Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing
41 Pages Posted: 27 May 2005
Date Written: May 2005
This paper explains four methods of "price indexing" initial Social Security retirement benefits, and discusses the effect of each method on the fiscal sustainability of Social Security, benefit levels and replacement rates, redistribution, and sensitivity of system finances to demographic and economic shocks. Of these methods, PIA Factor Indexing would generate the largest cost savings while reducing benefit growth at approximately an equal rate for all income levels. Methods that index the AIME, the formula "bend points," or both, would reduce benefit growth at a slower rate and would have different effects on benefit distribution and system sustainability.
Keywords: Social Security reform, public pensions, solvency
JEL Classification: H55, J14
Suggested Citation: Suggested Citation