SECTION 1. SOCIAL SECURITY: THE OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE (OASDI) PROGRAMS
CONTENTS
Basic Social Security Information
General
Brief Description of Social Security Programs
Concept of Social Insurance
Financing Mechanism
Brief History
Social Security Coverage of the Work Force
Benefits
Eligibility for Workers
Disability
Eligibility for Dependents and Survivors
Benefit Computation
Full Retirement Age
Trends in Retirement Age
Trends in Longevity
Average Indexed Monthly Earnings
Benefit Formula
Special Minimum Benefit
Benefit Amounts
Replacement Rates
Benefit Reduction and Increase
Dual Entitlement
Actuarial Reduction
Delayed Retirement Credit
Maximum Family Benefit
Earnings Limit
Offsets
Suspension of Benefits to Prisoners
Cost-of-Living Adjustments
Taxation of Benefits
Social Security Benefits for Noncitizens
Determination of Disability Benefits
Determination of Disability
Application of Law and Regulations
Federal Review of State Determinations
Periodic Review of Individuals Receiving Disability
Benefits
Medical Improvement Standard
Medical Evidence
Attorneys' Fees and Representation
Vocational Rehabilitation
Disability Claims and Appeals Structure
Changes in Enrollment and Applicant Backlogs
Disability Insurance (DI) Awards and Recipients
Pending Claims in the Disability Determination Services
Characteristics of Recipients
Old-Age, Survivors, and Disability Insurance
Disability Insurance
Social Security Financing
Current Law
Status of OASDI Trust Funds
How the Status of the Trust Funds is Measured
Nature of the Social Security Trust Funds
Budgetary Treatment of OASDI
Current Budget Rules Pertaining to Social Security
Current House and Senate Procedural Rules to Protect Social
Security's Financial Condition
Budgetary Treatment of Administrative Expenses
Legislative History
Changes in the 103d Congress
Changes in the 104th Congress
Changes in the 105th Congress
Appendix
Relationship of Taxes to Benefits for Social Security
Retirees: Illustrations of the Amount of Time It
Takes To Recover the Value of Taxes Paid, Plus
Interest
Illustrative Payback Times
BASIC SOCIAL SECURITY INFORMATION
Tax rate:
Employee/employer each--7.65%;
(6.20%--OASDI; 1.45%--HI).
Self-employed--15.30%;
(12.40%--OASDI; 2.90%--HI).
Maximum taxable earnings base for 1998:
Social Security (OASDI).................................... $68,400
Medicare (HI).............................................. No Limit
Maximum FICA/SECA tax: \1\
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\1\ FICA/SECA tax paid by employers and self-employed can be
partially deducted under income tax rules.
OASDI HI
Employee/employer, each.............. $4,241 No limit
Self-employed........................ 8,482 No limit
------------------------------------------------------------------------
OASDI workers covered.--1997 (est.)--145.9 million.
Average wage level.--1997 (est.)--$26,732
Earnings required in 1998 for a quarter of coverage.--$700; ($2,800 for
four).
Earnings limit exempt amounts in 1998:
$14,500 for beneficiaries age 65-69; \2\ ($1 for $3 withholding
rate).
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\2\ Will gradually increase to $30,000 in the year 2002.
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$9,120 for beneficiaries under age 65; ($1 for $2 withholding
rate).
Medicare (SMI) premium.--$43.80/month.
Number of OASDI beneficiaries (12/96) (in millions):
Total OASDI beneficiaries.................................. 43.7
OASI beneficiaries..................................... 37.5
Retired workers.................................... 26.9
Families and survivors............................. 10.8
DI beneficiaries....................................... 6.0
Disabled workers................................... 4.4
Family members..................................... 1.7
Average monthly benefits (12/96):
Retired worker............................................. $745
Retired worker and aged spouse............................. 1,256
Disabled worker............................................ 704
Disabled worker, spouse and children....................... 1,172
Aged widow(er)............................................. 707
Widowed mother/father and two children..................... 1,421
BASIC SOCIAL SECURITY INFORMATION--Continued
Monthly benefits for 1997 retirees At 62 At 65
Low earner (45% of average wages)....................... $448 $565
Average earner.......................................... 738 933
Maximum earner.......................................... 1,049 1,326
------------------------------------------------------------------------
Long-range replacement rates (in percent):
Retirement at age 67 in 2030 and later:
Low earner (45% of average wages).......................... 56
Average earner............................................. 42
Maximum earner............................................. 28
COLA (effective January 1998).--2.1%.
Taxation of benefits--percent of benefits taxed:
Percent taxed Income threshold Filing status
Up to 50%..................... $25,000-$34,000.. Individual.
$32,000-$44,000.. Joint.
Up to 85%..................... $34,001 +........ Individual.
$44,001 +........ Joint.
------------------------------------------------------------------------
Substantial gainful activity in 1998:
$500/month disabled/nonblind;
$1,050/month blind.
OASDI Trust Fund operations (in billions of dollars):
OASDI Trust Fund operations
---------------------------------------
Calendar year Net
Income Outgo increase Balance
1996............................ $424.5 $353.6 $70.9 $567.0
1997 (est.)..................... 451.3 370.8 80.5 647.4
------------------------------------------------------------------------
Fiscal year 1996 OASDI outlays.--$350 billion--22.4% of total U.S.
budget of $1.56 trillion.
For SSA information, call: 1-800-SSA-1213.
SSA On Line.--http://www.ssa.gov/SSA__Home.html
Source: Social Security Administration and Board of Trustees
(1997).
GENERAL
Brief Description of Social Security Programs
The Old-Age, Survivors, and Disability Insurance (OASDI)
Programs provide monthly benefits to retired and disabled
workers, their dependents and survivors. The OASDI Programs are
contained in title II of the Social Security Act, and are
commonly known as ``Social Security.'' Old-age benefits were
provided for retired workers by the original Social Security
Act of 1935, benefits for dependents and survivors were
provided by the 1939 amendments, and benefits for disabled
workers were enacted in 1956. The Medicare Hospital Insurance
(HI) Program, enacted in 1965 as title XVIII of the Social
Security Act, is closely related to the OASDI Program. (The HI
Program is described in section 2.)
Concept of Social Insurance
When the OASDI Programs were created, ``insurance'' was
included in their titles to show that their purpose is to
replace income that is lost to a family through the retirement,
death, or disability of a worker who has earned protection
against these risks. This protection was to be obtained by
working in jobs that are covered under Social Security and
therefore subject to payroll taxes that finance Social Security
benefits. Once workers worked long enough in covered jobs to be
insured, they and their families would have eligibility for
their benefits as a matter of earned right. The level of
benefits is based on the amount the worker earned in covered
jobs, and is paid without a test of economic need.
However, the social ends the programs serve diverge
somewhat from the insurance analogy. The programs are national,
and coverage is generally compulsory and nearly universal. They
are designed to address such social purposes as alleviating
poverty, providing added protection of families versus single
workers, and providing a larger degree of earnings replacement
for low-paid versus high-paid workers. The OASDI Programs were
therefore described as ``social'' insurance.
Financing Mechanism
The primary source of revenue for OASDI is the payroll tax
paid by workers covered by the program and their employers.
OASI and DI have separate tax rates set by law. Coverage under
Social Security is generally compulsory. Currently, an
estimated 96 percent of the Nation's paid work force is covered
either voluntarily or mandatorily.
The taxes for wage and salaried workers are imposed under
the Federal Insurance Contributions Act (FICA, chapter 21 of
the Internal Revenue Code). Taxes are based on earnings up to
the annual maximum taxable wage base ($68,400 in 1998 for
OASDI, with no limit on wages subject to HI). The employee
share of the payroll tax is withheld from wage and salary
payments, and is matched by employers, currently at a rate of
7.65 percent each. Self-employed persons are covered by the
Self-Employment Contributions Act (SECA, chapter 2 of the
Internal Revenue Code). They pay contributions on their net
earnings annually up to the same maximum as employees, but at a
rate that is equal to the combined employee-employer tax rate.
