1 family changes: policy implications for social security and long-term care yung-ping chen, phd...
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Family Changes: Family Changes: Policy Implications for Social Policy Implications for Social Security and Long-Term Care Security and Long-Term Care
Yung-Ping Chen, PhDYung-Ping Chen, PhDFrank J. Manning Eminent Scholar's Chair in Frank J. Manning Eminent Scholar's Chair in
Gerontology Gerontology Gerontology InstituteGerontology Institute
University of Massachusetts, BostonUniversity of Massachusetts, Boston
Co-sponsored by: Center on the Family, University of Co-sponsored by: Center on the Family, University of Hawaii, ManoaHawaii, Manoa
Executive Office on the Aging, State of HawaiiExecutive Office on the Aging, State of HawaiiWomen’s Caucus of the Hawaii State LegislatureWomen’s Caucus of the Hawaii State Legislature
State Capitol, Room 309, June 22, 2004, 9:00-State Capitol, Room 309, June 22, 2004, 9:00-11:00AM11:00AM
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Changes in Social Trends (1970-Changes in Social Trends (1970-2000)2000)
19701970 20002000
Female Labor Force Participation RateFemale Labor Force Participation Rate 42% 42% 58%58%
Divorced (% of adults)Divorced (% of adults) 3%3% 9.9% 9.9%
Unmarried adultsUnmarried adults 38 mil38 mil 87 mil87 mil
Never-married adultsNever-married adults
(% of all adults)(% of all adults) 16%16% 24%24%
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Marriage Delayed or Avoided:Marriage Delayed or Avoided:Japanese Young People are Delaying or Japanese Young People are Delaying or
Avoiding Marriage.Avoiding Marriage.
Percentage of Japanese & U.S. residents ages 25-29 who are not married:
18%
47%
11%19%
54%
69%
39%
52%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Women Men Women Men
1970 2000
JAPAJAPANN
USAUSA
Sources: U.S. Census: Japanese Ministry of Public Management, Home Sources: U.S. Census: Japanese Ministry of Public Management, Home Affairs, Posts and Telecommunications.Affairs, Posts and Telecommunications.
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Divorce is rising:Divorce is rising: Japan’s divorce rate Japan’s divorce rate is up sharply over the past decade, is up sharply over the past decade, thought it’s still well below the U.S. thought it’s still well below the U.S.
raterate
Divorces in Japan per 1,000 people
0
0.5
1
1.5
2
2.5
'90 '92 '94 '96 '98 '00 '02Sources: Japanese Ministry of health, labor and Welfare: Sources: Japanese Ministry of health, labor and Welfare: Japanese Institute of Global CommunicationsJapanese Institute of Global Communications
2.302.30
1.281.28
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Declining Percentages of Declining Percentages of Married Adults (1970-2000)Married Adults (1970-2000)
15% drop among whites, from 73% to 15% drop among whites, from 73% to 62%62%
36% drop among blacks, from 64% to 41%36% drop among blacks, from 64% to 41% 18% drop among Hispanics, from 72% to 18% drop among Hispanics, from 72% to
59%59%
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Increase in Never-Married Increase in Never-Married Persons Persons
(1970-2000)(1970-2000)
31% increase (from 16% to 21%) for 31% increase (from 16% to 21%) for whiteswhites
86% increase (from 21% to 39%) for 86% increase (from 21% to 39%) for blacksblacks
53% increase (from 19% to 29%) for 53% increase (from 19% to 29%) for HispanicsHispanics
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Proportions of New BeneficiariesProportions of New Beneficiariesaa as Retired Workers, Disabled as Retired Workers, Disabled Workers,Workers,
and Dependents and Survivors,and Dependents and Survivors,bb in Selected Years (1970–2010) in Selected Years (1970–2010)
YearYearcc Retired Retired WorkersWorkers
Disabled Disabled WorkersWorkers
Dependents Dependents & Survivors& Survivors TotalTotal
19701970 36.2%36.2% 9.5%9.5% 54.3%54.3% 100%100%
19801980 38.338.3 9.49.4 52.352.3 100100
19901990 44.844.8 12.612.6 42.642.6 100100
19971997 44.544.5 15.215.2 40.440.4 100100
20102010 48.848.8 15.515.5 35.735.7 100100
Notes: a New beneficiaries refer to those awarded benefits in each year. b Dependents and survivors include wives/husbands, children, widowers,
widowed mothers/fathers, and parents. c For 1970–97, calculations based on data in Table 6.A (OASDI Benefits Awarded:
Summary ), 1998 Statistical Supplement to the Social Security Bulletin, Social Security Administration, SSA Publication No. 13-11700, p. 254. For 2010, calculations based on unpublished estimates supplied by the Office of the Chief Actuary, Social Security Administration, Feb. 1 and Feb. 13, 2002.
