Thursday, October 30, 2014

Wednesday, October 29, 2014

Upcoming event: “AARP - Better Financial Security in Old-Age? The Promise of Longevity Annuities”

Public Policy Economic Security Update

AARP Public Policy Institute


About PPI

More PPI Research

Join the Discussion
Better Financial Security in Old-Age?
The Promise of Longevity Annuities

November 6, 2014
10:00 AM - 12:00 PM EST
The Brookings Institution
Washington, DC

David John, Deputy Director of the Retirement Security Project and senior advisor at the AARP Public Policy Institute, is one of the featured speakers at the event described below.

Better Financial Security in Old-Age? The Promise of Longevity Annuities

Longevity annuities-a financial innovation that provides protection against outliving your money late in life-have the potential to reshape the retirement security landscape. Typically bought at retirement, a longevity annuity offers a guaranteed stream of income beginning in ten or 20 years at a markedly lower cost than a conventional annuity that begins paying out immediately.

Sales have grown rapidly and it will be even easier to purchase the annuities in the future given new Treasury regulations. While economists have touted the attractiveness of longevity annuities as a way to ensure the ability to maintain one's living standards late in life, significant barriers to a robust market remain-including lack of consumer awareness, questions about product value, and employer concerns with taking on fiduciary responsibility by offering these products to their employees.

Can longevity annuities overcome these barriers to find widespread popularity among Americans retirees? On November 6, the Retirement Security Project will host a panel of experts to discuss the potential for these products to contribute to the economic security of older Americans.  Speakers include William Gale, David John, Henry J. Aaron, David Wessel, Benjamin Harris, Mark Iwry and more.

Register to Attend

Read more!

New paper: “Injecting Work Incentives into the Social Security Disability Program”


Summary from the NCPA Policy Digest:

In 2013, the Social Security Disability Insurance (SSDI) program spent $143 billion while taking in just $111 billion. That shortfall, explains Jagadeesh Gokhale, economist for the Cato Institute, will only continue, and the SSDI Trust Fund is projected to run out of money entirely in 2016.

In addition to being insolvent, Gokhale explains that the SSDI program -- intended to provide a safety net for individuals unable to work -- is full of work disincentives. Many individuals enrolled in the program are actually able to work, at least to some degree, but they choose not to for fear of losing SSDI benefits.

Gokhale explains that some individuals move into the SSDI program after exhausting unemployment benefits. Indeed, various research indicates that there are a number of SSDI enrollees with work capabilities:

  • A study comparing identical SSDI applicants -- some of whom were admitted to the program while the rest were rejected from the program -- found that many rejected applicants returned to  the work force, indicating that over 25 percent of current SSDI beneficiaries actually have work capacity.
  • Another study found the likelihood of a rejected SSDI applicant returning to work to be 35 percent.

If a substantial number of SSDI enrollees actually have work capabilities, shouldn't they be encouraged to exercise those capabilities and reenter the work force? Gokhale suggests a new benefit structure in order to induce enrollees to work rather than remain in SSDI, outside of the labor force, for fear of losing benefits. His plan would:

  • Use a "benefit offset" that would reduce an enrollee's SSDI benefits if he enters the workforce but would provide an additional subsidy -- from a non-SSDI source -- based on his earnings.
  • That subsidy would increase as his earnings increase, in order to encourage, rather than discourage, additional work.

In short, Gokhale describes his plan as one that would pay capable individuals to work rather than pay them to remain idle. While there are many SSDI enrollees who appear to have some level of work capability, they choose not to enter the labor force. By creating an incentive structure that only improves with work activity, Gokhale suggests more SSDI beneficiaries would return to work and seek employment.

Source: Jagadeesh Gokhale, "SSDI Reform: Promoting Gainful Employment while Preserving Economic Security," Cato Institute, October 22, 2014.

Read more!