However, the self-employed may deduct 7.65 percent from their
net earnings before computing their Social Security tax and may
also deduct half of their Social Security tax as a business
expense for income tax purposes.
Revenue from the OASI and DI portion of the tax is credited
to the Old-Age and Survivors Insurance Trust Fund and the
Disability Insurance Trust Fund, respectively. In addition, the
revenue derived from the taxation of a portion of 50 percent of
Social Security benefits is credited to each trust fund (for
additional detail, see section on ``Taxation of Benefits'').
The trust funds are the source of payment for: (1) monthly
benefits when the worker retires, becomes totally disabled, or
dies (including a financial interchange with the Railroad
Retirement System), and (2) administrative expenses for the
program. A discussion of OASDI administrative costs may be
found in a later section on ``Budgetary Treatment of OASDI.''
BRIEF HISTORY
The 1935 Social Security Act covered only workers in
commerce and industry, then about 60 percent of the work force.
At first, the act provided only monthly benefits to retired
workers age 65 and over, and a lump-sum death benefit to the
estate of these workers. The monthly benefits were to begin on
January 1, 1942. The 1939 Social Security Amendments provided
benefits to dependents of retired workers (wives aged 65 and
over and children under age 16); and to survivors of deceased
workers (widows aged 65 and over, mothers caring for an
eligible child, children under age 16, and dependent parents).
In addition, the 1939 amendments provided that these benefits
would begin in 1940. The 1939 amendments were the first in a
nearly 40-year series of program expansions.
In 1956, benefits were extended to disabled workers aged
50-64, and to disabled children over age 18 of retired,
disabled, or deceased workers, if they became disabled before
age 18 (changed to disabled before age 22 in 1973). The 1958
amendments provided benefits to dependents of disabled workers
on the same basis as dependents of retired workers. Benefits
for disabled workers under age 50 were provided in 1960.
Monthly cash benefits were increased on an ad hoc basis 10
times before the first automatic cost-of-living adjustment was
implemented by the Social Security Amendments of 1972.
Beginning in 1975, benefits have been automatically adjusted
each year to keep pace with inflation, except during calendar
year 1983, when the adjustment was delayed 6 months (see table
1-1).
SOCIAL SECURITY COVERAGE OF THE WORK FORCE
In 1937, approximately 33 million persons worked in
employment covered by the Social Security system. Over the
years, major categories of workers were brought under the
system, such as self-employed individuals, State and local
government employees (on a voluntary basis), regularly employed
farm and domestic workers, members of the armed services, and
members of the clergy and religious orders (on a voluntary
basis). In 1997, of a total work force of approximately 151.9
million workers, about 145.3 million workers and an estimated
96 percent of all jobs in the United States are covered under
Social Security. Of the total work force, an estimated 14.1
million workers were self-employed in 1997. In 1996, an
estimated 86 percent of all earnings from jobs covered by
Social Security were taxable (see tables 1-2 and 1-3).
TABLE 1-1.--SOCIAL SECURITY BENEFIT INCREASES FROM THE BEGINNING OF THE
PROGRAM THROUGH JANUARY 1998
[In percent]
------------------------------------------------------------------------
Amount of
Date increase paid increase
------------------------------------------------------------------------
January 1998............................................... 2.1
January 1997............................................... 2.9
January 1996............................................... 2.6
January 1995............................................... 2.8
January 1994............................................... 2.6
January 1993............................................... 3.0
January 1992............................................... 3.7
January 1991............................................... 5.4
January 1990............................................... 4.7
January 1989............................................... 4.0
January 1988............................................... 4.2
January 1987............................................... 1.3
January 1986............................................... 3.1
January 1985............................................... 3.5
January 1984............................................... 3.5
July 1982.................................................. 7.4
July 1981.................................................. 11.2
July 1980.................................................. 14.3
July 1979.................................................. 9.9
July 1978.................................................. 6.5
July 1977.................................................. 5.9
July 1976.................................................. 6.4
July 1975 \1\.............................................. 8.0
April/July 1974 \2\........................................ 11.0
October 1972............................................... 20.0
February 1971.............................................. 10.0
February 1970.............................................. 15.0
March 1968................................................. 13.0
February 1965.............................................. 7.0
February 1959.............................................. 7.0
October 1954............................................... 13.0
October 1952............................................... 12.5
October 1950............................................... 77.0
------------------------------------------------------------------------
\1\ Automatic COLAs began.
\2\ Increase came in two steps.
Source: Social Security Administration.
TABLE 1-2.--CIVILIAN WORKERS COVERED BY SOCIAL SECURITY SYSTEM, 1939-96
[Numbers in millions]
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OASDI coverage OASDI and HI-only
Paid civilian -------------------- coverage
Year employees \1\ --------------------
Number Percent Number Percent
----------------------------------------------------------------------------------------------------------------
1939 \2\................................................ 43.6 24.0 55.1 24.0 55.1
1944 \2\................................................ 51.2 30.8 60.2 30.8 60.2
1949 \2\................................................ 56.7 34.3 60.5 34.3 60.5
1955.................................................... 62.8 51.8 82.5 51.8 82.5
1960.................................................... 64.6 55.7 86.2 55.7 86.2
1961.................................................... 65.3 56.1 85.9 56.1 85.9
1962.................................................... 66.4 57.3 86.3 57.3 86.3
1963.................................................... 67.6 58.5 86.5 58.5 86.5
1964.................................................... 69.3 60.1 86.7 60.1 86.7
1965.................................................... 71.6 62.7 87.6 62.7 87.6
1966.................................................... 73.6 64.9 88.2 64.9 88.2
1967.................................................... 74.4 65.7 88.3 65.7 88.3
1968.................................................... 75.9 67.1 88.4 67.1 88.4
1969.................................................... 78.0 68.6 87.9 68.6 87.9
1970.................................................... 77.8 69.9 89.9 69.9 89.9
1971.................................................... 79.6 71.7 90.1 71.7 90.1
1972.................................................... 82.6 74.7 90.4 74.7 90.4
1973.................................................... 85.6 77.6 90.6 77.6 90.6
1974.................................................... 85.4 77.3 90.5 77.3 90.5
1975.................................................... 86.0 77.9 90.6 77.9 90.6
1976.................................................... 89.2 81.0 90.9 81.0 90.9
1977.................................................... 93.5 85.1 91.0 85.1 91.0
1978.................................................... 97.0 88.4 91.2 88.4 91.2
1979.................................................... 99.4 90.7 91.3 90.7 91.3
1980.................................................... 98.9 89.3 90.3 89.3 90.3
1981.................................................... 99.0 90.2 91.1 90.2 91.1
1982.................................................... 98.3 89.8 91.4 89.8 91.4
1983.................................................... 102.2 93.6 91.6 96.0 94.0
1984.................................................... 105.5 97.9 92.7 100.3 95.0
1985.................................................... 107.7 100.0 92.9 102.4 95.1
1986.................................................... 110.2 104.3 94.6 106.7 96.8
1987.................................................... 113.3 107.5 94.9 110.0 97.1
1988.................................................... 115.6 109.8 95.0 112.4 97.2
1989.................................................... 117.4 111.7 95.2 114.3 97.4
1990.................................................... 117.0 112.2 95.2 114.9 97.5
1991.................................................... 117.1 111.6 95.3 114.2 97.5
1992.................................................... 118.7 113.2 95.4 115.7 97.5
1993.................................................... 121.3 115.9 95.5 118.4 97.6
1994.................................................... 124.6 119.3 95.7 121.8 97.7
1995.................................................... 125.0 119.8 95.8 122.3 97.8
1996.................................................... 127.7 122.6 96.0 125.1 97.9
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\1\ Includes paid employees and self-employed for all years.
\2\ Monthly average for these years, all other years as of December.
Source: Office of the Chief Actuary, Social Security Administration.
