Mandatory Spending
Function 650 - Social Security
Reduce Social Security Benefits for High Earners
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
Billions of dollars | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– | |
Change in outlays | |||||||||||||
Add a bend point at the 70th percentile of earners and reduce PIA factors over 9 years | 0 | * | * | -1 | -2 | -3 | -6 | -8 | -12 | -16 | -3 | -48 | |
Add a bend point at the 50th percentile of earners and reduce PIA factors over 9 years | 0 | * | -1 | -2 | -5 | -8 | -13 | -20 | -29 | -39 | -8 | -117 | |
Add a bend point at the 50th percentile of earners and reduce PIA factors over 5 years | 0 | * | -2 | -4 | -9 | -15 | -24 | -35 | -47 | -61 | -15 | -197 | |
This option would take effect in January 2026.
Estimates displayed in this table include budgetary effects for Social Security benefits; that spending is classified as off-budget.
PIA = primary insurance amount; * = between -$500 million and zero.
The Social Security benefit paid to a retired worker who claims benefits at the full retirement age or to a disabled worker is called the primary insurance amount (PIA). It is calculated using a formula applied to that worker's average indexed monthly earnings (AIME). A worker's AIME is a measure of their average taxable monthly earnings, with past earnings indexed to account for growth in economy-wide earnings using the national average wage index. For retired workers, the average is taken over the 35 years in which they received the highest earnings.
The AIME is separated into three brackets using two threshold amounts, often called bend points. In calendar year 2024, the first bend point is $1,174 and the second bend point is $7,078. The AIME in each of the three brackets is multiplied by three corresponding factors (90 percent, 32 percent, and 15 percent) to calculate the PIA; the largest factor applies to the bracket containing the lowest average indexed earnings. The bend points change each year with average wages, but the PIA factors do not change.
This option consists of three alternatives, each of which would create an additional bend point in the PIA formula between the two existing bend points and would reduce the PIA factors for new beneficiaries with higher lifetime earnings. Under all three alternatives, the PIA factor for the lowest bracket would remain at 90 percent and at 32 percent for the second-lowest bracket (although that bracket would be smaller than it is under current law). The PIA factor applied between the new bend point and the highest bend point would decrease from 32 percent to 10 percent, and the PIA factor applied above the highest bend point would be reduced from 15 percent to 5 percent. People already eligible for Social Security benefits would not be affected. Only new beneficiaries with an AIME above the new bend point would receive smaller benefits under this option.
Under the first alternative, the bend point would be added at the 70th percentile of earners—that is, about 70 percent of newly eligible beneficiaries would have an AIME below the new bend point, so their benefits would not change. The top 30 percent of newly eligible beneficiaries (those whose AIME was above the new bend point) would receive smaller benefits than under current law. The changes to the PIA factors would be phased in over nine years. Under the second alternative, the new bend point would be set at the 50th percentile of earners—that is, about 50 percent of newly eligible beneficiaries would have an AIME below the new bend point—and the changes would be phased in over nine years. Under the third alternative, a new bend point would be added at the 50th percentile, but the changes to the PIA factors would be phased in over five years.
Information about the long-term and distributional effects of this option appear in the following tables.
Table A-1. Long-Term Effects on Social Security's Finances of the First Alternative | |||
Percent | |||
Under current law | Change from current law | ||
Spending, as a percentage of GDP | |||
Calendar year 2054 | 5.9 | -0.3 | |
Calendar year 2098 | 6.7 | -0.4 | |
The 75-year actuarial balance for the combined OASDI trust fundsa | |||
As a percentage of GDP | -1.5 | 0.3 | |
As a percentage of taxable payroll | -4.3 | 0.8 | |
The exhaustion year for the balance of the combined OASDI trust funds (fiscal year) | 2034 | No change | |
GDP = gross domestic product; OASDI = Old-Age, Survivors, and Disability Insurance; PIA = primary insurance amount.
Under this alternative, a new bend point would be added at the 70th percentile of earners. Changes to PIA factors would be phased in over nine years.
The estimates displayed in this table assume that benefits will be paid as scheduled under the Social Security Act, regardless of the balances in the trust funds.
a. The actuarial balance is the sum of the present value of projected income and the current trust fund balance, minus the sum of the present value of projected outlays and a year's worth of benefits at the end of the period. For Social Security, that balance is traditionally presented as a percentage of the present value of GDP or of taxable payroll over 75 years. (A present-value estimate translates a flow of current and future income or payments into an equivalent lump-sum value today.)
