Economic Well-Being

This brief examines different price indices that might be used to adjust Social Security benefits for changes in the cost of living. The currently used consumer price index for wage and clerical workers (CPI-W) is probably biased upward. A new experimental "chain" index removes some of the upward bias and therefore rises more slowly. Using it would help solve some of Social Security's long-run financial problems. Another candidate is an experimental index designed to reflect the purchases of the elderly. Largely because it heavily weights health costs, it is likely to rise faster than the CPI-W.

Low Social Security benefits are strongly related to individual characteristics and earnings histories. These associations suggest ways of shoring up Social Security and adopting other policies to help low-wage, low-skilled workers achieve more labor market success and greater retirement security. Social Security enhancements to aid beneficiaries with intermittent histories include caregiver credits or a minimum benefit that integrates caregiving, unemployment, and disability credits. To meet long-term, low-wage workers' needs, policymakers could adjust Social Security's bend points or replacement percentages; create a new minimum benefit; or adjust current law's special minimum benefit so it provides support greater than the poverty level.

We use data from the Health and Retirement Study linked to administrative data on earnings and benefits to determine why some workers end up with low Social Security benefits in retirement. Several characteristics are associated with family benefits of less than poverty. Racial disparities are pronounced. Women's risk is marked, especially for unmarried women, with caregiving an important contributor to low-benefit risk. Less-educated workers are also vulnerable, sometimes even when they have worked long careers. Workers with health problems and disabled workers-especially those disabled early in the career-are comparatively likely to have family benefits of less than poverty.

Increasing Social Security's retirement age would promote work at older ages, improve the system's solvency by shortening retirements and reducing lifetime benefits, and better target benefits to the oldest Americans. It could, however, create hardship for workers with health problems unless Congress improves the disability safety net. This fact sheet reports key data points in the arguments for and against increasing the retirement age.

Panelists will discuss how health status, job characteristics, and job prospects intersect to affect work at older ages. What will happen to Social Security if Americans do not extend their careers as life expectancy increases? Would raising Social Security's early entitlement age or full retirement age hurt low-income groups? Can Social Security Disability Insurance adequately protect workers with health problems? Are there alternatives to raising the retirement age that would promote work at older ages?