Social Security Benefit Formula and Payroll Taxes: Potential Impacts of Policy Changes on Selected Worker Groups

May 4, 2022 R47087

Social Security Benefit Formula and Payroll
May 4, 2022
Taxes: Potential Impacts of Policy Changes on
Barry F. Huston
Selected Worker Groups
Analyst in Social Policy

The Social Security program has long been an area of high congressional interest. Because of the
Sarah A. Donovan
number of people receiving benefits, the number of people expected to receive benefits, and the
Specialist in Labor Policy
program’s projected long-term financial imbalance, there are many proposals put forth each

Congress to amend the Social Security benefit formula and the associated payroll tax (which is
the program’s primary source of revenue). Some proposals are seen as a means to strengthen
Anthony A. Cilluffo
benefit levels for persons with relatively low and medium earnings histories or to correct a
Analyst in Public Finance
perceived gap in the program’s protections either in the level of benefits or coverage of certain

groups, whereas other proposals seek to avoid or defer the program’s projected financial

shortfall. Other proposals combine approaches and seek to strengthen both the program’s benefits
and its financial status.
Over time, the Social Security–covered population and the program itself have changed. For instance, on average, increases
in life expectancy have allowed current Social Security beneficiaries to collect benefits for a longer period of time relative to
previous beneficiaries. In 1945, shortly after Social Security began regular monthly payments, the average male was
expected to live 12.6 years after reaching full retirement age (i.e., 65 at the time) and the average female was expected to live
14.4 years after reaching full retirement age. In 2020, the average male and female born in 2020 can expect to live an
additional 17.0 and 19.5 years, respectively, after reaching age 65. (Under current law the full retirement age for those born in
1960 and later is 67.) Because of changes like this—among other demographic and economic changes—past Congresses
have changed the program’s benefit formula and the payroll tax. For instance, past amendments have changed the benefit
formula in response to higher-than-anticipated inflation and increased payroll taxes to avoid financial imbalances. However,
Congress has not significantly altered the Social Security benefit formula or program financing since the Social Security
Amendments of 1983.
Lawmakers have a wide variety of options to address issues facing the Social Security program to strengthen either benefits
or the program’s finances. Changes in the program’s benefit formula or payroll tax could affect those of different earnings
levels and from different birth cohorts in different ways. For example, some benefit-strengthening provisions, such as an
increase in cost-of-living adjustments, would be more advantageous to future beneficiaries (i.e., younger birth cohorts) as
they would enjoy higher adjustments for the entirety of their benefit-collecting periods. Conversely, some provisions aimed at
strengthening the program’s finances, such as a gradual increase in the payroll tax rate, would be more advantageous to
current beneficiaries as they are already collecting benefits and less likely to have earnings subject to an increased payroll tax
rate. Provisions can also have varying effects on beneficiaries of different earnings levels. For example, an increase of the
first replacement factor in the benefit formula would result in a benefit increase for all beneficiaries but a higher initial
replacement rate for relative low earners. Conversely, changing the third replacement factor would affect only relative high
earners. Still, other changes in the benefit formula can have compounded effects over time. For instance, the cumulative
nature of cost-of-living adjustments would favor beneficiaries with relatively higher career-average earnings.
This report examines the effects of commonly proposed changes to the Social Security benefit formula on the retirement
benefits and payroll tax for a set of hypothetical earners of varying earnings levels and birth cohorts. The effects of proposed
changes are demonstrated on an individual and combined basis. In doing so, the report highlights the complexity of the
benefit formula: A combination of changes may have different effects as a whole than compared to changes taken on an
individual basis.
Proposals to amend the benefit formula and payroll tax can also be structured to target the current or future beneficiaries of
different earnings levels. This can be important to lawmakers who would like to maintain the progressive nature of the
benefit formula while not compounding the somewhat regressive nature of the payroll tax. Thus, this report concludes with a
look at the distribution and characteristics of current U.S. workers. Distributional analyses of U.S. workers show that women
and Black and Hispanic workers are concentrated in lower earnings groups, while men and White and Asian workers are
concentrated in the higher earnings groups. The higher earnings groups were also more likely to have higher educational
attainment, have health insurance coverage, and be above the poverty threshold.
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Introduction
Social Security is a social insurance program—administered by the Social Security
Administration (SSA)—that protects insured workers and their family members against loss of
income due to old age, disability, or death. The program is composed of Old-Age and Survivors
Insurance (OASI) and Disability Insurance (DI) and is commonly referred to on a combined basis
as OASDI. Most Social Security beneficiaries are retired workers. In 2022, the 47.6 million
retired workers who collected OASI benefits accounted for 72.7% of all Social Security
beneficiaries.1 Retired workers’ benefits are based on their past earnings, the age when they claim
benefits, and other factors.2
Given the program’s substantial impact on retired beneficiaries’ financial security,3 the targeting
and adequacy of benefits and solvency4 of the Social Security program are of ongoing interest to
lawmakers. The projected funding shortfall facing the system could impact the program’s ability
to pay full benefits on time.5 Under current law, Social Security’s revenues and asset reserves are
projected to be insufficient to pay full scheduled benefits after 2034. Proposed legislation to
change Social Security has taken many forms. Some proposals focus on eliminating the projected
funding shortfall, whereas others aim to fundamentally reform the program (e.g., pay higher
benefits for certain levels of earnings, benefit categories, or ages). Most proposals to change
Social Security would change the benefit computation rules, the Social Security payroll tax, or
some combination of both.
This report examines how changes in retirement benefit formula parameters and the payroll tax
rate would affect benefit amounts, initial replacement rates, and effective tax rates for selected
worker groups.6 Specifically, the report presents the changes for very low, low, medium, high, and
maximum lifetime hypothetical earners—as developed by SSA—in four birth cohorts (1960,
1980, 2000, and 2020).7 The report first provides a brief explanation of how benefits are
computed and financed under current law. It then presents the effects of the selected retirement

1 Another 14% were DI beneficiaries, and 9% received survivor benefits; the remaining beneficiaries were spouses or
children of retired workers. SSA, “Monthly Statistical Snapshot, February 2022,” Table 2. See the latest edition of the
Monthly Statistical Snapshot at https://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/.
2 Benefits that are paid to workers’ dependents and survivors are also based on the earnings of the insured workers.
3 Research suggests that Social Security benefits accounted for most of the decline in poverty from 1967 through 2000.
For more information, see CRS Report R45791, Poverty Among the Population Aged 65 and Older.
4 Under current law, Social Security’s revenues are projected to be insufficient to pay full scheduled benefits after 2034
under intermediate assumptions. SSA, Office of the Chief Actuary (OCACT), The 2021 Annual Report of the Board of
Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, August 31,
2021, https://www.ssa.gov/OACT/TR/2021/tr2021.pdf (hereinafter cited as “2021 Annual Report”). Under current law,
the OASI and DI trust funds are distinct entities and cannot borrow from each other when faced with a funding
shortfall. In the past, Congress has authorized temporary interfund borrowing. As such, analysts often treat the two trust
funds collectively on a hypothetical basis as the combined OASDI trust funds. For more information see CRS Report
RL33514, Social Security: What Would Happen If the Trust Funds Ran Out?. The 2021 intermediate assumptions
reflect the trustees’ understanding of the status of the Social Security trust funds at the start of 2021.
5 For more information on the projected funding shortfall, see CRS Report RL33514, Social Security: What Would
Happen If the Trust Funds Ran Out?.
6 This report focuses solely on retired-worker benefits. Retired workers constitute the largest share of OASDI
beneficiaries (see footnote 1).
7 Hypothetical earners groups are discussed in the “Hypothetical Earners” section of this report. Wages for hypothetical
earners are expressed at each age as a percent of the SSA’s Average Wage Index (AWI). A maximum earner is a
worker who has earnings at or above the contribution and benefit base for each year starting at age 22 through the year
prior to retirement (2021 Annual Report, p. 156).
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benefit calculation and payroll tax changes on the worker groups considered in this report. In
particular, the report examines the effect of changes in computation years, primary insurance
amount (PIA) replacement factors, the full retirement age (FRA), cost of living adjustment
(COLA), and the Social Security payroll tax rate and examines the effect of selected
combinations of these changes.
Social Security Benefit Formula Under Current Law
The Social Security benefit formula uses both worker-specific information, such as past earnings
history and the age at which benefits are claimed, and birth-cohort-specific parameters (average
economy-wide wages in the year a worker turns 60) to derive an individual’s monthly benefit
amount. For this reason, changes to the formula can have different consequences for workers with
relatively low career earnings and those with relatively high career earnings, and the range of
earnings-specific outcomes can vary by birth cohort.
This section provides a high-level description of the benefit formula.8 It briefly describes benefit
eligibility (insured status) conditions, the key components of the Social Security benefit formula,
and the Social Security payroll tax. The effects of changes to the benefit formula components and
payroll tax are illustrated in subsequent sections of the report.
Eligibility and Insured Status
Generally speaking, about 94% of workers earn wages or self-employment income in Social
Security–covered employment.9 While working in covered employment, workers earn quarters of
coverage (QCs), or credits. The level of earnings needed for a QC generally increases annually
with growth in average earnings in the national economy, as measured by SSA’s Average Wage
Index (AWI) (see Table B-1).10 In 2022, a worker will earn one credit or QC for every $1,510 of
covered earnings, up to four credits per year. Therefore, a worker earning $6,040 in covered
employment at any point in the calendar year would be credited with the maximum number (i.e.,
four) of QCs for that year.
To be eligible for most benefits, workers must be fully insured, which requires one QC for each
year elapsed after the worker turns 21 years old and the year before the worker attains age 62, the
year before the worker dies, or the year before the worker becomes disabled, with a lifetime
minimum of six QCs and a maximum of 40 QCs. A worker is first eligible for Social Security
retirement benefits at 62, so to be eligible for retirement benefits, a worker must generally have
worked for 10 years.11 Workers are permanently insured when they are fully insured and will not

8 For a more detailed description of the current-law benefit formula, see CRS Report R46658, Social Security: Benefit
Calculation.
9 OCACT, “Social Security Program Fact Sheet,” June 2021, https://www.ssa.gov/oact/FACTS/index.html. Covered
employment is employment for which earnings are creditable for Social Security purposes (2021 Annual Report, p.
243). The roughly 6% of workers who are not covered by Social Security are certain state and local government
workers, certain workers employed by religious groups, and certain noncitizen workers. See 26 U.S.C. §3121(b). For
more information on the 6% of workers not covered by Social Security, see CRS In Focus IF11824, Social Security:
Who Is Covered Under the Program?
10 The AWI is the average of all workers’ wages subject to federal income taxes and contributions to deferred
compensation plans. It is calculated using some wages that are not subject to the Social Security payroll tax.
11 Benefits may be paid to eligible survivors of a deceased worker who was fully insured at the time of death. Some
dependents are also eligible for survivors benefits if the deceased worker was currently insured, which requires
earnings six QCs in the 13 quarters ending with the quarter of death. For more information on survivors benefits, see
CRS Report RS22294, Social Security Survivors Benefits.
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lose fully insured status when they stop working under covered employment—for example, if a
worker has earned the maximum 40 QCs.
Average Indexed Monthly Earnings
The first step of computing a Social Security benefit is determining a worker’s average indexed
monthly earnings (AIME), a measure of a worker’s career-average covered earnings.
Covered Earnings
A worker’s Social Security benefit is based on his or her earnings during covered employment.
Earnings that were not covered (i.e., not subject to the Social Security payroll tax) are not
included in the calculation. Under current law, the Social Security payroll tax is applied to
covered earnings up to an annual limit, or taxable maximum. The taxable maximum is indexed to
national average wage growth for years in which a COLA is payable (see Table B-1). The taxable
maximum in 2022 is $147,000. This level of earnings is both the contribution base (i.e., amount
of covered earnings subject to the Social Security payroll tax) and the benefit base (i.e., amount
of covered earnings used to determine benefits). In this context, the taxable maximum is referred
to as the contributions and benefits base, or CBB. Earnings in excess of the taxable maximum are
not subject to the Social Security payroll tax and are not factored into benefit calculations.
Indexation of Past Earnings
Rather than using the nominal amounts earned in past years directly, the AIME computation
process first updates past covered earnings by indexing them to near-current wage levels to
account for the growth in overall economy-wide earnings. That is done by adjusting each year of
a worker’s taxable earnings after 1950 by the growth in the national average wage, as measured
by the AWI, between the year of earnings until two years prior to eligibility for benefits, which
for retired workers is at age 60.12 For instance, the national average wage grew from $32,155 in
2000 to $41,674 in 2010, a 29.6% cumulative increase. If a worker earned $20,000 in 2000 and
turned 60 in 2010, the indexed wage for 2000 would be $20,000 × ($41,674/$32,155), or
$25,921.13 Earnings received at ages 60 or older are not indexed.
Computation Years: The Highest 35 Years of Indexed Earnings
For retired workers, the AIME equals the average of the highest 35 years of indexed earnings
divided by 12 (to change the annual average career earnings to monthly averaged career
earnings). Those 35 years of earnings are known as computation years. If the person worked
fewer than 35 years in employment subject to Social Security payroll taxes, the computation
includes those as years of zero earnings. The number of computation years for disabled or
deceased workers may be fewer than 35 years.14

