Tuesday, January 28, 2014

How Many Years of Benefits Will You Lose?

Jed Graham at Investors Business Daily has an interesting take on Social Security’s insolvency, which the CBO projects will take place in the early 2030s. When the trust fund runs dry, the plan won’t have sufficient funds to pay full benefits.

But Instead of thinking in terms of the percentage of annual benefits that would be paid – around 75% – Graham calculates the equivalent number of years of benefits a person would lose. A 62 year old today, for instance, will lose only around 1 year of total benefits. Again, it’s not that his benefits stop for a year, but the cumulative cuts he’ll receive add up to about 1 year’s worth of benefits. But the younger you are, the worse things get. Today’s 53 year olds will lose around 3.5 years of benefits.

Read more!

Monday, January 27, 2014

New publication: “The Online Statement and MySSA Portal”

The Social Security Advisory Board Announces a New Position Paper

The Social Security Advisory Board is pleased to announce its most recent Position Paper entitled:  The Online Statement and MySSA Portal: SSA Should Take Additional Steps to More Effectively Communicate with the Public.

For more than 25 years the Social Security Statement has been an important tool in improving public understanding of social security programs, assisting people in planning for their retirement, and providing workers an opportunity to correct errors in their earnings record.  However, citing budget constraints, in May 2011 SSA suspended mailing the Statement.  It later developed the MySSA online portal, which provides individuals electronic access to their Statement and includes some valuable retirement planning tools.  In encouraging use of the online portal, SSA has noted that establishing a MySSA account protects against someone else fraudulently opening an account in your name.
While the Board applauds SSA’s move to an electronic platform, the following concerns remain:

  • SSA has a legal obligation to send Statements to eligible individuals.  Providing an online version does not fulfill this obligation, especially for individuals who do not have electronic access or who prefer paper.
  • SSA has not adequately publicized that it has suspended mailing the Statement.  It needs to send notification and explain the availability, tools and protections in establishing a MySSA account.
  • While encouraging individuals to open a MySSA account may offer some protection from theft of personal information, SSA should continue developing additional protections.
  • SSA needs to better communicate how the Statement can be a valuable tool for retirement planning, and it needs to rewrite confusing sections pursuant to the provisions in the Plain Writing Act of 2010 (P.L. 111-274).

The Board’s full Position Paper can be found here

Read more!

Friday, January 24, 2014

Retirement income: How bad is it?

I have a piece co-authored with Syl Schieber in today’s Wall Street Journal looking at how we measure retiree’s incomes. Probably the most widely cited publication on the subject is SSA’s Income of the Aged series, which is based on data from the Current Population Survey.

The CPS is great for a lot of things, but counting pension income isn’t one of them. The CPS counts as income only regular payments, such as from a DB pension plan or an annuity, but doesn’t count irregular or as-needed withdrawals from 401(k) or IRA accounts. Obviously this will understate the income retirees draw from these plans – using tax data, we show that the CPS misses at least 60% of DC pension income. And, because retirees are increasingly participating in DC plans, the error will grow over time, showing trends in retirement income that may not actually exist.

I think the Journal piece may be gated, but the full text should be available on my AEI web page in a few days.

Read more!

Tuesday, January 14, 2014

AEI event tomorrow: “More Social Security or Better Social Security?”

More or better? Rethinking Social Security for the 21st century
Wednesday, January 15, 2014 | 12:30 - 2:00 p.m.
 
Social Security reform is back in the news, but this time it's about more than just fixing the program's finances. Both the left and the right are proposing structural changes to Social Security to better address the retirement needs of the 21st century.

Many progressives support increasing Social Security benefits to address a perceived decline in retirement income security in America. Some conservatives, likewise, have proposed structural reforms designed to better target Social Security's resources and improve incentives to work and save.

At this event, experts from the New America Foundation and AEI will assess reform proposals and discuss the best way forward.