TABLE 1-3.--EARNINGS COVERED BY OASDI SYSTEM, 1950-96 \1\
[Dollars in billions]
----------------------------------------------------------------------------------------------------------------
Earnings in Taxable
covered employment Covered earnings as
-------------------- Total earnings a percent
Year Total earnings as a Taxable of total
earnings Self- in covered percent earnings earnings in
Employed employed employment of total covered
earnings employment
----------------------------------------------------------------------------------------------------------------
1950................................. $186.1 $109.8 ........ $109.8 59.0 $87.5 79.7
1955................................. 257.4 171.6 $24.5 196.1 76.2 157.5 80.3
1960................................. 324.9 236.0 29.2 265.2 81.6 207.0 78.1
1965................................. 428.8 311.4 40.3 351.7 82.0 250.7 71.3
1970................................. 631.7 483.6 49.9 533.5 84.4 415.6 77.9
1975................................. 940.1 717.2 70.4 787.6 83.8 664.7 84.4
1976................................. 1037.2 797.2 76.8 874.0 84.3 737.7 84.4
1977................................. 1140.4 879.5 80.8 960.3 84.2 816.6 85.0
1978................................. 1288.6 999.0 94.0 1093.0 84.8 915.3 83.7
1979................................. 1437.1 1122.0 100.6 1222.6 85.1 1073.8 87.8
1980................................. 1548.4 1230.9 97.9 1328.8 85.8 1178.3 88.7
1981................................. 1696.5 1352.0 98.7 1450.7 85.5 1295.0 89.3
1982................................. 1763.8 1422.2 98.6 1520.8 86.2 1365.5 89.8
1983................................. 1867.0 1500.9 109.9 1610.8 86.3 1455.0 90.3
1984................................. 2093.0 1667.1 128.2 1795.3 85.8 1610.0 89.7
1985................................. 2253.3 1799.6 141.8 1941.4 86.2 1726.2 88.9
1986................................. 2384.3 1922.5 158.6 2081.1 87.3 1845.5 88.7
1987................................. 2565.6 2057.2 177.9 2235.1 87.1 1960.1 87.7
1988................................. 2776.5 2232.6 199.7 2432.3 87.6 2092.2 86.0
1989................................. 2943.1 2362.5 210.9 2573.4 87.4 2237.7 87.0
1990................................. 3118.5 2509.9 193.8 2703.7 86.7 2358.4 87.2
1991................................. 3190.5 2565.4 195.5 2760.9 86.5 2422.1 87.7
1992................................. 3395.9 2710.5 205.8 2916.3 85.9 2532.3 86.8
1993 \2\............................. 3510.7 2821.4 212.0 3033.4 86.4 2649.0 87.3
1994 \2\............................. 3692.7 2954.0 221.5 3175.5 86.0 2782.7 87.6
1995 \2\............................. 3908.9 3139.8 234.9 3374.7 86.3 2924.0 86.6
1996 \2\............................. 4147.9 3328.3 254.2 3582.5 86.4 3082.8 86.1
----------------------------------------------------------------------------------------------------------------
\1\ Sum of wages and salaries and proprietors' income with inventory valuation and capital consumption
adjustments, as estimated by the Bureau of Economic Analysis in the National Income and Product Accounts.
\2\ Preliminary.
Source: Office of the Actuary, Social Security Administration.
While coverage is compulsory for most types of employment,
approximately 6.6 million workers did not have any coverage
under Social Security in 1996. The majority of these noncovered
workers were and still are in State and local governments or
the Federal Government (see tables 1-4 and 1-5 for the most
recently available statistical breakout). Beginning January 1,
1983, Federal employees were covered under the Medicare (HI)
portion of the Social Security tax, and all Federal employees
hired after 1983 are covered under the OASDI portion as well.
In 1992, 75 percent of State and local government workers (15.5
million out of 20.6 million) were covered by Social Security.
Beginning January 1, 1984, all employees of nonprofit
organizations became covered, and as of April 1983 terminations
of Social Security coverage by State government entities were
no longer allowed. State and local employees hired after March
31, 1986 are mandatorily covered under the Medicare Program and
must pay HI payroll taxes. Beginning July 1, 1991, State and
local employees who were not members of a public retirement
system were mandatorily covered under Social Security. This
requirement was contained in the 1990 Omnibus Budget
Reconciliation Act (Public Law 101-508).
TABLE 1-4.--ESTIMATED SOCIAL SECURITY COVERAGE, 1996
------------------------------------------------------------------------
Total Noncovered Percent
(millions) (millions) covered
------------------------------------------------------------------------
Workers \1\...................... 150.3 6.6 95.6
Jobs: \2\
State and local government
\3\......................... 22.3 5.5 75.3
Federal civilian............. 4.0 1.3 67.5
Students \4\................. 2.3 2.2 4.3
------------------------------------------------------------------------
\1\ Includes both employees and self-employed.
\2\ Because workers may work at more than one job during the year, the
total number of noncovered jobs exceeds the total number of noncovered
workers. Because this table includes workers who worked only in a
noncovered job at any time during the year, it shows a higher number
of noncovered jobs than does table 1-2, which is based on coverage
status in December of each year.
\3\ Excludes students.
\4\ Includes students employed at both public and private colleges and
universities.
Source: Social Security Administration.
TABLE 1-5.--ESTIMATED SOCIAL SECURITY COVERAGE OF WORKERS WITH STATE AND
LOCAL GOVERNMENT EMPLOYMENT, 1992
[Based on 1-percent sample; numbers in thousands]
------------------------------------------------------------------------
All workers Covered Percent
State \1\ workers covered
------------------------------------------------------------------------
Alabama.............................. 360 324 90
Alaska............................... 82 34 41
Arizona.............................. 340 324 95
Arkansas............................. 191 172 90
California........................... 2,198 1,069 49
Colorado............................. 330 122 37
Connecticut.......................... 255 174 68
Delaware............................. 65 60 92
Florida.............................. 1,003 927 92
Georgia.............................. 580 461 79
Hawaii............................... 107 88 82
Idaho................................ 113 108 96
Illinois............................. 985 515 52
Indiana.............................. 436 378 87
Iowa................................. 270 242 90
Kansas............................... 257 233 91
Kentucky............................. 325 241 74
Louisiana............................ 396 114 29
Maine................................ 110 51 46
Maryland............................. 396 357 90
Massachusetts........................ 325 46 14
Michigan............................. 790 674 85
Minnesota............................ 422 658 156
Mississippi.......................... 222 202 91
Missouri............................. 385 313 81
Montana.............................. 93 77 83
Nebraska............................. 165 152 92
Nevada............................... 93 32 34
New Hampshire........................ 88 74 84
New Jersey........................... 591 556 94
New Mexico........................... 175 145 83
New York............................. 1,673 1,553 93
North Carolina....................... 579 532 92
North Dakota......................... 70 61 87
Ohio................................. 800 61 8
Oklahoma............................. 267 250 94
Oregon............................... 264 246 93
Pennsylvania......................... 740 690 93
Rhode Island......................... 74 61 82
South Carolina....................... 310 280 90
South Dakota......................... 75 72 96
Tennessee............................ 409 353 86
Texas................................ 1,355 793 59
Utah................................. 165 147 89
Vermont.............................. 52 50 96
Virginia............................. 518 471 91
Washington........................... 437 374 86
West Virginia........................ 154 145 94
Wisconsin............................ 464 399 86
Wyoming.............................. 66 56 85
----------------------------------
Total.......................... 20,620 15,518 75
------------------------------------------------------------------------
\1\ Includes seasonal and part-time workers for whom State and local
government employment was not the major job.
Source: Office of Research and Statistics, Social Security
Administration.
While the most recent year for which actual data are
available is 1992, the Social Security Administration estimates
that in 1996, 22.3 million individuals will work at some time
during the year for a State or local government, and the wages
of 75 percent of these individuals will be covered by Social
Security.
