IDEAS home Printed from https://ideas.repec.org/p/zbw/ifwedp/7410.html
   My bibliography  Save this paper

Social Security's Five OASI Inflation Indexing Problems

Author

Listed:
  • Lovell, Michael C.

Abstract

This paper examines five problems with the inflation indexing procedures used by the Social Security Administration of the United States in taking inflation into account when calculating Old Age and Survivors Insurance (OASI) Benefits. Because of Problem #1, the commingling of unindexed with indexed earnings, a retiree born in 1930 who continued in a high earning career until age 75 receives an annual benefit more than $1,800 larger than would have been generated with full indexing. As a result of Problems #2 and #4 your OASI check will be larger if wage inflation happens to be extra high in your 60th year or if price inflation is exceptionally low in your 61st year. Because of the indexing problems, the percentage increase in your inflation (CPI-W) adjusted benefit if you elect to postpone retirement and the start of OASI benefits will depend in part on the pace of inflation. While inflation indexing problems do not attract much attention in normal times, they can contribute to serious short-run financial instability for the OASI trust fund in periods of substantial inflation or deflation.

Suggested Citation

  • Lovell, Michael C., 2008. "Social Security's Five OASI Inflation Indexing Problems," Economics Discussion Papers 2008-34, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:7410
    as

    Download full text from publisher

    File URL: http://www.economics-ejournal.org/economics/discussionpapers/2008-34
    Download Restriction: no
    File URL: https://www.econstor.eu/bitstream/10419/27470/1/dp2008-34.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
    2. Gustman, Alan L. & Steinmeier, Thomas L., 2001. "How effective is redistribution under the social security benefit formula?," Journal of Public Economics, Elsevier, vol. 82(1), pages 1-28, October.
    3. James E. Duggan & Robert Gillingham & John S. Greenlees, 1996. "Distributional Effects of Social Security: the Notch Issue Revisited," Public Finance Review, , vol. 24(3), pages 349-370, July.
    4. Song, Jae G. & Manchester, Joyce, 2007. "New evidence on earnings and benefit claims following changes in the retirement earnings test in 2000," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 669-700, April.
    5. Martin Feldstein, 2005. "Rethinking Social Insurance," American Economic Review, American Economic Association, vol. 95(1), pages 1-24, March.
    6. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    7. Alicia H. Munnell & Dan Muldoon, 2008. "The Impact of Inflation on Social Security Benefits," Issues in Brief ib2008-8-15, Center for Retirement Research, revised Oct 2008.
    8. Biggs, Andrew G. & Brown, Jeffrey R. & Springstead, Glenn, 2005. "Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(3), pages 483-504, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefan Domonkos & Andras Simonovits, 2016. "Pensions in transition in EU11 countries between 1990 and 2015," CERS-IE WORKING PAPERS 1615, Institute of Economics, Centre for Economic and Regional Studies.
    2. András Simonovits, 2014. "Design Errors in Public Pension Systems: The Case of Hungary," CERS-IE WORKING PAPERS 1414, Institute of Economics, Centre for Economic and Regional Studies.
    3. András Simonovits, 2015. "Socially optimal contribution rate and cap in a proportional (DC) pension system," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 14(1), pages 45-63, December.
    4. Simonovits, András, 2015. "Hogyan hat a nyugdíjszabályok hiányos ismerete a dolgozók döntéseire? [How does imperfect knowledge of pension rules affect workers decisions?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 263-283.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert J. Shiller, 2005. "The Life-Cycle Personal Accounts Proposal for Social Security: An Evaluation," Cowles Foundation Discussion Papers 1504, Cowles Foundation for Research in Economics, Yale University.
    2. T. Buyse & F. Heylen & R. Van De Kerckhove, 2011. "Pension reform, employment by age, and long-run growth in OECD countries," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/719, Ghent University, Faculty of Economics and Business Administration.
    3. Casarico, Alessandra & Devillanova, Carlo, 2008. "Capital-skill complementarity and the redistributive effects of Social Security Reform," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 672-683, April.
    4. Hugo Benítez-Silva & J. Ignacio García-Pérez & Sergi Jiménez-Martín, 2011. "The effects of employment uncertainty and wealth shocks on the labor supply and claiming behavior of older American workers," Economics Working Papers 1275, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Walter Fisher & Christian Keuschnigg, 2010. "Pension reform and labor market incentives," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 769-803, March.
    6. Tim Buyse & Freddy Heylen & Renaat Van de Kerckhove, 2013. "Pension reform, employment by age, and long-run growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(2), pages 769-809, April.
    7. Buyse, Tim & Heylen, Freddy & Van De Kerckhove, Renaat, 2017. "Pension reform in an OLG model with heterogeneous abilities," Journal of Pension Economics and Finance, Cambridge University Press, vol. 16(2), pages 144-172, April.
    8. Biggs, Andrew G. & Brown, Jeffrey R. & Springstead, Glenn, 2005. "Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(3), pages 483-504, September.
    9. Tengjiao Chen & Yajie Sheng & Yu Xu, 2020. "The Anticipation Effect of the Earnings Test Reform on Younger Cohorts," Public Finance Review, , vol. 48(4), pages 387-424, July.
    10. Shinichi Nishiyama & Kent Smetters, 2007. "Does Social Security Privatization Produce Efficiency Gains?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1677-1719.
    11. Christian Jaag & Christian Keuschnigg & Mirela Keuschnigg, 2010. "Pension reform, retirement, and life-cycle unemployment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 556-585, October.
    12. Julian P. Cristia, 2007. "The Empirical Relationship Between Lifetime Earnings and Mortality: Working Paper 2007-11," Working Papers 19096, Congressional Budget Office.
    13. Nicholas Barr & Peter Diamond, 2006. "The Economics of Pensions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(1), pages 15-39, Spring.
    14. Simonovits, András, 2013. "Szubjektív gondolatok a közgazdaságtanról [Some subjective thoughts on economics]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 352-358.
    15. Robert J. Shiller, 2005. "The Life-Cycle Personal Accounts Proposal for Social Security: A Review," NBER Working Papers 11300, National Bureau of Economic Research, Inc.
    16. Eric French & John Jones, 2012. "Public pensions and labor supply over the life cycle," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(2), pages 268-287, April.
    17. John Sabelhaus & Julie Topoleski, 2007. "Uncertain policy for an uncertain world: The case of social security," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(3), pages 507-525.
    18. Sergio Nisticò & Mirko Bevilacqua, 2018. "Some Notes On The Redistribution Inherent In The U.S. Public Pension System," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 566-581, July.
    19. Kobsak Pootrakool & Anak Serichetpong, 2007. "Safeguarding out Nation's Nest Egg: Necessary Reforms to our Social Security System," Working Papers 2007-05, Monetary Policy Group, Bank of Thailand.
    20. John Sabelhaus & Julie Topoleski, 2006. "Uncertain Policy for an Uncertain World: The Case of Social Security: Working Paper 2006-05," Working Papers 17664, Congressional Budget Office.

    More about this item

    Keywords

    Social Security; inflation; indexing;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:ifwedp:7410. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/iwkiede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.