Social Security

Memorandum

Date: October 2, 2001 Refer to : TCC

To: Representative Jim Kolbe

 Representative Charles Stenholm

From: Stephen C. Goss, Chief Actuary 

Alice H. Wade, Deputy Chief Actuary

Subject: Benefit Levels under the 21st Century Retirement Act --

INFORMATION 

This memorandum compares estimated future benefit levels for retired workers 

assuming enactment of the 21st Century Retirement Act (H.R. 2771 with 

modifications to reflect the sponsors' stated intent) to benefit levels scheduled

under present law and benefit levels estimated to be payable under present law. For 

a detailed explanation of the provisions of H.R. 2771, please refer to our 

memorandum dated August 24, 2001. These estimated benefit levels under the 

proposal reflect the intent of legislation as described by Representative Kolbe's and 

Representative Stenholm’s staff. The stated intent of several provisions differs from 

the legislative language in the bill. These discrepancies are indicated in table 1 of 

the memorandum dated August 24, 2001. It is anticipated that technical amendments 

to the bill that will conform to the stated intent will be forthcoming. All estimates are 

based on the intermediate assumptions of the 2001 Trustees Report plus additional 

assumptions described in our memorandum dated August 24, 2001.

Benefits scheduled under present law are not projected to be sustainable. Under 

these assumptions, the OASDI Trust Fund is projected to become exhausted in 2038. 

At that time, tax income only covers 73 percent of scheduled benefits. In 2075, tax 

income covers about 67 percent of scheduled benefits. For this reason, we also 

compare benefit levels under H.R. 2771 (with modifications) to those estimated to be 

payable under present law. The present law benefits used in this comparison are 

automatically reduced each year beginning in 2038 so that the annual expenditures 

paid from the OASDI Trust Fund would equal the annual tax income received by the 

OASDI Trust Funds under the intermediate assumptions of the 2001 Trustees 

Report. The benefit reductions are assumed to apply proportionally to all 

beneficiaries. This is one interpretation of how the system might operate if no 

changes are made to current law.
2

All benefit levels presented in this memorandum are for hypothetical retired workers 

who have never been disabled. Table 1 compares the basic benefit formula 

scheduled under present law with the basic benefit formula proposed under 

H.R. 2771. (The basic benefit formula produces the primary insurance amount, or 

PIA.) The remaining tables, compare benefit levels for selected hypothetical scaled 

earners. (Hypothetical scaled earners reflect age-specific variation in the probability 

of work and in the average level of taxable earnings for individuals fully insured 

under the program.)1 Tables 2, 3, and 4 provide ratios of benefits under H.R. 2771 to 

present-law benefit level for lifetime single earners, one-earner couples, and twoearner couples, respectively. 

OASI retirement benefits under the proposal reflect cost-of-living adjustments 

(COLAs) that are 0.33 percentage point lower each year than projected under present 

law. This results in benefits that are progressively lower, relative to present law, as 

age increases beyond initial eligibility at 62. Thus, in addition to benefit levels at 

age 65, benefit levels are shown in the tables for the hypothetical workers at ages 80 

and 95. 

OASI retirement benefits under the proposal are reduced (by about 2.5 percent, 

on average) due to increasing the benefit computation period and including all 

earnings in calculating the AIME, with one exception. For the lower earner of the 

two-earner couple or for one of the earners in the case that assumes equal earnings of 

husband and wife, no reduction is applied. Also, beneficiaries who have the 

proposed minimum benefit apply are assumed to have varying quarters of coverage 

depending upon their earnings level and year of retirement, as indicated in the chart 

below. This assumption is based on the projections of newly awarded retired worker 

beneficiaries under the intermediate assumptions of the 2001 Trustees Report.

Number of Quarters of Coverage Assumed for Hypothetical Scaled-Earner 

Retirees without Periods of Disability by Earnings Level and Year of 

Retirement

Earnings Level 2000 2020 2050 2070

Low 98 106 110 112

Medium 153 156 157 157

High 167 167 167 167

Individual account distributions calculated for the hypothetical workers do not 

reflect any voluntary contributions beyond the basic universal 2-percent level. 

Hypothetical workers shown in the tables are assumed to elect an annuity form of 

payout from their individual accounts at date of retirement. The annuities from the 

 

1 See Actuarial Note Number 144 for a complete description. This note can be found on the following website: 

http://www.ssa.gov/OACT/NOTES/note144.html
3

individual accounts are assumed to be indexed by CPI less 0.33 percentage point, 

consistent with the COLA provided for Social Security benefits under the proposal. 

Because of the considerable variation in the actual yield of individual accounts that 

could be experienced by different workers at different times, two different 

individual-account annuity levels are shown in tables 2, 3, and 4. Under the expected 

yield, the following assumptions are made:

• During the accumulation period, individual accounts would be, on average, invested 50% 

in equities and 50% in long-term Treasury bonds.

