United States Government Accountability Office

GAO Report to Congressional Requesters

SOCIAL SECURITY 

REFORM 

Issues for Disability 

and Dependent 

Benefits 

October 2007 

 

GAO-08-26 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

October 2007

SOCIAL SECURITY REFORM 

Issues for Disability and Dependent Benefits

Highlights of GAO-08-26, a report to 

congressional requesters 

Many recent Social Security reform 

proposals to improve program 

solvency include elements that 

would reduce benefits currently 

scheduled for future recipients. To

date, debate has focused primarily

on the potential impact on retirees,

with less attention to the effects on

other Social Security recipients, 

such as disabled workers and 

dependents. As these beneficiaries 

may have fewer alternative sources

of income than traditional retirees, 

there has been interest in 

considering various options to

protect the benefits of disabled 

workers and certain dependents.

This report examines (1) how 

certain elements of Social Security

reform proposals could affect 

disability and dependent benefits, 

(2) options for protecting these 

benefits and how they might affect 

disabled workers and dependents,

and (3) how protecting benefits

could affect the Social Security 

program. To conduct this study, 

GAO used a microsimulation model

to simulate benefits under various 

reform scenarios. GAO also

interviewed experts and reviewed

various reform plans, current

literature, and GAO’s past work. 

What GAO Recommends

Congress should consider the 

potential implications of reform on

disability and dependent 

beneficiaries. 

GAO received general and 

technical comments from SSA and 

the Department of the Treasury, 

which were incorporated as 

appropriate.

We considered several reform elements that could improve Social Security 

Trust Fund solvency by reducing the initial benefits received or the growth of 

individual benefits over time. According to our simulations, these reform 

elements would reduce median lifetime benefits for disabled workers by up to 

27 percent (see graph) and dependents by up to 30 percent of currently 

scheduled levels. While the size of the benefit reduction could vary across 

individuals, it could be substantial for the vast majority of these beneficiaries,

depending upon the reform element. 

Simulated Median Lifetime Benefits for Disabled Workers (1985 Cohort) 

0

20

40

60

80

100

Progressive

Price indexing

price indexing

Longevity indexing

Reduced COLA

Schedu

 1 percentage point

led benefits

Percentage of scheduled benefits

Source: GAO analysis of GEMINI data.

93 85 90 100

72

Note: Currently scheduled benefits are not attainable under current funding levels.

Options for protecting the benefits of disabled workers and dependents from 

the impact of reform elements include, among others, a partial exemption, 

whereby currently scheduled benefits are maintained until retirement age. For 

example, while simulations showed that one reform element could decrease

median lifetime benefits of disabled workers to about 89 percent of currently 

scheduled levels, a partial exemption could restore them to about 96 percent. 

Further, these protections could be more targeted. For example, a larger cost

of living adjustment would result in more rapid benefit growth for those 

disabled workers who receive benefits for a prolonged period of time. Some 

protections for dependent benefits could be targeted to a single group of 

dependents, such as widows, while others could affect multiple groups. For 

example, increasing the maximum benefit a family can receive could protect a 

wider group of beneficiaries, including children and spouses of disabled 

workers, and disabled adult children. 

While it may be desirable to protect the benefits of disabled workers and 

certain dependents, such protections would come at a cost to Social Security. 

Protecting benefits could lessen the impact that a reform element would have 

on solvency. In addition, such protections could create incentives to apply for 

Disability Insurance, if disability benefits remained stable while retirement 

benefits were reduced. To view the full product, including the scope 

and methodology, click on GAO-08-26. 

For more information, contact Barbara 

Bovbjerg at (202) 512-7215 or 

bovbjergb@gao.gov. 
Contents 

Letter 1

Results in Brief 3 

Background 5

Certain Benefit-Reducing Reform Elements Could Have a

Substantial Impact on Disabled Workers and Dependents 13 

Options Protecting the Benefits of Disabled Workers and 

Dependents Could Mitigate the Effects of Benefit-Reducing 

Reform Elements 23 

Some Protection Options May Create New Costs and Unintended 

Incentives for the Social Security Program 35 

Conclusions 39

Matter for Congressional Consideration 40 

Agency Comments 40 

Appendix I Methodology 42 

Microsimulation Model 42 

Description of Social Security Reform Elements 45 

Description of Protection Options 48 

Options Modeled to Protect Benefits of Disabled Workers 50 

Data Reliability 51 

Appendix II Calculating OASDI Benefits 53 

Calculating Old-Age Benefits 53 

Calculating Disability Benefits 56 

Calculating Benefits for Dependents of Retired and Disabled 

Workers 58

Calculating Survivors’ Benefits 59 

Appendix III Comments from the Social Security Administration 61 

Related GAO Products 64 

Tables 

Table 1: Reform Elements, Their Solvency Impacts, and the 

Percentage of Disabled Workers and Dependents with 

Reduced Total Lifetime Benefit Levels for the 1985 Cohort 16 

Page i GAO-08-26 Issues for Disability and Dependent Benefits
Table 2: Options for Protecting Disabled Worker and Dependent 

Benefits from Social Security Reform 24 

Table 3: Child Beneficiaries 34 

Table 4: Total Lifetime and Average Monthly Benefits of Two 

Simulated Individuals Who Began Receiving Benefits at 

Age 62, Exemptions Apply to Disabled Workers (1985 

Cohort) 38

Table 5: Options for Protecting Disabled Worker and Dependent 

Benefits from Social Security Reform 48 

Table 6: Dependent Benefits 59 

Figures 

Figure 1: Social Security Beneficiaries by Beneficiary Status, 2007 6 

Figure 2: Disabled Worker and Dependent Benefits Timeline 8 

Figure 3: Evolution of the OASDI Program 9 

Figure 4: Projected Median Lifetime Benefits for Disabled Workers 

(1985 Cohort) 18 

Figure 5: Projected Median Lifetime Benefits for Those Who Have 

Ever Received Dependent Benefits (1985 Cohort) 19 

Figure 6: Percentage Range of Projected Reductions in Total 

Lifetime Benefits for Disabled Workers (1985 Cohort) 21 

Figure 7: Percentage Range of Projected Reductions in Total 

Lifetime Benefits for Individuals Who Have Ever Received

Dependent Benefits (1985 Cohort) 22 

Figure 8: Projected Median Lifetime Benefits under a COLA 

Reduction of 1 Percentage Point (1985 Cohort) 28 

Figure 9: Projected Median Lifetime Benefits under Price Indexing 

(1985 Cohort) 30 

Figure 10: Projected Median Lifetime Benefits under Longevity 

Indexing (1985 Cohort) 31 

Figure 11: Projected Median Lifetime Benefits under Progressive 

Price Indexing (1985 Cohort) 32 

Figure 12: Simulated Total Lifetime Benefits for Two Similar 

Individuals Who Began Receiving Benefits at Age 62,

Exemptions Apply to Disabled Workers (1985 Cohort) 38 

Figure 13: Calculating Benefits for Retirees 54 

Figure 14: Calculating Benefits for Disabled Workers 57 

Page ii GAO-08-26 Issues for Disability and Dependent Benefits
Abbreviations 

AIME Average Indexed Monthly Earnings 

COLA cost-of-living adjustment 

CPI Consumer Price Index 

CPI-U consumer price index for urban consumers 

CPI-W consumer price index for urban wage earners 

and clerical workers 

CSSS Commission to Strengthen Social Security 

DAC disabled adult children 

DI Disability Insurance 

FRA full retirement age 

GEMINI Genuine Microsimulation of Social Security Accounts 

MINT3 Modeling Income in the Near Term 

OASDI Old Age, Survivors, and Disability Insurance 

OCACT Office of the Chief Actuary 

PENSIM Pension Simulator 

PIA primary insurance amount 

PSG Policy Simulation Group 

SI Survivors’ Insurance 

SSAB Social Security Advisory Board 

SSASIM Social Security and Accounts Simulator 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page iii GAO-08-26 Issues for Disability and Dependent Benefits
United States Government Accountability Office

Washington, DC 20548 

 

October 26, 2007 

The Honorable Charles B. Rangel 

Chairman 

The Honorable Jim McCrery 

Ranking Member 

Committee on Ways and Means 

House of Representatives 

The Honorable Charles B. Rangel 

Chairman 

The Honorable Jim McCrery 

Ranking Member 

Committee on Ways and Means 

House of Representatives 

The Honorable Michael R. McNulty 

Chairman 

The Honorable Sam Johnson 

Ranking Member 

Subcommittee on Social Security 

Committee on Ways and Means 

House of Representatives 

The Honorable Michael R. McNulty 

Chairman 

The Honorable Sam Johnson 

Ranking Member 

Subcommittee on Social Security 

Committee on Ways and Means 

House of Representatives 

The Honorable Sander M. Levin 

House of Representatives 

Social Security forms the foundation of retirement income, providing old 

age benefits to millions of Americans. However, Social Security is more 

than a retirement program; it provides benefits to survivors and other 

dependents as well as to disabled workers. For all these recipients, 

benefits are determined through a common formula. Therefore, the 

prospect of altering the benefit formula to address Social Security’s 

financial shortfall would affect all beneficiaries, not just retired workers. 

Moreover, changes to the benefit formula could have a large impact on 

those beneficiaries who are least able to compensate for any reduction in 

benefits. For example, disabled workers may have fewer alternative 

sources of income—especially earnings-related income—than do retired 

workers, to offset any planned reduction in benefits. In addition, certain 

dependents, such as older widows, may rely more heavily on Social 

Security benefits and may not have the means to offset reductions caused 

by reform. Hence, benefit reductions related to reform could potentially 

affect the welfare of disabled workers and dependent beneficiaries more 

substantially than those of retired workers. 

Social Security forms the foundation of retirement income, providing old 

age benefits to millions of Americans. However, Social Security is more 

than a retirement program; it provides benefits to survivors and other 

dependents as well as to disabled workers. For all these recipients, 

benefits are determined through a common formula. Therefore, the 

prospect of altering the benefit formula to address Social Security’s 

financial shortfall would affect all beneficiaries, not just retired workers. 

Moreover, changes to the benefit formula could have a large impact on 

those beneficiaries who are least able to compensate for any reduction in 

benefits. For example, disabled workers may have fewer alternative 

sources of income—especially earnings-related income—than do retired 

workers, to offset any planned reduction in benefits. In addition, certain 

dependents, such as older widows, may rely more heavily on Social 

Security benefits and may not have the means to offset reductions caused 

by reform. Hence, benefit reductions related to reform could potentially 

affect the welfare of disabled workers and dependent beneficiaries more 

substantially than those of retired workers. 

Nonetheless, the debate over Social Security reform has focused primarily 

on the effects proposed reforms would have on retirees—with little 

discussion of how they might affect disabled workers and dependents. 

Given interest in protecting these beneficiaries, this report discusses 

Nonetheless, the debate over Social Security reform has focused primarily 

on the effects proposed reforms would have on retirees—with little 

discussion of how they might affect disabled workers and dependents. 

Given interest in protecting these beneficiaries, this report discusses 

Page 1 GAO-08-26 Issues for Disability and Dependent Benefits
(1) how certain elements of Social Security reform plans would affect 

disability and dependent benefits, (2) some options for protecting these 

benefits and how these options might affect disabled workers and 

dependents, and (3) how protecting these benefits could affect the Social 

Security program itself. 

To determine how certain elements of reform would affect disability and 

dependent benefits,1

 we first selected reforms by reviewing a number of 

reform plans, current literature, and our past work to identify reform 

elements that would have an impact on benefits. We then estimated the 

percentage of disabled workers and dependents whose benefits would be 

affected by certain reform elements by simulating the outcome for a 

sample of workers born in 1985, using a microsimulation model.2

 We also 

used data from this model to analyze the difference in both median and 

total lifetime benefits between currently scheduled benefits and those 

under each reform element.3

 Rather than consider the distribution of 

benefits across recipients, we show the impact of reform and protections 

on median benefits. This approach provides a snapshot of how the reforms 

would affect individuals in each target group (disabled workers and 

dependents). In addition, when we consider total lifetime benefits, we are 

able to examine the extent to which individuals are affected. While 

scheduled benefits are not attainable under current funding levels, they 

nevertheless provide us with a point of comparison in examining the 

impact of various reform elements. To identify options for protecting 

disabled worker and dependent benefits, we reviewed the current 

 1

Our approach to the analysis is based on the premise that, under benefit reducing 

reforms, disabled workers and certain dependents would likely have limited options for 

alternative sources of income to make up for the loss in benefits. In particular, 

comparisons of the relative welfare of disabled workers, dependents, and retirees are 

beyond the scope of this job. 

2

We used the Genuine Microsimulation of Social Security (GEMINI) microsimulation model 

under a license from the Policy Simulation Group, a private contractor. GEMINI estimates 

individual effects of policy scenarios for a representative sample of future beneficiaries. 

GEMINI can simulate different reform features for their effects on the level and 

distribution of benefits. See appendix I for more detail on the modeling analysis, including 

a discussion of our assessment of the data reliability of the model. 

3

We analyzed the impact of each reform element individually. We did not simulate a 

scenario in which reform elements were combined and implemented simultaneously. It is 

important to note that the individual reform elements can interact with one another and 

that the impact of one reform element, taken on its own, may change when combined with 

other reform elements in a proposal. Moreover, each reform element has pluses and 

minuses. As a result, Social Security reform proposals should be evaluated as a package of

reform options designed to meet certain stated objectives. 

Page 2 GAO-08-26 Issues for Disability and Dependent Benefits
literature and our past work and interviewed relevant experts. To 

determine how these protections would affect both disability and 

dependent benefits, we analyzed the change in median lifetime benefits 

given various reform elements and different protections, using the 

microsimulation model, as well as some qualitative analysis. Finally, to 

determine the impact that protecting benefits could have on the Social

Security program itself, we interviewed relevant experts, reviewed the 

literature, and conducted a qualitative analysis of the issues involved.

Throughout our analysis, we assume that the Disability Insurance (DI) 

program maintains its current operational structure in terms of disability 

determination, although GAO has recommended certain measures that 

Social Security should take to modernize the program and its 

administration. For more details on our approach to this study and on the 

microsimulation model, please see appendix I. 

Throughout this report, the term “dependents” refers to those beneficiaries 

who receive some or all of their Social Security benefits based on a family

member’s earnings record. Our dependent category includes survivors—

such as widow(er)s and surviving children—as well as spouses and 

children of both retirees and individuals receiving disability benefits. 

