The President redefined the terms of the ongoing debate over Social Security reform last night by proposing the progressive indexing of Social Security's retirement benefits. For low lifetime income earners, this proposal provides no change in how their basic retirement benefit, also called the Primary Insurance Amount (PIA), is determined by Social Security. Middle and upper income earners however, will find that their basic retirement benefit will be reduced, less for the middle income earners and more for the upper income earners, since the inflation rate used to adjust lifetime earnings in computing the benefit will be progressively reduced from the higher rate of inflation in wages to the lower rate of inflation measured by the Consumer Price Index (CPI). All benefits, once the basic level is determined, will continue to be adjusted for future inflation according to changes in CPI.
Those wanting to learn more about what the President has in mind for the actuarial reform of Social Security would be well served to read this post, written by an actual actuary, at The Dead Parrot Society describing how the technique would work.
To get a good ballpark estimate of what your retirement benefits with Social Security would look like under the President's refined proposal, the only tool that accurately models the proposed reform on the web is at the Heritage Foundation. Use their calculator today!
Update: Patrick Ruffini has a cool Flash-based interface to the Heritage calculator that you can add to your non-Blogger-powered blog! For those posting via Blogger, the direct link to the calculator is:
http://www.heritage.org/research/features/socialsecurity/OWCWelcome_new.asp
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