rising (by 39 percent) to $1,161 per month for the cohort of low earners who retire in 2050.

Under Option 1, benefits in 2050 for low earners would be 25 percent above the 2010 level. Real monthly benefits would grow over time for low earners, but they would grow slower than under current law. In contrast, for the “maximum earners,” people who earn at the current taxable maximum of $106,800 per year (in 2009 dollars), real benefits would decline over time. Under existing law, maximum earners are projected to receive $2,156 a month in 2010 and $3,094 in 2050; under Option 1 they would receive only about 60 percent of that amount.

Because Option 1 achieves long-term solvency of Social Security by changing only the benefit formula—with no tax increase—the benefit changes are bigger than with the other options. Through benefit changes, all future retirees would contribute to the program’s solvency, with higher earners contributing much more than other workers. Yet there would continue to be growth in real, monthly benefits—though at a reduced rate—for all but about the highest-earning third of workers.

Figure 6-6 illustrates the benefit effects of Option 1 another way, by showing not monthly benefit dollars, but to what extent a worker’s Social Security retirement benefits replace her or his preretirement earnings. For all earnings levels, these “earnings replacement rates” for individual wage earners who retire at age 65 are set to be slightly less in 2050 than in 2010 under current law.24 That is, the real benefits grow, but they grow more slowly than real wages. For example, under this option, Social Security benefits for medium earners in 2050 would replace 27 percent of prior earnings, compared with 40 percent for 2010 under current law (see Table C-4 in Appendix C).

Option 1 is designed so that in 2050 the benefits or the growth rate of benefits of all new retirees are less than those for new retirees in 2010, but they are reduced more for higher earners than for lower earners; see Figure 6-5.

Payroll Tax

Under this option there are no changes in the payroll taxes for Social Security; for illustrations of payroll taxes under this option, see discussion below.

Option 2:
Two-Thirds Benefit Growth Reductions, One-Third Payroll Tax Increases

The committee’s second option would achieve long-term actuarial balance with smaller cuts in benefit growth and an increase in the payroll tax. One of the same “building blocks” in Option 1 that reduces the growth of benefits—progressive indexing—is applied here, too, though in a different

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