Specifically, dependents need not demonstrate financial dependence, but 

rather familial relationships such as those listed above. Also, throughout 

the report, “disabled worker benefits” refers to the type of benefit that an 

individual with disabilities who qualifies for the DI program would receive 

based on his or her own earnings record. Further, those individuals who 

receive disabled worker benefits are referred to as “disabled workers.” 

While we understand the sensitivity associated with this terminology, our 

use of this term is consistent with the Social Security Administration’s 

terminology and aims to precisely represent such beneficiaries and their 

benefits. 

We conducted our work between October 2006 and October 2007 in 

accordance with generally accepted government auditing standards. 

Most of the elements for reforming Social Security that we considered 

would reduce future benefits from currently scheduled levels for Social 

Security recipients, including the great majority of disabled workers and 

dependents. These reform elements include longevity indexing (changing 

benefits to reflect increased life expectancies), price indexing (adjusting 

benefits so they grow at the rate of inflation rather than wages), 

progressive price indexing (a graduated form of price indexing), and 

changes to the cost-of-living adjustment. According to our simulations, 

Results in Brief 

Page 3 GAO-08-26 Issues for Disability and Dependent Benefits
most such changes would reduce benefits for at least three-quarters of 

disabled workers and dependent beneficiaries in the 1985 cohort. For 

example, progressive price indexing would affect more than 75 percent of 

these beneficiaries, while other reform elements we analyzed would affect

virtually all beneficiaries. In addition, most reform elements would reduce 

the median lifetime benefits of disabled workers and dependents to 

between 70 and 93 percent of currently scheduled levels, with price 

indexing resulting in the largest reduction. These reform elements would 

not affect individuals uniformly. For example, longevity indexing would 

reduce the lifetime benefits of 86 percent of disabled workers by between 

10 to 25 percent; the other 14 percent would generally face reductions of

10 percent or less. 

There are many options for protecting both disabled worker and 

dependent benefits. Some of these options can be targeted to particular 

groups of beneficiaries. The options include, among others, a partial 

exemption—by which the beneficiary receives currently scheduled 

benefits until retirement age—and a full exemption—by which the 

beneficiary receives benefits at the currently scheduled level throughout 

the remainder of his or her life. Through our simulation of reform 

elements and various protections, for example, we found that a one 

percentage point reduction in the cost-of-living adjustment would reduce 

the median lifetime benefits of disabled workers to about 89 percent of 

their currently scheduled level, but a partial exemption could restore them 

to about 96 percent. Options for protecting the benefits of disabled 

workers could also be structured to mitigate benefit reductions that result 

from changes to the initial benefit calculation. For example, disabled 

workers who receive benefits for a prolonged period of time could be 

given a “super COLA” that would allow their benefits to grow more 

rapidly. In terms of dependent benefits, protections could cover a single 

group, such as widows, or multiple groups. For example, increasing the 

maximum family benefits could protect the benefits of child survivors, 

widowed parents, children and spouses of disabled workers, and disabled

adult children. 

In general, although it may be desirable to protect the benefits of certain 

disabled workers and dependents, such protections would come at a cost 

to the program and could create unintended incentives that would 

negatively affect Social Security’s finances. While the reforms we 

considered were aimed at improving the solvency of Social Security, 

protecting the benefits of these populations would lessen the effect of 

each of these reforms. In addition, certain protections may create 

incentives for individuals who might not otherwise apply for Disability 

Page 4 GAO-08-26 Issues for Disability and Dependent Benefits
Insurance to do so. For example, those nearing retirement may apply for 

the Disability Insurance program if disability insurance benefits remained 

stable while retirement benefits fell. 

The Department of the Treasury provided technical comments. The Social 

Security Administration (SSA) provided general and technical comments. 

We incorporated the comments throughout our report as appropriate. 

Social Security is one the largest federal programs in the United States, 

providing about $546 billion in benefits in 2006 to over 49 million 

beneficiaries. Although the majority of Social Security benefits are paid to

retirees, Social Security does much more than provide retirement income. 

Social Security Disability Insurance (DI) pays monthly cash benefits to 

nearly 7 million workers who, due to a severe long-term disability, can no 

longer remain in the workforce. Additionally, Social Security provides 

benefits to over 11 million dependents,

4

 including payments to widows and

widowers as well as surviving parents and children under Survivors’ 

Insurance (SI), plus benefits to dependent spouses and children of retired

and disabled workers paid from the Old Age Insurance (or Old Age) and DI

trust funds. Social Security benefits often represent a significant source of

income for their recipients, providing an average of $1,051 a month (as of 

July 2007) to retired workers, $995 a month to widows and widowers, and 

$979 a month to disabled workers. Although disabled workers and 

dependents receive slightly lower average monthly benefits than retired 

workers, benefits could be particularly important to these individuals. 

These beneficiaries may face considerable hardships; for example, a 

disabling condition may make work and other activities of daily living 

more difficult. As a result, these beneficiaries may have financial 

difficulties planning and preparing for death or disability in the way one 

might plan for retirement. Social Security was never intended to provide 

an adequate income by itself, but instead serves as an income base on 

which to build. In fact, the Social Security program balances the goals of 

income adequacy with individual equity, i.e., that lower income 

beneficiaries should receive higher benefits relative to wages than higher 

income beneficiaries (adequacy), and beneficiaries with higher lifetime 

income receive higher benefits in accordance with their income/lifetime 

contributions (equity). 

Background 

 4

For the purpose of this report, dependents will encompass benefits to survivors as well as 

all dependent spouses and children.

Page 5 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 1: Social Security Beneficiaries by Beneficiary Status, 2007 

9%

14%

64%

Source: GAO analysis of July 2007 SSA data.

Disabled workers

Retired workers

Widow(er)s and parents

4%

Dependent children

5%

Dependent spouses

4%

Surviving children

Notes: Some Social Security beneficiaries are entitled to more than one type of benefit. If both 

benefits are financed from the same trust fund, the beneficiary is usually counted only once in the 

statistics, as a retired-worker or a disabled-worker beneficiary, and the benefit amount recorded is the 

larger amount associated with the auxiliary benefit. If the benefits are paid from different trust funds,

the beneficiary is counted twice and the respective benefit amounts are recorded for each type of 

benefit. Accessed from http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/ on August 29, 2007.

History and Development 

of DI and Dependents’ 

Benefits 

Although Social Security had originally been envisioned to include 

disability and survivors’ insurance, the 1935 Social Security Act created 

only a retirement program.5

 Over the next 40 years, the program expanded

both the size and type of its benefits, introducing benefits for dependents 

and disabled workers (fig. 2). The first new type of benefits went to 

dependents, as the 1939 amendments offered payments to elderly 

dependent wives and widows, as well as dependent children. (Some 

husbands and widowers were allowed to receive these same benefits after 

 5

The Social Security Act of 1935 also included aid to states for programs which are no

longer considered to be part of Social Security. 

Page 6 GAO-08-26 Issues for Disability and Dependent Benefits
19506

). Creating these benefits was not only seen as socially desirable, but 

also offered additional protections for workers and their families from risk 

and spent down surpluses created by the system. Disability Insurance, 

which had been recommended by the 1938 and 1948 advisory councils, 

was established in 1956 to provide cash benefits to permanently disabled 

workers over the age of 50. The DI program was later expanded to include 

disabled workers under the age of 50 as well. In 1961, widows benefits 

increased from 75 to 85 percent of their deceased spouse’s benefits, and 

then to 100 percent in 1972. In addition, eligibility was extended to 

divorced spouses as well as to the spouses and children of disabled 

workers. Furthermore, benefit levels for retirees, dependents, and 

disabled worker beneficiaries grew during this time period. However, 

facing solvency crises, legislative efforts to control the size of the Social 

Security program were made in the mid 1970s and early 1980s. 

 6

In order to receive these benefits, husbands and widowers needed to be currently and fully 

insured at the time of their wives’ retirement or death. In addition, the husband (or 

widower) had to prove he was financially dependent on his wife. In 1983, virtually all 

gender-based distinctions were eliminated. 

Page 7 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 2: Disabled Worker and Dependent Benefits Timeline 

1935 Social Security Act establishes retirement benefits. 

1939 Benefits established for wives, widows, and dependent children. 

1950 Benefits expanded to husbands, widowers, and some divorced widows. 

1954 Disability Freeze enacted to exempt years an individual is unable to work 

 due to disability from benefit calculation for disabled workers. 

1956 Social Security Disability Insurance (DI) established. 

1958 Benefits established for dependents of disabled workers. 

1960 Age requirement for DI benefits eliminated.

1965 Benefits established for divorced wives under certain conditions. 

1972 Automatic indexing implemented. Divorced wives’ benefits liberalized. 

1977 Indexing formula corrected, causing reductions in scheduled benefits.

1980 Continuing disability reviews become mandatory.

1981 Benefits for post-secondary students eliminated.

1983 Major reform permanently delayed COLA, resulting in lifetime benefit 

 reductions in all programs. Full retirement age raised from 65 to 67, 

between 2003 and 2027.

 

1984 Medical Improvement Standard implemented for continuing 

 disability reviews.

1990 The definition of a disabled widow(er) liberalized. 

1999 Ticket to Work Act aimed to reintroduce disabled workers into labor force.

 

Date Benefits

Source: GAO analysis.

In order to maintain trust fund solvency, major changes were enacted to 

reduce the growth of Social Security benefit levels from the mid1970s to 

the early 1980s. Additionally, a number of legislative changes to the DI and 

dependents’ programs eliminated or reduced certain benefits and 

tightened the eligibility standards for receiving other benefits. However, 

despite ongoing fiscal concerns, eligibility for a few dependents’ and 

disability benefits has been expanded since 1975, suggesting an interest in

protecting some vulnerable populations who may rely on Social Security 

for a significant portion of their monthly income. Although recent reform 

proposals have focused on elements intended to improve solvency, there 

continues to be some interest in protecting some or all DI and dependents’ 

Page 8 GAO-08-26 Issues for Disability and Dependent Benefits
benefits from potential benefit reductions. Figure 3 shows how Old Age, 

Survivors, and Disability Insurance (OASDI) has grown financially and in 

terms of beneficiaries over time. 

Figure 3: Evolution of the OASDI Program

Number of people in millions Cost in billions, 2005 dollars

Year

Retirement

DI

Dependent

Source: GAO analysis of SSA data; Art Explosion, images.

0 5 10 15 20 25 30 35 40 45 50

2005

1960

1975

1990

1945 0

8.06

0.46

6.33

16.59

2.49

13.01

24.84

3.01

11.98

30.46

6.52

11.45

.52

0.77

0 100 200 300 400 500 600

3.3

251.1

378.2

529.9

77.8

Development of a Single 

Benefit Formula 

Although the 1935 act did not provide for disability and dependents’ 

benefits, those benefits were later built upon the existing Social Security 

structure, and today all benefits continue to be calculated from a common 

formula. Dependents’ benefit levels were set as fractions of the benefits 

owed to the person upon whom beneficiaries depended. For example, 

Page 9 GAO-08-26 Issues for Disability and Dependent Benefits
under the 1939 legislation, a widow would receive 75 percent of her 

deceased husband’s benefits, and dependent children or spouses would 

receive 50 percent of the retired worker’s benefits. When Congress created

the DI program in 1956, it provided a lower retirement age (50) for those 

who were permanently and totally disabled. The same benefit formula 

used in computing OASI benefits was adopted for disability benefits 

because the original DI program treated disabled workers as being forced

into premature retirement. In 1960, when Congress expanded the DI 

program by eliminating the requirement that disabled workers had to be 

50 years old, the same benefit formula applied. Because benefit types 

shared a common formula, automatic indexing provisions implemented in 

1972 and 1977 applied across the board. 

The OASDI programs are tightly linked in other ways as well. These 

programs are financed through a common mechanism—payroll taxes; 

receipts from the payroll tax are deposited into the OASI and DI trust 

funds which, like the two programs, are separate but often combined in 

discussion and analysis of Social Security’s solvency and sustainability.7

Furthermore, beneficiaries can receive multiple types of benefits over 

their lifetimes, moving into, out of, and among Social Security programs at 

different life stages. When disabled workers reach the full retirement age 

(FRA), for example, they begin to receive retirement benefits from the Old 

Age program, in place of DI benefits; the common benefit formula keeps 

such individuals’ benefit levels stable.

8

 In another case, a recent widow(er) 

might have her (or his) retirement or spousal benefits replaced with 

survivors’ benefits based on the relative earnings of the deceased spouse. 

Because parents, children, or spouses may be eligible for dependents’ 

benefits through the Old Age, Survivors, and Disability Insurance 

programs, a person can collect several types of Social Security benefits 

over a lifetime, although generally not simultaneously.9

 The many linked

pieces of Social Security could make developing a single, comprehensive 

 7

Payroll tax rates are specified separately for each program and receipts deposited into two 

separate accounts in the United States Treasury. However, over the years, there have been 

tax rate reallocations and loans between the two trust funds.

8

When a person is converted from the DI program to the Old Age programs, there is no

recalculation of his benefits, which continue to receive annual COLAs; however, the

benefits will be paid from the OASI trust fund instead of the DI trust fund. 

9

Some beneficiaries may be dually entitled and receive benefits based on their own record

and on that of their spouse. 

Page 10 GAO-08-26 Issues for Disability and Dependent Benefits
reform package challenging because such a package would need to take

into account all of these pieces. 

Benefits under 

Current Law 

Under current law, Old Age benefits are generally calculated through a 

four-step process in which a progressive yet earnings-based formula is 

applied to an earnings history, and then updated annually through a costof-living adjustment (COLA).10 For those who receive retirement benefits, 

this earnings history is generally based on the 40 years in which credited

earnings were highest, with the 5 lowest-earning years dropped out 

(leaving the highest 35 years of indexed earnings to be included in the 

initial benefit calculation).11 Dependents’ benefit levels are determined as a 

given percentage of Old Age benefit levels. Eligible children and spouses 

can receive up to 50 percent of a worker’s benefit; widow(er)s can be 

given up to 100 percent; and surviving parents or children can collect up to 

75 percent, subject to a family maximum. 

