Transcript Slide 1

Social Security Actuarial Status
The 2014 Annual Report of the Board of Trustees of the
OASI and DI Trust Funds
Key Results under Intermediate Assumptions
Prepared by the Office of the Chief Actuary, SSA
July 28, 2014
What is the Legislative Mandate for the
Annual Report?
1) Trust Fund operations of the past year
and the next five years
2) Actuarial status of the trust funds
– This means the ability to meet the cost of
scheduled benefits with scheduled revenue
and trust fund reserves
– And the extent to which scheduled revenue
will fall short, forcing cuts or delays in benefits
in the absence of legislative change
2
Results for the 2014 OASDI Trustees Report
• Actuarial deficit up from 2.72 to 2.88 percent of payroll
– Adding 2088 increases deficit by 0.06 percent of payroll
– All other changes and updates increase deficit by 0.10 percent
• Combined OASI-DI Trust Fund reserves depleted in 2033
– Same as last year’s projection
– With 77 percent still payable after depletion, 72 percent for 2088
• DI Trust Fund reserves alone become depleted in 2016
– Same as last year’s projection
– With 81 percent still payable after depletion, 80 percent for 2088
• Cost exceeded non-interest income starting in 2010
• Cost exceeds total income, including interest, starting in
2020 -- TF reserves grow until then
• Unfunded obligation increased from 0.9 to 1.0 percent of
GDP (from $9.6 to $10.6 trillion in present value)
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SOLVENCY: OASDI Trust Fund Reserve Depletion 2033 — Same as last year
o Reserve depletion date varied from 2029 to 2042 in last 20 reports (1995-2014)
o DI Trust Fund — reserve depletion in 2016, same as last year
o 2016 was projected in the 1995 Trustees Report after the 1994 tax-rate reallocation
Social Security Trust Fund Ratios
Assets as Percent of Annual Cost
Trustees Report Intermediate Projections
450%
OASDI 2014TR
OASI 2014TR
DI 2014TR
OASDI 2013TR
OASI 2013TR
DI 2013TR
Historical
400%
350%
300%
250%
OASI
200%
OASDI
150%
100%
DI
50%
0%
1990
Tax Rate Reallocation
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
4
OASDI Annual Cost and Non-Interest Income as Percent of Taxable Payroll
Persistent Negative Annual Cash-Flow Balance Starting in 2010
77% of scheduled benefits still payable at trust fund reserve depletion
Annual deficit in 2087: 4.85 percent of payroll — 0.08 percent higher than last year
25%
Cost: Scheduled but not fully
payable benefits
Cost: Scheduled and
payable benefits
20%
15%
Income
10%
5%
0%
2005
Expenditures: Payable benefits = income
after trust fund exhaustion in 2033
Payable benefits as percent
of scheduled benefits:
2014-32:
100%
2033:
77%
2088:
72%
2015
2025
2035
2045
2055
2065
2075
2085
Calendar year
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SUSTAINABILITY: Cost as Percent of GDP
Rises from a 4.2-percent average in 1990-2008, to a peak of 6.2%
in 2037, then drops to 6.0% for 2050, back to 6.1% by 2087
10%
Historical
Estimated
8%
Cost
6%
Non-interest Income
4%
2%
0%
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
Calendar year
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Following the Ratio of Beneficiaries per 100 Workers
100
90
80
Historical
Estimated
70
III
60
II
50
I
40
30
20
10
0
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
Calendar year
7
Projected OASDI Total Income Exceeds Annual Cost until 2020
For a Unified Budget perspective (where trust fund interest is scored to cancel):
non-interest income is less than cost starting in 2010
OASDI Annual Balances 2014TR Intermediate Assumptions:
Trust Fund (Off-Budget) Perspective: Total Income minus Total Cost
Unified Budget Perspective: Dedicated Tax Income minus Cost
100
Total Income minus Cost
Non-interest Income minus Cost
Billions of Current Dollars
50
0
-50
-100
-150
-200
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
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Reasons for Change in 2014 Trustees Report
Actuarial Balance—Net Change of -0.16 percent of payroll
Valuation Period—Changes the actuarial balance by
-0.06 percent of payroll
Legislation etc.—Changes actuarial balance by
-0.01 percent of payroll
•
Expansion of benefits to same-sex married couples
Demographic Data/Assumptions—Changes actuarial balance by