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Poverty Rates among Older Poverty Rates among Older Women (1999)Women (1999)
MarriedMarried 4.3%4.3% WidowedWidowed 15.9%15.9% DivorcedDivorced
20.4%20.4% Never marriedNever married
18.9%18.9%
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Some ProposalsSome Proposals
Raise survivor benefit and lower Raise survivor benefit and lower spousal benefitspousal benefit
Raise survivor benefitRaise survivor benefit Lower length of marriageLower length of marriage Implement earnings sharingImplement earnings sharing Provide minimum benefitProvide minimum benefit
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Caveats in Policy Caveats in Policy DevelopmentDevelopment
Employment-based income Employment-based income replacementreplacement
Income deficiency outside Social Income deficiency outside Social SecuritySecurity
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Reasons for Low Income at Reasons for Low Income at WidowhoodWidowhood
Pre-widowhood income differential Pre-widowhood income differential (20-26%)(20-26%)
Decline in Social Security benefit Decline in Social Security benefit (40-50%)(40-50%)
Decline in pension income (15%)Decline in pension income (15%) Decline in other asset income (10-Decline in other asset income (10-
15%)15%)
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Two-Tier Benefit StructureTwo-Tier Benefit Structure
First-tier benefitFirst-tier benefit Flat rateFlat rate Eligibility based on age or disabilityEligibility based on age or disability General revenue financingGeneral revenue financing
Second-tier benefitSecond-tier benefit Earnings-related benefitEarnings-related benefit Earnings sharingEarnings sharing Payroll tax financingPayroll tax financing
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Funding Long-Term Care: Funding Long-Term Care: Applications Of Applications Of
The Trade-Off Principle The Trade-Off Principle In Both Public And Private In Both Public And Private
SectorsSectorsoror
An Intragenerational Funding An Intragenerational Funding Model for Model for
Long-Term CareLong-Term Care
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LIFE EXPECTANCY AT BIRTH AND AT LIFE EXPECTANCY AT BIRTH AND AT AGE 65AGE 65
Sex and Sex and YearYear
At birth At birth (years)(years)
At age 65 At age 65 (years)(years)
Male 1940Male 1940 61.461.4 11.911.9
19951995 72.372.3 15.415.4
20402040 76.676.6 17.317.3
20702070 78.478.4 18.418.4
Female 1940Female 1940 65.765.7 13.413.4
19951995 79.279.2 19.219.2
20402040 82.482.4 21.021.0
20702070 84.184.1 22.222.2Source: 1996 Social Security Trustees Report, p.61.Source: 1996 Social Security Trustees Report, p.61.
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Average Life Expectancy at Age 65 Average Life Expectancy at Age 65 (U.S.)(U.S.)
HistoricalHistorical 1940: 12.6 years1940: 12.6 years 2000: 17.5 years2000: 17.5 years
Intermediate ProjectionIntermediate Projection 2030: 18.9 years2030: 18.9 years 2050: 20.1 years2050: 20.1 years
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Life Expectancy in Hawaii and in Life Expectancy in Hawaii and in
U.S.U.S. Life Expectancy - Life Expectancy -
YearYearHawaiiHawaii U.S./1U.S./1
19101910 4444 5050
19201920 4646 5454
19301930 5454 6060
19401940 6262 6363
19501950 7070 6868
19601960 7272 7070
19701970 7474 7171
19801980 7878 7474
19901990 7979 7575**
**State with the highest life expectancy is Hawaii (79 yrs.)State with the highest life expectancy is Hawaii (79 yrs.)
Source: Hawaii Department of Health, Office of Health Status Monitoring.Source: Hawaii Department of Health, Office of Health Status Monitoring.
/1 Centers for Disease Control and Prevention, National Center for Health /1 Centers for Disease Control and Prevention, National Center for Health
Statistics.Statistics.
