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151 IRET Congressional Advisory 1 (2003)

handle is hein.taxfoundation/iretcgadv0148 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION
IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing
the public about policies thait will promote growth and efficient operation of the market economy.

March 21, 2003

Advisory No. 151

SOCIAL SECURITY TRUSTEES REPORT:
AN EYE-OPENER IF YOU KNOW WHERE TO LOOK

The 2003 Social Security Trustees Report,
released on March 17, contains a wealth of
information, some of it quite surprising, about the
future of the Old Age, Survivors, and Disability
Insurance program (OASDI). Did you know that, in
the face of impending insolvency, Social Security:
 is promising, over time, to pay future retirees
more than twice the real benefits that current
retirees receive?
 will pay some future upper income working
couples almost $105,000 a year in real,
inflation-adjusted benefits?
 will be giving most future two-earner retired
couples more in Social Security benefits than
the current median family income?
 will effectively require each working couple to
support a retiree?
All of this is true, and it is revealed to the
careful reader of the various tables in the Trustees
Report.
Most people only look at two bits of data in the
Trustees Report - the year the system will start
running annual cash flow deficits (2018), and when
it will run out of spending authority by exhausting
its trust fund (2042).1
Serious students of Social Security should look
beyond these cash flow and trust fund numbers to
learn more of why the system is in trouble and what
can be done about it. The excellent background
material in the Report and its appendices can be of
great help.

Promised benefits are soaring in real value, and
will more than double by 2080.
Consider Table VI.F11. - Estimated Annual
Scheduled Benefit Amounts for Retired Workers
(OASDI Report, pp. 189-190.) The table (partially
reproduced on the next page) shows the benefits that
future generations are projected to receive after they
reach age 65 in future years, 2003 through 2080.
These benefits are displayed for people who earn
various levels of wages relative to the rest of the
population (low wage, average wage, high wage,
and the maximum wage subject to the payroll tax).
The benefits are presented in real inflation-adjusted
dollars, and as a percent of pre-retirement income.
They are shown for people who work until the
normal retirement age (rising gradually from 65 to
66 and 67), or who retire at a fixed age of 65 in the
years shown.
It is often mentioned that the Social Security
benefit formula is structured to provide all
generations over time with about the same benefits
relative to pre-retirement income. This is known as
a constant replacement rate, and it is projected to
be 55.3% for low wage workers (earning 45% of the
average wage), 41% for workers who earn the
average wage all their lives, 34% for high earnings
workers (160% of average wage) and 27.3% for
maximum covered wage workers, assuming they
retire at the normal retirement age applicable for
their age cohort. What many people do not realize,
and what may come as a surprise or shock, is that
these constant replacement rates actually mean
that benefits will rise significantly over time as real
wages grow.

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