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B. LONG-RANGE ESTIMATES [1]

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Date: 2023-02

The Trustees summarize the total income and cost over valuation periods This section presents several summarized measures, including the actuarial balance and the open- group unfunded obligation. The actuarial balance indicates the size of any surplus or shortfall as a percentage of the taxable payroll over the period. The open-group unfunded obligation indicates the size of any shortfall in present-value dollars. that extend through 75 years and over the infinite horizon.This section presents several summarized measures, including the actuarial balance and the open- group unfunded obligation. The actuarial balance indicates the size of any surplus or shortfall as a percentage of the taxable payroll over the period. The open-group unfunded obligation indicates the size of any shortfall in present-value dollars.

IV.B1 Table presents a comparison of the estimated annual income rates and cost rates by trust fund and alternative. Table IV.B2 shows the separate components of the annual income rates.

to 2038. During this period, the retirement of the baby-boom The OASI cost rate rises rapidly from 2021to 2038. During this period, the retirement of thegeneration will continue to increase the number of beneficiaries much faster than the number of workers increases, as subsequent lower-birth-rate generations replace the baby-boom generation at working ages. From 2040 to 2046, the cost rate declines because the aging baby-boom generation is gradually replaced at retirement ages by the lower-birth-rate generations that followed. The OASI cost rate then rises from 14.95 percent in 2046 to 16.45 percent in 2078, largely because of the period of reduced birth rates starting with the recession of 2007-09, and then declines to 15.69 percent in 2096.

IV.B1 Figure shows the patterns of the historical and projected OASI and DI annual cost rates. The patterns in projected OASI and DI cost rates are described earlier in this chapter. Historical annual OASI cost rates shifted upward starting in 2008 and have remained at relatively high levels since then, primarily due to the retirement of the baby-boom generation. Historical annual DI cost rates rose substantially between 1990 and 2010 in large part due to: (1) aging of the working population as the baby-boom generation moved from ages 25-44 in 1990, where disability prevalence is low, to ages 45-64 in 2010, where disability prevalence is much higher; (2) a substantial increase in the percentage of women insured for DI benefits as a result of increased and more consistent rates of employment; and (3) increased disability incidence rates for women to a level similar to those for men by 2010. As of 2010, these three factors have largely stabilized. Other factors that are not yet fully understood, including the changing nature of work, have caused age-sex-adjusted incidence rates and cost rates to decline from 2010 to 2021. Figure IV.B1 shows only the income rates for alternative II because the variation in income rates by alternative is very small. Income rates generally increase slowly for each of the alternatives over the long-range period. Taxation of benefits, which is a small portion of income, is the main source of the increases in the income rate and the variation among the alternatives.

IV.B1 Table shows the annual balances for OASI, DI, and OASDI. The pattern of the annual balances is important to the analysis of the financial condition of the Social Security program as a whole. As seen in figure IV.B1 , the magnitude of each of the positive balances is the distance between the appropriate cost-rate curve and the income-rate curve above it. The magnitude of each of the deficits is the distance between the appropriate cost-rate curve and the income-rate curve below it. Annual balances follow closely the pattern of annual cost rates after 1990 because the payroll tax rate does not change for the OASDI program, with only small variations in the allocation between DI and OASI except for changes due to the 1994 and the 2016 through 2018 payroll tax rate reallocations.

IV.B2 Table contains historical and projected annual income rates and their components by trust fund and alternative. The annual income rates consist of the scheduled payroll tax rates, the rates of income from taxation of scheduled benefits, and the rates of income from General Fund reimbursements. Projected income from taxation of benefits increases over time for reasons discussed on page 152

population IV.B2 For each alternative, the curve in figure is strikingly similar to the corresponding cost-rate curve in figure IV.B1 . This similarity emphasizes the extent to which the cost rate is determined by the age distribution of the. The cost rate is essentially the product of the number of beneficiaries and their average benefit, divided by the product of the number of covered workers and their average taxable earnings. For this reason, the pattern of the annual cost rates is similar to that of the annual ratios of beneficiaries to workers.

IV.B3 Table also shows the number of covered workers per OASDI beneficiary, which was about 2.8 for 2021. Under the intermediate assumptions, this ratio declines generally throughout the long-range period, reaching 2.3 for 2038 and 2.1 by 2100. Under the low-cost assumptions, this ratio declines to 2.4 for 2038, then generally rises to 2.8 by 2100. Under the high-cost assumptions, this ratio decreases to 1.5 by 2100.

IV.B4 Table shows the Trustees’ projections of trust fund ratios by alternative, without regard to advance tax transfers that would be effected, for the separate and combined OASI and DI Trust Funds. The table also shows the years of trust fund reserve depletion and the percentage of scheduled benefits that would be payable thereafter, by alternative.

Note: The definition of trust fund ratio appears in the Glossary . The ratios shown for the combined trust funds for years after reserve depletion of either the DI or OASI Trust Fund are hypothetical.

IV.B3 Figure illustrates the trust fund ratios for the separate OASI and DI Trust Funds for each of the alternative sets of assumptions. DI Trust Fund status is more uncertain than OASI Trust Fund status because there is a high degree of uncertainty associated with future disability prevalence. A graph of the trust fund ratios for the combined trust funds appears in figure II.D6

Railroad Retirement IV.B5 Table presents summarized income rates, summarized cost rates, and actuarial balances for 25-year, 50-year, and 75-year valuation periods. Summarized income rates are the sum of the present value of non-interest income for a period (which includes scheduled payroll taxes, the projected income from the taxation of scheduled benefits, and reimbursements from the General Fund of the Treasury) and the starting trust fund asset reserves, expressed as a percentage of the present value of taxable payroll over the period. Under current law, the total OASDI payroll tax rate will remain at 12.4 percent in the future. In contrast, the Trustees expect income from taxation of benefits, expressed as a percentage of taxable payroll, to increase in most years of the long-range period for the reasons discussed on page 152 . Summarized cost rates are the sum of the present value of cost for a period (which includes scheduled benefits, administrative expenses, net interchange with theprogram, and payments for vocational rehabilitation services for disabled beneficiaries) and the present value of the cost of reaching a target trust fund of 100 percent of annual cost at the end of the period, expressed as a percentage of the present value of taxable payroll over the period.

