1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085

0

4

5

6

7

Tax Revenues

Actual Projected

Outlays

Outlays With Scheduled Benefits

Outlays With Payable Benefits

Under current law, benefit payments will be 

reduced substantially after Social Security’s trust 

funds are exhausted. Alternatively, lawmakers could 

make changes to the program.

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

CBO

Social Security 

Policy Options,

2015

DECEMBER 2015

Percentage of Gross Domestic Product
CBO

Notes

Unless otherwise indicated, the years referred to in this report are calendar years. Fiscal years run 

from October 1 to September 30 and are designated by the calendar year in which they end.

Numbers in the text and tables may not add up to totals because of rounding.

Supplemental data are posted with the report on CBO’s website.

The analysis presented in this report relies on projections published in The 2015 Long-Term 

Budget Outlook (Congressional Budget Office, June 2015, www.cbo.gov/publication/50250). 

Where appropriate, CBO has modified those projections to account for a shift of a 

0.57 percentage-point share of the payroll tax from the Old-Age and Survivors Insurance 

Trust Fund to the Disability Insurance Trust Fund for calendar years 2016 through 2018. 

That change results from a provision of the Bipartisan Budget Act of 2015 (Public Law 

114-74; www.congress.gov/bill/114th-congress/house-bill/1314), which was enacted on 

November 2, 2015. This report does not account for the effects of several other small changes 

to Social Security under the new law. For pertinent estimates, see Congressional Budget 

Office, cost estimate for H.R. 1314, the Bipartisan Budget Act of 2015 (October 28, 2015), 

www.cbo.gov/publication/50938.

www.cbo.gov/publication/51011
Contents

CBO

Summary 1

What Are the Prospects for Social Security’s Finances? 1

What Effects Might Certain Changes to Social Security Have Over the Long Term? 2

The Social Security Program 2

Benefits 4

Funding 5

Trust Funds 6

Social Security Projections 6

An Aging Population 7

Rising Cost of Benefits 8

Slow Growth in Revenues 8

Solvency Measures 8

Changing Social Security 12

Payroll Taxes 12

Benefit Formula 13

Assessing Options for Changing Social Security 16

Scope of the Options 16

CBO’s Analytical Methods 18

Effects of the Options on the System’s Finances 19

Effects of the Options on Payroll Taxes Paid and Benefits Received by Various Groups 20

Effects of the Options on Work and Saving 21

Options That Would Change the Taxation of Earnings 42

Option 1: Increase the Payroll Tax Rate by 1 Percentage Point 42

Option 2: Increase the Payroll Tax Rate by 2 Percentage Points Over 10 Years 43

Option 3: Increase the Payroll Tax Rate by 3 Percentage Points Over 60 Years 43

Option 4: Raise the Taxable Maximum to Cover 90 Percent of Earnings 43

Option 5: Raise the Taxable Maximum to Cover 90 Percent of Earnings; 

Do Not Increase Benefits 44

Option 6: Eliminate the Taxable Maximum 44

Option 7: Tax Covered Earnings Above the Taxable Maximum; Create a 

Two-Component System for Calculating the PIA 45

Option 8: Tax Covered Earnings Above the Taxable Maximum; Do Not Increase Benefits 46

Option 9: Tax Covered Earnings Above the Taxable Maximum at 4 Percent; 

Do Not Increase Benefits 48

Option 10: Tax Covered Earnings Above $250,000 at 4 Percent; Do Not Increase Benefits 48
II SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Options That Would Change the Benefit Formula 49

Option 11: Raise From 35 to 40 the Years of Earnings Included in the AIME 49

Option 12: Index Earnings in the AIME Formula to Prices 49

Option 13: Apply the Social Security Benefit Formula to Individual Years of Earnings 50

Option 14: Reduce All PIA Factors by 15 Percent 51

Option 15: Reduce the Top PIA Factor to 10 Percent 52

Option 16: Reduce All PIA Factors by 0.5 Percent Annually 52

Option 17: Index Initial Benefits to Changes in Longevity 53

Option 18: Implement Pure Price Indexing of Initial Benefits 53

Option 19: Implement Progressive Price Indexing of Initial Benefits for the 

Top 70 Percent of Earners 55

Option 20: Implement Progressive Price Indexing of Initial Benefits for the 

Top 50 Percent of Earners 56

Option 21: Index the Bend Points in the PIA Formula to Prices 58

Option 22: Add an Additional Bend Point to the PIA Formula and Reduce the PIA Factors 58

Option 23: Increase the First Bend Point in the PIA Formula by 15 Percent 60

Option 24: Replace the Current PIA Formula With a New Two-Part Formula 60

Options That Would Raise the Full Retirement Age 62

Option 25: Raise the FRA to 68 63

Option 26: Raise the FRA to 70 64

Option 27: Increase the FRA by One Month per Birth Year 64

Option 28: Increase the FRA and the EEA by One Month per Birth Year 65

Options That Would Change Cost-of-Living Adjustments 65

Option 29: Base COLAs on the Chained CPI-U 66

Option 30: Base COLAs on the Chained CPI-U and Increase Benefits 20 Years 

After Initial Eligibility 67

Option 31: Base COLAs on the CPI-E 68

Option 32: Reduce COLAs for People With Higher PIAs 68

Options That Would Change Benefits for Specific Groups 68

Option 33: Introduce a New Poverty-Related Minimum Benefit 69

Option 34: Create an Alternative Benefit for Spouses of Deceased Workers 69

Option 35: Limit the Survivors’ Benefit 70

Option 36: Reduce the Spousal Benefit 70

Appendix A: The Disability Insurance Program’s Finances 71

Appendix B: Actuarial Fairness of Social Security Benefits 75

Appendix C: Effects of the Policy Options on the Actuarial Balance of the Old-Age and 

Survivors Insurance and Disability Insurance Trust Funds, Individually and Combined 77

Appendix D: Distributional Effects of Options With Similar Effects on the System’s Finances 85

Glossary 89

List of Tables and Figures 93

About This Document 94
CBO

Social Security Policy Options, 2015

Summary

Social Security, which marked its 80th anniversary in 

2015, is the largest single program in the federal government’s budget. The program has two parts: Old-Age and 

Survivors Insurance (OASI), which pays benefits to 

retired workers, to their dependents and survivors, and 

to some survivors of deceased workers; and Disability 

Insurance (DI), which makes payments to disabled workers and to their dependents until those workers reach the 

age at which they are eligible to receive full retired-worker 

benefits under OASI. Social Security currently has about 

60 million beneficiaries. Outlays for Social Security 

totaled $888 billion in fiscal year 2015, accounting for 

nearly one-quarter of all federal spending. Although 

Social Security is part of the overall federal budget, its 

funding mechanism of dedicated revenues sets it apart 

from many other government programs. Benefits for 

OASI and DI alike are financed from trust funds (often 

identified collectively as the combined, or OASDI, trust 

funds), which are credited with tax revenues, mainly from 

payroll taxes, and interest on the funds’ balances.1

 As long 

as a trust fund’s balance is sufficient to cover required 

payments, benefits can be paid without the need for any 

legislative action. 

What Are the Prospects for Social Security’s Finances?

In 2010, for the first time since the enactment of the 

Social Security Amendments of 1983, annual outlays for 

the program exceeded annual revenues (excluding interest) credited to the combined trust funds. A gap between 

those amounts has persisted since then, and in fiscal year 

2015 outlays exceeded tax revenues by almost 9 percent. As 

more people in the baby-boom generation retire over the 

next 10 years, the Congressional Budget Office projects, 

the gap will widen between amounts credited to the trust 

funds and payments to beneficiaries. If current laws governing Social Security taxes and benefits stay generally the 

same and if all benefits are paid in full—an assumption 

that underlies CBO’s extended baseline projections—

outlays for the Social Security program will exceed noninterest revenues by almost 30 percent in 2025 and by 

more than 40 percent in 2040.

But the trust funds will not be able to sustain such 

spending. Under those circumstances, the DI trust fund 

will be exhausted in fiscal year 2021, the OASI trust 

fund will be exhausted in calendar year 2030, and, 

combined, the OASDI trust funds will be exhausted in 

calendar year 2029, CBO estimates.2

 If a trust fund’s balance declined to zero and current revenues were insufficient to cover benefits specified in law, the Social Security 

Administration would no longer be permitted to pay full 

benefits when they were due.3

 In the years after a trust 

fund’s exhaustion, therefore, annual outlays could not 

exceed annual revenues: Under those circumstances, all 

receipts to the trust fund would be used and the trust 

fund balance would remain essentially at zero. 

1. Spending for Social Security benefits and receipts from Social 

Security taxes are part of the unified federal budget but are 

categorized as off-budget for certain budget enforcement 

procedures. 

2. CBO previously had projected that the DI trust fund would be 

exhausted in fiscal year 2017 and that the OASI trust fund would 

be exhausted in calendar year 2031. It changed those projections 

with the November 2, 2015, enactment of the Bipartisan Budget 

Act of 2015. The new law revised the allocation of the payroll tax 

between the two programs, granting a larger share to the DI trust 

fund for calendar years 2016 through 2018 and reducing by an 

equal amount the share allocated to the OASI trust fund for those 

years. Because total tax revenues would remain the same, CBO 

does not project a change from calendar year 2029 for the 

exhaustion of the combined OASDI trust funds. 

3. Noah P. Meyerson, Social Security: What Would Happen If the Trust 

Funds Ran Out? Report for Congress RL33514 (Congressional 

Research Service, August 28, 2014), available from U.S. House of 

Representatives, Committee on Ways and Means, 2014 Green Book,

Chapter 1: Social Security, “Social Security Congressional Research 

Service Reports” (accessed December 9, 2015), http://go.usa.gov/

cCXcG.
2 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

What Effects Might Certain Changes to 

Social Security Have Over the Long Term? 

This report considers 36 policy options that are among 

those commonly proposed by policymakers and analysts, 

divided into five groups according to the elements of the 

Social Security program that they would modify: 

 The taxation of earnings, 

 The benefit formula, 

 The full retirement age (FRA), 

 Cost-of-living adjustments (COLAs), and 

 Benefits for specific groups. 

Many analysts and policymakers have suggested that 

Social Security could gain long-term financial stability if 

the gap between the system’s revenues and its outlays 

could be reduced through an increase in tax revenues, a 

reduction in benefits, or some combination of those two 

approaches. Although most of the options in this report 

would improve Social Security’s long-term finances, only 

a few would significantly postpone the combined trust 

funds’ exhaustion date because most would be phased in 

slowly.4

 Some policymakers also advocate increasing benefit amounts, especially for people with low lifetime earnings, and a few options are designed to achieve that goal.

The effects of an option on the Social Security system’s 

finances are presented first, followed by a discussion of the 

distribution of those effects among people in various birth 

cohorts and according to lifetime household earnings. 

CBO did not analyze the macroeconomic feedback 

effects of the options on the federal debt, transfer payments, or payroll taxes because doing so would have 

involved analyses that were outside the scope of this 

report. 

By itself, no individual option presented here could create 

long-term stability for the Social Security program (see 

Figure 1). Some options would affect all workers or beneficiaries similarly; others would have widely disparate 

effects, depending on a beneficiary’s year of birth or lifetime earnings. If the goal was to achieve long-term solvency, it would be necessary to combine several options 

and possibly to change some of the details of various 

options. The combined effects of policy changes are not 

always additive, however, and the effects of modifying the 

options would not necessarily be proportional to the 

results presented in this report. 

The Social Security Program

As the largest single program in the federal budget, Social 

Security currently pays benefits to about 60 million recipients. Outlays for Social Security totaled $888 billion in 

fiscal year 2015, accounting for nearly one-quarter of all 

federal spending.5

During the program’s first four decades, Social Security 

spending increased relative to the size of the economy—

from less than 1 percent of gross domestic product 

(GDP) in the first few years to about 4 percent of GDP 

in the mid-1970s. That increase was caused largely by 

program expansions, including the creation in 1956 of 

the DI program. Spending rose to 4.8 percent of GDP in 

1983, the year that marked the enactment of the last significant piece of legislation focused on Social Security. 

Between 1984 and 2008, Social Security spending 

averaged 4.2 percent of GDP. During the 2007–2009 

recession, GDP shrank, and the number of OASI and 

DI claimants rose as the job market deteriorated. As a 

result, outlays jumped from 4.1 percent of GDP in 2008 

to 4.7 percent in 2009. Outlays for Social Security in 

2015 amounted to 4.9 percent of GDP. 

4. CBO published a similar compilation several years ago. See 

Congressional Budget Office, Social Security Policy Options 

(July 2010), www.cbo.gov/publication/21547. Versions of some 

options presented in the current publication also appeared in 

Congressional Budget Office, Options for Reducing the Deficit: 2015 

to 2024 (November 2014), www.cbo.gov/budget-options/2014, and 

Options for Reducing the Deficit: 2014 to 2023 (November 2013), 

www.cbo.gov/budget-options/2013/44687. For a summary of 

options concerning trust fund solvency, program benefits, and program finances, see Social Security Administration, Actuarial Publications, Individual Changes Modifying Social Security, Summary of 

Provisions That Would Change the Social Security Program (October 

2014), www.ssa.gov/oact/solvency/provisions_tr2014. For other 

analyses of the distributional effects of various options, see Social 

Security Administration, Office of Retirement Policy, Policy Option 

Projections, Summary Comparison, www.ssa.gov/retirementpolicy/

projections/summary.html (accessed December 9, 2015). 

5. The $888 billion in outlays includes benefits paid ($877 billion), 

transfers to the Railroad Retirement Board ($5 billion), and 

administrative costs of the program ($6 billion). In this report, 

spending for Social Security generally refers to outlays from the 

Social Security trust funds, which includes all of those costs. 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 3

CBO

Figure 1.

Effects of the Policy Options on the 75-Year Actuarial Balance of the 

Old-Age and Survivors Insurance and Disability Insurance Trust Funds

Percentage of Gross Domestic Product

Source: Congressional Budget Office.

Notes: The actuarial balance is the difference between the income rate and the cost rate. The income rate is the present value of annual tax 

revenues over the 75-year period plus the initial balance in the trust fund for that period, each of which is divided by the present value of 

gross domestic product or taxable payroll. The cost rate is the present value of annual outlays for the period plus the present value of a 

year’s worth of benefits as a reserve at the end of the 75 years, each of which is divided by the present value of gross domestic product or 

taxable payroll. The 75-year actuarial balance is -1.4 percent of gross domestic product.

AIME = average indexed monthly earnings; COLA = cost-of-living adjustment; CPI = consumer price index; CPI-E = CPI for 

elderly consumers; chained CPI-U = chained CPI for all urban consumers; EEA = early eligibility age; FRA = full retirement age; 

PIA = primary insurance amount.

Change the Taxation of Earnings

Change the Benefit Formula

Raise the Full Retirement Age

Change Cost-of-Living Adjustments

Change Benefits for Specific Groups

Reduce the Spousal Benefit

Limit the Survivors’ Benefit

Create an Alternative Benefit for Spouses of Deceased Workers

Introduce a New Poverty-Related Minimum Benefit

Reduce COLAs for People With Higher PIAs

Base COLAs on the CPI-E

Base COLAs on the Chained CPI-U and Increase Benefits 20 Years After Initial Eligibility

Base COLAs on the Chained CPI-U

Increase the FRA and the EEA by One Month per Birth Year

Increase the FRA by One Month per Birth Year

Raise the FRA to 70

Raise the FRA to 68

Replace the Current PIA Formula With a New Two-Part Formula

Increase the First Bend Point in the PIA Formula by 15 Percent

Add an Additional Bend Point to the PIA Formula and Reduce the PIA Factors

Index the Bend Points in the PIA Formula to Prices

Implement Progressive Price Indexing of Initial Benefits for the Top 50 Percent of Earners

Implement Progressive Price Indexing of Initial Benefits for the Top 70 Percent of Earners

Implement Pure Price Indexing of Initial Benefits

Index Initial Benefits to Changes in Longevity

Reduce All PIA Factors by 0.5 Percent Annually

Reduce the Top PIA Factor to 10 Percent

Reduce All PIA Factors by 15 Percent

Apply the Social Security Benefit Formula to Individual Years of Earnings

Index Earnings in the AIME Formula to Prices

Raise From 35 to 40 the Years of Earnings Included in the AIME

Tax Covered Earnings Above $250,000 at 4 Percent; Do Not Increase Benefits

Tax Covered Earnings Above the Taxable Maximum at 4 Percent; Do Not Increase Benefits

Tax Covered Earnings Above the Taxable Maximum; Do Not Increase Benefits

Tax Covered Earnings Above the Taxable Maximum; Create a Two-Component System for Calculating the PIA

Eliminate the Taxable Maximum

Raise the Taxable Maximum to Cover 90 Percent of Earnings; Do Not Increase Benefits

Raise the Taxable Maximum to Cover 90 Percent of Earnings

Increase the Payroll Tax Rate by 3 Percentage Points Over 60 Years

Increase the Payroll Tax Rate by 2 Percentage Points Over 10 Years

Increase the Payroll Tax Rate by 1 Percentage Point

-0.4 -0.2 0 0.2 0.4 0.6 0.8 1.0 1.2

Disability

Insurance

Old-Age and 

Survivors 

Insurance

Percentage-Point Change
4 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Social Security is funded by dedicated tax revenues from 

two sources: payroll taxes and income taxes on Social 

Security benefits. In fiscal year 2015, those revenues 

totaled 4.5 percent of GDP. Although Social Security is 

part of the overall federal budget, its mechanism of funding via dedicated revenues sets it apart from many other 

government programs. Revenues are credited to the two 

Social Security trust funds, one each for OASI and DI. 

And although the two funds are legally separate, in this 

report, CBO follows the common analytical convention 

of considering them as combined.

Benefits 

Because 72 percent (or 43 million) of its beneficiaries are 

retired workers or the spouses and children of those recipients, Social Security often is characterized as a retirement 

program. In general, people qualify for retired-worker 

benefits if they are age 62 or older and have paid sufficient Social Security taxes for at least 10 years.6

 Social 

Security also provides benefits to the survivors of 

deceased workers—about 10 percent (or 6 million) of all 

beneficiaries. In addition, workers who have not reached 

the full retirement age and who are judged unable to perform “substantial” work because of a physical or mental 

disability can qualify for DI benefits—in many cases after 

a shorter period of employment than is required to collect 

retired-worker benefits.7

 Disabled workers and their 

spouses and children account for 18 percent (or 

11 million) of all beneficiaries (see Figure 2). 

In fiscal year 2015, about 70 percent (or $618 billion) of 

Social Security benefits was paid to retired workers and 

their dependents, survivors received 13 percent (or 

$116 billion), and disabled workers and their spouses 

and children received 16 percent (or $143 billion).8

Figure 2.

Number of Social Security Beneficiaries by 

Type of Benefits Received, 2015

Millions of Beneficiaries

Source: Congressional Budget Office based on Social Security 

Administration data for October 2015.

The benefits that retired or disabled workers initially 

receive are based on individual earnings histories. A 

progressive formula is used to translate earnings into 

benefits: The replacement rate—the ratio of benefit 

payments received to a worker’s past earnings—is higher 

for people with lower average earnings than for people 

with higher earnings. Initial benefits are adjusted on the 

basis of the age at which a recipient chooses to start 

claiming them; the longer people wait (up to age 70), 

the higher the benefits will be. In years after initial eligibility, a COLA is applied to benefits to reflect annual 

growth in consumer prices. 

6. To be eligible for retired-worker benefits, a person generally must 

have worked for a minimum of 10 years (40 quarters of coverage, 

or 40 credits) under the program. The required number of 

quarters of coverage to be eligible for retired-worker benefits is 

reduced for people who receive disability benefits between the ages 

of 21 and 62. A worker can amass up to 4 credits per year on the 

basis of wages earned for covered employment. In 2015, the 

minimum amount for a credit is $1,220 in wages, so any worker 

who earns at least $4,880 will receive four credits for the year. 

7. See Congressional Budget Office, Policy Options for the Social 

Security Disability Insurance Program (July 2012), www.cbo.gov/

publication/43421, and Social Security Disability Insurance: 

Participation Trends and Their Fiscal Implications (July 2010), 

www.cbo.gov/publication/21638.

8. The ways in which beneficiaries and benefits are categorized are 

not completely consistent: Some beneficiaries receive benefits in 

more than one category. For instance, retired workers who also 

receive survivors’ benefits are classified as retired for the purpose of 

calculating the number of beneficiaries in each category. For the 

purpose of calculating the distribution of benefits, however, their 

benefit payments are prorated to the categories of retired-worker 

and survivor.

Old-Age and

Survivors Insurance

Beneficiaries

0

10

20

30

40

50

60

Disability Insurance

Beneficiaries

Survivors of Deceased Workers

Disabled Workers

Spouses and Children of Retired Workers

Retired Workers

Spouses and Children of Disabled Workers
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 5

CBO

For the calculation of initial benefits, people’s earnings 

and the formula used to compute those benefits are 

adjusted, or indexed, to growth in the average amount 

of total wages in the United States in a year, including 

earnings from employment that is not covered by Social 

Security. Because wages are expected to grow faster than 

inflation over the long term, CBO projects that the real 

(inflation-adjusted) value of those initial benefits will rise 

over time.

Social Security is an important source of income for the 

nation’s elderly. In 2012, more than 85 percent of people 

age 65 or older received benefits, and those payments 

typically were the recipients’ largest source of income. 

In that year, 52 percent of married recipients and 74 percent of nonmarried recipients age 65 or older received at 

least 50 percent of their total income in Social Security 

benefits. Those benefits made up at least 90 percent of 

the income for 22 percent of married recipients and for 

47 percent of nonmarried recipients.9

 CBO estimates 

that if every worker born in the 1940s claimed benefits 

at age 65, the mean initial benefit among those workers 

(who are now between the ages of 66 and 75) would be 

about $17,000.10 That amount would replace 50 percent 

of such workers’ average annual lifetime earnings indexed 

for changes in wages over time, including earnings above 

the taxable maximum.

Funding

Social Security is funded by dedicated tax revenues from 

two sources. Today, roughly 96 percent of that tax revenue comes from a payroll tax—generally, 12.4 percent of 

people’s earnings that are subject to the Social Security 

tax. Workers and their employers each pay half; selfemployed people pay the entire amount.11 Earnings up to 

a maximum annual amount—now $118,500—are subject to the payroll tax. That taxable maximum generally 

increases each year at the same rate as average earnings in 

the United States, and it has remained a nearly constant 

proportion of the average wage since the early 1980s. 

Because earnings have grown more for high earners 

than for others, the portion of earnings covered by Social 

Security on which payroll taxes are paid has fallen from 

90 percent in 1983 to 81 percent in 2015. In fiscal year 

2015, workers and their employers paid $786 billion, or 

4.4 percent of GDP, in payroll taxes dedicated to Social 

Security.12

The remaining share of tax revenues for the program—

about 4 percent—is collected from income taxes on 

Social Security benefits. Recipients who file individual 

income tax returns must pay taxes on their benefits if the 

sum of their non–Social Security income (adjusted gross 

income plus nontaxable interest income) and half of their 

benefits exceeds $25,000; the threshold for joint filers is 

$32,000.13 Under current law, those thresholds remain 

the same over time—no adjustments are made to account 

for earnings growth or for inflation. In fiscal year 2015, 

beneficiaries paid $31 billion, or 0.2 percent of GDP, in 

income taxes on their Social Security benefits to the 

OASI and DI trust funds. An additional $20 billion of 

income taxes on Social Security benefits was credited to 

the Medicare Hospital Insurance Trust Fund.

9. See Social Security Administration, Income of the Aged Chartbook, 

2012, SSA Publication 13-11727 (April 2014), p. 9, http://go.usa.gov/

3quhh. The data on Social Security benefits as a share of total 

income presented in that publication are derived from the Census 

Bureau’s March 2012 Supplement to the Current Population Survey, 

or CPS. The survey data do not include such sources of income as 

lump-sum withdrawals from retirement accounts or capital gains. 

Because those income sources are excluded, some observers assert 

that the CPS understates the income of retired people. See Billie Jean 

Mille and Sylvester J. Schieber, “Contribution of Pension and Retirement Savings to Retirement Income Security: More Than Meets the 

Eye,” Journal of Retirement, vol. 1, no. 3 (Winter 2014), pp. 14–29, 

www.iijournals.com/toc/jor/1/3. Others assert that the CPS does in 

fact provide an accurate measure of income for most households 

in the low or middle part of the income distribution because those 

households tend to hold few if any assets in retirement accounts. 

However, those observers acknowledge, the exclusion of income 

from retirement accounts is probably what causes the CPS to understate total income for the top 20 percent of households in the 

income distribution. See Alicia H. Munnell and Anqi Chen, Do 

Census Data Understate Retirement Income? Issue Brief 14-19 

(Center for Retirement Research, Boston College, December 2014), 

http://tinyurl.com/pchqusn.

10. See Congressional Budget Office, CBO’s 2015 Long-Term 

Projections for Social Security: Additional Information (December 

2015), Exhibit 9, www.cbo.gov/publication/51047.

11. The worker’s portion of the payroll tax was reduced by 2 percentage 

points for 2011 and 2012 (as was the tax paid by self-employed 

workers), and the reduction in tax revenues was made up by 

reimbursements from the Treasury’s general fund. In this report, 

Social Security tax revenues include those reimbursements.

12. That $786 billion includes $16 billion that the government 

contributes as the employer’s share of the payroll tax for federal 

workers. Those funds are recorded as offsetting receipts, rather 

than as revenues, because they result from intragovernmental 

transfers.

13. For the purpose of determining federal income taxes on benefits, 

the Social Security Administration classifies a beneficiary as an 

“individual” if that person’s federal income tax-filing status is single, 

head of household, or married filing separately (if he or she did not 

live with a spouse at any time during the year) or if the beneficiary, 

if widowed, is the parent of a dependent child.
6 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Trust Funds 

Social Security benefits and the program’s administrative 

costs are paid from the program’s two trust funds; over 

the past 25 years, administrative expenses have accounted 

for no more than 1 percent of total program outlays. The 

trust funds’ balances (a combined total of $2.8 trillion at 

the end of October 2015) have accumulated over many 

years. During that time, tax revenues and interest 

received by the trust funds have exceeded the benefits 

paid out.

Because the interest credited on the assets of the trust 

funds represents a payment from one part of the government (the general fund of the Treasury) to another (the 

Social Security trust funds), it does not affect federal budget deficits or surpluses. In this report, Social Security 

revenues are generally reported as payroll taxes plus 

income taxes paid on benefits. However, the interest 

payments are included for projections of the trust funds’ 

balances and exhaustion dates.

In a given year, the receipts credited to a trust fund, along 

with any interest credited on previous balances, minus 

spending for benefits and administrative costs constitute 

its surplus or deficit. At a given time, the balance in a 

program’s trust fund represents the cumulative amount 

by which surpluses have exceeded deficits. That balance is 

a measure of the amounts that the government is permitted to spend for certain purposes under current law. 

Ordinarily, when a trust fund receives cash that is not 

needed immediately to pay benefits or cover other 

expenses, the Treasury issues securities to the trust fund 

equal in value to the amount of the extra cash and then 

uses that cash to reduce the amount of new federal borrowing that is necessary to finance the governmentwide 

deficit.14 Thus, in the absence of changes to other tax 

and spending policies, the government borrows less 

from the public than it would without that extra net 

income. The reverse happens when revenues for a trust 

fund program fall short of expenses; the government 

redeems the securities for cash (from other revenues or by 

borrowing from the public), which it then uses to pay 

benefits. 

Social Security Projections 

For some time, the Social Security Administration and 

CBO have projected that the program’s cost will rise significantly over the coming decades.15 Average benefits per 

recipient are expected to continue to increase because the 

earnings that are the basis of those benefits will increase. 

Other things being equal, that relationship would tend to 

keep total benefits roughly stable as a percentage of GDP. 

In addition, a significantly larger portion of the population will begin to draw benefits because more of the 

baby-boom generation will reach retirement age. Their 

longer life spans will result in those beneficiaries’ receiving payments for more years than was the case in the past, 

thus increasing the total amount of benefits the average 

retiree receives over a lifetime.16 All of those forces will 

combine to cause the growth in benefits as scheduled 

under current law to outpace the growth in the economy 

overall. 

14. Those securities are intragovernmental debt instruments issued by 

the Treasury and are the most widely held securities in federal 

trust funds, including the Social Security trust funds. The 

securities are an asset for the trust funds but a liability for the rest 

of the government.

15. For details on the Social Security trustees’ projections, see Social 

Security Administration, The 2015 Annual Report of the Board of 

Trustees of the Federal Old-Age and Survivors Insurance and Federal 

Disability Insurance Trust Funds (July 2015), http://socialsecurity.gov/

OACT/TR/2015. For details on CBO’s projections for Social 

Security, see Congressional Budget Office, CBO’s 2015 Long-Term 

Projections for Social Security: Additional Information (December 

2015), www.cbo.gov/publication/51047, The 2015 Long-Term 

Budget Outlook (June 2015), www.cbo.gov/publication/50250, 

and Updated Budget Projections: 2015 to 2025 (March 2015),

www.cbo.gov/publication/49973. 

For this analysis, CBO used projections that it published in 

June 2015, modified in some places to account for a shift of a 

0.57 percentage-point share of the payroll tax from the Old-Age 

and Survivors Insurance Trust Fund to the Disability Insurance 

Trust Fund for calendar years 2016 through 2018. That change 

stems from a provision of the Bipartisan Budget Act of 2015 

(www.congress.gov/bill/114th-congress/house-bill/1314). This 

report does not account for the effects of several other small 

changes to Social Security under the new law. For pertinent 

estimates, see Congressional Budget Office, cost estimate for 

H.R. 1314, the Bipartisan Budget Act of 2015 (October 28, 

2015), www.cbo.gov/publication/50938. 

16. Expectations regarding the baby-boom generation’s financial wellbeing in retirement are summarized in Barbara A. Butrica, Karen E. 

Smith, and Howard M. Iams, “This Is Not Your Parents’ Retirement: Comparing Retirement Income Across Generations,” Social 

Security Bulletin, vol. 72, no. 1 (February 2012), pp. 37–58, 

http://go.usa.gov/3qJ8k; Congressional Budget Office, “Will the 

Demand for Assets Fall When the Baby Boomers Retire?” CBO 

Blog (September 8, 2009), www.cbo.gov/publication/24960; and 

Irena Dushi and Howard M. Iams, “Cohort Differences in Wealth 

and Pension Participation of Near-Retirees,” Social Security Bulletin, 

vol. 68, no. 3 (December 2008), pp. 45–65, http://go.usa.gov/3qJ8G.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 7

CBO

Figure 3.

Population, by Age Group

Source: Congressional Budget Office.

Total revenues for the program, however, are anticipated 

to decline slightly relative to the size of the economy 

because most of the program’s receipts come from the 

payroll tax—a flat-rate assessment (up to the taxable 

maximum, which is indexed to average earnings)—and 

because the proportion of earnings subject to the payroll 

tax is expected to shrink. The extent of the resulting 

shortfall in the program’s finances will depend on several 

economic and demographic factors. The sustainability of 

the Social Security system can be assessed using a variety 

of measures to identify the magnitude of the changes that 

would be necessary to improve the program’s fiscal outlook. 

An Aging Population 

According to CBO’s projections, the number of people 

who are age 65 or older will increase by 37 percent over 

the next decade and by 76 percent over the next 25 years. 

CBO also anticipates that the size of the population 

between the ages of 20 and 64 will increase by just 4 percent and 10 percent over the same two periods. Today, 

that older group is about 25 percent of the size of the 

younger group. That proportion is expected to increase to 

33 percent by 2025 and to reach almost 40 percent by 

2040 (see Figure 3). If current laws remained in place, 

more than 78 million people would collect benefits 

in 2025 and almost 100 million people would do so in 

2040; currently, Social Security has about 60 million 

beneficiaries. 

Because the average life span in the United States has 

lengthened considerably since the advent of Social Security, 

CBO anticipates that people who turn 65 today will collect benefits for significantly longer periods than retirees 

have in the past. In 1940, for example, life expectancy at 

age 65 was 11.9 years for men and 13.4 years for 

women.17 CBO estimates that life expectancy for 65-yearolds has increased by more than 6 years, to 18.2 years for 

men and 20.7 years for women today, and it projects that 

those figures will increase to 20.6 years and 23.1 years by 

2040. Therefore, Social Security’s current-law commitment to provide people with a specific monthly benefit 

for the rest of their lives will be more costly if it is made 

to people who will turn 65 in 2040 than it is today. 

Increases in longevity will cause some people to work longer than they would otherwise, CBO projects. In the 

coming decades, the average person is expected to work 

for an additional three months for each additional year of 

life expectancy, thus boosting revenues from payroll taxes. 

However, those additional revenues would not be enough 

to compensate for higher benefits, according to CBO’s 

analysis.

CBO expects that future increases in life expectancy will 

be greater for people with higher lifetime earnings than 

for people with lower earnings, which would be consistent 

2000 2005 2010 2015 2020 2025 2030 2035 2040

0

50

100

150

200

250

300

350

2000 2005 2010 2015 2020 2025 2030 2035 2040

0

10

20

30

40

Age Groups

Millions of People Percent

Ratio of the Population Age 65 or Older to the

Population Ages 20 to 64

Age 65 or Older

Ages 20 to 64

Actual Projected Actual Projected

25

33

39

17. The measure for life span, life expectancy, identifies the number of 

additional years a person is expected to live after reaching a given age.
8 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

with past increases.18 Because retirees with higher lifetime 

earnings receive more per month than do retirees with 

lower earnings, their longer lifetimes will boost total outlays over the long term, all else being equal. Similarly, the 

greater increase in life expectancy among high earners will 

boost the ratio of lifetime Social Security benefits 

to lifetime Social Security taxes for high earners relative to 

that for low earners.19

Rising Cost of Benefits

If current laws remained in place and benefits were paid 

as scheduled, spending for Social Security would rise 

from 4.9 percent of GDP in 2015 to 6.2 percent by 

2040, CBO projects. The share of Social Security spending on disability benefits would fall from 16 percent 

today to 13 percent in 2040 as a result of the decline in 

the share of the population that is between the age of 50 

and the full retirement age. (Most first-time disability 

claimants are in that age group, and when they reach 

their full retirement age, they receive OASI rather than 

DI benefits.) During the 2040s, Social Security outlays 

would decrease relative to GDP, according to CBO’s projections, and by the early 2050s, those outlays would dip 

below 6 percent of GDP as members of the baby-boom 

generation die. By the mid-2050s, however, outlays 

would climb again relative to GDP—reaching more than 

6.4 percent of GDP by the late 2080s—because of 

increased longevity. The increase relative to the 4.9 percent of GDP spent today is largely attributable to the 

increase in the number of beneficiaries as a share of the 

population. If the age distribution remained constant, 

outlays relative to GDP would remain roughly stable at 

about 5 percent throughout the next 75 years. 

Slow Growth in Revenues 

CBO’s revenue projections also are constructed under the 

assumption that current laws governing taxes generally 

remain in place. In that circumstance, CBO projects, 

Social Security revenues would grow more slowly than 

spending over the 2015–2040 period. The ratio of covered workers to beneficiaries would decline significantly 

over the next quarter century—from under 3 to 1 now to 

nearly 2 to 1 in 2040—and then continue to drift downward. Because Social Security payroll tax receipts constitute a fixed share of taxable earnings, and taxable earnings 

are projected to decline slightly as a share of GDP, payroll 

taxes also would decline as a share of GDP—from 

4.3 percent in 2015 to 4.1 percent in 2040. 

Nevertheless, under current law, both the number of 

Social Security recipients whose benefits are subject to 

taxation and their average income tax rates will increase.20

As a result, income taxes on Social Security benefits that 

are credited to the Social Security trust funds are projected to increase from about 0.2 percent of GDP today 

to 0.3 percent of GDP in 2040. By that year, total Social 

Security tax revenues—payroll taxes plus taxes on benefits—are estimated to amount to 4.4 percent of GDP, 

about 0.1 percentage point of GDP less than the current 

amount. Beyond 2040, the amount of tax revenues 

credited to the trust funds is projected to remain roughly 

stable as a percentage of GDP. 

Solvency Measures

Analysts use a variety of measures—notably the Social 

Security program’s actuarial balance, the trust funds’ 

projected dates of exhaustion, the ratios of trust funds’ 

assets to annual expenditures, and the gap between what 

are known as scheduled and payable benefits—to assess 

Social Security’s sustainability under the current revenueand-benefit structure. Those measures indicate the 

magnitude of the changes that would be necessary to 

improve the program’s fiscal outlook and the potential 

consequences of not doing so.

18. For more information on mortality differentials among groups 

with different earnings, see National Academy of Sciences, 

Engineering, and Medicine, The Growing Gap in Life Expectancy 

by Income: Implications for Federal Programs and Policy Responses 

(National Academies Press, 2015), http://tinyurl.com/pp74v49; 

Hillary Waldron, “Mortality Differentials by Lifetime Earnings 

Decile,” Social Security Bulletin, vol. 73, no. 1 (February 2013), 

pp. 1–37, www.ssa.gov/policy/docs/ssb/v73n1/v73n1p1.html; 

and Julian P. Cristia, The Empirical Relationship Between Lifetime 

Earnings and Mortality, Working Paper 2007-11 (Congressional 

Budget Office, August 2007), www.cbo.gov/publication/19096.

19. The ratio of lifetime Social Security benefits to lifetime payroll 

taxes decreases as lifetime earnings rise. Estimates of that effect 

vary widely and depend on which groups of beneficiaries are 

included, how spousal benefits are accounted for, and how married couples are treated. For example, see Barry P. Bosworth and 

Kathleen Burke, Differential Mortality and Retirement Benefits in 

the Health and Retirement Study (Brookings, April 2014), pp. 5–6, 

http://tinyurl.com/nqlhpyt.

20. CBO’s extended baseline is constructed under the assumption that 

income tax laws will remain generally unchanged and that income 

taxes on benefits will increase as a share of Social Security benefits 

throughout the 75-year projection period. In the future, however, 

revenues from income taxes on benefits will depend on prevailing 

tax rates.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 9

CBO

Table 1.

