In comparison with the current program formulas, this option changes benefits for future retirees. Recognizing that longevity is increasing, Option 1 accelerates the currently scheduled increase in the age for retirement with full benefits, to 67 in 2012, instead of remaining at 66 for several more years. More specifically, the age to retire with full benefits would increase by a projected 1 month every 2 years. The age for the earliest retirement with Social Security retirement benefits would increase the same way.18
In addition to changes in retirement age, the other two provisions that affect monthly benefits under Option 1 are “progressive indexing” of the preretirement benefit-entitlement formula and a change in the cost-of-living adjustment during retirement.21 First, under the benefit formula in current law, improvements in average wages before a worker’s retirement generally increase future benefits for that worker (and all others). Under this illustrative reform option, the current indexing to average wage levels would be reduced by “progressive indexing.” For workers with the lowest 30 percent of earnings, the growth rate of benefits would be maintained. For most others, initial benefits would grow more slowly—although, on average, at least as fast as prices. Benefits would grow slowest—keeping pace only with consumer prices—only for workers with steady earnings at the current-law taxable maximum.
Second, the annual cost-of-living adjustment for retirees receiving monthly benefits would be computed from a newer price index that is generally considered more accurate, which usually provides smaller benefit increases.20 Upward cost-of-living adjustment would continue and so benefit checks would continue to be protected from price inflation during retirement.21
Figure 6-5 compares monthly benefit levels—adjusted for projected inflation—for new retirees in 2050 under Option 1 with those scheduled under current law for new retirees in 2010 or 2050. (Discussed below, Figure 6-6 presents another aspect of this option.) Benefits are compared for new retirees at age 65, that is, for those taking early Social Security retirement in 2010 and 2050. Because Option 1 accelerates the increase in retirement age, its age-65 benefit as illustrated in Figure 6-5 reflects benefits reduced by what is effectively even earlier retirement. Since Option 1’s age for full retirement benefits is later than current law’s—68 years and 4 months in 2050—retiring at 65 under Option 1 (in 2050) leads to a bigger reduction in monthly benefits for early retirement than retiring (in 2050) under current law, assuming payment of scheduled benefits.22 (With a different format and more detail, Tables C-3 through C-5 in Appendix C