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How Well Are Social Security Recipients Protected from Inflation?

Gopi Goda, John B. Shoven and Sita Slavov

No 16212, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Social Security is widely believed to protect its recipients from inflation because benefits are indexed to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, the CPI-W may not accurately reflect the experience of retirees for two reasons. First, retirees generally have higher medical expenses than workers, and medical costs, in recent years, have tended to rise faster than the prices of other goods. Second, even if medical costs did not rise faster than the prices of other goods, as retirees aged, their medical spending would still tend to increase as a share of income; that is, each cohort of retirees would still see a decline in the real income available for non-medical spending. We show that, for the 1918 birth cohort, Social Security benefits net of average out-of-pocket medical expenses have declined relative to a price index for non-medical goods by around 20 percent for men, and by around 27 percent for women. We explore alternative options for indexing Social Security benefits and discuss the impact of these alternatives on Social Security's long-term finances.

JEL-codes: H55 J14 J26 (search for similar items in EconPapers)
Date: 2010-07
Note: AG PE
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Published as Goda, Gopi Shah & Shoven, John B. & Slavov, Sita Nataraj, 2011. "How Well Are Social Security Recipients Protected From Inflation?," National Tax Journal, National Tax Association, vol. 64(2), pages 429-49, June Cita.
Published as How Well Are Social Security Recipients Protected from Inflation? , Gopi Shah Goda, John B. Shoven, Sita Nataraj Slavov. in Investigations in the Economics of Aging , Wise. 2012

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Chapter: How Well Are Social Security Recipients Protected from Inflation? (2011) Downloads
Journal Article: How Well Are Social Security Recipients Protected From Inflation? (2011) Downloads
Working Paper: How Well Are Social Security Recipients Protected From Inflation? (2009) Downloads
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