• During the disbursement period (after retirement), the net real annuity yield is assumed to 

be 3 percent annually.

• The real yield on equities is assumed to average 6.5 percent annually (see earlier 

discussion of equity yield assumption in memorandum date).

• The real yield on long-term Treasury bonds is assumed to average 3.0 percent annually.

• The charge for annual administrative expenses is assumed to average 90 basis points 

during the accumulation period.

The bond yield scenario differs from the expected yield scenario by assuming that, during the 

accumulation period, the actual real yield on investments held in individual accounts is the 

same, on average, as the real yield on long-term Treasury bonds. This could occur for a 

specific individual if:

• Equities yield no more than bonds during their work years,

• The individual makes poor (unlucky) choices in timing asset allocations over time, or

• The individual invests conservatively, only in bonds. 

This scenario also illustrates expected benefits on a "risk adjusted" basis, where risk-adjusted 

yields are set equal to the long-term bond yield.

Stephen C. Goss 

Alice H. Wade
Table 1: Comparison of Benefit Formula Scheduled under Present Law

Bend Points for worker turning age 62 in 2001:

New Middle Last

First Bend Point Bend Point2Bend Point

 561 1,100 3,381

Between First Between New

Bend Point Middle Bend Point Above

Year Worker Under First and New Middle and Last Last

Turns Age 62 Bend Point Bend Point Bend Point Bend Point

Present Law 90% 32% 32% 15%

H.R. 2771

2010 90% 51% 26% 13%

2020 88% 55% 16% 8%

2030 86% 41% 12% 6%

2040 72% 35% 10% 5%

2050 60% 29% 8% 4%

2060 50% 24% 7% 3%

2070 49% 24% 7% 3%

1

 For details of the provision of H.R. 2771 , refer to the memorandum dated August 24, 2001.

2

 Under H.R. 2771 , the new bend point is set at 196 percent of the first bend point.

Formula Factors Applying to Worker Turning Age 62 in Indicated Year:

to Benefit Formula Proposed for Retired Workers 

with no Disability Period under H.R. 27711 

Office of the Actuary

Social Security Administration 12/26/2002
Current Age

(Assuming with IA Annuity with IA Annuity with IA Annuity

Retirement at OASI Expected Bond Expected Bond OASI Expected Bond Expected Bond OASI Expected Bond Expected Bond 

Age 65) Benefit Yield Yield Yield Yield Benefit Yield Yield Yield Yield Benefit Yield Yield Yield Yield

