Modify the current three-bracket formula to a more progressive four-bracket formula, with changes phased in slowly.  Change the current bend point factors of 90%|32%|15% to 90%|30%|10%|5% by 2050, with the new bend point added at median lifetime income.  In order to control costs, the Commission proposes gradually moving to a more progressive benefit formula that slows future benefit growth, particularly for higher earners.  Currently, initial benefits are calculated using a progressive three-bracket formula that offers individuals 90 percent of their first $9,000 of (wage-indexed) average lifetime income, 32 percent of their next $55,000, and 15 percent of their remaining income, up to the taxable maximum. The Commission recommends gradually transitioning to a four-bracket formula by breaking the middle bracket in two at the median income level ($38,000 in 2010, $63,000 in 2050), and then gradually changing the replacement rates from 90 percent, 32 percent, and 15 percent to 90 percent, 30 percent, 10 percent, and 5 percent. 

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This benefit formula change will be phased in very slowly, not fully phasing in until 2060.  Because all bend point factors will continue to be wage-indexed, future beneficiaries will continue to have inflation-adjusted benefits larger than those received by equivalent beneficiaries today. 

 

 

 

 

 

 

 

 

Evidence:

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United States.  White House.  "The National Commission on Fiscal Responsibility and Reform."  December 2010