to the intermediate assumptions.

For the long-range period (post-2020), death and recovery rates are projected relative to rates by age, sex, and duration of entitlement experienced over the base period 2001-2005. The ultimate age-sex-adjusted recovery rate for disabled workers is assumed to be about 10.7 per thousand beneficiaries. The ultimate age-sex-adjusted recovery rates for the low-cost and high-cost alternatives are assumed to reach about 12.9 and 8.5 recoveries per thousand beneficiaries, respectively. The ultimate recovery rates by age, sex, and duration of entitlement are reached in the twentieth year of the projection period (2030) for all three sets of assumptions. 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 26.3 per thousand beneficiaries in 2010, rates of 19.8, 11.4, and 7.3 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 2015, recovery terminations are projected to be elevated as the Social Security Administration continues to reduce the 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. Changes in the age-sex distribution of the beneficiary population influence the gross rate. 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 gross death termination rates relative to the age-sex-adjusted rates.

 

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 convert 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 decline, largely because of declining death rates. Incidence rates have varied widely, and are assumed for the intermediate projection to remain (on an age-sex-adjusted basis) 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 8.2 million at the end of 2010, to 11.8 million, 13.7 million, and 14.6 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 persons insured for disability benefits]

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
	1990	3,007	266	989	4,261	25	28
	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	50	42
	2009	7,788	159	1,749	9,695	52	43
	2010	8,204	161	1,820	10,185	54	44
Intermediate:
	2011	8,596	165	1,892	10,653	56	45
	2015	9,301	160	2,017	11,478	60	47
	2020	9,650	155	2,074	11,879	61	47
	2025	10,322	172	2,214	12,708	63	47
	2030	10,283	189	2,292	12,764	62	48
	2035	10,296	177	2,346	12,818	61	48
	2040	10,465	169	2,388	13,022	61	48
	2045	10,968	184	2,433	13,585	62	47
	2050	11,312	196	2,488	13,996	62	48
	2055	11,617	213	2,561	14,391	62	48
	2060	11,803	223	2,636	14,661	62	48
	2065	12,188	233	2,708	15,128	63	48
	2070	12,620	238	2,774	15,632	64	48
	2075	12,996	242	2,835	16,073	64	48
	2080	13,367	247	2,899	16,512	65	49
	2085	13,688	252	2,966	16,906	65	49
Low-cost:
	2011	8,503	161	1,860	10,523	56	45
	2015	8,713	145	1,870	10,728	56	44
	2020	8,592	137	1,868	10,597	54	41
	2025	8,797	143	1,933	10,874	54	40
	2030	8,450	148	1,981	10,580	50	39
	2035	8,241	130	2,028	10,398	48	38
	2040	8,248	119	2,087	10,454	46	37
	2045	8,569	126	2,161	10,857	46	37
	2050	8,808	131	2,251	11,190	46	36
	2055	9,053	142	2,355	11,550	45	36
	2060	9,252	147	2,475	11,873	44	36
	2065	9,646	151	2,606	12,402	44	37
	2070	10,124	151	2,740	13,016	44	37
	2075	10,633	154	2,872	13,660	45	37
	2080	11,219	161	3,007	14,387	45	37
	2085	11,777	168	3,146	15,090	45	37
High-cost:
	2011	8,691	168	1,926	10,785	57	46
	2015	9,900	175	2,169	12,244	64	50
	2020	10,716	172	2,275	13,163	68	52
	2025	11,763	204	2,467	14,434	73	55
	2030	12,033	234	2,546	14,814	74	57
	2035	12,285	229	2,571	15,085	75	58
	2040	12,615	224	2,562	15,402	75	58
	2045	13,283	247	2,547	16,077	78	59
	2050	13,705	264	2,543	16,513	80	59
	2055	14,032	289	2,570	16,891	82	60
	2060	14,148	301	2,584	17,033	82	60
	2065	14,434	317	2,578	17,328	84	60
	2070	14,695	328	2,558	17,582	86	60
	2075	14,778	331	2,535	17,644	87	61
	2080	14,715	328	2,516	17,558	87	61
	2085	14,596	326	2,505	17,427	87	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).

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 be combined because their denominators differ.

 

Figure V.C6.—DI Disability Prevalence Rates, 1970-2085

[Rate per thousand persons insured for disability benefits]

[D]

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, a time of life when 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; this trend reflects 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 44.1 per thousand disability-insured at the end of 2010, to 48.8 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 37.1 per thousand and increase to 60.9 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.

Projection of auxiliary beneficiaries is based on the projected number of disabled-worker beneficiaries. In the short-range period (2011-20), incidence and termination rates are projected for each category of auxiliary beneficiary. After 2020, 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 after initial entitlement. The increases in average PIAs after initial entitlement are based on 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 2007 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 2020 is based on historical experience and the expected growth in average wages. Additionally, the Office of Budget of the Social Security Administration provides estimates for the first several years of the projection. For years after 2020, 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. Congressional simplification and rationalization of the Social Security Act could offset these assumed increases.

10. Railroad Retirement Financial Interchange

Federal law covers railroad workers under a separate multi-tiered plan, with a first tier of coverage that is very similar to OASDI coverage. An annual financial interchange between the Railroad Retirement fund and the OASI and DI Trust 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 0.03 percent of taxable payroll to the OASDI program.

11. Military Service Transfers

Beginning in 1966, the General Fund of the Treasury reimbursed the OASI and DI Trust Funds 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 reimbursement in 1983 to include all future costs attributable to the wage credits. The amendments also require adjustments to that 1983 reimbursement every fifth year, beginning with 1985, to account for actual data.

12. Income From Taxation of Benefits

Current law credits the OASI and DI Trust Funds with the additional income taxes from the taxation of up to the first 50 percent of OASI and DI benefit payments. (The remainder of the income taxes from 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, the income to the trust funds from taxation of benefits 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, the income to the trust funds from taxation of benefits is estimated by applying projected ratios of taxation of OASI and DI benefits to total OASI and DI benefit payments. The income thresholds used for benefit taxation are, by law, constant in the future; therefore, 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 estimates from the Office of Tax Analysis (OTA) in the Department of the Treasury. These estimates from OTA eliminate the current threshold amounts completely for taxation of Social Security benefits. Subsequently, based on recent Current Population Survey data, the Office of the Chief Actuary makes an 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 also at www.socialsecurity.gov/OACT/COLA/index.html.

2

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.

3

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.

4

The disability-exposed population excludes those receiving benefits, while the disability-insured population includes them. The projections of the disability-insured population are described in section V.C.4 of this report.

5

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.