Beware the Social Security Income Replacement Cliff: Alicia Munnell

1. "Retirees Don't 'Live on Fixed Incomes.'"

Munnell scoffs at media reports that describe typical retirees as living on fixed incomes.

"The fact of the matter is that Social Security is the major source of retirement income for most Americans, and Social Security provides an automatic cost-of-living adjustment," Munnell says.

2. Mortality trends are helping.

The Social Security trustees are just starting to wrestle with what COVID-19 might do to Social Security recipient mortality.

But one tailwind supporting the Social Security trust fund is an apparent slowdown in improvements in U.S. life expectancy, Munnell says.

3. Unusual items may be making some trends hard to interpret.

Munnell says one factor helping Social Security solvency forecasts is a decrease in the projected long-range disability incidence rate, to 4.8 per 1,000 thousand workers, from 5 per 1,000 insured workers.

That could be partly because Americans have been less likely to become disabled, but it could also be partly because Social Security changed administrative law judge training programs and tracking tools in 2009, Munnell writes.

She points out that the percentage of Social Security disability insurance applications approved fell to 49% in 2019, from 57% in 2009.

COVID-19 may have further affected the number of Americans getting Social Security disability benefits, without affecting the underlying disability rate, by causing Social Security to close its offices from March 2020 to April of this year.

"At this point, a legitimate concern may be whether those who need the help are getting it," Munnell says.

Alicia Munnell (Photo: Boston College Center for Retirement Research)