DI benefits are calculated similarly to Old Age benefits, but are generally

based upon a shortened work history. (For more detail on how benefits 

are calculated, refer to app. II.) To be eligible for benefits, individuals must 

have a specified number of recent work credits under Social Security 

when they first become disabled. Individuals must also demonstrate the 

inability to engage in substantial gainful activity by reason of a physical or 

mental impairment that has lasted or is expected to last for twelve 

continuous months or to result in death. If not eligible on medical grounds, 

SSA must also consider age, education and past work history. In 

particular, medical eligibility criteria for DI are less stringent for 

applicants over the age of 55. 

Based on prior work, GAO has designated modernizing federal disability 

programs (including the DI program) as a high risk area because of 

challenges that continue today.12 For example, GAO found that federal 

disability programs remain grounded in outmoded concepts that equate 

medical conditions with work incapacity. While SSA has taken some 

 1042 U.S.C. § 415. 

11The total number of years to be counted in the work history is the number of elapsed 

years from the latter of 1950 or the year in which the worker attains age 21 and before the

worker becomes disabled, dies, or attains age 62 (thus the 40 years in the text above)—

whichever comes first—excluding any years in which the worker is in a period of disability. 

12 See GAO, High Risk Series, An Update, GAO-07-310 (Washington, D.C.: January 2007). 

Page 11 GAO-08-26 Issues for Disability and Dependent Benefits
actions in response to prior GAO recommendations, GAO continues to 

believe that SSA should continue to take a lead role in examining the 

fundamental causes of program problems and seek the regulatory and 

legislative solutions needed to modernize its programs so that they are

aligned with the current state of science, medicine, technology, and labor 

market conditions. Moreover, SSA should continue to develop and 

implement strategies to better manage the programs’ accuracy, timeliness, 

and consistency of decision making. 

Social Security’s Financing Social Security is currently financed primarily on a pay-as-you-go basis, in

which payroll tax contributions of current workers are used primarily to 

pay for current benefits. Since the mid1980s, the Social Security program 

has collected more in taxes than it has paid out in benefits. However, 

because of the retirement of the baby boomers coupled with increases in 

life expectancy, and decreases in the fertility rate, this situation will soon 

reverse itself. According to the Social Security Administration’s 2007

intermediate assumptions,13 annual cash surpluses are predicted to turn 

into ever-growing cash deficits beginning in 2017. Absent changes to the

program, these deficits are projected to deplete the Social Security DI trust 

fund in 2026 and the OASI trust fund in 2042, leaving the combined system 

unable to pay full benefits by 2041. Reductions in benefits, increases in 

revenues, or a combination of both will likely be needed to restore longterm solvency. A number of proposals have been made to restore fiscal 

solvency to the program, and many include revenue enhancements, benefit 

reductions, or structural changes such as the introduction of individual 

accounts as a part of Social Security. Because many reforms to the benefit

side of the equation would reduce benefits through changes in the benefit

formula, they could affect DI and dependents’ benefits as well as Old Age 

benefits. Unless accompanied by offsets or protections, these reforms 

might reduce the income of disabled workers and dependents. This 

situation could be challenging for these beneficiaries as they may have 

relatively low incomes or higher health care costs and rely heavily on

Social Security income. Many disabled workers and dependents may also 

 13Because the future is uncertain, the Trustees use three alternative sets of assumptions to 

show a range of possible outcomes. The intermediate assumptions represent the Social 

Security Administration’s best estimate of the trust funds’ future financial outlook. The

Trustees also present estimates using low cost and high cost sets of assumptions. In 

addition, the Trustees Report describes a range of possible outcomes using stochastic 

modeling techniques. 

Page 12 GAO-08-26 Issues for Disability and Dependent Benefits
have trouble taking on additional work and accumulating more savings 

and, thus, have difficulty preparing for Social Security benefit reductions.

Many reform elements could have a substantial impact on the benefits of

Social Security recipients, including those of disabled workers and 

dependents. We considered six such elements that have been included in 

reform proposals to improve trust fund solvency. These reform elements 

take a variety of forms and would change either the initial benefit 

calculation or the growth of individual benefits over time. Our projections

indicated that most of these elements would reduce benefits from 

currently scheduled levels14 for the majority of both disabled workers and 

dependents. That is, most would reduce median lifetime benefits for these 

beneficiary types—some more substantially than others. Many of these 

beneficiaries would also experience a reduction in total lifetime benefits; 

the extent of which would depend on the reform element and individual. 

We considered six different reform elements that could help control costs 

and improve Social Security solvency by reducing benefits.15 Five would 

change how initial benefits are calculated, and one would limit the growth 

of an individual’s benefits over time. 

Certain BenefitReducing Reform 

Elements Could Have 

a Substantial Impact 

on Disabled Workers 

and Dependents 

Benefit-Reducing Reform 

Elements Take Different 

Forms 

We considered several ways to improve solvency:16

• Longevity indexing would lower the amount of the initial benefit in 

order to reflect projected increases in life expectancy. Such indexing 

would maintain relatively comparable levels of lifetime benefits across 

birth years by proportionally reducing the replacement factors in the 

initial benefit formula. 

• Price indexing would maintain purchasing power while slowing the 

growth of initial benefits. This would be accomplished by indexing 

initial benefits to the growth in prices rather than wages, as wages tend 

to increase faster than prices. 

 14While currently scheduled benefits are not attainable under current funding levels, they 

nonetheless provide a point of comparison in examining the impact of various reform 

elements. 

15These reform elements have been proposed as part of recent larger reform proposals.

16See appendix II for a full explanation of how benefits are currently calculated. 

Page 13 GAO-08-26 Issues for Disability and Dependent Benefits
• Progressive price indexing, a form of price indexing, would control 

costs while protecting the benefits of those beneficiaries at the lowest 

earnings levels (in terms of career average earnings). It would continue 

to index initial benefit levels to wages for those below a certain 

earnings threshold and employ a graduated combination of price 

indexing and wage indexing for those above this threshold. 

• Increasing the number of years used in the benefit calculation would 

also control program costs. For example, initial benefits could be based 

on the highest 40, rather than 35, years of indexed earnings. This could 

be done either by eliminating the 5 years normally excluded from the 

calculation or by increasing the total number of years factored in from 

40 to 45 years. In either of these cases, the initial Old Age benefit would 

be calculated using the highest 40 years of indexed earnings.17 (For 

more information on these reform elements and how we incorporated 

them into our microsimulation model, see app. I.) 

• Raising the age at which people are eligible for full retirement benefits 

could change the amount and/or the timing of initial benefits.

Increasing the full retirement age would improve solvency by generally

increasing the number of years worked, reducing the number of years 

benefits are received and increasing revenue to the system through 

payroll taxes in the additional years worked. Further, those who retire 

early would have their benefits actuarially reduced. 

• Though it would not generally affect initial benefit amounts, a change 

to Social Security’s cost-of-living adjustment (COLA) could also control 

costs and improve solvency by limiting the growth of an individual’s 

benefits over time. The COLA adjusts benefits to account for inflation 

by indexing benefits to price growth annually, using the Consumer 

Price Index (CPI).18 Setting the COLA below the CPI would limit the 

nominal growth of an individual’s benefits over time,19 and as such 

those who receive benefits for a prolonged period of time would see 

the largest reductions. 

 17Changing the number of drop-out years would have less of an effect (or no effect) on 

disabled workers because their drop-out years are calculated differently. For more on how

initial benefits are calculated for disabled workers, see appendix II. 

18Specifically, Social Security’s COLAs are based on the consumer price index for urban 

wage earners and clerical workers (CPI-W), as opposed to the CPI series for all urban 

consumers (CPI-U). 

19We identified two options for modifying the COLA. The first option, which we analyzed in 

this report, would reduce the COLA by 1 percentage point to improve solvency. The second 

option, which we did not analyze, would reduce the COLA by 0.2 to 0.4 percentage points in 

response to methodological concerns that the CPI overstates the true rate of inflation. 

Page 14 GAO-08-26 Issues for Disability and Dependent Benefits
According to our projections for the 1985 cohort, four of the five reform 

elements that we analyzed would reduce total lifetime benefits for more 

than three-quarters of disabled workers and dependents, relative to 

currently scheduled benefits.20 Table 1 shows the proportions of disabled 

workers and dependents affected by each of the reform elements. For 

three of the elements—reducing the COLA by one percentage point, price 

indexing and progressive price indexing—the percentage of disabled 

workers affected is very similar to the percentage of dependents affected. 

Moreover, for these three reform elements, more than 99 percent, or 

virtually all, disabled workers and dependents would see their benefits 

reduced. In contrast, progressive price indexing differs from other reform 

elements in its impact: fewer beneficiaries are affected, and the percentage 

of disabled workers affected varies from that of dependents. While an 

estimated 87 percent of dependents would experience a reduction in 

lifetime benefits under progressive price indexing, an estimated 77 percent 

of disabled workers would do so. 

Most of the Social Security 

Reform Elements We

Considered Would Reduce 

Benefits for Virtually All 

Beneficiaries 

While the COLA reduction, longevity indexing and price indexing are all

designed in such a way that they affect virtually all beneficiaries, the 

COLA, which has a greater impact on solvency than longevity indexing,21

affects relatively fewer disabled workers and dependents. This is because 

the COLA reduction would first affect benefits one year after the initial 

benefit payment was made, whereas both longevity indexing and price 

indexing affect the initial benefit amount. Our simulations indicated that 

1.11 percent of disabled workers died within the first year of receiving

benefits, while only 0.35 percent of dependents did so. Most such 

beneficiaries would not have received a COLA. 

 20We did not analyze the simulated change in the FRA for both disabled workers and 

dependents because of modeling constraints nor did we analyze the increase in the number

of computation years for disabled workers. 

21A 1 percentage point decrease in the COLA may have a greater effect on solvency than

longevity indexing as we’ve modeled it. In part because while the effects of both reforms 

are compounded over time, the COLA would affect all beneficiaries once it is implemented 

and continue over a longer horizon—until death. In contrast, longevity indexing would not 

affect those who have already retired, nor would it have a great impact on those who retire 

close to the implementation date. Its effects would be greater on the benefits of those 

individuals who retire further out from the implementation date. 

Page 15 GAO-08-26 Issues for Disability and Dependent Benefits
Table 1: Reform Elements, Their Solvency Impacts, and the Percentage of Disabled

Workers and Dependents with Reduced Total Lifetime Benefit Levels for the 1985 

Cohort 

Element

a

Solvency 

impactb

(actuarial 

scoring)

c

Percentage of

disabled workers 

with reduced total 

lifetime benefits 

(1985 Cohort)

Percentage of

dependents with 

reduced total 

lifetime benefits 

(1985 Cohort)

COLA reduction – 

1percentage pointd

 

1.49 99.15 99.87

Increase the number of 

computation years— 

from 35 to 40d

0.46 n/ae

99.99

Longevity Indexing—reducing

formula factors by 0.5%f

1.17 99.89 99.98

Price indexingd2.38 99.95 99.97

Progressive price indexingd,g 1.43 76.78 86.90

Source: GAO analysis of GEMINI data and SSA OCACT. 

a

Because of modeling constraints, we were unable to analyze the effects of a change in 

the FRA. However, Social Security actuaries have estimated the solvency impact of 

increasing the FRA to age 68. This reform would improve actuarial balance by 0.62 

percent of taxable payroll. 

b

Solvency impacts come from SSA’s Office of the Chief Actuary (OCACT). Taken 

individually, each of the reform elements would improve Social Security solvency. For 

more on how the reform elements were scored for solvency, see appendix I. 

c

Actuarial balance as a percentage of taxable payroll. 

d

OCACT Score based on 2005 Trustees Report intermediate assumptions.

e

We were also unable to analyze the effects of increasing the number of computation 

years for disabled workers. 

f

OCACT Score based on 2001 Trustees Report intermediate assumptions. g

In the microsimulation model, approximately 80 percent of all beneficiaries were affected

by the progressive price indexing reform. Some disabled workers also received benefits 

as dependents at some point in their life, and if those workers are excluded then the 

percentage of disabled workers affected would fall. 

Note: Using the 1985 cohort, we also projected the percentage of workers with reduced total lifetime 

benefits for Social Security beneficiaries who were never disabled. 99.68% of Social Security

beneficiaries who were never disabled would see benefit reductions if the COLA were reduced by 1 

percentage point, and 100% would see benefit reductions if the number of computation years was 

increased from 35 to 40. Under longevity indexing, price indexing, and progressive price indexing the 

percentage of beneficiaries affected would be 99.99%, 99.99%, and 80.97%, respectively. 

Page 16 GAO-08-26 Issues for Disability and Dependent Benefits
According to our simulations each of the reform elements we selected 

would reduce median lifetime benefits for both disabled workers and 

dependents relative to currently scheduled benefits (figs. 4 and 5).22

However, our projections also indicated that these reductions would vary 

by reform element. Price indexing would have the largest impact on 

disabled workers and dependents, reducing median lifetime benefits by 

more than 25 percent. Median lifetime benefits would fall from $473,960 to

$343,350 for disabled workers and from $351,910 to $244,745 for 

dependents. Progressive price indexing, on the other hand, would create 

the smallest reduction in median lifetime benefits, with median lifetime 

benefits falling by 7 percent for disabled workers and 8 percent for 

dependents.23

Reform Elements Reduce 

Median Lifetime Benefits 

for Disabled Workers and 

Dependents to Varying 

Degrees 

 22While this report focuses on the impact of certain reforms on disabled worker and 

dependent benefits, the reforms would affect the benefits of other Social Security 

recipients as well. 

23Additionally, according to our simulations, disabled workers experienced greater absolute

reductions in median lifetime benefits than did beneficiaries who were never disabled for 

each of the reform elements considered. However, disabled workers also experienced a

smaller percentage change in median lifetime benefits than those who were never disabled. 

Under current law, disabled workers would have higher lifetime benefits (since they may 

receive benefits for a longer period of time); therefore, the reduction in benefits represents 

a smaller share of current law benefits. 

Page 17 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 4: Projected Median Lifetime Benefits for Disabled Workers (1985 Cohort) 

0

10

20

30

40

50

60

70

80

90

100

Progressive

price indexing

Price indexing

Longevity indexing

Reduced COLA 

1 percentage point

Scheduled benefits

Percentage of scheduled benefits

Source: GAO analysis of GEMINI data.

