Who tried to give the Social Security trust fund to Wall Street?

On the campaign trail, Hillary Clinton tried to fire up her supporters, saying:

“After Bush got reelected in 2004, the first thing he said was, let’s go privatize Social Security. … And you know what, their whole plan was, their plan was to give the Social Security trust fund to Wall Street. Imagine that.”

Yes, imagine that.

Now, you can go either way with her claim about President George W. Bush. Yes, President Bush proposed voluntary personal retirement accounts for Social Security. Under the Bush plan, workers could choose to have some of their Social Security payroll taxes contributed to a personal account similar to a 401(k). And those workers could also choose, if they liked, to invest some of those personal account contributions in a broad stock index fund that would be managed by a government entity similar to the Thrift Savings Plan for federal government employees. Would the trust fund itself have been given to “Wall Street”? No. Would President Bush have forced anyone to give any of their Social Security dollars to “Wall Street”? No. But if you don’t want Social Security funds to have any risk, then you might excuse Mrs. Clinton for her shorthand description of the Bush proposal.

But guess who did want to give the Social Security trust fund to Wall Street, as in having part of the trust fund itself invested in stocks? Oh, what’s his name again? President Bill Clinton! Back in 1999, President Clinton proposed investing about 15% of the Social Security trust fund in the stock market.

If those stock market investments paid off then Social Security’s solvency would have been extended. If those investments didn’t pay off – and things have been a bit rocky for the stock market over the past 15 years or so – then Social Security’s solvency would have been hurt. And if the trust fund goes insolvent then by law retirees’ benefits get cut.

And guess what? Unlike the Bush plan, there was no room for choosing under the Clinton proposal to invest the trust fund in stocks. Individuals couldn’t opt out and they couldn’t choose to have their money invested in bonds rather than stocks, as they could have under the Bush plan.

Did Hillary oppose Bill’s idea to invest the trust fund in stocks? Does she even remember it?

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Let the Social Security bidding war begin!

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Social Security Benefits in a Lake Wobegon World

There’s been an active debate over how to measure Social Security “replacement rates,” which represent retirement benefits as a percentage of pre-retirement earnings. I revisit the debate, and add some new numbers, over at Forbes.

The takeaway: some new figures from the CBO make Social Security benefits appear small relative to pre-retirement earnings. But that’s because the CBO calculations don’t count all Social Security benefits and they don’t count all pre-retirement earnings.

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New article: “Medicare Expenditures, Social Security Reform, and the Labor Force Participation of Older Americans”

An interesting new article by Yuanyuan Deng and Hugo Benitez-Silva finds that the Social Security reforms of 1983 saved Medicare significant sums by encouraging Americans to delay retirement.

The changes to the Social Security Old Age benefits system introduced in the last decade, which will continue later this decade, have impacted individuals' labor supply and retirement decisions, and therefore their health insurance coverage. This paper provides an empirical analysis of the effects of the changes in the OA system, resulting from the 1983 Amendments, on Medicare costs. Using data from the Medicare Current Beneficiary Survey (MCBS), we empirically analyze the Medicare expenditures of individuals around retirement age as a function of their health insurance coverage and labor market attachment. Our results show a significant effect of employment measures as well as insurance coverage types, suggesting a sizable effect of employment and insurance on Medicare expenditures as well as on total health expenditures and on out-of-pocket health expenditures. Our findings allow us to compute the total savings to the Medicare system resulting from individuals' working while receiving health insurance coverage at older ages, and we estimate savings of 2.89 billion dollars a year, as well as another 333.67 million per year resulting from the delayed in enrollment into the Medicare system, given that some individuals do not enrolled in Medicare when first available, and this is more common among those who work and have insurance coverage. These results suggest that any future reform to the social insurance system will have to account for the effect on Medicare costs of policies that likely lead to increases in employment and employer provided health insurance coverage among populations eligible for Medicare.

Read more about their results here.