Monday, October 27, 2014

New paper from the NBER

Will They Take the Money and Work? An Empirical Analysis of People's Willingness to Delay Claiming Social Security Benefits for a Lump Sum

by Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla, Tatjana Schimetschek - #20614 (AG LS PE)


This paper investigates whether exchanging the Social Security delayed retirement credit (currently paid as an increase in lifetime annuity benefits) for a lump sum would induce later claiming and additional work. We show that people would voluntarily claim about half a year later if the lump sum were paid for claiming any time after the Early Retirement Age, and about two-thirds of a year later if the lump sum were paid only for those claiming after their Full Retirement Age. Overall, people will work one-third to one-half of the additional months, compared to the status quo. Those who would currently claim at the youngest ages are likely to be most responsive to the offer of a lump sum benefit.

Read more!

Friday, October 24, 2014

CRFB: Social Security Getting Harder to Fix

The Committee for a Responsible Federal Budget blogs that the tax of fixing Social Security solvency is getting tougher:

A hypothetical solution that would have closed the shortfall last year now only closes about 95 percent of the shortfall. Previously, a 2.9 percentage point tax increase (raising the combined payroll tax from 12.4% to 15.3%) would be enough to solve the shortfall. Now, that increase would need to be 3.1 percent. Similarly, a 17.5 percent reduction in all benefits would have addressed the shortfall last year, but it would need to be 18.4 percent this year. Furthermore, these options assume the changes are made immediately. Waiting 20 years requires changes to be 50 percent larger.

Check out their full blog here.

Read more!

New papers from the Social Science Research Network

"The Retention Effects of High Years of Service Cliff-Vesting Pension Plans"

JESSE M. CUNHA, Naval Postgraduate School, Naval Postgraduate School
AMILCAR ARMANDO MENICHINI, Naval Postgraduate School
ADAM CROCKETT, University of New South Wales (UNSW) - Australian Defence Force Academy

We study the retention effects of the Australian military’s decision to remove a 20-year cliff-vesting requirement from their retirement system in 1991. We follow to the present individuals who self-selected into and out of the 20-year cliff-vesting plan, as well as those who were forced out of the plan. Eliminating the high years of service cliff-vesting provision leads to consistently higher attrition over time.

"Early Retirement Across Europe. Does Non-Standard Employment Increase Participation of Older Workers?"
Netspar Discussion Paper No. 10-2014-044

JIM BEEN, Leiden University - Department of Economics, Netspar
OLAF VAN VLIET, Leiden University - Leiden Law School, Leiden University - Department of Economics

In many European countries, the labor market participation of older workers is considerably lower than the labor market participation of prime-age workers. This study analyzes the variation in labor market withdrawal of older workers across 13 European countries over the period 1995-2008. We seek to contribute to existing macro-econometric studies by taking non-standard employment into account, by relating the empirical model more explicitly to optional value model theory on retirement decisions and by using a two-step IV-GMM estimator to deal with endogeneity issues. The analysis leads to the conclusion that part-time employment is negatively related to labor market withdrawal of older men. This relationship is less strong among women. Additionally, we find that part-time employment at older ages does not decrease the average actual hours worked. Furthermore, the results show a positive relationship between unemployment among older workers and early retirement similar to previous studies.

Read more!

Wednesday, October 22, 2014

Social Security Announces 1.7 Percent Benefit Increase for 2015

Print Version

Monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 64 million Americans will increase 1.7 percent in 2015, the Social Security Administration announced today.

The 1.7 percent cost-of-living adjustment (COLA) will begin with benefits that more than 58 million Social Security beneficiaries receive in January 2015.  Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2014. The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.

Some other changes that take effect in January of each year are based on the increase in average wages.  Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $118,500 from $117,000.  Of the estimated 168 million workers who will pay Social Security taxes in 2015, about 10 million will pay higher taxes because of the increase in the taxable maximum.

Information about Medicare changes for 2015 is available at

The Social Security Act provides for how the COLA is calculated.  To read more, please

Read more!

Saturday, October 18, 2014

Social Security COLA Likely 1.6-1.8%

The Associated Press reports on the Cost of Living Adjustment Social Security beneficiaries are likely to receive in January. The COLA will be announced this Wednesday, but the AP estimates an increase of less than 2 percent, which amounts to about $20 per month for the typical beneficiary. Read more here.


Read more!

