New paper: Distributional Effects of Increasing the Benefit Computation Period

The Social Security Administration has released a new paper by Mark Sarney analyzing how an increase the benefit computation period – the number of years of earnings upon which Social Security retirement benefits are calculated – would affect the progressivity of the program. A number of reform plans have included a provision to increase the benefit computation period from the highest 35 years of earnings to the highest 38 or 40 years, but to date there hasn't been a detailed analysis of how this would affect the distribution of benefits. Here's the abstract:

The computation period is the number of highest earning years, currently 35, that are used to compute the career average earnings on which Social Security benefits are based. The brief uses MINT model projections to compare the distributional effects of two policy options discussed by the Social Security Advisory Board; one extends the 35-year computation period 3 years and the second one extends it 5 years. Both would reduce benefits; by 2.5 percent for the 3-year extension and 4 percent for the 5-year extension. About one out of five beneficiaries are not affected, even after full implementation in 2070. Workers with the lowest lifetime average earnings would face the largest proportional benefit reductions because they generally would have more years of zero earnings in their computation period than other workers. Social Security's progressivity would not change substantially.

This is the first in a series of papers analyzing the distributional effects of common Social Security reform provisions. Mark Sarney heads the MINT modeling analysis team in the Office of Retirement Policy at SSA (where I spent most of my time) and is a great guy to work with.