Social Security Tax Revenues and Outlays Under Current Law, 

With Scheduled Benefits, in Selected Years

Percentage of Gross Domestic Product

Source: Congressional Budget Office.

Notes: Tax revenues consist of payroll taxes and income taxes on benefits in the year specified. Outlays consist of scheduled benefits and 

administrative costs. Scheduled benefits are benefits as calculated under the provisions of the Social Security Act, regardless of 

balances in the Social Security trust funds. For this analysis, CBO follows the common analytical convention of considering 

the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund as combined, even though legally they are 

separate. 

GDP = gross domestic product.

a. Present value is a single number that expresses a flow of past and future income (in taxes) or payments (in benefits) in terms of an 

equivalent lump sum received or paid at a specific time. The value depends on the rate of interest, known as the discount rate, used to 

translate past and future cash flows into current dollars at that time.

b. Taxable payroll is total earnings (wages and self-employment income) for employment covered by Social Security that is below the 

taxable maximum.

c. The income rate is the present value of annual tax revenues over the 75-year period, plus the initial balance in the trust fund for that 

period, each of which is divided by the present value of GDP or taxable payroll. 

d. The cost rate is the present value of annual outlays for the period, plus the present value of a year’s worth of benefits as a reserve at the 

end of the 75 years, each of which is divided by the present value of GDP or taxable payroll. 

e. The difference between the income rate and the cost rate is the actuarial balance.

Actuarial Balance. A common measure of the sustainability of a program with a trust fund and a dedicated 

revenue source is its estimated actuarial balance over a 

given period—in this case, 75 years. The actuarial balance is the sum of the present value of annual tax revenues over the 75-year period and the initial balance in the 

trust fund for that period, minus the sum of the present 

value of annual outlays over that period and the present 

value of a year’s worth of benefits at the end of the 

period.21 For Social Security, that difference is traditionally presented as a percentage of the present value of taxable payroll.22 Over the next 75 years, if current laws 

remained in place, the program’s actuarial shortfall would 

be 4.4 percent of taxable payroll, CBO estimates (see 

Table 1).23

Thus, given CBO’s projections, actuarial balance could 

be achieved for Social Security through 2089 if payroll 

taxes were increased immediately and permanently by 

4.4 percent of taxable payroll, if scheduled benefits were 

reduced by an equivalent amount, or if some combination of tax increases and spending reductions of equal 

present value was adopted. If those changes came entirely 

from revenues or entirely from spending, they would 

Tax Revenues 4.5 4.4 4.4 4.4 4.4 Income Rate 4.6 c 14.0

Outlays 5.0 5.3 6.2 6.1 6.3 Cost Rate 6.1 d 18.3

Difference -0.5 -0.8 -1.8 -1.7 -1.9 Actuarial Balance -1.4 e -4.4

GDP

75-Year Present Valuea

as a Percentage of 

2014 2020 2040 2060 2080

Projected

Taxable Payrollb

(2015–2089)

Actual,

21. Present value is a single number that expresses a flow of past and 

future income (in taxes) or payments (in benefits) in terms of an 

equivalent lump sum received or paid at a specific time. The value 

depends on the rate of interest, known as the discount rate, used 

to translate past and future cash flows into current dollars at that 

time.

22. Taxable payroll is the total earnings (wages and self-employment 

income) from employment covered by Social Security that is below 

the applicable annual taxable maximum.

23. To be consistent with the 75-year actuarial balance reported by the 

Social Security trustees, the 75-year projection period used in this 

report begins in calendar year 2015 and ends in calendar year 2089.
10 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

amount, roughly, to a 35 percent increase in Social 

Security’s dedicated revenues or to a 26 percent cut to 

the program’s outlays for benefits relative to the amounts 

projected under current law for the 75-year period. To 

achieve actuarial balance over the period solely by reducing benefits for new recipients (keeping current recipients’ benefits unchanged), a considerably larger cut in 

benefits—32 percent, starting in 2016—would be 

required. 

The Social Security trustees estimated in 2015 that the 

program’s 75-year actuarial shortfall was 2.7 percent of 

taxable payroll, 1.7 percentage points less than CBO 

estimates. The larger shortfall projected by CBO stems 

mostly from three areas of difference between the Social 

Security trustees’ and CBO’s projections: CBO anticipates that life expectancy will increase somewhat more 

rapidly, the incidence of disability will be a little higher, 

and interest rates will be 0.6 percentage points lower in 

the long run. All of the other factors that affect the actuarial shortfall, taken together, would lead CBO and the 

trustees to make more similar estimates. Eliminating a 

smaller actuarial shortfall would require a smaller increase 

in taxes or smaller reductions in benefits.

Some policy options presented in this report would 

increase or eliminate the taxable maximum and therefore 

would increase the amount of taxable payroll compared 

with the amount in CBO’s extended baseline projection. 

In such cases, it would be inconsistent to measure the 

effects of a policy option on the Social Security system’s 

actuarial balance expressed as a percentage of taxable payroll. Instead, the effects of the options on the actuarial 

balance are measured as a percentage of GDP. CBO 

projects that if current laws remained unchanged, the 

program’s actuarial shortfall over the next 75 years would 

be 1.4 percent of GDP.

Trust Fund Exhaustion. Another common measure of Social 

Security’s sustainability is a trust fund’s date of exhaustion—

the year in which its balance will reach zero. Under 

CBO’s extended baseline, that will occur for the DI trust 

fund in fiscal year 2021 and for the OASI trust fund in 

calendar year 2030.24 (For more details on the finances of 

the Disability Insurance program, see Appendix A.) CBO 

projects calendar year 2029 as the exhaustion date for the 

combined OASDI trust funds. 

If a trust fund’s balance declined to zero and current revenues were insufficient to cover benefits specified in law, 

the Social Security Administration would no longer be 

permitted to pay full benefits when they were due. In the 

years after a trust fund was exhausted, annual outlays 

would be limited to annual revenues: All receipts to the 

trust fund would be used, and the trust fund balance 

would remain essentially at zero.25

Increases in payroll taxes or reductions in benefits could 

be undertaken to delay or prevent that outcome. To 

forestall the combined funds’ exhaustion by 10 years (to 

2039), for example, benefits for all current and future 

beneficiaries could be reduced by about 13 percent starting in 2016 or payroll tax rates could be increased by 

2.4 percentage points (or 19 percent) over current rates. 

To delay the exhaustion of the combined trust funds by 

10 years solely by reducing benefits for newly eligible 

beneficiaries would require payments to those beneficiaries to be cut by 28 percent, starting in 2016. 

Trust Fund Ratio. Another measure of sustainability is the 

ratio of a trust fund’s balance at the beginning of a calendar year to that year’s projected outlays. The trust fund 

ratio can be used to approximate the number of years’ 

worth of benefits that could be financed by a given balance if annual outlays remained constant. The ratio for 

the combined OASDI trust funds in 2015—the balance 

in the Social Security trust funds at the beginning of the 

year divided by projected outlays for the program in 

2015—is 3.1, CBO estimates. The ratio peaked in 2008 

at 3.6 and is projected to decline, reaching zero when the 

combined trust funds are exhausted in 2029.

24. CBO previously had projected that the DI trust fund would be 

exhausted in fiscal year 2017 and that the OASI trust fund would 

be exhausted in calendar year 2031. It changed those projections 

with the November 2, 2015, enactment of the Bipartisan Budget 

Act of 2015. The new law revised the allocation of the payroll tax 

between the two programs, granting a larger share to the DI trust 

fund for calendar years 2016 through 2018 and reducing by an 

equal amount the share allocated to the OASI trust fund for those 

years. Because total tax revenues would remain the same, CBO does 

not project a change from calendar year 2029 for the exhaustion of 

the combined OASDI trust funds. 

25. See Noah P. Meyerson, Social Security: What Would Happen If the 

Trust Funds Ran Out? Report for Congress RL33514 (Congressional 

Research Service, August 28, 2014), available from U.S. House of 

Representatives, Committee on Ways and Means, 2014 Green Book,

Chapter 1: Social Security, “Social Security Congressional Research 

Service Reports” (accessed December 9, 2015), http://go.usa.gov/

cCXcG. That report notes the entitlement created under the Social 

Security Act, cites other laws that prohibit officials from making 

expenditures in excess of available funds, and acknowledges that the 

two create a potential conflict that must be resolved by the Congress 

or in the courts. 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 11

CBO

Figure 4.

Social Security Tax Revenues and Outlays, With Scheduled and Payable Benefits

Percentage of Gross Domestic Product

Source: Congressional Budget Office.

a. Tax revenues consist of payroll taxes, income taxes on benefits, and, for 2011 and 2012, reimbursements from the general fund of 

the Treasury to make up for reductions in payroll tax rates in those years. Tax revenues do not include interest credited to the

Social Security trust funds. Tax revenues shown are consistent with payable benefits; they would be slightly higher if scheduled 

benefits were paid because revenues from income taxes paid on those benefits would be higher.

b. Outlays consist of benefits and administrative costs.

c. Scheduled benefits are benefits as calculated under the provisions of the Social Security Act, regardless of balances in the Social Security 

trust funds.

d. Payable benefits are benefits as calculated under the provisions of the Social Security Act, reduced as necessary to ensure that outlays 

do not exceed the Social Security system’s revenues once the balances in the Social Security trust funds are exhausted. If a trust fund’s 

balance declined to zero and current revenues were insufficient to cover benefits specified in law, the Social Security Administration would 

no longer be permitted to pay full benefits when they were due. In the years after a trust fund was exhausted, annual outlays would be 

limited to annual revenues.

The Gap Between Scheduled and Payable Benefits. Social 

Security benefits can be considered in two ways: 

as scheduled benefits, which reflect the benefit formulas 

specified in law, regardless of a trust fund’s balance, and as

payable benefits, which conform to the limits imposed by 

a trust fund’s balance.26 In CBO’s projections of outlays 

with payable benefits, OASI and DI benefits are reduced 

in 2030, the year after the combined trust funds are 

exhausted (see Figure 4).

In 2030, revenues are projected to equal 71 percent of 

scheduled outlays. Under those circumstances, the Social 

Security Administration would no longer be permitted to 

pay full benefits when they were due, and total outlays 

would need to be reduced to equal total revenues. The 

manner in which outlays would be reduced is not specified in law. For this report, CBO assumed that all beneficiaries would face the same reduction upon trust fund 

exhaustion—29 percent in 2030. By the end of the 2080s, 

that gap would be almost 35 percent, CBO projects. 

Sustainable Solvency. Some analysts suggest that changes 

to Social Security should have two financial objectives: to 

balance the system’s finances (to achieve actuarial balance) over the 75-year projection period and to put the 

system on a sustainable path thereafter. Those goals in 

combination are referred to as sustainable solvency.27

1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085

0

1

2

3

4

5

6

7

Tax Revenuesa

Actual Projected

Outlaysb

Outlays With Scheduled Benefitsc

Outlays With Payable Benefitsd

In 2029, the trust funds will be

exhausted, requiring a 29 percent

reduction in benefits payable in 2030.

26. CBO’s extended baseline is constructed under the assumption that 

Social Security will pay benefits as scheduled under current law 

regardless of the status of the program’s trust funds—an assumption that is consistent with a statutory requirement that CBO, in 

its 10-year baseline projections, assume that funding for entitlement programs is adequate to make all payments required by law. 

27. See, for example, Stephen C. Goss, “The Future Financial Status 

of the Social Security Program,” Social Security Bulletin, vol. 70, 

no. 3 (August 2010), pp. 111–125, http://go.usa.gov/3qJRz.
12 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

As a single number, the actuarial balance usefully summarizes the entire stream of revenues and outlays over the 

75-year period (after adjusting for the starting balance in 

the trust funds and a year’s worth of benefits at the end 

of the period), but it does not convey any information 

about sustainability after that. An approach that attained 

sustainable solvency would need to balance annual outlays and tax revenues over long periods. Such a system 

could allow for temporary imbalances, provided that sufficient assets were accumulated in the trust funds. To be 

sustainably solvent, the system would produce positive 

trust fund ratios for the duration of the 75-year projection period and then stable or rising ratios at the end of 

that time. However, a policy change that is projected to 

make the system solvent might fail to do so because of 

unexpected changes in demographics or in the economy.

Changing Social Security

This report examines 36 policy options that policymakers 

and analysts have suggested for changing the Social Security 

program. Each would alter at least one of the program’s 

two key elements: payroll taxes and the benefit formula. 

Various policy options would affect different groups of 

people in different ways. Some options would affect all 

workers or beneficiaries similarly; others would have 

widely disparate effects, depending on a beneficiary’s year 

of birth or lifetime earnings. Options that increased payroll taxes would affect current and future workers, but 

not most current beneficiaries. Options that reduced 

scheduled initial benefits would affect future beneficiaries 

only, some of them currently in the workforce. Options 

that reduced COLAs or increased scheduled benefits 

would affect current and future beneficiaries alike. 

Payroll Taxes

Ten options would affect payroll taxes for Social Security 

by changing either the rates at which covered earnings 

are taxed or the taxable maximum imposed on covered 

earnings or both.

Tax Rate. Under current law, employers and employees 

each pay half of the 12.4 percent payroll tax (selfemployed people pay the entire amount).28 In most years, 

85 percent (10.6 percentage points) of those tax revenues 

is credited to the OASI trust fund, and 15 percent 

(1.8 percentage points) goes to the DI trust fund.29

Several options would increase the payroll tax rate.

Taxable Maximum. The payroll tax is imposed on earnings 

up to a maximum that increases annually with average 

wages—that limit is now $118,500.30 About 93 percent of 

workers covered by Social Security had earnings that were 

below the taxable maximum in 2014—they paid Social 

Security taxes on all of their earnings. The remaining 

7 percent of workers had some earnings above the taxable 

maximum. Because such earnings are not subject to Social 

Security payroll taxes, those workers had a lower average 

payroll tax rate on their earnings overall. Earnings above the 

taxable maximum are excluded from benefit calculations.

In 1937, when the government first began to collect 

payroll taxes for Social Security, about 92 percent of the 

amount people earned from employment covered under 

the program was below the taxable maximum. For much 

of the program’s history, the maximum was increased 

only occasionally, and the percentage of earnings subject 

to the tax varied greatly from one period to another, falling, for example, to 71 percent in 1965 and rising to 

85 percent in 1977. 

Amendments to the Social Security Act in 1977 boosted 

the amount of covered taxable earnings, which eventually 

reached 90 percent in 1983. That law also required 

annual indexing of the taxable maximum to match 

growth in average wages. 

Because earnings have grown more for high earners than 

for others, the portion of earnings covered by Social 

Security on which payroll taxes are paid declined to 

81 percent in 2015. CBO expects that disparity in earnings growth to continue for the next decade before stabilizing; the portion of earnings that is subject to the Social 

28. The consensus among economists is that employers appear to pass 

on their share of payroll taxes to employees by paying lower wages 

than they would otherwise pay. See Don Fullerton and Gilbert E. 

Metcalf, “Tax Incidence,” in Alan J. Auerbach and Martin Feldstein, 

eds., Handbook of Public Economics, vol. 4 (Elsevier, 2002), pp. 1787–

1872.

29. However, from 2016 through 2018, as a result of the reallocation 

of the payroll tax rate specified in the Bipartisan Budget Act of 

2015, 81 percent (10.03 percentage points) of Social Security’s 

payroll tax revenues will be credited to the OASI trust fund, and 

19 percent (2.37 percentage points) will go to the DI trust fund.

30. In years without a COLA—2009, 2010, and 2016—the taxable 

maximum does not increase; it does not decrease when average 

wages decline.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 13

CBO

Security payroll tax is projected to fall to about 79 percent 

by 2025 and to decline slightly thereafter. 31

Benefit Formula

Social Security benefits are determined through a process 

that applies a formula to workers’ average lifetime earnings. A recipient’s benefits are adjusted on the basis of the 

age at which he or she claims benefits relative to the full 

retirement age. Benefits also are provided to eligible 

spouses, survivors, and children of workers. In most 

years, beneficiaries receive a COLA, which raises the 

amount of the payment. Twenty-six options in this report 

would modify the various elements that determine benefits. In general, the modifications would reduce benefits 

and would affect nearly all beneficiaries, but a few would 

boost benefits or change them in some other way for 

three particular groups: people with low annual earnings 

over long periods, survivors of deceased workers, and 

spouses of retired workers.

Average Indexed Monthly Earnings. A recipient’s Social 

Security benefits are determined by average taxable earnings over that person’s lifetime—his or her average 

indexed monthly earnings (AIME). The earnings used to 

calculate that measure for a retired beneficiary encompass 

the 35 years with the highest earnings that were subject to 

Social Security payroll taxes.32 In calculating the AIME, 

taxable earnings before age 60 are adjusted on the basis of 

the average wage index (AWI); earnings at age 60 and 

later enter the computations at their nominal amounts.33

Dividing the resulting value for total earnings by 420 

(35 years multiplied by 12 months) yields a single value, 

the AIME. For a disabled worker, the number of years 

of earnings included in the calculation of the AIME 

depends on the age at which that person becomes eligible 

for DI benefits.34

Primary Insurance Amount. The primary insurance 

amount (PIA) is the amount to be paid each month to a 

disabled worker or to a worker who begins to receive 

Social Security retirement benefits at the FRA. Actual 

monthly benefits paid to retired workers and their dependents differ from the PIA if a person claims retirement 

benefits before or after reaching the FRA. Under current 

law, the formula for calculating the PIA uses a worker’s 

AIME as a starting point. That amount is converted to 

the PIA by applying PIA factors (the replacement rates 

applied to portions of the AIME), which change at what 

are called bend points.

PIA Factors. The PIA formula multiplies portions of a 

worker’s AIME by PIA factors, which under current law 

are 90 percent, 32 percent, and 15 percent (see Figure 5). 

The PIA formula is progressive, so it replaces a larger 

share of lifetime earnings for someone with a lower AIME 

than it does for a person with higher average earnings.

Bend Points. The thresholds at which PIA factors change 

are the PIA formula’s bend points; there are two—

$826 and $4,980 in 2015. For newly eligible beneficiaries, the PIA is calculated as 90 percent of the first 

$826 of the AIME (that portion of the AIME is replaced 

under the PIA formula at a rate of 90 cents on the AIME 

dollar), plus 32 percent of the AIME between the two 

bend points ($826 and $4,980), plus 15 percent of the 

AIME above the second bend point. The bend points are 

indexed annually to growth in average wages. 

The distribution of workers’ AIMEs relative to the bend 

points is expected to change as a result of trends in the 

growth of earnings. Under the simplifying assumption that 

all workers claim at age 65, CBO projects that over the 

next 25 years, the portion of workers with AIMEs below 

the first bend point will increase from about 10 percent 

today to about 13 percent in 2040, and the portion of 

workers with AIMEs above the second bend point will 

decrease from about 28 percent today to about 23 percent 

over that same period. The percentage of workers with 

AIMEs between the first and second bend points will 

increase from about 62 percent today to about 64 percent 31. For more details on CBO’s projections of taxable earnings, see 

Congressional Budget Office, The 2015 Long-Term Budget 

Outlook (June 2015), Appendix A, www.cbo.gov/publication/

50250.

32. Adjustments are made to this method for people claiming retiredworker benefits if they previously claimed Social Security disability 

benefits but then recovered and left the DI rolls.

33. The AWI measures the average amount of total wages in the United 

States in a calendar year, including earnings in employment not 

covered by Social Security. Several automatic adjustments under 

Social Security law are based on the AWI.

34. For disabled workers, earnings in the two years before initial 

entitlement to benefits enter the AIME calculation at their actual 

amounts, whereas other yearly earnings are indexed to compensate 

for economywide growth in earnings. See Noah P. Meyerson, How 

Social Security Benefits Are Computed: In Brief, Report for Congress 

R43542 (Congressional Research Service, May 12, 2014), available 

from U.S. House of Representatives, Committee on Ways and 

Means, 2014 Green Book, Chapter 1: Social Security, “Social 

Security Congressional Research Service Reports” (accessed 

December 9, 2015), http://go.usa.gov/cCXcG.
14 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Figure 5.

Calculating the PIA in 2015 Under Current Law

PIA in 2015 Dollars

Source: Congressional Budget Office.

Notes: The formula for calculating the PIA has three PIA factors (which determine the percentage of the AIME that is replaced in the 

PIA formula) and two bend points (denoted by dots on the line, showing the thresholds at which the PIA factor changes). In 2015, for 

newly eligible beneficiaries, the PIA is calculated as 90 percent of the first $826 of the AIME (a replacement rate of 90 cents on the 

AIME dollar), plus 32 percent of the AIME between $826 and $4,980, plus 15 percent of the AIME above $4,980. 

If a person born in 1953 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2015, that 

person’s AIME would be $9,130, the maximum; his or her PIA would be $2,700.

AIME = average indexed monthly earnings; PIA = primary insurance amount.

in 2040. Those percentages will remain roughly stable at 

their 2040 values through the remainder of the 75-year 

projection period. Hence, changes to Social Security’s 

benefit formula that would primarily affect high lifetime 

earners would affect a smaller portion of people turning 

65 in 2040 than today; changes to the benefit formula 

that would primarily affect low lifetime earners would 

affect a larger portion of people turning 65 in 2040 than 

today.

Full Retirement Age. Social Security’s FRA, also called 

the normal retirement age, is the age at which a person 

becomes eligible to claim full retirement benefits and is set 

according to the year in which a person was born. Under 

current law, for workers born before 1938, the FRA is 65. 

For workers born between 1938 and 1943, the FRA 

increases by two months for each successive birth year, 

until it reaches age 66 for people born in 1943. The FRA 

remains at age 66 for those workers born between 1943 

and 1954, and then starting with people born in 1955, 

increases once again by two months for each successive 

year, until it reaches age 67 for people born in 1960 or 

later. For people turning 62 in 2015 the FRA is 66. The 

FRA will begin to increase for people turning 62 in 2017, 

and it will reach age 67 for those turning 62 in 2022. 

For each year that a worker claims benefits before reaching the FRA, benefits are reduced by an amount that 

ranges from 5 percent to 62⁄3 percent. New beneficiaries 

between the FRA for their birth cohort and age 70 receive 

a delayed-retirement credit, which increases benefits by 

8 percent for each year beyond the FRA that a person 

delays receiving benefits.35 (For information on the 

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

0

2,000

4,000

6,000

8,000

For each $1 increase in the AIME, the PIA increases by . . . 

$0.90 $0.32 $0.15

AIME in 2015 Dollars

35. If a worker claims benefits before reaching the FRA, benefits are 

reduced by 5/9 of 1 percent for each month (62⁄3 percent per year) 

before the FRA, for up to 36 months. If the number of months 

exceeds 36, the benefit is further reduced by 5/12 of 1 percent per 

month (5 percent per year). People who were born in 1943 or later 

and who claim benefits after reaching their FRA generally receive a 

delayed-retirement credit that amounts to 8/12 of 1 percent for 

each month (8 percent per year) they delay claiming. No additional 

credit is given if a person first claims benefits after age 70. See Social 

Security Administration, Social Security Benefits, “Effect of Early or 

Delayed Retirement on Retirement Benefits” (August 2010), 

www.ssa.gov/oact/ProgData/ar_drc.html.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 15

CBO

actuarial fairness of the reductions or increases to benefits 

at various ages for claiming them, see Appendix B.)

Cost-of-Living Adjustments. Social Security’s COLAs are 

based on changes in the consumer price index for urban 

wage earners and clerical workers (CPI-W); in most years, 

such changes lead to an increase in benefits. The COLA 

is applied to December benefits, which are sent to recipients in January, and it is made on the basis of growth in 

the CPI-W from the third quarter of the last year a nonzero COLA was determined to the third quarter of the 

current year. If there is no increase in the CPI-W over 

that period (or if it declines) the COLA is set at zero. For 

example, the 1.7 percent COLA that applied to benefits 

paid in January 2015 was based on the increase in the 

CPI-W between the third quarters of 2013 and 2014; no 

COLA will be applied to benefits paid in January 2016 

because the CPI-W decreased slightly between the third 

quarter of 2014 and the third quarter of 2015.36

Since 1975, when COLAs first were automatically 

adjusted to changes in the CPI-W, benefits have 

increased, on average, by just under 4 percent each year. 

Over the past 10 years, annual COLAs have averaged 

2.0 percent and have varied over a fairly broad range: 

They have been as high as 5.8 percent (for benefits paid 

in 2009) and, excluding years with COLAs set to zero, as 

low as 1.5 percent (for benefits paid in 2014).

Special Minimum Benefit for Low Earners. The special 

minimum benefit was introduced in 1972 to provide adequate benefits for people who had been low earners for 

many years. Each Social Security beneficiary receives the 

larger of two payments: the standard benefit or a special 

minimum benefit. To be eligible for the special minimum 

benefit, a worker must have at least 11 years of earnings 

above a threshold—in 2015, $13,230. Each year of earnings above that threshold is called a year of coverage and 

the number of years a worker accrues determines the PIA 

for the special minimum benefit.37 A worker with at least 

30 years of coverage receives that full PIA—$830 per 

month for a newly eligible beneficiary in 2015. That 

amount is prorated for workers with fewer than 30 years of 

coverage. For 2015, the PIA for a newly eligible beneficiary 

with 11 years of coverage was just under $40 per month.38

Under current law, the full PIA for the special minimum 

benefit increases to keep pace with prices. Because the 

standard benefit is indexed to earnings, which tend to 

grow faster than prices, the special minimum benefit 

affects a smaller group of people each year. In each year 

since 1993, fewer than 1,000 families had a newly entitled 

beneficiary receive the special minimum benefit. It is 

projected that there will be no newly eligible beneficiaries 

after 2018.39

Benefits for Spouses and Survivors of Retired Workers.

In some cases, family members of retired workers are eligible for benefits even if they cannot claim Social Security 

on the basis of their own earnings. Under current law, an 

eligible spouse of a retired or disabled worker (who is 

called the primary beneficiary) is entitled to benefits that 

amount to 50 percent of the primary beneficiary’s PIA if 

he or she is not eligible for benefits on the basis of his or 

her own earnings. If the spouse also has earned benefits 

but has a PIA that is less than 50 percent of the primary 

beneficiary’s PIA, the spouse’s payments are increased to 

meet the 50 percent threshold. A spouse whose PIA 

(based on his or her own earnings) is 50 percent or more 

of a primary beneficiary’s PIA receives no additional 

amount. If the spouse of a primary beneficiary claims 

benefits before reaching the full retirement age, that 

recipient’s benefits are reduced and the primary beneficiary’s payments remain unchanged.40

An eligible surviving spouse of a deceased worker can 

receive survivors’ benefits that total up to 100 percent of 

the deceased worker’s benefits. If a surviving spouse also is 

36. The COLAs that applied to benefits paid in 2010 and 2011 also 

were set at zero. Because of a decline in the CPI-W from the third 

quarter of 2008 to the third quarter of 2009, the COLA was set at 

zero in December 2009 and there was no adjustment to benefits 

paid in 2010. The CPI-W increased from the third quarter of 

2009 to the third quarter of 2010, but it remained below the level 

reached in the third quarter of 2008 and the COLA was, again, set 

at zero. The value of the CPI-W in the third quarter of 2011 

exceeded the 2008 third-quarter level. The COLA was set at 

3.6 percent in December 2011 and benefits increased in 2012. 

37. For amounts of earnings needed for a year of coverage, see Social 

Security Administration, “Old-Law Base and Year of Coverage,” 

www.ssa.gov/oact/COLA/yoc.html (accessed December 9, 2015).

38. For tables with PIAs for the special minimum benefit by accrued 

years of coverage, see Social Security Administration, “Special 

Minimum Benefit Tables,” www.ssa.gov/oact/ProgData/

tableForm.html (accessed December 9, 2015).

39. See Craig A. Feinstein, Diminishing Effect of the Special Minimum 

PIA, Actuarial Note 154 (Social Security Administration, 

November 2013), http://go.usa.gov/3qJPj. 

40. A person who is divorced can claim spousal or survivors’ benefits that 

are based on the former spouse’s earnings if he or she was married to 

that person for at least 10 years and is not currently married. 
16 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

eligible to receive benefits on the basis of his or her own 

earnings and those benefits are less than 100 percent of 

the primary beneficiary’s total, the spouse’s benefits are 

increased to meet the 100 percent threshold. A surviving 

spouse whose own benefits are 100 percent or more of the 

deceased spouse’s benefits receives no additional amount. 

Payments also depend on the age at which benefits are 

claimed—from 711⁄2 percent of the full amount at age 60 

to 100 percent at or over the FRA. A surviving spouse 

under the age of 60 may be eligible for benefits if he or 

she is disabled or is the surviving parent of a child under 

the age of 16.41

Assessing Options for Changing 

Social Security

This report discusses the effects of 36 policy options on 

the system’s finances over the next 75 years. It also considers those options’ distributional consequences—in terms 

both of taxes collected and of benefits paid—for people 

classified by birth cohort or lifetime earnings. Most of the 

options that CBO examined for this report would change 

the Social Security system’s current structure enough to 

affect its finances measurably. A few would affect the system’s finances far less but still influence distributional 

outcomes to a measurable degree. Changes to Social 

Security’s taxes and benefits may affect people’s decisions 

about how much to work, when to retire, and how much 

to save for retirement; this analysis examines some of the 

ways such changes could occur. Options that would 

reduce benefits would increase beneficiaries’ risk of poverty; options that would increase benefits would reduce 

that risk. 

Scope of the Options 

The policy options detailed in this report would change 

the amount of federal revenues dedicated to Social Security 

or alter the system’s outlays for benefits. Most options 

would increase the balances in the combined OASDI 

trust funds, but a few would reduce those balances by 

increasing benefits. Even though any comprehensive proposal to change Social Security would probably include 

more than one provision and the combined effects would 

not necessarily be additive, this report considers each 

option’s effects separately. The options that CBO has analyzed are generally presented in simplified form—they are 

not detailed legislative proposals.

Timing of Implementation. For each option, as under 

current law, the applicable benefit rules would be those in 

force in the year in which a person became entitled to 

benefits, not the year in which he or she chose to begin 

receiving them. 

Many proposals to change Social Security do not call for a 

reduction in initial benefits for workers who are age 55 or 

older because those older workers would have less time 

than younger workers to adjust their plans for working or 

saving. Consequently, the options in this study that 

would reduce initial benefits, including those that would 

change the FRA, are assumed to take effect for people 

born after 1960—the group that in 2015 is under the age 

of 55. Under current law, the first of those people—who 

were born in 1961—will reach the early eligibility age 

(EEA) for retirement benefits when they turn 62 in 2023. 

Options that would reduce initial disability benefits are 

assumed to take effect for workers claiming those benefits 

in 2023 and later; those options would not reduce benefits for workers who claim DI benefits before 2023, 

regardless of their birth year. Options that would increase 

benefits, modify COLAs, or increase taxes are assumed to 

take effect beginning in 2016. 

In the past, policymakers have chosen to introduce major 

changes gradually to ensure that people of similar age and 

circumstances would be subject to similar rules governing 

taxes and benefits. Most of the options in this report that 

would increase taxes or decrease benefits, therefore, are 

structured for implementation over a 10-year period. The 

exceptions are those that inherently produce gradual 

changes, such as options that would shift from wage 

indexing to price indexing, shift to indexing by longevity, 

or change COLAs. Options that would increase benefits 

would take effect fully and immediately in 2016; in 

some cases, those options also would increase benefits 

for current recipients. 

41. The descriptions of the spousal and survivors’ benefits presented in 

this report summarize the most common circumstances under 

which people qualify for those benefits. The rules are complex, 

however, and many other provisions apply that are not discussed in 

this report. For more information, see Social Security, Retirement 

Benefits, SSA Publication 05-10035, ICN 457500 (January 2015), 

www.ssa.gov/pubs/EN-05-10035.pdf (369 KB), and Survivors 

Benefits, SSA Publication 05-10084, ICN 468540 (July 2015), 

pp. 5–6, www.ssa.gov/pubs/EN-05-10084.pdf (350 KB). 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 17

CBO

Options That Would Affect DI Beneficiaries. Although 

some policy options in this report would affect DI beneficiaries by affecting all Social Security recipients, for this 

analysis, CBO did not examine proposals that would be 

specific to the DI program. If policymakers wanted to 

offset some of the effects on DI benefits of a proposal to 

change retirement and disability benefits alike, they could 

add offsetting changes to DI benefits. 

DI benefits constitute about one-sixth of total Social 

Security outlays, and those expenditures have increased 

rapidly over the past 40 years.42 Consequently, policy 

options for the DI program could have substantial implications for Social Security’s finances if they reduced or 

increased DI outlays; CBO has examined them in other 

work.43 (For more details on the finances of the Disability 

Insurance program, see Appendix A.) 

Options Not Included in This Study. CBO excluded three 

main types of proposals from this study: those that would 

establish individual accounts; those that would make 

changes to revenues that do not directly affect the payroll 

tax rate or the taxable maximum; and those that, 

although within the program’s existing structure, would 

not have a major effect on the Social Security system’s 

finances. 

In the past, CBO has analyzed comprehensive proposals 

that would pay benefits from individual accounts that 

workers contribute to over their years of employment, 

and it has examined such proposals in combination with 

other options to change various elements of the system.44

But an analysis of that type was beyond the scope of this 

study, which focused on the existing program. The creation of individual accounts could require many changes 

to the Social Security program and possibly to other areas 

of the law outside of Social Security; the resulting interactions between those individual accounts and the altered 

program therefore could be significant. The benefits paid 

to an account holder at retirement would depend on how 

much that person had paid into his or her retirement 

account, the rate of return on the account’s assets during 

his or her working life, and other benefits for which he or 

she would be eligible through the altered Social Security 

system. 

The policy options in the current report that would alter 

the amount of revenues credited to Social Security’s trust 

funds involve taxes: They would affect the system’s 

finances either by changing the taxation of earnings or by 

changing the taxable maximum. CBO did not analyze 

proposals that would directly change the taxes paid on 

Social Security benefits. The agency also did not examine 

proposals that would expand the types of income that are 

subject to the payroll tax, such as employers’ contributions to their employees’ health insurance premiums. And 

it did not examine proposals to draw on general government revenues for Social Security or to change the form 

of investment for the trust funds. Such changes could 

have sizable effects on the system’s finances.

Also excluded was an analysis of approaches that would 

reduce or eliminate payroll taxes for workers after they 

reached a particular age or had paid payroll taxes for a 

specified number of years. Such policies would reduce 

Social Security’s revenues from payroll taxes, but they also 

would encourage older workers to stay in the labor force 

and thereby increase the stream of revenue to the general 

fund in the form of income taxes. 

Many other changes could achieve various policy goals 

for Social Security, although they would not produce 

substantial long-term effects on the system’s finances.45

Several possibilities that have received attention elsewhere 

are not included in this study:

42. The growth in DI spending has been driven largely by an increase 

in the number of beneficiaries. In 1970, 2.7 million people 

received benefits; by the end of October 2015 that number had 

grown to almost 11 million. For a discussion of trends, see 

Congressional Budget Office, Social Security Disability Insurance: 

Participation Trends and Their Fiscal Implications (July 2010), 

www.cbo.gov/publication/21638.

43. For information on policy options specific to Disability Insurance, 

see Congressional Budget Office, Options for Reducing the Deficit: 

2014 to 2023 (November 2013), pp. 44–46, www.cbo.gov/

budget-options/2013/44687, and Policy Options for the Social 

Security Disability Insurance Program (July 2012), www.cbo.gov/

publication/43421.

44. For an example of CBO’s analysis of individual accounts, see 

Congressional Budget Office, letter to the Honorable Paul 

Ryan containing an analysis of the Roadmap for America’s Future 

Act of 2010 (January 27, 2010), www.cbo.gov/publication/

41860.

45. CBO has presented similar options that are not analyzed here. 

See Congressional Budget Office, Options for Reducing the Deficit: 

2014 to 2023 (November 2013), pp. 143 and 279, www.cbo.gov/

budget-options/2013/44687. 
18 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

 The delayed-retirement credit could be changed so 

that a portion could be paid as a lump sum.

 The current-law special minimum benefit could be 

increased or indexed to growth in wages instead of 

prices.

 Benefit increases could be targeted toward parents 

whose earnings were low during years that they were 

caring for children.

 Social Security coverage could be made mandatory for 

all public-sector employees, including state and local 

government workers who now are exempt. 

 The formulas for the Windfall Elimination Provision 

and the Government Pension Offset could be 

simplified, in addition to increasing or decreasing the 

effects these provisions have on workers’ benefits.46

Also, so that both provisions were applied to all 

appropriate beneficiaries, state and local pension plans 

could be required to notify the Social Security 

Administration of any pension benefits from 

noncovered employment that are provided to retirees 

or other beneficiaries.

 The treatment of spousal benefits could be changed to 

reduce the disparity in the amounts payable to dualand single-earner couples with the same earnings. 

Under current law, benefits generally replace a greater 

share of lifetime earnings for couples with one earner 

than for two-earner couples. 

 The length of time a person must have been married 

to be eligible for benefits as a divorced spouse or 

divorced widow could be changed. 

 The age at which benefits end could be changed for 

full-time students who are the children of retired, 

disabled, or deceased workers.

 The current lump-sum death benefit of $255 that is 

paid to a spouse when a beneficiary dies could be 

increased, decreased, or eliminated. 

Although this report generally excludes options that 

would not have a major effect on the system’s finances, 

there are several exceptions: Option 34, Option 35, and

Option 36 would directly affect benefits paid to workers’ 

spouses or survivors and would change Social Security’s 

75-year actuarial balance by less than 0.1 percentage 

point of GDP. All three could significantly affect benefits 

for their targeted groups, and policymakers have recently 

proposed similar approaches.

