Actuarial status of the OASI and DI Trust Funds

This article summarizes the current financial condition and actuarial status of the old-age, survivors, and disability insurance (OASDI) program, as shown in the 1986 Annual Report of the Board of Trustees. The Trustees note that the assets of the OASI and DI Trust Funds will be sufficient to permit the timely payment of OASDI benefits for many years into the future, on the basis of all four sets of assumptions shown in the report. For the next 75 years, the estimates show that the OASDI program, overall, is in close actuarial balance, based on the two intermediate sets of assumptions. The DI program by itself, however, is not in close actuarial balance for the next 75 years. The actuarial deficit for the DI program could be remedied by a small reallocation of the contribution rate from OASI to DI, in such a way that the OASI program would remain in close actuarial balance and OASDI benefits would not be affected. Although the Trustees do not at this time recommend such a reallocation, they note that the financial condition of the DI program will need to be carefully monitored for the next several years.     

Actuarial status of the OASI and DI Trust Funds

This article presents the summary of the 1988 Annual Report of the Board of Trustees of the Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds. It summarizes the financial condition and actuarial status of the OASDI program based on the alternative projections. The long-range 75-year estimates indicate that, under the intermediate (II-A and II-B) assumptions, the OASDI program will experience about three decades of positive annual balances, with continuing annual deficits thereafter. The positive balances in the first part of the 75-year projection period nearly offset the later deficits, so that the program, as a whole is in close actuarial balance. Over the long-range projection period, the OASDI program has an actuarial deficit of 0.58 percent of taxable payroll, based on the intermediate alternative II-B assumptions and calculated on a level-financing basis. The DI program by itself, however, is not in close actuarial balance for the next 75 years. The actuarial deficit for the DI program could be remedied by a small reallocation of the contribution rate from OASI to DI, in such a way that the OASI program would remain in close actuarial balance. Although the Trustees are not recommending such a reallocation, they note that the financial condition of the DI program will need to be carefully monitored.     

Actuarial status of the OASI and DI Trust Funds

This article summarizes the current financial and actuarial status of the old-age, survivors, and disability insurance (OASDI) program, as shown in the 1985 Annual Report of the Board of Trustees. The Trustees note that the combined assets of the OASI and DI programs will be sufficient to pay OASDI benefits on time well into the next century based on all four sets of economic and demographic assumptions. Based on the pessimistic assumptions, the DI program could become unable to pay benefits on time by the end of 1987, but this problem could be prevented by a reallocation of contribution rates between the OASI and DI programs. For the long range--the next 75 years--the Trustees estimate that the OASDI program is in close actuarial balance based on intermediate assumptions--that is, the average annual income rate is estimated to be between 95 percent and 105 percent of the average annual cost rate during that period. The long-range actuarial deficit based on the intermediate (Alternative II-B) assumptions represents about 3 percent of the average annual cost rate for the program.     

Actuarial status of the OASI and DI Trust Funds

This article summarizes the current financial and actuarial status of the Old-Age, Survivors, and Disability Insurance (OASDI) program. The results presented are from the 1984 Trustees Report and are similar to the results in the 1983 report. This year's estimates show that the Social Security Amendments of 1983 restored the financial soundness of the OASDI program. According to the actuarial estimates, benefits can be paid on time throughout the 1980's and for many years thereafter. Because trust fund levels are projected to be relatively low through 1987, however, the program could again experience financial difficulties in the near future if economic conditions become worse than anticipated under the pessimistic (Alternative III) assumptions. After 1987, the program's ability to withstand economic downturns is projected to improve. On the basis of intermediate (Alternative II-B) assumptions, the OASDI program is in long-range close actuarial balance. This actuarial balance reflects substantial year-by-year surpluses during the first half of the 75-year projection period that are slightly out-weighed by substantial deficits later on.     

Actuarial status of the HI (hospital insurance) and SMI (supplementary medical insurance) Trust Funds

This article is adapted from the 1987 Annual Reports of the Medicare Board of Trustees. It presents a summary of the current financial and actuarial status of the Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) Trust Funds. The Board found that the present financing schedule for the HI program is sufficient to ensure the payment of benefits over the next 12-14 years if the intermediate (II-A and II-B) assumptions underlying the estimates are realized. Although steps have been undertaken to reduce the rate of growth in payments to hospitals, the Board urges Congress to take remedial measures to bring future HI program costs and financing into balance. The Board found the SMI program to be actuarially sound but recommends that Congress take action to curtail the rapid growth in that part of Medicare.     

