What does it mean to “index” Social Security benefits? Define indexing, and state whether changes to the manner in which the United States indexes Social Security benefits would result in significant savings to the program. If yes, how so? If not, why not?
What will be an ideal response?
Social Security benefits are indexed to match increases in prices and wages. Under the existing system, the initial benefit paid to retirees is adjusted annually to reflect changes in the average wages paid in the economy. Yes, changes to the manner in which the United States indexes Social Security benefits would result in significant savings to the program. Estimates suggest that a 6-month delay in the cost-of-living adjustment in 1983 saved $40 billion from fiscal years 1983 through 1988.
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