93

85

90

100

72

Page 18 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 5: Projected Median Lifetime Benefits for Those Who Have Ever Received

Dependent Benefits (1985 Cohort) 

0

10

20

30

40

50

60

70

80

90

100

Progressive

price indexing

Price indexing

Longevity indexing

Scheduled benefits

Percentage of scheduled benefits

Source: GAO analysis of GEMINI data.

92

83

100

70

Additionally, increasing the full retirement age and increasing the number 

of computation years would likely reduce median lifetime benefits for 

dependents.24 Since dependent benefits are linked to those of the primary 

worker, an increase in the full retirement age could shorten the period of 

time over which they both receive benefits. Alternatively, some workers 

may decide not to adjust their retirement plans in response to the increase 

in the FRA. Those who maintain their original retirement plans, retiring 

prior to the new FRA, will also receive reduced benefits relative to current 

law. (See app. II for a discussion of how benefits are adjusted for early 

retirement.) Thus, under both scenarios, total lifetime benefits would be 

 24Increasing the FRA would not affect disabled workers because the initial benefits

calculation for disabled workers does not involve the FRA. However, it would change the 

age of conversion to retirement benefits. Similarly, changing the number of drop-out years

would have less of an effect (or no effect) on disabled workers because drop-out years are 

calculated differently for disabled workers. For more on how initial benefits are calculated

for disabled workers, see appendix II. 

Page 19 GAO-08-26 Issues for Disability and Dependent Benefits
reduced, and so, too, would median lifetime benefits. A similar outcome 

results from increasing the number of computation years by which initial

benefits are calculated. By increasing the number of computation years, a 

worker’s earnings history is expanded to include years of possibly lower 

indexed earnings. As a result, total benefits for some retired workers, and 

therefore, their dependents, would likely be reduced, as would median 

lifetime benefits. 

Disabled and Dependent 

Beneficiaries Are Not 

Uniformly Affected by 

Reform Elements 

Our projections suggest that, while lifetime benefits would be reduced for

virtually all disabled workers and dependents, such reductions would not 

be uniform across individuals. Figures 6 and 7 compare beneficiaries’ total 

lifetime benefit reductions by each reform element, for disabled workers 

and dependents, respectively. If the COLA were reduced by one 

percentage point, our projections show that approximately 58 percent of 

disabled workers experienced lifetime benefit reductions of 10 percent or 

less,25 while about 42 percent of disabled workers experienced lifetime 

benefits reduced by 10 to 25 percent. Almost no disabled workers would 

see benefits fall by more than 25 percent. 

 25In particular, under the COLA reduction, less than 1 percent of disabled workers had no 

change in lifetime benefits; about 2 percent of disabled workers had a change of 1 percent 

or less; about 14 percent had a change of more than 1 and up to 5 percent; and about

41 percent had lifetime benefits change by more than 5 and up to 10 percent.

Page 20 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 6: Percentage Range of Projected Reductions in Total Lifetime Benefits for Disabled Workers (1985 Cohort) 

Reform elements

Percentage of disabled workers (cumulative)

Source: GAO analysis of GEMINI data.

0 10 20 30 40 50 60 70 80 90 100

Progressive price indexing

Price indexing

Longevity indexing

Reduce COLA 1 percentage point 

None

Less than 1 percent

Between 1 and 5 percent

Between 5 and 10 percent

Between 10 and 25 percent

Between 25 and 50 percent

Note: The above intervals include the upper endpoint. For example “Between 1 and 5 percent” 

includes 5, but not 1. No disabled workers had total lifetime benefit reductions of more than 50 

percent. 

Page 21 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 7: Percentage Range of Projected Reductions in Total Lifetime Benefits for Individuals Who Have Ever Received

Dependent Benefits (1985 Cohort) 

Reform elements

Percentage of those who were ever classified as a dependent (cumulative)

Source: GAO analysis of GEMINI data.

0 10 20 30 40 50 60 70 80 90 100

Progressive price indexing

Price indexing

Longevity indexing

Increase computation years

Reduce COLA 1 percentage point

None

Less than 1 percent

Between 1 and 5 percent

Between 5 and 10 percent

Between 10 and 25 percent

Between 25 and 50 percent

Note: The above intervals include the upper endpoint. For example “Between 1 and 5 percent” 

includes 5, but not 1. For those who were ever classified as a dependent, only a very few individuals 

had total lifetime benefit reductions of more than 50 percent. Four individuals experienced a benefit 

reduction of more than 50 percent under the COLA reduction, 21 individuals under increasing the 

number of computation years, 13 under longevity indexing, 34 under price indexing, and 5 under 

progressive price indexing. 

Certain reform elements would create reductions in total lifetime benefits 

for the vast majority of disabled workers and dependents. These 

reductions may create new hardships for certain beneficiaries, such as 

disabled workers, who may not be able to easily replace lost income. 

According to our projections, price indexing would result in the greatest 

benefit reductions for the largest percentage of beneficiaries, with 

decreases in lifetime benefits of between 25 percent and 50 percent for 

almost 70 percent of disabled workers and about 90 percent of

dependents. Both price indexing and longevity indexing have a greater 

effect on initial benefit amounts the longer the reform is in place. As such, 

Page 22 GAO-08-26 Issues for Disability and Dependent Benefits
people who leave the workforce early may experience a smaller reduction

in lifetime benefits than those who leave at full retirement age.

26 For 

example, as shown in figures 6 and 7, longevity indexing could reduce 

lifetime benefits for about 86 percent of disabled workers and about 96 

percent of dependents by 10 to 25 percent.27

Progressive price indexing may have a more moderate effect on the 

benefits of disabled workers and certain dependents because it is designed 

to protect benefit levels for low earners and gradually apply benefit 

reductions to beneficiaries with higher earnings. Because of shorter 

earnings histories, some disabled workers would be in the low end of the 

earnings distribution.28 Thus, under progressive price indexing, a greater 

proportion of disabled workers would be likely to have benefits adjusted 

by wage indexing. According to our projections, progressive price 

indexing would reduce total lifetime benefits by 5 percent or less for 

46 percent of disabled workers and 35 percent of dependents.

Various options are available to protect benefits in different ways, 

including accelerating the growth of an individual’s benefits, modifying 

current constraints on benefit levels, and exempting certain populations 

from reforms. Options can also target certain types of beneficiaries. We 

analyzed some of these protections and found they could be structured to 

mitigate the effects of benefit reductions for varying lengths of time. In 

addition, we found that specific options to protect dependent benefits 

could be targeted to certain vulnerable beneficiaries, such as widows and 

dependent children. 

Options Protecting 

the Benefits of 

Disabled Workers and 

Dependents Could 

Mitigate the Effects of 

Benefit-Reducing 

Reform Elements 

 26Many disabled workers leave the workforce in their fifties. 

27The other 14 percent generally had reductions of 10 percent or less, and very few disabled 

workers had reductions in lifetime benefits of more than 25 percent under longevity 

indexing. 

28Many people have lower relative earnings in their first years of work. 

Page 23 GAO-08-26 Issues for Disability and Dependent Benefits
We found a wide range of options exist for protecting disabled workers 

and dependents from benefit-reducing reforms. Table 2 provides a 

summary of the options.29 The protection options may be very specific in 

terms of whom they protect and how, or broader in scope. For example, 

while two protection options focus specifically on disabled adult children 

(DAC), others, such as partial exemptions could apply to any vulnerable

population. In addition to each option having its own strengths and 

weaknesses, the options could interact with each other and with the 

various reform elements. When implementing a protection option, all of 

these factors could influence its impact. 

Many Options Exist for 

Protecting Social Security 

Benefits, Including Full 

and Partial Exemptions 

Table 2: Options for Protecting Disabled Worker and Dependent Benefits from Social Security Reform 

Given a specific reform, the protection option could affect the: 

Protection 

option 

available for Protection option 

Initial

benefit 

amount 

Growth of 

individual 

benefits

Maximum 

family 

benefit 

available 

Eligibility 

for benefits

Conversion

at the full 

retirement 

age 

Full exemption 9 9

Partial exemption 9 9 9

Minimum benefit 9

Super COLA 9

Any beneficiary 

type 

Age-indexed super COLA 9

Increase the percentage of the worker’s 

benefit that the dependent family member 

receives as his/her benefit 

9

Increase the family maximum benefit level 

for DI 9

Increase the percentage of the worker’s 

benefit that a dependent child or a disabled 

adult child (DAC) receives as his/her benefit 

in combination with increasing the family 

maximum benefit 

9 9

Decouple DAC benefits from other family 

benefits 9

Children and 

families of 

disabled 

workers 

Hold initial benefit amount harmless for 

family benefits 9

 29This table results from our discussions with knowledgeable experts and relevant officials

as well as a review of the current literature on Social Security reform. For more 

information on how these options could work, see appendix I. 

Page 24 GAO-08-26 Issues for Disability and Dependent Benefits
Given a specific reform, the protection option could affect the: 

Protection 

option 

available for Protection option 

Initial

benefit 

amount 

Growth of 

individual 

benefits

Maximum 

family 

benefit 

available 

Eligibility 

for benefits

Conversion

at the full 

retirement 

age 

Expand eligibility rules for divorced spouses 9

Increase the percentage of the worker’s 

benefit that the dependent family member 

receives as his/her benefit 

9

Increase the percentage of the worker’s 

benefit that a dependent child or DAC 

receives as his/her benefit in combination 

with increasing the family maximum benefit 

9 9

Children and 

families of 

retired workers

Decouple DAC benefits from other family 

benefits 9

Increase the percentage of the worker’s 

benefit that the spouse receives as his/her 

benefit 

9 Spouses 

Implement a child/family care credita

9

Survivors Hold initial benefit amount harmless for 

family benefits 9

Hold early survivors (young children or 

young widow(er)s) harmless 9 9

Increase the surviving spouse benefit to 

2/3 or 3/4 of the combined couples’ benefit 9

Increase benefits for aged survivors 9

Increase the early retirement ageb9

Source: GAO.

a

If the spouse is eligible for retirement benefits based on his or her own earnings record, Social 

Security will pay that amount first. However, if the spouse benefit (based on his or her husband’s 

earnings record) would be a higher amount, Social Security will combine the benefits and pay the 

higher amount. A spouse receiving such a benefit may also be eligible for a care credit for his or her 

own earnings record. This care credit could change the initial benefit amount. 

b

While an increase in the early retirement age could increase the initial benefit amounts for those who

retire at the new early retirement age, others who may need to stop working at 62 may have no Social

Security payments for the elapsed time. 

There are several protection options that could be applied to all disabled 

workers and dependents. Under a full exemption, beneficiaries would not 

be subject to a reform and their benefits would remain unchanged. Under 

a partial exemption, beneficiaries would not be subject to a reform until a 

certain point in time. For example, disabled workers could be exempt 

from benefit changes until they are converted to the Old Age program at 

the full retirement age. At this point, their benefit amount would be 

recalculated to reflect the reform in proportion to the years they spent 

working. In addition, a super COLA could help protect the benefits of 

Page 25 GAO-08-26 Issues for Disability and Dependent Benefits
disabled workers and dependents. A super COLA would mitigate some of 

the effects of a benefit-reducing reform by annually increasing benefits at 

a rate above the consumer price index—which is currently used to index

benefits. 

Some protection options could cover all dependents by increasing the 

percentage of the worker’s benefit that the dependent receives. (See app. 

II for more detail on how dependent benefits are calculated.) For example, 

a number of proposals have called for increasing the percentage of the 

worker’s benefit that widow(er)s receive. Another option that could 

protect the benefits of a wide range of dependents would be to raise the 

maximum benefit that families can receive based on one worker’s earnings

record. Other protection options, such as caregiver credits, could focus on

protecting particular groups of dependents. Several reform proposals 

have, in fact, called for providing caregiver credits to individuals who 

spend time out of the workforce to care for their dependents or to those 

with reduced or low earnings while attending to care-giving 

responsibilities. Some proposals assign caregivers a specified level of

earnings for each year the caregiver received zero or low earnings 

compared to prior years. Other proposals exclude zero-earning care years 

from the initial benefit calculation.30 Another option specific to a certain

type of dependent would be to increase benefits for aged survivors, since 

they are more likely to rely on Social Security to stay out of poverty and 

could have fewer opportunities, such as returning to work, to respond to 

benefit-reducing reforms. 

Increasing the early retirement age could offer some protection for 

survivors. If the early retirement age were raised—for example, from 62 to

64—then workers who take early retirement would receive actuarially 

adjusted benefits for a shorter period of time under the new early 

retirement age, and thus their monthly benefits would be relatively higher 

than the monthly benefits they would have received if they had retired at 

the current early retirement age.31 Since a dependent’s benefit is linked to

the worker’s initial benefit amount, an increase in the worker’s benefit 

 30For more information on caregiver credits and other program modifications, see GAO,

Retirement Security: Women Face Challenges in Ensuring Financial Security in

Retirement, GAO-08-105 (Washington, D.C.: Oct. 11, 2007). 

31 This would not be the case if at age 62 a worker could no longer remain in the workforce.

In such a case, a person may have to apply for DI or may be unemployed (and have low

income) for the 2 years prior to taking early retirement. 

Page 26 GAO-08-26 Issues for Disability and Dependent Benefits
would also increase the dependent’s benefit, mitigating some of the 

negative effects of other reforms. Similarly, raising the FRA coupled with a 

partial exemption from a benefit reduction could offer some additional 

protection for disabled worker benefits. With an increase in the FRA, 

disabled workers would receive (exempted) DI benefits for a longer 

period of time because the age at which their disability benefits are 

converted to retiree benefits would rise with the new FRA. 

Some Benefit Protections 

Could Restore Benefits to 

Levels near Those 

Scheduled under Current 

Law 

In general, the reform elements we examined reduce median lifetime 

benefits for disabled workers and dependents. Because disabled workers 

may not have the financial resources—especially earnings related 

income—to adjust to benefit reductions, we explored the interaction of 

reform elements and certain options to offset them. 

