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FEDERAL RESERVE BANK OF NEW YORK Current Issues IN ECONOMICS AND FINANCE www.newyorkfed.org/rmaghome/curr_iss Social Security and the Consumer Price Index for the Elderly

By Bart Hobijn and David Lagakos

Abstract

Some argue that social security benefits should be adjusted using a price index that reflects the spending habits of the elderly rather than those of workers. This study suggests that if such an index were adopted today, over the next forty years benefit levels would increase and the social security trust fund could become insolvent up to five years sooner than projected. Social security benefits, paid monthly to almost 30 million Americans, are automatically adjusted for inflation once a year. The goal of this cost-of-living adjustment is to prevent a decline in the purchasing power of retirees ’ benefits. Under the current system, the adjustment is tied to changes in the consumer price index (CPI), the benchmark measure of inflation produced by the Bureau of Labor Statistics (BLS). In recent years, the indexing of social security benefits to the CPI has come under considerable scrutiny. Many policymakers and academics have argued that the CP

Year: 2003
OAI identifier: oai:CiteSeerX.psu:10.1.1.197.7202
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