SOCIAL SECURITY

Office of the Chief Actuary

SOCIAL SECURITY ADMINISTRATION BALTIMORE, MD 21235-0001

October 18, 2010 

The Honorable Earl Pomeroy 

Chairman, Subcommittee on Social Security 

Committee on Ways and Means 

House of Representatives

Washington, D.C. 20515 

Dear Mr. Pomeroy:

I am writing in response to your letter of September 15, 2010 requesting analysis of effects on 

Social Security benefit levels for retirees under several possible changes to the program. Alice 

Wade and Tiffany Bosley have developed the estimates shown in the enclosed tables based on 

further discussion and clarification with Kathryn Olson, Staff Director of the Subcommittee. 

All estimates in tables 1 through 3 are based on the intermediate assumptions of the 2010 

Trustees Report. Estimates of the benefit levels and percentage changes for the indicated 

proposals are provided for retired workers attaining age 65 in years 2010, 2020, and each tenth 

year thereafter through 2080, with a range of career earnings levels. The earnings levels used for 

these illustrations reflect hypothetical worker career earnings patterns based on actual worker 

experience, with career-average annual levels equal to 25, 45, 100, and 160 percent of the 

national average wage index (AWI), which is estimated to be $43,084 for 2010. We refer to 

these hypothetical earner cases as scaled very low, scaled low, scaled medium, and scaled high 

earners. In addition, estimates are provided for a hypothetical worker with earnings in at least 35 

years at the level of the Social Security contribution and benefit base, which is $106,800 for 

2010. 

Table 1 compares estimated benefit levels scheduled in current law with estimated benefit levels 

under the indicated proposals for partial price indexing of benefits across generations of retirees. 

Table 2 compares estimated benefit levels scheduled in current law with estimated benefit levels 

under the indicated proposals for increasing the normal retirement age (NRA) beyond increases 

already scheduled in the law. See the more detailed descriptions of each proposal below. The 

dollar levels of benefits in each table are expressed in current dollars that are wage indexed using 

the AWI to the 2010 equivalent level. Wage indexing the dollar level of projected future 

benefits to the current year allows for easy comparison to current year earnings and benefit 

levels, indicating the relative standard of living the future benefits would provide. This 

presentation of future dollar benefit levels is consistent with the estimated future benefit levels 

provided in the annual Social Security Statement. Each table also shows the percentage change 

in the benefit compared to the level scheduled in current law. 
Page 2 – The Honorable Earl Pomeroy

1. Price Indexing the Primary Insurance Amount (PIA)

The two proposals that you described for partial price indexing the base benefit (Primary 

Insurance Amount, or PIA) would continue full average wage indexing of the benefit levels from 

one generation to the next for insured retired workers whose career average earnings level is in 

the lower 30 and 50 percent of all retirees, respectively. Starting for workers reaching retirement 

eligibility in 2018, the proposals would gradually reduce the 32 and 15 percent factors in the PIA 

formula, which apply to the higher career earners, such that the benefits for steady maximum 

earners would change from one generation to the next at the rate of change in the CPI-W, rather 

than at the rate of change in the AWI. This would reduce the average growth in benefits for 

steady maximum earners by about 1.2 percent per year. Reductions from one generation to the 

next would be smaller for workers retiring with lower career average earnings levels, as shown in 

Table 1. No reduction would be applied for workers in successive generations at or below the 

30th and 50th percentile of career average earners, respectively.

These proposals would not affect benefits paid from the Disability Insurance Trust Fund. 

However, under the proposals, disabled workers would receive a portion of the reduction 

applicable for workers of their age upon reaching NRA, which is the age at which they convert 

from disabled worker to retired worker benefit status. The reduction applied would be in 

proportion to the number of elapsed years between ages 22 and 62 for which no disabled worker 

benefit was received. For example, a worker who became entitled to disabled worker benefits at 

age 32 would have 10 years (from 22 to 31) of potential work out of the 40 elapsed years (from 

22 to 61), and thus would receive at NRA 10/40, or 25 percent, of the reduction applicable for 

retired workers of the same age who had never been disabled. For a worker who became entitled 

to disabled worker benefits at age 52, 30 out of 40 elapsed years would be potential work years, 

and so 30/40, or 75 percent, of the reduction applicable for retired workers of the same age who 

had never been disabled would apply. Note that disabled workers converting to retired worker 

benefit status at NRA would retain the PIA formula used for the year of disability entitlement. 