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Census Bureau Estimates of Number of Census Bureau Estimates of Number of Elderly Individuals in 1997, 2030, and Elderly Individuals in 1997, 2030, and
20502050
30,258
60,924 60,6363,938
8,45518,223
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1997 2030 2050
Pop
ulat
ion
in T
hous
ands
Total
85 and above
65-84
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Aging of the Elderly Aging of the Elderly Population Population
in the U.S. (in millions)in the U.S. (in millions)
20002000 20302030 20502050
Age 65-Age 65-8484
3030 6060 6060
Age 85+Age 85+ 44 99 1818
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Older Populations (65+ and 85+) Older Populations (65+ and 85+) As Percent of Total PopulationAs Percent of Total Population
19801980 19901990 20002000 2010/12010/1 2020/12020/1
65+65+ 76,21076,210 125,230125,230 161,134161,134 196,24196,2411
270,00270,0000
% of Total% of Total 7.9%7.9% 11.3%11.3% 13.3%13.3% 15.2%15.2% 19.2%19.2%
85+85+ 5,5615,561 10,39710,397 17,56417,564 31,18731,187 38,86738,867
% of Total% of Total 0.6%0.6% 0.9%0.9% 1.4%1.4% 2.4%2.4% 2.8%2.8%
TotalTotal 964,691964,691 1,108,221,108,2299
1,211,531,211,5377
1,291,01,291,05858
1,406,21,406,24848
Source: U.S. Census Bureau, Hawaii data. Source: U.S. Census Bureau, Hawaii data.
/1 Hawaii Department of Business, Economic Development and Tourism, Research /1 Hawaii Department of Business, Economic Development and Tourism, Research and Economic Analysis Division, DBEDT 2025 Series, and Economic Analysis Division, DBEDT 2025 Series, Population and Economic Population and Economic Projections for the State of Hawaii 2025Projections for the State of Hawaii 2025, February 2000. , February 2000.
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Comparison of Percent Increase in Comparison of Percent Increase in PopulationPopulation
0%
50%
100%
150%
200%
250%
85+ 87% 69% 216%
60+ 52% 19% 82%
Total 15% 9% 26%
1980 to 1990 1990 to 2000 1980 to 2000
Source: U.S. Census Bureau, Source: U.S. Census Bureau,
Hawaii dataHawaii data..
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Many 65+ Have at Least One Many 65+ Have at Least One DisabilityDisability
65+: Percent having specific disabilities
25%
22%
14%
12%
9%Self-care
Mental
Sensory
Go-outside-home
Physical
Source: U.S Census Bureau, Census 2000, Hawaii dataSource: U.S Census Bureau, Census 2000, Hawaii data. .
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Need for Assistance with Personal Need for Assistance with Personal Care Increases with AgeCare Increases with Age
Needs help with personal care
3.6%5.2% 4.7%
6.8%
22.1%
0%
5%
10%
15%
20%
25%
18-44 45-59 60-74 75-84 85+Age Age GroupGroup
Source: Hawaii Department of Health, Office of Health Status Monitoring, Source: Hawaii Department of Health, Office of Health Status Monitoring, Hawaii Health Survey 2000.Hawaii Health Survey 2000.
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Percent 60+ Diagnosed with Diabetes Percent 60+ Diagnosed with Diabetes (1994-2001)(1994-2001)
Hawaii 60+ Diabetes
10%
8%
11%10%
14%
11%
13%
15%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1994 1995 1996 1997 1998 1999 2000 2001
% d
iagn
osed
with
diab
etes
Source: Hawaii Department of Health, Community Health Division, Behavioral Risk Factor Source: Hawaii Department of Health, Community Health Division, Behavioral Risk Factor
Surveillance System.Surveillance System.
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Percent 60+ Diagnosed with High Percent 60+ Diagnosed with High Blood PressureBlood Pressure
Hawaii 60+ High Blood Pressure
41%44%
48%51%
0%
10%
20%
30%
40%
50%
60%
1995 1997 1999 2001
% d
iagn
osed
with
HBP
Source: Hawaii Department of health, Community Health Division, Behavioral Risk Source: Hawaii Department of health, Community Health Division, Behavioral Risk
Factor Surveillance System.Factor Surveillance System.
