2013 OASDI Trustees Report

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II. OVERVIEW
A. HIGHLIGHTS
This section summarizes the report’s major findings.
In 2012
At the end of 2012, the OASDI program was providing benefit payments1 to about 57 million people: 40 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 11 million disabled workers and dependents of disabled workers. During the year, an estimated 161 million people had earnings covered by Social Security and paid payroll taxes. Total expenditures in 2012 were $786 billion. Total income was $840 billion, which consisted of $731 billion in non-interest income and $109 billion in interest earnings. Asset reserves held in special issue U.S. Treasury securities grew from $2,678 billion at the beginning of the year to $2,732 billion at the end of the year.
Short-Range Results
In 2012, Social Security’s cost continued to exceed the program’s tax income and also continued to exceed its non-interest income, a trend that the Trustees project to continue throughout the short-range period and beyond. The 2012 deficit of tax income relative to cost was $169 billion, and the projected 2013 deficit is $79 billion. The size of the 2012 deficit is largely due to a temporary reduction in the Social Security payroll tax for 2011 and 2012. The legislation establishing the payroll tax reduction also provided for transfers from the General Fund of the Treasury to the trust funds to “replicate to the extent possible” revenues that would have occurred in the absence of the payroll tax reduction. Including these general revenue reimbursements, the 2012 deficit of non-interest income relative to cost was $55 billion, and the projected 2013 deficit is $75 billion.
The Trustees project that the asset reserves of the OASI Trust Fund and of the combined OASI and DI Trust Funds will be adequate over the next 10 years under the intermediate assumptions. However, the projected reserves of the DI Trust Fund decline steadily from 85 percent of annual cost at the beginning of 2013 until the trust fund reserves are depleted in 2016. At the time reserves are depleted, continuing income to the DI Trust Fund would be sufficient to pay 80 percent of scheduled DI benefits. The DI Trust Fund does not satisfy the short-range test of financial adequacy.
The Trustees project that the combined reserves of the OASI and DI Trust Funds will increase for the next several years, growing from $2,732 billion at the beginning of 2013 to $2,922 billion at the beginning of 2021. Reserves increase through 2020 because annual cost is less than total income for 2013 through 2020. At the same time, however, the ratio of reserves to cost declines, from 330 percent of annual cost for 2013 to 218 percent of annual cost for 2021.
Beginning in 2021, annual cost exceeds total income, and therefore reserves begin to decline, reaching $2,866 billion at the beginning of 2023. Excluding interest earned on trust fund reserves from the comparison, annual cost exceeds non-interest income in 2013, as it has since 2010, and remains higher throughout the remainder of the short-range period. The ratio of reserves to cost declines to 204 percent at the beginning of 2022. For last year’s report, the Trustees projected that combined reserves would be 329 percent of annual cost at the beginning of 2013 and 212  percent at the beginning of 2022.
Long-Range Results
The Trustees project that annual OASDI cost will exceed non-interest income throughout the long-range period under the intermediate assumptions. The dollar level of the combined trust fund reserves declines beginning in 2021 until reserves are depleted in 2033. Considered separately, the DI Trust Fund reserves become depleted in 2016 and the OASI Trust Fund reserves become depleted in 2035. The projected reserve depletion years are unchanged from last year’s report.
Projected OASDI cost generally increases more rapidly than projected non-interest income through about 2035 primarily because the retirement of the baby-boom generation will increase the number of beneficiaries much faster than the numbers of workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2035 to 2050, the cost rate generally declines because the aging baby-boom generation is gradually replaced at retirement ages by historically low-birth-rate generations, causing the beneficiary-to-worker ratio to decline. Thereafter, increases in life expectancy cause OASDI cost to increase generally relative to non-interest income, but more slowly than prior to 2035.
The projected OASDI annual cost rate increases from 13.95 percent of taxable payroll for 2013 to 16.98 percent for 2035 and to 18.01 percent for 2087, a level that is 4.77 percent of taxable payroll more than the projected income rate for 2087. For last year’s report, the Trustees estimated the OASDI cost for 2087 at 17.87 percent, or 4.54 percent of payroll more than the annual income rate for that year. Expressed in relation to the projected gross domestic product (GDP), OASDI cost rises from 5.1 percent of GDP for 2013 to about 6.2 percent by 2035, then declines to 6.0 percent by 2050, and remains between 6.0 and 6.2 percent through 2087.
For the 75‑year projection period, the actuarial deficit is 2.72 percent of taxable payroll, 0.05 percentage point larger than in last year’s report. The open group unfunded obligation for OASDI over the 75‑year period is $9.6 trillion in present value and is $1.0 trillion more than the measured level of $8.6 trillion a year ago. If the assumptions, methods, starting values, and the law had all remained unchanged, the unfunded obligation would have risen to about $9.1 trillion due to the change in the valuation date. The remaining increase in the unfunded obligation is primarily due to lower near-term real interest rates.
Conclusion
Under the intermediate assumptions, the Trustees project that annual cost for the OASDI program will exceed non-interest income in 2013 and remain higher throughout the remainder of the long-range period. The projected combined OASI and DI Trust Fund asset reserves increase through 2020, begin to decline in 2021, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2033. At the time of reserve depletion, continuing income to the combined trust funds would be sufficient to pay 77 percent of scheduled benefits. However, the DI Trust Fund reserves become depleted in 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 80 percent of DI benefits. Therefore, legislative action is needed as soon as possible to address the DI program’s financial imbalance. In the absence of a long-term solution, lawmakers could choose to reallocate a portion of the payroll tax rate between OASI and DI, as they did in 1994.
For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.66 percentage points2 (from its current level of 12.40 percent to 15.06 percent); (2) scheduled benefits during the period would have to be reduced by an amount equivalent to an immediate and permanent reduction of 16.5 percent applied to all current and future beneficiaries, or 19.8 percent if the reductions were applied only to those who become initially eligible for benefits in 2013 or later; or (3) some combination of these approaches would have to be adopted.
The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes and give workers and beneficiaries time to adjust to them. Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 58 million beneficiaries and 163 million covered workers and their families in 2013. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

1
The definition of “benefit payment” and other terms appear in the Glossary.

2
The necessary tax rate of 2.66 percent differs from the 2.72 percent actuarial deficit for two reasons. First, the necessary tax rate is the rate required to maintain solvency throughout the period that does not result in any trust fund reserve at the end of the period, whereas the actuarial deficit incorporates an ending trust fund reserve equal to 1 year’s cost. Second, the necessary tax rate reflects a behavioral response to tax rate changes, whereas the actuarial deficit does not. In particular, the calculation of the necessary tax rate assumes that an increase in payroll taxes results in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.


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