The proportionate reduction to that formula would be made by reducing the 32 and 15 percent 

factors above the protected level by the applicable proportion of the full reduction, based on 

years of disability. For a disabled worker with a career average earnings level (AIME) 

equivalent to one of the levels indicated in Table 1, the percentage reductions shown in Table 1 

for retirees would apply, adjusted by the appropriate proportion reflecting years of disability. 

Estimates of the financial effects on the OASDI program for the first of these options, the 

proposal applying no reduction to the lower 30 percent of career average earners, are available 

on our Internet site under provision B1.6 (2018) at 

http://www.ssa.gov/OACT/solvency/provisions/benefitlevel.html#B1.

The second option would have a smaller effect on OASDI long-range solvency, reducing the 

estimated actuarial deficit by about 0.72 percent of payroll. These estimates are based on the 

intermediate assumptions of the 2009 Trustees Report. We anticipate these estimates will be 

similar when updated to reflect the intermediate assumptions of the 2010 Trustees Report.
Page 3 – The Honorable Earl Pomeroy

2. Increasing the Normal Retirement Age (NRA)

The three proposals illustrated in Table 2 would provide for increases in the normal retirement 

age (NRA) beyond current law. Option 1 would increase the NRA by an additional one month 

every 2 years after reaching age 67 for those attaining age 62 in 2022 under current law. After 

2022, this option would effectively index the NRA to maintain a constant relationship (ratio) 

between the expected number of years lived after reaching NRA and the potential years of work 

from age 20 up to NRA. This rate of increase is consistent with the mortality improvement 

projected under the intermediate assumptions of the 2010 Trustees Report.

NRA option 2 would accelerate the currently scheduled increase in NRA by adding an additional 

2 months to the increase for those age 62 in 2018, thus reaching an NRA of 67 one year earlier 

for those age 62 in 2021. Option 2 would then further increase the NRA after 2021 in the same 

fashion as for option 1.

NRA option 3 would continue the NRA rate of increase of 2 months per year that applies under 

current law from 2017 through 2022 (reaching the NRA of 67) until the NRA reaches age 70 for 

those attaining age 62 in 2040 and later. 

In addition to Table 2, we have produced Table 2a which provides the specified NRA and the 

percentage of the full PIA that would be payable at ages 62, 65, 67, and 70 for each hypothetical 

worker case shown in Table 2. 

Estimates of the financial effects on the OASDI program for the first and second of these options 

are available on our Internet site under provisions C1.7 and C1.8 at 

http://www.ssa.gov/OACT/solvency/provisions/retireage.html#C1. The third option would have 

a larger effect on OASDI long-range solvency, reducing the estimated actuarial deficit by about 

0.96 percent of payroll. These estimates are based on the intermediate assumptions of the 2009 

Trustees Report. We anticipate these estimates will be similar when updated to reflect the 

intermediate assumptions of the 2010 Trustees Report.

3. Indexing Cost of Living Adjustments (COLA) to a Chained Version of the CPI-W

The Bureau of Labor Statistics produces a modified version of the CPI-U that adjusts for 

consumer redistribution of purchases on a month-to-month basis across broad categories, or 

strata, of goods and services. On average, this redistribution tends to move consumption away 

from categories where prices are rising quickly and toward categories where prices are rising 

more slowly. The resulting “chained” C-CPI-U has historically averaged an annual increase that 

is about 0.3 percent less than the unadjusted CPI-U. We assume that the effect of using the 

chained approach would be about the same for the CPI-W as it has been for the CPI-U. Thus, we 

assume that a chained version of the CPI-W would result in COLAs that would be about 0.3 

percent lower than are expected, on average, under current law. 
Page 4 – The Honorable Earl Pomeroy

