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The Declining Role Of Social Security

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Author Info
Alicia H. Munnell () (Center for Retirement Research)

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Abstract

Policymakers have focused considerable attention on alternative ways of eliminating Social Security’s 75-year financing gap, but lost in the debate is the fact that even under current law Social Security will provide less retirement income relative to previous earnings than it does today. Combine the already legislated reductions with potential cuts due to closing the financing gap, and Social Security may no longer be the mainstay of the retirement system for many people. Recognizing the declining role of Social Security is important because future retirees will need to find alternative income sources as they age. Today, the frequently quoted replacement rate for the “medium earner” who retires at age 65 is 41 percent; that is, Social Security benefits are equal to 41 percent of the individual’s previous earnings.1 Under current law, three factors will reduce this replacement rate: 1) the extension of the normal retirement age; 2) the increase in Medicare Part B premiums; and 3) the taxation of Social Security benefits. The following section considers the impact of each of these developments.

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Paper provided by Center for Retirement Research in its series Just the Facts with number jtf-6.

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Date of creation: 28 Mar 2003
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Handle: RePEc:crr:jusfac:jtf-6

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  1. Alicia Munnell, 2008. "“A reappraisal of social security financing”—revisited," Journal of Economics and Finance, Springer, vol. 32(4), pages 394-408, October. [Downloadable!] (restricted)
  2. Francois Gourio, 2007. "Putty-Clay Technology And Stock Market Volatility," Boston University - Department of Economics - Working Papers Series WP2007-005, Boston University - Department of Economics. [Downloadable!]
  3. Irena Dushi & Anthony Webb, 2004. "Annuitization: Keeping Your Options Open," Working Papers, Center for Retirement Research at Boston College 2004-04, Center for Retirement Research. [Downloadable!]
  4. Alicia H. Munnell & Anthony Webb & Alex Golub-Sass, 2008. "How Much Risk is Acceptable?," Issues in Brief ib2008-8-20, Center for Retirement Research, revised Nov 2008. [Downloadable!]
  5. Alicia H. Munnell & Steven A. Sass, 2007. "The Labor Supply of Older Americans," Working Papers, Center for Retirement Research at Boston College wp2007-12, Center for Retirement Research, revised Jun 2007. [Downloadable!]
  6. Guan Gong & Anthony Webb, 2006. "Mortality Heterogeneity and The Distributional Consequences of Mandatory Annuitization," Working Papers, Center for Retirement Research at Boston College wp2006-11, Center for Retirement Research, revised Jun 2006. [Downloadable!]
  7. Alicia H. Munnell & James G. Lee & Kevin B. Meme, 2004. "An Update on Pension Data," Issues in Brief ib2004-20, Center for Retirement Research, revised Jul 2004. [Downloadable!]
  8. Alicia H. Munnell & Anthony Webb & Luke Delorme, 2006. "A New National Retirement Risk Index," Issues in Brief ib2006-48, Center for Retirement Research, revised Jun 2006. [Downloadable!]
  9. Alicia H. Munnell, 2004. "Why Are So Many Older Women Poor?," Just the Facts jtf_10, Center for Retirement Research. [Downloadable!]
  10. Alicia H. Munnell & Geoffrey Sanzenbacher & Mauricio Soto, 2007. "Working Wives Reduce Social Security Replacement Rates," Issues in Brief ib2007-7-15, Center for Retirement Research, revised Aug 2007. [Downloadable!]
  11. Alicia H. Munnell & Pamela Perun, 2006. "An Update on Private Pensions," Issues in Brief ib2006-50, Center for Retirement Research, revised Aug 2006. [Downloadable!]
  12. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2007. "The Excess Burden of Government Indecision," NBER Working Papers 12859, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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