BASIC INFORMATION ON SOCIAL SECURITY

BASIC INFORMATION ON SOCIAL SECURITY

The most reliable, objective, and current data on social security is from the 2002 Annual Report of the Trustees of the Social Security and Medicare Trust Funds. Some of the highlights of this report can be summarized as follows:

The Social Security Administration administers four Trust Funds:

1. The Old-Age and Survivors Insurance (OASI) Trust Fund.

2. The Disability Insurance (DI) Trust Fund.

3. The Hospital Insurance (HI) Trust Fund.

4. The Supplementary Medical Insurance (SMI) Trust Fund.

The first two combined are called OASDI and are the Social Security component. The second two comprise the Medicare component.

The Trust Funds hold money not needed in the current year; funds are invested in U.S. Government bonds and receive a market rate of interest. When these bonds mature or are needed to pay benefits they are redeemed by the U.S. Treasury.

The balance of the Trust Funds, and the changes during 2001, were as follows, in billions of dollars:

	OASI	DI	HI	SMI	Total
	-----------	-----------	-----------	-----------	-----------
Assets End of 2000	931	118	178	44	1,271
Income During 2001	518	84	175	99	876
Outgo During 2001	377	61	144	102	684
Net Change in Assets	141	23	31	-3	192
Assets End of 2001	1,072	141	209	41	1,463

Most of the funding for the Trust Funds comes from payroll taxes totaling 15.3 percent of the first $84,900 in wage and salary income, half paid by the employee and half by the employer.

Administrative expenses in 2001 were as follows, as a percent of total expenditures:

	OASI	DI	HI	SMI	Total
	-----------	-----------	-----------	-----------	-----------
Administrative Expense	0.5	2.8	1.5	1.7	1.1

Short-range (10 year) and long-range (75 year) projections of the Trust Fund status are made based on the best assumptions available concerning future economic growth, wage growth, inflation, unemployment, fertility, immigration, mortality, as well as factors relating to disability incidence and the cost of hospital and medical services.

Pessimistic, Intermediate, and Optimistic projections are made; the Intermediate projections are the best estimate.

The short-range (2002 to 2011) outlook for the Trust Funds is favorable, with income more than covering the expenditures. In fact, the annual change in fund balance is projected to grow from a $188 billion increase in 2002 to a $379 billion increase in 2011.

	OASI	DI	HI	SMI	Total
	-----------	-----------	-----------	-----------	-----------
Income:
2002	537	87	181	104	909
2011	932	142	310	196	1,580
Expenditures:
2002	394	71	149	108	722
2011	626	130	245	192	1,193
Change In Fund Balance:
2002	144	16	32	-4	188
2011	306	12	65	-4	379

The long-range (2002 to 2076) projections are less favorable. By 2018 none of the Trust Funds are projected to have a positive annual cash-flow. The income will remain relatively constant, while the costs will increase substantially as the “baby-boom” generation reaches retirement age.

The number of workers per OASDI (i.e. Social Security) beneficiary decreased from 3.7 in 1970 to 3.4 today, and is projected to decline to 2.0 by 2030 and to 1.8 by 2076.

The key dates for the trust funds are as follows under the intermediate projections:

			Combined
	OASI	DI	OASDI	HI
	-----------	-----------	-----------	-----------
First year outgo exceeds income
excluding interest.	2018	2009	2017	2016

First Year outgo exceeds income
including interest.	2028	2018	2027	2021

Year trust fund assets are exhausted	2043	2028	2041	2030

Under the optimistic projections the trust funds are not exhausted during the 75 year period; under the pessimistic projections the combined OASDI Trust Fund would be exhausted in 2029 rather than in 2041.

After the trust fund assets are exhausted around the year 2041 or so, one of 3 things must happen: 1. Payroll taxes would have to be increased, or 2. Benefits would have to be cut, or 3. Congress would have to vote to use general revenue funds to make up the difference between income and outgo.

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This summary was prepared by Ed Lawrence for the Baldwin County Political Discussion Club, Wednesday, June 5, 2002.

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