Wednesday, October 15, 2014

New paper from the NBER

The Great Recession, Decline and Rebound in Household Wealth for the Near Retirement Population

Alan L. Gustman, Thomas L. Steinmeier, Nahid Tabatabai

NBER Working Paper No. 20584
Issued in October 2014
NBER Program(s):   AG LS PE

This paper uses data from the Health and Retirement Study to examine the effects of the Great Recession on the wealth held by the near retirement age population from 2006 to 2012. For the Early Boomer cohort (ages 51 to 56 in 2004), real wealth in 2012 remained 3.6 percent below its 2006 value. This is a modest decline considering the fall in asset values during the Great Recession.

Much of the decline in wealth over the 2006 to 2010 period was cushioned by wealth originating from Social Security and defined benefit pensions. For the most part, these are stable sums that ensured a major fraction of total wealth did not decline as a result of the recession.

The rebound in asset values observed between 2010 and 2012 mitigated, but did not erase, the asset losses experienced in the first years of the Great Recession.

Effects of the Great Recession varied with the household’s initial wealth. Those who were in the highest wealth deciles typically had a larger share of their assets subject to the influence of declining markets, and were hurt most severely. Unlike those falling in lower wealth deciles, they have yet to regain all the wealth they lost during the recession.

Recovering losses in assets is only part of the story. The assets held by members of the cohort nearing retirement at the onset of the recession would normally have grown over ensuing years. Members of older HRS cohorts accumulated assets rapidly in the years just before retirement. Those on the cusp of retiring at the onset of the recession would be much better off had they had enjoyed similar growth in assets as experienced by members of older cohorts.

The bottom line is that the losses in assets imposed by the Great Recession were relatively modest. The recovery has helped. But much of the remaining penalty due to the Great Recession is in the failure of assets to grow beyond their initial levels.

Read more!

Friday, October 10, 2014

Upcoming event: “Social Security: What Americans Want and Are Willing to Pay For”

National Academy of Social Insurance

Social Security: What Americans Want and Are Willing to Pay For

October 23, 2014, 10:00 am — 11:45 am

Carnegie Endowment for International Peace
1779 Massachusetts Avenue, NW
Choate Room
Washington, DC 20036
United States

With lawmakers considering future changes to Social Security, it’s important to know what their constituents want — across political parties, generations, and income levels. Join the National Academy of Social Insurance for the release of a groundbreaking new public opinion study.

Social Security faces a long-term funding challenge. How do Americans want to deal with it? This survey explores Americans’ views on Social Security and uses an innovative application of trade-off analysis, a technique widely used in market research, to explore the kinds of policy changes that Americans want for Social Security and are willing to pay for. If voters could choose their own policy package, what would it look like? 

Survey participants chose among policy options that would reduce benefits, increase benefits, or raise revenues to put the program on solid footing for future generations. Speakers will present findings from the Academy’s new report — Americans Make Hard Choices on Social Security: A Survey With Trade-Off Analysis — and discuss the implications for policymakers.


  • William J. Arnone,  Board Chair, National Academy of Social Insurance
  • Elisa A. Walker, Income Security Policy Analyst, National Academy of Social Insurance
  • Mathew Greenwald, President and CEO, Greenwald & Associates


  • Jason Furman, Chairman, Council of Economic Advisers


  • Moderator: Mark Miller, Columnist, Reuters
  • Andrea Louise Campbell, Professor of Political Science, MIT
  • Maya MacGuineas, President, Committee for a Responsible Federal Budget
  • Maya Rockeymoore, President and CEO, Center for Global Policy Solutions
  • Virginia P. Reno, Vice President for Income Security Policy, National Academy of Social Insurance

» Register Now

Read more!

Thursday, October 9, 2014

FactCheck: Joni Ernst and ‘Privatizing’ Social Security

Social Security has played a big role in the Iowa Senate race between Republican Joni Ernst and Democrat Bruce Braley. weighs in on some of the claims. Check it out here.

Read more!

