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

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

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, 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 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

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11406.

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Date of creation: Jun 2005
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Publication status: published as Biggs, Andrew G., Jeffrey R. Brown and Glenn Springstead. "Alternative Methods Of Price Indexing Social Security: Implications For Benefits And System Financing," National Tax Journal, 2005, v58(3,Sep), 483-504.
Handle: RePEc:nbr:nberwo:11406

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  1. Jagadeesh Gokhale & Kent Smetters, 2005. "Measuring Social Security's Financial Problems," NBER Working Papers 11060, National Bureau of Economic Research, Inc.
  2. Alan L. Gustman & Thomas L. Steinmeier, 2000. "How Effective is Redistribution Under the Social Security Benefit Formula?," NBER Working Papers 7597, National Bureau of Economic Research, Inc.
  3. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  4. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
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Cited by:
  1. 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.
  2. Juergen Jung & Chung Tran, 2014. "Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010," Working Papers 2014-01, Towson University, Department of Economics, revised Feb 2014.
  3. Lovell, Michael C., 2009. "Social Security's Five OASI Inflation Indexing Problems," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(3), pages 1-41.
  4. Juergen Jung & Chung Tran, 2010. "The Macroeconomics of Health Savings Accounts," Working Papers 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 wp186, University of Michigan, Michigan Retirement Research Center.

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