BENEFITS
Eligibility for Workers
Insured status
Benefits can be paid to workers, and their dependents or
survivors, only if the worker has worked long enough in covered
employment to be insured for these benefits. Insured status is
measured in terms of ``quarters of coverage.''
Before 1978, one quarter of coverage was earned for each
calendar quarter in which a worker was paid $50 or more in
wages for covered employment, or received $100 in self-
employment income. A worker could also receive a calendar
quarter for each multiple of $100 in annual agricultural
earnings, up to a maximum of 4 quarters of coverage per year.
Since the beginning of 1978, the crediting of quarters of
coverage has been on an annual rather than a quarterly basis up
to a maximum of four quarters of coverage per year. In 1978, a
worker earned one quarter of coverage (up to a maximum of four)
for each $250 of annual earnings reported from covered
employment or self-employment. The amount of annual earnings
needed for a quarter of coverage is increased each year in
proportion to increases in average wages in the economy. In
1998 the amount of earnings needed for a quarter of coverage is
$700. Table 1-6 shows amounts needed since 1978.
For the purpose of the OASI Program, there are two types of
insured status: ``fully insured'' and ``currently insured.''
Workers are fully insured for benefits for themselves and for
their eligible dependents if they have earned one quarter of
coverage for each year elapsing after the year they reached age
21 up to the year in which they reach age 62, become disabled,
or die. Fully-insured status is required for eligibility for
all types of benefits except certain survivor benefits. No
matter how young, a worker must have at least six quarters of
coverage to be fully insured, with the minimum number
increasing with age. A worker with 40 quarters of coverage is
fully insured for life.
Survivors of a worker who was not fully insured may still
be eligible for benefits if the worker was currently insured.
Workers are currently insured if they have six quarters of
coverage during the thirteen calendar quarters ending with the
quarter in which they died.
Workers are insured for disability if they are fully
insured and have a total of at least 20 quarters of coverage
during the 40-quarter period ending with the quarter in which
they became disabled. Workers who are disabled before age 31
are insured for disability if they have total quarters of
coverage equal to half the calendar quarters which have elapsed
since the worker reached age 21, ending in the quarter in which
they became disabled. However, a minimum of 6 quarters of
coverage is required.
Age
Workers must be at least age 62 to be eligible for
retirement benefits. There is no minimum age requirement for
disability benefits, but disabled workers who attain the ``full
retirement age'' (see below) automatically receive full
retirement benefits, rather than disability benefits.
Disability benefits are computed as if the worker reached full
retirement age on the day he became totally disabled.
TABLE 1-6.--AMOUNT OF COVERED WAGES NEEDED TO EARN ONE QUARTER OF
COVERAGE, 1978-2002
1978....................................................... $250
1979....................................................... 260
1980....................................................... 290
1981....................................................... 310
1982....................................................... 340
1983....................................................... 370
1984....................................................... 390
1985....................................................... 410
1986....................................................... 440
1987....................................................... 460
1988....................................................... 470
1989....................................................... 500
1990....................................................... 520
1991....................................................... 540
1992....................................................... 570
1993....................................................... 590
1994....................................................... 620
1995....................................................... 630
1996....................................................... 640
1997....................................................... 670
1998....................................................... 700
1999....................................................... \1\ 720
2000....................................................... \1\ 750
2001....................................................... \1\ 780
2002....................................................... \1\ 810
------------------------------------------------------------------------
\1\ Based on economic assumptions in the 1997 Annual Report of the Board
of Trustees of the Federal Old-Age and Survivors Insurance and
Disability Insurance Trust Funds.
Source: Office of the Actuary, Social Security Administration.
Disability
Definition
Generally, disability is defined as the inability to engage
in ``substantial gainful activity'' by reason of a physical or
mental impairment. The impairment must be medically
determinable and expected to last for not less than 12 months,
or to result in death. Applicants may be determined to be
disabled only if, due to such an impairment, they are unable to
engage in any kind of substantial gainful work, considering
their age, education, and work experience. The work need not
exist in the immediate area in which the applicant lives, nor
must a specific job vacancy exist for the individual. Moreover,
no showing is required that the worker would be hired for the
job if she applied.
There are special definition and eligibility requirements
for persons who are blind, which are described below in the
section on ``Determination of Disability Benefits.''
The Commissioner \3\ has specific regulatory authority to
prescribe the criteria for determining at what level earnings
from employment demonstrate an individual's ability to engage
in substantial gainful activity (SGA). Effective January 1,
1990, the SGA earnings level was raised to $500 a month (net of
impairment-related work expenses), based on regulations
published by the Commissioner. Table 1-7 shows SGA amounts
applicable to nonblind disabled workers since 1968.
---------------------------------------------------------------------------
\3\ As used in this section, ``Commissioner'' is the Commissioner
of Social Security.
TABLE 1-7.--MONTHLY SGA AMOUNTS SINCE 1968
------------------------------------------------------------------------
Year SGA
------------------------------------------------------------------------
July 1968-73.................................................... $140
1974-75......................................................... 200
1976............................................................ 230
1977............................................................ 240
1978............................................................ 260
1979............................................................ 280
1980-89......................................................... 300
1990 and thereafter............................................. 500
------------------------------------------------------------------------
Source: Office of Research and Statistics, Social Security
Administration.
Waiting period
An initial 5-month waiting period is required before DI
benefits are paid. Benefits are payable beginning with the
sixth full month of disability. However, benefits may be paid
for the first full month of disability to a worker who becomes
disabled within 60 months after termination of DI benefits from
an earlier period of disability (for a disabled widow or
widower the period is 84 months).
Work incentive provisions
The law provides a 45-month period for disabled
beneficiaries to test their ability to work without losing
their entitlement to all benefits. The period consists of: (1)
a ``trial work period'' (TWP), which allows disabled
beneficiaries to work for up to 9 months (within a 5-year
period) \4\ with no effect on their disability or Medicare
benefits; followed by (2) a 36-month ``extended period of
eligibility,'' during the last 33 of which cash disability
benefits are suspended for any month in which the individual is
engaged in SGA. Medicare coverage continues so long as the
individual remains entitled to disability benefits and,
depending on when the last month of SGA occurs, may continue
for 3-24 months after entitlement to disability benefits ends.
When Medicare entitlement ends because of the individual's work
activity, but she is still medically disabled, she may purchase
Medicare protection.
---------------------------------------------------------------------------
\4\ Only one TWP is allowed in any one period of disability. By
regulation, earnings of more than $200 a month constitute ``trial
work.''
---------------------------------------------------------------------------
If beneficiaries medically recover to the extent that they
no longer meet the definition of disability, both disability
and Medicare benefits are terminated after 3 months, regardless
of the status of their trial work period or extended period of
eligibility. However, persons who contest this determination
may elect to continue to receive disability benefits (subject
to recovery) and Medicare while their appeal is being reviewed.
Eligibility for Dependents and Survivors
Dependents' benefits are payable in addition to benefits
payable to the worker.
Spouse's benefit
A benefit is payable to a spouse of a retired or disabled
worker under one of the following conditions: (1) a currently-
married spouse is at least 62 or is caring for one or more of
the worker's entitled children who are disabled or have not
reached age 16; or (2) a divorced spouse is at least 62, is not
married, and the marriage had lasted at least 10 years before
the divorce became final. A divorced spouse may be entitled
independently of the worker's retirement if both the worker and
divorced spouse are age 62, and if the divorce has been final
for at least 2 years.
Widow(er)'s benefit
A monthly survivor benefit is payable to a widow(er) or
divorced spouse of a worker who was fully insured at the time
of death. The widow(er) or divorced spouse must be unmarried
(unless the remarriage occurred after the widow(er) first
became eligible for benefits as a widow(er)); and must be
either (1) age 60 or older or (2) age 50-59 and disabled
throughout a waiting period of 5 consecutive calendar months
that began no later than 7 years after the month the worker
died or after the end of the individual's entitlement to
benefits as a widowed mother or father.