Wednesday, October 8, 2014

New papers from the Social Science Research Network

"How Does Household Expenditure Change With Age for Older Americans?"
EBRI Notes, Vol. 35, No. 9 (September 2014)

SUDIPTO BANERJEE, Employee Benefit Research Institute (EBRI)

Retirement saving involves a lot of unknowns, the most important being not knowing how much money will be needed in retirement. Although it is impossible to predict the retirement expenses of any particular household, the average amounts spent by current retirees can serve as important benchmarks for individual savers as well as for industry experts and policymakers. This paper examines the expenditure pattern of the older segment of the U.S. population. The majority of the households studied here have either reached retirement age or are on the cusp of retirement. The data come from the Health and Retirement Study (HRS) and the Consumption and Activities Mail Survey (CAMS), which is a supplement of the HRS. CAMS contains detailed spending information on 26 nondurable and six durable categories, and it follows the same group of people over time. Using this information coupled with the income information available in the HRS, this study summarizes the consumption behavior of the American elderly. The primary goal is to examine how overall spending and spending in different categories change with age. Home and home-related expenses is the largest spending category for every age group. Health expenses increase steadily with age. In 2011, households with at least one member between ages 50 and 64 spent 8 percent of their total budget on health items, compared with 19 percent for those age 85 or over. Health-related expenses occupy the second-largest share of total expenditure for those ages 75 or older. The two components of household expenditures that show a declining pattern across age groups are transportation expenses and entertainment expenses. Food and clothing expenses (as a share of total expenditure) remain more or less flat across the different age groups. There is a large increase in spending at the 95th percentile for those ages 90 or older, which can be attributed to very high health care expenses.

The PDF for the above title, published in the September 2014 issue of EBRI Notes, also contains the full text of another September 2014 EBRI Notes article abstracted on SSRN: “2014 Health and Voluntary Workplace Benefits Survey: Most Workers Continue to be Satisfied With Their Own Health Plan, but Growing Number Give Low Ratings to Health Care System.”

"Initial Performance of Pension Privatization in Eastern Europe – Are Reform Reversals Justified?"

NIKOLA ALTIPARMAKOV, Serbian Fiscal Council

During first 15 years of their existence, mandatory private pension funds in Eastern Europe have realized rates of return that were lower and more volatile than the corresponding Pay-As-You-Go rates of return, even before the emergence of global financial crisis. Suboptimal investments in domestic government bonds dominated pension portfolios in many countries. Econometric analysis suggests that pension privatization failed to produce anticipated side-effect benefits, such as increased national saving or accelerated economic growth. If pension privatization structural weaknesses are unlikely to be resolved successfully then implementing reform reversals could improve short-term fiscal balance without deteriorating long-term pension sustainability.

Read more!

Monday, October 6, 2014

MacGuineas: “A Social Security ‘Fix’ That Falls Short”

Writing in the Wall Street Journal, the Committee for a Responsible Federal Budget’s Maya MacGuinea argues that raising the Social Security payroll tax ceiling, while perhaps justifiable, won’t fix the problem so much as delay it.

“According to the Social Security Administration (SSA), eliminating the cap would close about 70% of the system’s 75-year imbalance. According to Congressional Budget Office accounting, it would close only 45% of the gap.”

I think eliminating the so-called “tax max” would be a bad idea – for a LOT of reasons. Check out my 2011 AEI paper for the gory details…

Read more!

Call for Papers: McCrery-Pomeroy SSDI Solutions Initiative

Call for Papers: McCrery-Pomeroy SSDI Solutions Initiative Seeking Proposals to Improve the Social Security Disability Insurance Program


The McCrery-Pomeroy SSDI Solutions Initiative is now accepting proposals for papers presenting innovative ideas to improve the Social Security Disability Insurance (SSDI) system.

The SSDI Solutions Initiative is a project co-chaired by former Congressmen Jim McCrery (R-LA) and Earl Pomeroy (D-ND) dedicated to identifying practical and realistic policy changes to improve the SSDI program for its beneficiaries, those contributing to the program, the economy, and society as a whole.

The full call for papers can be read here.

The Social Security Disability Insurance (SSDI) Solutions Initiative is soliciting ideas to improve various aspects of the SSDI program. Proposals are due by November 1, 2014; selected papers will be presented at a conference in Washington, D.C., in mid-2015 and included in a consolidated volume to be disseminated widely and shared with policymakers and experts in advance of the SSDI trust fund's projected 2016 insolvency date.

