REALITYBASE

As the federal deficit mounts, there are renewed calls for breaking the promises we've made to the millions of middle-class and poor folks who do or will depend heavily on Social Security benefits. Many who subscribe to the idea that the Social Security system is broke or unsustainable without major reductions in benefits do not realize, I suspect, that dramatic cuts in benefits would be disastrous to a vast majority of Americans. Paul Krugman reports that the one-quarter of the older population whose incomes are above the median but not in the top quarter rely on Social Security benefits for over half their income. On average, they get only 9% of their income from IRAs and other assets, and the bottom half gets even less asset income. Thus, asset prices are not particularly important for at least 75% of retirees. Here's the graph for the 50-75 percentile group.