Table A-2. Distributional Effects of the First Alternative | |||||||||||||
Under current law | Change from current lawa | ||||||||||||
Lifetime household earnings quintileb | Birth year | Birth year | Birth year | Birth year | Birth year | Birth year | |||||||
Average annual benefits for retired workers if they claimed benefits at age 65c | |||||||||||||
(thousands of 2024 dollars) | (percent) | ||||||||||||
Lowest | 12 | 13 | 14 | ** | ** | ** | |||||||
Middle | 23 | 24 | 26 | * | -1 | * | |||||||
Highest | 32 | 35 | 39 | -3 | -14 | -13 | |||||||
Average lifetime benefits relative to average lifetime earnings for beneficiaries (percent)d | |||||||||||||
Lowest | 31 | 32 | 31 | * | * | * | |||||||
Middle | 17 | 18 | 18 | * | * | * | |||||||
Highest | 8 | 7 | 7 | -4 | -15 | -15 | |||||||
Ratio of average Social Security benefits to average payroll taxes over beneficiaries' lifetimee | |||||||||||||
Lowest | 2.6 | 2.7 | 2.5 | * | * | ** | |||||||
Middle | 1.4 | 1.5 | 1.5 | * | * | * | |||||||
Highest | 1.0 | 1.0 | 0.9 | -4 | -15 | -15 | |||||||
PIA = primary insurance amount; * = between -1 percent and zero; ** = between zero and 1 percent.
Under this alternative, a new bend point would be added at the 70th percentile of earners. Changes to PIA factors would be phased in over nine years.
The estimates displayed in this table assume that benefits will be paid as scheduled under the Social Security Act, regardless of the balances in the trust funds.
a. Effects are measured as a percentage change from the current-law value. For example, under current law, the average lifetime benefits for high earners born in the 1980s will be 7 percent of lifetime earnings. The 1 percentage-point decrease in that ratio—from 7 percent to 6 percent—is expressed as a 15 percent decrease in this table.
b. The lowest, middle, and highest fifths of people within a 10-year birth cohort ranked by lifetime household earnings. For someone who is single in all years, lifetime household earnings equal the present value of inflation-adjusted earnings over that person's lifetime. In any year in which a person is married, lifetime household earnings equal the average of the couple's earnings, adjusted for economies of scale in household consumption.
c. CBO projected the benefit amounts that retired workers would receive in their first year of receiving such benefits if they began claiming them at age 65. To remove the effects of inflation on those benefits, CBO used the price index for all goods and services that make up gross domestic product. The agency computed those benefits for all people who are eligible to claim retirement benefits at age 62 and who have not yet claimed any other Social Security benefits. All amounts are net of income taxes paid on benefits.
d. Lifetime benefits include the present value of all Social Security benefits except those received by young widows, young spouses, and children, which are excluded from this measure because of insufficient data for years before 1984. To calculate present value, CBO adjusted the amounts to remove the effects of inflation and discounted the amounts to age 65. (A present-value estimate translates a flow of current and future income or payments into an equivalent lump-sum value today.)
e. Lifetime payroll taxes consist of the present value of the employer's and employee's shares of Social Security payroll taxes. To calculate present value, CBO adjusted the amounts to remove the effects of inflation and discounted the amounts to age 65.
Table A-3. Long-Term Effects on Social Security's Finances of the Second Alternative | |||
Percent | |||
Under current law | Change from current law | ||
Spending, as a percentage of GDP | |||
Calendar year 2054 | 5.9 | -0.7 | |
Calendar year 2098 | 6.7 | -0.9 | |
The 75-year actuarial balance for the combined OASDI trust fundsa | |||
As a percentage of GDP | -1.5 | 0.6 | |
As a percentage of taxable payroll | -4.3 | 1.8 | |
The exhaustion year for the balance of the combined OASDI trust funds (fiscal year) | 2034 | No change | |
GDP = gross domestic product; OASDI = Old-Age, Survivors, and Disability Insurance; PIA = primary insurance amount.
