## Short-Range Actuarial Projectionsof the Old-Age, Survivors, and Disability Insurance Program, 2005

ACTUARIAL STUDY NO. 119
by Chris Motsiopoulos
and Richard B. Tucker

A. DETERMINATION OF THE WAGE BASE

The maximum amount of taxable and creditable earnings for Social Security purposes, usually referred to as the wage base, is determined each year as prescribed by law. Currently, the wage base is determined each year based on legislation enacted August 15, 1994.

The wage base for a given year is calculated in the preceding year by multiplying the wage base of \$60,600 for 1994 by the following quotient: the national average wage index for the prior year, divided by the national average wage index for 1992. The result, rounded to the nearest \$300, is the new wage base. The wage base can remain the same or increase. In no case, is the new wage base reduced to an amount below the previous wage base.

The 1994 wage base was \$60,600.
The 1992 national average wage index was \$22,935.42.

Example:

The wage base for calendar year 2005 was determined in 2004 as follows:

(1994 wage base) x [(2003 average wage index) / (1992 average wage index)]

\$60,600.00 x [\$34,064.95 / \$22,935.42] = \$90,006.46

Rounding \$90,006.46 to the nearest \$300 results in a wage base for 2005 of \$90,000.

Wage bases for projected years are estimated in the same manner using the projected (or preliminary) average wage index for the year that is 2 years prior to the year for which the wage base is being calculated. Thus, for the 2005 Trustees Report, the 2006 wage base is estimated using the 1994 wage base, the projected 2004 average wage index, and the 1992 average wage index.