CBO’s Analytical Methods

The projections of Social Security spending and revenues 

under current law and under the policy options presented 

in this report are based on a detailed microsimulation 

model, which starts with data about individuals from a 

1-in-1,000 sample of the population and projects demographic and economic outcomes for that sample through 

time. For each individual in the sample, CBO uses the 

model to simulate birth, death, immigration and emigration, marital status and changes to it, fertility, labor force 

participation, hours worked, earnings, and payroll taxes, 

along with Social Security retirement, disability, and 

dependent benefits.47 The analysis presented in this 

report constitutes the mean results from 30 simulations 

of CBO’s model.48

46. The Windfall Elimination Provision and the Government Pension 

Offset reduce the Social Security benefits of some federal, state, 

and local workers who are eligible for government pensions that 

are based on earnings not covered by Social Security and who are 

also eligible for Social Security benefits based on their own or a 

spouse’s earnings records.

47. For a description, see Congressional Budget Office, CBO’s LongTerm Model: An Overview (June 2009), www.cbo.gov/publication/

20807. For information about demographic and economic projections, see Congressional Budget Office, The 2015 Long-Term Budget 

Outlook (June 2015), Appendix A, www.cbo.gov/publication/

50250.

48. Transitions for individuals—for example, marriage, mortality, and 

employment—in the microsimulation model are determined by 

comparing a random number to the probability of a specific transition’s occurring for an individual. Each simulation uses a different set 

of random numbers. The model’s outcomes vary slightly depending 

on the random numbers used—that effect is known as Monte Carlo 

variation. Because the range of variation is small, presenting an average of the results of 30 simulations shows the center of the distribution of outcomes and controls for the Monte Carlo variation. See 

Michael Simpson, Principal Analyst, Health, Retirement, and LongTerm Analysis Division, Congressional Budget Office, “Investigating 

Monte Carlo Variation in a Dynamic Microsimulation Model” 

(presentation to the Fifth World Congress of the International 

Microsimulation Association, Esch-sur-Alzette, Luxembourg, 

September 2, 2015), www.cbo.gov/publication/50736. 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 19

CBO

Although the projected values for Social Security taxes 

and benefits over many decades are quite uncertain, analyses of the effects of uncertainty in those values on the 

results for each option were outside the scope of this 

study.49 Changes to Social Security benefits could affect 

other federal benefits people might receive—Supplemental Security Income, for example—but CBO also did not 

analyze those effects for this report. Similarly, CBO did 

not assess the effect of the options on the economy or the 

ways in which those effects could, in turn, affect the 

budget.50

Effects of the Options on the System’s Finances 

As a summary measure of the effects of each option, CBO 

estimated the change in the 75-year actuarial balance of the 

combined OASDI trust funds as a percentage of GDP. 

(Those effects on the trust funds, both individually and 

combined, are discussed further in Appendix C.) CBO’s 

calculations were based on scheduled benefits because, by 

definition, the system is in financial balance with payable 

benefits, which would be reduced automatically to eliminate any shortfall. CBO also estimated the change in the 

projected date of the OASDI trust funds’ exhaustion. 

(For the effects of the options on Social Security’s 

finances, see Table 2 on page 23.) 

None of the options that CBO analyzed would, on its 

own, eliminate all or even most of Social Security’s 75-

year actuarial imbalance, which is 1.4 percent of GDP, by 

CBO’s estimate. Likewise, no option on its own would 

achieve sustainable solvency. Only four options would 

delay the exhaustion of the combined OASDI trust funds 

by five years or more beyond the projected exhaustion 

date in 2029. Individual options could be modified to 

have a smaller or larger effect on the actuarial balance by 

changing policy parameters or the date or speed of implementation, but even so, it would be difficult to significantly delay the trust funds’ exhaustion by using just one 

of the options. (Even the combined effects of several 

options might not be sufficient to avert the trust funds’ 

exhaustion.)

Most of the 36 options would improve the system’s 

finances to some degree, although several would worsen 

them. Option 1, which would raise the payroll tax rate by 

1 percentage point, would improve the balance between 

the Social Security system’s annual costs and its annual 

income immediately and permanently. In contrast, the 

full effects of many options would be gradual—they 

include a 10-year phase-in, they apply only to newly eligible beneficiaries, or they change the COLA calculation. 

Some options would provide continuous and increasing 

improvements to the system’s finances by changing the 

benefit formula or the full retirement age, or by indexing 

benefits to increases in prices rather than to average 

wages. Options that would raise the taxable maximum, 

and thus include additional taxable earnings in the benefit formula, would improve the system’s finances initially, 

but as benefits increased in later years those effects would 

abate.

Effects of Delayed Implementation. The effects of any 

given option would depend on timing. For example, a 

postponement of the effective date of a reduction in 

scheduled benefits for newly eligible workers could mean 

that one fewer birth cohort would be affected; although 

the system’s finances would still improve, that improvement would be smaller than would be the case if the 

policy took effect immediately. A later date for implementation also could give workers more time to prepare 

for changes in Social Security’s rules—allowing them to 

adjust the amount they worked or saved, for example. To 

maintain a 75-year balance between revenues and scheduled benefits, however, each additional year’s delay would 

necessitate a larger reduction in benefits or increase in 

taxes once the change was instituted. 

Changes Since CBO’s 2010 Report. The proportion of 

the Social Security system’s financial shortfall that would 

be eliminated by the options presented in this report is 

smaller than that CBO estimated would result from the 

options it presented in 2010.51 Much of that change is 

attributable to a substantial worsening, since 2010, in the 

49. For an analysis of uncertainty in CBO’s Social Security 

projections, see Congressional Budget Office, CBO’s 2015 LongTerm Projections for Social Security: Additional Information

(December 2015), www.cbo.gov/publication/51047, and 

Quantifying Uncertainty in the Analysis of Long-Term Social Security 

Projections (November 2005), www.cbo.gov/publication/17472.

50. The current analysis incorporates some small changes in work 

behavior by beneficiaries in response to changes in expected benefits. 

For more, see Congressional Budget Office, Projecting Labor Force 

Participation and Earnings in CBO’s Long-Term Microsimulation 

Model (October 2006), www.cbo.gov/publication/18237. 

51. Congressional Budget Office, Social Security Policy Options

(July 2010), www.cbo.gov/publication/21547. 
20 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

outlook for the program’s long-term finances as projected 

by CBO. The agency now projects a significantly larger 

actuarial imbalance and an earlier date for the exhaustion 

of the combined trust funds. 

In particular, CBO has lengthened its projections of life 

expectancy, increased its projections of the share of workers who will receive disability benefits, and lowered its 

projections of the portion of earnings that will be subject 

to the payroll tax. Moreover, revenues from the payroll 

tax have fallen short of CBO’s 2010 projections, and the 

permanent reduction in income tax rates that took effect in 

January 2013 led CBO to reduce the amount it projects 

will be paid in taxes on Social Security benefits. CBO also 

reduced its projection of long-term interest rates on government debt, another factor that would worsen the system’s finances. Finally, the current projection period 

(2015 to 2089) includes more years with a sizable gap 

between the program’s revenues and outlays than CBO 

projected in 2010 (which used a projection period of 

2010 to 2084), and that difference will create a larger 

75-year actuarial imbalance. In addition, the phase-in 

period for many of the policy options in this report spans 

a decade; more of the options in the 2010 report would 

have taken effect more quickly.

As a result of those changes, since CBO issued the 2010 

report, the agency’s projection of the 75-year actuarial 

imbalance has increased from 0.6 percent of GDP to 

1.4 percent, so a larger change in the program would be 

needed to bring the system’s finances into balance. No 

single option by itself in the current report could eliminate more than 80 percent of the actuarial imbalance; 11 

of the 30 policy options presented in the 2010 report 

would have done so.

Moreover, the combined trust funds’ exhaustion is now 

projected to occur in 2029 rather than in 2039 as CBO 

projected in 2010. At that time, the date of exhaustion was 

29 years in the future; today the agency projects solvency 

for the combined trust funds for only the next 14 years. 

In all, four options in this report would forestall the funds’ 

exhaustion by half a decade or more; 16 options in the 

2010 report were projected to do so.

Effects of the Options on Payroll Taxes Paid and 

Benefits Received by Various Groups

Some options detailed in this report would affect people in 

all earnings groups similarly; others could have different 

effects on people depending on their earnings, birth 

cohort, or other circumstances. CBO considered the distributional effects of various options on initial benefits, 

the present value of lifetime benefits relative to lifetime 

earnings, and the present value of lifetime payroll taxes 

relative to lifetime earnings.52 (An analysis of the options’ 

distributional effects on scheduled benefits is presented in 

Table 3 on page 30; the options’ distributional effects on 

payable benefits are identified in Table 4 on page 36.) 

Specifically, CBO examined three measures for identifying distributional effects: 

 The percentage change in initial benefits for retired 

workers,

 The percentage change in the present value at age 65 

of lifetime benefits relative to lifetime earnings, and 

 The percentage change in the present value at age 65 

of lifetime payroll taxes relative to lifetime earnings. 

Changes to initial benefits isolate the effects of an option 

on retired workers, assuming that there is no change in 

the age at which workers claim retirement benefits and 

including earnings only through age 61. Changes to lifetime benefits provide a more comprehensive perspective 

because, unlike estimated initial benefits, projected lifetime benefits account for the age at which each person 

claims benefits and include disabled-worker benefits and 

benefits paid to dependents and survivors of workers. 

Scaling by lifetime earnings accounts for economic 

growth over time and provides context for the amount of 

benefits.

For this analysis, CBO calculated initial benefits (and 

subsequent changes) under the simplifying assumption 

that all workers claim benefits at age 65. Initial benefits 

are based on earnings through age 61 and are net of any 

income taxes paid on those benefits.

Lifetime benefits also are net of any income taxes recipients paid on them and, in addition to retired-worker benefits, include disabled-worker benefits and benefits paid 

52. To compute present values for lifetime benefits, for lifetime 

payroll taxes, and for lifetime earnings, CBO used a discount 

rate that is equal to the effective rate on federal debt. See 

Congressional Budget Office, The 2015 Long-Term Budget 

Outlook (June 2015), Appendix A, www.cbo.gov/publication/

50250.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 21

CBO

to dependents and survivors of workers. (Because there 

are insufficient data on benefits received by young widows and children for years before 1984, benefits paid to 

young widows, spouses of disabled workers, and child 

beneficiaries are excluded from this measure.)

The worker’s portion of the payroll tax was reduced by 

2 percentage points for 2011 and 2012 (as was the tax 

paid by self-employed workers). For the estimates of lifetime payroll taxes, workers are assumed to have paid the 

full amount of the payroll tax in 2011 and 2012.

CBO examined the way changes resulting from the various policy options would affect beneficiaries in nine 

groups—defined by quintile (lowest, middle, or highest 

fifth) of lifetime household earnings and 10-year birth 

cohort (people born in the 1960s, 1980s, or 2000s).53

The analysis assesses the options’ effects on the average 

outcome in each group. In this study, “low earners” refers 

to people in the lowest quintile of lifetime household 

earnings, and “high earners” refers to people in the highest quintile of lifetime household earnings. A change in 

one of the three measures of distributional effects for a 

particular group refers to the percentage change caused 

by a policy option, relative to current law, in the mean 

value of that measure for that group. 

The options discussed in this study would have a variety 

of effects on the finances of the Social Security system. 

The distributional trade-offs become clearer, however, 

if the options are compared while their overall effects 

on the system’s finances are held constant. Therefore, in 

another exercise, CBO compared the distributional 

effects of 8 additional policy options it derived from the 

original 36, each of which would improve the actuarial 

balance by one-quarter—that is, by 0.35 percent of 

GDP (see Appendix D). 

Effects of the Options on Work and Saving

A change in payroll tax rates or in the structure of Social 

Security benefits could influence people’s decisions about 

how much to work, when to retire, and how much to save 

for retirement. Although such behavioral responses can 

be difficult to quantify, this analysis incorporates some 

changes in work behavior in response to changes in 

expected benefits. Additionally, although not included in 

the projections presented in this report, changes in the 

size of the labor force can have a broad effect on the federal budget through the amounts that the federal government collects in income taxes and the amounts it pays out 

in various benefits. 

Effects on Work. Like any tax on earnings, the Social 

Security payroll tax reduces the reward from work, which 

tends to decrease the amount of work people do. At the 

same time, Social Security taxes and other taxes on earnings reduce overall income, and lower income can lead 

people to work more in order to maintain the same standard of living. The net effect of taxes on work reflects the 

balance of those forces; most economists conclude that, 

on average, the negative effects of taxes on hours worked 

outweigh the positive effects.54 Thus, in CBO’s estimation, increasing Social Security tax rates without increasing benefits would tend to decrease modestly the hours of 

labor that workers supplied. Increasing payroll tax rates 

also would encourage workers and their employers to 

shift some of their compensation to tax-exempt fringe 

benefits. High earners, who can have more flexibility than 

low earners about the structure of their compensation, are 

particularly likely to reduce their taxable earnings by 

electing to receive more of their compensation in the 

form of tax-exempt benefits. 

The influence of higher payroll taxes on the incentive to 

work depends on whether such a tax increase also is associated with an increase in benefits. Option 8, for example, which would eliminate the taxable maximum but not 

affect benefits, would probably have a larger effect on 

work incentives than would Option 6, which would 

eliminate the maximum but include the additional taxable earnings in the computation of benefits. 

Research on the implicit marginal tax rate on earnings in 

the Social Security system—that is, additional taxes paid 

minus the present value of the Social Security benefits 

earned from working one more year, as a percentage of 

earnings—has shown that the rate varies considerably 53. Each person who lives at least to age 45 is ranked by lifetime 

household earnings. Lifetime earnings for someone who is single 

in all years equals the present value at age 65 of his or her real 

earnings over a lifetime. In any year in which a person is married, 

the earnings measure equals the couple’s total real earnings 

(adjusted for economies of scale in household consumption). 

54. For a discussion of the issue, see Congressional Budget Office, 

How the Supply of Labor Responds to Changes in Fiscal Policy

(October 2012), www.cbo.gov/publication/43674.
22 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

with a worker’s circumstances.55 Because Social Security 

replaces more earnings for low-earning than for highearning workers, high earners typically face a higher 

implicit tax rate for Social Security than low-earning 

workers do. Options that increased tax rates up to a particular amount of earnings would affect all earners regardless of whether their earnings were above or below that 

amount, but the disincentives to work would be different. 

Options that modified the way benefits are determined 

also would influence how long people remained in the 

workforce and how much they worked while in the workforce. If workers expected lower Social Security benefits, 

for example, they might stay in the workforce longer to 

claim benefits at a later age. However, a reduction in benefits also could mean (depending on the ways the benefit 

formula changed) that an extra year of work would increase 

future benefits by a smaller amount, thus discouraging 

work. On net, older workers would probably choose to 

work longer in response to a reduction in benefits, leading 

to a larger labor force.56

The decision about how long to remain in the workforce 

would be influenced differently by options that changed 

benefits and those that raised the full retirement age, even 

if the effects on benefits were identical. Because many 

workers claim benefits when they reach the FRA, raising 

that age would probably result in beneficiaries’ claiming 

benefits later than they would if a policy with similar 

reductions to benefits was implemented through 

adjustments in the benefit formula.57

Increasing the FRA also would create a somewhat stronger 

incentive for some older workers to leave the labor force 

and apply for DI benefits rather than continue to work and 

then claim reduced retired-worker benefits at age 62.58

(Changes in the FRA would not affect the benefits of 

workers who qualify for DI benefits.) Under current law, 

workers who claim retired-worker benefits at age 62 in 

2023 will receive 70 percent of their primary insurance 

amount (that is, 70 percent of benefits due if they waited 

until reaching the FRA); if they qualify for DI benefits, 

however, they will receive 100 percent of that amount. 

Effects on Saving. Social Security also affects people’s decisions about saving. Although those effects are not discussed 

here, people who expect to receive Social Security benefits 

save less, on average, for retirement than they would if the 

program did not exist. In effect, Social Security substitutes 

to some extent for retirement saving: Some workers view 

the tax on their wages as a way to save money from each 

paycheck for retirement. Instead of accumulating assets to 

draw down when they retire, those workers anticipate that 

a significant percentage of their income in retirement will 

come from the benefits they expect to receive from Social 

Security.59 Therefore, a reduction in benefits would probably cause more private saving among those workers.

To the extent that changes in Social Security increased private saving without increasing federal budget deficits, those 

changes also would increase national saving—the total 

amount of saving in the economy by the government and 

private sector. Over time, greater national saving would 

expand the stock of capital and result in greater total 

wealth and income.

55. Some workers’ implicit marginal tax rate equals or is close to the 

statutory OASDI rate: They pay the tax but receive no or few 

additional benefits from additional earnings. But others face a 

much lower, or even negative, implicit marginal tax rate on their 

additional earnings (a negative marginal rate implies that the 

present value of Social Security benefits accruing from additional 

earnings exceeds the Social Security payroll taxes paid on those 

earnings). See Gopi Shah Goda, John B. Shoven, and Sita Nataraj 

Slavov, “Removing the Disincentives in Social Security for Long 

Careers,” in Jeffrey R. Brown, Jeffrey B. Liebman, and David A. 

Wise, eds., Social Security Policy in a Changing Environment

(University of Chicago Press, 2009), pp. 21–38, www.nber.org/

books/brow08-1; and Martin Feldstein and Andrew Samwick, 

“Social Security Rules and Marginal Tax Rates,” National Tax 

Journal, vol. 45, no. 1 (March 1992), pp. 1–22, http://tinyurl.com/

o4vwqa6. 

56. See Courtney Coile and Jonathan Gruber, “Future Social Security 

Entitlements and the Retirement Decision,” Review of Economics 

and Statistics, vol. 89, no. 2 (May 2007), pp. 234–246, 

www.mitpressjournals.org/toc/rest/89/2; and Olivia S. Mitchell and 

John W.R. Phillips, Retirement Responses to Early Social Security 

Benefit Reductions, Working Paper 7963 (National Bureau of 

Economic Research, October 2000), www.nber.org/papers/w7963.

57. Before the recession of December 2007 to June 2009, the increase 

in the FRA caused a benefit cut that led many workers to delay 

claiming Social Security benefits. See Joyce Manchester and Jae 

G. Song, “What Can We Learn From Analyzing Historical Data 

on Social Security Entitlements?” Social Security Bulletin, vol. 71, 

no. 4 (November 2011), pp. 1–13, www.ssa.gov/policy/docs/ssb/

v71n4.

58. See Mark Duggan, Perry Singleton, and Jae Song, “Aching to Retire? 

The Rise in the Full Retirement Age and Its Impact on the Social 

Security Disability Rolls,” Journal of Public Economics, vol. 91, 

no. 7–8 (August 2007), pp. 1327–1350, http://tinyurl.com/lj4xu75.

59. See Congressional Budget Office, Social Security and Private 

Saving: A Review of the Empirical Evidence (July 1998), 

www.cbo.gov/publication/11011.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 23

CBO

Table 2.

Changes to Social Security’s Finances Under Various Options, With Scheduled Benefits

Percentage of Gross Domestic Product

Continued

2030 2040 2050 2060 2070 2080

Tax Revenues 4.4 4.4 4.4 4.4 4.4 4.4 4.6

Outlays 6.1 6.2 5.9 6.1 6.2 6.3 6.1

Difference -1.7 -1.8 -1.5 -1.7 -1.8 -1.9 -1.4

1

Increase the Tax Revenues 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Payroll Tax Rate by Outlays ****** *

1 Percentage Point

e Differencef 0.3 0.3 0.3 0.3 0.3 0.3 0.3

2

Increase the 

Payroll Tax Rate by Tax Revenues 0.6 0.6 0.6 0.6 0.6 0.6 0.6

2 Percentage Points Outlays ***** -0.1 *

Over 10 Years

e Differencef 0.6 0.6 0.7 0.6 0.7 0.7 0.6

3

Increase the 

Payroll Tax Rate by Tax Revenues 0.2 0.4 0.5 0.7 0.8 0.9 0.5

3 Percentage Points Outlays ***** -0.1 *

Over 60 Years

e Differencef 0.2 0.4 0.6 0.7 0.9 1.0 0.5

4

Raise the Taxable Tax Revenues 0.5 0.6 0.6 0.6 0.6 0.6 0.5

Maximum to Cover Outlays 0.1 0.1 0.2 0.3 0.3 0.3 0.2

90 Percent of Earnings e Differencef 0.5 0.4 0.4 0.3 0.3 0.2 0.3

5

Raise the Taxable

Maximum to Cover Tax Revenues 0.5 0.6 0.6 0.6 0.6 0.5 0.5

90 Percent of Earnings; Outlays ****** *

Do Not Increase Benefits e Differencef 0.5 0.6 0.6 0.6 0.6 0.6 0.5

Percentage of GDPa Annual Finances

Percentage-Point Change From Outcome Under Current Law

Change in Annual Differenced

Annual Differencec

 2030–2080

Present Value as a

Change in the

75-Year

(2015–2089)

Current Lawb

75-Year

 (2030–2080) Present Value

Change the Taxation of Earnings
24 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 2. Continued

Changes to Social Security’s Finances Under Various Options, With Scheduled Benefits

Percentage of Gross Domestic Product

Continued

2030 2040 2050 2060 2070 2080

Tax Revenues 4.4 4.4 4.4 4.4 4.4 4.4 4.6

Outlays 6.1 6.2 5.9 6.1 6.2 6.3 6.1

Difference -1.7 -1.8 -1.5 -1.7 -1.8 -1.9 -1.4

Change the Taxation of Earnings (Continued)

6

Eliminate the Taxable Tax Revenues 1.1 1.1 1.1 1.1 1.1 1.1 1.0

Maximume Outlays 0.1 0.3 0.5 0.6 0.7 0.7 0.4

Differencef 1.0 0.8 0.6 0.5 0.4 0.4 0.6

7

Tax Covered Earnings

Above the Taxable 

Maximum; Create a Tax Revenues 1.1 1.1 1.1 1.1 1.1 1.1 1.0

Two-Component System Outlays * 0.1 0.1 0.2 0.2 0.2 0.1

for Calculating the PIAe Differencef 1.1 1.0 1.0 0.9 0.9 0.9 0.9

8

Tax Covered Earnings

Above the Taxable Tax Revenues 1.1 1.1 1.1 1.0 1.1 1.0 1.0

Maximum; Do Not Outlays * * * -0.1 -0.1 -0.1 *

Increase Benefits e Differencef 1.1 1.1 1.1 1.1 1.1 1.1 1.0

9

Tax Covered Earnings

Above the Taxable Tax Revenues 0.4 0.3 0.3 0.3 0.3 0.3 0.3

Maximum at 4 Percent; Outlays ****** *

Do Not Increase Benefits e Differencef 0.4 0.4 0.4 0.4 0.4 0.4 0.3

10

Tax Covered Earnings

Above $250,000 at Tax Revenues 0.2 0.2 0.2 0.2 0.2 0.2 0.2

4 Percent; Do Not Outlays ****** *

Increase Benefits e Differencef 0.2 0.2 0.2 0.2 0.2 0.2 0.2

11

Raise From 35 to 40 the Tax Revenues ****** *

Years of Earnings Outlays -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.1

Included in the AIME Differencef 0.1 0.1 0.2 0.2 0.2 0.2 0.1

Present Value

Percentage-Point Change From Outcome Under Current Law

Change in Annual Differenced

 (2030–2080)

(2015–2089)

Change in the

75-Year

Annual Finances

 2030–2080

Present Value as a

Current Lawb

Annual Differencec

75-Year

Change the Benefit Formula

Percentage of GDPa
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 25

CBO

Table 2. Continued

Changes to Social Security’s Finances Under Various Options, With Scheduled Benefits

Percentage of Gross Domestic Product

Continued

2030 2040 2050 2060 2070 2080

Tax Revenues 4.4 4.4 4.4 4.4 4.4 4.4 4.6

Outlays 6.1 6.2 5.9 6.1 6.2 6.3 6.1

Difference -1.7 -1.8 -1.5 -1.7 -1.8 -1.9 -1.4

12

Index Earnings Tax Revenues ****** *

in the AIME Formula Outlays * * -0.2 -0.3 -0.5 -0.5 -0.2

to Prices Differencef * * 0.2 0.3 0.4 0.5 0.2

13

Apply the Social Security

Benefit Formula to Tax Revenues ****** *

Individual Years Outlays * -0.2 -0.2 -0.3 -0.3 -0.3 -0.2

of Earnings Differencef * 0.2 0.2 0.2 0.3 0.3 0.2

14

Reduce All PIA Tax Revenues **** -0.1 -0.1 *

Factors by 15 Percent Outlays -0.1 -0.4 -0.7 -0.8 -0.9 -0.9 -0.6

Differencef 0.1 0.4 0.6 0.8 0.8 0.9 0.5

15

Reduce the Top PIA Tax Revenues ****** *

Factor to 10 Percent Outlays * * -0.1 -0.1 -0.1 -0.1 -0.1

Differencef * * 0.1 0.1 0.1 0.1 0.1

16

Reduce All PIA Factors Tax Revenues **** -0.1 -0.1 *

by 0.5 Percent Annually Outlays * -0.2 -0.4 -0.6 -0.9 -1.2 -0.5

Differencef * 0.2 0.4 0.6 0.9 1.1 0.5

17

Index Initial Benefits Tax Revenues ***** -0.1 *

to Changes in Longevity Outlays * -0.1 -0.2 -0.4 -0.6 -0.7 -0.3

Differencef * 0.1 0.2 0.4 0.5 0.6 0.3

Present Value

Present Value as a

75-Year

Current Lawb

Annual Differencec

 (2030–2080)

Percentage-Point Change From Outcome Under Current Law

Change in Annual Differenced

Annual Finances

(2015–2089)

Change in the

75-Year

 2030–2080

Change the Benefit Formula (Continued)

Percentage of GDPa
26 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 2. Continued

Changes to Social Security’s Finances Under Various Options, With Scheduled Benefits

Percentage of Gross Domestic Product

Continued

2030 2040 2050 2060 2070 2080

Tax Revenues 4.4 4.4 4.4 4.4 4.4 4.4 4.6

Outlays 6.1 6.2 5.9 6.1 6.2 6.3 6.1

Difference -1.7 -1.8 -1.5 -1.7 -1.8 -1.9 -1.4

18

Implement Pure Price Tax Revenues * * * -0.1 -0.1 -0.2 -0.1

Indexing of Outlays -0.1 -0.4 -0.9 -1.5 -2.1 -2.6 -1.2

Initial Benefits Differencef 0.1 0.4 0.8 1.4 2.0 2.4 1.1

19

Implement Progressive

Price Indexing of Initial Tax Revenues **** -0.1 -0.1 *

Benefits for the Top Outlays -0.1 -0.2 -0.5 -0.9 -1.2 -1.5 -0.7

70 Percent of Earners Differencef 0.1 0.2 0.5 0.8 1.1 1.4 0.6

20

Implement Progressive

Price Indexing of Initial Tax Revenues **** -0.1 -0.1 *

Benefits for the Top Outlays * -0.2 -0.4 -0.7 -1.0 -1.2 -0.5

50 Percent of Earners Differencef * 0.2 0.4 0.6 0.9 1.1 0.5

21

Index the Bend Points Tax Revenues **** -0.1 -0.1 *

in the PIA Formula Outlays * -0.2 -0.4 -0.7 -1.0 -1.3 -0.6

to Prices Differencef * 0.2 0.4 0.7 1.0 1.2 0.5

22

Add an Additional Bend Tax Revenues * * * -0.1 -0.1 -0.1 *

Point to the PIA Formula Outlays -0.1 -0.5 -0.7 -0.9 -1.0 -1.1 -0.6

and Reduce the PIA Factors Differencef 0.1 0.5 0.7 0.9 1.0 1.0 0.6

23

Increase the First Bend Tax Revenues ****** *

Point in the PIA Formula Outlays 0.3 0.3 0.2 0.3 0.2 0.2 0.3

by 15 Percent Differencef -0.3 -0.3 -0.2 -0.2 -0.2 -0.2 -0.3

Percentage of GDPa

75-Year

Change in the

75-Year

Current Lawb

Annual Differencec

Change the Benefit Formula (Continued)

Present Value

Percentage-Point Change From Outcome Under Current Law

 2030–2080 (2015–2089)

Annual Finances

Present Value as a

Change in Annual Differenced

 (2030–2080)
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 27

CBO

Table 2. Continued

Changes to Social Security’s Finances Under Various Options, With Scheduled Benefits

Percentage of Gross Domestic Product

Continued

2030 2040 2050 2060 2070 2080

Tax Revenues 4.4 4.4 4.4 4.4 4.4 4.4 4.6

Outlays 6.1 6.2 5.9 6.1 6.2 6.3 6.1

Difference -1.7 -1.8 -1.5 -1.7 -1.8 -1.9 -1.4

Change the Benefit Formula (Continued)

24

Replace the Current PIA Tax Revenues ****** *

Formula With a New Outlays -0.1 -0.2 -0.3 -0.3 -0.4 -0.4 -0.2

Two-Part Formula Differencef 0.1 0.2 0.2 0.3 0.4 0.4 0.2

25

Raise the FRA to 68 Tax Revenues ****** *

Outlays -0.1 -0.2 -0.2 -0.3 -0.3 -0.3 -0.2

Differencef 0.1 0.2 0.2 0.2 0.3 0.3 0.2

26

Raise the FRA to 70 Tax Revenues * * * -0.1 -0.1 -0.1 *

Outlays -0.1 -0.3 -0.6 -0.7 -0.8 -0.8 -0.5

Differencef 0.1 0.3 0.6 0.7 0.7 0.8 0.4

27

Increase the FRA by Tax Revenues **** -0.1 -0.1 *

One Month per Birth Year Outlays * -0.2 -0.4 -0.6 -0.8 -1.0 -0.4

Differencef * 0.2 0.3 0.5 0.7 0.9 0.4

28

Increase the FRA and Tax Revenues * * * -0.1 -0.1 -0.1 *

the EEA by One Month Outlays -0.1 -0.2 -0.4 -0.5 -0.7 -0.8 -0.4

per Birth Year Differencef 0.1 0.2 0.4 0.5 0.6 0.7 0.4

29

Base COLAs on the Tax Revenues ****** *

Chained CPI-U Outlays -0.2 -0.2 -0.2 -0.2 -0.2 -0.3 -0.2

Differencef 0.1 0.2 0.2 0.2 0.2 0.2 0.2

Percentage of GDPa

Change Cost-of-Living Adjustments

Annual Finances

 2030–2080

Percentage-Point Change From Outcome Under Current Law

Change in Annual Differenced

75-Year

Current Lawb

Annual Differencec

Present Value as a

 (2030–2080)

(2015–2089)

Change in the

75-Year

Present Value

Raise the Full Retirement Age
28 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 2. Continued

Changes to Social Security’s Finances Under Various Options, With Scheduled Benefits

Percentage of Gross Domestic Product

Continued

2030 2040 2050 2060 2070 2080

Tax Revenues 4.4 4.4 4.4 4.4 4.4 4.4 4.6

Outlays 6.1 6.2 5.9 6.1 6.2 6.3 6.1

Difference -1.7 -1.8 -1.5 -1.7 -1.8 -1.9 -1.4

Change Cost-of-Living Adjustments (Continued)

30

Base COLAs on the

Chained CPI-U and

Increase Benefits Tax Revenues ****** *

20 Years After Initial Outlays -0.1 -0.1 -0.1 -0.1 -0.1 -0.2 -0.1

Eligibility Differencef 0.1 0.1 0.1 0.1 0.1 0.1 0.1

31

Base COLAs on the Tax Revenues ****** *

CPI-E Outlays 0.1 0.1 0.2 0.2 0.2 0.2 0.1

Differencef -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.1

32

Reduce COLAs for Tax Revenues ****** *

People With Higher PIAs Outlays -0.1 -0.1 -0.2 -0.1 -0.2 -0.2 -0.1

Differencef 0.1 0.1 0.1 0.1 0.2 0.2 0.1

33

Introduce a New Tax Revenues ****** *

Poverty-Related Outlays 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Minimum Benefit Differencef -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2

34

Create an Alternative Tax Revenues ****** *

Benefit for Spouses of Outlays ****** *

Deceased Workers Differencef ****** *

35

Limit the Survivors' Tax Revenues ****** *

Benefit Outlays ****** *

Differencef ****** *

Change in Annual Differenced 75-Year

 (2030–2080) Present Value

Annual Finances

 2030–2080 (2015–2089)

Percentage-Point Change From Outcome Under Current Law

Change in the

Current Lawb

Annual Differencec

Percentage of GDPa

Change Benefits for Specific Groups

Present Value as a

75-Year
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 29

CBO

Table 2. Continued

Changes to Social Security’s Finances Under Various Options, With Scheduled Benefits

Percentage of Gross Domestic Product

Source: Congressional Budget Office.

Notes: Scheduled benefits are benefits as calculated under the provisions of the Social Security Act, regardless of balances in the Social 

Security trust funds. For this analysis, CBO follows the common analytical convention of considering the Old-Age and Survivors 

Insurance Trust Fund and the Disability Insurance Trust Fund as combined, even though legally they are separate. 

Details of specific options are contained in the text; definitions of terms are in the glossary.

AIME = average indexed monthly earnings; COLA = cost-of-living adjustment; CPI-E = consumer price index for elderly consumers; 

CPI-U = consumer price index for all urban consumers; EEA = early eligibility age; FRA = full retirement age; GDP = gross domestic 

product; PIA = primary insurance amount; * = between -0.05 and 0.05 percentage points.

a. Over the 75-year period, tax revenues equal the present value of annual tax revenues plus the initial trust fund balance, each divided by 

the present value of GDP. Outlays equal the present value of annual outlays plus the present value of a year’s worth of benefits as a reserve 

at the end of the period, each divided by the present value of GDP. The difference between the present value of tax revenues and the 

present value of outlays is the actuarial balance.

b. “Current law” refers to current provisions of the Social Security Act for calculating benefits and payroll taxes. See Congressional Budget 

Office, The 2015 Long-Term Budget Outlook (June 2015), Chapter 3, www.cbo.gov/publication/50250. 

c. This area graph shows the annual difference between projected tax revenues and projected outlays under current law for the 2030–2080 

period. The range is from -2.5 percent to 2.5 percent of GDP.

d. Each area graph shows the percentage-point change for that option compared with the outcome under current law in the difference 

between projected tax revenues and projected outlays over the 2030–2080 period. The range is from -2.5 percent to 2.5 percent of GDP.

e. In this analysis, because total compensation remains fixed, changes to payroll taxes paid by the employer, which are considered part of 

total compensation, reduce cash wages. The reduction in cash wages results in lower payroll taxes and in decreased benefits.

f. Negative numbers indicate an increase in the difference between tax revenues and outlays; positive numbers indicate a decrease in that 

difference.

2030 2040 2050 2060 2070 2080

Tax Revenues 4.4 4.4 4.4 4.4 4.4 4.4 4.6

Outlays 6.1 6.2 5.9 6.1 6.2 6.3 6.1

Difference -1.7 -1.8 -1.5 -1.7 -1.8 -1.9 -1.4

Change Benefits for Specific Groups (Continued)

36

Reduce the Spousal Tax Revenues ****** *

Benefit Outlays * * * -0.1 -0.1 -0.1 *

Differencef * * * 0.1 0.1 0.1 *

 (2030–2080) Present Value

Percentage of GDPa

 2030–2080 (2015–2089)

Current Lawb

Change in the

Change in Annual Differenced 75-Year

Annual Differencec

Percentage-Point Change From Outcome Under Current Law

75-Year

Present Value as a

Annual Finances
30 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 3.

