C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS

The demographic and economic assumptions and methods described in the previous sections are used in a set of models to project future income and cost under the OASDI program. In some cases, the economic assumptions result in the direct calculation of program parameters as described in the following subsection. These parameters affect the level of payroll taxes collected and the level of benefits paid and are calculated using formulas described explicitly in the Social Security Act. In other cases, the combination of demographic and economic assumptions are used indirectly to drive more complicated models that project the numbers of future workers covered under OASDI and the levels of their covered earnings, and the numbers of future beneficiaries and the expected levels of their benefits. The following subsections provide brief descriptions of the derivations of these program-specific factors.

1. Automatically Adjusted Program Amounts

The Social Security Act specifies that certain program amounts affecting the determination of OASDI benefits are to be adjusted annually, in general, to reflect changes in the economy. The law prescribes specific formulas that, when applied to reported statistics, produce automatic revisions in these program amounts and hence in the benefit-computation procedures. These automatic adjustments are based upon measured changes in the national average wage index and the CPI.¹ In this section, values are shown for program amounts that are subject to automatic adjustment, from the time that such adjustments became effective through 2012. Projected values for future years are based on the economic assumptions described in the preceding section of this report.

The following two tables present the historical and projected values of the CPI-based benefit increases, as well as the average wage index series and the values of many of the wage-indexed program amounts. In each table, the projections are shown under the three alternative sets of economic assumptions described in the previous section. Table V.C1 includes:

The annual percentage increases which have been applied to OASDI benefits under automatic cost-of-living adjustment provisions in the Social Security Act, based on increases in the CPI.

The annual levels of and percentage increases in the national average wage index. Under section 215(b)(3) of the Social Security Act, the national average wage index for each year after 1950 is used to index the taxable earnings of most workers first becoming eligible for benefits in 1979 or later. This procedure converts a worker's past earnings to approximately their equivalent values near the time of the worker's retirement or other eligibility, and these indexed values are used to calculate the worker's benefit. The average wage index is also used to adjust most of the other program amounts that are subject to the automatic-adjustment provisions.

The OASDI contribution and benefit base--the maximum amount of earnings subject to the OASDI payroll tax in the specified year.

The retirement earnings test exempt amounts--the annual amount of earnings below which beneficiaries are not subject to benefit withholding. A lower exempt amount applies in years before a beneficiary attains normal retirement age (NRA). A higher amount applies for the year in which the beneficiary attains normal retirement age. The retirement test does not apply beginning with the attainment of normal retirement age.

Table V.C1.--Cost-of-Living Benefit Increases, Average Wage Index, Contribution and Benefit Bases, and Retirement Earnings Test
Exempt Amounts, 1975-2012
Calendar year		OASDI benefit increases¹ (percent)	Average wage index ²		OASDI contribution and benefit base ³	Retirement earnings test exempt amount
Calendar year		OASDI benefit increases¹ (percent)	Amount	Increase (percent)	OASDI contribution and benefit base ³	Under NRA⁴	At NRA⁵
Historical data:
	1975	8.0	$8,630.92	7.5	$14,100	$2,520	$2,520
	1976	6.4	9,226.48	6.9	15,300	2,760	2,760
	1977	5.9	9,779.44	6.0	16,500	3,000	3,000
	1978	6.5	10,556.03	7.9	17,700	3,240	4,000
	1979	9.9	11,479.46	8.7	22,900	3,480	4,500

	1980	14.3	12,513.46	9.0	25,900	3,720	5,000
	1981	11.2	13,773.10	10.1	29,700	4,080	5,500
	1982	7.4	14,531.34	5.5	32,400	4,440	6,000
	1983	3.5	15,239.24	4.9	35,700	4,920	6,600
	1984	3.5	16,135.07	5.9	37,800	5,160	6,960

	1985	3.1	16,822.51	4.3	39,600	5,400	7,320
	1986	1.3	17,321.82	3.0	42,000	5,760	7,800
	1987	4.2	18,426.51	6.4	43,800	6,000	8,160
	1988	4.0	19,334.04	4.9	45,000	6,120	8,400
	1989	4.7	20,099.55	4.0	48,000	6,480	8,880

