Summary
• This article builds upon a previous EBRI Notes study (April 2006) by determining the change in the distribution of the benefit levels beneficiaries would receive under various Social Security reform proposals. Some of these reforms would not achieve zero actuarial balance. This analysis also calculates for various age cohorts the amount of savings that would need to be accumulated in order to purchase a payout annuity (an insurance product that provides regular stream of income for life) that would compensate for the decrease in benefits from these alternatives, relative to current-law benefits.
• The Social Security reform options examined would cut benefits, more so for the young—Because various Social Security reform alternatives would phase in benefit reductions, the cuts for younger cohorts of workers would be larger than the cuts that middle-age or older workers would experience. For example, the benefit cuts for the 1962 cohort would range from a $300 decrease in annual benefits for beneficiaries with the smallest benefits to about $3,000 for those with the highest benefits. These annual reductions would grow steadily across age cohorts, reaching $2,200 to $10,370 for the 1997 birth cohort and from $3,790 to $18,360 for the 2022 birth cohort.
• Future wage growth helps—As mentioned in the earlier companion analysis to this study, the projected real growth in wages has the effect of providing higher real Social Security benefit levels for the younger cohorts, even with benefit reductions. However, various studies have shown that, even with current-law benefits, many future retirees will not have enough resources to maintain the same level of standard of living throughout retirement.
• Additional savings needed—Many Americans would need to save additional amounts just to make up for the reductions in current-law Social Security benefits (for some of these reforms, more changes would be needed to balance the costs and revenues of program), and even then their level of resources will still be inadequate to maintain the same standard of living throughout retirement. These findings suggest that reform options that reduce the benefit levels of Social Security will have a major impact on many retirees, especially the lowest-income beneficiaries who depend on the program the most.