Actuarial Note

ACTUARIAL NOTE	SOCIAL SECURITY ADMINISTRATION
Number 2010.4 February 2011	Office of the Chief Actuary Baltimore, Maryland
Illustrative Benefits for Retired Workers, Disabled Workers, and Survivors Scheduled Under Current Law
by Michael Clingman, Kyle Burkhalter, and Chris Chaplain

The Social Security program provides income to retired workers and their families, qualifying disabled workers and their families, and survivors of workers. The progressivity of the Social Security benefit formula allows individuals with lower earnings to receive monthly benefits that are a higher percentage of such earnings compared to that percentage for those with higher earnings. For a group of example workers with a range of full-lifetime average earnings levels ¹ at various ages in 2010, this note displays their current earnings in 2009, their full-lifetime earnings, and the amounts they would expect to receive at benefit entitlement.

The assumptions underlying the attached tables are similar to those used in the annual Social Security statement mailed to workers and former workers aged 25 and older. Specifically, the benefit amounts reflect no increase in the cost of living or in the average wage level after 2009. Thus, the benefit estimates for workers retiring in future years are on a roughly comparable basis to the benefit estimates for disabled workers and survivors of deceased workers, which both assume benefit entitlement in 2010.

All example workers , except the steady maximum, ² are assumed to have scaled earnings patterns beginning at age 21. These patterns reflect the actual experience of insured workers during 1991-2006, which show relatively low wages and probability of work at younger and older ages and higher relative wages and probability of work at mid-career. ³ Earnings levels after 2009 for scaled workers illustrated in this note are not assumed to increase due to changes in the average wage level, but are assumed to follow the scaled earnings pattern as age increases. It is important to note that this approach for determining future earnings differs from that used in the annual Social Security statement.

Four tables are attached. The tables allow workers to look up estimated future benefits consistent with their earnings in 2009 and age in 2010. Each table lists earnings in 2009 at various ages and annual benefit amounts at entitlement for example workers with full-lifetime earnings levels of: $10,000, $20,000, $30,000, $40,000, $50,000, $60,000, and the taxable maximum. As mentioned above, the benefit amounts assume no increase in the cost of living or the average wage after 2009. Additional information about each table is provided below.

Table 1A: Retired Workers Who Become Entitled at Normal Retirement Age (NRA). This table also shows the percentage of fully insured workers with full-lifetime earnings at or below each of the seven full-lifetime earnings levels. These percentages are based on the earnings of a one-percent sample of individuals, aged 25 through 65, who are fully insured in 2007. The illustrated benefits are for workers only. There may be additional benefits for auxiliary beneficiaries such as spouses and dependent children. The NRA increased to 66 for those turning age 62 in 2005. It will increase further beginning with those turning age 62 in 2017, reaching 67 for those turning age 62 in 2022 and later.

Table 1B: Retired Workers Who Become Entitled at Age 65. The only difference between this table and table 1A is that the example workers retire at age 65 rather than NRA, resulting in lower benefit amounts due to reduction for early retirement. The illustrated benefits are for workers only. There may be additional benefits for auxiliary beneficiaries such as spouses and dependent children.

Table 2: Disabled Worker Annual Benefit Amounts. For the seven full-lifetime earnings levels listed above, this table provides benefit amounts assuming benefit entitlement in 2010 for disabled example workers aged 25, 35, 45, and 55. In addition, the table provides the percentage of disability insured workers with full-lifetime earnings at or below each full-lifetime earnings level. These percentages are based on earnings of a one-percent sample of individuals, aged 25 through 64, who are disability insured in 2007. The illustrated benefits are for workers only. There may be additional benefits for auxiliary beneficiaries such as spouses and dependent children.

Table 3: Survivor Annual Benefit Amounts. For the seven full-lifetime earnings levels, this table provides benefit amounts assuming that the deceased example workers would have attained ages 25, 35, 45, or 60 just before dying in 2010. In each case, the surviving spouse is assumed to be the same age as the deceased worker and to become entitled to benefits in 2010. Benefit estimates are provided for three scenarios of survivor beneficiaries: (1) spouse and one child (spouse only for the age 60 case), (2) one child only, and (3) spouse and two children. Because of the family maximum benefit provision, annual benefit amounts for a spouse and two children are the same as, or only moderately higher than, for a spouse and one child. In addition, the table provides the percentage of fully insured workers with full-lifetime earnings at or below each fulllifetime earnings level. These percentages are based on the earnings of a one-percent sample of individuals, aged 25 through 65, who are fully or currently insured in 2007.