The actuarial balance for a valuation period is equal to the difference between the summarized income rate summarized cost rate and thefor the period. An actuarial balance of zero for any period indicates that cost for the period could be met for the period as a whole (but not necessarily at all points within the period), with a remaining trust fund reserve at the end of the period equal to 100 percent of the following year’s cost. A negative actuarial balance for a period indicates that the present value of income to the program plus the existing trust fund is less than the present value of the cost of the program plus the cost of reaching a target trust fund reserve of one year’s cost by the end of the period. Generally, a trust fund is deemed to be adequately financed for a period if the actuarial balance is zero or positive, meaning that the reserves at the end of the period are at least equal to annual cost. Note that solvency is possible with a small negative actuarial balance where reserves are still positive.

IV.B5 Table contains summarized rates for the intermediate, low-cost, and high-cost assumptions. The low-cost and high-cost assumptions define a wide range of possibilities. Financial outcomes as good as the low-cost scenario or as bad as the high-cost scenario are unlikely to occur.

For the entire 75-year valuation period, the combined OASDI program has actuarial balances of -0.07 percent of taxable payroll under the low-cost assumptions, ‑3.42 percent under the intermediate assumptions, and ‑8.09 percent under the high-cost assumptions. These balances indicate that the combined OASDI program is not adequately financed for the 75-year valuation period under any of these three sets of assumptions. percent of taxable payroll under the low-cost assumptions, ‑3.42 percent under the intermediate assumptions, and ‑8.09 percent under the high-cost assumptions. These balances indicate that the combined OASDI program is not adequately financed for the 75-year valuation period under any of these three sets of assumptions.

cost could be reduced in a manner equivalent to an immediate and permanent reduction in scheduled benefits of 20.3 percent, or some combination of approaches could be used. Assuming the intermediate assumptions accurately capture future demographic and economic trends, solvency for the program over the next 75 years could be restored using a variety of approaches. For example, revenue could be increased in a manner equivalent to an immediate and permanent increase in the combined Social Security payroll tax rate from 12.40 percent to 15.64 percent (a relative increase of 26.1 percent),cost could be reduced in a manner equivalent to an immediate and permanent reduction in scheduled benefits of 20.3 percent, or some combination of approaches could be used.

reducing cost in a manner equivalent to an immediate reduction in scheduled benefits of 21.2 percent, or some combination of approaches could be used. However, eliminating the actuarial deficit for the next 75-year valuation period requires raising payroll taxes or lowering benefits by more than is required just to achieve solvency, because the actuarial deficit includes the cost of attaining a target trust fund equal to 100 percent of annual program cost by the end of the period. The actuarial deficit could be eliminated for the 75-year period by increasing revenue in a manner equivalent to an immediate and permanent increase in the combined payroll tax from 12.40 percent to 15.83 percent (a relative increase of 27.7 percent),reducing cost in a manner equivalent to an immediate reduction in scheduled benefits of 21.2 percent, or some combination of approaches could be used.

These percentages were 3.35 and 1.2, respectively, for last year’s report. The 75-year unfunded obligation as a percentage of taxable payroll is less than the actuarial deficit, because the unfunded obligation excludes the cost of having an ending target trust fund value. The 75-year unfunded obligation is equivalent to 3.24 percent of OASDI taxable payroll and 1.1 percent of GDP for 2022-96.These percentages were 3.35 and 1.2, respectively, for last year’s report. The 75-year unfunded obligation as a percentage of taxable payroll is less than the actuarial deficit, because the unfunded obligation excludes the cost of having an ending target trust fund value.

IV.B6 Table presents the components and the calculation of the long-range (75-year) actuarial balance under the intermediate assumptions. The present value of future cost less future non-interest income over the long-range period, minus the amount of trust fund asset reserves at the beginning of the projection period, is $20.4 trillion for the OASDI program. This amount is the 75-year “open-group unfunded obligation” (see row H ). The actuarial deficit (which is the negative of the actuarial balance) combines this unfunded obligation with the present value of the ending target trust fund and expresses the total as a percentage of the present value of the taxable payroll for the period. The present value of future non-interest income minus cost, plus starting trust fund reserves, minus the present value of the ending target trust fund, is ‑$21.6 trillion for the OASDI program.

F Another measure of trust fund finances, discussed in appendix , is the infinite horizon unfunded obligation, which takes account of all annual balances, even those after 75 years. The extension of the time period past 75 years assumes that the current-law OASDI program and the demographic and economic trends used for the 75‑year projection continue indefinitely. This infinite horizon unfunded obligation is estimated to be 4.5 percent of taxable payroll or 1.4 percent of GDP. These percentages were 4.6 and 1.4, respectively, for last year’s report. Of course, the degree of uncertainty associated with estimates increases substantially for years further in the future.

IV.B7 Table shows the effects of changes on the long-range actuarial balance under the intermediate assumptions, by category, between last year’s report and this report.

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[1] Url: https://www.ssa.gov/oact/TR/2022/IV_B_LRest.html#493869

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