Child's benefit
A monthly benefit is payable to a dependent, unmarried
biological or adopted child, stepchild, and grandchild, of a
retired, disabled, or deceased worker who was fully or
currently insured at death. Dependency is deemed for the
insured's biological children and most adopted children. The
child must be either: (1) under age 18; (2) a full-time
elementary or secondary student under age 19; or (3) a disabled
person age 18 or over whose disability began before age 22.
Mother's/father's benefit
A monthly survivor benefit is payable to a mother (father)
or surviving divorced mother (father) if: (1) the deceased
worker on whose account the benefit is payable was fully or
currently insured at time of death; and (2) the mother (father)
or surviving divorced mother (father) is not married and has
one or more entitled children of the worker in his or her care.
In the case of a surviving divorced mother or father, the child
must also be the applicant's natural or legally adopted child.
These payments continue as long as the youngest child being
cared for is under age 16 or disabled (see ``Child's benefit''
above).
Parent's benefit
A monthly survivor benefit is payable to a parent of a
deceased fully-insured worker who is age 62 or over, and has
not married since the worker's death. The parent must have been
receiving at least one-half of her support from the worker at
the time of the worker's death or, if the worker had a period
of disability which continued until death, at the beginning of
the period of disability. Proof of support must be filed within
2 years after the worker's death or the month in which the
worker filed for disability.
Lump-sum death benefit
A one-time lump-sum benefit of $255 is payable upon the
death of a fully or currently-insured worker to the surviving
spouse who was living with the deceased worker or was eligible
to receive monthly cash survivor benefits upon the worker's
death. If there is no eligible spouse, the lump-sum death
benefit is payable to any child of the deceased worker who is
eligible to receive monthly cash benefits as a surviving child.
If there is no surviving spouse, or children of the worker
eligible for monthly benefits, then the lump-sum death benefit
is not paid.
[See table 1-8 for 1996 OASDI beneficiary statistics; table
1-9 for OASDI benefits paid 1940-96; table 1-10 for monthly
benefit amounts for selected families; and the ``Benefit
Computation'' section for further information on AIME.]
BENEFIT COMPUTATION
All monthly benefits are computed based on a worker's
primary insurance amount (PIA). The PIA is a monthly amount
based on the application of the Social Security benefit formula
to a worker's average lifetime covered earnings. It is also the
monthly benefit amount payable to a worker who retires at the
full retirement age, or becomes entitled to disability
benefits.
Full Retirement Age
Benefits for retired workers, aged spouses, and widow(er)s
taken before the ``full retirement age'' are subject to an
actuarial reduction. The full retirement age is the earliest
age at which unreduced retirement benefits can be received. The
full retirement age currently is age 65, but it will gradually
rise in two steps beginning in the next century. First, the
full retirement age will increase by 2 months for each year
that a person is born after 1937, until it reaches age 66 for
those who were born in 1943. Second, it will increase again by
2 months for each year that a person is born after 1954, until
it reaches age 67 for those who were born after 1959. Early
retirement still will be available, beginning at age 62 for
workers and their spouses, and at age 60 for widow(er)s, but
benefits will be lower. The actuarial reduction on retirement
benefits at age 62 ultimately will be 30 percent, instead of
the present 20 percent. The age for full benefits for aged
spouses and widow(er)s likewise will rise to 67.
TABLE 1-8.--OASDI BENEFICIARIES IN CURRENT PAYMENT STATUS AND NEW AWARDS, DECEMBER 1996
----------------------------------------------------------------------------------------------------------------
Number in
current Percent of Average Number of
payment beneficiary monthly new awards Average
(in population benefit (in new award
thousands) thousands)
----------------------------------------------------------------------------------------------------------------
Retired workers...................................... 26,898 61.5 $745 1,581 $713
Wives and husbands of retired workers................ 2,970 6.8 384 244 347
Children of retired workers.......................... 443 1.0 337 99 312
Disabled workers..................................... 4,386 10.0 704 624 714
Wives and husbands of disabled workers............... 224 0.5 171 58 182
Children of disabled workers......................... 1,463 3.3 194 397 186
Widowed mothers and fathers.......................... 242 0.6 515 49 498
Surviving children................................... 1,898 4.3 487 302 483
Widows and widowers.................................. 5,028 11.5 707 409 689
Disabled widow(er)s.................................. 182 0.4 471 29 463
Parents.............................................. 4 (\1\) 614 (\2\) 602
Special age-72....................................... 1 (\1\) 197 (\2\) 156
----------------------------------------------------------
Totals and averages............................ 43,737 100.0 $673 3,793 $591
----------------------------------------------------------------------------------------------------------------
\1\ Less than 0.05 percent.
\2\ Fewer than 500.
Source: Office of Research and Statistics, Social Security Administration.
TABLE 1-9.--OASDI BENEFITS PAID, 1940-96
[In millions of dollars]
------------------------------------------------------------------------
Year OASDI OASI DI
------------------------------------------------------------------------
1940................................... $35 $35 .........
1950................................... 961 961 .........
1960................................... 11,245 10,677 $568
1970................................... 31,863 28,796 3,067
1980................................... 120,511 105,074 15,437
1985 \1\............................... 186,196 167,360 18,836
1990 \1\............................... 247,796 222,993 24,803
1991 \1\............................... 268,098 240,436 27,662
1992 \1\............................... 286,030 254,939 31,091
1993 \1\............................... 302,402 267,804 34,598
1994 \1\............................... 316,772 279,068 37,704
1995 \1\............................... 332,580 291,682 40,898
1996 \1\............................... 347,088 302,914 44,174
------------------------------------------------------------------------
\1\ Unnegotiated checks not deducted.
Source: Office of Research and Statistics, Social Security
Administration.
TABLE 1-10.--MONTHLY BENEFIT AMOUNTS FOR SELECTED BENEFICIARY FAMILIES
WITH FIRST ELIGIBILITY IN 1996, FOR SELECTED WAGE LEVELS, DECEMBER 1996
------------------------------------------------------------------------
Workers with yearly earnings equal
to
-----------------------------------
Beneficiary family Federal Maximum
minimum Average taxable
wage \1\ wage \2\ earnings \3\
------------------------------------------------------------------------
Retired-worker families: \4\
Average indexed monthly earnings.. $983.00 $1,981.00 $3,657.00
Primary insurance amount.......... 584.40 913.00 1,286.10
Maximum family benefit............ 887.90 1,666.10 2,249.70
Monthly benefit amount:
Retired worker claiming benefits
at age 62: \4\
Worker alone.................. 467.00 730.00 1,028.00
Worker with spouse claiming
benefits at--
Age 65 or older............. 759.00 1,186.00 1,671.00
Age 62 \4\.................. 686.00 1,072.00 1,510.00
Survivor families: \5\
Average indexed monthly earnings.. 882.00 1,985.00 4,793.00
Primary insurance amount.......... 551.20 914.30 1,461.40
Maximum family benefit............ 826.80 1,668.00 2,556.50
Monthly benefit amount:...........
Survivors of worker deceased at
age 40: \5\
One surviving child........... 413.00 685.00 1,096.00
Widowed mother or father and
one child.................... 826.00 1,370.00 2,192.00
Widowed mother or father and
two children................. 825.00 1,668.00 2,556.00
Disabled worker families: \6\
Average monthly indexed earnings.. 938.00 1,982.00 4,273.00
Primary insurance amount.......... 569.60 913.40 1,381.20
Maximum family benefit \7\........ 820.40 1,370.10 2,071.70
Monthly benefit amount:
Disabled worker age 50: \6\
Worker alone.................. 569.00 913.00 1,381.00
Worker, spouse, and one child. 819.00 1,369.00 2,071.00
------------------------------------------------------------------------
\1\ The annual wage was calculated by multiplying the Federal minimum
hourly wage of $4.25 in effect during the period January to September
by 1,560 and adding to it the product of $4.75--the minimum for the
period October to December. The minimum was raised to $5.15 effective
September 1997 as legislated by Public Law 104-188.