Financial status of social security program after the Social Security Amendments of 1977

The Social Security Amendments of 1977 resulted in substantial improvement in the current and projected financial condition of the OASDI program. This article reviews the causes of the recent operating deficits, describes the effects of the amendments that most influence the program's financial status, and gives projections of income and expenditures under the new law. The revised benefit formula eliminates the "over-indexing" expected to occur under the old provisions and results in stable earnings-replacement ratios under practically all future economic conditions. About one-half of the long-range actuarial deficit was resolved by this step alone. Increases in the contribution and benefit base, along with tax-rate reallocations and increases, prevent the imminent depletion of the OASI and DI trust funds. Increased income due to the higher wage bases is partially offset in later years, however, by greater benefit payments based on the increases in the coverage of total earnings. Overall, under the new law the OASDI program is projected to be financed adequately for about 50 years but significant operating deficits are expected after that. The financial condition of the hospital insurance program was substantially unchanged by the amendments, however, and the HI trust fund is expected to be exhausted in 1988.     

Early retirees under Social Security: health status and economic resources

Some proposals to change the Social Security program to ensure long-run solvency would reduce or eliminate benefits for early retirees. This article documents the health and financial resources of Old-Age and Survivors Insurance (OASI) beneficiaries aged 62-64. It identifies a substantial minority of early retirees who might be economically vulnerable if either the early eligibility age or normal retirement age was raised. Attention is directed at the extent to which poor health limits work in this age group and the extent to which curtailment of early OASI benefits might lead to increases in the Disability Insurance (DI) program rolls. Using a set of comprehensive health measures, we estimate that over 20 percent of OASI beneficiaries aged 62-64 have health problems that substantially impair their ability to work. This finding implies that in this age range, as many severely disabled persons receive OASI benefits as disability benefits. In fact, 12 percent of early beneficiaries would meet a more stringent criterion for being classified "disabled"--SSA's medical standard for disability benefits. The evidence therefore indicates that OASI functions as a substantial, albeit unofficial, disability program for early retirees. Compared with those who have no health problems or are less severely impaired, early OASI beneficiaries who meet the medical criteria for disability benefits are more likely to be living alone and more likely to be poor or "near poor." The great majority of the group--almost 80 percent--are women. Analysis of their earnings histories suggests that most of these beneficiaries do not satisfy the insured-status requirements for Disability Insurance benefits. The article considers the different roles of the OASI program and the DI program for health-impaired individuals aged 62-64. Disability modelers sometimes overlook an important aspect of program administration. Under customary screening procedures implemented in Social Security field offices, applicants for early OASI benefits who appear to be severely impaired simultaneously apply for DI benefits if they are disability insured. If they are found eligible for DI benefits, those applicants become DI beneficiaries. The implication is that raising the earliest entitlement age would have little impact on the DI rolls. Unless there are changes in eligibility criteria, the DI program would not serve as a safety net for many of the most severely disabled early retirees.     

Stochastic models of the Social Security trust funds

Each year in March, the Board of Trustees of the Social Security trust funds reports on the current and projected financial condition of the Social Security programs. Those programs, which pay monthly benefits to retired workers and their families, to the survivors of deceased workers, and to disabled workers and their families, are financed through the Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds. In their 2003 report, the Trustees present, for the first time, results from a stochastic model of the combined OASDI trust funds. Stochastic modeling is an important new tool for Social Security policy analysis and offers the promise of valuable new insights into the financial status of the OASDI trust funds and the effects of policy changes. The results presented in this article demonstrate that several stochastic models deliver broadly consistent results even though they use very different approaches and assumptions. However, they also show that the variation in trust fund outcomes differs as the approach and assumptions are varied. Which approach and assumptions are best suited for Social Security policy analysis remains an open question. Further research is needed before the promise of stochastic modeling is fully realized. For example, neither parameter uncertainty nor variability in ultimate assumption values is recognized explicitly in the analyses. Despite this caveat, stochastic modeling results are already shedding new light on the range and distribution of trust fund outcomes that might occur in the future.     

