PBS’s website hosts a question and answer with Boston college professor Larry Kotkoliff regarding Social Security and financial planning. Check it out here.Read more!
Tuesday, February 26, 2013
Over at Investors Business Daily, Jagadeesh Gokhale of the Cato Institute takes AARP to task for their statements on Social Security reform.
“The American Association of Retired Persons (AARP) is perhaps the most powerful lobbying organization in the U.S. Its Policy Council promotes national fiscal policies that protect its members' interests.”
“But the Council cites half-truths, uses ambiguous language, and omits key details about the programs and policies it discusses — especially on Social Security — in its communications with those members.”
Read Jagadeesh’s take here.Read more!
Friday, February 22, 2013
NPR has a nice interview with my old boss, SSA Commissioner Mike Astrue, who recently stepped down after the end of his 6-year term. He’s obviously feeling more liberated to talk about the program and the way that Congress and the White House have failed to maintain it. Worth a read.Read more!
In an environment where lawmakers are struggling to raise tax revenue, public-policy tax “expenditures” have come under heavy scrutiny. In particular, tax preferences to boost retirement savings in employer-provided retirement plans has been at the center of such discussions. A recent study by Chetty et al., based on data from Denmark, has called into question the usefulness of such retirement tax expenditures in boosting savings. Using quasi-experiments, rich data, and robust statistical methods, the authors of the Danish study offered evidence that changes in the tax preferences for the Danish work place retirement savings plans had virtually no effect on total savings. This has prompted discussions in the United States about the possible modification of tax preferences for employment-based retirement savings plans in this country. This paper examines whether the findings from Denmark are relevant to the United States. The two retirement systems have some similarities but also major differences -- mainly that, unlike in the United States, in Denmark the availability of employment-based, tax-deferred retirement plans is not tied to the tax-deferred status of the accounts. However, aside from the differences in incentive structures between the two countries, the EBRI paper notes that the study of Danish workers examined only the impact that changes in tax incentives for work place retirement plans might have on worker savings behaviors -- but did not address how employers might react to changes in retirement savings tax incentives. Evidence suggests U.S. employers would react negatively to a loss of tax incentives by reducing or ending their retirement plans. Unless the behavior of both employers and workers are considered, the likely effects of any change in tax preference for retirement plans are speculative, at best. Finally, while the study of Danish savings behaviors presented the impact of tax-incentives and the “nudges” of automatic mandatory savings as an “either/or” solution, the optimal solution -- certainly for a voluntary system such as the one currently in place in the United States -- may well be a combination of the two.
The PDF for the above title, published in the January 2013 issue of EBRI Notes, also contains the fulltext of another January 2013 EBRI Notes article abstracted on SSRN: “Views on Health Coverage and Retirement: Findings from the 2012 Health Confidence Survey.®”
This proposal offers specific improvement options for the Social Security Trust to maintain long-term solvency without increasing taxes.
The primary solution offered is to allow taxpayers the option to manage their portion of Payroll Taxes through the already existing Federal Thrift Savings Plan system (or similar system) so that they may choose to construct a risk/return portfolio that offers greater benefits by the time of retirement. Portfolio decisions can be informed by the advice and tools that the TSP already has to offer federal employees, and can be augmented by any additional advice from private, certified sources that individuals choose. The proposed reform may allow for the permanent reduction in U.S. Payroll Taxes and make the Social Security Trust solvent without a change to benefits or the eligible retirement age. Other possibilities are also explored.
The expansion of the TSP to the public may also prove an excellent medium through which to provide free, certified financial education to every citizen.
The proposal is meant to be considered by decision-makers as part of the Budget Control Act 2012 deliberations, prior to a budget decision on March 1 2013, if possible.
The SSA program improvements offer decision-makers additional tradespace in balancing the budget this year and every year thereafter, may increase take-home pay for working Americans, may reduce taxes paid by corporations and business owners, boost markets and hiring in the near-term, and put the U.S. economy on a firm footing for the long-run, while providing solvency of the Social Security Trust without a decrease in benefits or an increase in taxes.