Because the first COLA for a beneficiary is applied for the December benefit of the year of 

initial eligibility, this proposal actually has no effect on benefits payable to retired workers at age 

62. For years after attaining age 62, however, using this modified CPI for the COLA would 

result in annual reductions in the benefit that would accumulate with the number of years that 

elapse. For example, a retired worker at age 75 would have 13 COLAs applied to benefits and so 

would have a 3.7-percent lower benefit on average than under current law. The average 

reduction, as shown in Table 3, would be 6.5 percent at age 85 and 9.2 percent at age 95.

Reductions due to the lower COLAs would also apply to disabled worker beneficiaries, 

reflecting the number of years they have been entitled for benefits. For example, a disabled 

worker beneficiary who is in the 14th year of entitlement would have the same average reduction 

from this proposal as the 75-year-old retired worker beneficiary. A converted retired worker 

who had earlier been a disabled worker starting 33 years ago would have the same average 

reduction as a 95-year-old retired worker beneficiary who had never been disabled. 

Estimates of the financial effects on the OASDI program for this provision beginning with the 

COLA in December 2012 are available on our Internet site under provision A4 at 

http://www.ssa.gov/OACT/solvency/provisions/cola.html. These estimates are based on the 

intermediate assumptions of the 2009 Trustees Report. We anticipate these estimates will be 

similar when updated to reflect the intermediate assumptions of the 2010 Trustees Report.

We hope these illustrative benefit estimates will be helpful. Please let me know if we may 

provide further assistance.

Sincerely,

 Stephen C. Goss

Chief Actuary

Enclosures 
Year Present Law Benefit Change from Proposed Change from Proposed

Attain Monthly Scheduled Present Law Monthly Present Law Monthly

Age 65 Benefit Amount Scheduled Benefit Amount Scheduled Benefit Amount

(Wage Indexed (Percent (Wage Indexed (Percent (Wage Indexed

2010 Dollars) Change) 2010 Dollars) Change) 2010 Dollars)

2010 648

2020 611 0.0 611 0.0 611

2030 579 0.0 579 0.0 579

2040 578 0.0 578 0.0 578

2050 580 0.0 580 0.0 580

2060 580 0.0 580 0.0 580

2070 580 0.0 580 0.0 580

2080 580 0.0 580 0.0 580

2010 848

2020 800 0.0 800 0.0 800

2030 758 0.0 758 0.0 758

2040 756 0.0 756 0.0 756

2050 758 0.0 758 0.0 758

2060 759 0.0 759 0.0 759

2070 759 0.0 759 0.0 759

2080 758 0.0 758 0.0 758

2010 1,397

2020 1,318 0.0 1,318 0.0 1,318

2030 1,248 -6.3 1,170 -1.9 1,225

2040 1,245 -11.9 1,097 -3.5 1,202

2050 1,249 -16.9 1,038 -5.0 1,187

2060 1,251 -21.1 987 -6.2 1,173

2070 1,251 -24.9 940 -7.1 1,163

2080 1,249 -28.2 897 -7.1 1,161

2010 1,851

2020 1,747 0.0 1,747 0.0 1,747

2030 1,654 -9.5 1,498 -7.9 1,524

2040 1,651 -17.8 1,357 -14.9 1,405

2050 1,656 -25.3 1,237 -21.1 1,306

2060 1,658 -31.6 1,134 -26.4 1,220

2070 1,658 -37.2 1,041 -29.9 1,163

2080 1,656 -42.2 957 -29.9 1,161

2010 2,192

2020 2,126 0.0 2,126 0.0 2,126

2030 2,021 -11.2 1,795 -11.3 1,794

2040 2,016 -21.1 1,591 -21.2 1,588

2050 2,020 -29.9 1,416 -30.1 1,413

2060 2,021 -37.4 1,265 -37.5 1,262

2070 2,021 -44.0 1,131 -42.5 1,163

2080 2,019 -49.9 1,010 -42.5 1,161

1

 Average of highest 35 years of earnings wage indexed to 2010.

