Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing

41 Pages Posted: 27 May 2005

See all articles by Andrew G. Biggs

Andrew G. Biggs

American Enterprise Institute

Jeffrey R. Brown

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); University of Illinois College of Law; University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA); University of Illinois at Urbana-Champaign - Department of Economics

Glenn Springstead

Social Security Administration

Multiple version iconThere are 2 versions of this paper

Date Written: May 2005

Abstract

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

Biggs, Andrew G. and Brown, Jeffrey R. and Springstead, Glenn, Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing (May 2005). Available at SSRN: https://ssrn.com/abstract=729403 or http://dx.doi.org/10.2139/ssrn.729403

Andrew G. Biggs

American Enterprise Institute ( email )

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Jeffrey R. Brown (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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Champaign, IL 61820
United States

National Bureau of Economic Research (NBER) ( email )

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University of Illinois College of Law ( email )

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Champaign, IL 61820
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University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA) ( email )

Urbana, IL 61801
United States

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

Glenn Springstead

Social Security Administration ( email )

Washington, DC 20254
United States

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