\2\ Worker earned the national average wage in each year used in the
computation of the benefit.
\3\ Worker earned the maximum amount of wages that can be credited to a
worker's Social Security record in all years used in the computation
of the benefit.
\4\ Assumes the worker began to work at age 22, retired at age 62 in
1995 with maximum reduction, and had no prior period of disability.
\5\ Assumes the deceased worker began to work at age 22, died in 1995 at
age 40, had no earnings in that year, and had no prior period of
disability.
\6\ Assumes the worker began work at age 22, became disabled at age 50,
and had no prior disability.
\7\ The 1980 amendments to the Social Security Act provide for a
different family maximum amount for disability cases. For disabled
workers entitled after June 1980, the maximum is the smaller of (1) 85
percent of the worker's AIME (or 100 percent of the PIA, if larger) or
(2) 150 percent of the PIA.
Source: Social Security Administration.
Benefits of workers who choose to retire after their full
retirement age are increased by delayed retirement credits, as
are the benefits payable to their widow(er)s. The delayed
retirement credit is 1 percent per year for workers who
attained age 65 before 1982, and 3 percent per year for workers
who attained age 65 between 1982 and 1989. Starting in 1990,
the delayed retirement credit increases by one-half of 1
percent every other year until it reaches 8 percent for workers
reaching age 65 after 2007 (see section on ``Benefit Reduction
and Increase''). Table 1-11 shows the schedule of increases in
the full retirement age and delayed retirement credits for
workers.
Trends in Retirement Age
Table 1-12 shows the percentage of workers who elected to
receive retirement benefits at selected ages since the
beginning of the Social Security Program. It clearly
illustrates a trend toward early retirement. Retirement at age
62 has become the norm. Reduced benefits were not available to
women until 1956, and to men until 1961. Table 1-13 shows the
percentage of retired workers electing reduced benefits since
they first became available.
Trends in Longevity
Table 1-14 shows how life expectancies have increased since
Social Security benefits were first paid in 1940, and what they
are projected to be in the future, as well as fertility and
death rates.
Average Indexed Monthly Earnings
Except for workers who are eligible for a ``Special Minimum
Benefit'' (see below), the basic benefit or primary insurance
amount (PIA) is determined through a formula applied to the
worker's average indexed monthly earnings (AIME). The AIME is a
dollar amount that represents the average monthly earnings from
Social Security-covered employment over most of the worker's
adult life indexed to the increase in average annual wages.
Indexing the earnings to changes in wage levels ensures that
the same relative value is accorded to wages no matter when
earned. Because actual average-wage data take over a year to
become available, past earnings are updated to the second
calendar year (the ``indexing year'') before the worker becomes
eligible for retirement (age 62) or, if earlier, becomes
disabled or dies. This means that the year a worker turns age
60 is used as the indexing year for computing retirement
benefits. Earnings in and after the indexing year are not
indexed.
There are two steps in determining the AIME: (1) the
``index'' for a worker's earnings is determined by multiplying
the earnings for a given year by the ratio of the average wage
for the indexing year divided by the average wage for that
year; and (2) the number of ``computation years'' is based on
the number of years elapsing after 1950 (or year of attainment
of age 21, if later) up to the year the worker attains age 62,
becomes disabled, or dies, minus any ``dropout'' years. The law
provides for up to five dropout years in retirement and
survivor computations (for workers disabled before age 47, the
number of dropout years varies from one to four, depending on
the worker's age and number of child care dropout years). The
minimum number of computation years is two.
TABLE 1-11.--INCREASES IN FULL RETIREMENT AGE AND DELAYED RETIREMENT CREDITS, WITH RESULTING BENEFIT, AS A PERCENT OF PRIMARY INSURANCE AMOUNT [PIA],
PAYABLE AT SELECTED AGES, FOR PERSONS BORN IN 1924 OR LATER
--------------------------------------------------------------------------------------------------------------------------------------------------------
Credit for each Benefit, as a percent of PIA, beginning at age--
year of delayed ---------------------------------------------------------
Year of birth Age 62 attained in-- ``Normal retirement retirement
age'' after normal 62 65 66 67 70
retirement age
--------------------------------------------------------------------------------------------------------------------------------------------------------
1924............................. 1986................ 65.................. 3 80 100 103 106 115
1925-26.......................... 1987-88............. 65.................. 3\1/2\ 80 100 103\1/2\ 107 117\1/2\
1927-28.......................... 1989-90............. 65.................. 4 80 100 104 108 120
1929-30.......................... 1991-92............. 65.................. 4\1/2\ 80 100 104\1/2\ 109 122\1/2\
1931-32.......................... 1993-94............. 65.................. 5 80 100 105 110 125
1933-34.......................... 1995-96............. 65.................. 5\1/2\ 80 100 105\1/2\ 111 127\1/2\
1935-36.......................... 1997-98............. 65.................. 6 80 100 106 112 130
1937............................. 1999................ 65.................. 6\1/2\ 80 100 106\1/2\ 113 132\1/2\
1938............................. 2000................ 65, 2 mo............ 6\1/2\ 79\1/6\ 98\8/9\ 105\5/12\ 111\11/12\ 131\5/12\
1939............................. 2001................ 65, 4 mo............ 7 78\1/3\ 97\7/9\ 104\2/3\ 111\2/3\ 132\2/3\
1940............................. 2002................ 65, 6 mo............ 7 77\1/2\ 96\2/3\ 103\1/2\ 110\1/2\ 131\1/2\
1941............................. 2003................ 65, 8 mo............ 7\1/2\ 76\2/3\ 95\5/9\ 102\1/2\ 110 132\1/2\
1942............................. 2004................ 65, 10 mo........... 7\1/2\ 75\5/6\ 94\4/9\ 101\1/4\ 108\3/4\ 131\1/4\
1943-54.......................... 2005-16............. 66.................. 8 75 93\1/3\ 100 108 132
1955............................. 2017................ 66, 2 mo............ 8 74\1/6\ 92\2/9\ 98\8/9\ 106\2/3\ 130\2/3\
1956............................. 2018................ 66, 4 mo............ 8 73\1/3\ 91\1/9\ 97\7/9\ 105\1/3\ 129\1/3\
1957............................. 2019................ 66, 6 mo............ 8 72\1/2\ 90 96\2/3\ 104 128
1958............................. 2020................ 66, 8 mo............ 8 71\2/3\ 88\8/9\ 95\5/9\ 102\2/3\ 126\2/3\
1959............................. 2021................ 66, 10 mo........... 8 70\5/6\ 87\7/9\ 94\4/9\ 101\1/3\ 125\1/3\
1960 or later.................... 2022 or later....... 67.................. 8 70 86\2/3\ 93\1/3\ 100 124
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Ballantyne (1984).
TABLE 1-12.--PERCENTAGE OF WORKERS ELECTING SOCIAL SECURITY RETIREMENT BENEFITS AT VARIOUS AGES, SELECTED YEARS
1940-95 \1\
----------------------------------------------------------------------------------------------------------------
Ages 63- Ages Average
Year Age 62 64 Age 65 66+ age
----------------------------------------------------------------------------------------------------------------
1940............................................................... (\2\) (\2\) 8.3 91.7 68.7
1945............................................................... (\2\) (\2\) 17.9 82.1 70.0
1950............................................................... (\2\) (\2\) 23.1 76.9 68.5
1955............................................................... (\2\) (\2\) 41.2 58.8 68.2
1960............................................................... 10.0 7.9 35.3 46.7 66.2
1965............................................................... 23.0 17.7 23.4 35.9 65.9
1970............................................................... 27.8 23.2 36.9 12.1 64.2
1975............................................................... 35.7 24.5 31.1 8.7 63.9
1980............................................................... 40.5 22.2 30.7 6.6 63.7
1985............................................................... 57.2 21.1 17.7 4.0 63.6
1990............................................................... 56.6 20.2 16.6 6.7 63.6
1995............................................................... 58.3 19.5 16.3 6.0 63.6
----------------------------------------------------------------------------------------------------------------
\1\ Excludes conversions at age 65 from disability to retirement rolls.
