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Thursday, May 05, 2005

A cut or not a cut?

Posted by: Hammer / 8:43 AM

Bob Somerby explains it so that even Smilin' Norm Coleman can understand:
First: At present, middle-income retirees get a check from SS that equals roughly 36 percent of their previous income. Everyone agrees on that fact.

Second: Under the Pozen plan, such retirees would instead get 26 percent of their pre-retirement income. Everyone agrees on that, too.

Third: The Pozen plan only resolves about 70 percent of the system’s projected solvency problem. (Everyone agrees on that.) If Bush wants to fix the solvency problem without adding new revenue, he may have to set benefit levels even lower than he has said -- at perhaps 20 percent.

Conclusion? At present, middle-income earners get about 36 percent of their income replaced by SS when they retire. Under Bush’s plan, that may be 20 percent instead. Just state those facts to the average person. Trust us: You won’t have to say the word "cuts." And they won’t think of this as an "increase."

This is called the replacement rate. Upon retirement, should Social Security replace 36% of your prior income? 26%? 20%? Given the death of defined benefit pensions, 36% might be a little low. Still, for most middle-income people, other retirement savings makes 36% livable. If the replacement rate is lowered to 20%, Social Security loses its relevance for millions of people. It's no longer a building block for retirement. Instead, it's a little bit of money that might be nice if you want to take the grandkids out for ice cream.


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