Changes to Social Security’s Scheduled Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 10 12 18 30 36 38 12 12 12

Middle 19 24 35 16 20 20 12 12 12

High 27 36 52 788 787

Change the Taxation of Earnings

1

Increase the Payroll Tax Rate by Low *** *** 268

1 Percentage Pointf Middle *** *** 268

High *** *** 3 7 8

2

Increase the Payroll Tax Rate by Low -1 -1 * *** 3 9 16

2 Percentage Points Over 10 Yearsf Middle -1 -1 -1 *** 3 11 16

High -1 -1 -1 *** 4 12 16

3

Increase the Payroll Tax Rate by Low * * -1 *** 1 4 11

3 Percentage Points Over 60 Yearsf Middle * -1 -1 *** 1 5 12

High * * -1 *** 2 7 14

4

Raise the Taxable Maximum to Low * -1 * *** ***

Cover 90 Percent of Earningsf Middle *** ** 1 * * 1

High 4 12 14 7 15 18 12 27 32

5

Raise the Taxable Maximum to Low * -1 -1 *** ***

Cover 90 Percent of Earnings; Middle * -1 -1 *** ** 1

Do Not Increase Benefitsf High * -1 -1 *** 12 27 32

6

Eliminate the Taxable Maximumf Low -1 -1 -1 *** ***

Middle *** * 1 1 * * 1

High 9 22 28 21 32 38 32 54 64

7

Tax Covered Earnings Above the Low -1 -1 -1 *** ***

Taxable Maximum; Create a Middle -1 -1 -1 *** ** 1

Two-Component System for High 2 6 8 6 10 13 33 54 64

Calculating the PIAf

Relative to Lifetime 

Mean Lifetime Benefits 

10-Year Birth Cohortb

Retired Workers by 

Mean Initial Benefits for 

10-Year Birth Cohortc

All Beneficiaries by

Earnings for

(Thousands of 2015 dollars) (Percent)

1960 2000 1980 1960 1980 2000

10-Year Birth Cohortc

All Beneficiaries by

Earnings for

Percentage Change From Outcome Under Current Lawe

Current Lawd

Taxes Relative to Lifetime 

Mean Lifetime Payroll 

(Percent)

1960 1980 2000
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 31

CBO

Table 3. Continued

Changes to Social Security’s Scheduled Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 10 12 18 30 36 38 12 12 12

Middle 19 24 35 16 20 20 12 12 12

High 27 36 52 788 787

Change the Taxation of Earnings (Continued)

8

Tax Covered Earnings Above the Low -1 -1 -1 *** ***

Taxable Maximum; Do Not Increase Middle -1 -1 -1 -1 ** ** 1

Benefitsf High -1 -1 -1 * * * 33 54 64

9

Tax Covered Earnings Above the Low *** *** ***

Taxable Maximum at 4 Percent; Middle *** *** ***

Do Not Increase Benefitsf High *** *** 11 17 21

10

Tax Covered Earnings Above Low *** *** ***

$250,000 at 4 Percent; Middle *** *** ***

Do Not Increase Benefitsf High *** *** 7 10 11

Change the Benefit Formula

11

Low -5 -8 -8 -2 -4 -3 ***

Middle -5 -7 -7 -3 -4 -4 ***

High -3 -5 -5 -2 -3 -3 ***

12

Low * -7 -16 * -4 -11 ***

Middle * -7 -14 * -5 -11 ***

High * -5 -9 * -4 -6 ***

13

Low -7 -14 -14 -4 -8 -9 ***

Middle -3 -7 -7 -2 -4 -5 ***

High -2 -5 -4 -1 -3 -3 ***

14

Low -7 -15 -15 -3 -11 -14 ***

Middle -7 -15 -15 -5 -14 -14 ***

High -6 -14 -14 -6 -14 -14 ***

Raise From 35 to 40 the Years of 

Earnings Included in the AIME 

Mean Initial Benefits for Earnings for

Relative to Lifetime 

Mean Lifetime Benefits 

(Thousands of 2015 dollars) (Percent)

10-Year Birth Cohortb

Retired Workers by 

10-Year Birth Cohortc

All Beneficiaries by

Index Earnings in the 

AIME Formula to Prices

Apply the Social Security Benefit 

Formula to Individual Years of 

Earnings

Reduce All PIA Factors by 

15 Percent

Percentage Change From Outcome Under Current Lawe

Current Lawd

(Percent)

Mean Lifetime Payroll 

Taxes Relative to Lifetime 

Earnings for

All Beneficiaries by

10-Year Birth Cohortc

1960 1980 2000 1960 1980 2000 1960 1980 2000
32 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 3. Continued

Changes to Social Security’s Scheduled Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 10 12 18 30 36 38 12 12 12

Middle 19 24 35 16 20 20 12 12 12

High 27 36 52 788 787

Change the Benefit Formula (Continued)

15

Low *** *** ***

Middle *** *** ***

High -2 -3 -4 -2 -5 -5 ***

16

Low -2 -12 -20 -1 -7 -15 ***

Middle -2 -11 -20 -2 -10 -18 ***

High -2 -11 -19 -2 -11 -19 ***

17

Low -2 -10 -17 -1 -4 -7 ***

Middle -2 -10 -17 -1 -6 -11 ***

High -2 -10 -16 -2 -8 -14 ***

18

Low -5 -28 -45 -3 -18 -35 * * *

Middle -5 -28 -45 -4 -24 -42 ***

High -5 -27 -44 -5 -27 -44 ***

19

Low *** * -1 -2 ***

Middle -3 -11 -21 -2 -10 -20 ***

High -4 -23 -38 -5 -24 -39 ***

20

Low *** ** -1 ***

Middle -2 -5 -11 -1 -5 -10 ***

High -4 -21 -34 -5 -22 -37 ***

21

Low -2 -12 -21 -1 -8 -17 ***

Middle -2 -11 -21 -1 -9 -19 ***

High -3 -14 -23 -3 -14 -23 ***

Index Initial Benefits to 

Changes in Longevity 

Implement Pure Price 

Indexing of Initial Benefits

Implement Progressive Price 

Indexing of Initial Benefits for the 

Top 70 Percent of Earners 

Implement Progressive Price 

Indexing of Initial Benefits for the 

Top 50 Percent of Earners 

Index the Bend Points in the 

PIA Formula to Prices

Mean Initial Benefits for 

Retired Workers by 

Current Lawd

Percentage Change From Outcome Under Current Lawe

Earnings for

All Beneficiaries by

1960 1980

10-Year Birth Cohortc

Reduce the Top PIA Factor to 

10 Percent

Mean Lifetime Benefits 

Relative to Lifetime 

1980 2000 1960 1980 2000

10-Year Birth Cohortb

1960

(Thousands of 2015 dollars) (Percent) (Percent)

All Beneficiaries by

10-Year Birth Cohortc

2000

Reduce All PIA Factors by 

0.5 Percent Annually 

Mean Lifetime Payroll 

Taxes Relative to Lifetime 

Earnings for
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 33

CBO

Table 3. Continued

Changes to Social Security’s Scheduled Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 10 12 18 30 36 38 12 12 12

Middle 19 24 35 16 20 20 12 12 12

High 27 36 52 788 787

22

Low * -1 -1 -1 -1 -2 ***

Middle -6 -8 -11 -4 -9 -11 ***

High -12 -27 -27 -13 -29 -30 ***

23

Low 555 7 55 ***

Middle 4 55 55 4 ***

High 333 333 ***

24

Low 1 18 15 2 18 17 ***

Middle -4 -6 -9 -3 -4 -6 ***

High -6 -15 -15 -6 -13 -13 ***

25

Low -5 -8 -8 -2 -3 -3 ***

Middle -5 -8 -8 -3 -4 -4 ***

High -5 -8 -8 -4 -5 -5 ***

26

Low -6 -19 -19 -3 -10 -9 ***

Middle -6 -19 -19 -4 -13 -13 ***

High -6 -19 -19 -5 -16 -15 * -1 -1

27

Low -3 -14 -23 -1 -7 -9 ***

Middle -3 -14 -24 -2 -9 -14 ***

High -3 -14 -23 -2 -11 -18 * * -1

28

Low -3 -14 -23 -1 -5 -7 ***

Middle -3 -14 -23 -2 -7 -10 ***

High -3 -13 -21 -2 -9 -15 * -1 -1

Raise the FRA to 68 

Raise the Full Retirement Age

Retired Workers by 

10-Year Birth Cohortb

Current Lawd

Percentage Change From Outcome Under Current Lawe

Increase the First Bend Point in the 

PIA Formula by 15 percent

2000

Increase the FRA by One Month per 

Birth Year

Increase the FRA and the EEA by 

One Month per Birth Year

Mean Initial Benefits for 

Mean Lifetime Benefits 

Relative to Lifetime 

Earnings for

All Beneficiaries by

10-Year Birth Cohortc

Change the Benefit Formula (Continued)

Add an Additional Bend Point to the

PIA Formula and Reduce the PIA

Factors

Replace the Current PIA Formula 

With a New Two-Part Formula

(Thousands of 2015 dollars) (Percent)

2000 1960 1980 2000 1960 1980

Raise the FRA to 70 

(Percent)

Mean Lifetime Payroll 

Taxes Relative to Lifetime 

Earnings for

All Beneficiaries by

10-Year Birth Cohortc

1960 1980
34 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 3. Continued

Changes to Social Security’s Scheduled Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 10 12 18 30 36 38 12 12 12

Middle 19 24 35 16 20 20 12 12 12

High 27 36 52 788 787

29

Low -1 -1 -1 -3 -4 -4 ***

Middle -1 -1 -1 -3 -4 -4 ***

High -1 -1 -1 -4 -4 -4 ***

30

Low -1 -1 -1 -1 -1 -1 ***

Middle -1 -1 -1 -2 -2 -2 ***

High -1 -1 -1 -3 -3 -3 ***

31

Low * * 1 2 33 ***

Middle 1 * * 2 33 ***

High *** 333 ***

32

Low *** *** ***

Middle -1 * * -2 -1 -2 ***

High -1 -1 -1 -4 -5 -5 ***

33

Low 10 27 23 12 26 22 ***

Middle 1 2 1 1 2 1 ***

High *** *** ***

34

Low 0 0 0 2 1 1 ***

Middle 0 0 0 1 1 1 ***

High 0 0 0 *** ***

35

Low 0 0 0 *** ***

Middle 0 0 0 *** ***

High 0 0 0 -1 -1 -1 ***

Create an Alternative Benefit for 

Spouses of Deceased Workers

All Beneficiaries by

10-Year Birth Cohortc

Mean Lifetime Benefits 

Relative to Lifetime 

Earnings for

Change Benefits for Specific Groups

Current Lawd

Percentage Change From Outcome Under Current Lawe

Base COLAs on the Chained CPI-U 

and Increase Benefits 20 Years After 

Initial Eligibility 

Base COLAs on the CPI-E 

Change Cost-of-Living Adjustments

Base COLAs on the Chained CPI-U 

Mean Lifetime Payroll 

Taxes Relative to Lifetime 

Earnings for

All Beneficiaries by

10-Year Birth Cohortc

1960 1980 2000 1960 1980 2000 1960 1980 2000

Mean Initial Benefits for 

Retired Workers by 

10-Year Birth Cohortb

Reduce COLAs for People With 

Higher PIAs

(Thousands of 2015 dollars) (Percent)

Introduce a New Poverty-Related 

Minimum Benefit 

(Percent)

Limit the Survivors' Benefit 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 35

CBO

Table 3. Continued

Changes to Social Security’s Scheduled Benefits and Payroll Taxes for 

Different Groups Under Various Options

Source: Congressional Budget Office.

Notes: Scheduled benefits are benefits as calculated under the provisions of the Social Security Act, regardless of balances in the Social 

Security trust funds. For this analysis, CBO follows the common analytical convention of considering the Old-Age and Survivors 

Insurance Trust Fund and the Disability Insurance Trust Fund as combined, even though legally they are separate. 

Mean values are within a group.

Details of specific options are contained in the text; definitions of terms are in the glossary.

AIME = average indexed monthly earnings; COLA = cost-of-living adjustment; CPI-E = consumer price index for elderly consumers; 

CPI-U = consumer price index for all urban consumers; EEA = early eligibility age; FRA = full retirement age; PIA = primary 

insurance amount; * = between -0.5 percent and 0.5 percent.

a. The lowest, middle, and highest fifths of people within a 10-year birth cohort ranked by lifetime household earnings. The distribution of 

lifetime household earnings includes only people who live at least to age 45. 

b. Initial annual benefits are computed for anyone who is eligible to claim retirement benefits at age 62 and who has not yet claimed any 

other Social Security benefits. All workers are assumed to claim benefits at age 65. All values are net of income taxes paid on benefits.

c. The present value of a person’s lifetime benefits or payroll taxes as a percentage of the present value of his or her lifetime earnings. 

Lifetime Social Security benefits include all benefits except those received by young widows and children, which are excluded from this 

measure because there are insufficient data for years before 1984. Lifetime benefits are net of income taxes paid on those benefits. 

Payroll taxes consist of the employer’s and employee’s shares combined. To calculate present value, amounts are adjusted for inflation as 

measured by the price index for personal consumption expenditures (to produce constant dollars) and discounted to age 65.

d. “Current law” refers to current provisions of the Social Security Act for calculating benefits and payroll taxes. See Congressional Budget 

Office, The 2015 Long-Term Budget Outlook (June 2015), Chapter 3, www.cbo.gov/publication/50250. 

e. Each option’s effect is measured as a percentage change from the current-law value. For example, under current law, the mean lifetime 

payroll tax relative to lifetime earnings for low earners born in the 2000s will be 12 percent. For Option 1, the 1 percentage-point increase 

in that ratio—from 12 percent to 13 percent—is expressed as an 8 percent increase in this table. 

f. In this analysis, because total compensation remains fixed, changes to payroll taxes paid by the employer, which are considered part of 

total compensation, reduce cash wages. The reduction in cash wages results in lower payroll taxes and in decreased benefits.

Lifetime

Household

Earnings

Quintilea

Low 10 12 18 30 36 38 12 12 12

Middle 19 24 35 16 20 20 12 12 12

High 27 36 52 788 787

36

Low 0 0 0 -1 -2 -1 ***

Middle 0 0 0 * -1 -1 ***

High 0 0 0 * -1 -1 ***

Reduce the Spousal Benefit 

Current Lawd

Percentage Change From Outcome Under Current Lawe

Mean Lifetime Benefits Mean Lifetime Payroll 

Relative to Lifetime Taxes Relative to Lifetime 

Mean Initial Benefits for Earnings for Earnings for

(Thousands of 2015 dollars) (Percent)

Change Benefits for Specific Groups (Continued)

Retired Workers by All Beneficiaries by All Beneficiaries by

10-Year Birth Cohortb 10-Year Birth Cohortc 10-Year Birth Cohortc

1960 1980 2000 1960 1980 2000 1960 1980 2000

(Percent)
36 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 4.

Changes to Social Security’s Payable Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 9 10 14 24 27 26 12 12 12

Middle 17 17 25 12 14 14 12 12 12

High 24 28 39 555 777

1

Low 10 8 8 7 8 8 2 6 8

Middle 11 8 8 9 8 8 2 6 8

High 10 8 8 9 8 8 3 7 8

2

Low 15 15 16 11 15 16 3 9 16

Middle 15 15 15 16 16 16 3 11 16

High 14 15 15 17 15 15 4 12 16

3

Low 5 12 20 6 14 20 1 4 11

Middle 5 12 19 9 17 22 1 5 13

High 5 12 19 10 17 22 2 7 14

4

Low 13 10 8 9 10 9 ***

Middle 13 10 9 12 10 9 * * 1

High 17 23 24 20 25 27 12 27 32

5

Low 13 14 14 10 13 14 ***

Middle 14 14 14 14 15 15 ** 1

High 13 13 14 15 14 14 12 27 32

6

Low 14 17 14 16 17 16 ***

Middle 15 17 15 22 18 16 * * 1

High 25 42 47 48 52 58 33 54 64

7

Low 14 22 23 18 23 24 ***

Middle 14 22 22 25 24 24 * * 1

High 18 30 33 36 35 38 33 54 64

10-Year Birth Cohortc

Workers by

Earnings for Retired 

Taxes Relative to Lifetime 

Increase the Payroll Tax Rate by 

1 Percentage Pointf

Tax Covered Earnings Above the 

Taxable Maximum; Create a 

Two-Component System for 

Calculating the PIAf

Mean Lifetime Payroll 

Current Lawd

Percentage Change From Outcome Under Current Lawe

1960 1980 2000 1960 1980 2000 1960 1980 2000

(Percent)

Mean Lifetime Benefits 

Workers by

Earnings for Retired 

Change the Taxation of Earnings

Increase the Payroll Tax Rate by 

2 Percentage Points Over 10 Yearsf

Relative to Lifetime 

(Thousands of 2015 dollars) (Percent)

10-Year Birth Cohortb

Retired Workers by 

Mean Initial Benefits for 

10-Year Birth Cohortc

Increase the Payroll Tax Rate by 

3 Percentage Points Over 60 Yearsf 

Raise the Taxable Maximum to 

Cover 90 Percent of Earningsf 

Raise the Taxable Maximum to 

Cover 90 Percent of Earnings;

Do Not Increase Benefitsf

Eliminate the Taxable Maximumf
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 37

CBO

Table 4. Continued

Changes to Social Security’s Payable Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 9 10 14 24 27 26 12 12 12

Middle 17 17 25 12 14 14 12 12 12

High 24 28 39 555 777

8

Low 14 26 27 19 26 28 ***

Middle 14 25 27 27 28 29 * * 1

High 14 24 26 29 26 27 33 54 64

9

Low 9 9 9 6 8 9 ***

Middle 9 9 9 9 9 9 ***

High 9 8 9 9 9 9 11 17 21

10

Low 555 3 4 5 ***

Middle 555 555 ***

High 5 4 5 555 7 10 11

11

Low -4 -6 -4 -1 -1 * ***

Middle -4 -5 -4 -1 -1 -1 ***

High -2 -3 -2 *** ***

12

Low * -5 -11 1 * -4 ***

Middle * -5 -7 1 -1 -3 ***

High * -4 -3 111 ***

13

Low -6 -11 -10 -3 -5 -5 ***

Middle -2 -3 -2 *** ***

High -1 -2 * 112 ***

14

Low -5 -5 -1 1 -1 -1 ***

Middle -5 -5 -1 1 -2 * ***

High -5 -5 -1 1 -2 -1 ***

Mean Initial Benefits for 

Retired Workers by 

10-Year Birth Cohortb 10-Year Birth Cohortc

Workers by

1960 1980

Current Lawd

(Thousands of 2015 dollars) (Percent)

Percentage Change From Outcome Under Current Lawe

2000

Earnings for Retired 

Workers by

10-Year Birth Cohortc

Relative to Lifetime 

Mean Lifetime Benefits Mean Lifetime Payroll 

Taxes Relative to Lifetime 

Change the Taxation of Earnings (Continued)

Earnings for Retired 

1960

Tax Covered Earnings Above the 

Taxable Maximum at 4 Percent; 

Do Not Increase Benefitsf

Tax Covered Earnings Above 

$250,000 at 4 Percent; 

Do Not Increase Benefitsf

Change the Benefit Formula

Raise From 35 to 40 the Years of 

Earnings Included in the AIME 

Index Earnings in the 

AIME Formula to Prices

Apply the Social Security Benefit 

Formula to Individual Years of 

Earnings

Reduce All PIA Factors by 

15 Percent

Tax Covered Earnings Above the 

Taxable Maximum; Do Not Increase 

Benefitsf

1980 2000 1960 1980 2000

(Percent)
38 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 4. Continued

Changes to Social Security’s Payable Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 9 10 14 24 27 26 12 12 12

Middle 17 17 25 12 14 14 12 12 12

High 24 28 39 555 777

15

Low * 1 2 * 1 2 ***

Middle * 12 112 ***

High -1 -2 -2 -1 -3 -3 ***

16

Low -2 -6 -7 1 1 * ***

Middle -2 -6 -7 1 ** ***

High -1 -6 -7 2 * -1 ***

17

Low -1 -7 -10 * * 2 ***

Middle -1 -7 -9 *** ***

High -1 -7 -9 * -2 -4 ***

18

Low -4 -17 -21 3 * -10 ***

Middle -4 -17 -20 4 -1 -13 ***

High -4 -17 -21 4 -3 -17 ***

19

Low * 8 22 2 11 22 ***

Middle -2 -5 -3 244 ***

High -3 -17 -24 * -11 -20 ***

20

Low * 6 17 2 8 17 ***

Middle -1 * 4 269 ***

High -3 -16 -24 -1 -13 -23 ***

21

Low -1 -6 -7 1 2 1 ***

Middle -1 -5 -7 2 2 2 ***

High -2 -9 -10 1 -2 -2 ***

Mean Initial Benefits for 

Retired Workers by 

10-Year Birth Cohortb

(Percent)

1960 1980 2000 1960 1980

Percentage Change From Outcome Under Current Lawe

Current Lawd

(Thousands of 2015 dollars) (Percent)

10-Year Birth Cohortc

2000

Mean Lifetime Payroll 

Taxes Relative to Lifetime 

Workers by

Implement Progressive Price 

Indexing of Initial Benefits for the 

Top 50 Percent of Earners 

Change the Benefit Formula (Continued)

Index the Bend Points in the 

PIA Formula to Prices

Mean Lifetime Benefits 

Relative to Lifetime 

Earnings for Retired 

Implement Progressive Price 

Indexing of Initial Benefits for the 

Top 70 Percent of Earners 

Reduce the Top PIA Factor to 

10 Percent

Reduce All PIA Factors by 

0.5 Percent Annually 

Index Initial Benefits to 

Changes in Longevity 

Implement Pure Price 

Indexing of Initial Benefits

2000 1960 1980

Earnings for Retired 

Workers by

10-Year Birth Cohortc
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 39

CBO

Table 4. Continued

Changes to Social Security’s Payable Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 9 10 14 24 27 26 12 12 12

Middle 17 17 25 12 14 14 12 12 12

High 24 28 39 555 777

22

Low 1 12 19 4 12 16 ***

Middle -4 3 7 267 ***

High -10 -17 -13 -6 -17 -16 ***

23

Low -5 * 1 211 ***

Middle -6 * * -1 ** ***

High -7 -1 -1 -3 -1 -1 ***

24

Low 2 23 22 3 23 24 ***

Middle -3 -2 -3 * 1 * ***

High -5 -11 -10 -3 -8 -8 ***

25

Low -4 -4 -4 * * 1 ***

Middle -4 -4 -4 *** ***

High -4 -4 -3 -1 -1 -1 ***

26

Low -4 -11 -8 1 -1 3 ***

Middle -4 -11 -9 1 -2 * ***

High -4 -11 -8 1 -5 -4 * -1 -1

27

Low -2 -9 -14 1 * 4 ***

Middle -2 -9 -14 1 * 1 ***

High -2 -9 -14 1 -2 -3 * -1 -1

28

Low -2 -8 -15 1 2 5 ***

Middle -2 -9 -14 1 2 3 ***

High -2 -8 -13 2 -1 -3 * -1 -1

Mean Initial Benefits for 

Retired Workers by 

10-Year Birth Cohortb

(Percent)

10-Year Birth Cohortc

Mean Lifetime Benefits Mean Lifetime Payroll 

Taxes Relative to Lifetime 

Earnings for Retired 

Workers by

10-Year Birth Cohortc

2000

Relative to Lifetime 

Earnings for Retired 

Workers by

Current Lawd

(Thousands of 2015 dollars) (Percent)

Change the Benefit Formula (Continued)

Add an Additional Bend Point to the 

PIA Formula and Reduce the PIA 

Factors

Increase the First Bend Point in the 

PIA Formula by 15 percent

Raise the FRA to 68 

Raise the FRA to 70 

Increase the FRA by One Month per 

Birth Year

Increase the FRA and the EEA by

One Month per Birth Year

1960 1980 2000

Percentage Change From Outcome Under Current Lawe

Replace the Current PIA Formula 

With a New Two-Part Formula

Raise the Full Retirement Age

1960 1980 2000 1960 1980
40 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table 4. Continued

Changes to Social Security’s Payable Benefits and Payroll Taxes for 

Different Groups Under Various Options

Continued

Lifetime

Household

Earnings

Quintilea

Low 9 10 14 24 27 26 12 12 12

Middle 17 17 25 12 14 14 12 12 12

High 24 28 39 555 777

29

Low 2 33 *** ***

Middle 2 33 *** ***

High 2 3 3 -1 ** ***

30

Low 1 2 2 1 1 1 ***

Middle 1 2 2 *** ***

High 1 2 2 -1 -1 -1 ***

31

Low -1 -2 -2 *** ***

Middle -1 -2 -2 *** ***

High -1 -2 -2 *** ***

32

Low 2 3 3 1 2 3 ***

Middle 1 2 2 * 2 1 ***

High 1 1 2 -2 -2 -2 ***

33

Low 3 22 19 8 21 18 ***

Middle -5 -1 -2 -3 -2 -2 ***

High -6 -3 -3 -4 -3 -3 ***

34

Low -2 -1 -1 1 1 * ***

Middle -2 -1 -1 *** ***

High -2 -1 -1 -1 -1 -1 ***

35

Low * * 1 *** ***

Middle * * 1 *** ***

High * * 1 -1 -1 -1 ***

Mean Initial Benefits for 

Retired Workers by 

10-Year Birth Cohortb

(Thousands of 2015 dollars) (Percent) (Percent)

Percentage Change From Outcome Under Current Lawe

Workers by

Limit the Survivors' Benefit 

Change Cost-of-Living Adjustments

Base COLAs on the Chained CPI-U 

and Increase Benefits 20 Years 

After Initial Eligibility 

Base COLAs on the CPI-E 

Reduce COLAs for People With 

Higher PIAs

Change Benefits for Specific Groups

Introduce a New Poverty-Related 

Minimum Benefit 

Create an Alternative Benefit for 

Spouses of Deceased Workers

1960 1980 2000

Earnings for Retired 

Base COLAs on the Chained CPI-U 

Mean Lifetime Benefits 

Relative to Lifetime 

Earnings for Retired 

Workers by

10-Year Birth Cohortc

1960 1980 2000 1960 1980

Current Lawd

10-Year Birth Cohortc

2000

Mean Lifetime Payroll 

Taxes Relative to Lifetime 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 41

CBO

Table 4. Continued

Changes to Social Security’s Payable Benefits and Payroll Taxes for 

Different Groups Under Various Options

Source: Congressional Budget Office.

Notes: Payable benefits are benefits as calculated under the provisions of the Social Security Act, reduced as necessary to ensure that outlays 

do not exceed the Social Security system’s revenues once the balances in the Social Security trust funds are exhausted. If a trust 

fund’s balance declined to zero and current revenues were insufficient to cover benefits specified in law, the Social Security 

Administration would no longer be permitted to pay full benefits when they were due. In the years after a trust fund was exhausted, 

annual outlays therefore would be limited to annual revenues. For this analysis, CBO follows the common analytical convention of 

considering the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund as combined, even though legally 

they are separate. In CBO’s projections of outlays with payable benefits, benefits are reduced under both programs when the 

combined trust funds are exhausted.

Mean values are within a group.

Details of specific options are contained in the text; definitions of terms are in the glossary.

AIME = average indexed monthly earnings; COLA = cost-of-living adjustment; CPI-E = consumer price index for elderly consumers; 

CPI-U = consumer price index for all urban consumers; EEA = early eligibility age; FRA = full retirement age; PIA = primary 

insurance amount; * = between -0.5 percent and 0.5 percent.

a. The lowest, middle, and highest fifths of people within a 10-year birth cohort ranked by lifetime household earnings. The distribution of 

lifetime household earnings includes only people who live at least to age 45.

b. Initial annual benefits are computed for people who are eligible to claim retirement benefits at age 62 and who have not yet claimed any 

other Social Security benefits. All workers are assumed to claim benefits at age 65. All amounts are net of income taxes paid on benefits.

c. The present value of a person’s lifetime benefits or payroll taxes as a percentage of the present value of his or her lifetime earnings. 

Lifetime Social Security benefits include all benefits except those received by young widows and children, which are excluded from this 

measure because there are insufficient data for years before 1984. Lifetime benefits are net of income taxes paid on those benefits. 

Payroll taxes consist of the employer’s and employee’s shares combined. To calculate present value, amounts are adjusted for inflation as 

measured by the price index for personal consumption expenditures (to produce constant dollars) and discounted to age 65.

d. “Current law” refers to current provisions of the Social Security Act for calculating benefits and payroll taxes. See Congressional Budget 

Office, The 2015 Long-Term Budget Outlook (June 2015), Chapter 3, www.cbo.gov/publication/50250. 

e. Each option’s effect is measured as a percentage change from the current-law value. For example, under current law, the mean lifetime 

payroll tax relative to lifetime earnings for low earners born in the 2000s will be 12 percent. For Option 1, the 1 percentage-point increase 

in that ratio—from 12 percent to 13 percent—is expressed as an 8 percent increase in this table. 

f. In this analysis, because total compensation remains fixed, changes to payroll taxes paid by the employer, which are considered part of 

total compensation, reduce cash wages. The reduction in cash wages results in lower payroll taxes and in decreased benefits.

Lifetime

Household

Earnings

Quintilea

Low 9 10 14 24 27 26 12 12 12

Middle 17 17 25 12 14 14 12 12 12

High 24 28 39 555 777

36

Low * 1 1 * -1 -1 ***

Middle * 1 1 *** ***

High * 1 1 *** ***

(Percent)

Workers by Workers by

10-Year Birth Cohortc 10-Year Birth Cohortc

1960

Reduce the Spousal Benefit 

Change Benefits for Specific Groups (Continued)

Mean Lifetime Benefits Mean Lifetime Payroll 

Relative to Lifetime Taxes Relative to Lifetime 

Earnings for Retired Earnings for Retired 

1960 1980 2000 1960 1980 2000

Current Lawd

(Thousands of 2015 dollars) (Percent)

Mean Initial Benefits for 

Retired Workers by 

10-Year Birth Cohortb

Percentage Change From Outcome Under Current Lawe

1980 2000
42 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

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Options That Would Change the 

Taxation of Earnings

The Social Security payroll tax is currently collected at 

the rate of 12.4 percent of a worker’s earnings below the 

taxable maximum—now $118,500. Workers and their 

employers each pay half; self-employed people pay the 

entire amount. 

The options in this section would boost Social Security’s 

revenues beginning in 2016 by changing the payroll tax 

rate or the taxable maximum. Increases in payroll tax revenues would be credited in the same proportion that they 

are under current law to the two trust funds that finance 

the Social Security programs; in most years, about 85 percent of payroll tax revenues goes to the Old-Age and 

Survivors Insurance Trust Fund and 15 percent goes to 

the Disability Insurance Trust Fund.60 Because all of these 

options would increase revenues, payable OASI and DI 

benefits would be greater under these options than they 

are under current law. Payable benefits are benefits as calculated under current law, reduced as necessary to ensure 

that outlays do not exceed the Social Security system’s 

revenues once the balances in the Social Security trust 

funds are exhausted. 

Some options would increase both the taxable maximum 

and the amount of earnings used in the computation of 

benefits. As a result, benefits and taxes paid on benefits 

would increase directly, as would revenues from payroll 

taxes. For other options, although the taxable maximum 

would increase, benefits would continue to be calculated 

on the basis of the current-law taxable maximum. Such 

options—along with those that would increase the payroll tax rate—would not affect benefits directly. However, 

in this analysis, total compensation is assumed to remain 

fixed, so changes to payroll taxes paid by the employer, 

which are considered part of total compensation, reduce 

cash wages. That reduction in cash wages would decrease 

benefits and payroll taxes. 

For the options that increase payroll taxes, the increase in 

payable lifetime benefits relative to lifetime earnings 

would be smaller for low earners because they are more 

likely to receive DI benefits and they will receive a significant proportion of those benefits before the combined 

trust funds’ projected exhaustion in 2029. 

See Table 2 on page 23 for effects of the options on 

Social Security’s finances, Table 3 on page 30 for effects 

on distributional outcomes under the assumption that 

scheduled benefits are paid, and Table 4 on page 36 for 

effects on distributional outcomes under the assumption 

that only payable benefits are paid. 

Option 1: Increase the Payroll Tax Rate by 

1 Percentage Point 

Starting in 2016, this option would raise the payroll tax 

rate by 1 percentage point, from 12.4 percent to 13.4 percent. As under current law, workers and their employers 

would each pay half (6.7 percent of taxable earnings); 

self-employed people would pay the entire amount. 

Under Option 1, Social Security’s total revenues, measured as a share of GDP, would increase immediately by 

0.3 percentage points—or by about 8 percent relative to 

the outcome under current law—and that difference 

would remain roughly constant throughout the period. 

Option 1 would improve the 75-year actuarial balance, 

measured as a share of GDP, by 0.3 percentage points 

(about a 20 percent improvement) and extend the projected date of the combined OASDI trust funds’ exhaustion by three years—to 2032. In 2033, the reduction in 

benefits necessary to make outlays equal revenues would 

be 19 percent smaller than would be required under current law because payroll tax revenues would be higher. 

Under this option, the percentage increase in lifetime 

payroll taxes paid relative to lifetime earnings would be 

similar for people in all categories of lifetime earnings 

within the same birth cohort. That ratio would increase 

by an average of 3 percent or less for people born in the 

1960s and by 8 percent or less for those born in the 

1980s or 2000s. 

Scheduled benefits relative to lifetime earnings would 

not be significantly different than under current law, but 

payable benefits relative to lifetime earnings would be 

boosted by the additional revenues. As a result, payable 

lifetime benefits relative to lifetime earnings would 

increase by between 7 percent and 9 percent for the 

1960s, 1980s, and 2000s birth cohorts.

60. From 2016 through 2018, as a result of the reallocation of the 

payroll tax rate specified in the Bipartisan Budget Act of 2015, 

81 percent (10.03 percentage points) of Social Security’s payroll tax 

revenues will be credited to the OASI trust fund, and 19 percent 

(2.37 percentage points) will go to the DI trust fund.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 43

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Option 2: Increase the Payroll Tax Rate by 

2 Percentage Points Over 10 Years

This option would raise the combined payroll tax rate 

to 14.4 percent—7.2 percent each for employers and 

employees—which is 2 percentage points higher than the 

current-law tax rate of 12.4 percent. Starting in 2016, 

the combined payroll tax rate would increase gradually, 

by 0.2 percentage points a year, until it reached 14.4 percent in 2025; it would remain at that level thereafter.

Under this option, Social Security revenues, measured as 

a share of GDP, would increase by 0.6 percentage points 

in 2040—or by about 14 percent relative to the outcome 

under current law. This option would improve the 75-

year actuarial balance, considered as a share of GDP, by 

0.6 percentage points (about a 40 percent improvement) 

and would extend the combined trust funds’ exhaustion 

date by five years—to 2034. In 2035, the reduction in 

benefits necessary to make outlays equal revenues would 

be 35 percent smaller than would be required under 

current law because payroll tax revenues would be higher. 

Lifetime payroll taxes relative to lifetime earnings under 

this option would increase by 4 percent or less for people 

born in the 1960s. For people born in the 1980s, that 

ratio would increase by 9 percent for low earners and by 

12 percent for high earners. For those born in the 2000s 

it would increase by 16 percent for people in all categories 

of lifetime earnings. 

Scheduled lifetime benefits relative to lifetime earnings 

would be about the same as under current law, but the 

additional revenues would increase payable lifetime 

benefits relative to lifetime earnings. That ratio would 

increase by 11 percent for low earners in the 1960s birth 

cohort, and it would increase by 15 percent to 17 percent 

for all other groups. 

Option 3: Increase the Payroll Tax Rate by 

3 Percentage Points Over 60 Years 

Under this option, the combined payroll tax rate would 

increase by 0.05 percentage points every year from 2016 

to 2075, reaching 15.4 percent at the end of that period, 

which is 3 percentage points higher than the current rate 

of 12.4 percent. Employers and employees would pay 

equal shares, and self-employed people would pay the 

entire amount. This option is similar to Option 2, except 

that the tax increase would be implemented more gradually and ultimately the tax rate would be higher. Under 

both options, the tax rate would be 14.4 percent in 2055. 

Before that, it would be higher under Option 2, and in 

later years, it would be higher under this option.

This option would increase Social Security’s revenues, 

measured as a share of GDP, by 0.4 percentage points relative to what it would be under current law, or by about 

9 percent, in 2040. In 2075 and beyond, revenues would 

be about 20 percent higher than under current law. This 

option would improve the 75-year actuarial balance, 

considered as a share of GDP, by 0.5 percentage points 

(about a 40 percent improvement). Even though it would 

not significantly extend the combined trust funds’ exhaustion date, the reduction in benefits necessary to make outlays equal revenues in 2031 would be 15 percent smaller 

than under current law because payroll tax revenues would 

be higher. 

For people in all categories of lifetime earnings who were 

born in the 1960s, lifetime payroll taxes relative to lifetime earnings under this option would increase by a small 

amount. That ratio for people born in the 1980s would 

increase by 4 percent for low earners and 7 percent for 

high earners; those increases would be at least twice as 

large, on average, for people born in the 2000s. 

Scheduled lifetime benefits relative to lifetime earnings 

would not be significantly different than under current 

law, but the additional revenues would increase payable 

lifetime benefits relative to lifetime earnings. That ratio 

would increase by between 6 percent and 10 percent for 

people born in the 1960s, by 14 percent to 17 percent 

for people born in the 1980s, and by 20 percent to 

22 percent for people born in the 2000s. 

Option 4: Raise the Taxable Maximum to 

Cover 90 Percent of Earnings 

Over a 10-year period, this option would raise the taxable 

maximum faster than would be anticipated under current 

law. Beginning in 2016, the amount would increase by 

about 13 percent per year (instead of increasing to keep 

pace with average wages, as under current law). By 2025, 

the taxable maximum would be $319,900 (in 2015 dollars)—more than double CBO’s current-law estimate for 

that year—and 90 percent of total earnings from employment covered by Social Security would be below that 

amount (compared with 79 percent projected under current law). The additional earnings subject to the payroll 

tax would be used in benefit calculations. After 2025, 

the taxable maximum would increase to keep pace with 
44 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

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average wages and the amount of earnings below the 

taxable maximum would be roughly stable.61

Under Option 4, Social Security’s total revenues, measured as a share of GDP, would increase by 0.6 percentage 

points in 2040—or by 13 percent compared with what 

would occur under current law. (Almost all of the 

increase in revenues is attributable to higher payroll taxes. 

Only a small portion—about 1 percent—would come 

from the taxation of benefits.) Total outlays as a share of 

GDP would increase by 0.1 percentage point in 2040, 

or by 2 percent, and by more in subsequent years. This 

option would improve the 75-year actuarial balance, 

considered as a share of GDP, by 0.3 percentage points 

(about a 20 percent improvement) and would extend 

the combined trust funds’ projected exhaustion date by 

four years—to 2033. In 2034, the reduction in benefits 

required to make outlays equal revenues would be 27 percent smaller than under current law because payroll tax 

revenues would be higher.

This option would increase lifetime payroll taxes relative 

to lifetime earnings for high earners—by 12 percent for 

those born in the 1960s and by 32 percent for those born 

in the 2000s. Their scheduled lifetime benefits relative to 

lifetime earnings would also increase, but by a smaller 

percentage. That ratio would not differ significantly for 

low earners or for people in the middle of the earnings 

distribution. 

Payable lifetime benefits relative to lifetime earnings 

would be boosted by the additional revenues. That ratio 

would increase for people in all income categories—by 

9 percent or 10 percent for low earners and by 20 percent 

to 27 percent for high earners in the various birth 

cohorts. For high earners born in the 1980s or 2000s, 

those percentage increases would be smaller than the 

increases in their lifetime payroll taxes relative to lifetime 

earnings. 

Option 5: Raise the Taxable Maximum to Cover 

90 Percent of Earnings; Do Not Increase Benefits

As in Option 4, over a 10-year period, this option would 

raise the taxable maximum faster than would be anticipated under current law. Beginning in 2016, the amount 

would increase by about 13 percent per year (instead of 

increasing to keep pace with average wages, as under current law). By 2025, the taxable maximum would be 

$319,900 (in 2015 dollars)—more than double CBO’s 

current-law estimate for that year—and 90 percent of 

total earnings from employment covered by Social Security would be below that amount. After 2025, the taxable 

maximum would increase to keep pace with average 

wages and the amount of earnings below the taxable maximum would be roughly stable. However, unlike in 

Option 4, the additional earnings subject to the payroll 

tax would not be included in benefit calculations. This 

option would therefore have no direct effect on scheduled 

benefits.

Under this option, Social Security’s total revenues, measured as a share of GDP, would increase by 0.6 percentage 

points in 2040—or by about 13 percent compared with 

what would occur under current law; total outlays would 

remain roughly the same as they would be under current 

law. This option would improve the 75-year actuarial balance, considered as a share of GDP, by 0.5 percentage 

points (about a 40 percent improvement) and would 

extend the combined trust funds’ projected exhaustion 

date by four years—to 2033. In 2034, the reduction in 

benefits required to make outlays equal revenues would 

be 32 percent smaller than under current law because 

payroll tax revenues would be higher.