2

 Progressive Price Indexing starting for those newly eligible in 2018, holding harmless the lowest 30% of career-average earners.

3

 Progressive Price Indexing starting for those newly eligible in 2018, holding harmless the lowest 50% of career-average earners.

All estimates based on the intermediate assumptions of the 2010 Trustees Report.

Note: For 2010 newly eligible beneficiaries, the annualized career average indexed earnings level is $22,260 at the 30th percentile and $37,356 at the

50th percentile. The earnings level above which the 15% PIA factor applies is $55,032 for those newly eligible in 2010. Bend Points and

PIA factors for those newly eligible in 2010 are based on the AWI two years prior to benefit eligiblilty.

October 18, 2010

Scaled Low Earner ($19,388 for 20101

)

Scaled Medium Earner ($43,084 for 20101)

Scaled High Earner ($68,934 for 20101)

Steady Maximum Earner ($106,800 for 20101)

Office of the Actuary

Social Security Administration

Progressive Price Indexing: 50th Percentile3

Table 1. Price Indexing the Primary Insurance Amount (PIA)

For Worker Retiring at age 65 at Indicated Career Earnings Level

Scaled Very Low Earner ($10,771 for 20101)

Progressive Price Indexing: 30th Percentile2
Year Present Law Benefit Longevity Proposed Longevity Proposed Index NRA Proposed

Attain Monthly Scheduled Index NRA Monthly Index NRA Monthly 2 Mth/1Yr Monthly

Age 65 Benefit Amount 1 Mth/2Yrs2 Benefit Amount 1 Mth/2Yrs3 Benefit Amount to Age 704 Benefit Amount

(Wage Indexed (Percent (Wage Indexed (Percent (Wage Indexed (Percent (Wage Indexed

