How Well Are Social Security Recipients Protected From Inflation?
AbstractSocial Security is widely believed to protect its recipients from inflation because benefits are indexed to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, the CPI-W may not accurately reflect the experience of retirees for two reasons. First, retirees generally have higher medical expenses than workers, and medical costs, in recent years, have tended to rise faster than the prices of other goods. Second, even if medical costs did not rise faster than the prices of other goods, as retirees aged, their medical spending would still tend to increase as a share of income; that is, each cohort of retirees would still see a decline in the real income available for non-medical spending. We show that, for in the 1918 birth cohort, Social Security benefits net of average out-of-pocket medical expenses have declined relative to a price index for non-medical goods by around 20 percent for men, and by around 27 percent for women. We explore alternative options for indexing Social Security benefits and discuss the impact of these alternatives on Social Security’s long-term finances.
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Bibliographic InfoArticle provided by National Tax Association in its journal National Tax Journal.
Volume (Year): 64 (2011)
Issue (Month): 2 (June)
Other versions of this item:
- Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2011. "How Well Are Social Security Recipients Protected from Inflation?," NBER Chapters, National Bureau of Economic Research, Inc, in: Investigations in the Economics of Aging, pages 119-139 National Bureau of Economic Research, Inc.
- Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2010. "How Well Are Social Security Recipients Protected from Inflation?," NBER Working Papers 16212, National Bureau of Economic Research, Inc.
- Gopi Shah Goda & John Shoven & Sita Slavov, 2009. "How Well Are Social Security Recipients Protected From Inflation?," Discussion Papers, Stanford Institute for Economic Policy Research 08-059, Stanford Institute for Economic Policy Research.
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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Working Paper Series, Federal Reserve Bank of Chicago
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