Actuarial status of the HI and SMI Trust Funds

This article is adapted from the 1986 annual reports of the Medicare Board of Trustees. It presents a summary of the current financial and actuarial status of the Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) Trust Funds. The Board found that the present financing schedule for the HI program is barely sufficient to ensure the payment of benefits through the late 1990's if the intermediate (II-A and II-B) assumptions underlying the estimates are realized. Although steps have been undertaken to reduce the rate of growth in payments to hospitals, the Board urges Congress to take remedial measures to bring future HI program costs and financing into balance. The Board found the SMI program to be actuarially sound but recommends that Congress take action to curtail the rapid growth in that part of Medicare.     

Social Security area population projections: 1987

The following article, first published as Actuarial Study No. 99, describes the population projections that underlie the long-range cost estimates for the Old-Age, Survivors, and Disability Insurance (OASDI) program, which are included in the 1987 Report of the OASDI Board of Trustees. The projections start from a recent estimate of the population in the Social Security Area by age, sex, and martial status and from an estimate of existing marriages by age of husband and age of wife. Three separate projections, denoted Alternatives I, II, and III, are developed by analyzing historical data and making three different sets of assumptions about future net immigration, birth rates, and death rates.     

Economic policy, intergenerational equity, and the Social Security Trust Fund buildup

For the next 75 years, the Old-Age, Survivors, and Disability Insurance (OASDI) system is projected to be close to in balance, on average. For approximately the next 40 years, under current projections, the combined OASDI Trust Fund is expected to continually have excesses of income over outgo, creating a buildup that will peak in 2030 at about +12 1/2 trillion (roughly 23 percent of the gross national product). Thereafter, the system is projected to be in annual deficit continually until the trust fund is exhausted in 2051. This article focuses on two fundamental issues that must be understood if the potential economic consequences of this buildup are to be evaluated properly. The first issue deals with the fact that the nature of Federal economic policy during the buildup period will determine the ultimate economic impact of the buildup. The second issue concerns the effect of the buildup, and its disposition, on the Social Security program's treatment of one generation of workers compared with another. If a fund is actually accumulated as projected, part of the retirement benefits of the "baby-boom" generation will, in effect, be self-financed. If, however, that fund is used for other purposes--directly or indirectly--future cohorts of workers will be required to fully finance benefits promised to the baby-boom retirees.     

The erosion of retiree health benefits and retirement behavior: implications for the disability insurance program

The effects of retiree health insurance on the decision to retire have not been examined until recently. It is an area of increasing significance because of rising health care costs for retirees, the uncertain future of Medicare, and increased life expectancy. In general, studies suggest that individual retirement decisions are strongly responsive to the availability of retiree health insurance. Early retiree benefits and retirement behavior are also important because they may affect the Social Security Disability Insurance (DI) program. It is not apparent that if a person loses retiree health benefits, or if fewer people are eligible for retiree health benefits in general, claims for DI will increase. The potential 2-year loss of health benefits may be a deterrent to leaving the labor force and claiming DI, although persons who are unable to work would leave the labor force even without health benefits. In order to understand how the decline in retiree health benefits may affect enrollment in DI, analysts must at least incorporate the role of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). That act provides many people with access to health insurance during the 2-year gap between eligibility for DI and Medicare. In fact, persons with sufficient means to retire early could use the income from Disability Insurance to buy COBRA coverage during the first 2 years of DI coverage. Determining the effect of the erosion of retiree health benefits on DI must account properly for the role of other factors that affect DI eligibility and participation. The financial incentives of Social Security, pension plans, retirement savings programs, health status, the availability of health insurance, and other factors influencing retirement decisions must be taken fully into account in order to isolate the precise effect of retiree health benefits.     

Actuarial status of the HI and SMI Trust Funds

This article is adapted from the Summary of the 1985 Annual Reports of the Medicare Board of Trustees. It presents the actuarial status of the Hospital Insurance (HI) and the Supplementary Medical Insurance (SMI) Trust Funds. Two actions favorably affecting the financial status of the HI Trust Fund have occurred since the publication of the 1984 Reports: (1) Fiscal year 1986 hospital payment rates will continue at the same level as in fiscal year 1985, and (2) the level of the annual increase in the rates that can be granted without specific justification has been reduced. Despite these two actions, the Board found that the present financing schedule is barely sufficient to ensure payment of benefits through the late 1990's if the assumptions underlying the estimates are realized. The Board found the SMI program to be financially sound, but it noted with concern the rapid growth in the cost of the program. For both HI and SMI, the Board recommends that Congress consider ways to curtail the rapid growth in program costs.     