Under this option, the increase in lifetime payroll taxes 

relative to lifetime earnings would be the same as in 

Option 4—12 percent for high earners born in the 1960s 

and 32 percent for high earners born in the 2000s—but 

there would be no direct effects on lifetime scheduled 

benefits relative to lifetime earnings. 

Payable lifetime benefits relative to lifetime earnings 

would be greater than those under Option 4 for low earners and for people in the middle of the earnings distribution, but much smaller for high earners. That ratio would 

increase by between 10 percent and 15 percent for people 

in all categories of lifetime earnings born in the 1960s, 

1980s, or 2000s.

Option 6: Eliminate the Taxable Maximum 

Under this option, after a 10-year phase-in period, all 

covered earnings would be taxed at the current rate of 

12.4 percent; employers and employees would continue 

to pay equal shares, and self-employed people would pay 

the full amount of the payroll tax. The rate for covered 

61. For a discussion of similar options, see Congressional Budget 

Office, Options for Reducing the Deficit: 2015 to 2024 (November 

2014), p. 39, www.cbo.gov/budget-options/2014, and Options for 

Reducing the Deficit: 2014 to 2023 (November 2013), pp. 143–144, 

www.cbo.gov/budget-options/2013/44687.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 45

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earnings above the current-law taxable maximum (now 

$118,500) would rise gradually, from 1.24 percent in 

2016 to 12.4 percent in 2025 and later. The additional 

taxable earnings would be included in benefit computations, resulting in larger benefits for higher-earning workers who were subject to the additional tax. During the 

phase-in period, the additional earnings credited to those 

workers would reflect the relative increase in the tax rate 

for covered earnings above the current-law maximum. In 

2016, for example, the tax rate for such earnings would 

be 1.24 percent, or 10 percent of the full tax rate of 

12.4 percent. Therefore, benefit calculations for workers 

with earnings above the taxable maximum in 2016 would 

include all of those workers’ earnings below the currentlaw taxable maximum plus 10 percent of their earnings 

above the taxable maximum in that year.

Option 6 would increase Social Security’s total revenues, 

measured as a share of GDP, by 1.1 percentage points in 

2040—or by 25 percent relative to what they would be 

under current law—and outlays as a share of GDP would 

increase by 0.3 percentage points, or by 5 percent, with 

further increases in subsequent years. (Almost all of the 

projected increase in revenues is attributable to higher 

payroll taxes. Only a small portion—about 1 percent— 

would come from the taxation of benefits.) The option 

would improve the 75-year actuarial balance, considered 

as a share of GDP, by 0.6 percentage points (about a 

40 percent improvement) and extend the combined trust 

funds’ exhaustion date by a decade—to 2039. In 2040, 

the reduction in benefits required to make outlays equal 

to revenues would be 47 percent smaller than under current law because payroll tax revenues would be higher.

This option would sharply increase lifetime payroll taxes 

relative to lifetime earnings for high earners—by 32 percent, 54 percent, and 64 percent for those in the 1960s, 

1980s, and 2000s birth cohorts, respectively. The increase 

would be even greater for people with a significant portion 

of their earnings above the taxable maximum. The increase 

in scheduled lifetime benefits relative to lifetime earnings 

for the highest earners would be much larger than under 

Option 4, but in percentage terms, the increase in benefits 

would remain smaller than the increase in lifetime payroll 

taxes relative to lifetime earnings for that group. 

Payable lifetime benefits relative to lifetime earnings for 

high earners would increase by 48 percent to 58 percent; 

for people born in the 1960s, that percentage increase 

would be greater than the percentage increase in lifetime 

payroll taxes relative to lifetime earnings. Low earners and 

people in the middle of the earnings distribution would 

see little change in their lifetime payroll taxes, but their 

payable lifetime benefits relative to lifetime earnings 

would increase by 16 percent to 22 percent. 

Option 7: Tax Covered Earnings Above the 

Taxable Maximum; Create a Two-Component 

System for Calculating the PIA

Like Option 6, after a 10-year phase-in period, this 

option would assess a 12.4 percent tax on all of a worker’s 

earnings—even those above the current-law taxable maximum—that are covered under Social Security. Payment 

of the tax, as under current law, would be split evenly 

between employers and employees; self-employed workers would pay the full amount. The rate for covered earnings above the current-law taxable maximum (now 

$118,500) would rise gradually, from 1.24 percent in 

2016 to 12.4 percent in 2025 and later. The additional 

taxable earnings would be included in benefit computations, resulting in larger benefits for higher-earning workers who were subject to the additional tax. During the 

phase-in period, the additional earnings credited to those 

workers would reflect the relative increase in the tax rate 

for covered earnings above the current-law maximum. In 

2016, for example, the tax rate for such earnings would 

be 1.24 percent, or 10 percent of the full tax rate of 

12.4 percent. Unlike Option 6, however, the formula for 

determining the primary insurance amount under this 

option would have two components: The first would 

account for the portion of a worker’s earnings in any year 

that is below the current-law taxable maximum, and the 

second would account for the portion above that 

amount. 

The first component of the worker’s PIA would be calculated with the same method used to calculate the currentlaw PIA: All earnings would be indexed to average wages. 

For the 35 years with the highest earnings, the portion of 

wage-indexed earnings below the current-law taxable 

maximum would be summed. That amount would be 

divided by 420 (the number of months over the 35-year 

period), and the result would be the worker’s basic average 

indexed monthly earnings. Under this option, the worker’s 

first PIA component would be calculated by applying that 

“basic-AIME” to the current-law PIA formula, which has 

three PIA factors—90 percent, 32 percent, and 15 percent. 

The second component of the worker’s PIA would be 

calculated as follows: For the 35 years with the highest 
46 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

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earnings, the portion of wage-indexed earnings above the 

current-law taxable maximum would be summed and 

divided by 420 to yield the “surplus-AIME.”62 The second PIA component would be calculated by multiplying 

the surplus-AIME by 5 percent. The worker’s PIA under 

this option would be the sum of the first and second PIA 

components—effectively, his or her current-law PIA plus 

5 percent of the surplus-AIME (see Figure 6).

This surplus-AIME option is different from, although 

commonly confused with, a policy that would tax all covered earnings, add a third bend point to the PIA formula 

set at the AIME for a worker with 35 years of earnings at 

the taxable maximum, and apply a 5 percent PIA factor 

to the portion of the AIME that is above that bend point. 

The key difference is demonstrated by the effect on a 

worker’s PIA of a year of earnings that is higher than the 

taxable maximum. Under the policy with a third bend 

point, the 5 percent PIA factor would not apply unless 

the average of the worker’s highest 35 years of earnings 

exceeded the taxable maximum. By contrast, under the 

surplus-AIME option, the 5 percent PIA factor would 

always apply to years with earnings above the taxable 

maximum.

Under this option, Social Security’s total revenues, measured as a share of GDP, would increase by 1.1 percentage 

points in 2040—or by 24 percent relative to the outcome 

under current law—and outlays as a share of GDP would 

increase by 0.1 percentage point, with further increases in 

subsequent years. (Almost all of the increase in revenues 

is attributable to higher payroll taxes. Only a small portion—less than 1 percent—would come from the taxation of benefits.) This option would improve the 75-year 

actuarial balance, considered as a share of GDP, by 

0.9 percentage points (a 60 percent improvement) and 

extend the combined trust funds’ exhaustion date by 

more than a decade—to 2042. In 2043, the reduction in 

benefits required to make outlays equal revenues would 

be 59 percent smaller than that under current law because 

payroll tax revenues would be higher.

Under this option, the increases in lifetime payroll taxes 

relative to lifetime earnings would be about the same as 

those under Option 6—33 percent, 54 percent, and 

64 percent—for high earners in the 1960s, 1980s, and 

2000s birth cohorts, respectively. The increase would be 

even greater for people with a significant portion of their 

earnings above the taxable maximum. The increase in 

lifetime scheduled benefits relative to lifetime earnings 

for high earners, however, would be significantly smaller 

than those under Option 6. That ratio would not be significantly different for low earners or for people in the 

middle of the earnings distribution. 

Payable benefits relative to lifetime earnings would be 

boosted by the additional revenues. That ratio for low 

earners and for people in the middle of the earnings distribution would increase by an amount between 18 percent 

and 25 percent—more than under Option 6. For all high 

earners, that ratio would increase by at least 35 percent, 

still less than the percentage increase in lifetime payroll 

taxes relative to lifetime earnings for high earners born in 

the 1980s and 2000s.

Option 8: Tax Covered Earnings Above the 

Taxable Maximum; Do Not Increase Benefits

Like Option 6 and Option 7, after a 10-year phase-in 

period, this option would assess a 12.4 percent tax on 

all of a worker’s earnings—even those above the currentlaw taxable maximum—that are covered under Social 

Security. Payment of the tax, as under current law, would 

be split evenly between employers and employees; selfemployed workers would pay the full amount. The 

rate for covered earnings above the current-law taxable 

maximum (now $118,500) would rise gradually, from 

1.24 percent in 2016 to 12.4 percent in 2025 and later. 

Unlike the two previous options, however, earnings above 

the current-law taxable maximum would not be included 

in the benefit calculation. This option would therefore 

have no direct effect on scheduled benefits.

Under this option, Social Security’s total revenues measured as a share of GDP would increase by 1.1 percentage 

points in 2040—or by about 24 percent relative to current law. Option 8 would improve the 75-year actuarial 

balance, considered as a share of GDP, by 1.0 percentage 

point (a 70 percent improvement)—the largest improvement among the options in this report for changing 

the taxation of earnings. The option would extend the 

combined trust funds’ exhaustion date by more than a 

decade—to 2043. In 2044, the reduction in benefits

62. The surplus-AIME also has been called the AIME+ (or AIME-plus). 

See Social Security Administration, Actuarial Publications, “Letter 

to Representative John Larson containing estimates of the financial 

effects on Social Security of the ‘Social Security 2100 Act,’ legislation introduced on July 31, 2014, by Representative John Larson” 

(July 31, 2014), www.socialsecurity.gov/OACT/solvency/index.html.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 47

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Figure 6.

Calculating the PIA in 2040 Using the Basic-AIME and the Surplus-AIME (Option 7)

PIA in 2015 Dollars

Source: Congressional Budget Office.

Notes: The PIA is the sum of two components. The first component, the basic-AIME (top panel), involves three PIA factors (which 

determine the percentage of the basic-AIME that is replaced in the PIA formula) and two bend points (denoted by dots on the 

line, showing the thresholds at which the PIA factor changes). The calculation of the first component is the same as the current-law 

PIA calculation. In 2040, for newly eligible beneficiaries, the first component is calculated as 90 percent of the first $1,240 of the 

basic-AIME (a replacement rate of 90 cents on the AIME dollar), plus 32 percent of the basic-AIME between $1,240 and $7,480, 

plus 15 percent of the basic-AIME above $7,480. 

If a person born in 1978 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2040, that 

person’s basic-AIME would be $13,910, the maximum.

The second component, the surplus-AIME (bottom panel), is calculated from the portion of a worker’s wage-indexed earnings above

the current-law taxable maximum; it has a single PIA factor of 5 percent. 

AIME = average indexed monthly earnings; PIA = primary insurance amount.

For each $1 increase in the basic-AIME, the first component of the PIA increases by . . . 

For each $1 increase in the surplus-AIME, the second component of the PIA increases by . . . 

$0.90 $0.32 $0.15

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

$0.05

Basic-AIME in 2015 Dollars

Surplus-AIME in 2015 Dollars

First Component

Second Component
48 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

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required to make outlays equal revenues would be 67 percent smaller than under current law because payroll tax 

revenues would be higher.

Under this option, the increases in lifetime payroll taxes 

relative to lifetime earnings would be about the same as 

those under Option 6 and Option 7—33 percent, 

54 percent, and 64 percent for high earners in the 1960s, 

1980s, and 2000s birth cohorts, respectively. The increase 

would be greater for people with a significant portion of 

their earnings above the taxable maximum. But, unlike

the two previous options, there would be no significant 

effects on scheduled benefits. 

Payable benefits relative to lifetime earnings would be 

boosted by the additional revenues. For people born in 

the 1960s that ratio would increase by 19 percent for low 

earners and by 29 percent for high earners. For people in 

all categories of lifetime earnings born in the 1980s or 

2000s, that ratio would be at least 26 percent higher than 

under current law.

Option 9: Tax Covered Earnings Above the Taxable 

Maximum at 4 Percent; Do Not Increase Benefits 

Under this option, covered earnings above the taxable 

maximum would be taxed at 4 percent, but the increase 

would be phased in over 10 years. Starting in 2016, those 

earnings would be taxed at 0.4 percent, and that rate 

would increase annually by 0.4 percentage points until it 

stabilized at 4 percent in 2025. As is currently the case, 

employers and employees would each pay half of the total 

tax; self-employed people would pay the entire amount. 

Because the current-law taxable maximum would still be 

used in benefit calculations, this option would have no 

direct effect on scheduled benefits. This option is similar 

to Option 8, but the payroll tax rate above the taxable 

maximum would be substantially lower, as would be the 

financial effects on the trust funds.

Under Option 9, Social Security’s total revenues, measured as a share of GDP, would increase by 0.3 percentage 

points in 2040—or by about 8 percent relative to current 

law. The option would improve the 75-year actuarial balance, considered as a share of GDP, by 0.3 percentage 

points (about a 20 percent improvement). Even though 

this option would not significantly extend the combined 

trust funds’ exhaustion date, the reduction in benefits 

required to make outlays equal revenues in 2032 would 

be 21 percent smaller than under current law because 

payroll tax revenues would be higher. 

For high earners who were born in the 1960s, lifetime 

payroll taxes relative to lifetime earnings would increase 

by about 11 percent, on average; high earners born in 

the 2000s would see that ratio increase by about 21 percent. The increase would be even greater for people with 

a significant portion of their earnings above the taxable 

maximum. 

Scheduled benefits relative to lifetime earnings would not 

be significantly different than under current law, but payable benefits relative to lifetime earnings would be 

boosted by the additional revenues. That ratio would 

increase by 6 percent to 9 percent for people in all categories of lifetime earnings born in the 1960s or later.

Option 10: Tax Covered Earnings Above $250,000 at 

4 Percent; Do Not Increase Benefits 

Like Option 9, this option would institute a 4 percent tax 

on high earners, but the tax would apply only to covered 

earnings above $250,000. (Earnings between the taxable 

maximum and $250,000 would be exempt from the 

Social Security payroll tax.) Starting in 2016, those earnings would be taxed at 0.4 percent, and that rate would 

increase annually by 0.4 percentage points until it stabilized at 4 percent in 2025. In 2016, the tax would apply 

to less than 2 percent of people with earnings. After that, 

the threshold would rise at the rate of average wage 

growth. The current-law taxable maximum would still be 

used for calculating benefits, so this option would have 

no direct effect on scheduled benefits. 

Under this option, Social Security’s total revenues, measured as a share of GDP, would rise by 0.2 percentage 

points in 2040—or by about 4 percent relative to the 

outcome under current law. Option 10 would improve 

the 75-year actuarial balance, considered as a share of 

GDP, by 0.2 percentage points (about a 10 percent 

improvement). Even though this option would not significantly extend the combined trust funds’ exhaustion 

date, in 2031 the reduction in benefits required to make 

outlays equal revenues would be 12 percent smaller than 

under current law because payroll tax revenues would be 

higher. 

Under this option, lifetime payroll taxes relative to lifetime earnings for high earners born in the 1960s or later 

would increase by 7 percent to 11 percent. The increase 

would be greater for people with earnings significantly 

above the threshold to which the 4 percent tax was 

applied. 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 49

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Scheduled benefits relative to lifetime earnings would 

not be significantly different than under current law, but 

payable benefits relative to lifetime earnings would be 

boosted by the additional revenues. That ratio would 

be 3 percent to 5 percent higher than under current law 

for people in all categories of lifetime earnings who were 

born in the 1960s or later. 

Options That Would Change the 

Benefit Formula

The methods used to calculate earnings histories for 

Social Security and to translate those amounts into initial 

monthly benefits could be changed in many ways. Most 

of the options in this section would make a single change 

to the benefit formula. Options that would reduce initial 

retired-worker benefits are assumed to take effect for people who were born in 1961 (who will reach 62, the early 

eligibility age, in 2023) and for workers who will claim 

disability benefits in 2023 or later, regardless of their 

birth year. Options that would increase benefits are 

assumed to take effect in 2016.

In addition to their effects on outlays, all of the options in 

this section would produce small effects on revenues that 

are included in the estimates. Changes in benefits would 

alter the amounts collected in income taxes paid on those 

benefits and, possibly, the age at which beneficiaries chose 

to stop working, which would affect payroll tax receipts. 

See Table 2 on page 23 for the effects of the options on 

Social Security finances, Table 3 on page 30 for effects 

on distributional outcomes under the assumption that 

scheduled benefits are paid, and Table 4 on page 36 for 

effects on distributional outcomes under the assumption 

that only payable benefits are paid.

Option 11: Raise From 35 to 40 the 

Years of Earnings Included in the AIME

This option would lengthen the period for the calculation 

of average indexed monthly earnings by five years, phased 

in from 2023 to 2027. Beginning in 2023, the calculation would take the average of the 36 years of indexed 

monthly earnings that were the highest, with an additional year added to the calculation until 2027; by then, 

the AIME calculation would include the 40 years with 

the highest earnings. The new calculation would apply 

only to newly eligible retired workers, so there would be 

no effect on DI beneficiaries.63 Under this option, all else 

being equal, almost all workers’ initial benefits would be 

lower than under current law because earnings in the 

additional years included in the AIME calculation would 

almost always be lower than those that are counted now.

This option would reduce Social Security’s total outlays, 

measured as a share of GDP, by 0.1 percentage point in 

2040—or by 2 percent relative to currently scheduled 

outlays. It would improve the 75-year actuarial balance, 

considered as a share of GDP, by 0.1 percentage point 

(about a 10 percent improvement). This option would 

not significantly extend the combined OASDI trust 

funds’ exhaustion date beyond the currently projected 

2029.

This option would reduce scheduled initial benefits for 

retired workers born in the 1960s by 5 percent for low 

earners and by 3 percent for high earners. The reduction 

in such benefits would be somewhat larger for people 

born in the 1980s and 2000s than for those in earlier 

birth cohorts because the younger workers would become 

eligible to claim retired-worker benefits after the option’s 

phase-in period. This option would have the largest effect 

on people who worked for fewer than 40 years—they 

would have years with no earnings included in the calculation of benefits. However, it would also reduce benefits 

for almost all people who worked for 40 years or more. 

Payable lifetime benefits relative to lifetime earnings 

would decrease only slightly.

Option 12: Index Earnings in the 

AIME Formula to Prices

Under this option, as part of the computation of a retired 

or disabled worker’s average indexed monthly earnings, 

past earnings would be indexed to the growth in prices 

through the year that is two years before a person 

becomes eligible for benefits (under current law, earnings 

are indexed to the growth in average wages). Because 

prices increase more slowly than wages, under this 

option, workers’ AIMEs would be lower than under current law. This option would not change the formula for 

calculating the primary insurance amount, and as a result, 

initial benefits would be lower than those calculated 

under current law. This option would apply to earnings 

63. For a more detailed analysis of a similar option, see Congressional 

Budget Office, Options for Reducing the Deficit: 2015 to 2024

(November 2014), p. 13, www.cbo.gov/budget-options/2014, and 

Options for Reducing the Deficit: 2014 to 2023 (November 2013), 

p. 42, www.cbo.gov/budget-options/2013/44687. 
50 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

after 2023 for newly eligible retired and disabled workers.64 The method of indexing in this option is not the 

same as pure price indexing, which is the subject of 

Option 18, or progressive price indexing, which is 

discussed in Option 19 and Option 20.

This option would not significantly reduce Social Security’s 

outlays as a percentage of GDP in 2040, but it would 

improve the 75-year actuarial balance, considered as a 

share of GDP, by 0.2 percentage points (about a 

10 percent improvement). Because the effects would be 

small initially, the option would not significantly extend 

the combined trust funds’ exhaustion date beyond the 

currently projected 2029. 

Under this option, the magnitude of the reduction in initial benefits would increase over time before stabilizing in 

the mid-2060s, when all earnings for newly eligible beneficiaries would be indexed to growth in prices. Scheduled 

initial benefits for retired workers born in the 1960s 

would not be significantly changed. After price indexing 

was in place for several decades, scheduled initial benefits 

for retired workers born in the 2000s would be reduced 

by an average of 16 percent for low earners. At 9 percent, 

the reduction for high earners born in the 2000s would be 

smaller than that for low earners because for each $1 reduction in the AIME a high earner’s PIA would be reduced 

by 15 cents, whereas a low earner’s would be reduced by 

32 cents or even 90 cents. For low earners, payable lifetime benefits relative to lifetime earnings would be 

slightly higher for those born in the 1960s and roughly 

unchanged for those born in the 1980s but would 

decrease by 4 percent for those born in the 2000s. That 

ratio would increase slightly for high earners born in the 

1960s or later. 

Option 13: Apply the Social Security Benefit 

Formula to Individual Years of Earnings

This option would apply the formula for calculating the 

primary insurance amount to each year of wage-indexed 

earnings, and the overall PIA would be the average of the 

annual PIAs. This option would essentially reverse the 

order of the computation of benefits. Currently, to calculate Social Security benefits for a retired worker, first, a 

value is computed for a worker’s average indexed monthly 

earnings on the basis of the 35 years of highest wageindexed earnings on which Social Security taxes were 

paid. Second, a progressive benefit formula is applied to 

the AIME to arrive at the worker’s PIA, the amount that 

is payable each month to a worker who begins receiving 

Social Security retired-worker benefits at the full retirement age. But under this option, a worker’s 35 highest 

years of wage-indexed earnings would be identified, and 

the PIA formula would be applied to each year of those 

earnings. The worker’s PIA would be the average of 

those annual PIAs. 

As under current law, this option’s PIA formula would 

result in a higher replacement rate—the ratio of a 

worker’s benefits to his or her past earnings—for people 

with lower average earnings than for people whose earnings were higher. However, that progressivity would apply 

to annual earnings rather than to average earnings over a 

lifetime at work. The option would be phased in over 

10 years for newly eligible beneficiaries, including disabled 

workers, starting in 2023. 

Under this option, almost every worker’s PIA would be 

lower than under current law, but the reduction would 

be steeper for people whose earnings varied more from 

year to year, such as workers who spent long periods out 

of the workforce. There would be no difference in benefits for a worker whose earnings were equal to (or a constant proportion of ) the AWI in every year of work. But 

benefits would be substantially lower for someone with 

high earnings in some years and low earnings in others. 

As an illustration, consider three workers born in 1978, 

who therefore will turn 62 in 2040 and reach the FRA of 

67 in 2045. Over a 35-year period, each worker’s wageindexed average earnings equal the AWI, but they all have 

different patterns of earnings. The first worker has 

35 years of earnings equal to the AWI, the second 

worker’s earnings start below the average wage but 

increase steadily by $5,000 each year (in wage-indexed 

dollars) to well above the average wage by the end of the 

35-year period, and the third worker has earnings that are 

higher than the AWI for 25 years but zero for 10 years. 

Under current law, all three workers have the same PIA—

about $2,500 in 2015 dollars. Under Option 13, the 

64. Specifically, in computing the AIME, all earnings from 2022 and 

earlier would be increased by the growth in the average wage index 

from the earnings year to the year that is two years before the AIME 

computation year. Earnings from 2023 and later would be increased 

by the growth in the consumer price index for urban wage earners 

and clerical workers from the earnings year to the year that is two 

years before the AIME computation year. The bend points in the 

formula used to calculate the primary insurance amount would 

continue to be indexed to growth in average wages. 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 51

CBO

PIA for the first worker would be the same as under current law. The PIA for the second worker would be about 

$2,450, about 3 percent less under this option than 

under current law. This option would have the largest 

effect on the third worker: His or her PIA would be 

reduced to $2,300, 8 percent below the current-law 

amount.65

Option 13 could encourage some people to work longer. 

Under current law, one additional year of work by someone who had worked for fewer than 35 years would, in 

most cases, increase annual benefits either by 32 percent 

of the year’s earnings divided by 35 or by 15 percent of 

the year’s earnings divided by 35, because most workers 

have an AIME that is in the 32 percent or 15 percent portion of the PIA formula. Under this option, however, the 

worker’s benefit would increase more, because at least 

part of the earnings in that additional year would fall into 

the 90 percent portion of the PIA formula. 

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.2 percentage 

points in 2040—or by 3 percent relative to currently 

scheduled outlays. This option would improve the 75-

year actuarial balance, considered as a share of GDP, by 

0.2 percentage points (about a 10 percent improvement). 

The option would not significantly extend the combined 

trust funds’ exhaustion date beyond the currently projected 

2029. 

Under this option, reductions in scheduled initial benefits would be largest for retired workers with low lifetime 

earnings. Scheduled initial benefits for retired workers 

born in the 2000s would be reduced by 14 percent for 

low earners but only by 4 percent for high earners; those 

reductions would be half as large for people born in the 

1960s. The reduction would be larger for low earners 

because their earnings are more likely to vary from year to 

year and because they are more likely than high earners 

to spend time out of the workforce. 

Payable lifetime benefits relative to lifetime earnings for 

low earners born in the 1960s, 1980s, or 2000s would 

decrease by 3 percent to 5 percent; that ratio would 

slightly increase for high earners. 

Option 14: Reduce All PIA Factors by 15 Percent

After a 10-year phase-in starting in 2023, this option 

would reduce scheduled initial benefits by 15 percent for 

newly eligible beneficiaries, including disabled workers. 

Under current law, the formula used to set the primary 

insurance amount has three factors—90 percent, 

32 percent, and 15 percent—which are applied to different portions of the AIME. By 2032, the PIA factors 

would be 15 percent lower (76.5 percent, 27.2 percent, 

and 12.75 percent) than those provided for in current 

law, and they would remain at those levels thereafter. 

Thus, starting in 2032, a worker’s PIA would increase by 

76.5 cents for each dollar of the portion of his or her 

AIME that is below the first bend point, by 27.2 cents for 

each dollar between the first and second bend points, and 

by 12.75 cents for each dollar above the second bend 

point.66

Under this option, Social Security’s total outlays, measured 

as a percentage of GDP, would decline by 0.4 percentage 

points in 2040, or by 7 percent relative to currently 

scheduled outlays. The size of that decline would increase 

over time. This option would improve the 75-year actuarial balance, considered as a share of GDP, by 0.5 percentage points (about a 40 percent improvement). Because 

the PIA factors would be reduced gradually and would 

apply only to new beneficiaries, the effects would be 

small initially, and the option would not significantly 

extend the combined trust funds’ exhaustion date beyond 

the currently projected 2029.

Option 14 would reduce scheduled initial benefits by a 

similar amount for retired workers in all categories of lifetime earnings within the same birth cohort. Scheduled 

initial benefits would be reduced by about 7 percent for 

retired workers born in the 1960s and by about 15 percent for retired workers born in the 1980s or 2000s. Payable lifetime benefits relative to lifetime earnings would 

be slightly higher than under current law for people born 

in the 1960s, but slightly lower for most people who were 

born in the 1980s or 2000s.

65. For a more detailed analysis of this option, see Congressional 

Budget Office, Reducing the Deficit: Spending and Revenue Options

(March 2011), pp. 66–67, www.cbo.gov/publication/22043.

66. For a discussion of similar options, see Congressional Budget 

Office, Options for Reducing the Deficit: 2015 to 2024 (November 

2014), p. 14, www.cbo.gov/budget-options/2014, and Options for 

Reducing the Deficit: 2014 to 2023 (November 2013), p. 43, 

www.cbo.gov/budget-options/2013/44687.
52 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

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Option 15: Reduce the Top PIA Factor to 10 Percent

Starting in 2023 and continuing for 10 years, this option 

would make a 0.5 percentage-point annual reduction in 

the top primary insurance amount factor for newly eligible retired and disabled workers. Under current law, that 

PIA factor is set at 15 percent and applies to the portion 

of a worker’s average indexed monthly earnings that is 

above the second bend point in the PIA formula. At the 

end of the phase-in period, the top factor would be set 

permanently at 10 percent. In that year, a worker’s PIA 

would increase by 10 cents, instead of the 15 cents under 

current law, for each dollar of his or her AIME that was 

above the second bend point, which CBO projects will be 

$5,620 in 2023 (in 2015 dollars). This option would 

affect only new beneficiaries whose AIMEs were above 

that bend point, and that bend point would rise with 

average wages in subsequent years. About one-quarter of 

people born in 1961, the first birth year affected by this 

option, are anticipated to fall into that category.

This option would not significantly reduce Social Security’s 

outlays as a percentage of GDP in 2040, but it would 

improve the 75-year actuarial balance, considered as 

a share of GDP, by 0.1 percentage point (less than a 

10 percent improvement). This option would not significantly extend the combined OASDI trust funds’ exhaustion date beyond the currently projected 2029. 

Under this option, scheduled initial retired-worker benefits for high earners after the policy was phased in would 

be reduced by 4 percent. Payable lifetime benefits relative 

to lifetime earnings would not be significantly different 

for low earners born in the 1960s and would be slightly 

higher for low earners born in the 1980s or later; the ratio 

would be slightly lower than under current law for high 

earners born in the 1960s and later.

Option 16: Reduce All PIA Factors by 

0.5 Percent Annually 

Beginning in 2023, this option would reduce the primary 

insurance amount factors for newly eligible retired and 

disabled workers by 0.5 percent annually. Under current 

law, the PIA factors—90 percent, 32 percent, and 15 percent—remain constant over time. Under this option, 

each year’s PIA factors would equal those of the previous 

year, multiplied by 0.995. By 2040, the factors would be 

82.2 percent, 29.2 percent, and 13.7 percent—about 

10 percent below those under current law. By 2080, those 

factors would be reduced to 67.3 percent, 23.9 percent, 

and 11.2 percent—about three-quarters of their current 

levels. In that year, a worker’s PIA would increase by 

67.3 cents for each dollar of the portion of the AIME 

that is below the first bend point, by 23.9 cents for each 

dollar between the first and second bend points, and by 

11.2 cents for each dollar above the second bend point. 

In 2054, the reduction in initial benefits under this 

option would be about the same as that under Option 14 

(which would cut benefits by 15 percent, phased in over 

10 years, starting in 2023), but cuts under this option 

would be smaller in the first part of the phase-in period 

and larger in later years.

Under Option 16, Social Security’s total outlays, measured as a share of GDP, would decline by 0.2 percentage 

points in 2040—or by 3 percent from currently scheduled outlays. By 2080, outlays would be almost one-fifth 

below those currently scheduled. This option would 

improve the 75-year actuarial balance, considered as a 

share of GDP, by 0.5 percentage points (about a 30 percent improvement). Despite the significant improvement 

in the actuarial balance, this option would not significantly extend the combined trust funds’ currently projected exhaustion date of 2029 because reductions in initial benefits would be phased in slowly, apply only to new 

beneficiaries, and begin just six years before that date. 

Under this option, the magnitude of the benefit reduction would increase over time. For retired workers in all 

categories of lifetime earnings in the 1960s birth cohort, 

scheduled initial benefits would slightly decrease; that 

reduction would grow to 11 percent or 12 percent for 

retired workers born in the 1980s and reach at least 

19 percent for retired workers born in the 2000s. Scheduled lifetime benefits relative to lifetime earnings would 

decrease more for high earners than for low earners in the 

same birth cohort because workers who claim disability 

benefits before age 62 would be exposed to fewer years of 

reductions to PIA factors than those who claim later, and 

people who claim DI benefits are more likely to have 

been low earners than high earners. 

Payable lifetime benefits relative to lifetime earnings 

would be slightly higher than under current law for people in all categories of lifetime earnings born in the 1960s 

but not significantly different for most people who were 

born in the 1980s or 2000s.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 53

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Option 17: Index Initial Benefits to 

Changes in Longevity 

Under this option, initial scheduled benefits for newly 

eligible retired workers would be reduced in proportion 

to the increase in average life expectancy at age 62; reductions would begin in 2023.67 CBO projects that life 

expectancy at age 62 in 2040 will be about 1.8 years 

greater than that in 2022, an 8 percent increase, so initial 

benefits would be reduced by about 8 percent in 2040. 

This option would not affect DI benefits, nor would it 

affect the benefits of disabled workers once they began to 

receive retired-worker benefits upon reaching the full 

retirement age. 

Under this option, Social Security’s total outlays, measured as share of GDP, would decline by 0.1 percentage 

point in 2040—or by 2 percent from currently scheduled 

outlays. As life expectancy increased, the reduction in 

outlays would grow considerably larger. By 2080, outlays 

would be about 10 percent below those currently scheduled. This option would improve the 75-year actuarial 

balance, considered as a share of GDP, by 0.3 percent (a 

20 percent improvement). The option’s early effects would 

be too small to significantly extend the combined trust 

funds’ exhaustion date beyond the currently projected 

2029. 

Under this option, the reduction in scheduled initial benefits for retired workers would increase over time. For 

people in all categories of lifetime earnings in the 1960s 

birth cohort, scheduled initial retired-worker benefits 

would decrease slightly, but that reduction would grow 

to 10 percent for people born in the 1980s and reach 

16 percent or 17 percent for people born in the 2000s, on 

average. Scheduled lifetime benefits relative to lifetime 

earnings would decrease more for high earners than for 

low earners in the same birth cohort because workers who 

claim disability benefits before age 62 are exposed to 

fewer years of reductions to PIA factors than are those 

who claim later, and people who claim DI benefits are 

more likely to have been low earners than high earners. 

Payable lifetime benefits relative to lifetime earnings would 

be slightly lower than under current law for high earners 

born in the 1980s and 4 percent lower for high earners born 

in the 2000s, but not significantly different for most other 

people.

Option 18: Implement Pure Price Indexing of 

Initial Benefits 

Under current law, some components of the Social Security 

benefit formula are based on the average wage index. This 

option would use another method—pure price indexing—for the computation of initial benefits so that the 

real (inflation-adjusted) value of average initial benefits 

remained constant over time. Under this option, beginning in 2023, initial benefits for newly eligible retired 

and disabled workers would increase more slowly than 

they do under current law. This option would reduce the 

PIA factors each year by the difference in the rate of 

growth in the AWI and the rate of growth in the CPI-W; 

that difference is referred to as real wage growth. (The 

method of indexing in this option, which would affect 

the PIA factors, is not the same as indexing the earnings 

in the AIME formula to prices, which is the subject of 

Option 12.) As under current law, however, the annual 

adjustment of the taxable maximum, the calculation of a 

worker’s average indexed monthly earnings, and the bend 

points for determining the primary insurance amount 

would continue to be linked to the AWI. 

Under Option 18, the reductions to initial benefits would 

be smaller during periods of slower real wage growth and 

larger when real wages grew more quickly. Given CBO’s 

long-term projections for growth in real wages, under 

Option 18, scheduled initial benefits for people first eligible to claim benefits in 2040 would be about 20 percent 

lower than under current law (see Figure 7).68 For people 

first eligible to claim benefits in 2080, scheduled initial 

benefits would be about half of those projected under 

current law, CBO estimates. The percentage reduction in 

initial benefits for retired workers would be the same for 

all beneficiaries born in the same year.

As is the case for Option 16, under this option, initial 

benefits would be lower than under current law, but 

instead of having the change occur at a fixed rate, in each

67. Life expectancy is the number of additional years a person is 

expected to live after reaching a given age.

68. CBO projects that growth in real wages will average 1.4 percent 

annually over the 2015–2040 period. See Congressional Budget 

Office, The 2015 Long-Term Budget Outlook (June 2015), 

Appendix A, p. 112, www.cbo.gov/publication/50250. If real 

wage growth was higher than projected, this option would result 

in larger benefit reductions; if wages grew more slowly than 

projected, the reductions would be smaller.
54 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Figure 7.

Calculating the PIA Using Pure Price Indexing (Option 18)

PIA in 2015 Dollars

Source: Congressional Budget Office.

Notes: Under current law, the PIA for newly eligible beneficiaries is indexed to wages. In 2040 (top panel), the current-law PIA factors (which 

determine the percentage of the AIME that is replaced in the PIA formula) will be 90 percent of the first $1,240 of the AIME 

(a replacement rate of 90 cents on the AIME dollar), plus 32 percent between $1,240 and $7,480, plus 15 percent above $7,480. 

With indexing to prices alone, the bend points (denoted by dots on the line, showing the thresholds at which a PIA factor changes) 

would not change and the PIA factors would be set at 71 percent, 25 percent, and 12 percent.

If a person born in 1978 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2040, that 

person’s AIME would be $13,910, the maximum. 

By 2080 (bottom panel), the bend points would be $2,490 and $15,030 and the current-law PIA factors would be the same as in 2040.

Under pure price indexing, the PIA factors would be set at 41 percent, 15 percent, and 7 percent. 

If a person born in 2018 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2080, that 

person’s AIME would be $27,800, the maximum.

AIME = average indexed monthly earnings; PIA = primary insurance amount.

Under current law, for each $1 increase in the AIME, the PIA increases by . . . 

$0.90 $0.32 $0.15

Using pure price indexing, for each $1 increase in the AIME, the PIA increases by . . . 

$0.71 $0.25 $0.12

$0.90 $0.32 $0.15

$0.41 $0.15 $0.07

2040

2080

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

Current Law

Pure Price Indexing

Current Law

Pure Price Indexing

AIME in 2015 Dollars

AIME in 2015 Dollars
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 55

CBO

year the reduction would be tied to the difference in the 

growth of prices and average wages. Under current law, 

average real scheduled benefits grow over time, and the 

ratio of initial scheduled benefits to average earnings (as 

measured by the worker’s AIME) remains roughly constant. Under this option, average initial real benefits 

would remain constant, and initial scheduled benefits 

measured as a share of past earnings adjusted for growth 

in wages would decline over time from an average of 

47 percent for people first eligible to claim retired-worker 

benefits in 2015 to about 39 percent for people who will 

retire in 2040.