12 For details, see “Index Earnings Used to Compute Initial Benefits” in OCACT, “National Average Wage Index,”
https://www.ssa.gov/oact/COLA/AWI.html.
13 More explicitly, the adjustment is to $20,000 in earnings in 2000 is: $20,000 × ($41,674/$32,155) = ($20,000 ×
100%) + ($20,000 × 29.6%) = $25,921.
14 In the case of workers who die before turning 62 years old, the number of computation years is generally reduced
below 35 by the number of years until they would have reached 62. For disabled workers, the number of computation
years depends on the age at which they become disabled.
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Primary Insurance Amount
The next step in determining the Social Security benefit amount is to compute the PIA. To do this,
the AIME is sectioned into three brackets (or segments) of earnings, which are separated by dollar
amounts known as bend points. In 2022, the bend points are $1,024 and $6,172. The bend point
amounts are indexed to the AWI, so they generally increase each year.15
Three replacement factors—fixed in law at 90%, 32%, and 15%—are applied to the three
brackets of AIME. The PIA is the sum of the three factors multiplied by the portion of the
worker’s AIME that falls within each respective bracket. Table 1 shows this process for a worker
who first becomes eligible for benefits in 2022.
Table 1. Social Security Benefit Formula for
Workers Who First Become Eligible in 2022
Factor
Average Indexed Monthly Earnings (AIME)
90%
of the first $1,024, plus
32%
of AIME over $1,024 and through $6,172 (if any), plus
15%
of AIME over $6,172 (if any)
Source: CRS, based on Social Security Administration (SSA), Office of the Chief Actuary (OCACT), “Benefit
Formula Bend Points,” https://www.ssa.gov/oact/cola/bendpoints.html.
The formula results in a progressive replacement rate as measured by the percent of AIME that is
replaced by the PIA. The replacement rate is higher for relatively low earners (e.g., 83% for very
low earners) than for relatively high earners (i.e., 37% for high earners). The formula also results
in individual equity: The more a worker earns (and pays in payroll tax), up to the taxable
maximum, the higher the PIA.
Other Adjustments
An adjustment may be made based on the age at which a beneficiary chooses to begin receiving
benefits. For retired workers who claim benefits at the FRA, the monthly benefit equals the PIA
increased annually by any payable COLAs (COLAs are applied beginning in the second year of
eligibility).16 Under current law, the FRA for all workers born in 1960 and later is 67. Retired
workers who claim benefits earlier than the FRA receive monthly benefits lower than the PIA
(i.e., an actuarial reduction). Retired workers may first claim (reduced) benefits at age 62, the
early eligibility age (EEA). Those who claim later than the FRA receive benefits higher than the
PIA (i.e., a delayed retirement credit or DRC).17
In certain situations, other adjustments may apply. For example, the windfall elimination
provision may reduce benefits for worker beneficiaries with pensions from noncovered Social
Security employment. The government pension offset may reduce spousal benefits for spouses
with government pensions from noncovered Social Security employment. The retirement

15 Bend points are indexed to the AWI and can decrease when AWI decreases (42 U.S.C. §415(a)(1)(B)).
16 COLAs are intended to help protect Social Security beneficiaries from the effects of inflation.
17 For more information on actuarial reductions and retirement ages, see CRS Report R44670, The Social Security
Retirement Age.
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earnings test may result in a temporary withholding of benefits for early claimants (younger than
FRA) with earnings above a certain level.18
Social Security Payroll Tax
Social Security is funded by a tax of 6.2% of covered wages imposed on employees and
employers (12.4% combined).19 Self-employed workers pay 12.4% of their net self-employment
earnings (business earnings minus the costs of doing business) toward Social Security as a portion
of their self-employment taxes. The Social Security payroll tax applies only to wages paid up to
the Social Security wage base limit for the year ($147,000 in 2022, adjusted annually for the
growth in average wages). The employee portion of the Social Security tax is directly withheld
from wages paid to an employee. The withheld employee portion and the employer portion are
deposited to the IRS by employers, generally monthly or semi-weekly, when the employer
processes payroll.20 As mentioned above, only earnings on which Social Security payroll taxes
were paid are used in the benefit formula.
Social Security payroll tax rates have largely remained the same since 1990 (outside of the 2011-
2012 Social Security payroll tax holiday, provided as a temporary relief from the Great Recession
of 2007-2009 and its recovery), as shown in Figure 1.21 The recent period of steady rates follows
a period of regular rate increases. The first Social Security tax was a 1% levy on employees on
wages earned starting in 1937, with employers also paying the same amount.22 Combined Social
Security payroll tax rates rose from 2% in 1949 to 12.4% in 1990. The last Social Security tax
rate increase was part of the Social Security Amendments of 1983 (P.L. 98-21). Figure 1 shows
the employee payroll tax rate and the CBB (i.e., taxable maximum) from 1951 to 2022.23

18 For more information on these potential adjustments, see CRS In Focus IF10203, Social Security: The Windfall
Elimination Provision (WEP) and the Government Pension Offset (GPO) and CRS Report R41242, Social Security
Retirement Earnings Test: How Earnings Affect Benefits.
19 Generally, the tax base for the Social Security payroll tax is all compensation for employment. There are several
exceptions. The full list of exceptions is at 26 U.S.C. §3121. The tax applies to compensation paid to employees in
“covered employment.” See above for more information about covered employment.
20 Semi-weekly deposits are generally made every two weeks. See 26 C.F.R. §31.6302-1.
21 The payroll tax holiday included a transfer of funds from general revenue to the Social Security trust funds. For more
information, see “Employee Payroll Tax Holiday” in CRS Report R47062, Payroll Taxes: An Overview of Taxes
Imposed and Past Payroll Tax Relief.
22 The Federal Insurance Contribution Act (26 U.S.C. §3101 et seq.) moved the tax provisions to the Internal Revenue
Code in 1954 and prescribed further increases. See CRS Report R42035, Social Security Primer.
23 Automatic indexation of the CBB was established as part of the 1972 Amendments to the Social Security Act (P.L.
92-336), effective in 1975, at the same time automatic COLAs were established. Prior to 1975, increases in the CBB
were legislated on an ad hoc basis. See CRS Report RL32896, Social Security: Raising or Eliminating the Taxable
Earnings Base.
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Figure 1. Social Security Employee Payroll Tax and Contribution and Benefit Base,
1951-2022

Source: Figure created by CRS using data from Social Security Administration, “Social Security and Medicare
Tax Rates,” https://www.ssa.gov/oact/progdata/taxRates.html and https://www.ssa.gov/OACT/COLA/cbb.html.
Notes: Rates are for the Social Security employee payroll tax on covered earnings. Employers pay an equal tax
on covered earnings (i.e., 6.2% on covered earnings in 2022). Employers did not receive an equal reduction in the
payroll tax rate during the temporary 2011-2012 employee rate reduction, meaning employers continued to pay
a tax of 6.2% of covered wages during those years.
The combined payroll tax rate multiplied by the contribution and benefit base (i.e., taxable
maximum) results in payroll tax revenues for the program, its largest source of revenue.24 As
Figure 1 suggests, total payroll tax revenue has increased over time. This is because of the
generally increasing CBB, since the payroll tax rate is fixed under current law. However, since the
1980s, increasing earnings inequality has resulted in the percentage of economy-wide earnings
subject to the payroll tax declining, as seen in Figure 2. Thus, although the current-law payroll
tax rate is applying to a larger amount of covered earnings over time (i.e., wages over time have
generally increased), the current-law payroll tax is applying to a smaller percentage of overall
earnings.

24 For other sources of revenue, see CRS In Focus IF11939, Social Security: Selected Findings of the 2021 Annual
Report.
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Figure 2. Percentage of Workers with Earnings Below the Contribution and Benefit
Base (CBB) and the Percentage of Covered Earnings Below the CBB
1951-2019

Source: Social Security Administration, Annual Statistical Supplement, 2021, December 2021, Table 4.B1,
https://www.ssa.gov/policy/docs/statcomps/supplement/.
Hypothetical Earners
This report presents the effects of given changes in the benefit formula and payroll tax on a set of
five hypothetical earners—as defined by SSA—whose career earnings range from very low
earnings to maximum earnings and vary across birth cohorts. Hypothetical earners are used to
illustrate how the benefit formula works and how changes to the benefit formula could affect
workers of different earnings levels and different ages.
In brief, the career earnings profiles for hypothetical earners are calculated using an age-specific,
scaled factor developed by SSA’s Office of the Chief Actuary (OCACT). The scaled factor
conveys, for each age, individuals’ average earnings as a share of AWI in the year that the
individual was that age.25 Earnings profiles are then calculated by birth cohort. For persons in a
given cohort, estimated earnings for a given year and age are calculated as the product of the
scaled factor and the AWI for that year. These estimated earnings are then indexed to the AWI for
the year in which the cohort turns 64.26 Finally, estimated earnings are used to create four
hypothetical worker profiles, such that career-average estimated earnings are 25% (very low
hypothetical earners), 45% (low hypothetical earners), 100% (medium hypothetical earners), and
160% (high hypothetical earners) of AWI in the year prior to entitlement. A fifth category of
hypothetical earner (maximum hypothetical earner) is assumed to earn at least the taxable

25 OCACT applies additional adjustments to the scaled factor for ages 62 and older. OCACT, Scaled Factors for
Hypothetical Earnings Examples Under the 2021 Trustees Report Assumptions, August 2021, Table 1,
https://www.ssa.gov/OACT/NOTES/ran3/an2021-3.pdf.
26 Methods used in the previous source to calculate indexed career-average earnings differ from those used to calculate
the AIME. The method used in the actuarial note indexes earnings prior to the year of entitlement rather than two years
prior to eligibility as would be done under the current-law benefit formula.
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maximum (i.e., CBB) in each year from age 21 to 64. Based on these SSA methods, hypothetical
workers are assumed to have long and consistent earnings histories at their respective levels.27
Figure 3 shows the result of this process for the 1960 birth cohort. As can be seen, hypothetical
low earners are expected to consistently earn low wages throughout their careers, whereas
hypothetical high earners consistently earn high wages throughout their careers. For example, the
hypothetical high earner who at age 47 earned at about 175% of the AWI is shown to have
earnings of $70,831, whereas the hypothetical low earner at age 54 is shown to have earnings of
$22,404.28 Figure 3 also displays the earnings level for a hypothetical maximum worker, which is
simply the taxable maximum for that year.
Figure 3. Hypothetical Earnings for the 1960 Birth Cohort
In Nominal Dollars

Source: CRS.
Notes: The 1960 birth cohort turned 47 in 2007. A hypothetical high earner, at age 47, is estimated to have
earned at 175% of the average wage index (AWI), or $70,831 in 2007. Similarly, the 1960 birth cohort turned 54
in 2014. A hypothetical low earner, at age 54, is estimated to have earned at 27% of the AWI, or $22,404 in
2014.
Appendix A provides analysis of hypothetical earners’ demographic and other characteristics
based on SSA-provided information and using cross-sectional data from a large national
household survey. This analysis reveals that some demographic groups are more concentrated in
certain hypothetical worker groups than in others, suggesting that the effects of certain benefit
formula changes may not be experienced uniformly by workers with a different gender, race, or
ethnicity.

