The Trustees use three types of financial measures to assess the actuarial status of the Social Security trust funds under the financing approach specified in current law: (1) annual cash-flow measures, including income rates, cost rates, and balances; (2) trust fund ratios; and (3) summary measures such as actuarial balances and unfunded obligations.The trust fund ratio for a year is the proportion of the year’s projected cost that could be paid with funds available at the beginning of the year. Critical factors considered by the Trustees in assessing actuarial status include: (1) the level and year of maximum trust fund ratio; (2) the year of depletion of the fund reserves and the percent of scheduled benefits that is still payable after reserves are depleted; and (3) the stability of the trust fund ratio at the end of the long-range period.Summarized measures for any period indicate whether projected income is sufficient, on average, for the whole period. The Trustees summarize the total income and cost over valuation periods that extend through 75 years and over the infinite horizon. This section presents two summarized measures: (1) the actuarial balance; and (2) 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.The concepts of income rate and cost rate, expressed as percentages of taxable payroll, are important in the consideration of the long-range actuarial status of the trust funds. The annual income rate is the ratio of all non-interest income to the OASDI taxable payroll for the year. Non-interest income includes payroll taxes, taxes on scheduled benefits, and any general fund transfers or reimbursements. The OASDI taxable payroll consists of the total earnings subject to OASDI taxes with some relatively small adjustments.^{1}The annual cost rate is the ratio of the cost of the program to the taxable payroll for the year. The cost includes scheduled benefits, administrative expenses, net interchange with the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries. For any year, the income rate minus the cost rate is the “balance” for the year.Table IV.B1 presents a comparison of the estimated annual income rates and cost rates by trust fund and alternative. Table VI.F8 shows detailed long-range projections of trust fund operations in current dollar amounts.Under the intermediate assumptions, the Trustees project that the OASI income rate will rise from 10.89 percent of taxable payroll for 2013 to 11.39 percent for 2087. Income from taxation of benefits causes this increase for two main reasons: (1) benefits are rising faster than payroll; and (2) the benefit-taxation threshold amounts are fixed (not indexed), and therefore an increasing share of benefits will be subject to tax as incomes and benefits rise. The pattern of the cost rate is much different. The OASI cost rate increased from 11.04 percent of taxable payroll for 2011 to 11.33 percent for 2012. For 2013 and 2014, the Trustees project smaller increases in the cost rate, reaching levels of 11.51 and 11.63 percent of taxable payroll, respectively. From 2014 to 2016, the cost rate stabilizes, as the economic recovery through this period offsets the effects of the aging population. From 2016 to 2035, the cost rate rises rapidly because the retirement of the baby-boom generation will 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 2038 to 2050, the cost rate 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. After 2050, the Trustees project the OASI cost rate will generally rise, reaching 15.73 percent of taxable payroll for 2087, primarily because of projected reductions in death rates.

Figure IV.B1 shows the patterns of the OASI and DI annual cost rates. 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. After 2010, all of these factors stabilize, and therefore the DI cost rate stabilizes also. Annual OASI cost rates follow a similar pattern to that for DI, but displaced 20 to 25 years later, because the baby-boom generation enters retirement ages 20 to 25 years after entering prime disability ages. 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 relatively small portion of income, is the main source of both the increases in the income rate and the variation among the alternatives. Increases in income from taxation of benefits reflect: (1) increases in the total amount of benefits paid; and (2) the increasing share of individual benefits that will be subject to taxation because benefit taxation threshold amounts are not indexed.Figure IV.B1 shows the patterns of the annual balances for OASI and DI. For each alternative and for historical data, the magnitude of each of the positive balances, as a percentage of taxable payroll, 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. The pattern of the projected OASDI annual balances is important to the analysis of the financial condition of the Social Security program as a whole.

Long-range OASDI cost and income are most often expressed as percentages of taxable payroll. However, the Trustees also present cost and income as shares of gross domestic product (GDP), the value of goods and services produced during the year in the United States. Under alternative II, the Trustees project the OASDI cost to rise from 5.06 percent of GDP for 2013 to a peak of 6.23 percent for 2036. Thereafter, OASDI cost as a percentage of GDP declines to a low of 6.04 percent for 2052 and then generally increases slowly thereafter, reaching 6.20 percent by 2087. Appendix F presents full estimates of income and cost relative to GDP.

The effect of the demographic shift under the three alternatives on the OASDI cost rates is clear when one considers the projected number of OASDI beneficiaries per 100 covered workers. Compared to the 2012 level of 35 beneficiaries per 100 covered workers, the Trustees project that this ratio will rise to 48 by 2035 under the intermediate assumptions because the growth in beneficiaries greatly exceeds the growth in workers. By 2090, this projected ratio rises further under the intermediate and high-cost assumptions, reaching 52 under the intermediate assumptions and 67 under the high-cost assumptions. Under the low-cost assumptions, this ratio rises to 45 by 2035 and then declines, reaching a stable level of about 40 after 2077. Figure IV.B2 shows beneficiaries per 100 covered workers.For each alternative, the curve in figure IV.B2 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 population. 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.

Figure IV.B2.—Number of OASDI Beneficiaries Per 100 Covered Workers Table IV.B2 also shows the number of covered workers per OASDI beneficiary, which was about 2.9 for 2012. Under the low-cost assumptions, this ratio declines to 2.2 by 2035, and then generally rises throughout the remainder of the period, reaching 2.5 by 2090. Under the intermediate assumptions, this ratio declines generally throughout the long-range period, reaching 2.1 for 2035 and 1.9 by 2090. Under the high-cost assumptions, this ratio decreases steadily to 1.5 by 2090.Table IV.B3 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.The Trustees project trust fund reserve depletion within the 75-year projection period with the exception of the DI Trust Fund under the low-cost assumptions. It is therefore highly likely that lawmakers will need to increase income, reduce program costs, or both, in order to maintain solvency for the trust funds. The stochastic projections discussed in appendix E suggest that trust fund reserve depletion is highly probable by mid-century.

Table IV.B3.—Trust Fund Ratios, Calendar Years 2013-90