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.4 percentage 

points in 2040, or by 7 percent from currently scheduled 

outlays. The savings would continue to grow and, by 

2080, outlays would be about 40 percent below those 

currently scheduled. This option would improve the 

75-year actuarial balance, considered as a share of GDP, 

by 1.1 percentage points (about an 80 percent improvement), the largest reduction of any option presented in 

this report. But the early effects of this option would be 

too small to significantly extend the combined trust 

funds’ exhaustion date beyond the currently projected 

2029.

Under this option, the reduction in scheduled initial 

benefits for retired workers would increase over time. 

For those in all categories of lifetime earnings in the 

1960s birth cohort, scheduled initial benefits would 

decrease by 5 percent. That reduction would grow to 

27 percent or 28 percent for people born in the 1980s 

and reach 44 percent or 45 percent for people born in 

the 2000s. 

Payable lifetime benefits relative to lifetime earnings 

would increase by 3 percent or 4 percent for people in the 

1960s birth cohort, but for people born in the 1980s, 

that ratio would not change significantly for low earners 

and would decrease by 3 percent for high earners. For 

people born in the 2000s, that ratio of payable benefits to 

earnings would be reduced by 10 percent for low earners 

and by 17 percent for high earners. The reduction in lifetime benefits for people in the 1980s and 2000s birth 

cohorts would be smaller for low earners than for high 

earners, at least in part because workers who claim disability benefits before age 60 would be exposed to fewer 

years of price indexing than are those who claim later, 

and people who claim DI benefits are more likely to have 

been low earners than high earners. 

Option 19: Implement Progressive Price Indexing 

of Initial Benefits for the Top 70 Percent of Earners 

This option would rely on progressive price indexing to 

set initial benefits for most earners. Beginning in 2023, 

newly eligible retired and disabled workers who had 

earned the taxable maximum for 35 years (maximum 

earners) would receive initial benefits that were indexed to 

the consumer price index for urban wage earners and 

clerical workers rather than to the average wage index, as 

under current law. Beneficiaries whose 35 years of highest 

earnings were below those of the maximum earners in the 

same birth cohort but above those of people at or below 

the 30th percentile of earners would see their initial benefits rise more rapidly than prices but more slowly than the 

AWI. Initial benefits for workers whose lifetime earnings 

were below the 30th percentile would be indexed to average wages as they are now, and their benefits would be the 

same as those scheduled under current law. Thus, benefits 

for workers with earnings only marginally higher than the 

30th percentile of the earnings distribution would rise 

only slightly more slowly than average wages, whereas initial benefits for maximum earners would be subject to 

pure price indexing (as would occur under Option 18). 

Option 19 would preserve the current benefit formula for 

workers with relatively low earnings and reduce the 

growth of initial benefits for workers with relatively 

higher earnings.69

As Option 19 took effect, the factors used to determine 

the primary insurance amount for the top 70 percent of 

earners would decline gradually, and, therefore, initial 

benefits for those people would decline over time compared with benefits scheduled under current law. Because 

CBO projects that the bend points in the current-law 

PIA formula will occur at approximately the 10th and 

70th percentiles of average indexed monthly earnings in 

2023, an additional bend point would be added at the 

30th percentile of AIMEs in that year (encompassing 

the lowest 30 percent of earners). Under this option, all 

three bend points would increase with average wages in 

2024 and beyond.

69. For a discussion of similar options, see Congressional Budget 

Office, Options for Reducing the Deficit: 2015 to 2024 (November 

2014), p. 12, www.cbo.gov/budget-options/2014, and Options for 

Reducing the Deficit: 2014 to 2023 (November 2013), pp. 38–39,

www.cbo.gov/budget-options/2013/44687.
56 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

In 2023, the new bend point would be at about $1,930 

(in 2015 dollars)—roughly 20 percent of the way between 

the first and second bend points under current law, 

CBO estimates. Between the first bend point and the 

new one, the PIA factor would remain at 32 percent. The 

next two PIA factors initially would be set at 32 percent 

and 15 percent, but they would be reduced annually at 

the rate needed to keep a maximum earner’s initial benefits indexed to the CPI-W (see Figure 8). Those two 

PIA factors would decrease each year by more than the 

amount that real wages had grown because the first 

two PIA factors (90 percent and 32 percent) would not 

change under this option. Eventually, the price-indexed 

monthly benefit for a maximum earner would equal 

the monthly benefit for a worker with earnings at the 

new bend point, which would have increased at the rate 

of earnings growth. Under this option, CBO projects, 

that outcome would occur after 2089, the last year of the 

75-year projection period, at which time the top two PIA 

factors would be set to zero. Thereafter, scheduled initial 

benefits for all new beneficiaries would increase with 

earnings, but benefits would be no higher than the 

amount received by workers with earnings at the new 

bend point. 

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.2 percentage 

points in 2040, or by 4 percent from currently scheduled 

outlays. By 2080, outlays would be almost one-quarter 

less than currently scheduled outlays. This option would 

improve the 75-year actuarial balance, considered relative 

to GDP, by 0.6 percentage points (about a 40 percent 

improvement), but the early effects of this option would 

be too small to significantly extend the combined trust 

funds’ exhaustion date beyond the currently projected 

2029.

Scheduled initial retired-worker benefits for low earners 

in all birth cohorts would be essentially unchanged. 

Those benefits for people born in the 1980s would 

decline by 11 percent for people in the middle of the 

earnings distribution and by 23 percent for high earners; 

people born in the 2000s would face substantially larger 

reductions. 

Payable lifetime benefits relative to lifetime earnings for 

people born in the 1980s would increase by 11 percent 

for low earners and by 4 percent for people in the middle 

of the earnings distribution but decrease by 11 percent for 

high earners. That ratio of payable benefits to earnings 

under this option for people born in the 2000s would 

increase by 22 percent for low earners and by 4 percent 

for people in the middle of the earnings distribution but 

would decrease by 20 percent for high earners.

Option 20: Implement Progressive Price Indexing 

of Initial Benefits for the Top 50 Percent of Earners

This option, which is similar to Option 19, would rely on 

progressive price indexing to set initial benefits for the 

top 50 percent of earners. Beginning in 2023, newly eligible retired and disabled workers who had been maximum earners (earning the taxable maximum for 35 years) 

would receive initial benefits that were indexed to the 

consumer price index for urban wage earners and clerical 

workers rather than to the average wage index, as under 

current law. Beneficiaries whose 35 years of highest earnings were below those of the maximum earners but above 

those of people at or below the 50th percentile (rather 

than the 30th percentile, as in Option 19) of earners 

would see their initial benefits rise more rapidly than 

prices but more slowly than the AWI. Initial benefits for 

workers whose lifetime earnings were below the 50th percentile would be indexed to average wages as they are 

now, and their benefits would be the same as those 

scheduled under current law. 

As in Option 19, the change would be achieved by adding a bend point between the first and second bend 

points in the current-law PIA formula. In 2023, that new 

bend point initially would be set at the 50th percentile of 

the lifetime earnings distribution, which CBO estimates 

would be at about $3,140 (in 2015 dollars)—roughly 

45 percent of the way between the current-law first and second bend points. Between the first bend point and the new 

one, the PIA factor would remain at 32 percent. The next 

two PIA factors initially would be set at 32 percent and 

15 percent, but they would be reduced annually at the 

rate needed to keep a maximum earner’s initial benefits 

indexed to the CPI-W. 

Under Option 20, the top two PIA factors would fall to 

zero in the early 2070s, CBO estimates. At that time, 

benefits for a worker whose lifetime earnings were at the 

new bend point (which would have increased at the rate 

of average wages) would equal the benefits paid to maximum earners (that amount also would be indexed to the 

CPI-W). Thereafter, scheduled initial benefits for retired 

and disabled beneficiaries would be indexed to average 

wages, but those benefits would be no higher than the 

amount received by workers with earnings at the new
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 57

CBO

Figure 8.

Calculating the PIA Using Progressive Price Indexing (Option 19)

PIA in 2015 Dollars

Source: Congressional Budget Office.

Notes: Under current law, the PIA for newly eligible beneficiaries is indexed to wages. In 2040 (top panel), the current-law PIA factors 

(which determine the percentage of the AIME that is replaced in the PIA formula) will be 90 percent of the first $1,240 of the AIME 

(a replacement rate of 90 cents on the AIME dollar), plus 32 percent between $1,240 and $7,480, plus 15 percent above $7,480. With 

progressive price indexing, the bend points (denoted by dots on the line, showing the thresholds at which a PIA factor changes) would 

be $1,240, $2,570, and $7,480 and the PIA factors would be 90 percent, 32 percent, 21 percent, and 10 percent.

If a person born in 1978 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2040, that 

person’s AIME would be $13,910, the maximum.

By 2080 (bottom panel), the bend points would be $2,490 and $15,030 and the current-law PIA factors would be the same as in 2040. 

Under progressive price indexing, the bend points would be $2,490, $5,170, and $15,030 and the PIA factors would be set at 

90 percent, 32 percent, 4 percent, and 2 percent. 

If a person born in 2018 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2080, that 

person’s AIME would be $27,800, the maximum.

AIME = average indexed monthly earnings; PIA = primary insurance amount. 

Under current law, for each $1 increase in the AIME, the PIA increases by... 

$0.90 $0.32 $0.15

With progressive price indexing, for each $1 increase in the AIME, the PIA increases by... 

$0.90 $0.32 $0.21 $0.10

2040

$0.90 $0.32 $0.15

$0.90 $0.32 $0.04 $0.02

2080

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

Current Law

Progressive Price Indexing

Current Law

Progressive Price Indexing

AIME in 2015 Dollars

AIME in 2015 Dollars
58 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

bend point. Under this option, the top two PIA factors 

would reach zero earlier than they do in Option 19

because the new bend point would occur at a higher 

amount of earnings. Benefits for people with AIMEs 

above the middle bend point would decline at a faster 

rate than in Option 19, but the point at which they 

stopped decreasing would be higher. 

Under this option, Social Security’s total outlays, measured 

as a share of GDP, would decline by 0.2 percentage points 

in 2040, or by 3 percent from currently scheduled outlays. 

By 2080, outlays would be almost one-fifth lower than currently scheduled outlays. This option would improve the 

75-year actuarial balance, considered as a share of GDP, by 

0.5 percentage points (about a 30 percent improvement), 

but the early effects of this option would be too small to 

significantly extend the combined trust funds’ exhaustion 

date beyond the currently projected 2029.

Scheduled initial retired-worker benefits for low earners 

in all birth cohorts would be essentially unchanged under 

this option. Those benefits for people born in the 1980s 

would decline by 5 percent for people in the middle of the 

earnings distribution and by 21 percent for high earners; 

people born in the 2000s would face larger reductions. 

Payable lifetime benefits relative to lifetime earnings for 

people born in the 1980s would increase by 8 percent 

for low earners and by 6 percent for people in the middle 

of the earnings distribution but decrease by 13 percent 

for high earners, on average. That ratio of payable benefits to earnings under this option for people born in the 

2000s would increase by 17 percent for low earners and 

by 9 percent for people in the middle of the earnings 

distribution but would decrease by 23 percent for high 

earners. 

Option 21: Index the Bend Points in the 

PIA Formula to Prices 

This option would reduce initial scheduled benefits for 

newly eligible retired and disabled workers by slowing the 

rise of the bend points. Under this option, beginning in 

2023, the bend points in the PIA formula would be 

indexed to prices rather than to average wages, as they are 

under current law. However, the computation of a 

worker’s average indexed monthly earnings would still be 

indexed to growth in average wages. Because a worker’s 

AIME would grow with average wages while the bend 

points in the PIA formula grew more slowly, over time, 

the 90 percent and 32 percent PIA factors would be 

applied to a smaller portion of that worker’s total AIME. 

CBO projects that growth in real wages will average 

1.4 percent annually over the 2015–2040 period.70 Given 

those growth rates, the bend points would be about 20 percent lower in 2040 than under current law (see Figure 9). 

This option is not the same as pure price indexing, which 

is discussed in Option 18, nor is it the same as progressive 

price indexing, which is the subject of Option 19 and 

Option 20: This option changes the bend points rather 

than modifying the PIA factors.

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.2 percentage 

points in 2040, or by 3 percent from currently scheduled 

outlays. This option would improve the 75-year actuarial 

balance, considered as a share of GDP, by 0.5 percentage 

points (about a 40 percent improvement), but the early 

effects of this option would be too small to significantly 

extend the combined trust funds’ exhaustion date beyond 

the currently projected 2029. 

The percentage reduction in scheduled initial benefits 

under this option for retired workers would increase over 

time: by a small amount for people who were born in the 

1960s, but by 11 percent to 14 percent for people born in 

the 1980s, and by 21 percent to 23 percent for those 

born in the 2000s. The reduction in scheduled lifetime 

benefits relative to lifetime earnings would, on average, be 

smaller for low earners than for high earners, at least in 

part because workers who claim disability benefits before 

age 62 would be exposed to fewer years of reductions to 

the bend points than are those who claim later, and people who claim DI benefits are more likely to have been 

low earners than high earners. 

Payable lifetime benefits relative to lifetime earnings 

would be reduced only a bit for high earners born in the 

1980s or 2000s but would increase slightly for people in 

other categories of lifetime earnings. 

Option 22: Add an Additional Bend Point to the 

PIA Formula and Reduce the PIA Factors

This option would create an additional bend point at the 

50th percentile of earners and, beginning in 2023, 

change the primary insurance amount factors. The new 

bend point would be at about $3,140 (in 2015 dollars)—

70. See Congressional Budget Office, The 2015 Long-Term Budget 

Outlook (June 2015), Appendix A, p. 112, www.cbo.gov/

publication/50250. 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 59

CBO

Figure 9.

Calculating the PIA Using Indexing of Bend Points to Prices (Option 21)

PIA in 2015 Dollars

Source: Congressional Budget Office.

Notes: Under current law, the PIA for newly eligible beneficiaries is indexed to wages. In 2040 (top panel), the current-law PIA factors 

(which determine the percentage of the AIME that is replaced in the PIA formula) will be 90 percent of the first $1,240 of the AIME 

(a replacement rate of 90 cents on the AIME dollar), plus 32 percent between $1,240 and $7,480, plus 15 percent above $7,480. If 

they were indexed to prices, the bend points (denoted by dots on the line, showing the thresholds at which a PIA factor changes) 

would be set at $990 and $5,940 and the PIA factors would remain the same as they would be under current law. 

If a person born in 1978 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2040, that 

person’s AIME would be $13,910, the maximum.

By 2080 (bottom panel), the current-law bend points would be $2,490 and $15,030 and the current-law PIA factors would be the same 

as in 2040. If the bend points were indexed to prices, they would be $1,150 and $6,950 and the PIA factors would remain the same as 

they would be under current law. 

If a person born in 2018 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2080, that 

person’s AIME would be $27,800, the maximum.

AIME = average indexed monthly earnings; PIA = primary insurance amount.

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

$0.90 $0.32 $0.15

$0.90 $0.32 $0.15

2080

AIME in 2015 Dollars

Current Law

Indexing of Bend Points to Prices

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

Under current law, for each $1 increase in the AIME, the PIA increases by... 

$0.90 $0.32 $0.15

With indexing of bend points to prices, for each $1 increase in the AIME, the PIA increases by... 

$0.90 $0.32 $0.15

2040

AIME in 2015 Dollars

Current Law

Indexing of Bend Points to Prices
60 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

about 45 percent of the way between the first and second 

bend points under current law. Below the first bend 

point, the 90 percent PIA factor would remain 

unchanged. Between the first bend point and the new 

one, over a 10-year span, the PIA factor would decrease 

from 32 percent to 30 percent. The PIA factor applied 

between the new bend point and the highest bend point 

(the second bend point under current law) would 

decrease from 32 percent to 10 percent over that same 

period. The PIA factor applied above the highest bend 

point would be reduced from 15 percent to 5 percent (see 

Figure 10).

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.5 percentage 

points in 2040, or by 8 percent from currently scheduled 

outlays. This option would improve the 75-year actuarial 

balance, considered as a share of GDP, by 0.6 percentage 

points (about a 40 percent improvement), but the early 

effects of this option would be too small to significantly 

extend the combined trust funds’ exhaustion date beyond 

the currently projected 2029.

Scheduled initial retired-worker benefits under this option 

for most low earners in all birth cohorts would decrease 

only slightly. Those benefits for people born in the 1960s 

would decline by about 6 percent for people in the middle of the earnings distribution and by 12 percent for high 

earners. People in the 1980s and 2000s birth cohorts 

would face larger reductions—at least 8 percent for people 

in the middle of the earnings distribution and 27 percent 

for high earners. 

Payable lifetime benefits relative to lifetime earnings 

would be higher, on average, than those paid under current law for low earners and for people in the middle of 

the earnings distribution, and lower for high earners. For 

example, that ratio for people born in the 2000s would 

increase by 16 percent for low earners and by 7 percent 

for people in the middle of the earnings distribution but 

would decrease by 16 percent for high earners. 

Option 23: Increase the First Bend Point in the 

PIA Formula by 15 Percent

Under this option, in 2016, the first bend point would 

increase permanently by 15 percent above the current-law 

amount, thereby increasing benefits because the 90 percent primary insurance amount factor would apply to a 

larger portion of a worker’s average indexed monthly 

earnings. This option would apply to newly eligible 

retired and disabled workers, and benefits for current 

beneficiaries would be recalculated using the higher first 

bend point.

Under this option, Social Security’s total outlays, measured as a share of GDP, would increase by 0.3 percentage 

points in 2040, or by 4 percent from currently scheduled 

outlays. This option would worsen the 75-year actuarial 

balance, considered as a share of GDP, by 0.3 percentage 

points (about a 20 percent decline), and the combined 

trust funds would be exhausted in 2027, two years earlier 

than projected under current law. If this option increased 

benefits only for newly eligible retired and disabled workers, Social Security’s total outlays would increase by 3 percent in 2040 from currently scheduled outlays, and the 

75-year actuarial balance would worsen by 0.2 percentage 

points.

Increases in scheduled initial benefits for retired workers 

would be between 3 percent and 5 percent for all birth 

cohorts under this option. Payable lifetime benefits relative to lifetime earnings would increase by a small amount 

for most low earners and decrease slightly for high earners.

Option 24: Replace the Current PIA Formula 

With a New Two-Part Formula

Beginning in 2023, this option would introduce a new 

formula for calculating the primary insurance amount for 

newly eligible retired workers. The PIA would equal the 

sum of two amounts: The first would provide each 

worker with a benefit based on the number of years of 

work, and the second would provide each worker with 

additional benefits proportional to his or her average 

indexed monthly earnings. 

The first part of the formula would provide a fixed benefit for every quarter of coverage accumulated by a worker, 

regardless of earnings. As under current law, a retired 

worker would need at least 40 quarters of coverage to be 

eligible.71 For newly eligible retired workers in 2023, this 

part of the formula would contribute a maximum of 

$1,140 (in 2015 dollars) per month to the PIA; that is,

71. To be eligible for retirement benefits, a person generally must have 

worked for a minimum of 10 years (accounting for 40 quarters of 

coverage, or 40 credits) under the program. A worker can amass 

up to 4 credits per year on the basis of wages earned for covered 

employment. The minimum amount for a credit in 2015 is 

$1,220 in wages, so any worker who earns at least $4,880 will 

receive 4 credits for the year.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 61

CBO

Figure 10.

Calculating the PIA Using an Additional Bend Point (Option 22)

PIA in 2015 Dollars

Source: Congressional Budget Office.

Notes: Under current law, the PIA for newly eligible beneficiaries is indexed to wages. In 2040 (top panel), the current-law PIA factors 

(which determine the percentage of the AIME that is replaced in the PIA formula) will be 90 percent of the first $1,240 of the AIME 

(a replacement rate of 90 cents on the AIME dollar), plus 32 percent between $1,240 and $7,480, plus 15 percent above $7,480. If an 

additional bend point (denoted by a dot on the line, showing the threshold at which a PIA factor changes) was added, the bend points 

would be set at $1,240, $4,170, and $7,480 and the PIA factors would change to 90 percent, 30 percent, 10 percent, and 5 percent. 

If a person born in 1978 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2040, that 

person’s AIME would be $13,910, the maximum.

By 2080 (bottom panel), the current-law bend points would be $2,490 and $15,030 and the current-law PIA factors would be the same 

as in 2040. If an additional bend point was added, the bend points would be set at $2,490, $8,390, and $15,030 in 2080 and the PIA 

factors would change to 90 percent, 30 percent, 10 percent, and 5 percent. 

If a person born in 2018 had 35 years of earnings at or above the taxable maximum and stopped working at age 62 in 2080, that 

person’s AIME would be $27,800, the maximum.

AIME = average indexed monthly earnings; PIA = primary insurance amount.

2080

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

$0.90 $0.32 $0.15

$0.90 $0.30 $0.10 $0.05

AIME in 2015 Dollars

Current Law

With Additional Bend Point

Under current law, for each $1 increase in the AIME, the PIA increases by... 

$0.90 $0.32 $0.15

With an additional bend point, for each $1 increase in the AIME, the PIA increases by... 

$0.90 $0.30 $0.10 $0.05

2040

AIME in 2015 Dollars

Current Law

With Additional Bend Point

0

2,000

4,000

6,000

8,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000
62 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

$7.10 per quarter for up to 160 quarters of accumulated 

coverage.72 After 2023, that amount would increase with 

average wages. The second part of the formula would 

provide additional benefits in proportion to earnings, 

calculated as 15 percent of the AIME.73 The new PIA formula would be phased in over 10 years for newly eligible 

beneficiaries, including disabled workers.74

Under this option, Social Security’s total outlays, 

measured as a share of GDP, would decrease by 0.2 percentage points in 2040, or by 3 percent from currently 

scheduled outlays. The option would improve the 75-

year actuarial balance, considered as a share of GDP, by 

0.2 percentage points (about a 20 percent improvement), 

but the early effects of this option would be too small to 

significantly extend the combined trust funds’ exhaustion 

date beyond the currently projected 2029.

Under this option, scheduled initial retired-worker benefits would increase for low earners and decrease for people 

in the middle of the earnings distribution and for high 

earners. For example, for people born in the 2000s, such 

benefits would increase by 15 percent for low earners but 

decrease by 9 percent for people in the middle of the 

earnings distribution and by 15 percent for high earners. 

Payable lifetime benefits relative to lifetime earnings 

would be higher for low earners, about the same for people in the middle of the earnings distribution, and lower 

for high earners than under current law. For people born 

in the 1980s or later, for example, that ratio would 

increase by at least 23 percent for low earners but decline 

by 8 percent for high earners.

Options That Would Raise the 

Full Retirement Age

Social Security’s full retirement age—the age at which a 

person becomes eligible to claim full retirement benefits—is set according to the year of a person’s birth. 

Under current law, for workers born between 1943 and 

1954, the FRA is age 66. For workers born between 1955 

and 1960, the FRA increases by two months for each successive birth year until it reaches age 67 for people born 

in 1960 or later. The FRA is 66 for people who turned 

62 in 2015. The FRA will begin to increase for people 

turning 62 in 2017, and it will reach age 67 for those 

turning 62 in 2022. For each year that a worker claims 

benefits before reaching the FRA, benefits are reduced by 

an amount that ranges from 5 percent to 62⁄3 percent. 

New beneficiaries between the FRA for their birth cohort 

and age 70 receive a delayed-retirement credit, which 

increases benefits by 8 percent for each year beyond the 

FRA that a person delays receiving benefits.75

An increase in the FRA would result in lower benefits for 

every newly retired Social Security recipient, regardless of 

the age at which a person claims benefits. A one-year 

increase is equivalent to an annual reduction in benefits 

of between 5 percent and 8 percent, depending on the 

age at which a recipient chooses to claim benefits. Under 

current law, a beneficiary (born in 1960 or later) who 

claims retirement benefits at the early eligibility age of 62 

would receive a benefit that is 30 percent less than the 

amount he or she would receive by waiting to reach 

the FRA. If the FRA increased to 68, for example, the 

reduction would be 35 percent. 

An increase in the FRA would cause workers to claim 

retired-worker benefits later, on average.76 Some workers 

72. In 2023, the first part of the new PIA formula would be equal to the 

federal poverty guideline for a single-person household if a worker 

had earned 140 quarters of coverage (equivalent to 35 years of work).

73. The first part of the new PIA formula for newly eligible DI beneficiaries in 2023 would be equal to the poverty guideline for a singleperson household, regardless of the quarters of coverage a worker 

accumulated. The second part of the new PIA formula would be 

15 percent of the current-law AIME.

74. In 2023, a worker’s PIA would equal 90 percent of the current-law 

PIA plus 10 percent of the new PIA. For the next nine years, 

the contribution from the current-law PIA would decrease by 

10 percentage points and the contribution from the new PIA 

would increase by 10 percentage points. In 2032 and later, a 

newly eligible worker’s PIA would be calculated using only the 

new, two-part, method.

75. If a worker claims benefits before reaching the FRA, benefits are 

reduced by 5/9 of 1 percent for each month (62⁄3 percent per year) 

before the FRA, for up to 36 months. If the number of months 

exceeds 36, the benefit is further reduced by 5/12 of 1 percent per 

month (5 percent per year). People who were born in 1943 or later 

and who claim benefits after reaching their FRA generally receive a 

delayed-retirement credit that amounts to 8/12 of 1 percent for 

each month (8 percent per year) they delay claiming. No additional 

credit is given if a person first claims benefits after age 70. See Social 

Security Administration, Social Security Benefits, “Effect of Early or 

Delayed Retirement on Retirement Benefits” (August 2010), 

www.ssa.gov/oact/ProgData/ar_drc.html.

76. Joyce Manchester and Jae G. Song, “What Can We Learn From 

Analyzing Historical Data on Social Security Entitlements?” Social 

Security Bulletin, vol. 71, no. 4 (November 2011), pp. 1–13, 

www.ssa.gov/policy/docs/ssb/v71n4.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 63

CBO

who delayed claiming retired-worker benefits until reaching the FRA might nevertheless be eligible before that 

time to claim disability benefits as a result of illness or 

injury. Such workers would have an incentive to claim 

those benefits because the Disability Insurance program 

does not reduce benefits on the basis of the age at which 

people claim them.77

In the face of a later FRA, some people could decide to 

work longer, thus increasing the size of the workforce and 

thereby boosting revenues from payroll taxes. Their additional earnings could result in higher Social Security benefits in the future, although that increase would be generally smaller than the increase in payroll taxes. On average, 

however, when the FRA increases, benefits decline. And 

that reduction would result in slightly less in tax revenues 

because smaller amounts of income taxes would be collected from recipients of those benefits. The benefit 

reductions from increasing the FRA (and making no 

other policy changes) would increase the risk of poverty 

at older ages among people who did not respond to the 

increase in the FRA by waiting to claim benefits.

Increasing the EEA (the age at which workers may start 

receiving reduced retirement benefits) along with the 

FRA would require some people to wait longer to 

receive retirement benefits, resulting in higher average 

monthly payments. On average, people can expect to 

receive more benefits over a lifetime for each year they 

delay claiming benefits before they reach the FRA. (For 

information on the actuarial fairness of the reductions or 

increases to benefits at various ages for claiming them, see 

Appendix B.) However, increasing the EEA also could 

cause financial hardship for some people who were not 

able to work beyond age 62 and who were not eligible to 

collect DI benefits.

All of the options in this section would increase the FRA 

starting in 2023 for newly eligible retired workers; one 

option also would increase the EEA. Payments to people 

who receive DI benefits would not be affected, but the 

age at which those beneficiaries converted to retiredworker status would increase with the FRA. Additionally, 

the maximum age at which someone could receive the 

delayed-retirement credit would rise at the same rate as 

the FRA for all options.

See Table 2 on page 23 for the effects of the options on 

Social Security’s finances, Table 3 on page 30 for effects 

on distributional outcomes under the assumption that 

scheduled benefits are paid, and Table 4 on page 36 for 

effects on distributional outcomes under the assumption 

that only payable benefits are paid.

Option 25: Raise the FRA to 68 

Under current law, the full retirement age will reach 67 

for people born in 1960 or later. This option would continue to raise the FRA by an additional two months per 

birth year for another six years. The FRA would reach 68 

for workers born in 1966; those workers would reach 

their FRA and would be eligible for full retired-worker 

benefits in 2034. Under this option, people born in 1966 

or later who claimed benefits between ages 68 and 71 

would receive the delayed-retirement credit. 

Under this option, Social Security’s total outlays, measured as a percentage of GDP, would decline by 0.2 percentage points in 2040, or by 3 percent from currently 

scheduled outlays. This option would improve the 75-

year actuarial balance, considered as a share of GDP, by 

0.2 percentage points (about a 10 percent improvement) 

but would not significantly extend the combined trust 

funds’ exhaustion date beyond the currently projected 

2029 because increases in the FRA would be phased in 

and would not begin until 2023, just six years before that 

date. 

After this option was fully phased in, scheduled initial 

benefits for retired workers born in the 1980s or 2000s 

and claiming at age 65 would be reduced by 8 percent 

relative to the benefits they would receive under current 

law. However, the overall reduction in scheduled lifetime 

benefits relative to lifetime earnings would be smaller 

(between 3 percent and 5 percent) because some people 

would delay claiming benefits to match the increase in 

the FRA. That smaller reduction in lifetime benefits 

would occur because some people would work for additional years before claiming benefits and the actuarial 

adjustments to benefits for that later claiming—which, in 

principle, could result in unchanged lifetime benefits—

are imperfect. 

Payable lifetime benefits relative to lifetime earnings 

would not change significantly.

77. For more information about changes to the FRA and the EEA, see 

Congressional Budget Office, Raising the Ages of Eligibility for 

Medicare and Social Security (January 2012), www.cbo.gov/

publication/42683. 
64 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

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Option 26: Raise the FRA to 70 

This option, which is similar to Option 25, would continue to increase the full retirement age by two months 

per birth year for another 18 years, until it reached age 70 

for workers who were born in 1978. In 2040, people who 

were born in 1978 will turn 62, the early eligibility age. If 

they claimed benefits that year, the amount would be 

45 percent less than they would receive if they waited 

until 2048, when they reached the FRA of 70. Because of 

the delayed-retirement credit, benefits would increase for 

each additional month a worker waited to claim benefits 

from the FRA through age 73. 

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.3 percentage 

points in 2040, or by 6 percent from those currently 

scheduled. This option would improve the 75-year actuarial balance, considered as a share of GDP, by 0.4 percentage points (about a 30 percent improvement). 

Despite that improvement, this option would not significantly extend the exhaustion date projected for the trust 

funds because increases in the FRA are phased in and 

would not begin until 2023.78

After this option was fully phased in, scheduled initial benefits for retired workers born in the 1980s or 2000s would 

be reduced by 19 percent relative to what they would 

receive under current law. However, the overall reduction 

in scheduled lifetime benefits relative to lifetime earnings 

would be smaller—by 9 percent or 10 percent for low 

earners born in the 1980s or 2000s and by 15 percent or 

16 percent for high earners in the same birth cohorts—

because some people would delay claiming benefits to 

match the increase in the FRA. That smaller reduction in 

lifetime benefits would occur because some people would 

work for additional years before claiming benefits and the 

actuarial adjustments to benefits for that later claiming 

are imperfect. 

Payable lifetime benefits relative to lifetime earnings 

would increase slightly for people in all categories of lifetime earnings born in the 1960s and decrease for those 

born in the 1980s. Among people born in the 2000s, that 

ratio would decline by 4 percent for high earners and 

increase by 3 percent for low earners.

Option 27: Increase the FRA by One Month per 

Birth Year

This option would increase the full retirement age 

beyond the currently scheduled increase to age 67 by one 

month per birth year, indefinitely. That rate of increase 

would maintain an approximately constant ratio of projected years of benefits to years of work: For people born 

after 1960, the ratio of life expectancy at the FRA to the 

number of years from age 21 to the FRA would be 

roughly the same. Under this option, the FRA would 

reach 68 for people born in 1972; it would reach 70 for 

people born in 1996. At the end of the 75-year period, 

the FRA would be 72 years and 7 months for people born 

in 2027; the delayed-retirement credit would increase 

benefits for every additional month that those workers 

delayed claiming benefits beyond age 72 and 7 months 

through age 75 and 7 months.

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.2 percentage 

points in 2040, or by 3 percent relative to currently 

scheduled outlays. By 2080, outlays would be about 

15 percent below those currently scheduled. This option 

would improve the 75-year actuarial balance, considered 

as a share of GDP, by 0.4 percentage points (about a 

30 percent improvement). Despite that improvement, 

this option would not significantly extend the combined 

trust funds’ currently projected exhaustion date of 2029 

because increases in the FRA would start in 2023, just six 

years before that date.

Under this option, scheduled initial benefits for retired 

workers born in the 1960s would decrease by 3 percent. 

The reduction would be progressively greater for people 

in later birth cohorts: Relative to the outcome under current law, scheduled initial retired-worker benefits would 

decline by 14 percent for people born in the 1980s and 

by 23 percent or 24 percent for people born in the 2000s. 

However, the reduction in scheduled lifetime benefits relative to lifetime earnings would be smaller because some 

people would delay claiming benefits when the FRA 

increased. That smaller reduction in lifetime benefits 

would occur because some people would work for additional years before claiming benefits and the actuarial 

adjustments to benefits for that later claiming are imperfect. That ratio of scheduled benefits to earnings would 

decrease slightly for people born in the 1960s. For low 

78. For a more detailed analysis of a similar option, see Congressional 

Budget Office, Options for Reducing the Deficit: 2015 to 2024

(November 2014), p. 13, www.cbo.gov/budget-options/2014, and 

Options for Reducing the Deficit: 2014 to 2023 (November 2013), 

pp. 40–41, www.cbo.gov/budget-options/2013/44687.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 65

CBO

earners, the ratio would decline by 7 percent for people 

born in the 1980s and by 9 percent for those born in 

the 2000s. It would decrease by 11 percent for high earners born in the 1980s and by 18 percent for high earners 

born in the 2000s. Benefits would decline less for low 

earners because people in the low lifetime earnings category are more likely to have claimed disability benefits, 

which are not affected by changes in the FRA. 

Payable lifetime benefits relative to lifetime earnings 

would increase slightly for people born in the 1960s. For 

people born in the 1980s, payable lifetime benefits relative to lifetime earnings would not change significantly 

for low earners, and that ratio would decrease by a small 

amount for high earners. For people born in the 2000s, 

the ratio would increase by an average of 4 percent for 

low earners but decline by 3 percent for high earners.

Option 28: Increase the FRA and the EEA by 

One Month per Birth Year

This option is similar to Option 27 in that it would raise 

the full retirement age by one month per birth year, but it 

would also increase the early eligibility age at the same 

rate. The EEA for workers who were born in 1972 would 

be 63 and their FRA would be 68; those workers will turn 

63 in 2035. The EEA for workers who were born in 1996 

would be 65 and their FRA would be 70. The maximum 

age at which a beneficiary could receive the delayedretirement credit would increase by one month per year 

as well. The initial budgetary effect of an increase in both 

the FRA and the EEA would be a shift in the timing of 

outlays relative to that which would occur with a change 

in the FRA alone. Because beneficiaries who claimed 

later than they would have without the change in the 

EEA would receive a larger benefit, annual outlays eventually would be higher than if the EEA remained at 62. 

Under this option, Social Security’s total outlays in 2040, 

measured as a share of GDP, would decline by 0.2 percentage points, or by 4 percent relative to currently 

scheduled outlays. By 2080, outlays would be about 

15 percent below those currently scheduled. This option 

would improve the 75-year actuarial balance, considered 

as a share of GDP, by 0.4 percentage points (about a 

30 percent improvement). Despite that improvement, 

this option would not significantly extend the combined 

trust funds’ currently projected exhaustion date of 2029 

because increases in the FRA and the EEA would start in 

2023, just six years before that date.

Under this option, the reduction in scheduled initial 

benefits for retired workers would be about the same 

as the reductions under Option 27—3 percent for people born in the 1960s, 13 percent or 14 percent for 

people born in the 1980s, and 21 percent to 23 percent 

for people born in the 2000s.79 The reduction in scheduled lifetime benefits relative to lifetime earnings would 

be smaller than the reduction under Option 27, in part 

because raising the EEA would delay the age at which 

people could claim even greatly reduced benefits. As a 

result, some people might work for additional years before 

claiming benefits, and the actuarial adjustments to benefits 

for that later claiming are imperfect. That ratio would 

decline by 5 percent to 7 percent for low earners born in 

the 1980s or 2000s. It would decrease by 9 percent for 

high earners born in the 1980s and by 15 percent for high 

earners born in the 2000s. Benefits would decline less for 

low earners because people in the low lifetime earnings 

category are more likely to have claimed disability benefits, 

which are not affected by changes in the FRA.

Payable lifetime benefits relative to lifetime earnings 

would increase by a small amount for all people born in 

the 1960s and for low earners and people in the middle 

of the earnings distribution born in the 1980s; that ratio 

would increase by 5 percent for low earners born in the 

2000s. The ratio would decrease slightly for people with 

high earnings born in the 1980s and decrease by 3 percent 

for high earners born in the 2000s. 

Options That Would Change 

Cost-of-Living Adjustments

The four options in this section would affect the annual 

cost-of-living adjustments that are applied to existing 

benefits. Three options would change the measure of 

inflation used to calculate COLAs—one of those would 

partially offset the resulting reductions for long-time 

recipients of benefits. The fourth option would reduce 

COLAs for beneficiaries with high primary insurance 

amounts, slowing the growth in benefits for people with 

higher lifetime earnings. 

79. Under this option, some workers who must delay claiming 

retired-worker benefits as a result of the increase in the EEA might 

be eligible to claim disability benefits as a result of illness or injury. 