According to our projections, protections from a reduction in the COLA 

could restore benefits of disabled workers to levels close to those 

scheduled under current law. Reducing the COLA by one percentage point

would result in about a 10 percent decrease in median lifetime benefits for 

workers who become disabled before age 60. To offset such a decrease,

they could be partially or fully exempted. With a COLA reduction, a partial 

exemption would mean that the Social Security Administration would 

increase a disabled worker’s benefits annually as scheduled under current 

law (i.e., using the full COLA) until the worker reached the full retirement 

age. At that point, the disabled worker’s benefits would grow annually by 

the reduced COLA (1 percentage point lower than what it would be under

current law). Our projections showed that a partial exemption as 

described above would raise median lifetime benefits from their reduced

levels by 7 percent (up to 96 percent of scheduled levels under current 

law). In contrast, a full exemption would allow annual COLA adjustments 

in line with current law until death (fig. 8).32

 32In figures 8 to 11, the benefits under a full exemption do not completely return to prereform levels. This is because some individuals receiving disabled worker benefits also 

received some benefits as dependents from another worker’s record. As those benefits 

would not be subject to the same protections, median lifetime benefits for such disabled 

workers may remain slightly lower than those under current law.

Page 27 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 8: Projected Median Lifetime Benefits under a COLA Reduction of 1

Percentage Point (1985 Cohort) 

0

10

20

30

40

50

60

70

80

90

100

Disabled at or 

 after age 60

Disabled 

 before age 60

Never disabled

Source: GAO analysis of GEMINI data.

Scheduled benefits

COLA reduction of 1 percentage point

Partial exemption from reduction

Full exemption from reduction

Percentage of currently scheduled benefits

Disability status

Notes: In figures 8 to 11, the population labeled “Never disabled” refers to all beneficiaries—

dependent or retirees on their own record—who were never disabled. 

In figures 8 to 11, the benefits under a full exemption do not completely return to pre-reform levels. 

This is because some individuals receiving disabled worker benefits also received some benefits as

dependents from another worker’s record at some point in their lifetime. As those benefits would not 

be subject to the same protections, median lifetime benefits for such disabled workers may remain 

slightly lower than those under current law. 

In addition to a decrease in the COLA, we analyzed options for protecting 

the benefits of disabled workers under three reform elements that have an

impact on the initial benefit amount a disabled worker receives—price 

indexing, longevity indexing, and progressive price indexing. There are 

several protection options for mitigating the effects of these reform 

elements, including full and partial exemptions. In the case of price 

Page 28 GAO-08-26 Issues for Disability and Dependent Benefits
indexing initial benefits, we projected that the median lifetime benefits of

disabled workers would be about 75 percent of the median benefits under 

current law (fig. 9). A full exemption for disabled workers would raise the 

benefits of those disabled workers who exclusively receive DI benefits to 

the currently scheduled levels. However, a partial exemption from price 

indexing would restore the median lifetime benefit to 89 to 90 percent of 

scheduled levels, depending on how the partial exemption is 

implemented.33 One type of partial exemption (Type I) uses price indexing 

to calculate the portion of the benefits based on the years a person is out 

of the workforce and receiving DI benefits. In contrast, the other type of 

partial exemption (Type II) uses wage indexing to cover the same time 

period. (For more details, please see app. I.) The difference between the 

two partial exemptions becomes more substantial the earlier one becomes 

disabled, as the difference between wages and prices increases over time. 

While offering some protection from benefit reductions, both types of 

partial exemptions involve a recalculation of benefits at the full retirement 

age. This recalculation would result in lower benefits for the DI recipient 

and could create a potential problem if that individual relied on the prior 

benefit amount and had limited options for replacing the lost income. (See 

figs. 10 and 11 for longevity indexing and progressive price indexing, 

respectively.) 

 33We modeled two different ways of partially exempting disabled workers from the various 

indexing reforms—one follows the methods outlined in the Kolbe-Stenholm (2001) 

proposal, which we refer to as Type I . The other partial exemption follows the methods

outlined in the Graham (2003) proposal, which we refer to as Type II. For more details on 

the difference, please see appendix I.

Page 29 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 9: Projected Median Lifetime Benefits under Price Indexing (1985 Cohort) 

0

10

20

30

40

50

60

70

80

90

100

Source: GAO analysis of GEMINI data.

Disabled at or

or after age 60

Disabled

before age 60

Never disabled

Scheduled benefits

Price indexing

Partial exemption type I

Partial exemption type II

Full exemption

Percentage of currently scheduled benefits

Disability status

Notes: In figures 8 to 11, the population labeled “Never disabled” refers to all beneficiaries—

dependent or retirees on their own record—who were never disabled. 

In figures 8 to 11, the benefits under a full exemption do not completely return to pre-reform levels. 

This is because some individuals receiving disabled worker benefits also received some benefits as

dependents from another worker’s record at some point in their lifetime. As those benefits would not 

be subject to the same protections, median lifetime benefits for such disabled workers may remain 

slightly lower than those under current law. 

Page 30 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 10: Projected Median Lifetime Benefits under Longevity Indexing 

(1985 Cohort) 

0

10

20

30

40

50

60

70

80

90

100

Source: GAO analysis of GEMINI data.

Disabled at or

or after age 60

Disabled

before age 60

Never disabled

Disability status

Scheduled benefits

Longevity indexing

Partial exemption type I

Partial exemption type II

Full exemption

Percentage of currently scheduled benefits

Notes: In figures 8 to11, the population labeled “Never disabled” refers to all beneficiaries—

dependent or retirees on their own record—who were never disabled. 

In figures 8 to 11, the benefits under a full exemption do not completely return to pre-reform levels. 

This is because some individuals receiving disabled worker benefits also received some benefits as

dependents from another worker’s record at some point in their lifetime. As those benefits would not 

be subject to the same protections, median lifetime benefits for such disabled workers may remain 

slightly lower than those under current law. 

Page 31 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 11: Projected Median Lifetime Benefits under Progressive Price Indexing

(1985 Cohort) 

0

10

20

30

40

50

60

70

80

90

100

Source: GAO analysis of GEMINI data.

Disabled at or

or after age 60

Disabled

before age 60

Never disabled

Disability status

Scheduled benefits

Progressive price indexing

Partial exemption type I

Partial exemption type II

Full exemption

Percentage of currently scheduled benefits

Notes: In figures 8 to 11, the population labeled “Never disabled” refers to all beneficiaries—

dependent or retirees on their own record—who were never disabled. 

In figures 8 to 11, the benefits under a full exemption do not completely return to pre-reform levels. 

This is because some individuals receiving disabled worker benefits also received some benefits as

dependents from another worker’s record at some point in their lifetime. As those benefits would not 

be subject to the same protections, median lifetime benefits for such disabled workers may remain 

slightly lower than those under current law. 

Another protection option would be to allow disability benefits to grow at 

a greater rate than other benefits. For example, disabled workers could be

explicitly included in the scope of the reform, and receive reduced initial 

benefits. However, instead of receiving annual increases based on the 

Page 32 GAO-08-26 Issues for Disability and Dependent Benefits
current-law COLA, disabled workers could have their benefits increased 

by a “super COLA”—one that is set above the Consumer Price Index. In 

this case, benefits for the disabled would grow at a faster rate than they

would under current law and could approach or even exceed current law 

levels. Variations on the super-COLA could include an “age-indexed super 

COLA” which would be greater for those disabled at younger ages. For 

those workers who become disabled near the full retirement age the COLA

would be closer to that used for retirees. These protections could be 

particularly beneficial for disabled workers who receive benefits for a 

prolonged period of time. 

Protections for Dependent 

Benefits Could Be 

Targeted to Certain 

Vulnerable Beneficiaries, 

Including Survivors

While protections for disabled workers would generally cover all such 

beneficiaries, the options for protecting dependent benefits could be more 

targeted to specific dependents and not necessarily applied to the full 

range of dependents, which includes spouses, divorcees, widow(er)s, and 

child survivors. The circumstances around which a person becomes a 

dependent vary greatly, as does the role of Social Security benefits in their 

lives. For some, Social Security may be the primary source of support; for 

others, it may be only a small proportion of their income. 

Protections could target children, who make up about 8 percent of Social 

Security beneficiaries, receiving benefits as the survivors or dependents of 

disabled or retired workers. Table 3 shows the number of children who 

receive benefits in each category and the average monthly benefit for 

these children. One way to protect the benefits of children would be to 

exempt them from any reform, keeping their benefit calculation tied to 

current law. Another way to protect their benefits to some degree would 

be to raise the maximum benefit a family could receive on a single 

worker’s earnings record.34

 34Rather than being an absolute amount, the family maximum is defined as a percentage of 

the primary worker’s benefit. Therefore, if a reform reduces benefits, the maximum amount

a family could receive would also decrease. See appendix II for more details on the family 

maximum. 

Page 33 GAO-08-26 Issues for Disability and Dependent Benefits
Table 3: Child Beneficiaries

Program 

Number of 

children

receiving

benefits

(thousands)

Children as a 

percentage of

program

beneficiaries

Total monthly

benefit children

receive 

(in millions

of dollars)

Average 

monthly benefit 

(in dollars) 

All 3959 8.0 1993 503

Old Age 485 1.4 253 522

Survivors 1850 28.6 1269 686

Disability 1624 18.6 471 290

Source: GAO analysis. of Social Security data. 

Note: Data accessed from http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/ on August 29, 

2007. The children referred to in this chart receive benefits off someone else’s work record – 

generally a parent. For example, the 1,624,000 children receiving benefits from the DI program have

a parent/guardian who is disabled. 

The majority of experts with whom we spoke told us that increasing the 

maximum amount that a family could receive from one worker’s earnings

record could help protect child and other dependent benefits. Such an 

increase could help those dependents who are constrained by the family 

maximum. A family may have several people receiving benefits based on 

one worker’s record. The sum of the family members’ benefits may exceed 

the specified maximum, which is calculated as a percentage of the 

worker’s benefit amount. Thus, any reform that would result in a decrease 

in the primary benefit amount would also result in a decrease in the 

amount that each eligible family member would receive and a 

corresponding decrease in the total amount a family would receive. 

Certain options, including increased allowable benefits for widows or 

partial exemptions, could be designed to protect the benefits of 

widow(er)s or others who may have fewer resources available to them. 

Under current law, widows and widowers can collect 100 percent of their 

deceased spouse’s benefits (or their own benefit—whichever is greater); 

a “widow’s boost” would allow them to receive up to 75 percent of the 

couple’s combined benefits. Widow(er)s may rely on Social Security for a 

large percentage of their retirement income, in part because they may live 

many years beyond the exhaustion of other financial resources, may find it 

difficult to work, or may incur large health expenses that deplete their 

other resources. 

A reduction in the COLA may be particularly detrimental to the lifetime 

benefits of those who live long lives, because the effect of reducing the

Page 34 GAO-08-26 Issues for Disability and Dependent Benefits
COLA is compounded over time. As such, it may be desirable to protect 

older widow(er)s—along with other individuals who receive benefits for a 

prolonged period of time—from the effect of a COLA reduction. For 

example, in our projections for the COLA reduction, we found that for the 

group of widows who received some benefits and who died before age 75,

median lifetime benefits would be approximately 93 percent of those 

under current law. In contrast for those who lived past age 95, median 

lifetime benefits would be only 83 percent of currently scheduled levels.

The options for protecting the benefits of disabled workers and those of 

dependents come at a cost to the Social Security program in terms of its 

solvency. In addition, some protections options may create incentives for 

people to apply to the Disability Insurance program if DI benefits increase 

while retirement benefits stay stable. Further, protection options could 

provide disincentives for some to return to work. 

The Social Security reform elements we examined were designed 

primarily to improve program solvency. These reform elements would 

generally reduce benefits from their currently scheduled but underfunded 

levels.35 While protecting the benefits of disabled workers and dependents 

may be socially desirable, such protection would come at some cost to the 

Social Security program. In particular, the protections lessen the degree to

which the potential reforms could restore solvency. One could counter 

these costs with further benefit reductions to beneficiaries considered less 

vulnerable than those recipients whose benefits are specifically protected. 

That is, reform packages with certain benefit protections for vulnerable 

populations may necessitate further reductions in the benefits of retired 

workers or increases in revenues to achieve the intended solvency effect. 

In addition to the effects on solvency, some of the protections discussed 

may also have administrative costs associated with them. 

Some Protection 

Options May Create 

New Costs and 

Unintended 

Incentives for the 

Social Security 

Program 

Protecting the Benefits of 

Disabled Workers and 

Dependents Would 

Increase Costs for the 

Social Security Program 

 35As mentioned earlier, solvency could also be improved by increasing revenues (taxes). 

Page 35 GAO-08-26 Issues for Disability and Dependent Benefits
Protecting the benefits of disabled workers may increase the number of 

people who apply for disability benefits. This may also be relevant to 

certain reform elements. An increase in the full retirement age coupled 

with the reduction in benefits for early retirement could motivate some 

individuals approaching the early retirement age to apply for disability 

benefits, if they believed that they could qualify for the now greater DI 

benefits.36 For example, before a change in the retirement age a worker 

who is a year away from the full retirement age, and who would qualify for 

DI but is unsure of that outcome, may choose to wait and only receive Old 

Age benefits. Once the full retirement age is raised, this worker may 

choose to apply for DI, rather than waiting to receive retirement benefits. 

The greater the benefit disparity between the two programs, the more 

likely it may be that DI applications and enrollment will increase. Thus, 

the potential for an increase in DI program costs exists with any reform 

elements that decrease the generosity of the Old Age component of OASDI 

without a corresponding decrease in that of the DI component.37

Certain Protections May 

Create Incentives for 

Individuals to Apply for 

Disability Benefits 

Under current law, there may already be an incentive for older workers to 

apply for DI rather than retire early. Using individual level data from the 

simulation model, we analyzed the benefits of two similar individuals 

under current law and under price indexing with and without full and 

partial exemptions. Both of the simulated individuals had similar lifetime 

earnings, close to the median for the simulated 1985 cohort, and both 

would have received initial benefits at age 62. However, they differed in 

two significant ways: one retired at age 62, while the other was disabled at

age 62, and the retiree had lower lifetime benefits under current law.38 The 

retiree, who died at age 84, had lifetime benefits of about $433,000, while 

 36Some research has been done on whether there is a link between the increase in the FRA 

and the recent increase in the number and percentage of people applying for DI. For 

example, Duggan, Singleton, and Song (2005) find that the 1985 increase in the FRA had an

important effect on the percent of people applying for DI.

37Besides incentive-related costs, increasing the FRA would create other costs for the DI

program by expanding the size of the DI-eligible population. Workers who remain in the

workforce past the old FRA and become injured prior to the new FRA may enroll in the DI

program. 