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Tanner: The GOP and Social Security

The Cato Institute’s Mike Tanner writes about Republicans and Social Security reform in National Review:

Social Security’s unfunded liabilities approach $26 trillion. That’s not because of waste or administrative glitches; it’s because of shifting demographics. We are living longer and having fewer babies. In 1950 there were 16.5 workers paying into the system for every retiree taking benefits out. Today there are just under three. By the time our children retire, there will barely be two.

The idea that we can save Social Security without making any changes to the system — without anyone getting less or paying more — is part and parcel of the budget fantasies that Republicans have been indulging this campaign season.

Click here to read the whole article.

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Magic, taxes & other stuff: How the Presidential candidates will fix Social Security

Robert Powell of MarketWatch has a nice summary of the Republican and Democratic presidential candidates’ positions on Social Security reform.

Interesting how on the Republican side only one candidate (Ted Cruz) is advocating for personal retirement accounts. Also interesting, though not noted, is that both Democrats now rule out any benefit cuts. While there’s still a lot of room for debate, the center of gravity on Social Security reform is shifting toward the left.

Check out the whole article here.

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Sanders forces Clinton to change position on Social Security

Vermont Sen. Bernie Sanders has been campaigning for president on a platform of expanding social security: no benefit cuts for anyone, and everyone receives benefit increases. The progressive base of the Democratic Party agrees.

Until now, Hillary Clinton has been more cagey: she’s rejected certain benefit cuts, like cutting COLAs or raising the retirement age, and has proposed targeted benefit increases, such as for widows and caregivers.

But if you read Clinton’s policy paper on Social Security, it clearly does not rule out all benefit cuts. And wisely so: as President, Clinton would need to negotiate a deal with Republicans and an all-tax-increase platform doesn’t leave her with much to negotiate. Based on the Clinton campaign’s statements, benefit cuts for higher-earners aren’t off the table.

Nevertheless, Clinton still needs to get through a Democratic primary where Sanders has proved a stronger opponent than many initially suspected. That explains Clinton’s recent Tweet:

As I noted above, that’s NOT what her policy paper – linked to in the Tweet itself – actually says. But to survive in a Democratic primary, that may be where a candidate needs to be.

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Want to be an economist at SSA?

Job Title:  Economist
Agency:  Social Security Administration
Hiring Organization:  Office of Research, Evaluation and Statistics; Office of Economic Analysis and Comparative

Job Announcement Number:  SH1594899

SALARY RANGE: $92,145.00 to $119,794.00 / Per Year

OPEN PERIOD: Monday, February 8, 2016 to Friday, February 19, 2016

SERIES & GRADE: GS-0110-13

POSITION INFORMATION: Full Time - Permanent

DUTY LOCATIONS: 1 vacancy in the following location:
Washington DC, DC View Map

WHO MAY APPLY: United States Citizens

SECURITY CLEARANCE: Not Applicable

SUPERVISORY STATUS: No

JOB SUMMARY:

Do you have a desire to:

• help SSA manage its Social Security programs?
• analyze and solve problems?
• help and advise millions of retired and disabled individuals?
• work on a team to make a difference in people's lives and your own?

  Join SSA, one of the top 10 Best Places to Work in the Federal Government!

The incumbent serves as a professional social scientist/economist in the office of Economic Analysis and Comparative Studies Branch, with responsibility for planning and carrying out a systematic research solution on a large complex problem area concerning the effects of social security and related social insurance and income maintenance programs on income distribution, resource allocation, and long-run economic growth.

Click here for more details.

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Is the total U.S. retirement system progressive?

Social Security is designed to be a progressive program and, despite some nuances, it basically is. On the other hand, tax preferences for retirement saving are perceived as regressive, since the tax deferment on 401(k) contributions is more valuable to high-income individuals in higher tax brackets. How does it all play out?

Robert Verbruggen of Real Clear Policy looks at a new book by the Investment Company Institute’s Peter Brady, which analyzes Social Security and private retirement saving together. (Brady recent presented his results at an AEI forum.)