Because the measure of initial benefits for retired workers in this 

report excludes people who have claimed disability benefits, the 

percentage change in the mean of initial benefits for retired 

workers would be slightly different for Option 27 and this option. 
66 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

One argument for changing the measure of inflation is 

that the current metric, the consumer price index for 

urban wage earners and clerical workers, does not accurately reflect the ways that prices affect Social Security 

beneficiaries’ cost of living. Many analysts believe that the 

CPI-W overstates increases in the cost of living. They 

assert that the index is subject to substitution bias—it 

does not fully account for consumers’ lessening the 

impact of inflation either when they purchase fewer 

goods or services that become more expensive or when 

they substitute less costly goods and services. Some 

observers also argue that the CPI-W imposes an upward 

bias on COLAs—known as a small-sample bias—to the 

extent that it applies to price data for just a small proportion of goods in the overall economy.80 Two of the 

options presented in this section would use the chained 

consumer price index for all urban consumers (CPI-U) to 

measure inflation. That index is designed to account for 

the ways that consumers generally adjust their spending 

as some prices change relative to others, and it is largely 

free of small-sample bias.

Another consideration in calculating COLAs is that the 

cost of living could grow faster for Social Security beneficiaries than for the rest of the population; a larger percentage of that group’s spending is likely to be for medical 

care and for goods and services whose prices tend to rise 

faster than those for other goods and services purchased 

by average consumers. One option in this section would 

measure inflation using the CPI-E, the consumer price 

index for elderly consumers, which accounts for the spending patterns typically exhibited by people age 62 or older. 

The arguments for changing the measure of inflation 

used to calculate COLAs are not mutually exclusive. It is 

conceivable that a measure of inflation could be created 

that eliminates the substitution bias and small-sample 

bias in the CPI-W and that better reflects the list of goods 

and services typically consumed by elderly or disabled 

people.

For any given beneficiary, the changes in scheduled 

annual benefits that would arise from these options 

would increase over time relative to such benefits under 

current law because of annual compounding of lower or 

higher COLAs over that beneficiary’s lifetime. The difference would be most pronounced for beneficiaries who 

received benefits under a modification to the price index 

used to calculate COLAs for long periods, such as very 

old retirees or people who began to receive disability 

benefits at an early age. One option in this section would 

partially offset those benefit reductions by increasing benefits for people 20 years after they initially became eligible 

to collect benefits.

Under current law, the formula used to calculate the primary insurance amount for workers claiming retiredworker benefits is based on the year in which they turn 

62—the early eligibility age to receive retired-worker benefits. If a worker delays claiming beyond the EEA, his or 

her PIA increases by the COLAs that would have applied 

to benefits claimed at age 62. (If a person works beyond 

age 62, his or her average indexed monthly earnings are 

calculated when benefits are claimed. That worker’s PIA 

is then calculated using the PIA formula as of age 62, and 

that PIA increases by the COLAs from age 62 through 

the age at which he or she claims benefits.) If, for example, a worker became eligible to claim retired-worker benefits in 2013 and waited until 2015 to claim benefits, his 

or her PIA would be increased by the 1.5 percent COLA 

that applied to benefits in 2014, and then that amount 

would be increased again by the 1.7 percent COLA that 

applied to benefits in 2015. Thus, a change in COLAs 

would have a small effect on initial retired-worker benefits for people who wait until after the EEA to claim 

them. Resulting changes in benefits also would affect 

revenues from taxation of those benefits.

See Table 2 on page 23 for effects of the options on Social 

Security’s finances, Table 3 on page 30 for effects on distributional outcomes under the assumption that scheduled 

benefits are paid, and Table 4 on page 36 for effects on 

distributional outcomes under the assumption that only 

payable benefits are paid.

Option 29: Base COLAs on the Chained CPI-U 

Beginning in 2016, this option would link Social Security 

cost-of-living adjustments for all current and newly eligible retired and disabled workers and their dependents to a 

different measure of inflation—the chained consumer 

price index for all urban consumers, which is designed to 

account for the ways that consumers generally adjust 

80. See Congressional Budget Office, Options for Reducing the 

Deficit: 2015 to 2024 (November 2014), p. 16, www.cbo.gov/

budget-options/2014, Options for Reducing the Deficit: 2014 to 

2023 (November 2013), pp. 49–51, www.cbo.gov/budget-options/

2013/44687, and testimony of Jeffrey Kling, Associate Director 

for Economic Analysis, Congressional Budget Office, before the 

Subcommittee on Social Security, House Committee on Ways 

and Means, Using the Chained CPI to Index Social Security, Other 

Federal Programs, and the Tax Code for Inflation (April 18, 2013), 

www.cbo.gov/publication/44083.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 67

CBO

their spending as prices change. That index is also largely 

free of small-sample bias. CBO projects that the annual 

increase in the chained CPI-U, on average, will be 

0.25 percentage points below that for the consumer price 

index for urban wage earners and clerical workers.81

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.2 percentage 

points in 2040, or by 3 percent, from currently scheduled 

outlays. This option would improve the 75-year actuarial 

balance, considered as a share of GDP, by 0.2 percentage 

points (about a 10 percent improvement) but would not 

significantly extend the combined trust funds’ currently 

projected exhaustion date of 2029. 

Under this option, scheduled initial benefits would 

decline by a small amount for people who become eligible to claim retired-worker benefits in 2016 or later 

because workers’ PIAs are increased by the COLAs from 

age 62 to the age at which they claim benefits. Scheduled 

lifetime benefits relative to lifetime earnings would be 

reduced by 3 percent to 4 percent for people born in the 

1960s or later. The reductions in that ratio would be 

smaller for people who began collecting benefits before 

2016 because they would be expected to receive the 

reduced COLA for fewer years than would a beneficiary 

who started collecting benefits in that year or later. Payable lifetime benefits relative to lifetime earnings would 

not change significantly for most beneficiaries. 

Option 30: Base COLAs on the Chained CPI-U and 

Increase Benefits 20 Years After Initial Eligibility 

Under Option 29, which would base cost-of-living 

adjustments on the chained consumer price index for all 

urban consumers, the largest reductions in benefits would 

apply to people who spent the longest amount of time as 

recipients after that option was implemented. For example, the annual benefit for a retired worker who became 

eligible to collect benefits at 62 would be about 5 percent 

smaller at age 82 if the COLA applied to his or her benefit was based on the chained CPI-U rather than on the 

consumer price index for urban wage earners and clerical 

workers, as under current law. This option is similar but 

includes a provision that would increase benefits for longtime recipients. The increase would partially offset the 

reductions in benefits for very old retirees and for people 

who claimed Disability Insurance benefits at an early age. 

This option would take effect in 2016, and, in addition 

to linking the COLA to the chained CPI-U for all current and newly eligible retired and disabled workers and 

their dependents, this option would increase a person’s 

benefit starting 20 years after initial eligibility by 1 percent of the primary insurance amount for an averagewage worker of the same age.82 The recipient’s benefit 

would increase annually by that amount for 5 years, permanently boosting the amount to which future COLAs 

are applied. The increase for most retired beneficiaries 

would begin at age 82 (20 years after 62, the early eligibility age for retirement benefits). Recipients of disability 

benefits, including those who converted to retired-worker 

status at the full retirement age, would receive the increase 

20 years after they became entitled to DI benefits. 

Under this option, Social Security’s total outlays, measured 

as a share of GDP, would decrease by 0.1 percentage point 

in 2040, or by 2 percent from currently scheduled outlays. This option would improve the 75-year actuarial 

balance, considered as a share of GDP, by 0.1 percentage 

point (about a 10 percent improvement) but it would not 

significantly extend the combined trust funds’ currently 

projected exhaustion date of 2029. 

Under this option, scheduled initial benefits would 

decline by a small amount for retired workers who 

became eligible to claim retired-worker benefits in 2016 

or later because a worker’s PIA is increased by the COLA 

from age 62 to the age at which he or she claims benefits. 

Scheduled lifetime benefits relative to lifetime earnings 

would be reduced the most for high earners—by 3 percent, on average. Payable lifetime benefits relative to 

lifetime earnings would increase by a small amount for 

low earners and decrease slightly for high earners in all 

birth cohorts.

81. Although CBO estimates a 0.25 percentage-point difference in 

the two indexes’ rates of increase, the actual difference (and thus the 

effect of the option) could average more or less than that amount. 

For additional information, see Congressional Budget Office, 

Options for Reducing the Deficit: 2015 to 2024 (November 2014), 

p. 16, www.cbo.gov/budget-options/2014, Options for Reducing the 

Deficit: 2014 to 2023 (November 2013), pp. 49–51, www.cbo.gov/

budget-options/2013/44687, and testimony of Jeffrey Kling, 

Associate Director for Economic Analysis, Congressional Budget 

Office, before the Subcommittee on Social Security, House 

Committee on Ways and Means, Using the Chained CPI to Index 

Social Security, Other Federal Programs, and the Tax Code for Inflation

(April 18, 2013), www.cbo.gov/publication/44083.

82. This average-wage worker is a hypothetical person who earns the 

average wage starting at age 20 and continues to do so through 

the year before the initial eligibility age of the beneficiary who 

receives the increase in the PIA.
68 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Option 31: Base COLAs on the CPI-E 

Beginning in 2016, this option would link Social Security’s 

cost-of-living adjustments for all current and newly eligible retired and disabled workers and their dependents to 

the consumer price index for elderly consumers. The 

CPI-E accounts for the spending patterns typically exhibited by people age 62 or older. CBO projects that the 

CPI-E will increase, on average, 0.17 percentage points 

faster per year than will the consumer price index for 

urban wage earners and clerical workers.83

Under this option, Social Security’s total outlays, measured as a share of GDP, would increase by 0.1 percentage 

point in 2040, or by 2 percent from currently scheduled 

outlays. This option would worsen the 75-year actuarial 

balance, considered as a percentage of GDP, by 0.1 percentage point (about a 10 percent decline), but would 

not significantly accelerate the combined trust funds’ 

currently projected exhaustion date of 2029.

Scheduled lifetime benefits relative to lifetime earnings 

under this option would be increased by 2 percent or 

3 percent for people who were born in or after the 1960s. 

The increases in that ratio would be smaller for people 

who began collecting benefits before 2016 because that 

group would be expected to receive the increased COLA 

for fewer years than people who start collecting benefits 

in 2016 or later. Payable lifetime benefits relative to lifetime earnings would not change significantly for people 

who were born in the 1960s or later. 

Option 32: Reduce COLAs for People With Higher PIAs

Beginning in 2016, this option would reduce the annual 

cost-of-living adjustment by 0.5 percentage points for all 

current and newly eligible retired beneficiaries with a primary insurance amount that was higher than the PIA for 

an average-wage worker of the same age.84 Under this 

option, a beneficiary’s COLA would never fall below 

zero. COLAs would be reduced for about 30 percent of 

beneficiaries in 2016; almost all of those beneficiaries 

would be retired workers. 

Under this option, Social Security’s total outlays, measured as a share of GDP, would decline by 0.1 percentage 

point in 2040, or by 2 percent from currently scheduled 

outlays. This option would improve the 75-year actuarial 

balance, considered as a share of GDP, by 0.1 percentage 

point (about a 10 percent improvement) but would not 

significantly extend the combined trust funds’ currently 

projected exhaustion date of 2029. 

Under this option, scheduled lifetime benefits relative to 

lifetime earnings would decrease by 4 percent or 5 percent for high earners, and that ratio would be essentially 

unchanged for low earners. Payable lifetime benefits relative to lifetime earnings would decline slightly for high 

earners. That ratio would increase by a small amount for 

low earners born in the 1960s and 1980s and by 3 percent 

for low earners born in the 2000s. 

Options That Would Change 

Benefits for Specific Groups

The options in this section would change benefits for 

three particular groups of beneficiaries: people with low 

average annual earnings, survivors of deceased workers, 

and spouses of retired workers. 

Options that would increase benefits are assumed to take 

effect in 2016 and would apply to all current and future 

beneficiaries. Options that would reduce benefits are 

assumed to take effect in 2023 for people who were born 

in 1961 and thus will reach the early eligibility age of 

62 in that year. 

In addition to their main effects on outlays, all of the 

options in this section would produce small effects on 

revenues because changes in benefits would affect the 

amounts collected in income taxes on those benefits. 

Although the effects on the system’s finances overall 

would be small, the effects of these options would be 

significant for people in the relevant groups. 

See Table 2 on page 23 for the effects of the options on 

Social Security’s finances, Table 3 on page 30 for effects 

on distributional outcomes under the assumption that 

scheduled benefits are paid, and Table 4 on page 36 for 

effects on distributional outcomes under the assumption 

that only payable benefits are paid.

83. Although CBO estimates a 0.17 percentage-point difference in 

the two indexes’ rates of increase, the actual difference (and thus 

the effect of the option) could average more or less than that 

amount. For additional information, see testimony of Jeffrey 

Kling, Associate Director for Economic Analysis, before the 

Subcommittee on Social Security, House Committee on Ways 

and Means, Using the Chained CPI to Index Social Security, Other 

Federal Programs, and the Tax Code for Inflation (April 18, 2013), 

www.cbo.gov/publication/44083. 

84. This average-wage worker is a hypothetical person who earns the 

average wage starting at age 20 and continues to do so through 

the year before the initial eligibility of the beneficiary who 

receives the increase in the PIA.
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 69

CBO

Option 33: Introduce a New Poverty-Related 

Minimum Benefit 

This option would replace the current-law special minimum primary insurance amount with a new benefit for 

workers whose earnings are relatively low over a long 

period. Under current law, workers receive the special 

minimum benefit if it is a larger amount than their benefit calculated under the standard benefit formula. In 

2015, the highest PIA a newly eligible beneficiary could 

receive under the special minimum benefit was $830 per 

month. That benefit will increase over time with prices. 

Because the standard benefit formula increases with earnings, which tend to grow faster than prices, fewer people 

receive the special minimum benefit each year; just over 

100 families had a newly entitled beneficiary receive this 

benefit in 2012, and the Social Security Administration 

projects that no newly eligible beneficiaries will receive 

the benefit after 2018.

The minimum PIA under this option would be $1,220 

per month for someone with 120 quarters of coverage, 

thus requiring a beneficiary to have accumulated at least 

30 years of earnings. That amount is about 125 percent 

of the projected poverty threshold for a single person age 

65 or older in 2016. If a worker had fewer than 40 quarters of coverage, the benefit would be set at zero. Above 

40 quarters and up to the maximum of 120 quarters, 

increments of 5 percent of the full minimum PIA would 

be added for every 4 quarters of coverage a worker had 

earned. Beneficiaries would receive the higher of the regular PIA or the new minimum PIA. In 2017 and later, 

the amount of the minimum PIA would rise to keep pace 

with average wages. 

Under this option, Social Security’s total outlays, measured as share of GDP, would increase by 0.2 percentage 

points in 2040, or by 3 percent from currently scheduled 

outlays. This option would worsen the 75-year actuarial 

balance, considered as a share of GDP, by 0.2 percentage 

points (about a 10 percent decline), but it would not significantly accelerate the exhaustion of the combined trust 

funds, currently projected for 2029. 

Scheduled initial retired-worker benefits under this option 

would increase by an average of 10 percent for low earners 

born in the 1960s, by 27 percent for low earners born in 

the 1980s, and by 23 percent for low earners born in the 

2000s. In 2040, about 30 percent of first-time Old-Age 

and Survivors Insurance participants and about 45 percent of new Disability Insurance participants would 

receive higher initial benefits than under current law; 

about 55 percent of those beneficiaries would be women. 

Payable lifetime benefits relative to lifetime earnings 

would be higher for low earners—by 8 percent for those 

born in the 1960s, 21 percent for those born in the 

1980s, and 18 percent for those born in the 2000s—but 

would be 3 percent or 4 percent lower for high earners in 

those birth cohorts.

Option 34: Create an Alternative Benefit for 

Spouses of Deceased Workers

Beginning in 2016, this option would introduce an alternative benefit for deceased workers’ spouses; current 

recipients would be eligible only if the new benefit 

increased their payments. Under this option, the alternative benefit would be calculated as 75 percent of the sum 

of the surviving spouse’s own worker benefit and the benefit the deceased spouse would have received if still 

alive.85 The amount would be capped at the primary 

insurance amount for an average-wage worker.86 The survivor would receive the greater of two possible benefit 

amounts: the new alternative benefit or the current-law 

survivors’ benefit. This option would generally provide 

higher benefits if both spouses had low lifetime earnings. 

Under this option, Social Security’s total outlays would 

increase slightly in 2040 from currently scheduled outlays. The option would slightly worsen the 75-year actuarial balance but it would not significantly accelerate 

the exhaustion of the combined trust funds, currently 

projected for 2029.

This report measures initial benefits for retired workers 

only on the basis of their own earnings—it does not 

include survivors’ benefits—so for this analysis, scheduled 

initial retired-worker benefits under this option would 

remain unchanged for all people. For people in all birth 

cohorts, scheduled lifetime benefits relative to lifetime 

earnings (which include survivors’ benefits) would 

increase slightly for low earners and for people in the 

middle of the earnings distribution. In 2040, about 40 percent of newly eligible survivor beneficiaries would receive 

higher benefits under this option than under current 

law; almost 90 percent of those beneficiaries would be 

85. Benefits used in this calculation for both the surviving spouse and 

the deceased spouse include any reductions for claiming before the 

full retirement age and any delayed-retirement credits.

86. This average-wage worker is a hypothetical person who earns the 

average wage starting at age 20 and continues to do so through 

the year in which the deceased worker became eligible for retiredworker benefits. 
70 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

women. (In 2040, about 90 percent of all newly eligible 

survivor beneficiaries will be women, CBO projects.) 

On average, in 2040, benefits would increase by about 

20 percent for newly eligible survivor beneficiaries who 

received increased benefits under this option. 

Payable lifetime benefits relative to lifetime earnings 

would increase slightly for most low earners and decrease 

by a small amount for high earners in any birth cohort.

Option 35: Limit the Survivors’ Benefit 

Beginning in 2023, this option would limit the survivors’ 

benefit to 100 percent of the primary insurance amount 

for an average-wage worker.87 The option would apply 

only to newly eligible beneficiaries. People who were 

older than 62 in 2023 and those receiving survivors’ 

benefits before that year would not have their benefits 

limited by this option.

Under this option, Social Security’s total outlays would 

decrease slightly in 2040 from currently scheduled outlays. This option would slightly improve the 75-year 

actuarial balance but it would not significantly extend the 

combined trust funds’ currently projected exhaustion 

date of 2029.

This analysis measured initial benefits for retired workers 

only on the basis of their own earnings—CBO did not 

include survivors’ benefits—so scheduled initial retiredworker benefits under this option would remain 

unchanged for all people. For people in all birth cohorts, 

scheduled lifetime benefits relative to lifetime earnings 

(which include survivors’ benefits) would decrease 

slightly, on average, for high earners. In 2040, about onefifth of beneficiaries newly eligible to receive survivors’ 

benefits—about 90 percent of them women, according to 

CBO’s projections—would receive benefits that were 

smaller than they would receive under current law. On 

average, in 2040, benefits would be almost 20 percent 

smaller for people whose survivors’ benefits were limited 

under this option. 

Payable lifetime benefits relative to lifetime earnings 

would decrease slightly for high earners in all birth 

cohorts. 

Option 36: Reduce the Spousal Benefit 

Beginning in 2023, this option would reduce payments 

to new beneficiaries who were entitled to receive spousal 

benefits. Under this option, after a 10-year phase-in 

period, an eligible spouse of a retired worker (the primary 

beneficiary) would be entitled to a spousal benefit of 

33 percent of that primary beneficiary’s primary insurance amount (instead of 50 percent, as under current 

law), so long as that surviving spouse was not eligible for 

a higher benefit on the basis of his or her own earnings. If 

the spouse also had earned benefits and his or her PIA 

was less than 33 percent of the primary beneficiary’s 

PIA, the spouse’s benefit would be increased to equal 

33 percent of the primary beneficiary’s PIA. Workers who 

had PIAs on the basis of their own earnings that were 

greater than or equal to 33 percent of a spouse’s PIA 

would receive no additional benefit. Anyone older than 

62 or currently receiving spousal benefits in 2023 would 

not be affected by this option.

This option would reduce benefits by one-third for people who received spousal benefits and were either not eligible for benefits based on their own earnings or whose 

PIAs, based on their own earnings, were less than 33 percent of their spouses’ PIAs. The reduction would be less 

than one-third for people whose PIAs, based on their own 

earnings, were between 33 percent and 50 percent of 

their spouses’ PIAs.

Under this option, Social Security’s total outlays would 

decrease slightly in 2040 from currently scheduled outlays. This option would slightly improve the 75-year 

actuarial balance but it would not significantly extend the 

combined trust funds’ currently projected exhaustion 

date of 2029.

For this report, CBO measured initial benefits for retired 

workers only on the basis of their own earnings—it did 

not include spousal benefits—so scheduled initial retiredworker benefits under this option would remain 

unchanged for all people. Scheduled lifetime benefits relative to lifetime earnings (which include spousal benefits) 

would decrease slightly for low earners born in the 1960s 

and for people in all categories of lifetime earnings born 

in the 1980s and 2000s. Payable lifetime benefits relative 

to lifetime earnings would not change significantly for 

most people in all birth cohorts.

87. This average-wage worker is a hypothetical person who earns the 

average wage starting at age 20 and continues to do so through 

the year in which the deceased worker became eligible for retiredworker benefits
CBO

Appendix A: 

The Disability Insurance Program’s Finances 

The Social Security Disability Insurance (DI) program 

provides income to disabled workers and to their dependents. At the end of October 2015, the program had 

10.8 million beneficiaries: 8.9 million disabled workers, 

1.7 million children of those workers, and about 140,000 

spouses of those workers. In fiscal year 2015, the program 

paid $143 billion in benefits to those workers and their 

dependents. Those payments accounted for 98 percent of 

the Disability Insurance Trust Fund’s outlays; administrative 

costs largely accounted for the rest.1

The DI trust fund’s main source of revenues is the payroll 

tax: In fiscal year 2015, the trust fund received $114 billion from that tax.2

 The trust fund also receives smaller 

amounts from taxes on benefits (about $2 billion in fiscal 

year 2015) and interest credited on its balance (less than 

$3 billion in fiscal year 2015). 

Outlook for Program Finances

In 2005, for the first time since 1993, DI outlays 

exceeded tax revenues credited to the program’s trust 

fund, and that gap has persisted ever since. By 2009, outlays had outstripped tax revenues plus interest payments, 

and the trust fund’s balance began to shrink. In fiscal year 

2015 the trust fund’s outlays were $28 billion more than 

its receipts (including interest payments).

From 2000 through 2015, 1.8 percentage points of the 

12.4 percent payroll tax was allocated to the DI trust 

fund; the rest was credited to the Old-Age and Survivors 

Insurance (OASI) Trust Fund. (Workers and their 

employers pay half each; self-employed people pay the 

entire amount.) However, the Bipartisan Budget Act of 

2015, which was enacted on November 2, 2015, will 

temporarily shift a 0.57 percentage-point share from the 

OASI trust fund to the DI trust fund.3

 The total payroll 

tax rate for the DI trust fund will thus be increased from 

1.8 percent to 2.37 percent for calendar years 2016 

through 2018, and the payroll tax rate for the OASI trust 

fund will be reduced by an equal amount in those years, 

from 10.6 percent to 10.03 percent. In calendar year 

2019, the allocations to the two trust funds will revert to 

their prior amounts. As a result of the reallocation, CBO 

projects, the DI trust fund’s receipts (including interest 

payments) will roughly equal outlays in fiscal year 2016 

and exceed them in 2017 and 2018. Outlays will once 

again exceed receipts (including interest) when the 

reallocation ends in 2019, and the trust fund’s balance 

will decline. 

Before the enactment of the Bipartisan Budget Act of 

2015, CBO had projected that the DI trust fund would 

be exhausted in fiscal year 2017 and that the OASI trust 

fund would be exhausted in calendar year 2031.4

 The 

agency now anticipates that the DI trust fund will be 

exhausted four years later, in fiscal year 2021, but that 

the OASI trust fund will be exhausted a year earlier, in 

1. For a more detailed description and a discussion of the DI 

program and various policy options, see Congressional Budget 

Office, Policy Options for the Social Security Disability Insurance 

Program (July 2012), www.cbo.gov/publication/43421.

2. That $114 billion includes $2 billion that the government 

contributes as the employer’s share of the payroll tax for federal 

workers. Those funds are recorded as offsetting receipts because 

they result from an intragovernmental transfer.

3. See Bipartisan Budget Act of 2015 (Public Law 114-74), 

www.congress.gov/bill/114th-congress/house-bill/1314; and 

Congressional Budget Office, cost estimate for H.R. 1314, the 

Bipartisan Budget Act of 2015 (October 28, 2015), www.cbo.gov/

publication/50938. P.L. 114-74 will reduce the DI program’s 

outlays by about $3 billion over the 2016–2025 period, CBO 

estimates. The largest change will arise from the requirement that 

the medical portions of all initial disability determinations be 

completed by a physician, psychiatrist, or psychologist, which will 

reduce the number of newly eligible beneficiaries.

4. See Congressional Budget Office, The 2015 Long-Term Budget 

Outlook (June 2015), www.cbo.gov/publication/50250.
72 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

calendar year 2030, than it had estimated previously.5

Because total tax revenues would remain the same, CBO 

does not project a change from calendar year 2029 for the 

exhaustion of the combined OASDI trust funds. 

(Although the two trust funds are legally separate, in 

some parts of its analyses, CBO follows the common analytical convention of considering them as combined.)

If the DI trust fund’s balance declined to zero in fiscal year 

2021 and if the fund’s current receipts were insufficient 

to cover benefits as specified in law, the Social Security 

Administration would no longer be permitted to pay full 

DI benefits when they were due. After the balance of the 

trust fund was exhausted, annual outlays therefore could 

not exceed annual receipts: Under those circumstances, 

all trust fund receipts would be spent and the balance 

would remain essentially at zero.6

 If the DI program’s outlays in fiscal year 2022 were limited to receipts credited to 

the trust fund and if the Social Security Administration 

therefore limited outlays by reducing benefits, according 

to CBO’s estimates, payments to beneficiaries would be 

21 percent below the amounts scheduled under current 

law. The Social Security Act does not specify a formula for 

reducing total benefits under that scenario, so the Social 

Security Administration would need to determine exactly 

how to implement such a reduction. OASI payments 

would not be affected. 

If current laws remained unchanged, alleviating the 

financial pressures on the DI program would require the 

government to substantially increase the program’s revenues, substantially curtail the program’s costs, or undertake some combination of those two actions. To forestall 

the DI trust fund’s exhaustion by 25 years (to 2046), for 

example, beginning in 2016, outlays could be reduced 

by about 21 percent. Alternatively, the DI program’s 

payroll tax rate could be increased by about 0.49 percentage points from 2.37 to 2.86 from 2016 through 

2018 (a 21 percent increase) and from 1.8 to 2.29 

thereafter (a 27 percent increase). 

Effects of This Report’s Options 

Some of the options presented in this report would have a 

small effect on the DI program’s finances before the trust 

fund’s projected exhaustion date, but most would have 

no near-term effects of significance. Over the longer 

term, however, many of the options would substantially 

improve the program’s finances. 

The policy options that would either boost the payroll tax 

rate or increase the amount of a worker’s earnings that are 

subject to the payroll tax (increase the taxable maximum, 

which, under current law, is $118,500 in 2015 and 2016) 

would take effect in 2016 and thus increase the amount 

of revenues credited to the DI trust fund starting in that 

year. In general, those options would forestall exhaustion 

of the DI trust fund by no more than a few years.

The options that would reduce initial DI benefits are 

designed to affect only beneficiaries who become newly 

eligible in or after 2023—two years beyond the DI trust 

fund’s currently projected exhaustion date. Options 

that would cut cost-of-living adjustments beginning in 

2016 would reduce DI benefits for current and future 

beneficiaries, but the reductions in outlays for DI benefits 

would initially be too small to significantly forestall 

exhaustion. 

Some of this report’s options could increase the number 

of DI beneficiaries and, all else being equal, the program’s 

outlays. An increase in the full retirement age would 

affect payments of DI benefits by delaying the age at 

which beneficiaries converted to retired-worker status. 

Some workers who delayed claiming retirement benefits 

because of an increase in the full retirement age might be 

eligible, as a result of illness or injury, to claim DI benefits before claiming retirement benefits. Some options 

would directly increase the DI program’s outlays by 

increasing benefits or boosting cost-of-living adjustments. 

Two—Option 22 and Option 33—would hasten the 

exhaustion of the DI trust fund by increasing benefits.

5. The change to the exhaustion date of the DI trust fund is based on 

the change in the share of the payroll tax rate received by the DI 

trust fund and other reductions in DI spending in title VIII, as a 

result of the enactment of P.L. 114-74. 

6. Noah P. Meyerson, Social Security: What Would Happen If the Trust 

Funds Ran Out? Report for Congress RL33514 (Congressional 

Research Service, August 2014), available in U.S. House of 

Representatives, Committee on Ways and Means, 2014 Green Book, 

Chapter 1: Social Security, “Social Security Congressional Research 

Service Reports” (accessed December 9, 2015), http://go.usa.gov/

cCXcG. That report notes the entitlement created under the Social 

Security Act, cites other laws that prohibit officials from making 

expenditures in excess of available funds, and acknowledges that the 

two create a potential conflict that must be resolved by the Congress 

or in the courts.
APPENDIX A SOCIAL SECURITY POLICY OPTIONS, 2015 73

CBO

Other Policy Options for the DI Program

Policymakers could improve the DI program’s finances by 

reducing the number of recipients. For example, new 

rules could require applicants to have worked more in 

recent years, prohibit workers from claiming DI benefits 

after the age of 61, raise the age at which disability 

requirements become less restrictive, or change the evaluation process. Policies that encouraged DI beneficiaries to 

return to work or that increased the number of continuing disability reviews could lead to more people leaving 

the program.

Instead, policymakers could reduce benefits for disabled 

workers or their dependents. (Several policy options in this 

report would change benefit calculations for all Social 

Security beneficiaries, including those who receive DI 

benefits.) For example, policymakers could reduce benefits 

paid to DI beneficiaries who are working on the basis of 

the amounts those recipients earn from work. 

The structure of the DI program also could be changed. 

For example, a partial disability system could tie benefit 

amounts to the severity of a disability, add requirements 

for rehabilitation whenever possible, or focus on reemployment of newly disabled workers. Employers could be 

required to pay a share of their current or recent employees’ disability benefits. The specifications of such changes 

would be critical factors in any estimates of short- or 

long-term effects on the program’s finances, and some 

could increase the program’s costs. 

Alternatively, in light of the importance of DI benefits to 

the individuals and families who receive them, policymakers might want to provide greater amounts of support to certain disabled workers. For example, lawmakers 

could raise the annual cost-of-living adjustment for DI 

beneficiaries or could eliminate the five-month waiting 

period for benefits for workers who apply for disability 

insurance, thereby paying benefits to DI recipients from 

the date of onset of their disability.

CBO

Appendix B: 

Actuarial Fairness of Social Security Benefits

Under current law, an eligible worker can claim reduced 

Social Security retirement benefits upon reaching age 62 

(the program’s early eligibility age, or EEA). If someone 

waits until his or her full retirement age (FRA), the amount 

of benefits is equal to his or her full primary insurance 

amount (PIA). If someone waits beyond the FRA, the 

benefits are larger until the worker reaches age 70. Those 

differences in benefit amounts, known as actuarial adjustments, are made to reduce or increase benefits depending 

on the number of months between the age at which a 

recipient first claims benefits and that person’s FRA. 

Thus, benefits are smaller for someone who claims 

between the EEA and the FRA and greater for a worker 

who makes an initial claim between the FRA and age 70. 

The actuarial adjustments used today were set more than 

50 years ago such that over a lifetime a retiree could 

expect to receive a roughly fixed amount in benefits 

regardless of the age at which benefits are first claimed.1

Benefits adjusted in that way are said to be actuarially 

fair.

2

To meet the goal of actuarial fairness, Social Security law 

reduces the PIA for early retirees by 5/9 of 1 percent 

for each month (62⁄3 percent per year) up to a total of 

36 months that a worker claims benefits in advance of the 

FRA. If the period exceeds 36 months, the PIA is further 

reduced by 5/12 of 1 percent per month (5 percent per 

year). The benefits of a recipient whose FRA is 66 and who 

first claims at 62 thus will be 25 percent less than his or her 

PIA every year to compensate for the four extra years of 

payments. By contrast, if someone chooses to delay until 

after reaching the FRA, that beneficiary receives a delayedretirement credit that increases the payment by 8/12 of 

1 percent for every month (8 percent per year) between the 

FRA and age 70. No additional credit is given if a person 

first claims benefits after turning 70.

The reality of actuarial fairness, however, is complicated 

by differences in life expectancy, such as that between 

men and women, and by the fact that the actuarial 

adjustments were set decades ago, when life expectancies 

for men and women alike were shorter. The Social Security 

Administration makes identical actuarial adjustments for 

men and women even though, for the most part, women 

can expect to live longer than men. A woman thus can 

anticipate receiving benefits over a longer period than her 

male counterpart can, so the adjustments might not be 

considered actuarially fair for all recipients. 

Today, for example, the Congressional Budget Office 

estimates that, on average, a woman’s life expectancy at 

age 62 is 23.2 years and that a man’s at 62 is 20.4 years. 

Because of that difference, the amount of expected lifetime benefits will be greater for a woman whose initial 

claim occurs at the same age and for the same amount as 

that of her male counterpart. 

Consider the following scenario: If a woman and a man 

each claim benefits at age 62 in 2015, both would see a 

25 percent reduction in benefits, even though, on average, the woman would expect to receive benefits for 

1. For this portion of the analysis, expected lifetime benefits are 

expressed as a present value—a single number that expresses a 

flow of past and future payments (in benefits) in terms of an 

equivalent lump sum paid at age 62. The value depends on the 

rate of interest, known as the discount rate, used to translate 

past and future cash flows into current dollars at that time. For 

this discussion, a person’s age at death is based on a statistical 

calculation of life expectancy—the number of additional years, on 

average, that a man or woman would be expected to live beyond 

age 62. 

2. For more discussion see Alicia H. Munnell and Steven A. Sass, Can 

the Actuarial Reduction for Social Security Early Retirement Still Be 

Right? Issue Brief 12-6 (Center for Retirement Research, Boston 

College, March 2012), http://tinyurl.com/nb3zhbe; and Frank W. 

Heiland and Na Yin, Have We Finally Achieved Actuarial Fairness of 

Social Security Retirement Benefits and Will It Last? Working Paper 

2014-307 (Michigan Retirement Research Center, University of 

Michigan, April 2014), http://deepblue.lib.umich.edu/handle/

2027.42/109395. 
76 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table B-1. 

Percentage Difference in the Present Value of Expected Lifetime Benefits for Retired Workers at 

Various Claim Ages Relative to Their Full Retirement Age

Source: Congressional Budget Office.

Notes: For this portion of the analysis, expected lifetime benefits are expressed as a present value—a single number that expresses a flow of 

past and future payments (in benefits) in terms of an equivalent lump sum paid at age 62.

* = between -0.5 and 0.5 percentage points.

almost 3 years longer than the man would. CBO estimates that the woman would expect to receive almost 

10 percent more than her male counterpart over a lifetime. If each of them waited until age 70 (in 2023) to 

claim initial benefits, the present value of the woman’s 

expected lifetime benefits would be 18 percent greater 

than that for the man. 

Consider another case: A man born in 1953, who reaches 

the EEA of 62 in 2015, will reach the FRA of 66 in 2019. 

He would receive 100 percent of his PIA if he waited 

until 2019 to claim benefits, but just 75 percent if he 

claimed this year, at age 62. In the latter case, the present 

value of his expected lifetime benefits would be 2 percent 

lower than if he waited until his FRA to claim his initial 

benefits (see Table B-1). If that same man waited until 

age 70 and was then eligible for the full delayed-retirement 

credit, the expected present value of his benefits would be 

3 percent lower than if he claimed at the EEA and 5 percent lower than if he claimed at the FRA—even though 

the adjustments are intended to make all of those present 

values equal. 

Contrast that with his female counterpart: If she claimed 

benefits in 2015 at the EEA, the expected present value of 

her lifetime benefits would be 5 percent lower than if 

she waited until reaching the FRA of 66 in 2019. If she 

waited until age 70, the expected present value would be 

4 percent higher than if she claimed at age 62 but only 

slightly lower than if she claimed at age 66.

The fairness of the actuarial adjustments will continue to 

shift as the FRA increases to 67 and as life expectancies 

increase. A man who was born in 1978 will reach the 

EEA in 2040. If he claimed benefits then, the expected 

present value of those benefits would be 5 percent lower 

than if he waited until his FRA. If he waited until age 70, 

the expected present value would be more than 4 percent 

higher than if he claimed benefits at the EEA but about 

the same as if he claimed at the FRA. If a woman born in 

1978 claimed benefits at the EEA, the expected present 

value would be 7 percent lower than if she waited until 

her FRA. If she waited until age 70, the expected present 

value would be 9 percent higher than if she claimed benefits at the EEA and 2 percent higher than if she claimed at 

her FRA.

Another complication is that the present value of 

expected lifetime benefits depends on the discount rate 

used in the calculation.3

 All else being equal, a higher rate 

would decrease the present value for all claim ages and for 

later ages relative to the present value at earlier claim ages. 

The opposite is true for lower discount rates: The present 

value of a worker’s expected lifetime benefits would 

increase for all claim ages and the increase would be 

smaller at earlier than at later claim ages.