38In part, this may be because the retired individual chose to retire early (at age 62) and

thus his benefits were actuarially reduced. In addition, while the present value of the

individuals’ lifetime earnings were similar, the distribution of these earnings could have 

been different and as such, the average indexed monthly earnings used as the basis for 

determining benefit amounts could be different. 

Page 36 GAO-08-26 Issues for Disability and Dependent Benefits
the disabled worker, who died at age 82, had lifetime benefits of about 

$505,000—about 16 percent higher than those of the retired worker. 

A full exemption for disabled workers from certain reform elements could 

similarly create discrepancies between the two programs, resulting in 

incentives to apply for the DI program. Under price indexing, the lifetime 

benefits of both individuals would be reduced, but the relative difference 

would remain at about 16 percent. However, if disabled workers were fully 

exempted from price indexing, the simulated disabled worker’s lifetime 

benefits would be back to the initial amount of $505,000, or 72 percent 

greater than those of the retired worker. This difference in potential 

benefits would likely increase the incentive to apply for the DI program. 

Figure 12 and table 4 show the total lifetime benefits and the average

monthly benefits of these two simulated individuals under current law, 

price indexing, and with exemptions. 

Page 37 GAO-08-26 Issues for Disability and Dependent Benefits
Figure 12: Simulated Total Lifetime Benefits for Two Similar Individuals Who Began 

Receiving Benefits at Age 62, Exemptions Apply to Disabled Workers (1985 Cohort) 

0

100,000

200,000

300,000

400,000

500,000

600,000

Partial exemption

Full exemption

Price indexing

Current law

Dollars

Reform scenario

Lifetime benefits disabled worker received above those of retired worker

Lifetime benefit levels for retired worker collecting at age 62

Source: GAO analysis of GEMINI data.

Table 4: Total Lifetime and Average Monthly Benefits of Two Simulated Individuals Who Began Receiving Benefits at Age 62, 

Exemptions Apply to Disabled Workers (1985 Cohort) 

Total lifetime benefits Average monthly benefits

 

 

Retired

worker 

Disabled

worker 

Difference as a 

percentage of the

retired worker’s benefits

Retired

worker

Disabled

worker 

Difference as a 

percentage of the 

retired worker’s benefits

Current law $433,000 $505,000 16.63% $1,640 $2,104 28.29%

Price indexing $293,000 $341,000 16.38% $1,110 $1,421 28.02%

Full exemption $293,000 $505,000 72.35% $1,110 $2,104 89.59%

Partial exemption $293,000 $389,380 32.89% $1,110 $1,622 46.18%

Source: GAO analysis of GEMINI data. 

Page 38 GAO-08-26 Issues for Disability and Dependent Benefits
However, partial rather than full exemptions or other protections, such as 

an age-indexed super COLA, could provide benefit protections without 

substantially increasing the disparity between the programs for people 

approaching the early or full retirement ages. Under a partial exemption, 

in which the disabled worker would be exempted from the reform until 

full retirement age, the added incentive that could be created by a full

exemption would be reduced. Such a partial exemption for the disabled 

worker in our example would result in lifetime benefits that are about 

33 percent higher than those of the retired worker under price indexing. 

The family maximum limits the amount that can be received off of a 

worker’s record. This limit is compatible with the incentive for individuals 

to work. Changing such a limit could affect beneficiaries’ work decisions. 

For example, protecting benefits of dependents by increasing the family 

maximum could affect an individual’s work decisions. Under the current 

family maximum with a benefit reduction in place, if a person chooses to

work 30 hours a week, an increase in the total amount a family (or 

individual dependents) could receive might affect this decision and 

decrease the person’s time in the workforce. In such a case, the individual 

may find that the increase in the benefits received would allow for fewer 

weekly hours of work without a change in total income. In addition, 

protections that increase the benefits of disabled workers, such as the 

super COLA, can also create disincentives for such beneficiaries to return 

to work. As such, some individuals may continue to rely on the DI 

program, rather than finding a way to re-enter the workforce. 

Social Security’s financial challenges may result in program modifications 

that may include benefit reductions. These benefit reductions will likely 

affect all beneficiaries, including vulnerable individuals who may not be 

able to adjust to these reductions or who rely on Social Security as their 

primary source of income. While protecting the benefits of vulnerable 

populations may be desirable, such action does come at a cost. Further 

benefit reductions or revenue increases would be needed to achieve 

program solvency. These offsets, in turn, may create new financial 

vulnerabilities among other beneficiaries who would bear the burden of 

these protections. 

Certain Protections May 

Affect the Work Decisions 

of Beneficiaries 

Conclusions 

Few reform proposals consider the impact that benefit reductions would 

have on all beneficiary types, instead treating all beneficiaries similarly. 

However, some special consideration should be given to the effects of the 

reform on the benefits of the most vulnerable, especially when these 

Page 39 GAO-08-26 Issues for Disability and Dependent Benefits
individuals are disproportionately affected. If the solution to Social 

Security’s financing problems includes benefit reductions, then the equal 

treatment of all beneficiaries may need to be reconsidered, and the 

complex interactions of benefit reductions, protections, and direct and 

indirect costs to the system and to other retirees will need to be weighed 

carefully. Benefit protections can be a part of a comprehensive reform 

package and the reform debate should consider the design, inclusion, and 

implications of such measures to assure income adequacy. Likewise, to the 

extent that Social Security aligns the disability program with the current 

state of science, medicine, technology, and labor market conditions, such 

modernization should also be considered. 

Accordingly, in light of potential reform, Congress should consider the 

potential implications of reform on disability and dependent beneficiaries. 

Such a review might usefully be coordinated with any modernization of 

the Social Security disability program. 

We provided a draft of this report to SSA and the Department of the 

Treasury, which generally agreed with our findings. Both provided 

technical comments, and SSA also provided general comments, which 

appear in appendix III. We incorporated the comments throughout our 

report as appropriate. 

In general, SSA concurred with the methodology, overall findings, and 

conclusions of the report. However, SSA felt that the report could benefit 

from a more direct comparison of disabled beneficiaries and retired 

beneficiaries (and a similar construct for dependents). While such a 

comparison could be beneficial and give context to the reform discussion, 

this report was premised on the notion that certain beneficiaries would be 

less able to offset benefit reductions, rather than a comparison of relative

welfare. 

Finally, GAO agrees that one could better assess the degree to which a 

reform element or protection option support the program’s goal of 

adequacy if benefits were compared to a standard of adequacy; however 

such a comparison was beyond the scope of the current study. 

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution until 30 days after the date of this 

letter. At that time, we will send copies of this report to the Social Security 

Matter for 

Congressional 

Consideration 

Agency Comments 

Page 40 GAO-08-26 Issues for Disability and Dependent Benefits
Administration and the Department of the Treasury, as well as other 

interested parties. Copies will also be made available to others upon 

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov. Please contact me at (202) 512-7215, if you 

have any questions about this report. Other major contributors include 

Michael Collins, Nagla’a El-Hodiri, Jennifer Gregory, Joe Applebaum, 

Melinda Cordero, Mark Goldwein, Meaghan Mann, and Dan Schwimer. 

Barbara D. Bovbjerg 

Director, Education, Workforce, 

and Income Security Issues 

Page 41 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

Page 42 GAO-08-26 

Appendix I: Methodology 

To analyze the effects of individual reform elements and certain 

protections from these reforms on Social Security benefit levels for 

disabled workers and dependents, we simulated their benefits using the 

Policy Simulation Group’s (PSG) microsimulation models. We based our 

analysis on projected lifetime benefits for a simulated 1985 birth cohort. In 

order to have a point of comparison, we also used the microsimulation 

models to simulate Social Security benefits of retirees who receive

benefits on their own record. 

For our simulations, we used the PSG’s Social Security and Accounts 

Simulator (SSASIM) and Genuine Microsimulation of Social Security 

Accounts (GEMINI) simulation models. GEMINI simulates Social Security 

benefits and taxes for large representative samples of people born in the 

same year. GEMINI simulates all types of Social Security benefits 

including retired workers’, spouses’, survivors’, and disability benefits. It 

can be used to model a variety of Social Security reforms. GEMINI uses 

inputs from SSASIM, which has been used in numerous GAO reports,1

 and 

from the Pension Simulator (PENSIM), which was developed for the 

Department of Labor. GEMINI relies on SSASIM for economic and 

demographic projections and relies on PENSIM for simulated life histories 

of large representative samples of people born in the same year and their 

spouses.2

 Life histories include educational attainment, labor force 

participation, earnings, job mobility, marriage, disability, childbirth, 

retirement, and death. Life histories are validated by PSG against data 

from the Survey of Income and Program Participation, the Current 

Population Survey, Modeling Income in the Near Term (MINT3),3

 and the 

Panel Study of Income Dynamics. Additionally, any projected statistics 

(such as life expectancy, employment patterns, and marital status at age 

60) are, where possible, consistent with intermediate cost projections 

from Social Security Administration’s Office of the Chief Actuary 

Microsimulation 

Model 

Description 

 1

See GAO-08-105; GAO, Social Security Reform: Implications of Different Indexing 

Choices, GAO-06-804 (Washington, D.C.: Sept. 14, 2005); and GAO, Distribution of Benefits 

and Taxes Relative to Earnings Level, GAO-04-747 (Washington, D.C.: June 15, 2004). 

2

While these models use sample data, our report, like others using these models, does not

address the issue of sampling errors. The results of the analysis reflect outcomes for

individuals in the simulated populations and do not attempt to estimate outcomes for an

actual population. 

3

MINT3 is a detailed microsimulation model developed jointly by the Social Security 

Administration, the Brookings Institution, RAND, and the Urban Institute to project the

distribution of income in retirement for the 1931 to 1960 birth cohorts. 

Issues for Disability and Dependent Benefits
Appendix I: Methodology 

(OCACT). At their best, such models can provide only very rough 

estimates of future incomes. However, these estimates may be useful for 

comparing future incomes across alternative policy scenarios and over 

time. 

For this report, we used the Genuine Microsimulation of Social Security 

Accounts (GEMINI) to estimate Social Security benefits for a sample of 

approximately 2 percent of individuals born in the 1985 cohort. This 

consisted of just over 97,000 individuals, with positive benefit levels for 

just over 83,400 individuals. 

For our baseline, benefits were simulated under current law. These 

simulations are based on the Social Security Trustees’ 2007 intermediate 

economic and actuarial assumptions. While our simulations provide 

projections of future retirement income, as promised under current law, 

there is a considerable amount of uncertainty involved with these 

estimates. Since these estimates could change significantly, depending on

assumptions used and behavior responses, they should not be considered 

predictions. In addition, because simulations are sensitive to economic 

and demographic assumptions, it is more appropriate to compare benefits 

across the scenarios than to focus on the actual estimates themselves. 

Evaluating Reform 

Proposals 

In general, GAO has suggested that policy makers should consider three 

basic criteria when evaluating reform proposals4

• the extent to which the proposal achieves sustainable solvency and 

how the proposal would affect the economy and the federal budget; 

• the balance struck between the goals of individual equity5 (rates of 

return on individual contributions) and income adequacy6 (level and 

certainty of monthly benefits); and 

 4

See GAO, Social Security: Criteria for Evaluating Reform Proposals, GAO/T-HEHS-99-94 

(Washington, D.C.: Mar. 25, 1999) and GAO, Social Security: Evaluating Reform 

Proposals, GAO/AIMD/HEHS-00-29 (Washington, D.C.: Nov. 4, 1999). 

5

For a discussion of individual equity issues, see GAO, Social Security: Issues in

Comparing Rates of Return with Market Investments, GAO/HEHS-99-110 (Washington,

D.C.: Aug. 5, 1999). 

6

See GAO, Social Security: Program’s Role in Helping Ensure Income Adequacy,

GAO-02-62 (Washington, D.C.: Nov. 30, 2001).

Page 43 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

• how readily such changes could be implemented, administered, and 

explained to the public. 

Moreover, reform proposals should be evaluated as packages that strike a 

balance among the individual elements of the proposal and the 

interactions among these elements. The overall evaluation of any 

particular reform proposal depends on the weight individual policy makers

place on each of the above criteria. 

However, for the purposes of this study, we did evaluate individual reform

elements and individual protection options. We looked at specific 

elements of solvency-improving reform proposals to analyze their effects 

on our populations of interest—disabled workers and dependents. In 

particular, we wanted to isolate each element in order to project the 

magnitude of their effects on these populations and in order to model 

certain protection options. Nevertheless, we recognize that there would be 

important interactive effects with any set of reforms and maintain the 

importance of considering all possible effects of any reform package as a

whole. 

Assumptions and 

Limitations 

Simulating retirement income almost 50 years into the future requires 

many assumptions and simplifications and, consequently, our simulations 

have a number of limitations. A primary limitation of our analysis is that 

our simulations do not include important components of retirement 

income, such as personal savings, earnings in retirement, health benefits, 

and other public assistance programs such as SSI. These sources could 

also be used to offset benefit reductions. In addition, the model is 

structured such that changes in Social Security benefits have no 

behavioral consequences in terms of decisions regarding work, disability, 

or retirement. As a result, the individuals would not change their work 

decisions (earnings/retirement) based on the reforms. 

The simulations are based on economic and demographic assumptions 

from the 2007 Social Security Trustees’ report.7

 We used Trustees’ 

intermediate assumptions for inflation, real wage growth, mortality 

decline, immigration, labor force participation, and interest rates. 

2007 Social Security Trustees’ 

Assumptions 

 7

The Board of Trustees, Federal Old-Age and Survivors Insurance and Disability Insurance

Trust Funds, The 2007 Annual Report of the Board of Trustees of the Federal Old-Age and 

Survivors Insurance and Disability Insurance Trust Funds (Washington, D.C.: Apr.

23, 2007). 

Page 44 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

For the purpose of this analysis: 

Disabled Workers consisted of those individuals who had a valid 

disability onset age and who received a positive amount of benefits from 

Disability Insurance. This includes any disabled workers who were 

dependents at some point in time. 

Dependents consisted of those individuals who received benefits based 

on someone else’s earnings record, at any point. Specifically, dependents 

excluded those who only received benefits based on their own record as 

retirees or as disabled workers. 

