The Office of the Chief Actuary at the Social Security Administration uses a set of models to project future income and cost under the OASDI program. These models rely not only on the demographic and economic assumptions described in the previous sections, but also on a number of program-specific assumptions and methods. Values of many program parameters change from year to year as prescribed by formulas set out in the Social Security Act. These program parameters affect the level of payroll taxes collected and the level of benefits paid. The office uses more complex models to project the numbers of future workers covered under OASDI and the levels of their covered earnings, as well as the numbers of future beneficiaries and the expected levels of their benefits. The following subsections provide descriptions of these program-specific assumptions and methods.The Social Security Act requires that certain parameters affecting the determination of OASDI benefits and taxes be adjusted annually to reflect changes in particular economic measures. Formulas prescribed in the law, applied to reported statistics, change these program parameters annually. The law bases these automatic adjustments on measured changes in the national average wage index (AWI) and the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI).1 This section shows values for program parameters adjusted using these indices from the time that these adjustments became effective through 2026. Projected values for future years depend on the economic assumptions described in the preceding section of this report.Tables V.C1 and V.C2 present the historical and projected values of the CPI-based benefit increases, the AWI series, and the values of many of the wage-indexed program parameters. Each table shows projections under the three alternative sets of economic assumptions. Table V.C1 includes:
• The annual cost-of-living benefit increase percentages. The automatic cost-of-living adjustment provisions in the Social Security Act specify increases in OASDI benefits based on increases in the CPI. Volatility in oil prices has resulted in substantial volatility in recent cost-of-living adjustments. A large cost-of-living adjustment in December 2008 was followed by no cost-of-living adjustments in December 2009 and December 2010. More recent volatility in oil prices again affected the CPI, resulting in no cost-of-living adjustment for December 2015. There was a cost-of-living adjustment for December 2016, and all three sets of assumptions have automatic cost-of-living adjustments for all future years.
• The annual levels of and percentage increases in the AWI. Under section 215(b)(3) of the Social Security Act, Social Security benefit computations index taxable earnings (for most workers first becoming eligible for benefits in 1979 or later) using the AWI for each year after 1950. This procedure converts a worker’s past earnings to approximately average-wage-indexed equivalent values near the time of his or her benefit eligibility. Other program parameters presented in this section that are subject to the automatic-adjustment provisions also rely on the AWI.
• The wage-indexed contribution and benefit base. For any year, the contribution and benefit base is the maximum amount of earnings subject to the OASDI payroll tax and creditable toward benefit computation. The Social Security Act defers any increase in the contribution and benefit base if there is no cost-of-living adjustment effective for December of the preceding year. There was no increase in the contribution and benefit base for 2010, 2011, or 2016 because there was no cost-of-living adjustment for the immediate prior December in each case. Under all three sets of assumptions, the contribution and benefit base is projected to increase for all future years.
• The wage-indexed retirement earnings test exempt amounts. The exempt amounts are the annual amount of earnings below which beneficiaries do not have benefits withheld. A lower exempt amount applies for years prior to the year of attaining normal retirement age. A higher exempt amount applies beginning with the year in which a beneficiary attains normal retirement age. Starting in 2000, the retirement earnings test no longer applies beginning with the month of attaining normal retirement age. The Social Security Act defers any increase in these exempt amounts if there is no cost-of-living adjustment effective for December of the preceding year. There was no increase in these exempt amounts for 2010, 2011, or 2016 because there was no cost-of-living adjustment for the immediate prior December. Under all three sets of assumptions, the exempt amounts increase for all future years.
Cost-of-living benefit increasea (percent) Average wage index (AWI)b Contribution and benefit base c At NRAe f2.5 g.3 g118,500 g15,720 g41,880 g127,200 g16,920 g44,880 g0.3 g$118,500 g$15,720 g$41,880 g127,200 g16,920 g44,880 g.3 g118,500 g15,720 g41,880 g127,200 g16,920 g44,880
See table VI.G6 for projected dollar amounts of the AWI for years beyond the last year of this table.
Normal retirement age. See table V.C3 for specific values.
Originally determined as 2.4 percent. Pursuant to Public Law 106-554, effectively 2.5 percent.
Table V.C2 shows values for other wage-indexed parameters. The table provides historical values from 1978, when indexing of the amount of earnings required for a quarter of coverage first began, through 2017, and also shows projected values through 2026. These other wage-indexed program parameters are:
• The bend points in the formula for computing the primary insurance amount (PIA) for workers who reach age 62, become disabled, or die in a given year. As figure V.C1 illustrates, these two bend points define three ranges in a worker’s average indexed monthly earnings (AIME). The formula for the worker’s PIA multiplies a 90, 32, or 15 percent factor by the portion of the worker’s AIME that falls within the three respective ranges, and then adds the resulting products together.
• The bend points in the formula for computing the maximum total amount of monthly benefits payable based on the earnings record of a retired or deceased worker (maximum family benefit). As figure V.C2 illustrates, these three bend points define four ranges in a worker’s PIA. The formula for the maximum family benefit multiplies a 150, 272, 134, or 175 percent factor by the portion of the worker’s PIA that falls within the four respective ranges, and then adds the resulting products together.
• The amount of earnings required in a year to earn a quarter of coverage (QC). The number and timing of QCs earned determines an individual’s insured status — the basic requirement for benefit eligibility under OASDI.
• The old-law contribution and benefit base—the contribution and benefit base that would have been in effect without enactment of the 1977 amendments. This old-law base is used in determining special-minimum benefits for certain workers who have many years of low earnings in covered employment. Since 1986, the calculation of OASDI benefits for certain workers who are eligible to receive pensions based on noncovered employment uses the old-law base. In addition, the Railroad Retirement program and the Employee Retirement Income Security Act of 1974 use the old-law base for certain purposes.
