Distributional Effects of Reforming Social Security through Benefit Reductions

Research Report

Distributional Effects of Reforming Social Security through Benefit Reductions

December 12, 2005

Abstract

To address Social Security's long-term financial imbalance, some policymakers have proposed reducing benefits below the levels scheduled in current law. This report examines the following options for reducing benefits: (1) indexing benefits by price growth instead of wage growth; (2) indexing benefits by price growth for high-income workers and wages for low-income workers (progressive price indexing); (3) reducing the annual cost of living adjustment; and (4) raising the retirement age. Unlike other policies, progressive price indexing potentially eliminates most of Social Security's 75-year deficit without increasing hardship for vulnerable retirees. However, if continued indefinitely, it would significantly reduce Social Security's role in providing retirement security for middle-income workers.

Research Area: 

Cross-Center Initiative

Cross-Center Initiative: 
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