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 other goods, as retirees age, 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 real income left over for non-medical spending. In the 1918 birth cohort, We show that Social Security benefits net of average out-of-pocket medical expenses have declined relative to a price index for non-medical goods by almost 20 percent for men, and almost 27 percent for women. We also explore the extent to which indexing Social Security benefits to the CPI-E, an experimental measure of inflation for the elderly, would change these results.
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Bibliographic InfoPaper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 08-059.
Date of creation: Aug 2009
Date of revision:
Social Security; inflation;
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.
- Goda, Gopi Shah & Shoven, John B. & Slavov, Sita Nataraj, 2011. "How Well Are Social Security Recipients Protected From Inflation?," National Tax Journal, National Tax Association, vol. 64(2), pages 429-49, June.
- 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.
- 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
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"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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