To simulate longevity indexing, which links the growth of initial benefits 

to changes in life expectancy, we successively modified the PIA formula 

replacement factors (90, 32, 15) beginning in 2009, reducing them annually 

by multiplying them by 0.995. This specification mimics provision 1 of 

Model 3 of the President’s Commission to Strengthen Social Security 

(CSSS).8

 The CSSS solvency memorandum notes that the 0.995 successive 

reductions “reduces monthly benefit levels by an amount equivalent to 

increasing the normal retirement age (NRA) for retired workers by enough 

to maintain a constant life expectancy at NRA, for any fixed age of benefit 

entitlement.”

9

 This provision as specified and scored—using the 

intermediate assumptions of the 2001 Trustees’ report—in the CSSS memo 

by SSA’s Office of the Chief Actuary would improve the long-range OASDI 

actuarial balance (reduce the actuarial deficit) by an estimated 

1.17 percent of taxable payroll. 

Specification of Disabled 

Workers and Dependents 

Description of Social 

Security Reform

Elements 

Longevity Indexing 

 8

For more information on provision 1 or Model 3, see page 8 of the CSSS proposal at 

http://www.ssa.gov/OACT/solvency/PresComm_20020131.pdf.

9

We chose the CSSS specification because it was already scored and readily available. 

Other constructions or interpretations of a longevity index are certainly possible. For 

example, life expectancy at birth or some other age could be used. Further, life expectancy

could be defined as period or cohort. A period life table represents the mortality conditions

at a specific point in time, whereas a cohort table depicts the mortality conditions of a

specific group of individuals born in the same year or series of years. 

Page 45 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

We also simulated the effects of price indexing, where initial benefits 

would be indexed to the consumer price index (CPI) in order to limit the 

growth of benefits. We successively modified the primary insurance 

amount (PIA) formula replacement factors (90, 32, and 15) beginning in 

2012, reducing them successively by real wage growth in the second prior 

year. This specification mimics provision B6 of the August 10, 2005, 

memorandum to SSA’s Chief Actuary regarding the provision requested by

the Social Security Advisory Board (SSAB), which is an update of 

provision 1 of Model 2 of the CSSS.10 As noted in the CSSS’s solvency 

memorandum from SSA’s Chief Actuary, “[t]his provision would result in 

increasing benefit levels for individuals with equivalent lifetime earnings 

across generations (relative to the average wage level) at the rate of price

growth (increase in the CPI), rather than at the rate of growth in the 

average wage level as in current law.” This provision as specified and 

scored by OCACT in the SSAB memo would improve the long-range 

OASDI actuarial balance (reduce the actuarial deficit) by an estimated 

2.38 percent of taxable payroll. 

To simulate the effects of implementing a progressive price index, we 

mimicked provision B7 of the August 10, 2005, memorandum to SSA’s 

Chief Actuary.11 We created a new bend point at the 30th percentile of 

earnings, beginning in 2012. We maintained current-law benefits for 

earners at the 30th percentile and below. We also maintained the lower 

two PIA formula replacement factors (90 and 32). We reduced the upper 

two PIA formula replacement factors (32 and 15) so that maximum worker 

benefits from one generation to the next grew by inflation rather than the 

growth in average wages. This provision as specified and scored by 

OCACT would improve the long-range OASDI actuarial balance (reduce 

the actuarial deficit) by an estimated 1.43 percent of taxable payroll. 

Price Indexing 

Progressive Price Indexing 

 10See page 3 of http://www.ssab.gov/documents/advisoryboardmemo—2005tr—

08102005.pdf for description of the provision. For the original provision from the

President’s Commission to Strengthen Social Security, see page 4 of

http://www.ssa.gov/OACT/solvency/PresComm_20020131.pdf. 

11See the August 10, 2005, memorandum to SSA’s Chief Actuary, page 3 of 

http://www.ssab.gov/documents/advisoryboardmemo—2005tr—08102005.pdf, for a 

description of the provision. 

Page 46 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

In our modeling of this reform element, we gradually reduced the number 

of drop out years from 5 to 0, thereby extending the number of 

computation years from 35 to 40. The number of computation years would 

increase to 36 in 2007, 37 in 2008, 38 in 2010, 39 in 2012, and 40 in 2014. 

This specification mimics provision B2 of the August 10, 2005 

memorandum to SSA’s Chief Actuary.12 This provision as specified and 

scored by OCACT would improve the long-range OASDI actuarial balance 

(reduce the actuarial deficit) by an estimated 0.46 percent of taxable 

payroll. 

We also simulated a reduction in the cost-of-living adjustment (COLA) of 

one percentage point, beginning in 2012. This specification mimics 

provision A2 of the August 10, 2005, memorandum to SSA’s Chief 

Actuary.13 This provision as specified and scored by OCACT would 

improve the long-range OASDI actuarial balance (reduce the actuarial 

deficit) by an estimated 1.49 percent of taxable payroll. Some reform 

proposals have called for reducing the COLA by about 0.2 percent to 0.4 

percent, in response to methodological concerns that the CPI for urban 

wage earners and clerical workers, the current CPI measure used to adjust 

benefits, overstates inflation. The intent of these proposals is to implement 

a COLA that may more accurately reflect inflation.

Increase the Number of 

Computation Years Used in 

the Initial Benefit 

Calculation 

Reduction in the Cost-ofLiving Adjustment 

 12See the August 10, 2005, memorandum to SSA’s Chief Actuary, page 3 of 

http://www.ssab.gov/documents/advisoryboardmemo—2005tr—08102005.pdf, for

description of the provision. 

13See page 3 of http://www.ssab.gov/documents/advisoryboardmemo—2005tr—

08102005.pdf for description of the provision. 

We did make one adjustment to this provision. We modeled the change beginning in 2012 

so that the simulation start date was consistent with the start date for price indexing and 

progressive price indexing. 

Page 47 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

Description of 

Protection Options 

Table 5: Options for Protecting Disabled Worker and Dependent Benefits from Social Security Reform 

Protection 

option 

available for Protection option How the protection option could work

Full exemption The beneficiary would not be subject to reform. Benefits would be

unchanged. 

Partial exemption Benefits would not be subject to reform until a certain point in time. At 

this point in time, benefits would be adjusted to reflect reform. 

Minimum benefit Beneficiaries would be guaranteed a specified minimum benefit level. 

Super COLA A larger COLA would be applied to benefits to partially mitigate 

reductions. 

Any beneficiary 

type 

Age-indexed super COLA Works similarly to the super COLA. However, this COLA would vary in

size, with younger beneficiaries receiving larger adjustments. 

Increase the percentage of the worker’s 

benefit that the dependent family member 

receives as his/her benefit 

Children and spouses receiving benefits from a parent’s or spouse’s 

earnings record receive a set percentage of their parent’s or spouse’s 

benefits as their benefit. This option would increase the size of this 

percentage. 

Increase the family maximum benefit level 

for DI 

Families would be subject to a higher family maximum benefit level if 

they receive benefits off the earnings record of a disabled worker. 

Increase the percentage of the worker’s 

benefit that a dependent child or a disabled 

adult child (DAC) receives as his/her 

benefit in combination with increasing the 

family maximum benefit 

This option would increase the percentage used to determine a 

dependent child or DAC’s benefit level while also increasing the family 

maximum benefit level. 

Decouple DAC benefits from other family 

benefits 

This option would exclude DAC benefits from the family benefit 

calculation. While a DAC would continue to receive benefits based from 

his/her parent’s earnings record, DAC benefits would not be included in 

the calculation of total family benefits when determining whether family 

benefits have exceeded the maximum family benefit. 

Children and 

families of 

disabled 

workers 

Hold initial benefit amount harmless for 

family benefits

If reform adjusts the initial benefit amount for a disabled worker, the 

amount used for calculating the benefits for any dependent of a 

disabled worker would be unchanged. 

Expand eligibility rules for divorced 

spouses 

This option would alter eligibility rules for divorced spouses (e.g. 

shorten the duration of marriage requirement for the divorced spouse to 

receive benefits from his/her spouse’s earnings record). 

Children and 

families of 

retired workers

Increase the percentage of the worker’s 

benefit that the dependent family member 

receives as his/her benefit 

Children and spouses receiving benefits from a parent’s or spouse’s 

earnings record receive a set percentage of their parent’s or spouse’s 

benefits as their benefit. This option would increase the size of this 

percentage. 

Page 48 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

Protection 

option 

available for Protection option How the protection option could work

Increase the percentage of the worker’s 

benefit that a dependent child or DAC 

receives as his/her benefit in combination 

with increasing the family maximum benefit 

This option would increase the percentage used to determine a 

dependent child or DAC’s benefit level while also increasing the family 

maximum benefit level. 

Decouple DAC benefits from other family 

benefits 

This option would exclude DAC benefits from the family benefit 

calculation. While a DAC would continue to receive benefits based from 

his/her parent’s earnings record, DAC benefits would not be included in 

the calculation of total family benefits when determining whether family 

benefits have exceeded the maximum family benefit. 

Increase the percentage of the worker’s 

benefit that the spouse receives as his/her 

benefit 

Husbands and wives receiving benefits from their spouses’ earnings 

records receive a set percentage of their spouses’ benefits as their 

benefit. This option would increase the size of this percentage. 

Spouses 

Implement a child/family care credit A child/family care credit could be work in one of three ways: 

Reduce the number of computation years for caregivers: A certain 

number of years would be “dropped” from the initial benefit level 

calculation to credit years an individual spent caring for children or other 

dependent family members. 

Credit caregivers a particular dollar amount for years spent out of the 

labor force providing care to children: Earnings used to calculate an

individual’s initial benefit level would be adjusted upward for a particular 

number of years. 

Provide caregivers with a credit equal to 1/2 of median worker earnings 

for the years spent working part-time or earning low incomes because 

caring for children or other family members: Replaces years with no or 

low earnings, up to a certain number of years. Alternatively, instead of 

using 1/2 of median worker earnings as the replacement, could use 1/2 

of the median earnings from a caregiver’s remaining work years. 

Hold initial benefit amount harmless for 

family benefits

If a reform adjusts the initial benefit amount for a primary beneficiary, 

the amount for calculating the benefits for any survivor of a worker 

would be unchanged. 

Hold early survivors (young children or 

young widow(er)s) harmless 

Early survivors would not be subject to any benefit change resulting 

from reform. 

Increase the surviving spouse benefit to 

2/3 or 3/4 of the combined couples’ benefit 

This option would increase the size of the benefit a surviving spouse 

receives to 2/3 or 3/4 of what the couples’ combined benefit would have 

been. 

Increase benefits for aged survivors This option increases the size of benefits older survivors receive. 

Survivors 

Increase the early retirement age This option would increase the early retirement age. Survivors’ benefits 

are based on workers’ benefit. If a worker takes benefits during the 

early retirement period, then the monthly benefit level is reduced. By 

increasing the early retirement age, a worker wouldn’t be able to 

receive as large a reduced monthly benefit or receive benefits for as 

long a period of time. Accordingly, any survivor’s benefit would be 

larger. 

Source: GAO.

Page 49 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

To simulate the effects of fully exempting disabled workers from the 

various reform elements, we modified the simulation to exclude the 

benefits of disabled workers from the reform elements. As such, there 

would be no recalculation of benefits when the exempted beneficiary 

reached full retirement age. 

We defined partial exemptions for disabled workers to mean that their 

benefit would be exempted from any simulated reform until the FRA and 

then would be recalculated. For the COLA reduction, we simply started 

the one percentage point reduction at the FRA for disabled workers. 

However, for the reforms that involved a change in the initial benefit 

amount (longevity indexing, price indexing, and progressive price 

indexing), we simulated the recalculation of benefits at the FRA in two 

different ways. 

The first partial exemption, which we refer to as Partial Exemption Type I, 

followed the Kolbe-Stenholm model of converting benefits at the FRA. The 

Kolbe-Stenholm model reduces benefits in proportion to the difference in

the disabled-worker PIA and the retired-worker PIA at the DI-onset age. 

This OASI benefit amount would be indexed by the COLA to for the years

between the disability onset age and age 62. 

Options Modeled to 

Protect Benefits of 

Disabled Workers 

Full Exemption 

Partial Exemptions

Partial Exemption Type I—

Kolbe-Stenholm 

Page 50 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

The second partial exemption, or Partial Exemption Type II, followed the 

Graham model of converting benefits at the FRA. The mechanism for 

converting from DI to Old Age benefits is as follows: 

( )

40

40

40

DI c YD OASI 62 ∗ −YD +

∗

where: 

DIC is the promised DI benefit level under current law 

YD is the number of years (ages 21 to 62) that the disabled worker received 

DI benefits 

OASI62 is the OASI benefit level, calculated by computing the PIA under the 

reform using the formula applicable for newly eligible retired workers in 

the year the converting worker reached age 62. In this case, earnings from 

the years prior to disability would be wage indexed. The disability freeze 

years14 would apply in computing the AIME. 

To assess the reliability of simulated data from GEMINI, we reviewed 

PSG’s published validation checks and examined the data for 

reasonableness and consistency. 

Partial Exemption Type 

II—Graham 

Data Reliability 

PSG has published a number of validation checks of its simulated life 

histories. For example, simulated life expectancy is compared with 

projections from the Social Security Trustees; simulated benefits at age 

62 are compared with administrative data from SSA; and simulated 

 14The disability freeze is a special rule that helps increase retirement or disability benefits. 

People who have a disability or are legally blind, not on DI, and working may have lower 

earnings because of the disability or blindness. In such a case, SSA can exclude those years

when calculating retirement or disability benefits. Because Social Security benefits are 

based on average lifetime earnings, the exclusion of those years increases benefits. 

Page 51 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix I: Methodology 

educational attainment, labor force participation rates, and job tenure are 

compared with values from the Current Population Survey. We found that 

simulated statistics for the life histories were reasonably close to the 

validation targets. 

Page 52 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix II: Calculating OASDI Benefits 

Page 53 GAO-08-26 

Appendix II: Calculating OASDI Benefits 

Social Security offers a variety of types of benefits, and although they are 

all based upon the same formula, they are calculated in different ways. The 

methods for calculating the different types of benefits are outlined below1

. 

Old Age benefits are calculated through a four-step process in order to 

provide retirees with progressive yet wage-based cash payments (see 

fig. 13). 

Calculating Old-Age 

Benefits

 1

To summarize the calculation of benefits, we relied on several Social Security 

publications, including the Social Security Handbook and a variety of resources available 

on SSA’s website, www.ssa.gov. 