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Defining Long-Term CareDefining Long-Term Care Medical, nursing, social, and personal Medical, nursing, social, and personal
servicesservices At home, in the community, or in an At home, in the community, or in an
institutioninstitution Extended period of timeExtended period of time Functional impairment (activities of daily Functional impairment (activities of daily
living—ADLs)living—ADLs)• BathingBathing• DressingDressing• EatingEating• TransferringTransferring• ToiletingToileting• ContinenceContinence
• Cognitive ImpairmentCognitive Impairment
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Types of Long-Term CareTypes of Long-Term Care
Informal (non-paid)—family and Informal (non-paid)—family and friendsfriends
Formal (paid)—professional Formal (paid)—professional providersproviders
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Reasons for Less Reasons for Less Informal CareInformal Care
Geographic dispersion of family Geographic dispersion of family membersmembers
More women working in paid labor forceMore women working in paid labor force Smaller familiesSmaller families
fewer children per familyfewer children per family more childless familiesmore childless families higher divorce rateshigher divorce rates more single-parent familiesmore single-parent families
Impairments of adult children Impairments of adult children themselvesthemselves
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Tests for Insurability of a Tests for Insurability of a RiskRisk
Involuntary riskInvoluntary risk Economic loss incurredEconomic loss incurred Verifiable riskVerifiable risk Law of large numbersLaw of large numbers Contingency falling on a small Contingency falling on a small
proportion at one timeproportion at one time Predictable riskPredictable risk
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Long-Term Care as an Long-Term Care as an Insurable RiskInsurable Risk
Need for LTCNeed for LTC predictably small proportion of predictably small proportion of
populationpopulation costs may be substantial or even costs may be substantial or even
catastrophiccatastrophic Risk pooling limits an individual’s Risk pooling limits an individual’s
financial exposurefinancial exposure Insurance in private and public Insurance in private and public
sectorssectors
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Present Pattern of Present Pattern of Funding Funding
in the U.S.in the U.S. Out of pocket (personal Out of pocket (personal
savings)savings) Medicaid (public welfare)Medicaid (public welfare) Medicare (social insurance)Medicare (social insurance) Private insurancePrivate insurance
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Formal Long-Term Care Expenditures for the Formal Long-Term Care Expenditures for the Elderly, 2000Elderly, 2000
Medicare24%
Medicaid35%
Private long-term care insurance
4%
Other payer2% Personal out-of-
pocket35%
Source: Based on projections in Congressional Budget Office (2000).
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Formal Long-Term CareFormal Long-Term CareExpenditures for the Elderly, 2000Expenditures for the Elderly, 2000
Public and Private Sectors CombinedPublic and Private Sectors Combined
Risk Pooling20.2%
No Risk Pooling79.8%
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Formal Long-Term CareFormal Long-Term CareExpenditures for the Elderly, 2000Expenditures for the Elderly, 2000
Public SectorPublic Sector
Risk Pooling33.3%
No Risk Pooling66.7%
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Formal Long-Term CareFormal Long-Term CareExpenditures for the Elderly, 2000Expenditures for the Elderly, 2000
Private SectorPrivate Sector
No Risk Pooling98.8%
Risk Pooling1.2%
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Impediment to Social and Impediment to Social and Private Insurance ProgramsPrivate Insurance Programs
Competition for fundsCompetition for fundsSocial insurance vs. general Social insurance vs. general
health, education, welfare, and health, education, welfare, and other expendituresother expenditures
Private insurance vs. other Private insurance vs. other consumption outlaysconsumption outlays
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Lack of Penetration by Private Lack of Penetration by Private Insurance: Demand FactorsInsurance: Demand Factors
High costsHigh costs ““Use it or lose it”Use it or lose it” Exclusions (the “fine print” problem)Exclusions (the “fine print” problem) Can self-insureCan self-insure Rely on public welfare (Medicaid)Rely on public welfare (Medicaid) ProcrastinationProcrastination UninsurableUninsurable Will never need itWill never need it Long lapse of time between sales/purchase Long lapse of time between sales/purchase
and useand use
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Lack of Penetration by Private Lack of Penetration by Private Insurance: Supply FactorsInsurance: Supply Factors
Moral hazard (greater use of services Moral hazard (greater use of services induced by insurance)induced by insurance)
Adverse selection (buyers are those Adverse selection (buyers are those who “know” they will likely need LTC who “know” they will likely need LTC services)services)
