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The Declining Role Of Social Security

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  • Alicia H. Munnell

    (Center for Retirement Research)

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. 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.

Suggested Citation

  • Alicia H. Munnell, 2003. "The Declining Role Of Social Security," Just the Facts jtf-6, Center for Retirement Research.
    • Handle: RePEc:crr:jusfac:jtf-6
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    File URL: http://crr.bc.edu/briefs/the-declining-role-of-social-security/
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    Citations

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    Cited by:

    1. Alicia H. Munnell & Anthony Webb & Francesca Golub-Sass, 2009. "The National Retirement Risk Index: After The Crash," Issues in Brief ib2009-9-22, Center for Retirement Research, revised Sep 2009.
    2. Robert Gazzale & Julian Jamison & Alexander Karlan & Dean Karlan, 2013. "Ambiguous Solicitation: Ambiguous Prescription," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 1002-1011, January.
    3. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," Tax Policy and the Economy, University of Chicago Press, vol. 26(1), pages 125-164.
    4. Guan Gong & Anthony Webb, 2008. "Mortality Heterogeneity and the Distributional Consequences of Mandatory Annuitization," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 1055-1079, December.
    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.
    6. Karen Smith & Mauricio Soto & Rudolph G. Penner, 2009. "How Seniors Change Their Asset Holdings During Retirement," Working Papers, Center for Retirement Research at Boston College wp2009-31, Center for Retirement Research, revised Dec 2009.
    7. Robert S. Gazzale & Lina Walker, 2009. "Behavioral Biases in Annuity Choice: An Experiment," Department of Economics Working Papers 2009-01, Department of Economics, Williams College.
    8. 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.
    9. Gourio, François, 2011. "Putty-clay technology and stock market volatility," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 117-131, March.
    10. Peter A. Diamond & Peter R. Orszag, 2005. "Saving Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 11-32, Spring.
    11. Alicia H. Munnell & Laura Quinby, 2009. "Pension Coverage and Retirement Security," Issues in Brief ib2009-9-26, Center for Retirement Research, revised Dec 2009.
    12. Alicia H. Munnell, 2004. "Why Are So Many Older Women Poor?," Just the Facts jtf_10, Center for Retirement Research.
    13. Alicia Munnell, 2008. "“A reappraisal of social security financing”—revisited," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 32(4), pages 394-408, October.

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