Though all topics are welcomed, the SSDI Solutions Initiative is particularly looking for papers addressing one or more of the following topics:

  1. Improving the Disability Determination Process
  2. Modernizing Determination Criteria and Program Eligibility
  3. Strengthening Program Integrity and Management
  4. Improving Incentives and Support for Beneficiaries to Return to Work
  5. Encouraging Disabled Workers to Remain in the Workforce
  6. Improving SSDI Program Interaction with Other Federal, State, Local, and/or Private Programs
  7. Moving beyond the Current "All or Nothing" System of Awarding Benefits
  8. Encouraging Employers to Support Disabled Workers

Potential authors may submit a notice of intent to apply, along with any questions, to

Click here to read a detailed description of suggested paper topics, learn how to submit a proposal, and download a submission form.

Read more!

New papers from the National Bureau of Economic Research

Distributional Effects of Means Testing Social Security: An Exploratory Analysis by Alan Gustman, Thomas Steinmeier, Nahid Tabatabai - #20546 (AG LS PE)

Abstract: This paper examines the distributional implications of introducing additional means testing of Social Security benefits where proceeds are used to help balance Social Security's finances. Benefits of the top quarter of households ranked according to the relevant measure of means are reduced using a modified version of the Social Security Windfall Elimination Provision (WEP). The replacement rate in the first bracket of the benefit formula, determining the Primary Insurance Amount (PIA), would be reduced from 90 percent to 40 percent of Average Indexed Monthly Earnings (AIME). Four measures of means are considered: total wealth; an annualized measure of AIME; the wealth value of pensions; and a measure of average indexed lifetime W2 earnings. The empirical analysis is based on data from the Health and Retirement Study. These means tests would reduce total lifetime household benefits by 7 to 9 percentage points. We find that the basis for means testing Social Security makes a substantial difference as to which households have their benefits reduced, and that different means tests may have different effects on the benefits of families in similar circumstance. We also find that the measure of means used to evaluate the effects of a means test makes a considerable difference as to how one would view the effects of the means test on the distribution of benefits.

Annuitized Wealth and Post-Retirement Saving by John Laitner, Daniel Silverman, Dmitriy Stolyarov - #20547 (AG EFG PE)

Abstract: We introduce a tractable model of post-retirement saving behavior in which households have a precautionary motive arising from uninsured health status risks. The model distinguishes between annuitized and non-annuitized wealth, emphasizes the importance of asset composition in determining optimal household behavior, and includes an extension allowing late-in-life exchange transactions among relatives. We consider three puzzles in micro data - rising cohort average wealth of retirees, lack of demand for market annuities, and the relative scarcity of bequests - and show that our model can provide intuitive explanations for each.

The Perception Of Social Security Incentives For Labor Supply And Retirement: The Median Voter Knows More Than You'd Think by Jeffrey B. Liebman, Erzo F.P. Luttmer - #20562 (PE)

Abstract: The degree to which the Social Security tax distorts labor supply depends on the extent to which individuals perceive the link between current earnings and future Social Security benefits. Some Social Security reform plans have been motivated by an assumption that workers fail to perceive this link and that increasing the salience of the link could result in significant efficiency gains. To measure the perceived linkage between labor supply and Social Security benefits, we administered a survey to a representative sample of Americans aged 50-70. We find that the majority of respondents believe that their Social Security benefits increase with labor supply. Indeed, respondents generally report a link between labor supply and future benefits that is somewhat greater than the actual incentive. We also surveyed people about their understanding of various other provisions in the Social Security benefit rules. We find that some of these provisions (e.g., effects of delayed benefit claiming and rules on widow benefits) are relatively well understood while others (e.g., rules on spousal benefits, provisions on which years of earnings are taken into account) are less well understood.

In addition, our survey incorporated a framing experiment, which shows that how the incentives for delayed claiming are presented has an impact on hypothetical claiming decisions. In particular, the traditional "break-even" framing used by the Social Security Administration leads to earlier claiming than other presentations do.

Read more!