The results aren’t cut-and-dried, and we had some interesting debate at AEI. But Verbruggen’s write-up of Brady’s results provides and interesting foundation.

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Social Security: “Welfare” or an “Earned benefit?” A debate that’s been around a long time…

Over at EconLog, Bryan Caplan looks back at a 1972 debate between Milton Friedman, the Nobel-prize winning economist, and Wilbur Cohen, a former secretary of Health, Education and Welfare and a prominent figure during Social Security’s early years.

One of the questions they looked at was how Social Security should be framed: is it a welfare program for poor or an earned benefit for everyone? Should benefits be based on need, such that means-testing for high-income retirees makes sense?

Many of the arguments will be familiar to today’s readers, but Friedman and Cohen state them very well. Worth checking out.

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Should states run their own retirement savings plan?

Ike Brannon, writing for the Weekly Standard, argues no.

The record for such state-based [college] savings funds isn't particularly encouraging. The states, of course, administer their own college savings accounts, and to say that these are investor-friendly would be a stretch. Most states and the District of Columbia offer various funds in their college investment programs; the costs for those government-provided funds can be compared with the same funds offered on the private market. Take the S&P 500 Index Fund run by State Street Global Advisors: On the private market, the fund's management fee (known as the "expense ratio") is 0.157 percent. Over at the D.C. College Savings Plan, by contrast, the expense ratio is a hefty 0.46 percent—triple the cost of fees outside the college fund. The costs are higher in part because the District imposes a 0.15 percent fee for "expenses," a fee shared with the investment company managing the program (in the case of D.C., this is Calvert Investment Management).

I have some concerns of my own with state-run retirement plans, which I’ll outline in a forthcoming article in National Affairs. But for now, click here to read Ike Brannon’s whole article.

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New article: “Measuring Economic Preparation for Retirement: Income Versus Consumption”

This is an interesting article for several reasons. First, the authors – Michael Hurd and Susann Rohwedder of the RAND Corporation – use data from the Health and Retirement Survey to estimate the percentage of retirees who are able to maintain their pre-retirement standard of living throughout retirement. The authors find that about 55% of single individuals and 80% of married individuals are able to do so. The biggest shortfalls are among single, less-educated women. While these estimates are for current, not future, retirees, you would need a large decline in retirement saving – which we’re not currently seeing – to produce numbers like those from the National Institute for Retirement Security, which claims that about three-quarters of Americans are undersaving for retirement.

Second, the authors apply their findings to replacement rates, which measure retirement income as a percentage of pre-retirement earnings. Most financial advisors recommend a replacement rate of about 70%. The authors found that, in the real world, meeting a target replacement rate isn’t necessarily a great measure of whether you’re well-prepared for retirement. While replacement rates work well for single individuals, a 70% target replacement rate tends to underestimate the true retirement preparedness of married couples. Put another way, if the authors had judged the retirement security of their sample based on their replacement rates, they would have underestimated the degree to which those households are truly prepared for retirement.

I’m not sure this means we need to reject replacement rates as a method for estimating the adequacy of retirement income. I’ve argued for several relatively straightforward adjustments to replacement rates – based on marital status and the number of children in a household – that might make replacement rates a better predictor of true retirement income adequacy.

Measuring Economic Preparation for Retirement: Income Versus Consumption
Michael Hurd and Susann Rohwedder
WP 2015-332

The income replacement rate (income immediately following retirement divided by income immediately preceding retirement) has become widely used as a measure of economic preparation for retirement. Yet a number of relevant issues are not adequately captured by the replacement rate concept. These include nontraditional transitions from full employment to full retirement, nonparallel transitions by the members of a married couple, and the ability to finance consumption out of savings. In this paper we estimate several measures of the income replacement rate that address some of these issues. Then we compare these income replacement rates with a consumption-based measure of economic preparation that takes into account the ultimate consequences for the retirement-to-death consumption path. Broadly speaking, the measure finds whether a household has, with high probability, the resources to finance a trajectory of spending from shortly following retirement until death. Our preferred measure of the income replacement rate somewhat understates the percentage of single persons adequately prepared for retirement, but it grossly understates the percentage of married persons adequately prepared. Furthermore, there is little relationship between the income replacement rate and our consumption-based measure. The implication is that the income replacement rate is of little use for assessing economic preparation for retirement: the chances that someone with a low income replacement rate is well prepared are not much different from the chances that someone with a high income replacement rate is well prepared.