27 This assumption does not always reflect reality. One study shows that in a sample of workers born between 1926 and
1960, the average worker had 5.7 years of zero earnings within their highest 35 years of earnings. The distribution of
zero earnings in this sample was highly skewed (i.e., 60% of workers had no years of zero earnings while 7% had more
than 25 years of zero earnings). Women were estimated have more years of no earnings as compared to men, and years
of no earnings were negatively correlated to earnings level (i.e., workers with lower earnings were estimated to
experience a larger number of years of no earnings than workers with higher earnings). See Chad Newcomb,
Distribution of Zero-Earning Years by Gender, Birth Cohort, and Level of Lifetime Earnings, SSA,
https://www.ssa.gov/policy/docs/rsnotes/rsn2000-02.html#mt2.
28 For instance, the 1960 birth cohort was 47 in 2007. A hypothetical high earner at age 47 earns at 175.3% of AWI.
The AWI in 2007 was $40,405.58, and 175.3% of $40,405.58 is $70,830.98.
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Hypothetical Earners Across Birth Cohorts
As discussed, the benefit formula also uses some birth-cohort-specific parameters in its
calculation. For instance, the bend points used to section a worker’s AIME into three brackets are
indexed to the AWI. Given this, and the tendency of the AWI to increase each year, these dollar
amounts generally increase. As a result, two workers born in different years with identical
earnings history will likely have different benefit amounts. Said differently, a worker who
consistently earned medium wages born in 1980 will likely have higher benefits than does a
worker who consistently earned medium wages and was born in 1960, because wage growth over
this timespan (i.e., 1960-1980) was positive. However, as will be shown in Table 2, the initial
replacement rate for a hypothetical medium earner is consistent across birth cohorts.
For this reason, the ensuing analysis presents results for hypothetical earners in four birth cohorts:
1960, 1980, 2000, and 2020. In each case, the same set of SSA-developed scaled factors are used
to define earner groups, but the earnings thresholds for these groups differ because the scaled
factors are applied and indexed to age-specific AWIs.29
Benefit Statistics for Hypothetical Earners Across Birth Cohorts
Table 2 displays several commonly used measures to describe the benefits and taxes for Social
Security beneficiaries: AIME, PIA, monthly benefit amounts at age 70,30 initial replacement rates,
and effective tax rates. The AIME and PIA are two of the major calculations performed in the
benefit formula. Monthly benefit amounts at age 70 reflect how the PIA is affected by COLAs
from age 62 to age 70. In all examples, workers are assumed to begin collecting benefits at the
worker’s FRA. The initial replacement rate describes the share of a worker’s earnings (as
measured by AIME) that is replaced by benefits (as measured by the PIA) in the year the worker
begins collecting monthly benefits (i.e., assumed in this report at age 67, FRA). The effective tax
rate highlights how much a worker paid into the system (total taxes paid in nominal dollars) as a
percentage of his or her total career-covered earnings (in nominal dollars), up to the taxable
maximum if applicable.
Table 2 shows how these measures vary by hypothetical earnings category and birth cohort for
birth years 1960, 1980, 2000, and 2020. As discussed earlier, the AIME, PIA, and benefits at age
70 are higher for relatively high career-averaged earners than for relatively low career-averaged
earners. This pattern is consistent within the birth cohorts considered and demonstrates the benefit
formula’s individual equity. Additionally, because these measures are linked to growth in the
AWI—which tends to increase each year—they will generally increase over time and, therefore,
across birth cohorts.
Furthermore, because a worker’s earnings and the bend points used in the formula are indexed to
growth in the AWI, the initial replacement rates—the portion of earnings replaced by benefits—
shown in Table 2 are stable. That is, from year to year, the average benefits that new beneficiaries
receive increase at approximately the same rate as average earnings in the economy. The initial
replacement rates illustrate the benefit formula’s progressivity: A higher share of earnings is
replaced for workers with lower career earnings than for those with higher career earnings.

29 For some younger cohorts, not all program factors are known. In this case, this methodology uses the intermediate
assumptions published in the 2021 Annual Report. The intermediate set of assumptions represents the trustees’ best
estimate of likely future conditions.
30 Age 70 was chosen as an age that would allow for age-specific comparisons among birth cohorts after changes in
COLA calculations and increases in FRA.
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Lastly, Table 2 shows the effective employee tax rate on covered earnings experienced by
workers paying into the system. This rate differs from the current payroll tax rate for some
workers because the rate has changed over time. A hypothetical earner born in 1960 entered the
workforce in 1981 at age 21. In 1981, the payroll tax rate for employees was 5.35%. The payroll
tax rate gradually increased until it reached 6.2% in 1990. Thus, for several years the 1960 birth
cohort paid into the system at a lower tax rate than subsequent birth cohorts did. Additionally, in
the aftermath of the 2007-2009 recession, Congress passed temporary reductions on the employee
payroll tax rate. The employee tax rate was reduced by 2 percentage points in 2011 (by P.L. 111-
312) and in 2012 (by P.L. 112-78 and P.L. 112-96). These temporary employee payroll tax
decreases included provisions for the Social Security trust funds to be “made whole.”31
For most taxpayers, payroll tax burdens are proportional to earnings.32 This in contrast to the
progressive initial replacement rates, as seen in Table 2.
Toward the top of the income distribution, due to the cap on earnings subject to the payroll tax,
payroll taxes are regressive, meaning that as taxpayers’ earnings increase, the share of earnings
paid in payroll taxes decreases.33 Also important is that Social Security tax is levied only on wage
income. Taxpayers with higher incomes, such as a hypothetical maximum earner, are more likely
to have income that is not subject to the Social Security tax (i.e., income that is not taxable nor
creditable for program purposes), such as income from dividends, capital gains, interest, or rent.34

31 See footnote 21.
32 In Table 2, for the 1960 and 1980 birth cohorts, the effective payroll tax rate for the hypothetical maximum earners
is slightly lower relative to other hypothetical earners. This is due to rounding from whole dollar values. Under current
law, the CBB is a whole dollar value, so maximum earner’s earnings are whole dollar values as well (i.e., $137,300.00
in 2020). Conversely, the other hypothetical earner’s earnings are expressed as a percentage of AWI, a value including
cents (i.e., $55,628.60 in 2020). This characteristic, and its interaction with a varying payroll tax rate, resulted in a
slightly lower effective payroll tax. That is, the younger cohorts worked for several years under a payroll tax rate lower
than 6.2% of covered earnings. This results in the effective tax rate over their careers to be less than 6.2%. Under
current law, the younger cohorts will experience a 6.2% payroll tax over their entire careers.
33 According to estimates from the Congressional Budget Office (CBO), in 2018, households in the lowest quintile
(earning an average of $22,500) paid 9.5% of their income in payroll taxes, whereas households in the highest quintile
(earning an average of $321,700) paid 6.4% of their income in payroll taxes. These figures include all federal payroll
taxes, such as the (smaller) federal Medicare Hospital Insurance tax and federal unemployment taxes. In FY2020, the
Social Security tax raised 74% of all federal payroll tax receipts. For distribution figures, see CBO, The Distribution of
Household Income, 2018, supplemental data tables 3 and 9 (published August 4, 2021), https://www.cbo.gov/
publication/57061.
34 According to CBO analysis of incomes in 2018, labor income (i.e., wage and salary) made up at least 62% of average
market income for households in the lower 95% of the income distribution. Labor income comprised nearly 57% of
market income for households in the 96th-99th percentiles. At almost 31%, labor earnings make up a lower, but still
significant, share of household income among the top 1%. CBO defines market income as labor income, business
income, capital gains realized from the sale of assets, capital income excluding capital gains, and income received in
retirement for past services or from other sources. Conceptually, these percentages underestimate labor income because
they exclude business income, and some business owners contribute labor to their firms and are compensated in the
form of business income in lieu of wages. CBO, The Distribution of Household Income and Federal Taxes, 2018,
August 2021, supplementary data, https://www.cbo.gov/publication/57061.
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Table 2. Average Indexed Monthly Earnings (AIMEs), Primary Insurance Amounts
(PIAs), Benefits at Age 70, Initial Replacement Rates, and Effective Tax Rates for
Hypothetical Earners by Birth Cohort
Scheduled Under Intermediate Assumptions and Current Law

Very Low Earner
Low Earner
Medium Earner
High Earner Maximum Earner
Birth
Cohorts
AIME
1960
$1,156.00
$2,081.00
$4,624.00
$7,400.00
$11,430.00
1980
2,427.00
4,368.00
9,707.00
15,532.00
24,169.00
2000
4,847.00
8,725.00
19,386.00
31,019.00
47,908.00
2020
9,741.00
17,534.00
38,959.00
62,338.00
96,298.00

PIA
1960
$963.80
$1,259.80
$2,073.60
$2,753.10
$3,357.60
1980
2,027.00
2,641.80
4,350.30
5,777.10
7,072.60
2000
4,026.40
5,267.40
8,678.90
11,526.30
14,059.70
2020
8,081.90
10,575.60
17,431.60
23,151.70
28,245.70

Benefits at Age 70
1960
$1,165.00
$1,523.00
$2,506.00
$3,328.00
$4,059.00
1980
2,442.00
3,193.00
5,259.00
6,984.00
8,550.00
2000
4,867.00
6,367.00
10,492.00
13,934.00
16,997.00
2020
9,770.00
12,785.00
21,073.00
27,988.00
34,146.00

Initial Replacement Rate
1960
83%
61%
45%
37%
29%
1980
83%
60%
45%
37%
29%
2000
83%
60%
45%
37%
29%
2020
83%
60%
45%
37%
29%

Effective Tax Rate
1960
6.03%
6.03%
6.03%
6.03%
6.02%
1980
6.14%
6.14%
6.14%
6.14%
6.13%
2000
6.20%
6.20%
6.20%
6.20%
6.20%
2020
6.20%
6.20%
6.20%
6.20%
6.20%
Source: Congressional Research Service (CRS) calculations based on hypothetical earner profiles developed by
SSA.
Notes: Figures in the table reflect calculations for scheduled amounts under current law. AIMEs are rounded
down to the nearest dollar (see 20 C.F.R. §404.211), PIAs are rounded down to the nearest dime (42 U.S.C.
§415(a)(1)(A)), and monthly benefit amounts are rounded down to the nearest dollar (42 U.S.C. §415(g)). Initial
replacement rates are calculated as PIA divided by AIME. Effective tax rates are calculated as nominal taxes paid
from ages 21-61 divided by nominal wages earned from ages 21-61. Calculations shown in this table are shown
under current law and using the intermediate assumptions from OCACT, The 2021 Annual Report of the Board of
Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, August 31, 2021,
https://www.ssa.gov/OACT/TR/2021/tr2021.pdf (see Table B-1).
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Commonly Proposed Changes
Congress has a wide range of policy options at its disposal to address the issues facing the Social
Security system.35 Several proposals considered by Congress seek to address the projected
funding shortfall, while others address issues of benefit adequacy (i.e., targeting benefit increases
to low earners). The “Social Security Benefit Formula Under Current Law” section of this report
outlines various worker-dependent factors (e.g., wages) and program-specific factors (e.g., PIA
replacement factors) that comprise the existing benefit formula. Congress can adjust each of these
factors to achieve certain policy outcomes. Congress is not limited to a single change to the
benefit formula (or financing). In fact, some bills have proposed a combination of changes.
This section examines the effect of commonly proposed changes on the retirement benefits and
payroll tax for hypothetical earners (described earlier in this report) in four birth cohorts.
Specifically, it illustrates the effect of changes in computation years, PIA replacement factors, the
FRA, the COLA, and the Social Security payroll tax rate. Given the complexity of the benefit
formula, the effect of each change is first considered separately, and the analysis assumes that
workers do not change employment or make personal decisions in response to the policy change.
Changes in the benefit formula and payroll taxes were selected to highlight how modifying the
benefit formula and payroll taxes at different steps in the process would affect hypothetical
workers across various earnings levels and birth years. The section concludes by exploring the
effect of several selected changes considered together. Most Social Security proposals include
numerous provisions that would change the current-law benefit formula and payroll tax. A
combination of changes may have different effects as a whole than compared to changes taken on
an individual basis.
Changes examined in this report are assumed to be effective for newly eligible beneficiaries
starting in 2024—such as a change in computation years—or applicable in 2024—such as a
change in COLA. An implication of this assumption is that not all birth cohorts are affected in the
same way (or at all) by a given policy change. For instance, under a change in computation years
effective for newly eligible beneficiaries in 2024, the 1960 birth cohort would not be affected, as
they become eligible for benefits in 2022 (age 62), whereas most younger cohorts would be
affected by the change. However, under a change in COLA applicable in 2024, the 1960 birth
cohort would experience the effects of the change, albeit to a lesser degree than younger cohorts
would.
Changes in Computation Years
The first step in calculating an eligible worker’s retirement benefits is to calculate the AIME. As
such, it is one of the first points at which lawmakers could make changes to affect workers’
benefits. One approach to changing a worker’s AIME is to increase the number of computation
years.36 For instance, an increase in computation years would better reflect a workers’ complete
earnings history, whereas a decrease in computation years might take into account a worker’s
fewer years of earnings (e.g., years used for caregiving). Table 3 and Table 4 show how a

35 OCACT routinely updates commonly proposed provisions. Using the 2021 intermediate assumptions, OCACT
updated 140 different provisions. Many of these proposals are variations on a common theme (e.g., adjustments in
COLA calculations or increases in the payroll tax rate). For more information, see OCACT, “Office of the Chief
Actuary’s Estimates of Individual Changes Modifying Social Security,” https://www.ssa.gov/OACT/solvency/
provisions/index.html.
36 See OCACT, “B4: Computation Year Changes,” https://www.ssa.gov/OACT/solvency/provisions/benefitlevel.html.
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worker’s AIME, and other measures, would change with an increase or decrease in the number of
computation years (for those becoming eligible for benefits starting in 2024) used in benefit
calculations, respectively.
As can be seen in Table 3, an increase in the number of computation years (from 35 to 40 in this
instance) would decrease the AIME relative to estimates under current law (Table 2) for most
earners in the 1980, 2000, and 2020 birth cohorts. Under such a scenario, those in the 1960 birth
cohort would not be affected, as their AIMEs would have been calculated in 2022 (at age 62).37
Furthermore, the decrease in AIME for the younger cohorts would result in lower PIAs and
benefits at age 70 (two measures that use AIME in their calculations). The AIME, and subsequent
calculations, would fall with additional computation years because it would include additional
years of lower annual earnings (see Figure 2).38 Under current law, AIMEs are computed using a
worker’s highest 35 years of indexed earnings. Increasing the number of computation years,
which for the average hypothetical worker would include years of lower earnings, would lower
the AIME.
For very low, low, medium, and high earners in the younger three cohorts, increasing the number
of computation years by five years would result in a 6% lower AIME. Compared to those earners,
the maximum earners would be impacted to a much lesser degree or not at all (i.e., maximum
earners in the 2020 birth cohort). These earners always earn at the contributions and benefit base
(i.e., taxable maximum), a number that cannot decrease.39 That is, for maximum earners, the
increase in computation years would not include additional years of lower earnings in the
calculation, because those workers are assumed to earn at least the taxable maximum every year
(an amount that is projected to increase under the intermediate assumptions).40 Other hypothetical
earners earn at a percentage of AWI.
The hypothetical workers whose AIME would decrease would actually have a higher initial
replacement rate, measured as the percentage of AIME (career-averaged earnings) that PIA would
replace. This would not reflect an increase in future benefits but rather a decrease in AIME that
would be larger than the decrease in PIA.