Problems for the sales forceProblems for the sales force Long lapse of time between Long lapse of time between
sales/purchase and usesales/purchase and use
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Guiding Principles for LTC Guiding Principles for LTC FundingFunding
Insurance in public and private Insurance in public and private sectorssectors
The trade-off principleThe trade-off principle
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Sharing Public and Private Sharing Public and Private Responsibility: Responsibility:
A three-legged stool approachA three-legged stool approach
Retirement incomeRetirement income Acute health careAcute health care Long-term careLong-term care
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A Three-legged Stool A Three-legged Stool Approach: Retirement Approach: Retirement
IncomeIncome Social insurance as a floor of Social insurance as a floor of
protectionprotection Employment-based (occupational) Employment-based (occupational)
pensions as supplementpensions as supplement Personal savings as supplementPersonal savings as supplement [ Public assistance as safety net [ Public assistance as safety net
when three legs prove insufficient ]when three legs prove insufficient ]
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A Three-legged Stool: A Three-legged Stool: Acute Health CareAcute Health Care
MedicareMedicare Employer-provided health benefitsEmployer-provided health benefits Medicare Supplemental (Medigap) Medicare Supplemental (Medigap)
policiespolicies [ Medicaid as a safety net for the [ Medicaid as a safety net for the
poor ]poor ]
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Funding Long-Term Care: A Funding Long-Term Care: A Schematic ViewSchematic View
O ut-of-pocket paym ent
S tand-a lone LTC policy
Accelerated death benefit w ith a rider
C om bination Policy
Private Long-Term C are Insurance
Private Sector
M edica id andother public sources
In ter-generationa lM odel
(M edicare)
In tra-generationa l M odel(Socia l Security/Long-Term C are)
Socia l Insurance
Public Sector
Sources of Funds
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Estimated revenue for the proposed Long-Term Care Estimated revenue for the proposed Long-Term Care (LTC) Trust Fund in first 5 years of operation (no (LTC) Trust Fund in first 5 years of operation (no
disbursements) disbursements) (All dollar amounts are in billions)(All dollar amounts are in billions)
Calendar year
Social Security (OASDI) benefit payments
Annual contributions to the LTC Trust Fund
Interest rate for contributions in the year
LTC Trust Fund accumulated at the end of the year
Percent of OASDI benefits
Amount
1996 $355.0 1% $3.6 6.0% $3.7
1997 $374.9 2% $7.5 6.0% $11.7
1998 $396.1 3% $11.9 6.1% $24.7
1999 $419.0 4% $16.8 6.3% $43.5
2000 $444.2 5% $22.2 6.4% $69.1
Note: OASDI benefits and interest rates are those projected under the alternative II (intermediate) assumptions in the 1993 Annual Report of the Trustees.
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Measures of Solvency for Social Measures of Solvency for Social Security, 1991-2004 Intermediate Security, 1991-2004 Intermediate
AssumptionsAssumptions
KEY DATES FOR THE TRUST FUNDS 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
First year outgo exceeds income (excluding interest income) 2017 2016 2017 2013 2013 2012 2012 2013 2014 2015 2016 2017 2018 2018
Number of years from year of projection 26 24 24 19 18 16 15 15 15 15 15 15 15 14
First year outgo exceeds income (including interest) 2028 2024 2025 2019 2020 2019 2019 2021 2022 2025 2025 2027 2028 2028
Number of years from year of projection 37 32 32 25 25 23 22 23 23 25 24 25 25 24
Year trust fund assets are exhausted 2041 2036 2036 2029 2030 2029 2029 2032 2034 2037 2038 2041 2042 2042
Number of years from year of projection 50 44 43 35 35 33 32 34 35 37 37 39 39 38
Long-range actuarial deficit -1.08% -1.46% -1.46% -2.13% -2.17% -2.19% -2.23% -2.19% -2.07% -1.89% -1.86% -1.87% -1.92% -1.89%
Sources: Compiled and computed from data in annual reports of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance trust funds (for respective years).
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Measures of Solvency for Social Measures of Solvency for Social Security, 1991-2004 Intermediate Security, 1991-2004 Intermediate
AssumptionsAssumptions
KEY DATES FOR THE TRUST FUNDS 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 First year outgo exceeds
income (excluding interest income) 2017 2016 2017 2013 2013 2012 2012 2013 2014 2015 2016 2017 2018 2018
Number of years from year of projection 26 24 24 19 18 16 15 15 15 15 15 15 15 14
First year outgo exceeds income (including interest) 2028 2024 2025 2019 2020 2019 2019 2021 2022 2025 2025 2027 2028 2028
Number of years from year of projection 37 32 32 25 25 23 22 23 23 25 24 25 25 24
Year trust fund assets are exhausted 2041 2036 2036 2029 2030 2029 2029 2032 2034 2037 2038 2041 2042 2042
Number of years from year of projection 50 44 43 35 35 33 32 34 35 37 37 39 39 38
Long-range actuarial deficit -1.08% -1.46% -1.46% -2.13% -2.17% -2.19% -2.23% -2.19% -2.07% -1.89% -1.86% -1.87% -1.92% -1.89%
Sources: Compiled and computed from data in annual reports of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance trust funds (for respective years).