¹ The full-lifetime average earnings level reflects the average of the highest 35 years of wage-indexed earnings (wage-indexed to 2009) expected for the illustration assuming that the worker survives to age 65 without becoming disabled.

² For the steady maximum worker, earnings start at age 22 and are assumed to equal the taxable maximum (the OASDI benefit and contribution base) for each year through 2009. Earnings after 2009 are assumed to equal the taxable maximum of $106,800 for 2009.

Table 1A: Retired Worker Annual Benefit Amounts ¹ Scheduled in Current Law

For Insured Workers at Various Ages Who Become Entitled at Normal Retirement Age (NRA) With Various Lifetime Earnings Patterns ²
Age in 2010	Age at benefit entitlement (NRA)		Estimated earnings in 2009 and benefit at entitlement (NRA)
25	67	Earnings in 2009	$5,719	$11,438	$17,157	$22,876	$28,595	$34,314	$106,800
25	67	Benefit at entitlement	8,460	11,652	14,856	18,060	21,252	23,544	30,576
35	67	Earnings in 2009	9,710	19,421	29,131	38,842	48,552	58,263	106,800
35	67	Benefit at entitlement	8,460	11,652	14,856	18,060	21,252	23,556	30,552
45	67	Earnings in 2009	10,961	21,923	32,884	43,846	54,807	65,769	106,800
45	67	Benefit at entitlement	8,460	11,652	14,856	18,060	21,252	23,544	30,312
55	66	Earnings in 2009	10,640	21,280	31,919	42,559	53,199	63,839	106,800
55	66	Benefit at entitlement	8,460	11,652	14,856	18,060	21,252	23,544	29,904
65	66	Earnings in 2009	6,991	13,982	20,972	27,963	34,954	41,945	106,800
65	66	Benefit at entitlement	8,244	11,364	14,496	17,616	20,748	22,968	28,392
Full-lifetime earnings level ³			10,000	20,000	30,000	40,000	50,000	60,000	Maximum
Percent of fully insured workers with career average earnings at this level or below ⁴			11	26	42	58	70	80	100

¹ The assumptions underlying the above benefit estimates are similar to those used for the Social Security Statement. These estimates reflect no increase in the cost of living or average wage and earnings levels after December 2009. However, earnings after 2009 follow scaled earnings patterns as age increases. (These assumptions are not consistent with those used for table VI.F10 of the 2010 Trustees Report.)

² Scaled earnings patterns starting at age 21 are assumed for all but the maximum worker. These patterns reflect the actual experience of insured workers during 1991-2006. For the maximum worker, earnings start at age 22 and are assumed to equal the taxable maximum (the OASDI benefit and contribution base) for each year through 2009. (For 2009, this amount was $106,800.) For more details on the scaled-earnings patterns see Actuarial Note Number 2010.3, located at: www.socialsecurity.gov/OACT/NOTES/ran3/an2010-3.html.

³ The full-lifetime earnings level reflects the average of the highest 35 years of wage-indexed earnings (wage-indexed to 2009) expected for the illustration assuming the worker survives to age 65 without becoming disabled.

⁴ Based on a 1% sample of actual earnings histories for individuals aged 25 through 65 who are fully insured in 2007.

Table 1B: Retired Worker Annual Benefit Amounts ¹ Scheduled in Current Law

For Insured Workers at Various Ages Who Become Entitled at Age 65 With Various Lifetime Earnings Patterns ²
Age in 2010	Age at benefit entitlement		Estimated earnings in 2009 and benefit at entitlement (Age 65)
25	65	Earnings in 2009	$5,719	$11,438	$17,157	$22,876	$28,595	$34,314	$106,800
25	65	Benefit at entitlement	7,332	10,104	12,876	15,648	18,420	20,412	26,496
35	65	Earnings in 2009	9,710	19,421	29,131	38,842	48,552	58,263	106,800
35	65	Benefit at entitlement	7,332	10,104	12,876	15,648	18,420	20,412	26,436
45	65	Earnings in 2009	10,961	21,923	32,884	43,846	54,807	65,769	106,800
45	65	Benefit at entitlement	7,332	10,104	12,876	15,648	18,420	20,412	26,220
55	65	Earnings in 2009	10,640	21,280	31,919	42,559	53,199	63,839	106,800
55	65	Benefit at entitlement	7,800	10,752	13,692	16,644	19,596	21,720	27,540
65	65	Earnings in 2009	6,991	13,982	20,972	27,963	34,954	41,945	106,800
65	65	Benefit at entitlement	7,692	10,608	13,524	16,440	19,368	21,432	26,292
Full-lifetime earnings level ³			10,000	20,000	30,000	40,000	50,000	60,000	Maximum
Percent of fully insured workers with career average earnings at this level or below ⁴			11	26	42	58	70	80	100

⁴ Based on a 1% sample of actual earnings histories for individuals aged 25 through 65 who are fully insured in 2007.

