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 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 InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16212.
Date of creation: Jul 2010
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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, in: Investigations in the Economics of Aging, pages 119-139 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 08-059, Stanford Institute for Economic Policy Research.
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
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- Bart Hobijn & David Lagakos, 2003. "Social security and the consumer price index for the elderly," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue May.
- Mariacristina De Nardi & Eric French & John Bailey Jones, 2009.
"Why do the Elderly Save? The Role of Medical Expenses,"
NBER Working Papers
15149, National Bureau of Economic Research, Inc.
- Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, 02.
- Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the elderly save? the role of medical expenses," Working Paper Series WP-09-02, Federal Reserve Bank of Chicago.
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