Will Your Social Insurance Pay Off? Making Social Security Progressivity Work for Low-Income Retirees
American Enterprise Institute for Publicv Policy Research, No. 1, January 2009
12 Pages Posted: 13 May 2009
Date Written: January 1, 2009
Although the Social Security program is progressive - meaning that the replacement rate of preretirement earnings offered by Social Security tends to rise as lifetime earnings decline - this relationship is erratic. While individuals with lower lifetime earnings receive better treatment on average, lifetime earnings are only a weak predictor of how any one person will be treated by the Social Security program. Many high-earning households receive high replacement rates, and many low-earning households fail to receive them. Thus, Social Security is not entirely effective as a social insurance program protecting low lifetime wage earners against a meager retirement. In order to make Social Security more reliably progressive - thus protecting low-earning workers and allowing them to plan more effectively for their financial future - one possible approach would be to offer a flat dollar benefit for each retiree along with an individual account whose benefits are tied directly to contributions.
Keywords: Social Security, social insurance, progressivity
JEL Classification: H55, H53, I38
Suggested Citation: Suggested Citation