May 10, 2011
Social Security Wage Base Expected to Increase in 2012

The Social Security Administration's Office of the Chief Actuary (OCA) is projecting that the Social Security wage base(Social Security max) will increase by at least $3,500 in 2012. It has been $106,800 since 2009. The projection was included as part of the annual report to Congress by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance (OASDI) Trust Fund programs. Projections were made through 2020 [The 2011 OASDI Trustees Annual Report].

The SSA provides three kinds of forecasts for Social Security wage bases (intermediate, low cost, and high cost). The SSA intermediate forecasts through 2020 are as follows:
2012 — $110,100 (actual)
2013 — $114,900
2014 — $120,000
2015 — $125,400
2016 — $130,800
2017 — $135,900
2018 — $141,300
2019 — $146,700
2020 — $153,300

The Social Security wage base is also projected to be $110,700 in 2012 under the low cost forecast. It would be $110,400 under the high cost forecast. The Social Security wage base would reach $159,900 in 2020 under the high cost forecast.

Actual annual increases to the wage base are announced in October of the preceding year and are based on then-current economic conditions. As a result, the OCA's forecasts, especially the longer-range ones, are subject to change. Last year, the OCA correctly projected that the Social Security wage base would remain at $106,800 in 2011.

Other issues raised in SSA's report. In addition to projecting increased wage bases, the SSA also provided general conclusions and observations regarding the long-term viability of the Social Security program. Based on a number of factors, notably including the aging of the “baby boomer” population and the increase in life expectancy, the SSA projected that Social Security should be able to fully pay scheduled benefits until the trust funds are exhausted in 2036. (Last year's report projected that the funds would be exhausted in 2037.) After 2036, the amount of non-interest income is projected to cover approximately 77% of the cost of Social Security.

The report includes two alternatives for keeping the Social Security program solvent in the long-term—namely, increasing taxes or reducing benefits. The scheduled benefits could be paid for by raising payroll taxes beginning in 2036, initially from 15.3% to 16.4% and slowly increasing the rate after that to approximately 16.9%. Alternatively, benefits could be reduced to match the scheduled tax rates, starting with a 23% reduction in 2036 and gradually increasing after that to a 26% reduction.

Topic: Advice