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COLA — cost of living adjustment, an annual modification to make benefits keep pace with inflation.

carve out — to redirect some of employees’ payroll taxes that now go into the Social Security system into private retirement accounts. Thus the money would be “carved out” of the Social Security system and not available to pay benefits for current retirees.

index fund — a mutual fund designed to resemble a particular stock or bond market index, such as the S&P 500 or the Wilshire 5000, and match its performance.

payroll tax rate — for Social Security, 12.4 percent of income up to the wage cap. An employee pays 6.2 percent and the employer pays the other half. A self-employed person pays the entire amount.

price indexing — in the initial stage of calculating benefits, using changes in consumer prices, instead of changes in wages, to compute benefits. Prices usually increase more slowly than wages, so indexing to prices would slow the growth of benefits.

replacement rate — the amount of pre-retirement earnings that Social Security benefits replace. A way to gauge the adequacy of retirement income.

Treasury bonds — funds in the Social Security trust fund that are not used for paying current benefits and expenses are required by law to be invested in U.S. Treasury securities. These securities pay market-based interest to the trust funds.

trust funds — accounts run by the Treasury Department that take in payments to the Social Security system, pay benefits and administer the program. The Social Security Trust Funds are made up of two accounts: the Old-Age and Survivors Insurance (OASI) Fund (which pays benefits to retired workers, their dependents and their survivors) and the Disability Insurance (DI) Fund (for disabled workers and their families).

trustees — the board of four government officials and two citizen representatives that manages the Social Security Trust Funds. They report every year to Congress on the state of the funds.

wage indexing — a method in which initial Social Security benefits grow in line with wages, which ensures that the contributions a worker makes are linked to his or her initial benefit amount at retirement.

wage cap (or taxable maximum) — the maximum amount of a worker’s earnings that are subject to the Social Security payroll tax. The tax in 2005 applies to the first $90,000 of a person’s income; the amount taxed increases annually with wages.