Social Security's Five OASI Inflation Indexing Problems
AbstractThis paper examines five problems with the inflation indexing procedures used by the Social Security Administration of the United States in taking inflation into account when calculating Old Age and Survivors Insurance (OASI) Benefits. Because of Problem #1, the commingling of unindexed with indexed earnings, a retiree born in 1930 who continued in a high earning career until age 75 receives an annual benefit more than $1,800 larger than would have been generated with full indexing. As a result of Problems #2 and #4 your OASI check will be larger if wage inflation happens to be extra high in your 60th year or if price inflation is exceptionally low in your 61st year. Because of the indexing problems, the percentage increase in your inflation (CPI-W) adjusted benefit if you elect to postpone retirement and the start of OASI benefits will depend in part on the pace of inflation. While inflation indexing problems do not attract much attention in normal times, they can contribute to serious short-run financial instability for the OASI trust fund in periods of substantial inflation or deflation. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2008-34.
Date of creation: 2008
Date of revision:
Social Security; inflation; indexing;
Other versions of this item:
- 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.
- Michael C. Lovell, 2008. "Social Security’s Five OASI Inflation Indexing Problems," Wesleyan Economics Working Papers 2008-006, Wesleyan University, Department of Economics, revised 30 Oct 2008.
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-IAS-2009-01-03 (Insurance Economics)
- NEP-LAB-2009-01-03 (Labour Economics)
- NEP-MAC-2009-01-03 (Macroeconomics)
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