In today’s Wall Street Journal, I provide an update on the debate over how to measure the adequacy of Social Security retirement benefits. The recent Technial Panel on Assumptions and Methods recommended a revised method for calculation “replacement rates.” The Congressional Budget Office, right before Christmas, followed up on those recommendations to produce replacement rate numbers using the CBO’s Long Term model. The results aren’t supportive of the idea that Social Security benefits are stingy.
The results are striking: The CBO projects that a typical middle-income individual born in the 1960s and retiring in the 2020s will be eligible for a Social Security benefit equal to 56% of his late-in-life earnings. For individuals in the bottom fifth of lifetime earnings, Social Security replaces about 95% of their substantial late-in-life earnings.
Even so, the CBO excluded the spousal or widow’s benefits that more than one-third of female retirees receive on top of the benefit based on their own earnings. Among retired women who receive these auxiliary benefits, the average total monthly benefit was $1,128, versus $634 based only on their own earnings. In short, the true replacement rates for many retired women are significantly higher than CBO figures show.
Add in 401(k) and other plans, and it should not be difficult for a typical worker to achieve a total replacement rate of 70% or even 80% through individual savings and Social Security benefits.
Check out the whole article here.