Download: Research Briefs (PDF) | Full Paper (PDF)

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New study: “How Do Non-Financial Factors Affect Retirement Decisions?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Do Non-Financial Factors Affect Retirement Decisions?” by Steven A. Sass The brief’s key findings are: Studies show that financial factors have a statistically significant, but small, impact on retirement decisions. So it is not surprising that non-financial factors have a major influence on those who choose to work into their late 60s or 70s. When workers retire, they are often being pulled by a desire for other activities rather than pushed by a dislike of work. This brief is available here.

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Brenton Smith: Sanders Plan

Writing in The Hill, Brenton Smith of FixSSNow.Org outlines Sen. Bernie Sanders’ plan to reform Social Security, a plan that both raises benefits for people who haven’t paid for them and requires people to pay for benefits they will not receive.

Sanders’s paradigm enables politics to replace contribution as the determinate of benefits.  Politics could increase the benefits of current ‘low-income seniors’ completely independent of what someone had contributed in the past.  It could equally well reduce the benefits of future workers as Sanders currently proposes.

The whole article is worth reading. Check it out here.

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Job opportunities at AARP

Looking to Help Solve Today's Key Policy Challenges? Join the AARP Public Policy Institute Economics / Finance/ Public Policy The AARP Public Policy Institute is looking to fill a number senior policy advisor positions in its financial security group.  We are looking for individuals with expertise in one or more of the following issue areas: (1) Social Security, (2) Employment, (3) Retirement Savings and Financial Planning, and (4) Consumer Finance Issues, including insurance and financial products. Duties: Identify policy challenges and solutions, including emerging trends, in areas of expertise Develop policy options and strategies to enable AARP to promote changes to improve the lives of Americans age 50-plus and their families Use appropriate research methodologies and data to conduct and oversee original policy research on highly-visible and potentially controversial issues Write research reports, fact sheets, policy briefs, and blogs for public release Work collaboratively with internal stakeholders to help AARP achieve its strategic objectives Advise internal stakeholders in areas of expertise, including evaluating Federal and state regulatory and legislative proposals Qualifications: Advanced degree in Economics, Public Policy, other Social Sciences, or related discipline; Ph.D. preferred 5+ years of relevant professional experience in research and data analysis, and public policy evaluation and development Excellent written and oral communication skills and exceptional skills in presenting complex issues to a wide range of audiences Experience analyzing data using statistical software such as SAS, SPSS or STATA preferred Apply at: Senior Policy Advisor - Savings and Planning - (12458027) Senior Policy Advisor- Labor Market - (12457901) Senior Policy Advisor -Social Security - (12457843) Senior Policy Advisor-Consumer Finance - (12458370) AARP is an equal opportunity employer committed to hiring a diverse workforce and sustaining an inclusive culture.  AARP does not discriminate on the basis of race, ethnicity, religion, sex, color, national origin, age, sexual orientation, gender identity or expression, mental or physical disability, genetic information, veteran status, or on any other basis prohibited by applicable law. Contact Us PPI Website Forward to a Friend   Update your e-mail profile at PPI, click here. If you would like to stop receiving AARP's Economic Security Update Newsletter, then please click here. If you would prefer to stop receiving all email from AARP, unsubscribe from all AARP e-mails. Privacy Statement We are committed to protecting your privacy. See our privacy policy for additional information. About AARP AARP is a nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole. AARP Member Benefits are offered by third-parties through contractual arrangements with AARP, and AARP Services Incorporated or AARP Financial Incorporated, both wholly-owned subsidiaries of AARP. AARP ©1995-2016. All rights reserved. AARP 601 E Street NW Washington, DC 20049

