Discussion Paper

No. 2008-34 | November 25, 2008
Social Security’s Five OASI Inflation Indexing Problems

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.

JEL Classification

H55

Cite As

Michael C. Lovell (2008). Social Security’s Five OASI Inflation Indexing Problems. Economics Discussion Papers, No 2008-34, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2008-34

Assessment



Comments and Questions


OMOTAYO OLAWOYE - inflation Solution
November 26, 2008 - 15:34

i thereby recommend that article excellent and truelly inflation should be checked properly.
From Olawoye Tayo.
Economist.
Nigeria.


Anonymous - Referee Report 1
January 02, 2009 - 11:23

see attached file


Anonymous - Referee Report 2
January 02, 2009 - 11:24

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Anonymous - Referee Report 3
January 14, 2009 - 10:43

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Michael Lovell - Reply to Referee Reports
January 19, 2009 - 15:03

See attached file