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Originally Posted by guy44
To be honest, I'm not 100% sure how wage-indexing does what it does - but what it does is slowly increase the real value of benefits so that 50 years from now, even if you receive only 80% of total benefits, you are still getting more than someone gets today with 100% of benefits received.
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It's actually quite simple, to my understanding. While inflation-indexing increases the benefits by the inflation rate, wage-indexing increases benefits based off the increase in wage. Historically, the rate of wage increase has been greater than the inflation rate, so, this remaining true, basing rates off wage-indexing does increase the value of the benefits as time continues. However, this is not necessarily always going to be the case, and could easily not be the case in the near future. Large foreign debt could forseeably reduce the value of the dollar and increase inflation, while leaving less "dollar value" (since more US$s are leaving the US and inflation reduces the value of the $ currently in the US) within the United States. This decrease in overall US wealth could cause an inability to increase wages at a rate equal or greater to the inflation rate. In this scenario, wage-indexing would actually decrease the future value of social security payouts. Mind you, my proposed scenario would likely require a very large inflation rate (80's, anyone?) and I have *just* enough faith in the US economy to believe this will not happen, but that's all personal opinion.