Under this alternative, a new bend point would be added at the 50th percentile of earners. Changes to PIA factors would be phased in over nine years.
The estimates displayed in this table assume that benefits will be paid as scheduled under the Social Security Act, regardless of the balances in the trust funds.
a. The actuarial balance is the sum of the present value of projected income and the current trust fund balance, minus the sum of the present value of projected outlays and a year's worth of benefits at the end of the period. For Social Security, that balance is traditionally presented as a percentage of the present value of GDP or of taxable payroll over 75 years. (A present-value estimate translates a flow of current and future income or payments into an equivalent lump-sum value today.)
Table A-4. Distributional Effects of the Second Alternative | |||||||||||||
Under current law | Change from current lawa | ||||||||||||
Lifetime household earnings quintileb | Birth year | Birth year | Birth year | Birth year | Birth year | Birth year | |||||||
Average annual benefits for retired workers if they claimed benefits at age 65c | |||||||||||||
(thousands of 2024 dollars) | (percent) | ||||||||||||
Lowest | 12 | 13 | 14 | ** | ** | ** | |||||||
Middle | 23 | 24 | 26 | -3 | -9 | -7 | |||||||
Highest | 32 | 35 | 39 | -6 | -25 | -25 | |||||||
Average lifetime benefits relative to average lifetime earnings for beneficiaries (percent)d | |||||||||||||
Lowest | 31 | 32 | 31 | * | * | ** | |||||||
Middle | 17 | 18 | 18 | -2 | -7 | -6 | |||||||
Highest | 8 | 7 | 7 | -6 | -25 | -26 | |||||||
Ratio of average Social Security benefits to average payroll taxes over beneficiaries' lifetimee | |||||||||||||
Lowest | 2.6 | 2.7 | 2.5 | * | * | ** | |||||||
Middle | 1.4 | 1.5 | 1.5 | -2 | -7 | -6 | |||||||
Highest | 1.0 | 1.0 | 0.9 | -6 | -25 | -26 | |||||||
PIA = primary insurance amount; * = between -1 percent and zero; ** = between zero and 1 percent.
Under this alternative, a new bend point would be added at the 50th percentile of earners. Changes to PIA factors would be phased in over nine years.
The estimates displayed in this table assume that benefits will be paid as scheduled under the Social Security Act, regardless of the balances in the trust funds.
a. Effects are measured as a percentage change from the current-law value. For example, under current law, the average lifetime benefits for high earners born in the 1980s will be 7 percent of lifetime earnings. The 2 percentage-point decrease in that ratio—from 7 percent to 5 percent—is expressed as a 26 percent decrease in this table.
b. The lowest, middle, and highest fifths of people within a 10-year birth cohort ranked by lifetime household earnings. For someone who is single in all years, lifetime household earnings equal the present value of inflation-adjusted earnings over that person's lifetime. In any year in which a person is married, lifetime household earnings equal the average of the couple's earnings, adjusted for economies of scale in household consumption.
c. CBO projected the benefit amounts that retired workers would receive in their first year of receiving such benefits if they began claiming them at age 65. To remove the effects of inflation on those benefits, CBO used the price index for all goods and services that make up gross domestic product. The agency computed those benefits for all people who are eligible to claim retirement benefits at age 62 and who have not yet claimed any other Social Security benefits. All amounts are net of income taxes paid on benefits.
d. Lifetime benefits include the present value of all Social Security benefits except those received by young widows, young spouses, and children, which are excluded from this measure because of insufficient data for years before 1984. To calculate present value, CBO adjusted the amounts to remove the effects of inflation and discounted the amounts to age 65. (A present-value estimate translates a flow of current and future income or payments into an equivalent lump-sum value today.)
e. Lifetime payroll taxes consist of the present value of the employer's and employee's shares of Social Security payroll taxes. To calculate present value, CBO adjusted the amounts to remove the effects of inflation and discounted the amounts to age 65.
Table A-5. Long-Term Effects on Social Security's Finances of the Third Alternative | |||
Percent | |||
Under current law | Change from current law | ||
Spending, as a percentage of GDP | |||
Calendar year 2054 | 5.9 | -0.8 | |
Calendar year 2098 | 6.7 | -0.9 | |
The 75-year actuarial balance for the combined OASDI trust fundsa | |||
As a percentage of GDP | -1.5 | 0.6 | |
As a percentage of taxable payroll | -4.3 | 1.8 | |
The exhaustion year for the balance of the combined OASDI trust funds (fiscal year) | 2034 | No change | |
GDP = gross domestic product; OASDI = Old-Age, Survivors, and Disability Insurance; PIA = primary insurance amount.