37 Congress could enact provisions that would recalculate benefit amounts for people already collecting benefits. That
is, provisions to change the benefit formula could be enacted retroactively. In the scenarios shown here, changes in
future years (e.g., 2024) are used to highlight changes in the future. It has generally been the practice of Congress to
amend benefits for future beneficiaries, giving them time to adjust their retirement plans. Under this practice, current
beneficiaries (i.e., those already collecting benefits) would be held harmless as their ability to react to changes would
be diminished.
38 Seemingly, this would increase the probability that years of zero earnings would be included in the calculation. See
footnote 27.
39 The formula for determining the CBB is set by law (42 U.S.C. §430(b)). For any year after 1994, the formula states
that the CBB is equal to the base for 1994 ($60,600) multiplied by the ratio of the AWI for two years before the year
for which the amount is being calculated to that for 1992 (i.e., 1994 minus 2), with the result rounded to the nearest
multiple of $300. If the result is less than the current base, then the base is not reduced. Because of the rounding rule, it
is possible for the CBB to remain the same as the prior year with a very small increase in the AWI, provided that the
COLA is payable. This situation has never occurred.
40 This results from the basic definition of the hypothetical maximum worker. The maximum worker earns at the
taxable maximum level in all years (i.e., from age 22 through 64). In reality, this may be unlikely. As shown in Table
A-3, most workers who would meet the definition of maximum worker in any year would have many years of advanced
education where earning at the taxable maximum level in those years would be difficult.
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Table 3. Computation Years Increase: Change in Average Indexed Monthly Earnings
(AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70, Initial Replacement
Rates, and Effective Tax Rates for Hypothetical Earners by Birth Cohort
Under Intermediate Assumptions with a Change from 35 to 40 Computation Years for Those Becoming
Eligible in 2024 or Later

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Cohorts
Percent Change in AIME
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
-6.0%
-6.0%
-6.0%
-6.0%
-0.3%
2000
-6.0%
-6.0%
-6.0%
-6.0%
-0.1%
2020
-6.0%
-6.0%
-6.0%
-6.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
-2.3%
-3.2%
-4.3%
-2.4%
-0.1%
2000
-2.3%
-3.2%
-4.3%
-2.4%
0.0%
2020
-2.3%
-3.2%
-4.3%
-2.4%
0.0%

Percent Change in Benefits at Age 70
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
-2.3%
-3.2%
-4.3%
-2.4%
-0.1%
2000
-2.3%
-3.2%
-4.3%
-2.4%
0.0%
2020
-2.3%
-3.2%
-4.3%
-2.4%
0.0%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
3.3
1.8
0.8
1.4
0.0
2000
3.3
1.8
0.8
1.4
0.0
2020
3.2
1.8
0.8
1.4
0.0

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
The analysis presented in Table 3 is supported by SSA’s analysis using the Modeling Income in
the Near Term (MINT) microsimulation model. A 2008 version of the model found that
increasing the number of computation years to 40 would negatively affect all workers.41 More
recent (i.e., 2021) MINT analysis also showed that some demographic groups would be affected
by such a change more than others would. For instance, workers who are non-white, workers with

41 Workers with lower lifetime earnings typically have more years of zero earnings. Mark Sarney, Distributional Effects
of Increasing the Benefit Computation Period, SSA, August 2008, https://www.ssa.gov/policy/docs/policybriefs/
pb2008-02.html.
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less than a high school education, and workers not born in the United States are more likely to see
a benefit reduction as a result of such a policy change. Overall, such a change would slightly
increase poverty, but the lower program costs would help reduce the projected financial
shortfall.42
Table 4 shows the opposite modification to the benefit formula: The number of computation
years has decreased from 35 to 30. For instance, if a bill wanted to take into account a worker’s
years of zero earnings (e.g., caregiving), the number of computation years could be decreased so
as to not include those years in the calculations. As compared to Table 2 (i.e., base case), most
earners in the 1980, 2000, and 2020 birth cohorts would have a higher AIME, higher PIA, and
higher benefits at age 70 if computation years decreased to 30 years. This follows because instead
of the benefit formula using a worker’s highest 35 years to compute the AIME, it is now using the
highest 30 years. (Five years of relatively lower earnings have been removed from the
calculation, resulting in a higher average.) The result is about a 3.3% increase in AIME for very
low, low, medium, and high earners in the younger three cohorts. Similar to the previous example,
maximum earners are for the most part unaffected by this change. Also, although most workers
would receive higher benefits at age 70, their initial replacement rate would decrease as a result
of now having higher career-averaged earnings.

42 See SSA, “Projected Effects of a Proposal to Increase the Computation Period,” https://www.ssa.gov/policy/docs/
projections/policy-options/increase-comp-years-to-40.html.
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Table 4. Computation Years Decrease: Change in Average Indexed Monthly Earnings
(AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70, Initial Replacement
Rates, and Effective Tax Rates for Hypothetical Earners by Birth Cohort
Under Intermediate Assumptions with a Change from 35 to 30 Computation Years for Those Becoming
Eligible in 2024 or Later

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Cohorts
Percent Change in AIME
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
3.3%
3.3%
3.3%
3.3%
0.2%
2000
3.2%
3.3%
3.3%
3.3%
0.0%
2020
3.3%
3.3%
3.3%
3.3%
0.0%
Percent Change in PIA

1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
1.3%
1.7%
2.3%
1.3%
0.1%
2000
1.2%
1.7%
2.3%
1.3%
0.0%
2020
1.3%
1.7%
2.3%
1.3%
0.0%
Percent Change in Benefits at Age 70

1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
1.3%
1.8%
2.3%
1.3%
0.1%
2000
1.3%
1.7%
2.3%
1.3%
0.0%
2020
1.3%
1.7%
2.3%
1.3%
0.0%
Percentage Point Change in Initial Replacement Rate

1960
0.0
0.0
0.0
0.0
0.0
1980
-1.6
-0.9
-0.4
-0.7
0.0
2000
-1.6
-0.9
-0.4
-0.7
0.0
2020
-1.6
-0.9
-0.4
-0.7
0.0
Percentage Point Change in Effective Tax Rate

1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
Changes in PIA Replacement Factors
Congress could also change the benefit formula by altering the replacement factors.43 This section
illustrates two ways this could be done: the first by increasing the first replacement factor by 3

43 See OCACT, “B1: PIA bend point and factor changes, adjusting for inflation,” “B2: PIA bend point and factor
changes, adjusting for longevity,” and “B3: PIA bend point and factor changes, other adjustments,” at
https://www.ssa.gov/OACT/solvency/provisions/benefitlevel.html.
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percentage points (from 90% to 93%, Table 5) and the second by decreasing the third
replacement factor by 10 percentage points (from 15% to 5%, Table 6). The former might be
proposed as a means to improve benefit adequacy for all beneficiaries, whereas the later would be
a means to control program costs by reducing benefits for career-high earners. Table 5
demonstrates how a change in the first replacement factor could result in higher PIA (and
benefits) for earners of all levels. Table 6 shows how changes in the third replacement factor
would affect benefits of some earners (i.e., only high and maximum earners have earnings in the
third bracket).
Table 5 shows how benefit measures would change if the first replacement factor were changed
to 93% (from 90%) for those newly eligible for benefits starting in 2024. Unlike changes to
computation years (in the preceding section), this would leave AIME unchanged and would result
in higher PIAs, higher benefits at age 70, and higher initial replacement rates for earners of all
levels in the three younger cohorts. As the scenario demonstrated here would first apply to those
becoming eligible for benefits in 2024, PIAs for the 1960 birth cohort would be unaffected.
As can be seen in Table 5, the percent change in PIA would be most pronounced for very low
earners and least pronounced for maximum earners. The hypothetical very low earners are those
with all earnings in the first bracket of replaced earnings and thus would show the largest
percentage increase in PIA. That is, all of their earnings would be replaced at 93% versus 90%.
Higher earners, who may have a greater portion of their benefit driven by the second and third
brackets of the formula, would see a smaller percentage increase relative to their larger benefit
amounts.
For all earner groups in the younger three cohorts, the higher PIAs would lead to higher benefit
amounts at age 70 and higher initial replacement rates. As opposed to change in computation
years, the initial replacement rate would increase because of higher PIA, not because of changes
in calculations of career-averaged earnings (AIME).

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Table 5. First Replacement Factor Increased: Change in Average Indexed Monthly
Earnings (AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70, Initial
Replacement Rates, and Effective Tax Rates for Hypothetical Earners by Birth
Cohort
Under Intermediate Assumptions with an Increase in First Replacement Factor from 90% to 93% for
Those Becoming Eligible in 2024 and Later

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
3.2%
2.4%
1.5%
1.1%
0.9%
2000
3.2%
2.4%
1.5%
1.1%
0.9%
2020
3.2%
2.4%
1.5%
1.1%
0.9%

Percent Change in Benefits at age 70
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
3.2%
2.4%
1.5%
1.1%
0.9%
2000
3.2%
2.4%
1.5%
1.1%
0.9%
2020
3.2%
2.4%
1.5%
1.1%
0.9%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
2.6
1.5
0.7
0.4
0.3
2000
2.6
1.5
0.7
0.4
0.3
2020
2.6
1.5
0.7
0.4
0.3

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
Table 5 shows how changes in the first replacement factors would affect PIA of all earners (i.e.,
all earners have earnings in the first bracket). Table 6 shows how changes in the third
replacement factors would affect benefits of only high and maximum earners (i.e., those with
earnings in the third bracket). The Table 6 scenario shows changes in the benefit measures if, for
those newly eligible for benefits starting in 2024, the third replacement factor were reduced from
15% to 5%.
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Once again, as this change would first affect those eligible for benefits in 2024, the 1960 birth
cohort would be unaffected. As only hypothetical high and maximum earners have earnings in the
third bracket, only earners in those groups who are in the three younger cohorts would be
affected. For them, the decrease in PIA leads to lower benefits at age 70 and lower initial
replacement rates (as compared to the base case in Table 2).
Table 6. Third Replacement Factor Decreased: Change in Average Indexed Monthly
Earnings (AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70, Initial
Replacement Rates, and Effective Tax Rates for Hypothetical Earners by Birth
Cohort
Under Intermediate Assumptions with a Decrease in Third Replacement Factor from 15% to 5% for
Those Becoming Eligible in 2024 and Later

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
-4.5%
-15.8%
2000
0.0%
0.0%
0.0%
-4.5%
-15.7%
2020
0.0%
0.0%
0.0%
-4.5%
-15.7%

Percent Change in Benefits at Age 70
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
-4.5%
-15.8%
2000
0.0%
0.0%
0.0%
-4.5%
-15.7%
2020
0.0%
0.0%
0.0%
-4.5%
-15.7%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
-1.7
-4.6
2000
0.0
0.0
0.0
-1.7
-4.6
2020
0.0
0.0
0.0
-1.7
-4.6