AIME bend points in PIA formulaa PIA bend points in OASI maximum-family-benefit formulab Old-lawcontribution and benefit basec e $250 e $17,700 e $180 e $1,085 e $230 e $332 e $433
In addition to the economic factors that affect the determination of OASDI benefits, there are certain legislated changes that affect current and future benefit amounts. 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 parameters and the resulting effects on benefit levels expressed as a percentage of PIA.
3 1/2 103 1/2 117 1/2 3 1/2 103 1/2 117 1/2 4 1/2 104 1/2 122 1/2 4 1/2 104 1/2 122 1/2 5 1/2 105 1/2 127 1/2 5 1/2 105 1/2 127 1/2 6 1/2 106 1/2 132 1/2 6 1/2 79 1/6 98 8/9 105 5/12 111 11/12 131 5/12 78 1/3 97 7/9 104 2/3 111 2/3 132 2/3 77 1/2 96 2/3 103 1/2 110 1/2 131 1/2 7 1/2 76 2/3 95 5/9 102 1/2 132 1/2 7 1/2 75 5/6 94 4/9 101 1/4 108 3/4 131 1/4 93 1/3 74 1/6 92 2/9 98 8/9 106 2/3 130 2/3 73 1/3 91 1/9 97 7/9 105 1/3 129 1/3 72 1/2 96 2/3 71 2/3 88 8/9 95 5/9 102 2/3 126 2/3 70 5/6 87 7/9 94 4/9 101 1/3 125 1/3 86 2/3 93 1/3 Projections of the total U.S. labor force and unemployment rate (see table V.B2) are based on Bureau of Labor Statistics definitions from the Current Population Survey (CPS). These projections represent the average weekly number of employed and unemployed persons, age 16 and over, in the U.S. in a calendar year. Covered employment for a calendar year is defined as the total number of persons who have any OASDI covered earnings (that is, earnings subject to the OASDI payroll tax) at any time during that year. For those age 16 and over, projected covered employment is the sum of age-sex components, each reflecting the growth projected for the component’s total U.S employment and average weeks worked per year.2For the short-range period, the average weeks worked for each component is assumed to increase during the economic recovery. After 2026, the average weeks worked for each component is assumed to remain constant. The projection method also accounts for changes in non-OASDI-covered employment, the increase in coverage of Federal civilian employment as a result of the 1983 Social Security Amendments, and changes in the number and employment status of other immigrants residing within the Social Security coverage area.The covered-worker rate is the ratio of OASDI covered workers to the Social Security area population. For men age 16 and over, the projected age-adjusted covered-worker rates3 for 2091 are 69.0, 68.7, and 68.4 percent for the low-cost, intermediate, and high-cost assumptions, respectively. For women age 16 and over, the projected age-adjusted covered-worker rates for 2091 are 65.9, 64.7, and 63.4 percent for the low-cost, intermediate, and high-cost assumptions, respectively. For men, the intermediate projected rate is slightly lower than the 2015 age-adjusted rate of 68.9 percent primarily due to the projected increase in the portion of the Social Security area population that consists of other-than-legal permanent residents. For women, the intermediate projection is higher than the 2015 age-adjusted rate of 62.7 percent because the projected increase in the age-adjusted labor force participation rate more than offsets the projected increase in the portion of the population that will be other-than-legal permanent residents.Eligibility for worker benefits under the OASDI program requires some threshold level of work in covered employment. A worker satisfies this requirement by his or her accumulation of quarters of coverage (QCs). Prior to 1978, a worker earned one QC for each calendar quarter in which he or she earned at least $50. In 1978, when annual earnings reporting replaced quarterly reporting, the amount required to earn a QC (up to a maximum of four per year) was set at $250. As specified in the law, the Social Security Administration has adjusted this amount each year since then according to changes in the AWI. Its value in 2017 is $1,300.The long-range fully insured model uses 30,000 simulated work histories for each sex and birth cohort, representing everyone except the other immigrant population.4 For the other immigrant population, the model generates substantially lower percentages attaining fully insured status. The model constructs simulated work histories using past coverage rates, earnings distributions, and amounts required for crediting QCs, and develops them in a manner that replicates historical individual variations in work patterns. The probability of covered employment in any year is assumed to be higher for those who have worked more consistently in the recent past. Model parameters are selected so that simulated fully insured percentages are consistent with the fully insured percentages estimated by the short-range model for the recent historical period.The short-range model develops the number of retired-worker beneficiaries by applying award rates to the aged fully insured population, excluding those already receiving retired-worker, disabled-worker, aged-widow(er)’s, or aged-spouse’s benefits, and by applying termination rates to the number of retired-worker beneficiaries.The long-range model projects the number of retired-worker beneficiaries who were not previously converted from disabled-worker beneficiary status as a percentage of the exposed population.5 For age 62, the model projects this percentage by using a linear regression based on the historical relationship between this percentage, the labor force participation rate at age 62, and the number of months from age 62 to normal retirement age. The percentage for ages 70 and over is nearly 100 because delayed retirement credits cannot be earned after age 70. The long-range model projects the percentage for each age 63 through 69 based on historical experience with an adjustment for changes in the portion of the primary insurance amount that is payable at each age of entitlement. The model adjusts these percentages for ages 62 through 69 to reflect changes in the normal retirement age.Table V.C4 shows the projected number of beneficiaries under the OASI program by type of benefit. The retired-worker beneficiary counts include those persons who receive a residual auxiliary benefit in addition to their retired-worker benefit. The office makes estimates of the number and amount of residual payments separately for spouses and widow(er)s.
Workera