Comparison is made to Benefits Scheduled to be Paid under Present Law

Low Earner

65 1.04 0.08 0.07 1.12 1.11 0.70 0.30 0.20 1.00 0.90 0.62 0.29 0.20 0.91 0.82

80 0.99 0.08 0.07 1.07 1.06 0.67 0.29 0.19 0.96 0.86 0.59 0.28 0.19 0.87 0.78

95 0.95 0.07 0.06 1.02 1.01 0.64 0.27 0.18 0.91 0.82 0.56 0.27 0.18 0.83 0.74

Medium Earner

65 0.81 0.10 0.08 0.91 0.89 0.52 0.35 0.24 0.88 0.76 0.49 0.34 0.23 0.83 0.72

80 0.78 0.09 0.08 0.87 0.85 0.50 0.34 0.22 0.84 0.72 0.47 0.33 0.22 0.79 0.68

95 0.74 0.09 0.07 0.83 0.81 0.48 0.32 0.21 0.80 0.69 0.44 0.31 0.21 0.75 0.65

High Earner

65 0.73 0.11 0.09 0.84 0.82 0.46 0.41 0.27 0.87 0.73 0.38 0.39 0.26 0.77 0.64

80 0.70 0.10 0.09 0.80 0.79 0.44 0.39 0.26 0.82 0.70 0.36 0.37 0.25 0.73 0.61

95 0.66 0.10 0.08 0.76 0.75 0.42 0.37 0.25 0.79 0.66 0.34 0.36 0.24 0.70 0.58

Comparison is made to Reduced Benefits Payable under Present Law

Low Earner

65 1.04 0.08 0.07 1.12 1.11 0.96 0.41 0.28 1.38 1.24 0.91 0.43 0.29 1.34 1.20

80 0.99 0.08 0.07 1.07 1.06 0.97 0.42 0.28 1.38 1.24 0.90 0.42 0.28 1.33 1.19

95 1.30 0.10 0.09 1.40 1.39 0.96 0.41 0.28 1.37 1.23 0.89 0.42 0.28 1.31 1.17

Medium Earner

65 0.81 0.10 0.08 0.91 0.89 0.72 0.48 0.32 1.20 1.04 0.72 0.50 0.33 1.22 1.05

80 0.78 0.09 0.08 0.87 0.85 0.72 0.49 0.32 1.21 1.05 0.71 0.50 0.33 1.21 1.04

95 1.02 0.12 0.10 1.13 1.12 0.72 0.48 0.32 1.20 1.04 0.70 0.49 0.33 1.19 1.03

High Earner

65 0.73 0.11 0.09 0.84 0.82 0.63 0.56 0.37 1.19 1.00 0.55 0.58 0.38 1.13 0.94

80 0.70 0.10 0.09 0.80 0.79 0.63 0.56 0.37 1.19 1.01 0.55 0.57 0.38 1.12 0.93

95 0.91 0.14 0.12 1.05 1.03 0.63 0.56 0.37 1.18 1.00 0.54 0.56 0.38 1.10 0.91

* Illustrations assume that workers have no periods of disability prior to retirement. 

Table 2: Ratio of Retirement Benefits Proposed under H.R. 2771 to Present Law OASI Benefit

Benefits Levels for Single Earners Retiring at Age 65 with Various Scaled Pre-Retirement Earnings Levels*

( Intermediate assumptions of the 2001 OASDI Trustees Report plus additional assumptions described in the accompanying memorandum)

IA Annuity Only

Retirement in 2020 Retirement in 2050 Retirement in 2070

Total Benefit Total Benefit

IA Annuity Only

Total Benefit

IA Annuity Only

Office of the Chief Actuary

Social Security Administration 12/26/2002
Current Age

(Assuming with IA Annuity with IA Annuity with IA Annuity

Retirement at OASI Expected Bond Expected Bond OASI Expected Bond Expected Bond OASI Expected Bond Expected Bond 

Age 65) Benefit Yield Yield Yield Yield Benefit Yield Yield Yield Yield Benefit Yield Yield Yield Yield

Comparison is made to Benefits Scheduled to be Paid under Present Law

Low Earner

65 1.03 0.05 0.04 1.09 1.08 0.70 0.19 0.13 0.89 0.83 0.62 0.19 0.12 0.81 0.74

80 0.99 0.05 0.04 1.03 1.03 0.67 0.18 0.12 0.85 0.79 0.59 0.18 0.12 0.77 0.71

95 0.94 0.05 0.04 0.99 0.98 0.64 0.17 0.12 0.81 0.75 0.56 0.17 0.11 0.73 0.68

Medium Earner

65 0.81 0.06 0.05 0.87 0.86 0.52 0.22 0.15 0.75 0.67 0.49 0.22 0.14 0.70 0.63

80 0.77 0.06 0.05 0.83 0.82 0.50 0.21 0.14 0.71 0.64 0.47 0.21 0.14 0.67 0.60

95 0.73 0.05 0.05 0.79 0.78 0.48 0.20 0.14 0.68 0.61 0.44 0.20 0.13 0.64 0.57

High Earner

65 0.73 0.07 0.06 0.79 0.78 0.46 0.26 0.17 0.72 0.63 0.37 0.25 0.17 0.62 0.54

80 0.69 0.06 0.06 0.76 0.75 0.44 0.24 0.16 0.68 0.60 0.36 0.24 0.16 0.59 0.52

95 0.66 0.06 0.05 0.72 0.71 0.42 0.23 0.16 0.65 0.57 0.34 0.23 0.15 0.57 0.49

Comparison is made to Reduced Benefits Payable under Present Law

Low Earner

65 1.03 0.05 0.04 1.09 1.08 0.96 0.26 0.17 1.22 1.14 0.91 0.27 0.18 1.18 1.09

80 0.99 0.05 0.04 1.03 1.03 0.97 0.26 0.18 1.23 1.14 0.90 0.27 0.18 1.17 1.08

95 1.29 0.06 0.05 1.35 1.34 0.96 0.26 0.17 1.22 1.13 0.89 0.27 0.18 1.16 1.07

Medium Earner

65 0.81 0.06 0.05 0.87 0.86 0.72 0.31 0.20 1.03 0.92 0.72 0.32 0.21 1.03 0.93

80 0.77 0.06 0.05 0.83 0.82 0.72 0.31 0.21 1.03 0.93 0.71 0.31 0.21 1.02 0.92

95 1.01 0.07 0.06 1.08 1.07 0.72 0.31 0.20 1.02 0.92 0.70 0.31 0.21 1.01 0.91

High Earner

65 0.73 0.07 0.06 0.79 0.78 0.63 0.35 0.23 0.98 0.87 0.55 0.37 0.24 0.92 0.79

80 0.69 0.06 0.06 0.76 0.75 0.63 0.35 0.24 0.99 0.87 0.54 0.36 0.24 0.91 0.79

95 0.91 0.08 0.07 0.99 0.98 0.63 0.35 0.23 0.98 0.86 0.54 0.36 0.24 0.89 0.78

* Illustrations assume that workers have no periods of disability prior to retirement. 