2010 Dollars) Change) 2010 Dollars) Change) 2010 Dollars) Change) 2010 Dollars)

2010 648

2020 611 0.0 611 0.0 611 0.0 611

2030 579 -1.3 572 -1.9 568 -6.4 542

2040 578 -4.5 552 -5.1 548 -16.3 483

2050 580 -7.7 535 -8.2 532 -19.2 468

2060 580 -10.1 522 -10.6 519 -19.2 469

2070 580 -12.5 508 -13.0 505 -19.2 469

2080 580 -14.9 493 -15.4 491 -19.2 468

2010 848

2020 800 0.0 800 0.0 800 0.0 800

2030 758 -1.3 748 -1.9 743 -6.4 709

2040 756 -4.5 722 -5.1 717 -16.3 632

2050 758 -7.7 700 -8.2 696 -19.2 612

2060 759 -10.1 682 -10.6 679 -19.2 613

2070 759 -12.5 664 -13.0 661 -19.2 613

2080 758 -14.9 645 -15.4 642 -19.2 612

2010 1,397

2020 1,318 0.0 1,318 0.0 1,318 0.0 1,318

2030 1,248 -1.3 1,232 -1.9 1,224 -6.4 1,168

2040 1,245 -4.5 1,190 -5.1 1,182 -16.3 1,042

2050 1,249 -7.7 1,153 -8.2 1,147 -19.2 1,009

2060 1,251 -10.1 1,125 -10.6 1,119 -19.2 1,010

2070 1,251 -12.5 1,095 -13.0 1,089 -19.2 1,011

2080 1,249 -14.9 1,063 -15.4 1,057 -19.2 1,009

2010 1,851

2020 1,747 0.0 1,747 0.0 1,747 0.0 1,747

2030 1,654 -1.3 1,633 -1.9 1,623 -6.4 1,548

2040 1,651 -4.5 1,576 -5.1 1,566 -16.3 1,381

2050 1,656 -7.7 1,528 -8.2 1,520 -19.2 1,337

2060 1,658 -10.1 1,490 -10.6 1,482 -19.2 1,339

2070 1,658 -12.5 1,451 -13.0 1,443 -19.2 1,339

2080 1,656 -14.9 1,409 -15.4 1,401 -19.2 1,338

2010 2,192

2020 2,126 0.0 2,126 0.0 2,126 0.0 2,126

2030 2,021 -1.3 1,995 -1.9 1,982 -6.4 1,892

2040 2,016 -4.5 1,925 -5.1 1,913 -16.3 1,686

2050 2,020 -7.7 1,865 -8.2 1,855 -19.2 1,632

2060 2,021 -10.1 1,817 -10.6 1,807 -19.2 1,632

2070 2,021 -12.5 1,768 -13.0 1,759 -19.2 1,632

2080 2,019 -14.9 1,718 -15.4 1,708 -19.2 1,630

1

 Average of highest 35 years of earnings wage indexed to 2010.

2 Option 1: After NRA reaches age 67 (first reached for those 62 in 2022), index for constant ratio of life expectancy at NRA to (NRA-20). This increase in NRA is estimated 

as 1 month every 2 years.

3 Option 2: For those newly eligible in 2018-21, the NRA would be 2 months higher than present law. Once the NRA reaches age 67 (first reached for those 62 in 2021), 

index for constant ratio of life expectancy at NRA to (NRA-20).

4 Option 3: After NRA reaches age 67 (first reached for those 62 in 2022), increase NRA by 2 months per year until age 70.

All estimates based on the intermediate assumptions of the 2010 Trustees Report.

Social Security Administration

October 18, 2010

Scaled Very Low Earner ($10,771 for 20101

)

Scaled Low Earner ($19,388 for 20101)

Scaled Medium Earner ($43,084 for 20101)

Scaled High Earner ($68,934 for 20101)

Steady Maximum Earner ($106,800 for 20101)

Office of the Actuary

Table 2. Increasing the Normal Retirement Age (NRA)

For Worker Retiring at age 65 at Indicated Career Earnings Level

Increase Normal Retirement Age: Option 1 Increase Normal Retirement Age: Option 2 Increase Normal Retirement Age: Option 3
Year Year 

Attain Attain

Age 62 Age 65 Year Month Age 62 Age 65 Age 67 Age 70 Year Month Age 62 Age 65 Age 67 Age 70 Year Month Age 62 Age 65 Age 67 Age 70 Year Month Age 62 Age 65 Age 67 Age 70

2007 2010 66 0 75.0 93.3 108.0 132.0 66 0 75.0 93.3 108.0 132.0 66 0 75.0 93.3 108.0 132.0 66 0 75.0 93.3 108.0 132.0

2017 2020 66 2 74.2 92.2 106.7 130.7 66 2 74.2 92.2 106.7 130.7 66 2 74.2 92.2 106.7 130.7 66 2 74.2 92.2 106.7 130.7

2027 2030 67 0 70.0 86.7 100.0 124.0 67 2 69.3 85.6 98.9 122.7 67 3 68.9 85.0 98.3 122.0 67 10 66.3 81.1 94.4 117.3

2037 2040 67 0 70.0 86.7 100.0 124.0 67 7 67.4 82.8 96.1 119.3 67 8 67.0 82.2 95.6 118.7 69 6 59.0 72.5 83.3 104.0

2047 2050 67 0 70.0 86.7 100.0 124.0 68 0 65.5 80.0 93.3 116.0 68 1 65.1 79.6 92.8 115.3 70 0 57.0 70.0 80.0 100.0

2057 2060 67 0 70.0 86.7 100.0 124.0 68 5 63.6 77.9 90.6 112.7 68 6 63.3 77.5 90.0 112.0 70 0 57.0 70.0 80.0 100.0

2067 2070 67 0 70.0 86.7 100.0 124.0 68 10 61.8 75.8 87.8 109.3 68 11 61.4 75.4 87.2 108.7 70 0 57.0 70.0 80.0 100.0

2077 2080 67 0 70.0 86.7 100.0 124.0 69 3 60.0 73.8 85.0 106.0 69 4 59.7 73.3 84.4 105.3 70 0 57.0 70.0 80.0 100.0

1

 After NRA reaches age 67 (first reached for those 62 in 2022), index for constant ratio of life expectancy at NRA to (NRA-20). This increase in NRA

 is estimated as 1 month every 2 years. 2

 For those newly eligible in 2018-21, the NRA would be 2 months higher than present law. Once the NRA reaches age 67 (first reached for those 62 in 2021), 

index for constant ratio of life expectancy at NRA to (NRA-20).