(-0.01 percent)
+0.04 percent of payroll
• Fertility data
lower than expected in 2013
(-0.01 percent)
• New historical divorce data, shift in ages at divorce
(+0.02 percent)
• Revised historical population data, smoothing of married population (+0.03 percent)
Economic Data/Assumptions—Changes the actuarial balance by -0.10 percent of payroll
•
•
Lower ultimate average increase in Consumer Price Index (CPI-W)
(-0.02 percent)
Starting values and lower ultimate level of output and taxable earnings (-0.08 percent)
Disability Assumptions—Changes the actuarial balance by
•
Slightly lower near term incidence rates and updated starting levels of beneficiaries
and benefit levels
Methods and Programmatic Assumptions
•
+0.02 percent of payroll
-0.05 percent of payroll
Labor force model alignment, and other changes
9
Lower Unemployment Rate 2013-16:
Contributed to slightly fewer disabled workers
10
Civilian Unemployment Rate
9
8
2013 TR
7
2014 TR
6
5
2008 TR (no recession)
4
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
10
Slightly Fewer Disabled Worker Beneficiaries Lower
Unemployment, Applications, and Allowance Rates
Disabled Worker Beneficiaries
In Current Payment Status at End of Year (in thousands)
10,000
2013 TR
9,000
2014 TR
8,000
2008 TR (no recession)
7,000
6,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
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Higher Average Real U.S. Earnings in 2012-16: Revised data
Average Real Earnings per Week in the US Economy-2010$
1,250
1,200
1,150
2014 TR
2010 TR
1,100
2012 TR
2011 TR
2013 TR
1,050
2% higher for 2013 in the 2014TR
1,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
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Slightly Lower GDP after 2014:
Modest 1-percent permanent reduction in level of output
19,000
GDP Billions of 2005$
18,000
2013TR
17,000
2014TR
16,000
2008TR (no recession)
15,000
14,000
13,000
12,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
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Methods Improvements/New Program Data
in 2014 Trustees Report
Changes the actuarial balance by -0.05 percent of payroll
1) Improve alignment of labor force participation rates with future trends
in marital status and longevity
(-0.05 percent)
2) Disaggregate “other immigrant” population: implications for
immigration flows and earnings and employment levels.
(between -0.005 and +0.005 percent)
3) Taxation of benefits: increase the ultimate projected ratio of income
from taxation of benefits to total benefits.
(+0.02 percent)
4) Update programmatic data, including changes in projected OASI
beneficiaries and benefit levels over the first 10 years of the projection
period.
(-0.02 percent)
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Uncertainty Illustrations
Alternatives expanded by reversing CPI assumption;
Stochastic– narrowed by immigration model change
unrealistically narrow due to lack of central tendency variation
2013TR OASDI Annual Cost Rate
2014TR OASDI Annual Cost Rate
30%
30%
25%
Low-Cost
Intermediate
High-Cost
Stochastic 2.5%
Stochastic 50%
Stochastic 97.5%
25%
20%
20%
15%
15%
10%
2013
10%
2014
2028
2043
2058
Projection year
2073
2088
Low-Cost
Intermediate
High-Cost
Stochastic 2.5%
Stochastic 50%
Stochastic 97.5%
2029
2044
2059
2074
2089
Projection year
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Stochastic simulations unrealistically narrow—
Example from Actuarial Study 117. Range of cumulative average values for
real average wage growth compresses to zero for long periods
Figure IV.12—Real Average Covered Wage, Calendar Years 1968-2078
16
Replacement Rates removed from the 2014TR
But OCACT will continue to provide in annual Actuarial Note
Scheduled Monthly Benefit Levels as Percent of Career70
Average Earnings by Year of Retirement at age 65
60
Low Earner ($21,054 for2014; 25th percentile)
50
Medium Earner ($46,787 for 2014; 56th percentile)
40
High Earner ($74,859 for 2014; 81st percentile)
30
Max Earner ($117,000 for 2014; 100th percentile)
20
10
0
1940
1960
1980
2000
2020
2040
2060
2080
Source: Annual Recurring Actuarial Note #9 at www.ssa.gov/oact/NOTES/ran9/index.html
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How About at Age 62,
Where Most Start Benefits?