A secondary solution explores equalizing the incentive for all income classes to have children, which would require reducing the financial burden for middle or higher income families to have children. This would broaden the taxable population base beyond immigration-related solutions.
The European Court of Human Rights and the Court of Justice of the EU have both developed their own approach to discrimination on the ground of nationality. The context of both approaches is very different and therefore it is not surprising that they diverge considerably. Because of the expected adherence of the EU to the ECHR it is important to analyse these divergences. This contribution describes the case law of both courts in detail, and pays attention to the differences in approach between EU nationals and third-country nationals. It also analyses the differences in approach in respect of direct and indirect discrimination. Finally, the contribution summarises the areas where differences in approach are most likely to appear.
In this paper we survey a number of theoretical and empirical studies in order to propose explanations to the fall of labour force participation at older age. Starting from the largely studied effect of social security schemes on labour supply, we explore the employers behaviour and the role of governments in the development of early retirement schemes. We show that early retirement is the result of a global agreement between firms and government where workers have incentives to early exit the labour market due to generous non actuarial benefits. Firms have an advantage to separate older workers because they are costly compared to young workers and governments hope that by pushing elderly into early retirement they will solve the massive unemployment problem.
This paper exploits a policy experiment to identify the crowding out effects of public transfers on the incidence and level of private transfers. The introduction of a large social security program in Taiwan is used to estimate the effect of an exogenous increase in government transfer payments to the elderly on the private transfer behavior of their adult children. Using an instrumental variables strategy that accounts for the endogeneity of receiving public transfers, the empirical results show some evidence of crowding out on the extensive margin of private transfers.Read more!
Tuesday, February 19, 2013
The Social Security Administration has released a new paper by Kathleen Romig and Anya Olsen titled “Modeling Behavioral Responses to Eliminating the Retirement Earnings Test.” Here’s the summary:
“The retirement earnings test (RET) is an often-misunderstood aspect of the Social Security program. Proposed RET reforms meant to encourage working at older ages could also cause earlier benefit claiming. We use Modeling Income in the Near Term data to analyze the complete repeal of the earnings test for beneficiaries aged 60 or older, first assuming no behavioral responses to repeal and secondly assuming changes to benefit claiming and workforce participation behaviors. We find that beneficiaries affected by RET repeal would generally receive significantly higher benefits when they are younger than the full retirement age (FRA), and somewhat lower benefits after reaching FRA.RET repeal would not significantly change individuals' lifetime benefits and we find no significant changes in the overall poverty rate under either scenario. We find that assumed behavioral responses—particularly the benefit claiming change—have a bigger effect on lifetime benefits than the RET policy change itself.”
A good piece of work by my former colleagues at SSA. Check it out, wonks!Read more!
Friday, February 15, 2013
My AEI colleagues Aspen Gorry and Sita Slavov have an article in the Daily Caller say that President Obama should move quickly on Social Security:
“In his State of the Union speech, President Obama urged Congress to ‘act soon to protect future generations.’ He was talking about addressing environmental issues. But there's an easier, more obvious step we can take to improve the lives of our children and grandchildren. We can act now to fix Social Security.”
Click here to read the whole piece.Read more!
Sunday, February 10, 2013
Former New Jersey Sen. Bill Bradley writes in the Baltimore Sun regarding the characteristics the next SSA commissioner will need, now that current Commissioner Mike Astrue has announced that he will leave as his term expires. Bradley has a long list of qualifications, from management experience to policy expertise to skill at handling delicate political issues.
All of these would be helpful, but almost no individual – who could be confirmed by the Senate, at any rate – has them. So how do you pick and choose from among them?Read more!
Friday, February 8, 2013
I have an automated Google search that generates daily results on the phrase “Social Security” so that I don’t miss anything of interest. (Downside: it goes generate a lot of junk.)