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0
Source: Congressional Research Service (CRS) calculations based on hypothetical earner profiles developed by
SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
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Changes in FRA and EEA
The FRA—the age at which a worker can receive the full PIA, increased by any COLAs—was
last changed as part of the Social Security Amendments of 1983 (P.L. 98-21). At the time, many
argued the FRA should increase because of increases in life expectancy. The 1983 amendments
did not change the EEA, the age at which a retired worker can first claim (reduced) benefits.44
Since the early 1960s, the EEA has been set at 62 even though the FRA has been increased.
Proposals to increase the EEA and FRA by one or two years are common proposals.45
Table 7 demonstrates a scenario in which the FRA and EEA would be increased by one year each
for those becoming eligible starting in 2024 such that for the 1980 and younger cohorts, the FRA
would be 68 and the EEA would be 63. As with the previous scenarios, the implementation date
of this theoretical change would not affect the 1960 birth cohort. The benefit measures for the
younger three cohorts would be affected for earners of all levels as AIMEs, and PIAs would be
calculated one year later.
First, workers in all earnings groups would have a higher AIME. This would result from the
wage-indexation process (i.e., earnings from all computation years would be indexed for growth
over a period that is longer by one additional year). For example, a worker born in 2000 with
earnings at age 30 (in 2030) would now have his or her earnings indexed at age 61 (in 2061), not
age 60 (in 2060) under current law. Assuming that national wages grew, on average, between
2061 and 2060 (and all else held constant), this necessarily would result in higher AIMEs for all
workers. Second, the higher AIMEs would result in higher PIAs. However, workers in all
earnings groups in the younger three cohorts would have lower initial replacement rates (as
measured by PIA as a percent of AIME), because PIA would increase less than AIME would.46
One caveat however, is that the indexing process and progressive replacement factors results in
medium earners in the younger cohorts having slightly higher benefit amounts at age 70. That
said, their initial replacements rate would still be lower relative to current law.
Although these workers would have higher AIMEs and PIAs, they would have lower benefits at
age 70. COLAs are applied to a worker’s PIA starting in the second year of eligibility. Thus, birth
cohorts subject to an increase in one year for both EEA (the point at which AIMEs and PIAs are
calculated) and FRA would receive one less COLA before age 70 than would birth cohorts not
subject to the change. For example, under this scenario, at age 70 the 1960 birth cohort would
receive eight adjustments for inflation (from age 63 to age 70), whereas the 2000 birth cohort
would receive seven adjustments for inflation (from age 64 to age 70).
As discussed, the use of benefit amount at age 70 is to demonstrate how changes in the benefit
formula would affect workers of different birth cohorts at the same relative age. However, under
an increase in EEA and FRA, beneficiaries may experience a change in total expected lifetime
benefits. For instance, Table 7 shows how an increase in EEA and FRA would result in lower
benefits. Assuming no change in life expectancy, workers affected by such a change would also
be collecting the benefits for one fewer year. Moreover, beneficiaries attempting to take

44 Workers claiming benefits before reaching FRA would be subject to actuarial reduction. For more information on
how this would impact benefits, see CRS Report R46658, Social Security: Benefit Calculation.
45 See OCACT, “Provisions Affecting Retirement Age,” https://www.ssa.gov/OACT/solvency/provisions/
retireage.html. Most proposals would increase the EEA and/or FRA by two-month increments until a new EEA and/or
FRA is reached.
46 A given percentage change in AIME translates into a lower percentage change in PIA, because each of the
replacement factors applied at each of the three segments in the PIA calculation is set in law to be less than 100%.
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advantage of DRCs (i.e., delay claiming of benefits to earn delayed retirement credits) would also
receive less of a benefit increase than under current law.
Table 7. Full Retirement Age (FRA) Increased to 68 and Early Eligibility Age (EEA)
Increased to 63: Change in Average Indexed Monthly Earnings (AIMEs), Primary
Insurance Amounts (PIAs), Benefits at Age 70, Initial Replacement Rates, and
Effective Tax Rates for Hypothetical Earners by Birth Cohort
Under Intermediate Assumptions with a Change in EEA to 63 and FRA to 68 for Those Becoming Eligible
in 2024 or Later

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
3.8%
3.9%
3.9%
3.9%
3.6%
2000
3.9%
3.9%
3.9%
3.9%
3.6%
2020
3.8%
3.8%
3.8%
3.8%
3.5%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
1.5%
2.0%
2.8%
1.6%
1.8%
2000
1.5%
2.1%
2.8%
1.6%
1.8%
2020
1.5%
2.0%
2.8%
1.6%
1.8%

Percent Change in Benefits at Age 70
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
-0.9%
-0.3%
0.3%
-0.8%
-0.6%
2000
-0.9%
-0.3%
0.4%
-0.8%
-0.6%
2020
-0.9%
-0.4%
0.3%
-0.8%
-0.6%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
-1.9
-1.1
-0.5
-0.8
-0.5
2000
-1.9
-1.1
-0.5
-0.8
-0.5
2020
-1.9
-1.0
-0.5
-0.8
-0.5

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
Table 8 demonstrates a scenario in which the FRA and EEA would be gradually increased by two
years each for those first eligible for benefits in 2024 such that for the 1980 cohort the FRA
would be 68 and EEA would be 63, and for younger cohorts the FRA would be 69 and the EEA
would be 64. Compared to the base case (Table 2), the 1960 cohort would be unaffected by this
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theoretical policy change. Also, because of the gradual implementation of increase in FRA and
EEA, changes in the benefit measures for the 1980 birth cohort would be the same as in Table 7.
For the 2000 and 2020 birth cohorts, earners at all levels would receive higher AIMEs and PIAs
than if the FRA and EEA had been increased by only one year. Similarly, they would receive
lower benefits at age 70 as they would now receive six adjustments for inflation at age 70 (one
fewer than the 1980 birth cohort and two fewer than the 1960 birth cohort). As in the previous
table, the combined effects of the hypothetical medium earner’s work history with the indexing
process and progressive replacement rates actually result in a slight increase in benefit amounts at
age 70. That said, the hypothetical medium earners in the younger cohorts would still see an
estimated decrease in their initial replacement rate.
Table 8. Full Retirement Age (FRA) Increased to 69 and Early Eligibility Age
Increased to 64: Change in Average Indexed Monthly Earnings (AIMEs), Primary
Insurance Amounts (PIAs), Benefits at Age 70, Initial Replacement Rates, and
Effective Tax Rates for Hypothetical Earners by Birth Cohort
Under Intermediate Assumptions with a Gradual Change in EEA to 64 and FRA to 69 for Those Becoming
Eligible in 2024 or Later

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
3.8%
3.9%
3.9%
3.9%
3.6%
2000
7.7%
7.7%
7.7%
7.7%
7.3%
2020
7.6%
7.6%
7.6%
7.6%
7.2%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
1.5%
2.0%
2.8%
1.6%
1.8%
2000
3.0%
4.1%
5.5%
3.1%
3.7%
2020
2.9%
4.0%
5.4%
3.1%
3.7%

Percent Change in Benefits at Age 70
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
-0.9%
-0.3%
0.3%
-0.8%
-0.6%
2000
-1.8%
-0.8%
0.6%
-1.7%
-1.1%
2020
-1.8%
-0.8%
0.6%
-1.7%
-1.1%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
-1.9
-1.1
-0.5
-0.8
-0.5
2000
-3.6
-2.0
-0.9
-1.6
-1.0
2020
-3.6
-2.0
-0.9
-1.6
-1.0

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
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Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
2020
0.0
0.0
0.0
0.0
0.0
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
SSA’s MINT analysis in 2021 found that the percentage of a population facing benefit reductions
under an FRA and EEA increase rises for subsequent birth cohorts.47 That is, younger cohorts are
more likely to face benefit reductions. Additionally, those with relatively more education (e.g.,
graduate degree holders) and higher incomes in the younger cohorts are more likely to experience
benefit reductions with increases in the FRA.48
Changes in COLA
Social Security beneficiaries usually receive an annual COLA to compensate for the effects of
inflation.49 SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W) as produced by the Bureau of Labor Statistics to measure the change in cost of living
over a one-year period. Proposals to adjust the benefit formula include changing the price index
used in calculations to be more or less advantageous to beneficiaries. For instance, some
lawmakers favor using the Consumer Price Index for the Elderly (CPI-E), because retired workers
have a different “basket” of goods than workers.50 Others favor using a chain-weighted version of
the Consumer Price Index for All Urban Consumers (C-CPI-U) as a means to reduce program
costs.51
Table 9 shows how using the CPI-E to calculate COLAs starting in 2024 would change benefit
measures. SSA’s OCACT estimates using the CPI-E would increase the annual COLA by about
0.2 percentage points on average.52 This change in the price index would not alter the AIME, PIA,
or initial replacement rates for any earners of any birth cohort. Changing the COLA price index
from the CPI-W to the CPI-E would, however, raise benefit amounts received at age 70. Only
some of the COLAs received by the 1960 birth cohort at age 70 would be affected by the
estimated increase from using CPI-E, so their benefits at age 70 would not have increased as
much as those for the younger cohorts would. All the COLAs received by the younger cohorts
would be calculated using the CPI-E.

47 See SSA, “Projected Effects of a Proposal to Increase the Early Eligibility Age (EEA) and Full Retirement Age
(FRA),” https://www.ssa.gov/policy/docs/projections/policy-options/increase-eea-and-fra.html
48 Since COLAs are applied as a percentage increase to benefit amounts, a decrease in the number of adjustments
affects higher earners (who have higher benefit amounts) disproportionately.
49 For more background on COLAs, see CRS Report 94-803, Social Security: Cost-of-Living Adjustments.
50 The Bureau of Labor Statistics (BLS) refers to this index as a research price index, or R-CPI-E. The bureau
highlights several limitations in using this index. See BLS, “R-CPI-E Homepage,” https://www.bls.gov/cpi/research-
series/r-cpi-e-home.htm.
51 See OCACT, “Provisions Affecting Cost-of-Living Adjustment,” https://www.ssa.gov/OACT/solvency/provisions/
cola.html. For more information on the CPI-E and C-CPI-U, see CRS Report R43363, Alternative Inflation Measures
for the Social Security Cost-of-Living Adjustment (COLA).
52 Letter from Stephen Goss, Chief Actuary, SSA, to Representative Al Lawson, November 9, 2021,
https://www.ssa.gov/OACT/solvency/ALawson_20211109.pdf. It is important to note that this estimate is on average.
In fact, it may be possible for a change to the CPI-E to result in a smaller COLA.
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Table 9. Cost-of-Living Adjustment Projected Increase: Change in Average Indexed
Monthly Earnings (AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70,
Initial Replacement Rates, and Effective Tax Rates for Hypothetical Earners by Birth
Cohort
Under Intermediate Assumptions with a Change to Consumer Price Index for the Elderly (CPI-E) for
Cost-of-Living Adjustments (COLAs) Starting in 2024

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in Benefits at Age 70
1960
1.4%
1.3%
1.4%
1.4%
1.4%
1980
1.6%
1.6%
1.6%
1.6%
1.6%
2000
1.6%
1.6%
1.6%
1.6%
1.6%
2020
1.6%
1.6%
1.6%
1.6%
1.6%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Notes: Figures in the table reflect calculations for scheduled amounts under current law. The CPI-E is projected
to increase COLAs by 0.2 percentage points, on average, above current law projections. See letter from Stephen
Goss, Chief Actuary, SSA, to Representative Al Lawson, November 9, 2021, https://www.ssa.gov/OACT/
solvency/ALawson_20211109.pdf.
The analysis presented in Table 9, showing the estimated effects of using the CPI-E for COLA
calculations, is also supported by SSA’s MINT microsimulation analysis. If the CPI-E were
applied to Social Security benefits effective in 2022, MINT analysis shows a benefit increase for
almost all beneficiaries. The younger cohorts are more likely to experience higher-than-current-
law COLAs for the entirety of their benefit collection periods. Since such a change would be
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applied uniformly, it would affect most demographic groups in a similar manner (i.e., in
percentage change of benefits).53 However, since COLAs are applied as a percentage increase to
benefit amounts, higher earners would receive a larger dollar increase in benefit amounts.
Table 10 shows how using the C-CPI-U to calculate COLAs starting in 2024 would change
benefit measures. Whereas OCACT estimates that using CPI-E would increase the COLA by 0.2
percentage points on average, it estimates that using the C-CPI-U would decrease the COLA by
0.3 percentage points on average.54 Consequently, changing the price index to the C-CPI-U would
reduce benefits at age 70 (whereas such benefits would increase if the CPI-E were to be used to
make COLA adjustments). As in Table 9, AIME, PIA, and initial replacement rates would not
change relative to the base case (Table 2). Under a theoretical change to the C-CPI-U, the 1960
birth cohort would be the least negatively affected of the four cohorts, as some of their COLAs
would have been calculated under the current law CPI-W. Under such a change, the COLAs
received by the younger cohorts would all be calculated using the less advantageous (on average)
C-CPI-U.