Details
Wednesday, January 15, 2014
12:30 - 2:00 p.m.
Lunch will be served.
AEI, Twelfth Floor
1150 Seventeenth Street, NW
Washington, DC 20036

Agenda
12:00 PM
Registration and Lunch
12:30 PM
Presenters:
Andrew G. Biggs, AEI
Michael Lind, New America Foundation
Moderator:
Sita Slavov, AEI
1:15 PM
Question-and-Answer Session
1:45 PM
Closing Remarks
2:00 PM
Adjournment

Register
RSVP to attend this event.
To watch live online, click here on January 15 at 12:30 PM ET. Registration is not required.

Read more!

Monday, January 13, 2014

New papers from the Social Science Research Network

"The Design of Pension Schemes"
Netspar Discussion Paper No. 12/2013-069

NICK DRAPER, CPB Netherlands Bureau of Economic Policy Analysis
Email: dagd@cpb.nl
ANDRÉ NIBBELINK, CPB Netherlands Bureau of Economic Policy Analysis
Email: aghn@cpb.nl
JOHANNES UHDE, University of Wuerzburg
Email: johannes.uhde@uni-wuerzburg.de

This paper explores possible alternatives for the current Dutch first pillar pension scheme (AOW). It presents the welfare, labour market, saving and unintended bequest effects of a shift from a Beveridge towards a Bismarck system in which the pension rights depend on the labour market history. The paper focuses on the insurance with the AOW against both longevity and productivity risk. The main conclusion is that a shift of the first pillar pensions from a Beveridge towards a Bismarck system is not necessarily welfare improving from an ex-ante insurance perspective, i.e. before the veil of ignorance is lifted. Moreover, a means test of the first pillar against wealth income, which implies a lower AOW when an individual has wealth income and a lower pension premium for everyone, does not improve welfare.

"How a Guaranteed Annual Income Could Put Food Banks Out of Business"
SPP Research Paper No. 6-37

J. C. HERBERT EMERY, University of Calgary - Economics
Email: hemery@ucalgary.ca
VALERIE FLEISCH, University of Calgary
Email: vfleisch@ucalgary.com
LYNN MCINTYRE, University of Calgary
Email: lmcintrye@ucalgary.com

The federal Conservative government recently began phasing in a plan to raise the age of eligibility for Old Age Security from 65 to 67. But a more sensible move for improving the effectiveness of Canada’s social safety-net system may be to actually lower the age below 65 and rely strictly on an income test instead, regardless of age. The government could go a lot further toward the reduction of poverty in Canada by building on the success of its income supports for seniors, and making them available to poor Canadians of all ages.
Canada can boast of having one of the lowest rates for poverty among seniors in the world, largely due to its guaranteed income programs for those 65 years and older. When low-income Canadians turn 65 years old and leave behind low-paying, often unstable jobs, their poverty levels drop substantially. What a guaranteed income provides, that their vulnerable job situation did not, is a form of protection against budget shocks — a sudden volatility in income or expenses without the access to savings or credit to smooth things out until stability returns. A guaranteed income provides a kind of “disaster insurance” that can protect someone in a crisis situation from going without necessities such as food or even shelter. Statistics show that the rate of Canadians experiencing “food insecurity” — that is, lack of access to food because of financial constraints — is half that among Canadians aged 65 to 69 years than it is among those aged 60 to 64. Self-reported rates of physical and mental health improve markedly as well after low income Canadians move from low-wage, insecure employment to a guaranteed income at the age of 65.
That dramatic shift in physical and mental health indicates that expanding guaranteed income programs to younger Canadians is more than a simple cost calculation: there are potential savings to be found as poorer Canadians, given a guaranteed income, become healthier and therefore reduce the burden on the public health-care system. Canadian governments already spend billions of dollars on the downstream effects of poverty, but scant emphasis is put on programs targeting poverty’s roots.
There is no evidence, where smaller-scale experiments have been tried, to show that a guaranteed income program creates a serious problem with negative incentives and discourages people from working who otherwise might. But because this is a common worry with working-age guaranteed income eligibility, phasing in the program gradually, by lowering eligibility a few years at a time, will allow ongoing investigation and analysis of the effects, before the program is rolled out on a large scale. The tremendous impact that guaranteed incomes have had on reducing poverty and improving health among seniors is something for which Canadians can be rightly proud. So much so that it is incumbent upon us to investigate whether Canada could use the same policy tools to drastically reduce poverty and improve health among Canadians of all ages.