Actuarial status of the HI and SMI Trust Funds

This article is adapted from a summary of the 1984 annual reports of the Medicare Board of Trustees. It presents the actuarial status of the Hospital Insurance (HI) and the Supplementary Medical Insurance (SMI) Trust Funds. Although the Social Security Amendments of 1983 have made the HI program potentially less vulnerable to excessive rates of growth in the hospital industry by providing the Secretary of Health and Human Services some discretion over the level of payments to hospitals, the Board found the financing schedule for the HI program barely adequate to ensure the payment of benefits through the end of this decade if the assumptions underlying the estimates are realized. The Board found the SMI program to be financially sound, but it noted with concern the rapid growth in the cost of the program and the extent to which general revenues have become SMI's major source of financing. For both HI and SMI, the Board recommends that Congress consider ways to curtail the rapid growth in program costs.     

Disabled workers and the indexing of Social Security benefits

We examine how benefit amounts and family income would change in response to changing the Social Security (Old-Age, Survivors, and Disability Insurance, OASDI) benefit indexing scheme. We are interested in a class of reform options designed to gradually slow the growth of benefits across the board. These options include the "price indexing" and "longevity indexing" proposals that have been part of the recent Social Security reform debate in the United States as well as a range of proposals developed in Europe. In this article, we focus on the distributional effects on the disabled. This focus leads to two comparisons. First, we compare disabled-worker beneficiaries to another group that would be affected by the changes, retired-worker beneficiaries. Second, we examine relative changes for particularly vulnerable subgroups of disabled workers. In the empirical analysis, we use two illustrative examples of potential indexing changes: Shifting from wage indexing to price indexing of the initial level of OASDI benefits; and Adjusting the initial benefit level for changes in life expectancy at retirement, that is, longevity indexing. We employ a historical counterfactual simulation to evaluate outcomes that would have resulted from changing the indexing scheme at one particular point in time. The hypothetical implementation period begins with the historical start of the current regime of indexing in 1979 and ends with one of the reference periods of the 1996 Survey of Income and Program Participation (SIPP), a 17-year period. However, we briefly assess the extent to which the results would be applicable to other time horizons. The analysis uses a cross-sectional sample of OASDI beneficiaries from the 1996 SIPP matched to Social Security administrative records. Further, we use total income from the SIPP (as adjusted to correspond to the calculated OASDI benefit amounts) to simulate eligibility for Supplemental Security Income (SSI) and SSI benefit amounts. Our overall findings pertain to three outcomes: (1) effects on OASDI benefits viewed in isolation, (2) the offsetting role of SSI, and (3) the diluting effect of other sources of family income. We find that a broader perspective incorporating all three measures is necessary to obtain an appropriate picture of distributional outcomes. Even though the proposals were designed to have proportional effects, differences between groups--such as disabled and retired workers--can arise from differences in the timing of benefit claiming, mortality, and other factors. Specifically, our cross-sectional estimates suggest that the average change in OASDI benefit levels would be higher for disabled-worker beneficiaries than for retired-worker beneficiaries. These differences are attributable to the fact that a higher proportion of the stock of disabled beneficiaries have been on the Disability Insurance (DI) program rolls for a relatively short period of time and therefore have been affected by the shift in indexing scheme for a longer period of time. These results must be interpreted within the context of the methodology that was used. Further, other methodologies may lead to different results. For example, in previous studies that restricted the sample to a particular birth cohort, a higher proportion of disabled workers than retired workers were observed to have been on the DI program rolls for a relatively long period of time. Longer time on the beneficiary rolls corresponds to less exposure to the new indexing scheme and smaller estimated benefit changes. Thus, the same underlying factor-the timing of benefit claiming-influences both results. When the offsetting role of SSI benefits is also considered, we estimate smaller overall changes, especially for those at the bottom of the income distribution. When OASDI and SSI are considered together, differences in average benefit changes between disabled and retired workers are removed. This is due to a higher rate of SSI program participation among disabled workers than among retired workers. In addition, including SSI substantially reduces the proportion of disabled workers that have large simulated changes in benefit amounts. The estimated effects of changing the indexing scheme are further muted when total family income is considered. This occurs on a roughly equivalent scale for disabled and retired workers. As a result, changing the indexing scheme would produce little change in the status quo differences in poverty status between disabled and retired workers. Finally, we examine the most economically vulnerable subgroups of OASDI beneficiaries. Within the general group of beneficiaries, we find that the most vulnerable would be less affected than average, primarily as a result of the mitigating effect of SSI benefits. Further, within the population of disabled-worker beneficiaries, we examine economically vulnerable subgroups including those in the lowest primary insurance amount quartile, with less than a high school education, with an early onset of disability, or a primary mental impairment. These groups would also be less affected than average.     