53 See SSA, “Projected Effects of a Proposal to Increase the Cost-of-Living Adjustment (COLA),”
https://www.ssa.gov/policy/docs/projections/policy-options/increase-COLA-with-CPI-E.html.
54 Letter from Stephen Goss, Chief Actuary, SSA, to Representative Reid Ribble, July 16, 2016, https://www.ssa.gov/
OACT/solvency/RRibble_20160713.pdf.
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Table 10. Cost-of-Living Adjustment Projected Decrease: Change in Average Indexed
Monthly Earnings (AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70,
Initial Replacement Rates, and Effective Tax Rates for Hypothetical Earners by Birth
Cohort
Under Intermediate Assumptions with a Change to Chained Consumer Price Index for All Urban
Consumers (C-CPI-U) for Cost-of-Living Adjustments (COLAs) Starting in 2024

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in Benefits at Age 70
1960
-2.1%
-2.0%
-2.0%
-2.0%
-2.0%
1980
-2.3%
-2.3%
-2.3%
-2.3%
-2.3%
2000
-2.3%
-2.3%
-2.3%
-2.3%
-2.3%
2020
-2.3%
-2.3%
-2.3%
-2.3%
-2.3%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Notes: Figures in the table reflect calculations for scheduled amounts under current law. The C-CPI-U is
projected to decrease COLAs by 0.3 percentage points, on average, below current law projections. See letter
from Stephen Goss, Chief Actuary, SSA, to Representative Reid Ribble, July 16, 2016, https://www.ssa.gov/
OACT/solvency/RRibble_20160713.pdf.
The analysis presented in Table 10 showing the changes from using a C-CPI-U, is supported by
SSA’s MINT microsimulation analysis as well. A 2008 policy brief reported, “The effect of the
COLA reductions would be cumulative over time, causing benefit reductions to increase the
longer benefits are received. Therefore, certain groups of beneficiaries who tend to receive
benefits longer than average would experience larger benefit reductions. These groups include
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older beneficiaries, women, whites, those with higher levels of education, those with higher
income, widow(er)s, and retired disabled individuals.”55 Under such a change, a reduction in
COLAs would help alleviate some of the projected financial shortfall but also increase poverty
rates. Updated (i.e., 2021) MINT analysis shows that, like the change to using CPI-E, a change to
using a C-CPI-U would affect almost all beneficiaries.56 That is, most demographic groups—by
race, marital status, income, and education—would face similar percentage changes in benefits.
However, since COLAs are cumulative in nature, this would affect lower income workers and
younger workers more, as those already collecting benefits would have some years of higher
COLAs applied as under current law.
Changes in the Social Security Payroll Tax Rate
Changes to the Social Security payroll tax rate would ostensibly not change the benefit measures.
Those measures are largely dependent on the worker’s wages and wage- and price-indexed
parameters. However, many lawmakers have proposed amending Social Security by changing
workers’ payments into the system.57 An increase in program revenues—by an increase in the
payroll tax rate, the portion of earnings subject to the payroll tax, or some combination of both—
would improve the financial position of the program.58
Table 11 shows the effects of one theoretical change in the payroll tax. Under current law, the
combined 12.4% Social Security payroll tax is evenly paid by employees and employers (i.e.,
employees and employers each pay 6.2% on covered earnings).59 In this scenario, the payroll tax
rate would be increased by 0.2 percentage points each year until 2035 (the employee payroll tax
rate would increase by 0.1 percentage point each year), at which point the combined payroll tax
would be 14.8%. The employee (and employer) payroll tax would thus be 7.4% in 2035.60 Under
such a scenario, there would be no change in the effective tax rate for the hypothetical earners in
the 1960 birth cohort who have retired and are collecting benefits. Some of the increased tax
burden would be absorbed by the 1980 birth cohort as they would experience higher payroll tax
rates starting at age 44. The 2000 birth cohort would experience a higher payroll tax rate at age 24
(presumably for most of their active work years), and the 2020 birth cohort would experience the
higher rate for all of their working years.

55 Anya Olsen, Distributional Effects of Reducing the Cost-of-Living Adjustments, SSA, November 2008,
https://www.ssa.gov/policy/docs/policybriefs/pb2008-03.html.
56 See SSA, “Projected Effects of a Proposal to Reduce the Cost-of-Living Adjustment (COLA),” https://www.ssa.gov/
policy/docs/projections/policy-options/reduce-COLA-with-chained-CPI.html.
57 See SSA, “Provisions Affecting Payroll Taxes,” https://www.ssa.gov/OACT/solvency/provisions/payrolltax.html.
58 A change in the payroll tax rate is one option available for lawmakers to adjust the payroll tax. Other options include
changing the current-law taxable maximum dollar threshold or applying the payroll tax rate on a certain portion of all
wages such that 90%, for example, of all earnings would be subject to the payroll tax.
59 The payroll tax burden is often believed to fall on workers, as the employer’s share of payroll taxes is passed on to
employees in the form of lower wages. See “Distribution of Payroll Tax Burden” in CRS Report R47062, Payroll
Taxes: An Overview of Taxes Imposed and Past Payroll Tax Relief for more information.
60 An increase of 2.4 percentage points in the payroll tax would improve the financial position of the program but not
avoid a funding shortfall at which point the program could no longer pay full benefits on time. In the 2021 Annual
Report, the trustees estimate that a 3.36 percentage point increase in the payroll tax (to 15.76%) would eliminate the
funding shortfall (2021 Annual Report, p. 5).
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Table 11. Payroll Tax Rate Increase: Change in Average Indexed Monthly Earnings
(AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70, Initial Replacement
Rates, and Effective Tax Rates for Hypothetical Earners by Birth Cohort
Under Intermediate Assumptions, Starting in 2024 Gradually Increase Employee Payroll Tax Rate by 0.1
Percentage Point per Year Until 2035

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in Benefits at Age 70
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.6
0.6
0.6
0.6
0.5
2000
1.1
1.1
1.1
1.1
1.1
2020
1.2
1.2
1.2
1.2
1.2
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
Table 12 demonstrates changes under a scenario with a higher ultimate tax rate but with increases
starting at a later date and accruing more gradually. In this scenario, the combined payroll tax rate
would increase by 0.15 percentage points each year starting in 2034 until it reaches 16.4% in
2061 (the employee payroll tax rate would increase by 0.075 percentage point each year). The
employee (and employer) payroll tax would thus be 8.2% in 2061. Such a change would
effectively remove some of the burden of a tax increase off of the 1980 birth cohort. The 2000
birth cohort would pay a higher effective tax rate than in the base case (Table 2) but about the
same as in the scenario presented in the previous example (Table 11). Those in the 2020 birth
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cohort, though, would be subject to an increase in the payroll tax rate each year from when they
enter the workforce until age 41 (2061) and would experience a higher payroll tax rate (relative to
current law) for their entire working lives.
Table 12. Payroll Tax Rate Increase: Change in Average Indexed Monthly Earnings
(AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70, Initial Replacement
Rates, and Effective Tax Rates for Hypothetical Earners by Birth Cohort
Under Intermediate Assumptions, Starting in 2034 Gradually Increase Employee Payroll Tax Rate by 0.075
Percentage Point per Year Until 2060

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in Benefits at Age 70
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
0.0
0.0
2000
0.0
0.0
0.0
0.0
0.0
2020
0.0
0.0
0.0
0.0
0.0

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.1
0.1
0.1
0.1
0.1
2000
1.1
1.1
1.1
1.1
1.0
2020
1.9
1.9
1.9
1.9
1.8
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
A 2010 policy brief by SSA came to many of the same conclusions as the analysis presented
above. Although an increase in the payroll tax (i.e., program revenues) would put the program in
a more financially stable position, it would affect some workers more than others. First, the
longer an increase is delayed, the fewer the number of workers (in the current workforce) would
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be affected.61 Second, younger workers (and future generations of workers) would be affected
more by a delayed change in the tax rate and by gradual changes.62 A 2021 MINT analysis looked
at the distributional analysis of an increase in the payroll tax rate to a combined 15.9% in 2033
and a further increase to a combined 19.45% in 2063. The analysis found that older cohorts were
generally unaffected by the payroll tax increase as they were more likely to be retired and already
collecting benefits. All workers in younger cohorts would face a tax increase, and the net effect
would be larger for those starting work in later years, as all years of covered earnings would face
the higher tax rate. As a result, the younger cohorts would generally experience a lower benefit-
to-tax ratio.63 That is, the younger cohorts would generally receive the same amount in benefits
(relative to current law) over their lifetimes but would have paid higher taxes over their
lifetimes.64
Combining Several Changes
Congress can package together any number and combination of provisions to achieve their
desired policy goals. For instance, some Members might propose changing the benefit formula to
provide larger benefits and help offset some increase in the associated program costs with a
relatively modest payroll tax increase. Others might propose a package of cost-reduction and
revenue-increasing measures to help avoid the projected funding shortfall that may include
decreased benefits for lifetime high earners and a relatively high payroll tax increase. The past
two chairs of the House Ways and Means Subcommittee on Social Security used the approach of
combining numerous provisions into their bills. Then-Chair Johnson’s proposal, the Social
Security Reform Act of 2016 (H.R. 6489; 114th Congress), included 14 individual provisions that
focused mainly on reducing program costs. Chair Larson’s proposal, the Social Security 2100: A
Sacred Trust (H.R. 5723; 117th Congress), includes 17 provisions that focused on both benefit
adequacy and revenue increases.65
Table 13 presents an example of a combination of program changes that would result in higher
benefits for all beneficiaries and a higher payroll tax for most workers. Under this scenario, the
first replacement factor would increase to 93%, and the COLA calculations would use the CPI-E
starting in 2024 (originally presented in Table 5 and Table 9, respectively). To help pay for the
increase in program cost, the employee payroll tax rate would increase by 0.1 percentage points
each year from 2024 to 2035 (originally presented in Table 11).66

61 Dave Shoffner, Distributional Effects of Raising the Social Security Payroll Tax, SSA, April 2010,
https://www.ssa.gov/policy/docs/policybriefs/pb2010-01.html.
62 It can be argued that younger workers also have more to lose should the trust fund become depleted as they would
experience more years of reduced benefits.
63 The benefit-to-tax ratio is the lifetime present value of benefits divided by the lifetime present value of payroll taxes.
It measures how much in benefits an individual received for every dollar of payroll taxes paid. See SSA, “Table User
Guide—Modeling Income in the Near Term (MINT) 8,” https://www.ssa.gov/policy/docs/projections/user-guide.html.
64 See SSA, “Projected Effects of a Proposal to Increase Payroll Tax Rate,” https://www.ssa.gov/policy/docs/
projections/policy-options/increase-payroll-tax-rate.html.
65 In December 2020, the Urban Institute published a report highlighting how each bill would affect the median annual
Social Security benefits and provided some distribution analysis (Richard W. Johnson and Karen E. Smith, Comparing
Democratic and Republican Approaches to Fixing Social Security, Urban Institute, December 2020, p. 15,
https://www.urban.org/sites/default/files/publication/103288/comparing-democratic-and-republican-approaches-to-
fixing-social-security_0.pdf).
66 Lawmakers have a wide variety of options to address issues facing the Social Security program to strengthen either
benefits or the program’s finances. As such, there is an even larger number of combinations of options. The two
combinations selected for this report are just two examples of such options. They were chosen to highlight the
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The change in the first replacement factor and to the CPI-E combine to give a larger percent
change in benefits than each change did individually. The combined effect is larger for the
younger three cohorts because they receive the advantage of both (benefit-enhancing) changes,
whereas the 1960 birth cohort would experience only higher COLAs. That is, some combinations
of proposals can result in interactions among the individual provisions and can result in a larger
(i.e., multiplicative) effect. However, the 1960 birth cohort would not be affected by the increase
in the payroll tax rate.

variability in combinations of options and to demonstrate the capacity of CRS to estimate the effects of combinations of
proposals on benefit and payroll tax measures across earnings levels and birth cohorts.
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Table 13. Combination of Selected Program Changes: Change in Average Indexed
Monthly Earnings (AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70,
Initial Replacement Rates, and Effective Tax Rates for Hypothetical Earners by Birth
Cohort
Under Intermediate Assumptions with an Increase in First Replacement Factor from 90% to 93% for
Those Becoming Eligible in 2024 and Later, a Change to Use Consumer Price Index for the Elderly (CPI-E)
for Cost-of-Living Adjustments (COLAs) Starting in 2024, and a Gradual Increase in the Employee Payroll
Tax Rate by 0.1 Percentage Point per Year Starting in 2024 Until 2035

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
3.2%
2.4%
1.5%
1.1%
0.9%
2000
3.2%
2.4%
1.5%
1.1%
0.9%
2020
3.2%
2.4%
1.5%
1.1%
0.9%

Percent Change in Benefits at Age 70
1960
1.4%
1.3%
1.4%
1.4%
1.4%
1980
4.8%
4.1%
3.1%
2.7%
2.5%
2000
4.8%
4.1%
3.1%
2.7%
2.5%
2020
4.8%
4.0%
3.1%
2.7%
2.5%

Percentage Point Change in Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
2.6
1.5
0.7
0.4
0.3
2000
2.6
1.5
0.7
0.4
0.3
2020
2.6
1.5
0.7
0.4
0.3

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.6
0.6
0.6
0.6
0.5
2000
1.1
1.1
1.1
1.1
1.1
2020
1.2
1.2
1.2
1.2
1.2
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
Table 14 presents an example of a combination of program changes that would reduce benefits
for all earner groups (with larger effects for lifetime maximum earners) and birth cohorts and an
increase in the payroll tax rate for all groups and cohorts (with larger effects for the 2020 cohort).
Under this scenario, the third replacement factor would decrease from 15% to 5%, and the COLA
calculations would use the C-CPI-U starting in 2024 (originally presented in Table 6 and Table
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10, respectively). To help raise revenues, this scenario uses the payroll tax increase presented in
Table 12.
The change in the third replacement factor specifically targets the PIA of hypothetical high and
maximum earners. Although earners at all levels would experience lower benefits at age 70 due to
the change in COLA calculation (from CPI-W to C-CPI-U), the combination of lower PIA and
lower COLAs would be more pronounced at the higher income levels.
Similar to the previous example, the combination shown in Table 14 also shows how individual
changes can interact to result in combined effects that are larger than changes taken on an
individual basis. In this case, the decrease in the third replacement factor and the change in COLA
calculation combine to lower benefits for high and maximum earners in the younger cohorts more
than either change did on an individual basis.

