NCPA - National Center for Policy Analysis

Have Social Security Benefits Really Been Cut by 19 Percent?

June 17, 2011

Based on changes implemented in the 1983 Social Security reforms -- increases in the normal retirement age from 65 to 67; a one-time reduction in cost-of-living adjustment payments; and the taxation of retirement benefits -- future retirees will receive benefits 19 percent lower than what they would have received had the 1983 reforms not been implemented.  This is according to a recent issue brief by the National Academy of Social Insurance titled, "Social Security Beneficiaries Face 19% Cut; New Revenue Can Restore Balance," says Andrew Biggs, a resident scholar at the American Enterprise Institute.

Some perspective is needed, says Biggs.

  • First, the 1983 reforms didn't only reduce benefits; they also increased taxes, by covering newly hired federal workers and non-profit associations, accelerating tax increases already on the books, prohibiting state/local workers from leaving the system, and so on.
  • Second, while benefits in any given month will be lower in the future than they would have been under 1983 rules, that doesn't mean they'd be lower in real terms.
  • Third, future retirees will live longer than those in the past did, so while they may receive somewhat lower replacement rates than in the past, they'll collect them over longer retirements.

You could argue that people would want the same replacement rate even over longer retirements, meaning that these almost four extra years of collecting benefits shouldn't factor in.  Fine.  But the life-cycle theory of consumption says that as life expectancies increase, people will tend to target lower replacement rates relative to preretirement earnings.

Source: Andrew Biggs, "Have Social Security Benefits Really Been Cut by 19 Percent?" American Enterprise Institute, June 8, 2011.

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