"Retirement Decisions of Couples: The Impact of Spousal Characteristics and Preferences on the Timing of Retirement"
Melbourne Institute Working Paper No. 41/13

DIANA WARREN, University of Melbourne - Melbourne Institute of Applied Economic and Social Research
Email: dwarren@unimelb.edu.au

This paper provides new evidence of coordination of retirement by mature age couples in Australia. Two complementary estimation approaches are used to highlight the importance of taking the household decision-making context into account when modeling the retirement behaviour of partnered men and women. First, a single risk hazard model provides insights into the influences of a spouse’s characteristics on the retirement decision of the individual. Second, a competing-risks framework is used to examine the retirement behaviour of couples exiting from a situation in which both are in paid employment. There is strong evidence of coordination of retirement by mature age couples in Australia due to complementarities in leisure and, for women, because of caring responsibilities. In particular, the results suggest that women may delay their own retirement if their partner has a financial incentive to continue in the labour force; or retire early to care for a partner who is in poor health.

"How Much Would It Take? Achieving Retirement Income Equivalency between Final-Average-Pay Defined Benefit Plan Accruals and Voluntary Enrollment 401(k) Plans in the Private Sector"
EBRI Notes, Vol. 34, No. 12 (December 2013)

JACK VANDERHEI, Employee Benefit Research Institute (EBRI)
Email: vanderhei@ebri.org

Previous EBRI research reported on a comparative analysis of future benefits from private-sector, voluntary enrollment (VE) 401(k) plans and stylized, final-average-pay defined benefit (DB) plans. This paper expands upon work previously published by computing for a number of simulated employee contingencies (such as job turnover) what level of final-average DB accrual would provide an equal amount of retirement income at age 65 as would be produced if the projected sum of voluntary enrollment 401(k) and IRA rollover balances were annuitized. In so doing, it provides a comparison in median outcomes for a variety of assumptions, both market returns and annuity purchase prices, and should provide a much-needed reference point for policy makers in evaluating these plan designs in view of both current and future workforce trends. Rather than trying to reflect the real-world variation in DB accruals, the baseline analysis used the median accrual rate in the sample (1.5 percent of final compensation per year of participation) as the stylized value for the baseline counterfactual simulations. EBRI’s modeling finds that the median accrual rates (mid-point, half above and half below) that final average DB pensions would need in order to provide retirement income equal to voluntary enrollment 401(k) plans would range from just under 1 percent to 3 percent of final compensation per year of participation, using baseline assumptions. These rates would go down if investment returns fall and annuity prices go up, to between 0.6-1.6 percent per year.
The PDF for the above title, published in the December 2013 issue of EBRI Notes, also contains the fulltext of another December 2013 EBRI Notes article abstracted on SSRN: “Views on Employment-Based Health Benefits: Findings from the 2013 Health and Voluntary Workplace Benefits Survey.”

"Earnings Adjustment Frictions: Evidence from Social Security Earnings Test"
US Census Bureau Center for Economic Studies Paper No. CES-WP-13-50

ALEXANDER GELBER, National Bureau of Economic Research (NBER)
Email: agelber@nber.org
DAMON JONES, University of Chicago
Email: damonjones@uchicago.edu
DANIEL W. SACKS, University of Pennsylvania - The Wharton School
Email: sacks.daniel@gmail.com

We study frictions in adjusting earnings to changes in the Social Security Annual Earnings Test (AET) using a panel of Social Security Administration microdata on one percent of the U.S. population from 1961 to 2006. Individuals continue to "bunch" at the convex kink the AET creates even when they are no longer subject to the AET, consistent with the existence of earnings adjustment frictions in the U.S. We develop a novel framework for estimating an earnings elasticity and an adjustment cost using information on the amount of bunching at kinks before and after policy changes in earnings incentives around the kinks. We apply this method in settings in which individuals face changes in the AET benefit reduction rate, and we estimate in a baseline case that the earnings elasticity with respect to the implicit net-of-tax share is 0.23, and the fixed cost of adjustment is $152.08.