Issues for Disability and Dependent Benefits
Appendix II: Calculating OASDI Benefits 

Figure 13: Calculating Benefits for Retirees 

Age 62 

to FRA Full 

retirement 

age (FRA)

FRA to

age 70

All past earnings are

indexed to wage growth, 

and a worker’s 35 

highest-earning years

are averaged

For 2007, the PIA is the sum of: 

90% of first $680 of AIME; 

32% of next $3,420 of AIME; and 

15% of remaining AIME

PIA reduced .56%

per month for 3 years

preceding FRA and 

.42% per month for 

additional months

prior to those 3 years. 

Earnings above an 

exempt amount will 

cause reduction in 

Social Security 

benefits

COLA

adjustment

Subsequent benefits

are increased every 

year to keep pace with 

the growth in prices (CPI)

PIA increases .66%

a month (differs if born 

before 1943)

Calculate

AIME

Age of

retirement

Source: GAO.

1 2

3c

4

3

Adjust PIA for

early retirement

3b

3a

No adjustment 

in PIA

Adjust PIA for 

delayed retirement 

Calculate

PIA

Earnings test

Notes: Specifically, Social Security’s COLAs are based on the consumer price index for urban wage 

earners and clerical workers (CPI-W), as opposed to the CPI series for all urban consumers (CPI-U). 

Also the PIA numbers in step 2 refer to workers attaining age 62 in 2007. 

First a worker’s Average Indexed Monthly Earnings (AIME) is calculated 

by indexing the worker’s past earnings to changes in average wage levels 

over the worker’s lifetime and then averaging them. The AIME formula 

considers all years in which a worker earned covered earnings.

2

 It then 

 2

Years with wages greater than those earned from 21 to 62 would also be considered as 

long as the worker had “credited” earnings.

Page 54 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix II: Calculating OASDI Benefits 

uses the number of elapsed years from 1950 or attainment of age 

21 through the age of 62 (or death) and allows for 5 “drop-out years” so 

that the worker’s highest 35 years of covered indexed earnings are used in

the calculation.3

 Once the AIME is determined, a progressive formula is 

applied to the AIME to yield a worker’s Primary Insurance Amount (PIA). 

In 2007, the PIA formula had the following bend points: 90 percent of the

first $680 of AIME, plus 32 percent of the next $3,420, and 15 percent of 

any earnings above that level (fig. 13). For example, the PIA of a worker 

whose AIME was $1000, the equivalent of at $12,000 annual salary, would 

be the sum of $612 (90 percent of $680) and $102.40 (32 percent of $320), 

yielding a total initial monthly benefit of around $715. Similarly, the PIA of

a worker with an $8,000 AIME (the equivalent of a $96,000 annual salary) 

would be the sum of $612 (90 percent of $680), $1094.40 (32 percent of 

$3420), and $585 (15 percent of $3,900), for a total of just under $2,292. 

Because the formula is both wage-based and progressive, the second 

worker receives a much higher actual benefit than the first worker 

($2,292 versus $715), but his benefits are a much lower proportion of his 

past earnings than the first worker’s benefits (28.6 percent versus 

71.4 percent). 

If a worker retires at the full retirement age, which is currently between 

ages 65 and 66, and legislated to reach 67 in 2027, this PIA represents the 

first year’s benefit (although it is adjusted for inflation through a cost-ofliving adjustment (COLA)). However, workers can begin receiving reduced

benefits at 62; benefits are progressively larger for each month workers 

postpone drawing them, up to age 70.4

 In general, benefits are actuarially

neutral to the Social Security program; that is, the reduction for starting 

benefits before full retirement age and the credit for starting after full 

retirement age are such that the total value of benefits received over one’s 

 3

For example, if a worker had some of his or her highest covered earnings between the 

ages of 18 and 22, these would be counted. The 40 years between age 22 and 62 simply give 

the formula the number of years to consider when picking the top earning years. 

4

SSA reduces retired worker benefits by 5/9 of 1 percent per month for the first 36 months

and 5/12 of one percent for each additional month that a worker elects to start benefits in 

advance of full retirement age. Conversely, delayed retirement credits increase benefits for 

each month the worker delays the start of benefits after full retirement age until they reach 

age 70. The factor used to calculate these credits varies by birth year. For workers born

in1943 or later the increase is 2/3 of 1 percent each month (8 percent per year). 

Page 55 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix II: Calculating OASDI Benefits 

lifetime is approximately equivalent for the average individual.5 Those 

receiving benefits before the full retirement age will also be subject to an 

earnings test. If earned income is above a certain threshold, Social 

Security withholds one dollar of benefits for every two dollars of earning 

above the threshold. Each year, benefits receive a COLA to keep pace with 

inflation. 

Similarly to Old Age benefits, disability benefits are determined by 

calculating a worker’s AIME, applying the progressive PIA formula to it, 

and then adjusting benefit levels through yearly COLAs (fig. 14). 

Calculating Disability 

Benefits

 5

This is the case if lifetime benefits are calculated on a present value basis with a discount

rate equal to the expected return for the Social Security trust fund—that is, 2.9 percentage

points above the rate of inflation after 2015, according to the intermediate assumptions in 

the Trustees’ 2007 report—The Board of Trustees, Federal Old Age and Survivors 

Insurance and Federal Disability Insurance Trust Funds, The 2007 Annual Report of the 

Board of Trustees of the Federal Old Age and Survivors Insurance and Federal Disability

Insurance Trust Funds (Washington, D.C.: Apr. 23, 2007) 94. 

Page 56 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix II: Calculating OASDI Benefits 

Figure 14: Calculating Benefits for Disabled Workers 

Transition to 

OASI

Choose 

to work

Retire

Reach

FRA

Ticket to Work

program

Calculate

computational

years

Determined by 

taking number of 

years between age 

21 and age at 

entitlement to DI 

benefits and 

subtracting one 

fifth of years

(cannot exceed 5)

Past earnings from 

highest possible 

computational years

are indexed to wage 

growth and averaged

For 2007, the PIA is

the sum of: 90% of 

first $680 of AIME; 

32% of next $3,420 

of AIME; and 15%

of remaining AIME

Worker can obtain 

support services

from an approved 

employee network 

or state vocational 

rehabilitation agency

Retirement benefits

are collected at same

rate as DI benefits

Calculate

AIME

Calculate

PIA

Return to DI

Change 

in status

COLA

adjustment

Enter

workforce

Source: GAO.

1 2 3 4

5

5a 5b

Note: The PIA numbers in step three refer to workers qualify for receiving DI benefits in 2007. 

However, because disabled workers are likely to have shorter work 

histories, their benefits calculation relies on fewer years of earnings. In 

general, the number of years of earnings used to calculate the AIME is 

based on the total number of years between when a worker turns 21 and 

when he applies for DI. If this number of years is 25 or more, a worker’s 

5 lowest (or zero) earnings years will be dropped from the calculation. The 

number of drop-out years gradually declines as a worker applies for 

disability earlier in life. If the disabled worker is 60 at the time of 

application, for example, 38 years would have elapsed since age 21. He will 

receive 5 drop out years, and his AIME will be calculated based upon his 

33 highest-earning years. In contrast, if a worker applies for DI at 32, he

would have only had 10 elapsed years since age 21, and only be eligible for

2 drop-out years; his AIME would be calculated based upon his top 8 

years. At the full retirement age, disabled workers begin receiving 

retirement benefits, instead of disability benefits; however, benefit levels 

remain the same and continue to grow through annual COLAs. 

Page 57 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix II: Calculating OASDI Benefits 

• Spouses: In addition to being eligible to receive retirement benefits on 

their own earnings records as early as age 62, individuals can also 

receive dependents’ benefits at age 62, based on their spouse’s benefit 

amount or, in some cases, that of an ex-spouse (table 5). These 

individuals can collect these benefits regardless of whether their 

spouse is concurrently receiving retired or disabled worker benefits. If 

collection begins at full retirement age, these individuals are eligible for 

either one-half of their spouse’s benefit amount, or the benefits based 

on their own earnings record; whichever is greater. As with Old Age 

benefits, adjustments are made if these individuals chooses to take 

early retirement. 

Calculating Benefits 

for Dependents of 

Retired and Disabled 

Workers

• Dependent Children: Dependent children may also qualify for onehalf of their retired or disabled parent’s benefit amount. This benefit is 

available for disabled adult children who are not working on a regular 

basis, children under age 18, or children still in high school and under 

age 19. 

Like other benefits, dependents’ benefits receive annual COLAs. 

Dependent benefits are subject to a family maximum, whereby a family 

is limited in the total amount of benefits that can be received from a 

single individual’s earnings record. The size of the family maximum is 

currently between 150 percent and 188 percent of the primary 

beneficiary’s benefit.6

 6

The formula used to compute the OASI family maximum is similar to that used to compute

the PIA. It involves computing the sum of four separate percentages of portions of the 

worker’s PIA. For 2007, these are 150 percent of the first $869, 272 percent of the amount

between $869 and $1,255, 134 percent of the amount between $1,255 and $1,636, and

175 percent of the amount over $1,636. The disability family maximum is equal to 

85 percent of the disabled worker’s AIME, but cannot be less than his or her PIA, nor more

than 150 percent of his or her PIA. 

Page 58 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix II: Calculating OASDI Benefits 

Table 6: Dependent Benefits

Worker retires or becomes disabled Worker dies 

Child of worker Can collect 50% of worker’s benefits if 

under 18, in high school, or disabled 

Can collect 75% of worker’s benefits if 

under 18, in high school, or disabled 

Spouse of worker Can collect 50% of worker’s benefits at 

FRA or reduced amount at age 62 

Can collect 100% of worker’s benefit at 

FRA or reduced amount at age 60 

Spouse taking care of young or 

disabled child 

Can collect 50% of worker’s benefits at 

any age 

Can collect 75% of worker’s benefits if not 

eligible for more through other provisions 

Disabled spouse No special provision Can collect 100% of worker’s benefits at 

age 50

Ex-Spouse of worker Can collect normal spousal benefits if 

marriage lasted longer than 10 years and 

dependent is unmarried 

Can collect normal spousal benefits if 

marriage lasted longer than 10 years and 

survivor is unmarried 

Parent of worker No special provision Can collect 75% or 82.5% (if only one 

parent is entitled) of worker’s benefits if 

parent is age 62 or above, and dependent 

on worker for over half of income 

Source: GAO.

Note: All benefits, except those for divorcees, are subject to the family maximum. A spouse can 

collect benefits on his own earnings record, if this amount is greater than the corresponding 

dependent benefits. 

Widow(er)s may be eligible to receive a one-time death benefit of $255. In

addition, widow(er)s, surviving parents, children under the age of 18 (19 if

the child is still in school) and disabled adult children can collect benefits 

off of the deceased person’s earnings record. A widow(er) at full 

retirement age will receive 100 percent of his or her spouse’s benefits, 

unless his or her own benefit is higher. Younger widow(er)s (those 

between age 60 and the full retirement age) can receive between 71 and 

99 percent of their deceased spouses’ benefits depending on how close 

they are to the full retirement age.7

 Furthermore, regardless of age, a 

widow(er) with young children, can receive 75 percent of the deceased

Calculating Survivors’ 

Benefits

 7

Widow(er)s who begin collecting benefits at age 60 receive 71 percent of their deceased 

spouses’ benefit amount, and this percentage increases for every year they delay collecting 

survivors benefit, reaching 100 percent at the FRA. 

Page 59 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix II: Calculating OASDI Benefits 

spouse’s benefit. Surviving parents and children can also collect up to 

75 percent of their deceased family members’ benefits. All of these 

benefits receive annual COLA adjustments and are subject to the family 

maximum. 

Page 60 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix III: Comments from the Social Appendix III: Comments from the Social Security Administration 

Security Administration 

Page 61 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix III: Comments from the Social 

Security Administration 

Page 62 GAO-08-26 Issues for Disability and Dependent Benefits
Appendix III: Comments from the Social 

Security Administration 

Page 63 GAO-08-26 Issues for Disability and Dependent Benefits
Related GAO Products 

Page 64 GAO-08-26 

Related GAO Products 

Retirement Security: Women Face Challenges in Ensuring Financial 

Security in Retirement. GAO-08-105. Washington, D.C.: October 11, 2007.

Retirement Decisions: Federal Policies Offer Mixed Signals about When 

to Retire. GAO-07-753. Washington, D.C.: July 11, 2007. 

Social Security Reform: Implications of Different Indexing Choice. 

GAO-06-804. Washington, D.C.: Sept ember 14, 2006. 

Social Security: Societal Changes Add Challenges to Program 

Protections. GAO-05-706T. Washington, D.C.: May 17, 2005. 

Options for Social Security Reform. GAO-05-649R. Washington, D.C.: 

May 6, 2005.

Social Security Reform: Answers to Key Questions. GAO-05-193SP. 

Washington, D.C.: May 2, 2005. 

Social Security Reform: Early Action Would Be Prudent. GAO-05-397T. 

Washington, D.C.: March 9, 2005. 

Long Term Fiscal Issues: The Need for Social Security Reform. 

GAO-05-318T. Washington, D.C. February 9, 2005. 

Social Security: Distribution of Benefits and Taxes Relative to Earnings 

Level. GAO-04-747. Washington, D.C.: June 15, 2004. 

Social Security: Program’s Role in Helping Ensure Income Adequacy. 

GAO-02-62. Washington, D.C.: November 30, 2001. 

Social Security Reform: Potential Effects on SSA’s Disability Programs 

and Beneficiaries. GAO-01-35. Washington, D.C.: January 24, 2001. 

Social Security: Evaluating Reform Proposals. GAO/AIMD/HEHS-00-29. 

Washington, D.C.: November 4, 1999.

Social Security Reform: Implications of Raising the Retirement Age. 

GAO/HEHS-99-112. Washington, D.C.: August 27, 1999. 

Social Security: Issues in Comparing Rates of Return with Market 

Investments. GAO/HEHS-99-110. Washington, D.C.: August 5, 1999. 

Issues for Disability and Dependent Benefits
Related GAO Products 

Social Security: Criteria for Evaluating Social Security Reform 

Proposals. GA0/T-HEHS-99-94. Washington, D.C.: March 25, 1999. 

(130615) Page 65 GAO-08-26 Issues for Disability and Dependent Benefits
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