	1990	5.4	21,027.98	4.6	51,300	6,840	9,360
	1991	3.7	21,811.60	3.7	53,400	7,080	9,720
	1992	3.0	22,935.42	5.2	55,500	7,440	10,200
	1993	2.6	23,132.67	.9	57,600	7,680	10,560
	1994	2.8	23,753.53	2.7	60,600	8,040	11,160

	1995	2.6	24,705.66	4.0	61,200	8,160	11,280
	1996	2.9	25,913.90	4.9	62,700	8,280	12,500
	1997	2.1	27,426.00	5.8	65,400	8,640	13,500
	1998	1.3	28,861.44	5.2	68,400	9,120	14,500
	1999	⁶ 2.5	30,469.84	5.6	72,600	9,600	15,500

	2000	3.5	32,154.82	5.5	76,200	10,080	17,000
	2001	2.6	32,921.92	2.4	80,400	10,680	25,000
Intermediate:
	2002	⁷1.4	33,476.75	1.7	⁷ 84,900	⁷ 11,280	30,000

	2003	2.3	34,730.66	3.7	⁷ 87,000	⁷ 11,520	⁷ 30,720
	2004	2.4	36,202.65	4.2	88,500	11,760	31,200
	2005	2.8	37,733.96	4.2	91,800	12,120	32,400
	2006	2.9	39,338.44	4.3	95,700	12,720	33,720
	2007	3.0	41,033.61	4.3	99,600	13,200	35,160

	2008	3.0	42,771.99	4.2	103,800	13,800	36,720
	2009	3.0	44,566.15	4.2	108,300	14,400	38,280
	2010	3.0	46,409.05	4.1	113,100	15,000	39,960
	2011	3.0	48,325.83	4.1	117,900	15,600	41,520
	2012	3.0	50,293.80	4.1	122,700	16,320	43,320
Low Cost:
	2002	⁷ 1.4	33,547.79	1.9	⁷ 84,900	⁷ 11,280	30,000

	2003	2.0	34,907.44	4.1	⁷ 87,000	⁷ 11,520	⁷ 30,720
	2004	2.0	36,337.05	4.1	88,500	11,760	31,320
	2005	2.0	37,740.22	3.9	92,100	12,240	32,520
	2006	2.0	39,121.33	3.7	96,000	12,720	33,960
	2007	2.0	40,568.05	3.7	99,600	13,200	35,160

	2008	2.0	42,055.17	3.7	103,500	13,680	36,480
	2009	2.0	43,599.78	3.7	107,100	14,280	37,800
	2010	2.0	45,172.07	3.6	111,000	14,760	39,240
	2011	2.0	46,792.70	3.6	115,200	15,240	40,680
	2012	2.0	48,448.46	3.5	119,400	15,840	42,120
High Cost:
	2002	⁷ 1.4	33,417.83	1.5	⁷ 84,900	⁷ 11,280	30,000

	2003	2.5	34,208.13	2.4	⁷ 87,000	⁷ 11,520	⁷ 30,720
	2004	3.1	36,009.40	5.3	88,200	11,760	31,200
	2005	4.7	38,058.89	5.7	90,300	12,000	31,920
	2006	6.0	39,853.26	4.7	95,100	12,600	33,600
	2007	5.6	42,279.32	6.1	100,500	13,320	35,520

	2008	4.8	45,170.39	6.8	105,300	13,920	37,200
	2009	4.1	47,441.85	5.0	111,600	14,880	39,480
	2010	4.0	49,588.16	4.5	119,400	15,840	42,120
	2011	4.0	51,840.85	4.5	125,400	16,680	44,280
	2012	4.0	54,216.93	4.6	131,100	17,400	46,320

¹Effective with benefits payable for June in each year 1975-82, and for December in each year after 1982.

²See table VI.F7 for projected dollar amounts of the average wage index beyond 2012.

³Amounts for 1979-81 were specified by Public Law 95-216. The bases for years after 1989 were increased slightly by changes to the indexing procedure, as required by Public Law 101-239.