"Seguridad Social Universal Centrada en el Ciudadano (Citizen-Centered Universal Social Security)"
Bienestar y Política Social 9 (1): 3-22, 2013

GABRIEL MARTINEZ, Instituto Tecnológico Autónomo de México (ITAM)
Email: gabriel0317@gmail.com
NELLY AGUILERA, Interamerican Conference for Social Security (CISS)
Email: nelly_aguilera_aburto@hotmail.com
MARTHA MIRANDA-MUÑOZ, Interamerican Conference for Social Security (CISS)
Email: m.miranda@ciss.org.mx

The English version of this paper can be found at http://ssrn.com/abstract= 2358568.
This essay reviews the situation of social security in Mexico, as well as options for reform. A guideline is the concept of social protection floor defined by the International Labour Organization and the World Health Organization. More general issues are analyzed under the main headings of family, pension, health and employment programs, and financing issues are also considered. Establishing a framework of service to the citizen is seen as indispensable to deliver the benefits of universal social security.

Read more!

Friday, January 10, 2014

Five Facts You Should Know About Social Security

From Ed Lorenzen at the Committee for a Responsible Federal Budget.

1. Benefits will be cut by over 23% within the next twenty years if no changes are made.
2. Social Security benefits will increase in real terms for future retirees even with changes in benefits to restore solvency
3. The Social Security shortfall cannot be closed solely through increased taxes on upper income taxpayers.
4. Delaying action will make the options for restoring solvency more painful Not only does waiting to act mean any tax increases or benefit cuts will be steeper, it literally means they will need to be bigger.
5. The major Social Security plans that rely on a combination of benefit changes and increased revenues to restore solvency include targeted benefit enhancements for vulnerable populations at greatest risk of poverty.

But check out the whole discussion here. Read more!

Tuesday, January 7, 2014

Is Social Security A Bad Deal For African Americans?

The Cato Institute’s Dan Mitchell says yes.

The Los Angeles Times’ Michael Hiltzik says no.

I think Hiltzik is right, based on the research he cites in his piece. All other things equal, African Americans receive lower returns from Social Security due to their shorter life spans. But all other things aren’t equal: in addition to having shorter life spans, African Americans have lower incomes and higher disability rates. As a result, they benefit from Social Security’s progressivity and the insurance aspects of the DI program. As a result, their overall rates of return received through the program are on average higher than for whites.

Read more!

Friday, January 3, 2014

Upcoming AEI event: “More Social Security or better Social Security?”

The American Enterprise Institute presents

More or better? Rethinking Social Security for the 21st century
Wednesday, January 15, 2014 | 12:30 - 2:00 p.m.
 
Social Security reform is back in the news, but this time it's about more than just fixing the program's finances. Both the left and the right are proposing structural changes to Social Security to better address the retirement needs of the 21st century.

Many progressives support increasing Social Security benefits to address a perceived decline in retirement income security in America. Some conservatives, likewise, have proposed structural reforms designed to better target Social Security's resources and improve incentives to work and save.

At this event, experts from the New America Foundation and AEI will assess reform proposals and discuss the best way forward.


Details
Wednesday, January 15, 2014
12:30 - 2:00 p.m.
Lunch will be served.
AEI, Twelfth Floor
1150 Seventeenth Street, NW
Washington, DC 20036
Agenda
12:00 PM
Registration and Lunch
12:30 PM
Presenters:
Andrew G. Biggs, AEI
Michael Lind, New America Foundation
Moderator:
Sita Slavov, AEI
1:15 PM
Question-and-Answer Session
1:45 PM
Closing Remarks
2:00 PM
Adjournment


Register
RSVP to attend this event.
To watch live online, click here on January 15 at 12:30 PM ET. Registration is not required.
Contacts
For more information, please contact Kelly Funderburk at Kelly.Funderburk@aei.org, 202.862.5920.
For media inquiries, please contact MediaServices@aei.org, 202.862.5829.
Background Material
A new vision for Social Security
Andrew G. Biggs | National Affairs | Summer 2013
Expanded Social Security: A plan to increase retirement security for all Americans
Michael Lind et al. | New America Foundation | April 3, 2013

Read more!