Full

Birth Retirement

Year Age 62 63 64 65 66 67 68 69 70

1953 66 -2 -2 * * 0 * -1 -2 -5

1978 67 -5 -4 -3 -1 * 011 *

1953 66 -5 -4 -2 -1 0 1 1 1 -1

1978 67 -7 -6 -5 -3 -1 0 1 2 2

Claim Age

Men

Women

3. To compute present values for this analysis, CBO used a discount 

rate that is equal to the effective rate on federal debt. See 

Congressional Budget Office, The 2015 Long-Term Budget Outlook

(June 2015), Appendix A, www.cbo.gov/publication/50250.
CBO

Appendix C: 

Effects of the Policy Options on the 

Actuarial Balance of the Old-Age and Survivors 

Insurance and Disability Insurance Trust Funds, 

Individually and Combined

The main text of this report discusses the effects that the 

Congressional Budget Office estimates for 36 policy 

options on the 75-year actuarial balance of the trust funds 

for Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI), when considered as the combined 

OASDI trust funds (see Table 2 on page 23).1

 As part of 

its analysis, CBO also projected the effects of each option 

on the two trust funds separately (see Table C-1 on 

page 79). By itself, no option in this report could create 

long-term stability by eliminating the 75-year actuarial 

imbalance for either trust fund. Only six options would 

eliminate 40 percent or more of the actuarial imbalance 

in the OASI trust fund:

 Option 2: Increase the payroll tax rate by 2 percentage 

points over 10 years

 Option 7: Tax covered earnings above the taxable 

maximum; create a two-component system for 

calculating the primary insurance amount (PIA)

 Option 8: Tax covered earnings above the taxable 

maximum; do not increase benefits

 Option 18: Implement pure price indexing of initial 

benefits

 Option 19: Implement progressive price indexing of 

initial benefits for the top 70 percent of earners

 Option 22: Add an additional bend point to the PIA 

formula and reduce the PIA factors 

Three of those options (Options 7, 8, and 18) also would 

reduce the actuarial imbalance in the DI trust fund by at 

least 40 percent, as would two others:

 Option 6: Eliminate the taxable maximum

 Option 21: Index the bend points in the PIA formula 

to prices

Although some policy options would affect people who 

received DI benefits because those options affect all 

Social Security beneficiaries, CBO did not examine any 

proposals that would be specific to the DI program alone. 

For 26 policy options, the percentage change in the 75-

year actuarial balance was greater for the OASI trust fund 

than for the DI trust fund—in many cases, much greater. 

Some, such as those that involve progressive price indexing, would affect high earners more than low earners, and 

because high earners are less likely than low earners are to 

claim DI benefits, those options would have a larger 

effect on the OASI trust fund. Other options, such as 

those that would raise the full retirement age, would 

reduce retirement benefits but would not change disability 

1. The actuarial balance is the difference between a trust fund’s 

income rate and cost rate. The income rate is the present value 

of annual tax revenues over the 75-year period plus the initial 

balance in the trust fund for that period, each of which is divided 

by the present value of gross domestic product or taxable payroll. 

The cost rate is the present value of annual outlays for the period, 

plus the present value of a year’s worth of benefits as a reserve at 

the end of the 75 years, each of which is divided by the present 

value of gross domestic product or taxable payroll.
78 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

benefits. Because the increase in the age at which a beneficiary’s status converts from disabled to retired worker 

under those options, and because more people would claim 

disability benefits as a result, the actuarial balance of the DI 

trust fund would worsen under options that raised the full 

retirement age. 

For the remaining 10 options, the change in the 75-year 

actuarial balance was greater for the DI trust fund than for 

the OASI trust fund. Some options, such as Option 33, 

which would introduce a new special minimum benefit, 

would affect low earners more than high earners, and 

because low earners are more likely than high earners to 

claim DI benefits, options that affect them would have a 

larger effect on the DI trust fund.
APPENDIX C SOCIAL SECURITY POLICY OPTIONS, 2015 79

CBO

Table C-1. 

Effects of the Policy Options on the Actuarial Balances of the Old-Age and Survivors 

Insurance and Disability Insurance Trust Funds, Individually and Combined

Percentage of Gross Domestic Product

Continued

-1.45 -1.23 -0.22

Change the Taxation of Earnings

1

Increase the Payroll Tax Rate by 

1 Percentage Point 

0.32 0.28 0.04

2

Increase the Payroll Tax Rate by

2 Percentage Points Over 10 Years

0.59 0.52 0.08

3

Increase the Payroll Tax Rate by 

3 Percentage Points Over 60 Years

0.54 0.47 0.07

4

Raise the Taxable Maximum to 

Cover 90 Percent of Earnings

0.33 0.26 0.07

5

Raise the Taxable Maximum to 

Cover 90 Percent of Earnings; 

Do Not Increase Benefits

0.53 0.45 0.08

6

Eliminate the Taxable Maximum 0.59 0.45 0.13

7

Tax Covered Earnings Above the 

Taxable Maximum; Create a 

Two-Component System for 

Calculating the PIA

0.87 0.73 0.14

Current Lawa

Percentage-Point Change From

Outcome Under Current Law

75-Year Actuarial Balance of the

Percentage Improvement in the

Trust Funds

Combined OASI DI

Trust Fund Trust Fund

75-Year Actuarial Balanceb

Old-Age and Survivors Insurance

Disability Insurance

-50 0 50 100
80 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table C-1. Continued

Effects of the Policy Options on the Actuarial Balances of the Old-Age and Survivors 

Insurance and Disability Insurance Trust Funds, Individually and Combined

Percentage of Gross Domestic Product

Continued

-1.45 -1.23 -0.22

Change the Taxation of Earnings (Continued)

8

Tax Covered Earnings Above the 

Taxable Maximum; Do Not 

Increase Benefits

1.01 0.86 0.15

9

Tax Covered Earnings Above the 

Taxable Maximum at 4 Percent; 

Do Not Increase Benefits

0.33 0.28 0.05

10

Tax Covered Earnings Above 

$250,000 at 4 Percent; 

Do Not Increase Benefits

0.18 0.15 0.03

Change the Benefit Formula

11

Raise From 35 to 40 the Years of 

Earnings Included in the AIME

0.13 0.13 *

12

Index Earnings in the 

AIME Formula to Prices

0.21 0.18 0.04

13

Apply the Social Security Benefit 

Formula to Individual Years of 

Earnings

0.17 0.15 0.03

14

Reduce All PIA Factors by 

15 Percent

0.52 0.43 0.09

Current Lawa

Percentage-Point Change From

Outcome Under Current Law 75-Year Actuarial Balanceb

OASI DI

Trust Funds Trust Fund Trust Fund

75-Year Actuarial Balance of the

Combined

Percentage Improvement in the

Old-Age and Survivors Insurance

Disability Insurance

-50 0 50 100
APPENDIX C SOCIAL SECURITY POLICY OPTIONS, 2015 81

CBO

Table C-1. Continued

Effects of the Policy Options on the Actuarial Balances of the Old-Age and Survivors 

Insurance and Disability Insurance Trust Funds, Individually and Combined

Percentage of Gross Domestic Product

Continued

-1.45 -1.23 -0.22

Change the Benefit Formula (Continued)

15

Reduce the Top PIA Factor to 

10 Percent

0.06 0.06 *

16

Reduce All PIA Factors by 

0.5 Percent Annually 

0.47 0.39 0.09

17

Index Initial Benefits to 

Changes in Longevity 

0.28 0.28 *

18

Implement Pure Price 

Indexing of Initial Benefits

1.09 0.89 0.20

19

Implement Progressive Price 

Indexing of Initial Benefits for the 

Top 70 Percent of Earners

0.62 0.54 0.08

20

Implement Progressive Price 

Indexing of Initial Benefits for the 

Top 50 Percent of Earners

0.48 0.43 0.05

21

Index the Bend Points in the 

PIA Formula to Prices

0.53 0.44 0.09

Outcome Under Current Law 75-Year Actuarial Balanceb

75-Year Actuarial Balance of the

Combined OASI DI

Percentage Improvement in the

Trust Funds Trust Fund Trust Fund

Current Lawa

Percentage-Point Change From

Old-Age and Survivors Insurance

Disability Insurance

-50 0 50 100
82 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table C-1. Continued

Effects of the Policy Options on the Actuarial Balances of the Old-Age and Survivors 

Insurance and Disability Insurance Trust Funds, Individually and Combined

Percentage of Gross Domestic Product

Continued

-1.45 -1.23 -0.22

Change the Benefit Formula (Continued)

22

Add an Additional Bend Point to the 

PIA Formula and Reduce the PIA 

Factors

0.60 0.54 0.06

23

Increase the First Bend Point in the 

PIA Formula by 15 percent

-0.27 -0.22 -0.05

24

Replace the Current PIA Formula 

With a New Two-Part Formula

0.23 0.22 *

Raise the Full Retirement Age

25

Raise the FRA to 68 0.18 0.18 *

26

Raise the FRA to 70 0.45 0.45 *

27

Increase the FRA by One Month per 

Birth Year

0.40 0.40 *

28

Increase the FRA and the EEA by 

One Month per Birth Year

0.37 0.38 -0.01

Current Lawa

Percentage-Point Change From

Outcome Under Current Law

Percentage Improvement in the

75-Year Actuarial Balance of the

Combined OASI DI

Trust Funds Trust Fund Trust Fund

75-Year Actuarial Balanceb

Old-Age and Survivors Insurance

Disability Insurance

-50 0 50 100
APPENDIX C SOCIAL SECURITY POLICY OPTIONS, 2015 83

CBO

Table C-1. Continued

Effects of the Policy Options on the Actuarial Balances of the Old-Age and Survivors 

Insurance and Disability Insurance Trust Funds, Individually and Combined

Percentage of Gross Domestic Product

Continued

-1.45 -1.23 -0.22

Change Cost-of-Living Adjustments

29

Base COLAs on the Chained CPI-U 0.18 0.17 0.01

30

Base COLAs on the Chained CPI-U 

and Increase Benefits 20 Years

After Initial Eligibility 

0.11 0.10 0.01

31

Base COLAs on the CPI-E -0.13 -0.12 -0.01

32

Reduce COLAs for People With 

Higher PIAs

0.13 0.13 *

Change Benefits for Specific Groups

33

Introduce a New Poverty-Related Minimum

Benefit 

-0.20 -0.13 -0.07

34

Create an Alternative Benefit for 

Spouses of Deceased Workers

0.02 0.02 *

35

Limit the Survivors' Benefit 0.04 0.04 *

Outcome Under Current Law

Percentage-Point Change From

Current Lawa

Percentage Improvement in the

75-Year Actuarial Balanceb

75-Year Actuarial Balance of the

Combined OASI DI

Trust Funds Trust Fund Trust Fund

Old-Age and Survivors Insurance

Disability Insurance

-50 0 50 100
84 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table C-1. Continued

Effects of the Policy Options on the Actuarial Balances of the Old-Age and Survivors 

Insurance and Disability Insurance Trust Funds, Individually and Combined

Percentage of Gross Domestic Product

Source: Congressional Budget Office.

Notes: The actuarial balance is the difference between the income rate and the cost rate. The income rate is the present value of annual tax 

revenues over the 75-year period plus the initial balance in the trust fund for that period, each of which is divided by the present value 

of gross domestic product or taxable payroll. The cost rate is the present value of annual outlays for the period, plus the present value 

of a year’s worth of benefits as a reserve at the end of the 75 years, each of which is divided by the present value of gross domestic 

product or taxable payroll.

Details of specific options are contained in the text; definitions of terms are in the glossary.

AIME = average indexed monthly earnings; COLA = cost-of-living adjustment; CPI-E = consumer price index for elderly consumers; 

CPI-U = consumer price index for all urban consumers; DI = Disability Insurance; EEA = early eligibility age; 

FRA = full retirement age; OASI = Old-Age and Survivors Insurance; PIA = primary insurance amount; * = between -0.005 and 

0.005 percentage points.

a. “Current law” refers to current provisions of the Social Security Act for calculating benefits and payroll taxes. See Congressional Budget 

Office, The 2015 Long-Term Budget Outlook (June 2015), Chapter 3, www.cbo.gov/publication/50250.

b. Each bar illustrates the change in the 75-year actuarial balance for the OASI or DI trust fund that is attributable to an option as compared 

with the outcome under current law. A positive value indicates that the option improves the program’s finances over the 2015–2089 

period; a negative value indicates that the option worsens the program’s finances. 

-1.45 -1.23 -0.22

Change Benefits for Specific Groups (Continued)

36

Reduce the Spousal Benefit 0.04 0.04 *

Percentage Improvement in the

75-Year Actuarial Balanceb

75-Year Actuarial Balance of the

Combined OASI DI

Trust Funds Trust Fund Trust Fund

Current Lawa

Percentage-Point Change From

Outcome Under Current Law

Old-Age and Survivors Insurance

Disability Insurance

-50 0 50 100
CBO

Appendix D: 

Distributional Effects of Options With 

Similar Effects on the System’s Finances 

The 36 policy options discussed in the main portion of 

this study would have a variety of effects on the finances of 

the Social Security system. The distributional trade-offs 

become clearer, however, if the options are compared 

while their overall effects on the system’s finances are held 

constant. Therefore, in another exercise, the Congressional 

Budget Office compared the distributional effects of 

8 additional policy options it derived from the original 

36 with the objective of producing a single effect on the 

actuarial balance: Each would reduce the 75-year actuarial deficit, relative to that under current law, by about 

one-quarter, or by 0.35 percent of gross domestic product 

(see Table D-1 on page 87). The implementation dates 

and phase-in periods would be same as those for the corresponding options in the main body of this report. 

Option 1a: Increase the payroll tax rate by 1.1 percentage 

points; Option 1 calls for an increase of 1 percentage point 

in the payroll tax. 

Option 4a: Raise the taxable maximum to cover 

91 percent of earnings, phased in over a 10-year period 

starting in 2016; Option 4 would raise the taxable maximum to cover 90 percent of earnings.

Option 5a: Raise the taxable maximum to cover 

87 percent of earnings, phased in over a 10-year period 

starting in 2016, and do not increase benefits; Option 5

would raise the taxable maximum to cover 90 percent of 

earnings and would not increase benefits. 

Option 9a: Apply a 4.4 percent tax to all covered earnings 

above the taxable maximum, phased in over a 10-year 

period starting in 2016, and do not increase benefits; 

Option 9 would apply a 4.0 percent tax.

Option 14a: Reduce all of the primary insurance amount 

(PIA) factors by 10.5 percent, phased in over a 10-year 

period starting in 2023; Option 14 would reduce them 

by 15 percent.

Option 20a: Implement progressive price indexing to 

lower initial benefits for the top 37 percent of earners, 

starting in 2023; Option 20 would implement progressive price indexing for the top 50 percent of earners.

Option 26a: Starting for people born in 1961, increase 

the full retirement age (FRA) by two months per birth 

year until it reached age 69; Option 26 would increase 

the FRA to age 70. 

Option 29a: Reduce cost-of-living adjustments (COLAs) 

by 0.52 percentage points, starting in 2016; Option 29 

(which would base COLAs on an index different from 

the one in use under current law) would reduce COLAs 

by an estimated 0.25 percentage points.

The first four options—Options 1a, 4a, 5a, and 9a—

would primarily affect payroll taxes. (The increase in the 

taxable maximum in Option 4a also would result in 

higher benefits.) In general, increasing taxes in 2016 

would have a smaller effect on workers born before the 

1980s than on younger workers because more years of 

earnings for people in the younger groups would be subject to higher taxes. Option 1a would increase lifetime 

taxes relative to lifetime earnings by a similar proportion 

for all workers whose earnings were below the taxable 

maximum (now $118,500). The other three options 

affecting payroll taxes, by contrast, would increase lifetime taxes relative to earnings mainly for high earners, 

and the effects of the taxes on covered earnings above the 

taxable maximum would be more concentrated among 

the very highest earners. 
86 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

The other four options—Options 14a, 20a, 26a, and 

29a—would affect benefits but not payroll taxes. 

Changes to the benefit formula and the FRA would affect 

future beneficiaries only, whereas changes in COLAs 

would reduce benefits for existing and future beneficiaries. Reducing all of the PIA factors (as in Option 14a) 

would have similar effects on lifetime benefits relative to 

lifetime earnings for people in all birth cohorts who were 

eligible to claim benefits starting in 2032, the year that policy would be fully phased in, regardless of their earnings.1

In contrast, using progressive price indexing to reduce 

benefits for the top 37 percent of earners (as in Option 20a) 

would curtail lifetime benefits relative to lifetime earnings 

for high earners but not significantly for low earners. 

Under this option, the reductions to that ratio would be 

larger for people in later birth cohorts. 

Option 26a, a phased-in increase in the FRA, would 

reduce scheduled lifetime benefits relative to lifetime 

earnings less for low earners than for high earners in the 

same birth cohort because workers who claim disability 

benefits before age 62 are exposed to fewer years of reductions to PIA factors than are those who claim later, and 

people who claim Disability Insurance benefits are more 

likely to have been low earners than high earners. Moreover, a gradual increase in the FRA would lead to 

a greater reduction in benefits for people born later. 

Reducing COLAs (as in Option 29a) would have similar 

effects on lifetime benefits relative to lifetime earnings, 

regardless of how much people earned. That ratio would 

be reduced less for people who were eligible to claim benefits before the COLAs were reduced than for those first 

eligible to claim benefits after the policy took effect.

1. For people who were eligible to claim benefits during the phase-in 

period, Option 14a would make a smaller reduction in scheduled 

lifetime benefits relative to lifetime earnings for low earners than 

for high earners. Low earners are more likely to claim Disability 

Insurance benefits and the reduction to the PIA factors would be 

smaller at the time they claimed those benefits than for people in 

the same birth cohort who waited at least until they reached the 

earliest eligibility age (62 under current law) and then claimed 

retired-worker benefits. 
APPENDIX D SOCIAL SECURITY POLICY OPTIONS, 2015 87

CBO

Table D-1. 

Changes to Social Security’s Scheduled Benefits and Payroll Taxes for Different Groups 

Under Various Options That Have Similar Effects on the System’s Finances

Percent

Continued

Lifetime

Household

Earnings

Quintilea

Low 30 36 38 12 12 12

Middle 16 20 20 12 12 12

High 7 8 8 7 8 7

1a

Low *** 269

Middle *** 279

High *** 3 8 9

4a

Low *** ***

Middle * * 1 * * 1

High 8 17 20 14 31 37

5a

Low *** ***

Middle *** ** 1

High *** 9 18 21

9a

Low *** ***

Middle *** ***

High *** 12 19 23

14a

Low -2 -8 -10 ***

Middle -3 -10 -10 ***

High -4 -10 -10 ***

20a

Low *** ***

Middle -1 -2 -4 ***

High -4 -21 -30 ***

1960

Tax Covered Earnings Above the 

Taxable Maximum at 4.4 Percent; 

Do Not Increase Benefitse

Change the Benefit Formula

Reduce All PIA Factors by 10.5 Percent

Implement Progressive Price Indexing of Initial 

Benefits for the Top 37 Percent of Earners

2000

Raise the Taxable Maximum to 

Cover 91 Percent of Earningse

Raise the Taxable Maximum to 

Cover 87 Percent of Earnings; 

Do Not Increase Benefitse

Change the Taxation of Earnings

Increase the Payroll Tax Rate by 

1.1 Percentage Pointse 

Current Lawc

2000 1960 1980

Percentage Change From Outcome Under Current Lawd

Taxes Relative to Lifetime 

Mean Lifetime Payroll 

10-Year Birth Cohortb

Earnings for

Relative to Lifetime 

Mean Lifetime Benefits 

Earnings for

10-Year Birth Cohortb

All Beneficiaries by All Beneficiaries by

1980
88 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

Table D-1. Continued

Changes to Social Security’s Scheduled Benefits and Payroll Taxes for Different Groups 

Under Various Options That Have Similar Effects on the System’s Finances

Percent

Source: Congressional Budget Office.

Notes: Scheduled benefits are benefits as calculated under the provisions of the Social Security Act, regardless of balances in the 

Social Security trust funds. For this analysis, CBO follows the common analytical convention of considering the Old-Age and Survivors 

Insurance Trust Fund and the Disability Insurance Trust Fund as combined, even though legally they are separate.

Mean values are within a group.

Details of specific options are contained in the text; definitions of terms are in the glossary.

COLA = cost-of-living adjustment; FRA = full retirement age; PIA = primary insurance amount; 

* = between -0.5 percent and 0.5 percent.

a. The lowest, middle, and highest fifths of people ranked by lifetime household earnings, within a 10-year birth cohort. The distribution of 

lifetime household earnings includes only people who live at least to age 45. 

b. The present value of a person’s lifetime benefits or payroll taxes as a percentage of the present value of his or her lifetime earnings. 

Lifetime Social Security benefits include all benefits except those received by young widows and children, which are excluded from this 

measure because there are insufficient data for years before 1984. Lifetime benefits are net of income taxes paid on those benefits. 

Payroll taxes consist of the employer’s and employee’s shares combined. To calculate present value, amounts are adjusted for inflation as 

measured by the price index for personal consumption expenditures (to produce constant dollars) and discounted to age 65.

c. “Current law” refers to current provisions of the Social Security Act for calculating benefits and payroll taxes. See Congressional Budget 

Office, The 2015 Long-Term Budget Outlook (June 2015), Chapter 3, www.cbo.gov/publication/50250. 

d. Each option’s effect is measured as a percentage change from the current-law value. For example, under current law, the mean lifetime 

payroll tax relative to lifetime earnings for low earners born in the 2000s will be 12 percent. For Option 1a, the 1.1 percentage-point 

increase in that ratio is expressed as a 9 percent increase in this table. 

e. In this analysis, because total compensation remains fixed, changes to payroll taxes paid by the employer, which are considered part of 

total compensation, reduce cash wages. The reduction in cash wages results in lower payroll taxes and in decreased benefits.

Lifetime

Household

Earnings

Quintilea

Low 30 36 38 12 12 12

Middle 16 20 20 12 12 12

High 7 8 8 7 8 7

26a

Low -3 -7 -6 ***

Middle -4 -9 -9 ***

High -5 -10 -10 * -1 -1

29a

Low -6 -8 -8 ***

Middle -7 -8 -8 ***

High -8 -8 -8 ***

2000 1960 1980

All Beneficiaries by

Percentage Change From Outcome Under Current Lawd

Change Cost-of-Living Adjustments

Earnings for Earnings for

All Beneficiaries by

10-Year Birth Cohortb 10-Year Birth Cohortb

1960 1980

Reduce COLAs by 0.52 Percentage Points 

Raise the Full Retirement Age

Raise the FRA to 69 

Mean Lifetime Benefits Mean Lifetime Payroll 

Relative to Lifetime Taxes Relative to Lifetime 

2000

Current Lawc
CBO

Glossary 

actuarial adjustments: The reductions or increases to a 

worker’s primary insurance amount (PIA) that depend on 

the number of months between the age at which a recipient first claims benefits and his or her full retirement age 

(FRA). The benefits of a worker who claims before reaching the FRA are reduced by 5/9 of 1 percent for each 

month (62⁄3 percent per year) up to a total of 36 months 

before the FRA. If that period exceeds 36 months, the 

benefit amount is further reduced by 5/12 of 1 percent 

per month (5 percent per year). People who were born in 

1943 or later and who claim benefits after reaching 

their FRA generally receive a delayed-retirement credit 

that amounts to 8/12 of 1 percent of the PIA for each 

month (8 percent per year) after the FRA that they delay 

claiming, up to the age of 70. 

actuarial balance: The sum of the present value of annual 

tax revenues over a specified period and the initial balance 

in the trust fund for that period, minus the sum of the present value of annual outlays over that period and the present 

value of a year’s worth of benefits at the end of the period. 

That difference is traditionally presented as a percentage 

of the present value of taxable payroll or gross domestic 

product over the same period. For this study, CBO calculated the actuarial balance for a period of 75 calendar 

years—from 2015 to 2089. 

actuarial fairness: The condition under which the present value of a person’s Social Security benefits over a lifetime would be equal without respect to the age at which 

he or she first claims benefits. 

average indexed monthly earnings (AIME): A measure of 

taxable earnings over a person’s lifetime that is used to set 

Social Security benefits. The AIME for a retired-worker 

beneficiary is calculated from the recipient’s 35 years with 

the highest earnings subject to Social Security payroll 

taxes. Taxable earnings before age 60 are indexed to 

growth in average wages; earnings at age 60 and later 

enter the computations at their nominal amounts. Dividing the total earnings (after indexing) by 420 (35 years 

multiplied by 12 months) yields the AIME for a retired 

worker. For a disabled worker, the number of years of 

earnings included in the calculation depends on the age 

at which that person becomes eligible for disability benefits. Taxable earnings that were credited more than two 

years before the initial benefit computation are indexed 

to growth in average wages; earnings for the two years 

that precede the initial benefit computation enter the 

computations at their nominal amounts. A period of less 

than 35 years is used in the AIME calculation for a 

worker who claims retired-worker benefits after having 

previously claimed disability benefits but then recovered 

and left the disability rolls.

average wage index (AWI): An index that measures the 

average amount of total wages in the United States in a 

calendar year, including earnings in employment not 

covered by Social Security. Several automatic adjustments 

under Social Security law are based on the AWI. 

baby-boom generation: The group of people who were 

born between 1946 and 1964. 

bend point: The threshold at which a primary insurance 

amount factor changes. Under current law, there are two 

in 2015: $826 and $4,980. Bend points change annually 

to keep pace with changes in the average earnings of the 

workforce as a whole. 

birth cohort: A group of people born in a given period. 

This analysis focuses on people placed into one of three 

10-year birth cohorts: the 1960s cohort, people born 

between 1960 and 1969; the 1980s cohort, people 

born between 1980 and 1989; or the 2000s cohort, 

people born between 2000 and 2009.

consumer price index (CPI): A cost-of-living index commonly used to measure inflation. The Bureau of Labor 

Statistics publishes several such indexes, including the 

CPI-W, which is based on a typical market basket of 

goods and services consumed by urban wage earners and 
90 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

clerical workers. Some automatic adjustments in Social 

Security, notably its cost-of-living adjustments, are based 

on the CPI-W. The CPI-U is based on a typical market 

basket of goods and services consumed by all urban consumers. The chained CPI-U is similar, but it accounts for 

the ways that consumers generally adjust their spending 

as some prices change relative to others. The CPI-E is 

based on a typical market basket of goods and services 

consumed by elderly consumers, accounting for spending 

patterns of people age 62 or older. 

cost-of-living adjustment (COLA): Under current law, an 

annual increase in benefits that is tied to changes in the 

consumer price index for urban wage earners and clerical 

workers (CPI-W). The adjustment is applied to December payments, which beneficiaries receive in January, and 

it reflects growth in the CPI-W from the third quarter of 

the last calendar year in which a nonzero COLA was 

determined to the third quarter of the current year. If 

there is no increase in the CPI-W over that period, the 

COLA is set at zero, and benefits do not increase.

covered earnings: Earnings (in wages or self-employment 

income) from employment that is subject to Social Security 

taxation.

delayed-retirement credit: A credit that permanently 

increases benefits by 8/12 of 1 percent for each month 

(8 percent per year) a worker delays claiming beyond the 

full retirement age, up to age 70; no additional credit 

is given if a person first claims benefits after age 70.

Disability Insurance Trust Fund: One of two Social Security 

trust funds, it finances the activities of the Disability 

Insurance (DI) program. 

early eligibility age (EEA): The earliest age (62, under 

current law) at which someone may claim retired-worker 

benefits. 

full retirement age (FRA): The age at which a person 

becomes entitled to claim full retirement benefits (which 

are equal to the primary insurance amount); also called the 

normal retirement age. That age is set according to the year 

in which a person was born. Under current law, for workers born before 1938, the FRA is 65. For workers born 

between 1938 and 1943, the FRA increases by two months 

for each successive birth year, until it reaches age 66 for 

people born in 1943. The FRA remains at age 66 for workers born between 1943 and 1954, and then, starting with 

people born in 1955, it increases by two months for each 

successive birth year, until it reaches age 67 for people 

born in or after 1960. For people turning 62 in 2015 the 

FRA is 66. The FRA will begin to increase for people 

turning 62 in 2017, and it will reach age 67 for those 

turning 62 in 2022.

gross domestic product (GDP): The total market value 

of goods and services produced domestically in a given 

period. 

initial benefits: For retired workers, benefits that would 

be received by workers eligible to claim Old-Age Insurance benefits who have not yet claimed any other Social 

Security benefits (such as disability benefits or survivors’ 

benefits). For this study, CBO calculated benefits under 

the simplifying assumption that all workers would claim 

benefits at age 65. The initial benefit amount is based on 

a worker’s own earnings only through age 61 and is net of 

income taxes paid on those benefits. For disabled beneficiaries, initial benefits are benefits at the time of initial 

benefit receipt, net of any income taxes paid on those 

benefits.

life expectancy: The number of additional years a person 

is expected to live after reaching a given age.

lifetime benefits: The present value at age 65 of benefits 

received over a lifetime for a person who lives at least to 

age 45, net of income taxes paid on those benefits. Lifetime benefits include retired-worker benefits, disabledworker benefits, and benefits paid to dependents and 

survivors of workers. Because there are insufficient data 

on benefits received by young widows and children for 

years before 1984, benefits paid to young widows, spouses 

of disabled workers, and child beneficiaries are excluded 

from this measure.

lifetime earnings: The present value at age 65 of inflationadjusted earnings over a lifetime, including earnings 

above the taxable maximum, for a person who lives at 

least to age 45. 

lifetime household earnings: For someone who is single 

in all years, the present value of his or her inflationadjusted earnings over a lifetime, including earnings above 

the taxable maximum. In any year in which a person is 

married, lifetime household earnings consist of the couple’s 

inflation-adjusted earnings (adjusted for economies of scale 

in household consumption).
GLOSSARY SOCIAL SECURITY POLICY OPTIONS, 2015 91

CBO

lifetime household earnings quintile: A division of the 

population (consisting of all people who live at least to 

age 45) into one of five groups ranked according to lifetime 

household earnings. For this study, “low earners” were 

people in the bottom quintile; “high earners” were people 

in the top quintile.

lifetime payroll taxes: For this study, the present value 

at age 65 of Social Security payroll taxes paid by the 

employer and the employee over a lifetime for a person 

who lives at least to age 45. The worker’s portion of the 

payroll tax was reduced by 2 percentage points for 2011 

and 2012 (as was the tax paid by self-employed workers). 

For lifetime payroll taxes, workers are assumed to have 

paid the full amount of the payroll tax in 2011 and 2012. 

Old-Age and Survivors Insurance Trust Fund: One of two 

Social Security trust funds, it finances the activities of the 

Old-Age and Survivors Insurance (OASI) program.

payable benefits: Benefits as calculated under current 

law, reduced as necessary to conform to the limits 

imposed by a trust fund’s balance. If a trust fund’s balance 

declined to zero and current revenues were insufficient 

to cover benefits specified in law, the Social Security 

Administration would no longer be permitted to pay full 

benefits when they were due. The manner in which outlays 

would be reduced is not specified in law. For this study, 

CBO assumed that Old-Age and Survivors Insurance and 

Disability Insurance benefits paid to existing and new 

beneficiaries would be reduced by the percentage necessary to make the program’s total annual outlays equal its 

total available revenues once the combined trust funds 

were exhausted.

payroll tax: A tax on people’s earnings that is credited to 

the Old-Age and Survivors Insurance Trust Fund and the 

Disability Insurance Trust Fund. Under current law, 

12.4 percent of people’s earnings up to a maximum 

amount each year—now $118,500—are subject to the 

payroll tax. Workers and their employers each pay half; 

self-employed people pay the entire amount. 

present value: A single number that expresses a flow of 

past and future income (in taxes) or payments (in benefits) in terms of an equivalent lump sum received or paid 

at a specific time. The value depends on the rate of interest, known as the discount rate, used to translate past and 

future cash flows into current dollars at that time. 

primary insurance amount (PIA): The amount to be paid 

each month to a disabled worker or to a worker who begins 

to receive Social Security retirement benefits at the full 

retirement age. Actual monthly benefits paid to retired 

workers and their dependents differ from the PIA 

depending on the number of months either before or 

after reaching the full retirement age that a person claims 

benefits. 

primary insurance amount (PIA) factor: The percentage of 

the average indexed monthly earnings replaced in the PIA 

formula. Under current law, the PIA factors are 90 percent 

below the first bend point (at which the PIA factor 

changes), 32 percent between the first and second bend 

points, and 15 percent above the second bend point. 

primary insurance amount (PIA) formula: A formula 

that is used to convert a worker’s average indexed 

monthly earnings (AIME) into his or her PIA. The 

AIME is converted to the PIA by applying PIA factors 

(or replacement rates applied to portions of the AIME), 

which change at the bend points. For workers who turn 

62 or become disabled in 2015, for all of their dependents, and for dependents of workers who die in 2015, 

the PIA formula is 90 percent of the first $826 of the 

AIME, plus 32 percent of the AIME between $826 and 

$4,980, plus 15 percent of the AIME above $4,980.

quarter of coverage: The basic unit for determining coverage under the Social Security program. To be eligible 

for retired-worker benefits, a person generally must have 

worked for a minimum of 10 years (40 quarters of coverage, or 40 credits) under the program. In 2015, the 

minimum amount for a credit is $1,220 in wages, so any 

worker who earns at least $4,880 will receive four credits 

for the year.

replacement rate: The ratio of a Social Security recipient’s 

benefit payments to his or her past earnings.

scheduled benefits: Benefits as calculated under current 

law, regardless of the amounts available in the Social 

Security trust funds. 

taxable maximum: The maximum amount of annual 

earnings to which the payroll tax is applied (now 

$118,500). The taxable maximum increases annually 

with average earnings; in years without a cost-of-living 

adjustment (as in 2010, 2011, and 2016), the taxable 
92 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

maximum does not increase. The taxable maximum does 

not decrease when average wages decline. 

taxable payroll: The total earnings (wages and selfemployment income) for employment covered by Social 

Security that is below the applicable annual taxable 

maximum. 

trust funds: The accounts to which Social Security taxes 

are credited and from which benefits are paid. Interest on 

the funds’ balances also is credited to the trust funds, and 

administrative expenses are withdrawn from them. The 

two trust funds are the Old-Age and Survivors Insurance 

(OASI) Trust Fund and the Disability Insurance (DI) 

Trust Fund. Although they are legally separate, in this 

report, CBO generally follows the common analytical 

convention of considering them as combined and refers 

to them as the combined, or OASDI, trust funds. 

trust fund balance: At any given time, the balance in a 

program’s trust fund is an indicator of the historical relationship between receipts and expenditures. Trust funds 

have an important legal meaning in that their balances 

are a measure of the amounts that the government is permitted to spend for certain purposes under current law. 

In a given year, the sum of receipts credited to a trust 

fund, along with any interest credited on previous balances, minus spending for benefits and administrative 

costs constitutes its surplus or deficit.

trust fund exhaustion date: The year in which a trust 

fund’s balance will reach zero.

trust fund ratio: The balance in the Social Security trust 

funds at the beginning of the year, divided by projected 

outlays in that year. 
DECEMBER 2015 SOCIAL SECURITY POLICY OPTIONS, 2015 93

CBO

List of Tables and Figures

Tables

1. Social Security Tax Revenues and Outlays Under Current Law, With Scheduled 

Benefits, in Selected Years 9

2. Changes to Social Security’s Finances Under Various Options, With Scheduled Benefits 23

3. Changes to Social Security’s Scheduled Benefits and Payroll Taxes for 

Different Groups Under Various Options 30

4. Changes to Social Security’s Payable Benefits and Payroll Taxes for 

Different Groups Under Various Options 36

B-1. Percentage Difference in the Present Value of Expected Lifetime Benefits for 

Retired Workers at Various Claim Ages Relative to Their Full Retirement Age 76

C-1. Effects of the Policy Options on the Actuarial Balances of the Old-Age and Survivors 

Insurance and Disability Insurance Trust Funds, Individually and Combined 79

D-1. Changes to Social Security’s Scheduled Benefits and Payroll Taxes for Different Groups 

Under Various Options That Have Similar Effects on the System’s Finances 87

Figures

1. Effects of the Policy Options on the 75-Year Actuarial Balance of the 

Old-Age and Survivors Insurance and Disability Insurance Trust Funds 3

2. Number of Social Security Beneficiaries by Type of Benefits Received, 2015 4

3. Population, by Age Group 7

4. Social Security Tax Revenues and Outlays, With Scheduled and Payable Benefits 11

5. Calculating the PIA in 2015 Under Current Law 14

6. Calculating the PIA in 2040 Using the Basic-AIME and the Surplus-AIME (Option 7) 47

7. Calculating the PIA Using Pure Price Indexing (Option 18) 54

8. Calculating the PIA Using Progressive Price Indexing (Option 19) 57

9. Calculating the PIA Using Indexing of Bend Points to Prices (Option 21) 59

10. Calculating the PIA Using an Additional Bend Point (Option 22) 61
94 SOCIAL SECURITY POLICY OPTIONS, 2015 DECEMBER 2015

CBO

About This Document

This report of the Congressional Budget Office was prepared at the request of the Chairman and 

the Ranking Member of the Senate Committee on Finance. It examines a variety of approaches to 

changing Social Security, updating earlier work, including Social Security Policy Options (2010) and 

selections in Options for Reducing the Deficit: 2015 to 2024 (November 2014). In keeping with CBO’s 

mandate to provide objective, impartial analysis, the current report makes no recommendations.

The report was written by Charles Pineles-Mark of CBO’s Long-Term Analysis Unit, with guidance 

from Julie Topoleski and Linda Bilheimer. The long-term simulations were programmed by Geena Kim, 

Xiaotong Niu, Charles Pineles-Mark, and Michael Simpson. Stephanie Hugie Barello, Sheila Dacey, 

Ed Harris, Kevin Perese, Kurt Seibert, Michael Simpson, and Emily Stern provided comments. Justin Lee, 

Marina Kutyavina, Kyle Redfield, and Stephanie Hugie Barello provided fact-checking. The staff of 

the Joint Committee on Taxation provided information and comments on the draft. Jeffrey Brown 

of the University of Illinois; Melissa Favreault of the Urban Institute; Noah Meyerson, formerly of 

the Congressional Research Service (now a CBO staff member); and Matthew Rutledge of the Center for 

Retirement Research at Boston College provided comments. The assistance of external reviewers implies 

no responsibility for the final product, which rests solely with CBO.

Jeffrey Kling, John Skeen, and Robert Sunshine reviewed the report. The manuscript was edited by 

Kate Kelly and prepared for publication by Maureen Costantino and Jeanine Rees. The supplemental 

data were prepared by Charles Pineles-Mark, with assistance from Jeanine Rees. An electronic version 

is available on CBO’s website (www.cbo.gov/publication/51011).

Keith Hall 

Director

December 2015