⁴Normal retirement age. See table V.C3 for specific values.

⁵In 1955-82, the retirement earnings test did not apply at ages 72 and over; in 1983-99, the test did not apply at ages 70 and over; beginning in 2000, it does not apply beginning with the month of attainment of NRA. In the year of attainment of NRA, the higher exempt amount applies to earnings in the year prior to the month of NRA attainment. Amounts for 1978-82 specified by Public Law 95-216; for 1996-2002, Public Law 104-121.

⁶Originally determined as 2.4 percent, but pursuant to Public Law 106-554, is effectively 2.5 percent.

⁷Actual amount, as determined under automatic-adjustment provisions.

Other wage-indexed amounts are shown in table V.C2. The table provides historical values from 1978, when the amount of earnings required for a quarter of coverage was first indexed, through 2003, and also shows projected amounts through 2012. These other wage-indexed program amounts are:

Figure V.C1.--Primary-Insurance-Amount Formula for the 2003 Cohort
[D]

Figure V.C2.--Maximum-Family-Benefit Formula for the 2003 Cohort
[D]

Table V.C2.--Selected Wage-Indexed Program Amounts,
Calendar Years 1978-2012
Calendar year		AIME bend points in PIA formula ¹		PIA bend points in maximum- family-benefit formula ²			Earnings required for a quarter of coverage	Old-law contribution and benefit base ³
Calendar year		First	Second	First	Second	Third	Earnings required for a quarter of coverage	Old-law contribution and benefit base ³
Historical data:
	1978	^4/	^4/	^4/	^4/	^4/	⁵ $250	^4/
	1979	⁵ $180	⁵ $1,085	⁵ $230	⁵ $332	⁵ $433	260	$18,900

	1980	194	1,171	248	358	467	290	20,400
	1981	211	1,274	270	390	508	310	22,200
	1982	230	1,388	294	425	554	340	24,300
	1983	254	1,528	324	468	610	370	26,700
	1984	267	1,612	342	493	643	390	28,200

	1985	280	1,691	358	517	675	410	29,700
	1986	297	1,790	379	548	714	440	31,500
	1987	310	1,866	396	571	745	460	32,700
	1988	319	1,922	407	588	767	470	33,600
	1989	339	2,044	433	626	816	500	35,700

	1990	356	2,145	455	656	856	520	38,100
	1991	370	2,230	473	682	890	540	39,600
	1992	387	2,333	495	714	931	570	41,400
	1993	401	2,420	513	740	966	590	42,900
	1994	422	2,545	539	779	1,016	620	45,000

	1995	426	2,567	544	785	1,024	630	45,300
	1996	437	2,635	559	806	1,052	640	46,500
	1997	455	2,741	581	839	1,094	670	48,600
	1998	477	2,875	609	880	1,147	700	50,700
	1999	505	3,043	645	931	1,214	740	53,700

	2000	531	3,202	679	980	1,278	780	56,700
	2001	561	3,381	717	1,034	1,349	830	59,700
	2002	592	3,567	756	1,092	1,424	870	63,000
	2003	606	3,653	774	1,118	1,458	890	64,500
Intermediate:
	2004	616	3,714	787	1,136	1,482	910	65,700
	2005	639	3,853	817	1,179	1,538	940	68,100
	2006	666	4,017	851	1,229	1,603	980	71,100
	2007	695	4,186	887	1,281	1,671	1,020	74,100

	2008	724	4,364	925	1,335	1,742	1,070	77,100
	2009	755	4,553	965	1,393	1,817	1,110	80,400
	2010	787	4,745	1,006	1,452	1,894	1,160	84,000
	2011	820	4,944	1,048	1,513	1,973	1,210	87,300
	2012	854	5,149	1,091	1,576	2,055	1,260	91,200
Low Cost:
	2004	617	3,722	789	1,139	1,485	910	65,700
	2005	643	3,873	821	1,185	1,546	950	68,400
	2006	669	4,031	855	1,234	1,609	980	71,400
	2007	695	4,187	888	1,281	1,671	1,020	74,100