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Table 14. Combination of Selected Program Changes: Change in Average Indexed
Monthly Earnings (AIMEs), Primary Insurance Amounts (PIAs), Benefits at Age 70,
Initial Replacement Rates, and Effective Tax Rates for Hypothetical Earners by Birth
Cohort
Under Intermediate Assumptions with a Decrease in the Third Replacement Factor from 15% to 5% for
Those Becoming Eligible in 2024 or Later, a Change to Use Chained Consumer Price Index Wage and
Salary Workers (C-CPI-U) for Cost-of-Living Adjustments (COLAs) Starting in 2024, and a Gradual
Increase in the Employee Payroll Tax Rate by 0.075 Percentage Point per Year Starting in 2034 Until 2060

Very Low Earner
Low Earner
Medium Earner
High Earner
Maximum Earner
Birth
Percent Change in AIME
Cohorts
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
0.0%
0.0%
2000
0.0%
0.0%
0.0%
0.0%
0.0%
2020
0.0%
0.0%
0.0%
0.0%
0.0%

Percent Change in PIA
1960
0.0%
0.0%
0.0%
0.0%
0.0%
1980
0.0%
0.0%
0.0%
-4.5%
-15.8%
2000
0.0%
0.0%
0.0%
-4.5%
-15.7%
2020
0.0%
0.0%
0.0%
-4.5%
-15.7%

Percent Change in Benefits at Age 70
1960
-2.1%
-2.0%
-2.0%
-2.0%
-2.0%
1980
-2.3%
-2.3%
-2.3%
-6.7%
-17.8%
2000
-2.3%
-2.3%
-2.3%
-6.7%
-17.6%
2020
-2.3%
-2.3%
-2.3%
-6.7%
-17.6%

Percentage Point Change in the Initial Replacement Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.0
0.0
0.0
-1.7
-4.6
2000
0.0
0.0
0.0
-1.7
-4.6
2020
0.0
0.0
0.0
-1.7
-4.6

Percentage Point Change in Effective Tax Rate
1960
0.0
0.0
0.0
0.0
0.0
1980
0.1
0.1
0.1
0.1
0.1
2000
1.1
1.1
1.1
1.1
1.0
2020
1.9
1.9
1.9
1.9
1.8
Source: CRS calculations based on hypothetical earner profiles developed by SSA.
Note: Figures in the table reflect calculations for scheduled amounts under current law.
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Appendix A. Estimated Characteristics of
Hypothetical Workers
This report examines how changes in the benefit formula would affect AIMEs, PIAs, monthly
benefits at age 70, initial replacement rates, and effective tax rates for a set of SSA-defined
hypothetical earners in selected birth cohorts.67 This appendix examines hypothetical earners’
demographic and other characteristics based on SSA analysis of administrative records and CRS
analysis of cross-sectional data from the 2019 American Community Survey (ACS), a large-scale
nationally representative household survey. These analyses reveal that some demographic groups
are more concentrated in certain hypothetical worker groups than in others, suggesting that the
effects of certain benefit formula changes may not be experienced uniformly by workers with a
different gender, race, or ethnicity.

67 As discussed in the “Figure 2. Percentage of Workers with Earnings Below the Contribution and Benefit Base (CBB)
and the Percentage of Covered Earnings Below the CBB
1951-2019

Source: Social Security Administration, Annual Statistical Supplement, 2021,
December 2021, Table 4.B1, https://www.ssa.gov/policy/docs/statcomps/
supplement/.
Hypothetical Earners” section of the report, initial values for these amounts and rates (i.e., before benefit
formula changes) and their values under various scenarios considered in the report are based on the estimated career
earnings profiles of hypothetical earners using SSA-developed methods. The SSA hypothetical earner profiles are
created such that selected career-average estimated earnings are 25%, 45%, 100%, and 160% of AWI in the year prior
to entitlement for very low, low, medium, and high earners, respectively. A fifth category of hypothetical earner
(maximum hypothetical earner) is assumed to earn at least the taxable maximum in each year from age 21 to age 64.
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Gender Distribution of Retiring Workers over SSA’s Hypothetical
Earners Categories
SSA publishes the distribution of women and men retiring in the 2015-2020 period across its
hypothetical earner categories (Table A-1) based on data for actual workers from a sample of
Social Security administrative records.68 In the SSA analysis, the hypothetical medium-scaled
worker retiring at age 62 in 2020 had career average annual earnings of $53,892 (in 2019 dollars).
Of actual workers retiring in the 2015-2020 period, 56.2% had AIMEs less than that of the
hypothetical medium earner (who had $53,892 in career-average earnings).
The SSA analysis indicates that, of workers retiring in the 2015-2020 period, larger shares of men
were in the higher earnings groups and larger shares of women were in the lower groups. This
might suggest that benefit formula changes (such as an increase in the first PIA replacement
factor) that would raise benefits for lower earners relative to higher earners may contribute to a
narrowing of the gender gap in income security during retirement. Among actual workers retiring
in the 2015-2020 period, 70.6% of retiring women and 42.3% of retiring men had AIMEs less
than the hypothetical medium earner.
Table A-1. Distribution of Average-Indexed Monthly Earnings (AIMEs) of Actual
Workers Retiring in Years 2015-2020, Relative to AIMEs for Hypothetical Workers
Retiring in 2020
Hypothetical Workera

(Career-Average Earnings)b
Percent with AIME Less
Very Low
Low
Medium
High
Maximum
Than AIME for
Hypothetical Case
($13,473)
($24,252)
($53,892)
($86,228)
($132,868)
All Males
7.8%
16.3%
42.3%
71.4%
100.0%
All Females
15.8%
32.0%
70.6%
91.5%
100.0%
All Workers
11.8%
24.0%
56.2%
81.2%
100.0%
Source: OCACT, Scaled Factors for Hypothetical Earnings Examples Under the 2021 Trustees Report Assumptions,
August 2021, Table 1, https://www.ssa.gov/OACT/NOTES/ran3/an2021-3.pdf.
Notes: Worker distributions include individuals who are dually entitled or may become dually entitled to higher
benefits in the future based on other workers’ earnings records. For more information on dual entitlement, see
CRS In Focus IF10738, Social Security Dual Entitlement.
a. A hypothetical worker is assumed to have a long and consistent career with earnings at each age from 21
through age 64.
b. Career-average earnings of hypothetical scaled workers retiring at age 62 in 2020. Earnings are wage-
indexed to 2019 in this calculation.
CRS Estimates of Hypothetical Earner Characteristics in 2019
This section expands upon the SSA analysis of earners’ characteristics (i.e., distribution of
workers by gender as shown in Table A-1) to examine additional demographic and other
information using data from the 2019 ACS. In addition to demographic data (e.g., age, gender,
race), ACS data contains information on employment (e.g., employment status, usual weekly

68 Specifically, the data describe actual workers who retired in 2015-2020 and are from a 1% sample of Social Security
administrative records.
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hours, annual weeks of work, and annual earnings) and family characteristics (e.g., poverty
status). The 2019 ACS data are used to describe the distribution of workers in that year over the
set of hypothetical earner groups defined by SSA and the characteristics of workers within those
earner groups.69
It is critical to note that CRS analysis of hypothetical workers in ACS data is not directly
comparable to SSA analysis of retiring workers in its administrative records for several reasons.
CRS analysis uses SSA-defined parameters and concepts to sort workers in the ACS data into
hypothetical worker groups but uses a different type of data and different sample criteria.
Notably, ACS data are cross-sectional—that is, workers of different ages are observed in only one
year, whereas SSA had access to workers’ career earnings (i.e., earnings over multiple years for
the same workers). SSA compared career earnings of retiring workers to career average earnings
of hypothetical workers. CRS does not have access to such longitudinal data and instead assigns
workers between the ages of 25 and 62 to SSA hypothetical earner categories using SSA’s age-
specific scaling factors. For example, based on SSA methods, a worker who is age 25 in 2019
with annual earnings of about $8,124 would be categorized as a very low earner, whereas a
worker with earnings of $51,297 would be categorized as a high earner. A worker who is age 46
in 2019 with annual earnings of about $14,801 ($94,604) would be categorized as a very low
earner (high earner). A potential drawback of these methods is that they overlook the potential for
workers to “jump” career paths, such that a worker who meets the SSA threshold for a very low
earner (high earner) at age 25 in 2019 may over time increase (decrease) earnings such that he or
she would be moved to a higher (lower) hypothetical earner category as her career progresses.
In addition, SSA data contains information on covered earnings, while ACS data describe wage
and salary income, a potentially broader concept.70 CRS analysis is limited to persons between
the ages of 25 and 62 who were employed at the time of the survey and reported earnings in the
12 months preceding the survey interview.71
Despite data differences, the overall distribution of workers and the distribution of employed men
and women in 2019 (Table A-2, based on ACS data) is similar to those calculated by SSA based
on administrative records for workers retiring in the 2015-2020 period.72 In particular, ACS data
indicate that larger shares of men were in the higher earnings groups and large shares of women
were in the lower earnings groups in 2019. The distribution of workers also varied by race,
Hispanic ethnicity, and educational attainment. White, Asian, and non-Hispanic workers were

69 Census Bureau information about the ACS is at https://www.census.gov/programs-surveys/acs/about.html. CRS used
the public use microdata sample data, which includes a subsample (approximately two-thirds of responses collected in
a given calendar years) of the full ACS microdata. The ACS public use files contain information from about 1% of the
U.S. population in each survey year. CRS downloaded selected variables from the public use microdata sample from
the IPUMS-USA database on February 24, 2022. For more information, see Steven Ruggles et al., IPUMS USA:
Version 11.0 [dataset]. Minneapolis, MN: IPUMS, 2021, https://doi.org/10.18128/D010.V11.0.
70 ACS wage and salary income includes wages, salary, Armed Forces pay, commissions, tips, piece-rate payments, and
cash bonuses earned before deductions (e.g., for taxes, pensions, union dues). Census Bureau, ACS 2019 Subject
Definitions, https://www2.census.gov/programs-surveys/acs/tech_docs/subject_definitions/
2019_ACSSubjectDefinitions.pdf.
71 Workers younger than age 25 are not included because CRS analysis includes the distribution of workers by highest
level of educational attainment. Age 25 was selected as a cutoff to allow the distribution of workers with bachelor’s
degrees to include those old enough to complete the degrees.
72 As a sensitivity check, CRS limited analysis to workers in the ACS sample who were ages 57-62 at the time of the
interview and calculated their distribution over the SSA hypothetical earners categories. The patterns were similar to
those produced by analysis of the full ACS sample: Women were more concentrated in then lower earning group than
were men. For example, in the restricted sample, 11.5% of women and 5.5% of men were in the very low earner group,
and 83.3% of women and 66.4% of men had earnings at or below the high earner threshold (i.e., 16.7% of women and
33.6% of men had earnings above the high earner threshold).
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more concentrated in higher income groups, whereas Black and Hispanic workers were
concentrated in lower earnings groups. For example, about 30% of Black workers had earnings
above the medium earner threshold, whereas about 54% of Asian workers and 45% of White
workers had earnings in the top earnings groups. Workers who had completed at least a
bachelor’s degree were considerably more concentrated in the higher earner groups relative to
those without bachelor’s degrees.

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Table A-2. Cumulative Distribution of Selected Worker Groups over SSA
Hypothetical Earner Categories in 2019
Hypothetical Earner Category

Very Low
Low
Medium
High
Maximum
Overall
8.6%
20.4%
57.2%
80.0%
100.0%
Female
11.7%
26.6%
65.5%
86.3%
100.0%
Male
5.8%
14.8%
49.6%
74.4%
100.0%
Black
10.9%
26.4%
70.1%
89.8%
100.0%
Asian
8.2%
19.1%
46.7%
66.8%
100.0%
White
8.0%
18.7%
54.5%
78.6%
100.0%
Non-Hispanic
8.3%
18.8%
54.1%
78.0%
100.0%
Hispanic
10.1%
27.8%
71.8%
89.8%
100.0%
Less Than an Bachelor’s
Degree
10.8%
26.7%
71.5%
91.0%
100.0%
Bachelor’s Degree or Higher
Education
5.2%
10.8%
35.4%
63.4%
100.0%
Source: CRS calculations using ACS data. Hypothetical earnings groups are defined by applying age-specific SSA
scaled factors to the AWI in 2019 ($54,099.99).
Notes: All incomes above the maximum (taxable) earnings level of $132,868 (2019) are included in the
maximum earner category. The sample comprises individuals who were ages 25-62, were employed at the time
of the survey, and reported wage and salary earnings over the 12 months that preceded the survey interview.
Table A-3 presents estimated characteristics of workers in 2019 in each hypothetical worker
category. Worker groups in this table are non-overlapping. The earnings span for each group is
bounded above by the age-specific earnings threshold for the given group and bounded below by
the earnings threshold for the next lower group. (For example, workers are placed in the low
workers group if they reported earnings of at least $1 above the age-specific earnings for the very
low earner group and earnings of no more than the age-specific earnings threshold for the low
earner group.) The table includes one additional hypothetical earner category called maximum
plus, which contains workers with earnings above the taxable maximum.
When compared to all workers in the sample (last column in Table A-3), a relatively high share
of women, Black workers, and Hispanic workers are in the lowest earnings categories. Similarly,
a relatively high share of workers without a bachelor’s degree are in the lowest earnings
categories. Workers in lower earnings groups had lower work hours and were more likely to work
less than 27 weeks per year than workers in the higher earnings group were.73 Workers in the
highest earnings groups were predominantly covered by health insurance policies offered by an
employer or union, whereas such coverage rates for lower earners were below the overall rate.
Lower earners were in households and families with lower incomes and greater use of public
assistance and were more likely to reside in non-metro areas.