But today’s trawl gave me an update from the Social Security Administration regarding the retirement earnings test (or RET). Here’s what they have to say:
Changes in the retirement exempt amounts under the earnings test
What are the earnings test exempt amounts for 2013?
The retirement earnings test applies only to people under full retirement age. Social Security withholds benefits if your earnings exceed a certain level and if you are under your full retirement age. We call this a retirement earnings test. One of two exempt amounts applies depending on the year you reach full retirement age (age 66 for people born in 1943 through 1954).
For people younger than full retirement age in 2013, the annual exempt amount is $15,120. (We deduct $1 from benefits for each $2 earned over $15,120.); or
For people who reach full retirement age in 2013, the annual exempt amount is $40,080. (We deduct $1 from benefits for each $3 earned over $40,080 until the month you reach full retirement age.)
There is no limit on earnings for workers who are full retirement age or older the entire year.
To get prior years' exempt amounts under the earnings test, see Retirement Exempt Amounts Under The Earnings Test.
Ok, so what’s missing here? ANY mention of the fact that any benefits you lose to the RET prior to the full retirement age are returned to you via a higher monthly benefit once you hit the FRA. In other words, for the average person the earnings test doesn’t reduce total lifetime benefits and so people shouldn’t view it as a “tax” on work. It’s really just a delay in benefits, and it delays them to a time later in life when, because you can’t work, you might value them more.
One of my prouder accomplishments during my time at SSA was to improve some of the agency’s educational material on the earnings test to better inform people of how the RET really works. But there’s still more work to be done.
For more on the earnings test, see my AEI paper here.Read more!
Join us at ITIF on Tuesday February 19, 2013 at Noon
For a Lunch Meeting with Guest Speaker:
Chief Actuary of the Social Security Administration
Who will discuss
“Mortality and Entitlement Costs: Long-run Projections”
1101 K Street N.W. Suite 610,
Washington, DC 20005
Tuesday February 19, 2013
(Lunch will be provided)
Stephen C. Goss has been with SSA for over 30 years, working in areas related to health insurance and long-term-care insurance as well as pension, disability, and survivor protection. Mr. Goss is Chief Actuary at the Social Security Administration. He joined the Office of the Chief Actuary after earning his M.S. in Mathematics from the University of Virginia in 1973, and B.S. in Mathematics and Economics from the University of Pennsylvania in 1971.
Steve Goss worked closely with Congressional staff on the 1983 Social Security Amendments, testified at Committee hearings, and was instrumental in the development of the provision for increasing the normal retirement age. He represented the United States at the Third International Social Security Seminar for Actuaries and Statisticians in Rome in 1988.
In 2004, Stephen C. Goss was honored as the first recipient of the Robert M. Ball Award for Outstanding Achievements in Social Insurance by the National Academy of Social Insurance, for exemplifying “public service” at its best.Read more!
Thursday, February 7, 2013
Jed Graham, writing for Investors Business Daily, discusses new Congressional Budget Office projection showing a worsening financial outlook for Social Security:
“Social Security's financial outlook took another hit this week, as the Congressional Budget Office hiked its estimate for cash deficits from 2013 to 2022 by $212 billion.”
“The wider deficits — mainly due to weaker revenue estimates — mean a quicker depletion of Social Security's trust fund, after which the program could only afford to pay about 75% of benefits.”
Read the whole story here.
Tuesday, February 5, 2013
On Financing Retirement with an Aging Population by Ellen R. McGrattan, Edward C. Prescott - #18760 (EFG PE)
Abstract: A problem facing the United States is financing retirement consumption as its population ages. Policy analysts increasingly advocate savings-for-retirement systems, but are concerned with insufficient savings opportunities with limited government debt.
This concern is unwarranted. First, there is more productive capital than commonly assumed in macroeconomic modeling. Second, if the policy reform subsumes the elimination of capital income taxes, then the value of business equity increases relative to the capital stock.
Phasing in a switch from the current U.S. system to a savings-for-retirement system without capital income taxes increases welfare of all current and future cohorts.Read more!