A new issue brief by the Center for Retirement Research (CRR) at Boston College looks at how high cost-of-living rates impacts Social Security recipients, pulling past research from a November CRR paper on the matter.
The brief notes that even with a recalculated Social Security strategy that replaces a higher percentage of future earnings compared to what a corporate executive would receive, the study settles that rising housing costs in high-cost cities will keep these workers at a disadvantage—albeit a slight one.
The brief draws on arguments noted in the past paper, when CRR researchers Laura Quinby and Gal Wettstein challenged that Social Security’s benefit formula could penalize older Americans in expensive cities. Even if workers earn more, “Social Security’s benefit formula comes into play because less of their income will be replaced when they retire,” the CRR writes in its brief. “On the other hand, wage increases that lag behind surging local house prices have the opposite effect, partly offsetting the penalty with respect to Social Security replacement rates.”
According to the CRR, the decline in the Social Security replacement rate for a typical older household is less than 1% in an area with 10% higher house prices. For example, the research adds that living in the more expensive San Diego rather than low-cost Minneapolis could reduce the rate by 2.4%.
Therefore, the impact of high-cost housing could be “economically small given that the average replacement rate in the lowest cost [metropolitan areas] is 53 percent,” Quinby and Wettstein said in their research.
Even with a small disadvantage, the CRR finds that respondents who live in these affluent areas are working to close the Social Security gap by saving enough in a retirement plan and other long-term savings accounts. Even some homeowners go as far to move out of the expensive housing market, the CRR finds.
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