Under this alternative, a new bend point would be added at the 50th percentile of earners. Changes to PIA factors would be phased in over five years.
The estimates displayed in this table assume that benefits will be paid as scheduled under the Social Security Act, regardless of the balances in the trust funds.
a. The actuarial balance is the sum of the present value of projected income and the current trust fund balance, minus the sum of the present value of projected outlays and a year's worth of benefits at the end of the period. For Social Security, that balance is traditionally presented as a percentage of the present value of GDP or of taxable payroll over 75 years. (A present-value estimate translates a flow of current and future income or payments into an equivalent lump-sum value today.)
Table A-6. Distributional Effects of the Third Alternative | |||||||||||||
Under current law | Change from current lawa | ||||||||||||
Lifetime household earnings quintileb | Birth year | Birth year | Birth year | Birth year | Birth year | Birth year | |||||||
Average annual benefits for retired workers if they claimed benefits at age 65c | |||||||||||||
(thousands of 2024 dollars) | (percent) | ||||||||||||
Lowest | 12 | 13 | 14 | ** | ** | ** | |||||||
Middle | 23 | 24 | 26 | -4 | -10 | -7 | |||||||
Highest | 32 | 35 | 39 | -10 | -26 | -25 | |||||||
Average lifetime benefits relative to average lifetime earnings for beneficiaries (percent)d | |||||||||||||
Lowest | 31 | 32 | 31 | * | * | ** | |||||||
Middle | 17 | 18 | 18 | -3 | -7 | -6 | |||||||
Highest | 8 | 7 | 7 | -10 | -26 | -26 | |||||||
Ratio of average Social Security benefits to average payroll taxes over beneficiaries' lifetimee | |||||||||||||
Lowest | 2.6 | 2.7 | 2.5 | * | * | ** | |||||||
Middle | 1.4 | 1.5 | 1.5 | -3 | -7 | -6 | |||||||
Highest | 1.0 | 1.0 | 0.9 | -10 | -26 | -26 | |||||||
PIA = primary insurance amount; * = between -1 percent and zero; ** = between zero and 1 percent.
Under this alternative, a new bend point would be added at the 50th percentile of earners. Changes to PIA factors would be phased in over five years.
The estimates displayed in this table assume that benefits will be paid as scheduled under the Social Security Act, regardless of the balances in the trust funds.
a. Effects are measured as a percentage change from the current-law value. For example, under current law, the average lifetime benefits for high earners born in the 1980s will be 7 percent of lifetime earnings. The 2 percentage-point decrease in that ratio—from 7 percent to 5 percent—is expressed as a 26 percent decrease in this table.
b. The lowest, middle, and highest fifths of people within a 10-year birth cohort ranked by lifetime household earnings. For someone who is single in all years, lifetime household earnings equal the present value of inflation-adjusted earnings over that person's lifetime. In any year in which a person is married, lifetime household earnings equal the average of the couple's earnings, adjusted for economies of scale in household consumption.
c. CBO projected the benefit amounts that retired workers would receive in their first year of receiving such benefits if they began claiming them at age 65. To remove the effects of inflation on those benefits, CBO used the price index for all goods and services that make up gross domestic product. The agency computed those benefits for all people who are eligible to claim retirement benefits at age 62 and who have not yet claimed any other Social Security benefits. All amounts are net of income taxes paid on benefits.
d. Lifetime benefits include the present value of all Social Security benefits except those received by young widows, young spouses, and children, which are excluded from this measure because of insufficient data for years before 1984. To calculate present value, CBO adjusted the amounts to remove the effects of inflation and discounted the amounts to age 65. (A present-value estimate translates a flow of current and future income or payments into an equivalent lump-sum value today.)
e. Lifetime payroll taxes consist of the present value of the employer's and employee's shares of Social Security payroll taxes. To calculate present value, CBO adjusted the amounts to remove the effects of inflation and discounted the amounts to age 65.