Thus, at any point in time, Social Security benefits are actually inversely related to the needs of the various age groups who receive them. This contradicts Social Security s primary goal of protecting against the vulnerability that can accompany aging. While price-indexed benefits allow retirees to maintain their purchasing power over time, they do not accommodate increased demand for goods and services. Retirees are therefore unable to increase their consumption as the economy grows. Because wages grow faster than prices, the cost of these services outpaces a retiree s ability to pay for them.
Private pensions can exacerbate declines in relative replacement rates.
Hence, pension benefit payments decline in real value during retirement years. Thus, combining private pension with Social Security income further reduces replacement rates. While Social Security tries to maintain relative standards of living at the moment of retirement, a similar attempt is not made after retirement. The reduction in relative replacement rates during retirement reflects this. As retirees age, they become isolated from the fruits of economic expansion.