73 The data suggest that a significant group of workers who are retired from career jobs but working in bridge
employment in 2019 may be in the very low earners groups. For example, this group reported higher average retirement
earnings than those in the low earners group. This may also partially explain why workers in the very low earner group
had higher shares of college degree holders than workers in the low earners group did.
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Table A-3. Selected Characteristics of Workers in 2019 by Hypothetical Earners
Categories
Very
Maximum

Low
Low
Medium
High
Maximum
Plus
Total

Demographic and Characteristics
Mean age (in years)
42.4
42.8
41.8
42.0
42.2
46.6
42.4
Share of workers

who are:
Female
65%
60%
50%
43%
36%
27%
48%
White
68%
65%
70%
76%
77%
79%
72%
Black
16%
16%
15%
11%
7%
5%
12%
Hispanic (can be of
21%
26%
21%
14%
10%
7%
18%
any race)
Married
49%
48%
52%
61%
65%
78%
57%
Educational Attainment

(share of workers)
Less than a
75.9%
81.4%
73.4%
51.4%
32.6%
17.4%
60.3%
bachelor’s degree
Bachelor’s degree
24.1%
18.6%
26.6%
48.6%
67.4%
82.6%
39.7%
or higher

Employment Characteristics
Mean usual hours
28.2
36.3
41.1
43.7
44.9
47.7
41.0
worked per week
Weeks worked in the
last 12 months (share

of workers)
1 to 26 weeks
29.1%
5.2%
1.5%
0.8%
0.6%
0.6%
4.0%
27 to 52 weeks
70.9%
94.8%
98.5%
99.2%
99.4%
99.4%
96.0%
Health insurance
coverage through an
42%
51%
74%
87%
90%
91%
75%
employer or union

Household Characteristics, Family Characteristics, and Resources
Median Individual
wage and salary
$7,500
$19,200
$36,000
$65,000
$100,000
$180,000
$45,000
income
Median total
$50,300
$55,300
$77,000
$110,000
$149,000
$261,200
$96,200
household income
Share of workers

Family income
within 200% of the
54%
49%
16%
1%
0%
0%
17%
poverty threshold
Family receives
Supplemental
Nutrition
21%
16%
8%
3%
2%
1%
8%
Assistance Program
benefits
Resides in non-
8%
9%
8%
6%
4%
2%
7%
metro area

Estimated population
10,217
14,024
43,739
27,149
15,156
8,553
118,837
(in thousands)
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Source: CRS calculations using ACS data. Hypothetical earnings groups are defined by applying age-specific SSA
scaled factors to the AWI in 2019 ($54,099.99).
Notes: Groups are mutually exclusive and are bounded from above by the age-specific income level used to
define the SSA hypothetical earner groups and below by the age-specific income level (plus one dollar) used to
define the next lowest hypothetical earner group.

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Appendix B. Historical and Projected Parameters
Used in Baseline Benefit Calculations
Table B-1. Historical and Projected Social Security Program Factors Used in
Baseline Benefit Calculations (1981-2090)
Projected Parameters Under the 2021 Intermediate Assumptions Are in Bold
First
Second
Primary
Primary
Contribution
Insurance
Insurance
Average
Cost-of-
and Benefit
Amount
Amount
Wage
AWI
Living
Base
(PIA)
(PIA)
Employee
Index
Annual
Adjustment
(Taxable
Bend
Bend
Payroll
Year
(AWI)
Change
(COLA)
Maximum)
Point
Point
Tax Rate
1981
$13,773.10
10.07%
14.3%
$29,700
$211
$1,274
5.35%
1982
14,531.34
5.51
11.2
32,400
230
1,388
5.40
1983
15,239.24
4.87
7.4
35,700
254
1,528
5.40
1984
16,135.07
5.88
3.5
37,800
267
1,612
5.70
1985
16,822.51
4.26
3.5
39,600
280
1,691
5.70
1986
17,321.82
2.97
3.1
42,000
297
1,790
5.70
1987
18,426.51
6.38
1.3
43,800
310
1,866
5.70
1988
19,334.04
4.93
4.2
45,000
319
1,922
6.06
1989
20,099.55
3.96
4.0
48,000
339
2,044
6.06
1990
21,027.98
4.62
4.7
51,300
356
2,145
6.20
1991
21,811.60
3.73
5.4
53,400
370
2,230
6.20
1992
22,935.42
5.15
3.7
55,500
387
2,333
6.20
1993
23,132.67
0.86
3.0
57,600
401
2,420
6.20
1994
23,753.53
2.68
2.6
60,600
422
2,545
6.20
1995
24,705.66
4.01
2.8
61,200
426
2,567
6.20
1996
25,913.90
4.89
2.6
62,700
437
2,635
6.20
1997
27,426.00
5.84
2.9
65,400
455
2,741
6.20
1998
28,861.44
5.23
2.1
68,400
477
2,875
6.20
1999
30,469.84
5.57
1.3
72,600
505
3,043
6.20
2000
32,154.82
5.53
2.5
76,200
531
3,202
6.20
2001
32,921.92
2.39
3.5
80,400
561
3,381
6.20
2002
33,252.09
1.00
2.6
84,900
592
3,567
6.20
2003
34,064.95
2.44
1.4
87,000
606
3,653
6.20
2004
35,648.55
4.65
2.1
87,900
612
3,689
6.20
2005
36,952.94
3.66
2.7
90,000
627
3,779
6.20
2006
38,651.41
4.60
4.1
94,200
656
3,955
6.20
2007
40,405.48
4.54
3.3
97,500
680
4,100
6.20
2008
41,334.97
2.30
2.3
102,000
711
4,288
6.20
2009
40,711.61
-1.51
5.8
106,800
744
4,483
6.20
2010
41,673.83
2.36
0.0
106,800
761
4,586
6.20
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Social Security Benefit Formula and Payroll Taxes

First
Second
Primary
Primary
Contribution
Insurance
Insurance
Average
Cost-of-
and Benefit
Amount
Amount
Wage
AWI
Living
Base
(PIA)
(PIA)
Employee
Index
Annual
Adjustment
(Taxable
Bend
Bend
Payroll
Year
(AWI)
Change
(COLA)
Maximum)
Point
Point
Tax Rate
2011
42,979.61
3.13
0.0
106,800
749
4,517
4.20
2012
44,321.67
3.12
3.6
110,100
767
4,624
4.20
2013
44,888.16
1.28
1.7
113,700
791
4,768
6.20
2014
46,481.52
3.55
1.5
117,000
816
4,917
6.20
2015
48,098.63
3.48
1.7
118,500
826
4,980
6.20
2016
48,642.15
1.13
0.0
118,500
856
5,157
6.20
2017
50,321.89
3.45
0.3
127,200
885
5,336
6.20
2018
52,145.80
3.62
2.0
128,400
895
5,397
6.20
2019
54,099.99
3.75
2.8
132,900
926
5,583
6.20
2020
55,628.60
2.83
1.6
137,700
960
5,785
6.20
2021
59,064.67
6.30
1.3
142,800
996
6,002
6.20
2022
61,600.90
4.30
5.9
147,000
1,024
6,172
6.20
2023
63,849.67
3.70
2.4
156,000
1,087
6,553
6.20
2024
66,000.86
3.40
2.4
162,900
1,134
6,834
6.20
2025
68,383.15
3.60
2.4
168,600
1,175
7,084
6.20
2026
70,873.78
3.60
2.4
174,300
1,215
7,323
6.20
2027
73,475.22
3.70
2.4
180,300
1,259
7,587
6.20
2028
76,170.31
3.70
2.4
187,200
1,304
7,863
6.20
2029
78,951.37
3.70
2.4
194,100
1,352
8,152
6.20
2030
81,801.34
3.60
2.4
201,300
1,402
8,451
6.20
2031
84,770.73
3.63
2.4
208,800
1,453
8,763
6.20
2032
87,856.38
3.64
2.4
216,300
1,505
9,078
6.20
2033
91,071.93
3.66
2.4
224,100
1,559
9,407
6.20
2034
94,396.05
3.65
2.4
232,200
1,615
9,749
6.20
2035
97,832.07
3.64
2.4
240,600
1,674
10,105
6.20
2036
101,383.37
3.63
2.4
249,300
1,735
10,473
6.20
2037
105,063.59
3.63
2.4
258,300
1,798
10,854
6.20
2038
108,856.38
3.61
2.4
267,600
1,863
11,248
6.20
2039
112,786.10
3.61
2.4
277,200
1,930
11,656
6.20
2040
116,835.12
3.59
2.4
287,100
1,999
12,076
6.20
2041
120,982.77
3.55
2.4
297,600
2,071
12,511
6.20
2042
125,229.26
3.51
2.4
308,400
2,145
12,960
6.20
2043
129,612.29
3.50
2.4
319,200
2,221
13,420
6.20
2044
134,148.72
3.50
2.4
330,300
2,298
13,891
6.20
2045
138,830.51
3.49
2.4
342,000
2,378
14,377
6.20
2046
143,661.81
3.48
2.4
354,000
2,461
14,880
6.20
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Social Security Benefit Formula and Payroll Taxes

First
Second
Primary
Primary
Contribution
Insurance
Insurance
Average
Cost-of-
and Benefit
Amount
Amount
Wage
AWI
Living
Base
(PIA)
(PIA)
Employee
Index
Annual
Adjustment
(Taxable
Bend
Bend
Payroll
Year
(AWI)
Change
(COLA)
Maximum)
Point
Point
Tax Rate
2047
148,646.87
3.47
2.4
366,300
2,546
15,399
6.20
2048
153,834.65
3.49
2.4
378,900
2,634
15,934
6.20
2049
159,234.25
3.51
2.4
392,100
2,725
16,486
6.20
2050
164,839.29
3.52
2.4
405,900
2,820
17,061
6.20
2051
170,658.12
3.53
2.4
420,000
2,918
17,659
6.20
2052
176,682.35
3.53
2.4
434,700
3,020
18,280
6.20
2053
182,901.57
3.52
2.4
450,000
3,126
18,925
6.20
2054
189,339.70
3.52
2.4
465,900
3,236
19,593
6.20
2055
196,004.46
3.52
2.4
482,400
3,349
20,282
6.20
2056
202,923.42
3.53
2.4
499,500
3,466
20,995
6.20
2057
210,106.91
3.54
2.4
517,200
3,588
21,734
6.20
2058
217,565.70
3.55
2.4
535,500
3,714
22,501
6.20
2059
225,311.04
3.56
2.4
554,400
3,845
23,297
6.20
2060
233,332.12
3.56
2.4
574,200
3,981
24,124
6.20
2061
241,638.74
3.56
2.4
594,600
4,122
24,982
6.20
2062
250,241.08
3.56
2.4
615,900
4,268
25,871
6.20
2063
259,149.66
3.56
2.4
637,800
4,419
26,792
6.20
2064
268,375.39
3.56
2.4
660,600
4,576
27,745
6.20
2065
277,929.55
3.56
2.4
684,000
4,738
28,732
6.20
2066
287,823.84
3.56
2.4
708,300
4,906
29,754
6.20
2067
298,070.37
3.56
2.4
733,500
5,080
30,813
6.20
2068
308,681.68
3.56
2.4
759,600
5,260
31,909
6.20
2069
319,670.75
3.56
2.4
786,600
5,447
33,044
6.20
2070
331,051.02
3.56
2.4
814,500
5,640
34,220
6.20
2071
342,836.44
3.56
2.4
843,600
5,840
35,438
6.20
2072
355,007.13
3.55
2.4
873,600
6,047
36,699
6.20
2073
367,609.89
3.55
2.4
904,800
6,262
38,005
6.20
2074
380,660.04
3.55
2.4
936,900
6,484
39,354
6.20
2075
394,135.40
3.54
2.4
970,200
6,714
40,751
6.20
2076
408,087.80
3.54
2.4
1,004,700
6,952
42,197
6.20
2077
422,534.11
3.54
2.4
1,040,400
7,198
43,690
6.20
2078
437,491.81
3.54
2.4
1,077,300
7,452
45,236
6.20
2079
452,935.27
3.53
2.4
1,115,400
7,715
46,837
6.20
2080
468,923.89
3.53
2.4
1,155,000
7,988
48,495
6.20
2081
485,476.90
3.53
2.4
1,195,800
8,269
50,206
6.20
2082
502,614.24
3.53
2.4
1,238,100
8,560
51,978
6.20
2083
520,306.26
3.52
2.4
1,281,900
8,862
53,812
6.20
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Social Security Benefit Formula and Payroll Taxes

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