\2\ Retirement before age 65 was not available.
Source: Congressional Research Service and Social Security Administration.
TABLE 1-13.--NUMBER OF SOCIAL SECURITY RETIRED WORKER NEW BENEFIT AWARDS AND PERCENT RECEIVING REDUCED BENEFITS
BECAUSE OF ENTITLEMENT BEFORE AGE 65, SELECTED YEARS 1956-96 \1\
[Numbers in millions]
----------------------------------------------------------------------------------------------------------------
Total Men Women
Year \1\ -----------------------------------------------------
Number Percent Number Percent Number Percent
----------------------------------------------------------------------------------------------------------------
1956...................................................... 0.9 12 0.6 ....... 0.4 31
1960...................................................... 1.0 21 0.6 ....... 0.4 60
1965...................................................... 1.2 49 0.7 43 0.4 60
1970...................................................... 1.3 63 0.8 57 0.5 72
1975...................................................... 1.5 73 0.9 69 0.6 79
1980...................................................... 1.6 76 0.9 73 0.7 80
1985...................................................... 1.7 74 1.0 70 0.7 79
1986...................................................... 1.7 74 1.0 71 0.7 79
1987...................................................... 1.7 74 1.0 71 0.7 79
1988...................................................... 1.6 74 0.9 70 0.7 78
1989...................................................... 1.7 73 1.0 69 0.7 78
1990...................................................... 1.7 74 1.0 71 0.7 78
1991...................................................... 1.7 72 1.0 69 0.7 76
1992...................................................... 1.7 72 1.0 69 0.7 76
1993...................................................... 1.7 72 1.0 70 0.7 75
1994...................................................... 1.6 73 0.9 70 0.7 76
1995...................................................... 1.6 72 0.9 69 0.7 75
1996...................................................... 1.6 72 0.9 69 0.7 75
----------------------------------------------------------------------------------------------------------------
\1\ As of December of given year; data for 1985-90 based on a 1-percent sample; data for other years based on
100 percent. Includes conversions at age 65 from disability to retirement rolls.
Source: Office of Research and Statistics, Social Security Administration.
TABLE 1-14.--FERTILITY, DEATH RATE AND LIFE EXPECTANCY ASSUMPTIONS, SELECTED YEARS 1940-2075
----------------------------------------------------------------------------------------------------------------
Age-sex- Life expectancy Life expectancy
Total adjusted \3\ at birth \3\ at age 65
fertility death rate
Calendar year rate \1\ \2\ (per -----------------------------------
(per 100,000)
woman) Male Female Male Female
----------------------------------------------------------------------------------------------------------------
Actual:
1940........................................... 2.23 1,672.6 61.4 65.7 11.9 13.4
1945........................................... 2.42 1,488.6 62.9 68.4 12.6 14.4
1950........................................... 3.03 1,339.9 65.6 71.1 12.8 15.1
1955........................................... 3.50 1,243.0 66.7 72.8 13.1 15.6
1960........................................... 3.61 1,237.9 66.7 73.2 12.9 15.9
1965........................................... 2.88 1,210.8 66.8 73.8 12.9 16.3
1970........................................... 2.43 1,138.4 67.1 74.9 13.1 17.1
1975........................................... 1.77 1,020.9 68.7 76.6 13.7 18.0
1976........................................... 1.74 1,010.1 69.1 76.8 13.7 18.1
1977........................................... 1.79 981.8 69.4 77.2 13.9 18.3
1978........................................... 1.76 976.3 69.6 77.2 13.9 18.3
1979........................................... 1.82 944.8 70.0 77.7 14.2 18.6
1980........................................... 1.85 961.1 69.9 77.5 14.0 18.4
1981........................................... 1.83 934.5 70.4 77.8 14.2 18.6
1982........................................... 1.83 906.4 70.8 78.2 14.5 18.8
1983........................................... 1.81 916.0 70.9 78.1 14.3 18.6
1984........................................... 1.80 909.2 71.1 78.2 14.4 18.7
1985........................................... 1.84 912.3 71.1 78.2 14.4 18.6
1986........................................... 1.84 904.8 71.1 78.3 14.5 18.7
1987........................................... 1.87 895.6 71.3 78.4 14.6 18.7
1988........................................... 1.93 906.0 71.2 78.3 14.6 18.7
1989........................................... 2.01 882.4 71.5 78.6 14.8 18.9
1990........................................... 2.07 865.9 71.8 78.9 15.0 19.0
1991........................................... 2.07 854.8 71.9 79.0 15.1 19.1
1992........................................... 2.06 843.6 72.2 79.2 15.2 19.2
1993........................................... 2.04 863.4 72.0 78.9 15.1 19.0
1994........................................... 2.04 852.2 72.2 79.0 15.3 19.0
Estimated:
1995........................................... 2.02 838.4 72.6 79.0 15.6 19.0
1996........................................... 2.01 832.0 72.6 79.3 15.5 19.2
Projected:
1997........................................... 2.01 824.9 72.8 79.4 15.6 19.2
2000........................................... 2.00 804.7 73.2 79.7 15.8 19.3
2005........................................... 1.97 771.7 74.1 80.1 16.0 19.5
2010........................................... 1.95 746.7 74.7 80.5 16.2 19.6
2015........................................... 1.93 725.0 75.1 80.8 16.4 19.8
2020........................................... 1.90 704.0 75.5 81.1 16.6 20.0
2025........................................... 1.90 684.0 75.8 81.5 16.8 20.2
2030........................................... 1.90 665.0 76.2 81.8 17.0 20.4
2035........................................... 1.90 646.9 76.5 82.1 17.3 20.7
2040........................................... 1.90 629.7 76.8 82.4 17.5 20.9
2045........................................... 1.90 613.4 77.2 82.7 17.7 21.1
2050........................................... 1.90 597.8 77.5 82.9 17.8 21.3
2055........................................... 1.90 582.9 77.8 83.2 18.0 21.5
2060........................................... 1.90 568.7 78.1 83.5 18.2 21.7
2065........................................... 1.90 555.2 78.4 83.7 18.4 21.9
2070........................................... 1.90 542.2 78.6 84.0 18.6 22.1
2075........................................... 1.90 529.8 78.9 84.3 18.8 22.3
----------------------------------------------------------------------------------------------------------------
\1\ The total fertility rate for any year is the average number of children who would be born to a woman in her
lifetime if she were to experience that year's age-specific birth rates throughout her life, and if she were
to survive the entire childbearing period.
\2\ The age-sex-adjusted death rate for any year is the crude rate that would occur in the total population
(enumerated as of April 1, 1990), if that population were to experience that year's age-sex-specific death
rates.
\3\ The life expectancy for any year is the average number of years of life remaining for a person, if that
person were to experience that year's age-sex-specific death rates throughout the remainder of his life.
Source: Board of Trustees (1997; intermediate assumptions).
The computation years are selected from the highest indexed
yearly earnings in all years of earnings after 1950, up to a
maximum of 35 years. (The highest 35 years are selected in
computing retirement benefits for all workers born after 1929.)
The sum of the indexed earnings in the selected years is
divided by the number of months in the computation period (i.e,
the number of the selected years times 12) to determine the
AIME.
The indexed earnings histories (rounded to whole dollars)
are illustrated in table 1-15 for three hypothetical workers
retiring in 1997 at age 62. The actual earnings for the three
workers are shown in the first three columns. These are
multiplied by the indexing factor (column 4) to arrive at
indexed earnings (last 3 columns). The indexing factor for 1960
is based on average wages when the individual turned 60
($24,705.66), divided by average wages for 1960 ($4,007.12).
