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Improving Solvency Using the Social Security Benefit Formula

In order to respond to the challenge of the baby boom and later beneficiaries, Social Security's long-term financing gap needs to be closed. In this AARP Public Policy Institute Issue Brief, Alison Shelton and Laurel Beedon explore how the option of changing the rates and dollar amounts (bend points) defined in current law benefit formula would affect various groups of beneficiaries and, ultimately, whether or how such changes would affect the goals of Social Security. They find that changing the benefit formula involves certain trade-offs and suggest that adding a new middle bend point would make some of the negative trade-offs less stark. However, they also conclude that using the benefit formula alone to eliminate the actuarial deficit is not practical, and suggest that adjustments to the benefit formula like those described in the paper could form part of a broader package to eliminate Social Security's actuarial deficit. (15 pages, July 2003)

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