Actuarial status of the Hospital Insurance and Supplementary Medical Insurance Trust Funds

This article, adapted from a summary of the 1983 Annual Reports of the Medicare Boards of Trustees, presents the present and projected future actuarial status of the Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) Trust Funds following the enactment of the Tax Equity and Fiscal Responsibility Act of 1982 and the Social Security Amendments of 1983. Although the Trustees characterize the outlook for the HI Trust Fund as slightly more optimistic than it was a year earlier, they report that the fund may be exhausted sometime between 1988 and 1996 unless benefits under the HI part of Medicare are reduced or financing is improved. The SMI Trust Fund, which is financed by premiums adjusted each year to reflect actual experience and by general revenue contributions, is characterized as actuarially sound. The Trustees note, however, the growing extent to which general revenue financing is becoming the major source of income for the SMI part of Medicare.     

Lifetime distributional effects of Social Security retirement benefits

This article presents three measures of the distribution of actual and projected net benefits (benefits minus payroll taxes) from Social Security's Old-Age and Survivors Insurance (OASI) for people born between 1931 and 1960. The results are based on simulations with the Social Security Administration's Model of Income in the Near Term (MINT), which projects retirement income through 2020. The base sample for MINT is the U.S. Census Bureau's Survey of Income and Program Participation panels for 1990 to 1993, matched with Social Security administrative records. The study population is grouped into 5-year birth cohorts and then ranked by economic status in three ways. First, the population is divided into five groups on the basis of individual lifetime covered earnings, and their lifetime present values of OASI benefits received and payroll taxes paid are calculated. By this measure, OASI provides much higher benefits to the lowest quintile of earners than to other groups, but it becomes less redistributive toward lower earners in more recent birth cohorts. Second, people are ranked by shared lifetime covered earnings, and the values of shared benefits received and payroll taxes paid are computed. Individuals are assumed to split covered earnings, benefits, and payroll taxes with their spouses in the years they are married. By the shared covered earnings measure, OASI is still much more favorable to persons in the lower income quintiles, although to a lesser degree than when people are ranked by individual covered earnings. OASI becomes more progressive among recent cohorts, even as net lifetime benefits decline for the entire population. Finally, individuals are ranked on the basis of their shared permanent income from age 62, when they become eligible for early retirement benefits, until death. Their annual Social Security benefits are compared with the benefits they would have received if they had saved their payroll taxes in individual accounts and used the proceeds to buy either of two annuities that provide level payments from age 62 until death: a unisex annuity that is based on the average life expectancy of the birth cohort or an age-adjusted annuity that is based on the worker's own life expectancy. On the permanent income measure, OASI is generally more favorable to people in higher income quintiles. Moreover, it is particularly unfavorable to those in the lowest quintile. Because people in the lowest quintile have a shorter life expectancy, they receive OASI benefits for a shorter period. This group would receive greater benefits in retirement if they invested their payroll taxes in the age-adjusted annuity. OASI is more favorable to them than the unisex annuity, however, OASI is becoming more progressive in that the net benefits it provides drop more rapidly among higher income quintiles than lower ones. This article also examines how OASI affects individuals by educational attainment, race, and sex. On both the lifetime covered earnings and the permanent income measures, OASI is more favorable to workers with less education and more favorable to women. The results by race and ethnicity are mixed. When people are ranked by the present value of their shared lifetime covered earnings, OASI appears more favorable to non-Hispanic blacks and Hispanics than to non-Hispanic whites. When people are ranked by shared permanent income in retirement, however, OASI produces negative returns for both non-Hispanic blacks and non-Hispanic whites in the most recent birth cohorts, with non-Hispanic blacks faring relatively worse. The changes across cohorts occur partly because of changes in tax rates and benefits, but more importantly because of changing demographics and earnings patterns of the workforce. Of particular importance is the increasing share of beneficiaries who receive worker benefits instead of auxiliary benefits as wives or widows. OASI benefits are based on the lifetime covered earnings of current or former married couples, as well as on earned retirement benefits of individuals. The reduced importance of auxiliary benefits (due to the higher lifetime covered earnings of women) and the increased proportion of divorced retirees make OASI more progressive--even as net benefits decline--for current and future cohorts than for cohorts who retired in the 1990s. Analysis of these findings suggests that simulations of policy changes in Social Security must take into account the decreasing importance of auxiliary benefits across birth cohorts and the complex changes in individuals' marital histories.     