3

 After NRA reaches age 67 (first reached for those 62 in 2022), increase NRA by 2 months per year until age 70.

Social Security Administration

October 18, 2010

NRA Percent of Full Benefit Amount

(Percent) (Percent) (Percent) (Percent)

NRA NRA

Office of the Actuary

Increase NRA: Option 33

Percent of Full Benefit Amount NRA Percent of Full Benefit Amount Percent of Full Benefit Amount

Table 2a. Increasing the Normal Retirement Age (NRA)

Percent of Full Benefit (PIA) Paid

Present Law Benefit Increase NRA: Option 11 Increase NRA: Option 22
Year 

Attain

Age 65 Age 65 Age 75 Age 85 Age 95

2010

2020 -0.9 -3.7 -6.5 -9.2

2030 -0.9 -3.7 -6.5 -9.2

2040 -0.9 -3.7 -6.5 -9.2

2050 -0.9 -3.7 -6.5 -9.2

2060 -0.9 -3.7 -6.5 -9.2

2070 -0.9 -3.7 -6.5 -9.2

2080 -0.9 -3.7 -6.5 -9.2

2010

2020 -0.9 -3.7 -6.5 -9.2

2030 -0.9 -3.7 -6.5 -9.2

2040 -0.9 -3.7 -6.5 -9.2

2050 -0.9 -3.7 -6.5 -9.2

2060 -0.9 -3.7 -6.5 -9.2

2070 -0.9 -3.7 -6.5 -9.2

2080 -0.9 -3.7 -6.5 -9.2

2010

2020 -0.9 -3.7 -6.5 -9.2

2030 -0.9 -3.7 -6.5 -9.2

2040 -0.9 -3.7 -6.5 -9.2

2050 -0.9 -3.7 -6.5 -9.2

2060 -0.9 -3.7 -6.5 -9.2

2070 -0.9 -3.7 -6.5 -9.2

2080 -0.9 -3.7 -6.5 -9.2

2010

2020 -0.9 -3.7 -6.5 -9.2

2030 -0.9 -3.7 -6.5 -9.2

2040 -0.9 -3.7 -6.5 -9.2

2050 -0.9 -3.7 -6.5 -9.2

2060 -0.9 -3.7 -6.5 -9.2

2070 -0.9 -3.7 -6.5 -9.2

2080 -0.9 -3.7 -6.5 -9.2

2010

2020 -0.9 -3.7 -6.5 -9.2

2030 -0.9 -3.7 -6.5 -9.2

2040 -0.9 -3.7 -6.5 -9.2

2050 -0.9 -3.7 -6.5 -9.2

2060 -0.9 -3.7 -6.5 -9.2

2070 -0.9 -3.7 -6.5 -9.2

2080 -0.9 -3.7 -6.5 -9.2

1

 Average of highest 35 years of earnings wage indexed to 2010.

Note: Starting Dec 2012, compute the COLA using a chained CPI-W, producing 0.3% lower annual COLAs on average.

All estimates based on the intermediate assumptions of the 2010 Trustees Report.

Office of the Actuary

Social Security Administration

October 18, 2010

Scaled Medium Earner ($43,084 for 20101)

Scaled High Earner ($68,934 for 20101)

Steady Maximum Earner ($106,800 for 20101)

Scaled Very Low Earner ($10,771 for 20101)

Scaled Low Earner ($19,388 for 20101)

Table 3. Indexing Cost of Living Adjustments (COLA) to a Chained Version of CPI-W

For Worker Retiring at age 65 at Indicated Career Earnings Level

Percent Change from Present Law Scheduled

(Percent Change)