	2008	720	4,340	920	1,328	1,732	1,060	76,800
	2009	747	4,501	954	1,377	1,796	1,100	79,500
	2010	774	4,666	989	1,428	1,862	1,140	82,500
	2011	802	4,837	1,025	1,480	1,930	1,180	85,500
	2012	831	5,012	1,062	1,534	2,000	1,220	88,500
High Cost:
	2004	615	3,708	786	1,134	1,480	910	65,700
	2005	630	3,795	805	1,161	1,515	930	67,200
	2006	663	3,995	847	1,222	1,594	980	70,800
	2007	701	4,223	895	1,292	1,685	1,030	74,700

	2008	734	4,422	937	1,353	1,765	1,080	78,300
	2009	778	4,691	994	1,435	1,872	1,150	83,100
	2010	831	5,012	1,062	1,533	2,000	1,220	88,500
	2011	873	5,264	1,116	1,611	2,101	1,290	93,000
	2012	913	5,502	1,166	1,683	2,196	1,340	97,200

¹The formula to compute a PIA is (1) 90% of AIME below the first bend point, plus (2) 32% of AIME in excess of the first bend point but not in excess of the second, plus (3) 15% of AIME in excess of the second bend point. The bend points pertain to the first year a beneficiary becomes eligible for benefits.

²The formula to compute a family maximum is (1) 150% of PIA below the first bend point, plus (2) 272% of PIA in excess of the first bend point but not in excess of the second, plus (3) 134% of PIA in excess of the second bend point but not in excess of the third, plus (4) 175% of PIA in excess of the third bend point.

³Contribution and benefit base that would have been determined automatically under the law in effect prior to enactment of the Social Security Amendments of 1977. The bases for years after 1989 were increased slightly by changes to the indexing procedure to determine the base, as required by Public Law 101-239.

⁴No provision in law for this amount in this year.

⁵Amount specified for first year by Social Security Amendments of 1977; amounts for subsequent years subject to automatic-adjustment provisions.

In addition to the program amounts affecting the determination of OASDI benefits that reflect changes in the economy, there are certain legislated changes that have affected, and will affect, benefits. Two such changes are the scheduled increases in the normal retirement age and in the delayed retirement credits. Table V.C3 shows the scheduled changes in these two important items and their effect on benefits expressed as a percentage of PIA.

Table V.C3.--Legislated Changes in Normal Retirement Age and Delayed Retirement Credits, for Persons Reaching Age 62 in Each Year 1986 and Later
Year of birth	Year of attainment of age 62	Normal retirement age (NRA)	Credit for each year of delayed retirement after NRA (percent)	Benefit, as a percentage of PIA, beginning at age --
Year of birth	Year of attainment of age 62	Normal retirement age (NRA)		62	65	66	67	70
1924	1986	65	3	80	100	103	106	115
1925	1987	65	3 ¹/₂	80	100	103 ¹/₂	107	117 ¹/₂
1926	1988	65	3 ¹/₂	80	100	103 ¹/₂	107	117 ¹/₂
1927	1989	65	4	80	100	104	108	120
1928	1990	65	4	80	100	104	108	120
1929	1991	65	4 ¹/₂	80	100	104 ¹/₂	109	122 ¹/₂
1930	1992	65	4 ¹/₂	80	100	104 ¹/₂	109	122 ¹/₂

1931	1993	65	5	80	100	105	110	125
1932	1994	65	5	80	100	105	110	125
1933	1995	65	5 ¹/₂	80	100	105 ¹/₂	111	127 ¹/₂
1934	1996	65	5 ¹/₂	80	100	105 ¹/₂	111	127 ¹/₂
1935	1997	65	6	80	100	106	112	130
1936	1998	65	6	80	100	106	112	130
1937	1999	65	6 ¹/₂	80	100	106 ¹/₂	113	132 ¹/₂

2003 OASDI Trustees Report

2003 OASDI Trustees Report

C. PROGRAM-SPECIFIC ASSUMPTIONS AND METHODS

1. Automatically Adjusted Program Amounts