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Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing

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  • Biggs, Andrew G.
  • Brown, Jeffrey R.
  • Springstead, Glenn

Abstract

This paper explains four methods of "price indexing" initial Social Security retirement benefits, and discusses the effect of each method on the fiscal sustainability of Social Security, benefit levels and replacement rates, redistribution, and sensitivity of system finances to demographic and economic shocks. Of these methods, Primary Insurance Amount (PIA) Factor Indexing would generate the largest cost savings while reducing benefit growth at approximately an equal rate for all income levels. Methods that index the Average Indexed Monthly Earnings (AIME), the formula "bend points," or both, would reduce benefit growth at a slower rate and would have different effects on benefit distribution and system sustainability.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 58 (2005)
Issue (Month): 3 (September)
Pages: 483-504

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Handle: RePEc:ntj:journl:v:58:y:2005:i:3:p:483-504

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  1. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 1-24, March.
  2. Jagadeesh Gokhale & Kent Smetters, 2005. "Measuring Social Security's Financial Problems," NBER Working Papers 11060, National Bureau of Economic Research, Inc.
  3. Alan L. Gustman & Thomas L. Steinmeier, 2000. "How Effective is Redistribution Under the Social Security Benefit Formula?," Working Papers, University of Michigan, Michigan Retirement Research Center wp005, University of Michigan, Michigan Retirement Research Center.
  4. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 177-83, May.
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Cited by:
  1. Juergen Jung & Chung Tran, 2011. "Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010," Working Papers, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales 201102, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  2. Lovell, Michael C., 2008. "Social Security's Five OASI Inflation Indexing Problems," Economics Discussion Papers, Kiel Institute for the World Economy 2008-34, Kiel Institute for the World Economy.
  3. John Cawley & John R. Moran & Kosali I. Simon, 2008. "The Impact of Income on the Weight of Elderly Americans," NBER Working Papers 14104, National Bureau of Economic Research, Inc.
  4. Juergen Jung & Chung Tran, 2010. "The Macroeconomics of Health Savings Accounts," Working Papers, Towson University, Department of Economics 2010-12, Towson University, Department of Economics, revised May 2011.
  5. Ann Huff Stevens, 2008. "Retirement Wealth Across Cohorts: The Role of Earnings Inequality and Pension Changes," Working Papers, University of Michigan, Michigan Retirement Research Center wp186, University of Michigan, Michigan Retirement Research Center.

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