Over at Forbes, I look at new numbers from the Congressional Budget Office on Social Security “replacement rates,” which measure retirement income as a percentage of pre-retirement earnings. Most financial advisers say that a 70% replacement rate is sufficient for a retiree to maintain a pre-retirement standard of living. The Social Security actuaries claim that an average person receives only a 40% replacement rate from Social Security, but I’ve argued that these figures – which are measured in a very different way than how financial advisers measure replacement rates – are misleadingly low.
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In response to this debate, last September an expert panel appointed by the Social Security Advisory Board recommended new methods for calculating replacement rates that would be more compatible with financial advisers’ “final earnings” approach.
And now, in new figures released December 15, the CBO is the first agency to follow up on these recommendations. The CBO found much higher replacement rates than the 40% figures that SSA’s actuaries claim. The typical new retiree receives a benefit equal to about 60% of his late-in-life earnings, substantially reducing the amount he would need to save to hit financial advisers’ 70% benchmark. These figures weaken the case for expanding Social Security and weaken claims that the overall US retirement system isn’t working.
Check out the whole article here.
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