The highest 35 years of indexed earnings are used. For example,
a lifelong full-time worker who had maximum creditable earnings
would drop low earnings in 1958, 1962, 1963, 1964, and 1965,
and would have total indexed earnings of $1,628,473 (see table
1-15). Dividing total indexed earnings by the number of months
in the computation period (35 years X 12 months = 420
months) results in average indexed monthly earnings (AIME) of
$3,877. The corresponding AIMEs for the average and low earners
are $2,061 and $927, respectively. Low earners are defined as
earning 45 percent of the average wage.
TABLE 1-15.--EARNINGS HISTORIES FOR HYPOTHETICAL WORKERS AGE 62 IN 1997
[Rounded to nearest dollar]
----------------------------------------------------------------------------------------------------------------
Nominal earnings Indexed earnings
Year ------------------------------------- Indexing ------------------------------------
Low \1\ Average \2\ Maximum \3\ factor Low \1\ Average \2\ Maximum \3\
----------------------------------------------------------------------------------------------------------------
1957........................ $1,639 $3,642 $4,200 6.7841 \4\ $11,1
18 \4\ $24,706 $28,493
1958........................ 1,653 3,674 4,200 6.7248 \4\ 11,11
8 \4\ 24,706 \4\ 28,244
1959........................ 1,735 3,856 4,800 6.4074 \4\ 11,11
8 \4\ 24,706 30,756
1960........................ 1,803 4,007 4,800 6.1654 \4\ 11,11
8 \4\ 24,706 29,594
1961........................ 1,839 4,087 4,800 6.0453 \4\ 11,11
8 \4\ 24,706 29,017
1962........................ 1,931 4,291 4,800 5.7570 11,118 24,706 \4\ 27,634
1963........................ 1,978 4,397 4,800 5.6192 11,118 24,706 \4\ 26,972
1964........................ 2,059 4,576 4,800 5.3986 11,118 24,706 \4\ 25,913
1965........................ 2,096 4,659 4,800 5.3031 11,118 24,706 \4\ 25,455
1966........................ 2,222 4,938 6,600 5.0028 11,118 24,706 33,019
1967........................ 2,346 5,213 6,600 4.7388 11,118 24,706 31,276
1968........................ 2,507 5,572 7,800 4.4341 11,118 24,706 34,586
1969........................ 2,652 5,894 7,800 4.1918 11,118 24,706 32,696
1970........................ 2,784 6,186 7,800 3.9936 11,118 24,706 31,150
1971........................ 2,924 6,497 7,800 3.8026 11,118 24,706 29,660
1972........................ 3,210 7,134 9,000 3.4632 11,118 24,706 31,169
1973........................ 3,411 7,580 10,800 3.2593 11,118 24,706 35,200
1974........................ 3,614 8,031 13,200 3.0764 11,118 24,706 40,608
1975........................ 3,884 8,631 14,100 2.8625 11,118 24,706 40,361
1976........................ 4,152 9,226 15,300 2.6777 11,118 24,706 40,969
1977........................ 4,401 9,779 16,500 2.5263 11,118 24,706 41,684
1978........................ 4,750 10,556 17,700 2.3404 11,118 24,706 41,426
1979........................ 5,166 11,479 22,900 2.1522 11,118 24,706 49,285
1980........................ 5,631 12,513 25,900 1.9743 11,118 24,706 51,135
1981........................ 6,198 13,773 29,700 1.7938 11,118 24,706 53,275
1982........................ 6,539 14,531 32,400 1.7002 11,118 24,706 55,085
1983........................ 6,858 15,239 35,700 1.6212 11,118 24,706 57,876
1984........................ 7,261 16,135 37,800 1.5312 11,118 24,706 57,879
1985........................ 7,570 16,823 39,600 1.4686 11,118 24,706 58,157
1986........................ 7,795 17,322 42,000 1.4263 11,118 24,706 59,904
1987........................ 8,292 18,427 43,800 1.3408 11,118 24,706 58,726
1988........................ 8,700 19,334 45,000 1.2778 11,118 24,706 57,502
1989........................ 9,045 20,100 48,000 1.2292 11,118 24,706 59,000
1990........................ 9,463 21,028 51,300 1.1749 11,118 24,706 60,272
1991........................ 9,815 21,812 53,400 1.1327 11,118 24,706 60,485
1992........................ 10,321 22,935 55,500 1.0772 11,118 24,706 59,784
1993........................ 10,410 23,133 57,600 1.0680 11,118 24,706 61,517
1994........................ 10,689 23,754 60,600 1.0401 11,118 24,706 63,029
1995........................ 11,118 24,706 61,200 1.0000 11,118 24,706 61,200
1996........................ \5\ 11,57
6 \5\ 25,724 62,700 1.0000 \5\ 11,57
6 \5\ 25,724 62,700
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\1\ Worker with earnings equal to 45 percent of the Social Security average wage index.
\2\ Worker with earnings equal to the Social Security average wage index.
\3\ Worker with earnings equal to the Social Security maximum taxable earnings.
\4\ Dropout years.
\5\ Estimated.
Source: Office of the Actuary, Social Security Administration.
Benefit Formula
The primary insurance amount (PIA) is determined by
applying the primary benefit formula to the AIME. For a worker
becoming eligible in 1997, the PIA is determined as follows:
------------------------------------------------------------------------
Example of
Average indexed worker with
Factor monthly earnings monthly earnings
of $3,500
------------------------------------------------------------------------
90 percent....................... first $455, plus... $409.50
32 percent....................... $455 through 731.52
$2,741, plus.
15 percent....................... over $2,741........ 113.85
--------------------------------------
Total...................... ................... 1,254.87
------------------------------------------------------------------------
Applying this formula to the AIMEs of the three
hypothetical workers results in PIAs of $560.50 for the low-
wage worker, $923.40 for the average-wage worker, and $1,311.40
for the maximum-wage worker. (For the low-wage worker, the 1997
special minimum benefit (see below) PIA of $548.30 is less than
AIME-based PIA of $560.50, and therefore is not used to
determine his or her benefits.) The numbers $455 and $2,741 are
often referred to as ``bend points'' of the PIA formula. These
points are adjusted each year by the change in average wages.
After the year of initial eligibility (age 62 for retired
workers), the PIA is increased each year for the increase in
the Consumer Price Index (CPI). The PIAs of $560.50, $923.40,
and $1,311.40 would be in effect for January through November
1997, and will be increased by the cost-of-living adjustment
effective beginning December 1997.
The PIA is recomputed after each year that an entitled
worker has earnings that may lead to a higher benefit.
Other methods for determining a PIA also exist, and PIAs
based on different methods must be compared to select the
highest one, which is used to determine the worker's benefits.
The most common of these other methods is the one used to
determine the special minimum PIA. This PIA is designed to
assist workers with long-term low earnings.
Special Minimum Benefit
The special minimum benefit is not based on the amount of a
worker's average earnings, but instead on his or her number of
years of covered employment. It is structured to provide a
larger benefit than would otherwise be payable to those who
worked in covered employment for many years but had low
earnings. The amount of the special minimum is computed by
multiplying the number of years of coverage in excess of 10
years and up to 30 years by $11.50 for monthly benefits payable
in 1979, with automatic cost-of-living increases applicable to
years 1979 and later. The number of years of coverage for the
purpose of qualifying for a special minimum benefit equals the
number obtained by dividing total creditable wages in 1937-50
by $900 (not to exceed 14), plus the number of years after 1950
and before 1991 for which the worker is credited with at least
25 percent of the annual maximum taxable earnings. For this
purpose, for years after 1978, annual maximum taxable earnings
are defined as the ``old-law'' taxable earnings base (i.e., the
hypothetical earnings base that would be in effect if the ad
hoc increases in the base enacted in 1977 were disregarded). In
addition, for years after 1990, a year of coverage is earned if
the worker is credited with at least 15 percent of the ``old-
law'' taxable earnings base. The special minimum benefit is not
subject to the delayed retirement credit provisions described
earlier.
Continue to the next section.