Exploring Alternate Ways to Present Estimated Future Retirement Benefits in the Social Security Statement

30 Pages Posted: 26 Jan 2012

Date Written: October 1, 2010

Abstract

The Social Security Statement is sent annually to approximately 150 million Americans over age 25 and represents most individuals’ key source of information regarding the Social Security program and the benefits to which they may be entitled. The Statement includes estimates of the future retirement, disability, and survivor benefits that may be payable based on an individual’s earnings record. In many cases, of course, the worker will not be eligible to receive the benefits for many years or even decades into the future. Accordingly, it is important to translate these future nominal benefits into values that are useful and understandable to Americans reading the Statement today. At present, projected future benefits are effectively discounted to the present at the rate of nominal wage growth in the economy. This produces a lower value than would be the result of indexing benefits to inflation. In this project we evaluate first evaluate whether current methods produce reasonably accurate projections of future nominal benefits, then consider alternative ways of presenting estimated Social Security benefits to covered workers. Given the declining share of retirement income provided by Social Security and traditional defined benefit pensions, individuals must take a more active role in their retirement saving decisions. The potential for confusion regarding the presentation of estimated Social Security benefits could complicate this process, making it important that Social Security clarify or alter the way nominal benefits are expressed to current users of the Statement.

Keywords: Social Security, Pensions

JEL Classification: H55

Suggested Citation

Biggs, Andrew G., Exploring Alternate Ways to Present Estimated Future Retirement Benefits in the Social Security Statement (October 1, 2010). Available at SSRN: https://ssrn.com/abstract=1991394 or http://dx.doi.org/10.2139/ssrn.1991394

Andrew G. Biggs (Contact Author)

American Enterprise Institute ( email )

1150 17th Street N.W.
Washington, DC 20036
United States
202-862-5841 (Phone)

HOME PAGE: http://www.aei.org

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