Table 3: Ratio of Retirement Benefits Proposed under H.R. 2771 to Present Law OASI Benefit

Benefits Levels for One-Earner Couples Retiring at Age 65 with Various Scaled Pre-Retirement Earnings Levels*

( Intermediate assumptions of the 2001 OASDI Trustees Report plus additional assumptions described in the accompanying memorandum)

IA Annuity Only

Retirement in 2020 Retirement in 2050 Retirement in 2070

Total Benefit Total Benefit

IA Annuity Only

Total Benefit

IA Annuity Only

Office of the Chief Actuary

Social Security Administration 12/26/2002
Current Age

(Assuming with IA Annuity with IA Annuity with IA Annuity

Retirement at OASI Expected Bond Expected Bond OASI Expected Bond Expected Bond OASI Expected Bond Expected Bond 

Age 65) Benefit Yield Yield Yield Yield Benefit Yield Yield Yield Yield Benefit Yield Yield Yield Yield

Comparison is made to Benefits Scheduled to be Paid under Present Law

Medium Earner, Low Earner

65 0.91 0.08 0.07 0.99 0.98 0.60 0.31 0.21 0.91 0.81 0.54 0.30 0.20 0.85 0.75

80 0.87 0.08 0.07 0.95 0.93 0.57 0.30 0.20 0.87 0.77 0.52 0.29 0.19 0.81 0.71

95 0.83 0.08 0.06 0.90 0.89 0.54 0.28 0.19 0.83 0.73 0.49 0.28 0.18 0.77 0.68

Medium Earner, Medium Earner

65 0.82 0.09 0.08 0.91 0.90 0.53 0.33 0.22 0.86 0.75 0.49 0.32 0.21 0.81 0.71

80 0.79 0.08 0.07 0.87 0.86 0.51 0.31 0.21 0.82 0.72 0.47 0.31 0.20 0.78 0.68

95 0.75 0.08 0.07 0.83 0.82 0.48 0.30 0.20 0.78 0.68 0.45 0.29 0.19 0.74 0.64

Medium Earner, High Earner

65 0.78 0.10 0.08 0.87 0.86 0.49 0.36 0.24 0.85 0.73 0.43 0.35 0.23 0.78 0.66

80 0.74 0.09 0.08 0.83 0.82 0.47 0.34 0.23 0.81 0.70 0.41 0.33 0.22 0.74 0.63

95 0.70 0.09 0.07 0.79 0.78 0.45 0.33 0.22 0.77 0.67 0.39 0.32 0.21 0.71 0.60

Comparison is made to Reduced Benefits Payable under Present Law

Medium Earner, Low Earner

65 0.91 0.08 0.07 0.99 0.98 0.82 0.43 0.29 1.25 1.11 0.80 0.44 0.30 1.24 1.10

80 0.87 0.08 0.07 0.95 0.93 0.82 0.43 0.29 1.25 1.11 0.79 0.44 0.29 1.23 1.08

95 1.14 0.10 0.09 1.24 1.22 0.82 0.43 0.28 1.24 1.10 0.78 0.43 0.29 1.21 1.07

Medium Earner, Medium Earner

65 0.82 0.09 0.08 0.91 0.90 0.73 0.45 0.30 1.18 1.03 0.73 0.47 0.31 1.20 1.04

80 0.79 0.08 0.07 0.87 0.86 0.73 0.46 0.30 1.19 1.04 0.72 0.46 0.31 1.18 1.03

95 1.03 0.11 0.09 1.14 1.12 0.73 0.45 0.30 1.18 1.03 0.71 0.46 0.31 1.17 1.02

Medium Earner, High Earner

65 0.78 0.10 0.08 0.87 0.86 0.68 0.49 0.33 1.17 1.01 0.63 0.51 0.34 1.14 0.97

80 0.74 0.09 0.08 0.83 0.82 0.68 0.49 0.33 1.17 1.01 0.62 0.51 0.34 1.13 0.96

95 0.97 0.12 0.10 1.09 1.07 0.67 0.49 0.33 1.16 1.00 0.62 0.50 0.33 1.11 0.95

* Illustrations assume that workers have no periods of disability prior to retirement. 

Table 4: Ratio of Retirement Benefits Proposed under H.R. 2771 to Present Law OASI Benefit

Benefits Levels for Two-Earner Couples Retiring at Age 65 with Various Scaled Pre-Retirement Earnings Levels*

( Intermediate assumptions of the 2001 OASDI Trustees Report plus additional assumptions described in the accompanying memorandum)

IA Annuity Only

Retirement in 2020 Retirement in 2050 Retirement in 2070

Total Benefit Total Benefit

IA Annuity Only

Total Benefit

IA Annuity Only

Office of the Chief Actuary

Social Security Administration 12/26/2002