Table 2: Disabled Worker Annual Benefit Amounts

For Disability Insured Workers Entitled in 2010 at Selected Ages and With Various Lifetime Earnings Patterns ¹
Age at benefit entitlement in 2010		Earnings in 2009 and benefit for 2010
25	Earnings in 2009	$5,719	$11,438	$17,157	$22,876	$28,595	$34,314	$106,800
25	Benefit at entitlement	4,368	8,400	9,960	11,508	13,068	14,616	30,072
35	Earnings in 2009	9,710	19,421	29,131	38,842	48,552	58,263	106,800
35	Benefit at entitlement	7,356	10,524	13,152	15,768	18,384	21,012	29,928
45	Earnings in 2009	10,961	21,923	32,884	43,846	54,807	65,769	106,800
45	Benefit at entitlement	8,376	11,460	14,544	17,628	20,712	23,316	29,904
55	Earnings in 2009	10,640	21,280	31,919	42,559	53,199	63,839	106,800
55	Benefit at entitlement	8,568	11,844	15,132	18,408	21,684	23,868	29,676
Full-lifetime earnings level²		10,000	20,000	30,000	40,000	50,000	60,000	Maximum
Percent of disability insured workers with career earnings at this level or below ³		6	21	37	54	68	78	100

¹ Scaled earnings patterns starting at age 21 are assumed for all but the maximum worker. These patterns reflect the actual experience of insured workers during 1991-2006. For the maximum worker, earnings start at age 22 and are assumed to equal the taxable maximum (the OASDI benefit and contribution base) for each year through 2009. (For 2009, this amount was $106,800.) For more details on the scaled-earnings patterns see Actuarial Note Number 2010.3, located at: www.socialsecurity.gov/OACT/NOTES/ran3/an2010-3.html.

² The full-lifetime earnings level reflects the average of the highest 35 years of wage-indexed earnings (wage-indexed to 2009) expected for the illustration assuming the worker survives to age 65 without having become disabled.

³ Based on a 1% sample of actual earnings histories for individuals aged 25 through 64 who are disability insured in 2007.

Note: These estimates reflect no increase in the cost of living after December 2009.

Table 3: Survivor Annual Benefit Amounts

For Survivors Entitled in 2010 at Selected Ages and With Various Lifetime Earnings Patterns of the Deceased Spouse ¹
Age of deceased spouse in 2010	Age of surviving spouse in 2010		Benefit at entitlement in 2010 and deceased spouse's earnings in 2009
25	25	Spouse and one child	$7,152	$13,032	$15,576	$18,120	$20,664	$23,208	$45,456
		Child only	3,576	6,516	7,788	9,060	10,332	11,604	22,728
		Spouse and two children	7,152	13,032	15,576	18,636	23,256	27,864	53,040
	Earnings of deceased spouse in 2009		5,719	11,438	17,157	22,876	28,595	34,314	106,800
35	35	Spouse and one child	11,928	16,416	20,664	24,912	29,160	33,408	45,144
		Child only	5,964	8,208	10,332	12,456	14,580	16,704	22,572
		Spouse and two children	11,928	16,428	23,268	30,972	35,064	38,988	52,680
	Earnings of deceased spouse in 2009		9,710	19,421	29,131	38,842	48,552	58,263	106,800
45	45	Spouse and one child	12,624	17,328	22,008	26,712	31,416	35,160	44,880
		Child only	6,312	8,664	11,004	13,356	15,708	17,580	22,440
		Spouse and two children	12,636	17,328	25,704	32,880	37,068	41,040	52,380
	Earnings of deceased spouse in 2009		10,961	21,923	32,884	43,846	54,807	65,769	106,800
60	60	Spouse only	6,108	8,436	10,764	13,092	15,420	17,016	20,880
		Child only	6,408	8,844	11,292	13,728	16,176	17,856	21,900
		Spouse and two children	12,816	17,868	26,736	33,540	37,908	41,664	51,108
	Earnings of deceased spouse in 2009		8,960	17,920	26,879	35,839	44,799	53,759	106,800
Full-lifetime earnings level ²			10,000	20,000	30,000	40,000	50,000	60,000	Maximum
Percent of fully or currently insured workers with career average earnings at this level or below ³			12	27	43	58	71	80	100

³ Based on a 1% sample of actual earnings histories for individuals aged 25 through 65 who are fully or currently insured in 2007.

Note: These estimates reflect no increase in the cost of living after December 2009.

ACTUARIAL NOTE