How policy variables influence the timing of applications for Social Security Disability Insurance

This article analyzes the impact of policy variables--employer accommodations, state Social Security Disability Insurance (DI) allowance rates, and DI benefits--on the timing of an application for DI benefits by workers with a work-limiting health condition starting when their health condition first begins to bother them. The analysis uses a rich mixture of personal and employer characteristics from the Health and Retirement Study linked to Social Security administrative records. We find that most workers do not apply immediately for DI benefits when they are first bothered by a health condition. On the contrary, the median working-age man with a work-limiting condition waits 7 years after that time before applying, and the median working-age woman waits 8 years. Although the risk of applying for benefits is greatest in the year following onset, only 16 percent of men and 13 percent of women in our sample apply within the first year, and the risk of application falls thereafter. That finding suggests that institutional factors, in addition to health factors, may play a role in the timing of DI applications. Using kernel density estimates of the distribution of application and nonapplication ordered by state allowance rates (the rate of acceptance per DI determination in each state), we find that both men and women who live in states with high allowance rates are disproportionately more likely to apply for benefits in the first year after their condition begins to bother them than are those in states with low allowance rates. Using life-table analysis, we also find that men and women who are accommodated by their employers are significantly less likely to apply for DI benefits in each of the first few years after their condition begins to bother them than are those who are not accommodated. On the basis of this evidence, we include these policy variables in a model of the timing of DI application that controls for other socioeconomic variables as well as health. Using a hazard model, we find that workers who live in states with higher allowance rates apply for DI benefits significantly sooner than those living in states with lower allowance rates following the onset of a work-limiting health condition. Workers who are accommodated following the onset of a work-limiting health condition, however, are significantly slower to apply for DI benefits. Using the mean values of all explanatory variables, we estimate the relative importance of changes in these policy variables on the speed with which workers apply for benefits after onset. We find that the mean time until application for men is 10.22 years. Universal accommodations following onset would delay application by 4.36 years. In contrast, a 20 percent decrease in state allowance rates would delay application by only 0.88 years. For working-age women, the average expected time until application once a condition begins to bother them is 10.58 years. Universal accommodations would delay that by 3.76 years, and a 20 percent decrease in allowance rates would delay it by 1.47 years. A complication in this analysis is that the policy variables are to some degree endogenous. Accommodation is probably offered more often to workers who want to continue working. Allowance rates are chosen by states on the basis of federal policy and local choices and probably in part on the health condition of workers in the state. Therefore, our estimates are upper bounds of these policy effects. Still, we believe we provide evidence that the social environment faced by workers with work-limiting health conditions can significantly influence their decision to apply for DI benefits, holding their specific health conditions constant.     

What can we learn from analyzing historical data on social security entitlements?

We use data from Social Security administrative records to examine the lifetime patterns of initial entitlement to retired-worker and Disability Insurance (DI) benefits across cohorts born in different years. Breaking out age-at-entitlement patterns for different birth-year cohorts reveals close adherence in entitlement ages to changes in program rules, such as increasing the full retirement age. The proportion of a cohort that becomes newly entitled to DI benefits rises noticeably during recessions and at ages 50 and 55, and cumulative entitlement rate patterns show that more recent cohorts rely increasingly on DI benefits in their late 30s and 40s.     

Tax impact from elimination of the retirement test

The OASI eligibility provisions include a retirement test (or earnings test), and in 1979 aged beneficiaries who are under age 72 give up $1 in current benefits for each $2 of annual earnings above $4,500. If the retirement test were eliminated, total OASI payouts would increase because aged workers would no longer forfeit benefits. Aged workers also might increase earnings or delay retirement if this penalty on work effort were removed. Increased earnings would generate additional OASDHI taxes and individual income taxes. This article examines the fiscal effects on OASI benefit payouts and increased tax receipts if the retirement test were eliminated.