The Trustees of the Old-Age, Survivors and Disability Insurance (OASDI) programs project in their 1999 report that the combined trust funds are sufficient to pay full benefits for the next 35 years, until 2034.This is two years further into the future than the insolvency date projected in the 1998 report.
According to the 1999 Trustees' Report intermediate or best estimate assumptions, the trust funds are in short-range (ten year) actuarial balance. The combined assets of the Old-Age, Survivors (OASI) and Disability Insurance (DI) trust funds increased from $655.5 billion in December of 1997 to $762.5 billion in December of 1998 and are estimated to reach $2.3 trillion by January 2008. The Trustees also report that while the combined trust funds are sufficient to pay full benefits for the next 35 years, both OASI and DI continue to face long-term deficits.
Trust Fund Ratios
OASI. The OASI trust fund ratio, the number that represents projected trust fund assets at the beginning of the year as a percentage of that year's expenditures, is projected to increase from 194 percent in 1999 to a peak of 415 percent in 2014 and then decline rapidly until exhaustion in 2036 (Figure 1).
DI. The Trustees project the DI trust fund will be able to pay benefits one year longer than was projected in 1998. The DI trust fund ratio, 153 percent at the beginning of 1999, is estimated by the Trustees to peak at a ratio of 213 percent in 2004. After this, the DI trust fund will decline, and be exhausted in 2020.
OASDI. If the OASI and DI trust fund expenditures are combined, outgo is projected to exceed current taxes beginning in 2014, when a portion of the funds' annual interest earnings will have to be combined with tax revenue to pay annual benefits. This will suffice until 2022, when total income, including tax revenue and interest earnings, will fall short of expenditures. At this time, the trust fund principal along with accruing tax revenues will have to be spent. If no action is taken, the combined funds will be exhausted in 2034. (In 1998, the peak ratio for the combined funds was estimated to be 324 percent in 2012 and the year of exhaustion 2032.)
Annual Cost and Income Rates
Another indicator of the financial status of the trust funds is a series of projected annual income and annual cost rates.
Income Rates. The 1999 Trustees' Report shows trust fund income rates rising slowly and steadily through 2075 due to a flat payroll tax and the increasing effect of the taxation of benefits (Figure 2). Cost rates are also projected to rise slowly until 2010. They will then increase rapidly for about 20 years (to 2030) as the baby boomers retire, then decline slightly as the baby boomers age and the small birth cohort of the late 1970s leaves the workforce. Thereafter, cost rates rise slowly, but steadily (Figure 2), reflecting projected increases in life expectancy.
Annual Trust Fund Balances
Annual trust fund balances for OASDI are projected to be positive through 2013. Thereafter, the deficit rises rapidly, reaching 2.12 percent of taxable payroll in 2020. The deficit continues to rise to 6.44 percent of taxable payroll in 2073 (Figure 3).
Trust Fund Assets
The assets of the trust funds, primarily FICA and SECA taxes not needed to pay current benefits, are invested by the Treasury in special issue, interest-bearing government securities, i.e., the trust funds are lending money to the Treasury. The securities can be redeemed at any time to pay benefits or administer the Social Security program. The Treasury must redeem the securities by transferring cash from another source (for example, income taxes) to the trust funds.
From 1999 through 2013, large sums of money will be flowing into the trust funds, and thus large sums of money will be borrowed by the Treasury. The situation reverses in 2022, and the trust fund securities are redeemed by the Treasury, paid for with potential budget surpluses or general revenues raised at that time.
The OASDI trust funds are projected to be adequately financed until 2034 when annual income is projected to be about 71 percent of the cost of benefits.
Kenneth Apfel, Commissioner of Social Security and Trustee, remarked on release of the 1999 Trustees' Report: "Social Security must remain a rock solid benefit that current and future retirees can count on...We should not just celebrate today's prosperity, but use it to meet the challenges of the future. We cannot rest until we are able to meet our commitments to our youngest workers, and ensure that Social Security will be on firm financial footing when they retire. This strong economy has given us a unique window of opportunity to strengthen Social Security. By acting sooner rather than later, in good economic times, we can make gradual changes to the system that will allow people time to plan adequately for their retirement years."
- 1999 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
- All discussion, unless otherwise noted, is based upon the alternative II or intermediate assumptions. These are the actuaries' best estimates of future economic and demographic conditions.
- For a definition of short-range actuarial balance see the 1999 Trustees' Report, page 72.
- The year of exhaustion is the first year that a trust fund is unable to pay benefits on time and in full.
- Federal Insurance Contributions Act and Self-Employment Contributions Act.
Written by Laurel Beedon and Charles Ford, AARP Public Policy Institute
May be copied only for noncommercial purposes and with attribution; permission required for all other purposes.
Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049