Scheduled Monthly Benefit Levels as Percent of Career70
Average Earnings by Year of Retirement at age
62
60
50
Low Earner ($21,054 in 2014; 25th percentile)
40
Medium Earner ($46,787 in 2014; 56th percentile)
30
High Earner ($74,859 in 2014; 81st percentile)
Max Earner ($117,000 in 2014; 100th percentile)
20
10
0
1960
1980
2000
2020
2040
2060
2080
Source: Annual Recurring Actuarial Note #9 at www.ssa.gov/oact/NOTES/ran9/index.html
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Payable Benefits Under the Law, After Trust
Fund Reserves Are Depleted, Are Even Lower
PAYABLE Monthly Benefit Levels as Percent of Career-Average
Earnings by Year of Retirement at age 62
70
60
50
40
Low Earner ($21,054 in 2014; 25th percentile)
30
Medium Earner ($46,787 in 2014 56th percentile)
20
High Earner ($74,859 in 2014; 81st percentile)
Max Earner ($117,000 in 2014 100th percentile)
10
0
1960
1980
2000
2020
2040
2060
2080
Source: Annual Recurring Actuarial Note #9 at www.ssa.gov/oact/NOTES/ran9/index.html
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See also New Actuarial Note #155 Comparing Different
Replacement Rate Approaches
Benefit Replacement Rates for Retired Workers in 2011
120%
infinite
232%
Last 5 years (with zeros)
100%
5years Non-zero Wage
Indexed
35years CPI Indexed
80%
35years Wage Indexed
60%
2013 Trustees Report for
2013 Entitlement at 63.75
40%
20%
0%
Very Low
12
Low
25
MEDIAN
50
High
Medium
56
75
81
Percentile
Source: Actuarial Note #155 at www.ssa.gov/oact/NOTES/pdf_notes/note155.pdf
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Reference in 2014TR to “Budget
Perspective” —Reference to Medicare TR
•
Caveat and Warning to the Reader--Assumptions inconsistent with trust fund reality, and with the law
1) After reserves deplete, $10.6 trillion unfunded obligation
cannot be paid under the law
 Budget deems these “expenditures” creating public debt
2) Reserve redemptions spend excess “earmarked” revenues
invested in an earlier year
 Budget deems these “a draw on other Federal resources”
3) Trust Fund operations have NO direct effect total Federal
debt subject to ceiling in any year—and no net effect on
publicly held debt
 Budget says redemptions increase Federal debt held by the
public and often gives no credit for reserve accumulation
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Actual Trust Fund Operations
Have No Effect Total Federal Debt,
and No Net Effect on Publicly-Held Debt
Social Security Trust Fund Effect on Federal Debt Measures 1957-2085
80
Percent of GDP
70
60
Publicly-Held Debt under
Current Law
50
Publicly-Held Debt under
"Budget Scoring Convention"
Total Federal Debt
40
30
Under "Budget Scoring
Convention ": Benefits Not
Payable under Current Law
Are Presumed to Add to
Publicly-Held Debt
20
10
0
Trust Fund Reserves Hold
Down Publicly-Held DebtAll Else Equal
-10
-20
1957
1967
1977
1987
1997
2007
2017
2027
Source: Intermediate projections in the
2010 OASDI Trustees Report
2037
2047
2057
2067
2077
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How to Fix Social Security Long-Term
• First: OASI help DI soon---reallocate
• Second: make choices for 2033-2088
– Raise scheduled revenue by about 33%:
increase revenue from 4.6 to 6.0% of GDP
– Reduce scheduled benefits by about 25%:
lower benefits to what 4.6% of GDP will buy
– Or some combination of the two
– Invest trust funds for higher return?
• Limited help—it is a PAYGO world
• So invest in coming generations of workers
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Ways to Lower Cost
• Lower benefits for retirees—not disabled?
– Increase normal retirement age
– Can exempt long-career low earners
• Lower benefits mainly for high earners?
– Reduce PIA above some level
– Like progressive indexing
• Lower benefits mainly for the oldest old?
– Reduce the COLA
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Ways to Increase Revenue
• Raise tax on highest earners?
– Increase taxable maximum amount
– Some tax on all earnings above the maximum
• Tax employer group health insurance
premiums?
– Affects only middle class if taxable maximum
remains
• Maintain larger trust fund reserves?
– Added interest can lower needed taxes
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For More Information Go To---http://www.ssa.gov/oact/pubs.html
• There you will find—
– This and all prior OASDI Trustees Reports
– Detailed single-year tables for recent reports
– Our estimates for comprehensive proposals
– Our estimates for the individual provisions
– Actuarial notes; including replacement rates
– Actuarial Studies; including stochastic
– Extensive data bases
– Past Congressional testimonies