Every Democrat running for president has pledged to increase Social Security benefits, on grounds that Americans’ retirement savings are inadequate and the costs are affordable. Republicans in the race instead focus on restoring Social Security to solvency—by reducing benefits for high earners or raising the retirement age—and expanding opportunities for Americans to save. New data released Dec. 15 by the Congressional Budget Office suggest that the Republican approach is better grounded.
It’s almost dogma among today’s progressives that Americans face a “retirement crisis” due in part to stingy Social Security benefits. But how do we know if this crisis is real? One common measure compares a household’s Social Security benefits or total retirement income with its pre-retirement earnings. Most financial advisers believe that a “replacement rate” of 70%-80% is sufficient, since the cost of living falls once a person stops working.
The question then turns on how best to measure replacement rates. Financial advisers compare retirement income to a household’s earnings in a single year—the year before retirement. The problem is that a single year’s earnings may not reflect a household’s true standard of living.
Read the full article here at The Wall Street Journal.
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