The Declining Role of Social Security

Boston College Center for Retirement Research No. JTF6

4 Pages Posted: 7 Sep 2005

See all articles by Alicia H. Munnell

Alicia H. Munnell

Boston College - Center for Retirement Research

Date Written: February 2003

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.1 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.

Keywords: social security, retirement, replacement rate

Suggested Citation

Munnell, Alicia, The Declining Role of Social Security (February 2003). Boston College Center for Retirement Research No. JTF6. Available at SSRN: https://ssrn.com/abstract=556792 or http://dx.doi.org/10.2139/ssrn.556792

Alicia Munnell (Contact Author)

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States
617-552-1762 (Phone)

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