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New papers from the Social Science Research Network

"How Does Retirement Impact Health Behaviors? An International Comparison"
CESR-Schaeffer Working Paper No. 2015-033

NORMA B. COE, University of Washington - Department of Health Services, Boston College - Center for Retirement Research
Email: nbcoe@uw.edu
GEMA ZAMARRO, University of Arkansas - Department of Education Reform, Center for Economic and Social Research (CESR)
Email: gzamarro@uark.edu

Recent work has found that retirement may lead to improvements in health, although the literature has not yet reached a consensus. This could be due to actual differences in the relationship of interest between countries or due to methodological differences between studies. The first goal of this paper is to estimate the causal impact of retirement on self-reported health using consistent estimation techniques on three harmonized longitudinal data sets, representative of the United States, England, and continental Europe. Using panel data and instrumental variable methods exploiting variation in statutory retirement ages, this paper then estimates how retirement causally affects health and health-related behaviors. We find, in all settings, retirement leads to better self-reported health, but that magnitude of the effect varies considerably. We also find that retirement increases the amount of exercise for those retiring from nonphysical jobs in all settings. The effect of retirement on addictive behaviors (drinking and smoking) was more mixed across settings. These findings suggest that public health interventions targeted to get near retirees to exercise more could allow countries to reap the benefits of a longer-working life while minimizing the associated health decline.

"Families and Social Security"
CESifo Working Paper Series No. 5655

HANS FEHR, University of Würzburg - Institute of Economics and Social Sciences
Email: hans.fehr@mail.uni-wuerzburg.de
MANUEL KALLWEIT, German Council of Economic Experts
Email: manuel.kallweit@uni-wuerzburg.de
FABIAN KINDERMANN, University of Bonn - Faculty of Law & Economics, Netspar
Email: fabian.kindermann@uni-bonn.de

The present paper quantifies the importance of family insurance for the analysis of social security. We therefore augment the standard overlapping generations model with idiosyncratic labor productivity and longevity risk in that we account for gender and marital status. We simulate the abolition of pay-as-you-go pension payments, calculate the resulting intergenerational welfare changes and isolates aggregate efficiency effects for singles and families by means of compensating transfers. In accordance with previous studies that take into account transitional dynamics, we find that abolishing social security creates significant efficiency losses. Most importantly, however, we show that singles are substantially worse off from a shut-down of old-age payments compared to married couples. A decomposition of the efficiency loss reveals that this difference can be almost exclusively attributed to the insurance role of the family with respect to longevity risk. Since a married individual inherits her spouse’s wealth after his death and the likelihood that both partners reach a very old age is relatively small, marriage serves as an insurance device against longevity risk for the surviving partner.

"Retirement Planning in the Light of Changing Demographics"

HONG WANG, Monash Business School
Email: hong.s.wang@monash.edu
BONSOO KOO, Monash Business School
Email: bonsoo.koo@gmail.com
COLIN O'HARE, Monash University - Department of Econometrics & Business Statistics
Email: colin.ohare@monash.edu

With increasing longevity and decreasing fertility rates, governments and policy makers are increasingly engaged in the question of long term retirement planning. In many cases this has included emphasising the need for individuals to take more responsibility for their own retirement planning through tax incentives, compulsion and changes to the age at which state retirement benefits become available. In the case of Australia, as is considered here, long term retirement planning has been focused around the development of a compulsory defined contribution (DC) superannuation system. Here we investigate the interaction between population aging and the sustainability of the superannuation system by modelling a general superannuation scheme to compare the adequacy of retirement funds under a number of alternative scenarios. The model incorporates stochastic longevity forecasts and provides insight into the sufficiency of compulsory retirement saving both now and future. We find that the current pension scheme is more robust to longevity improvements for mid-class individuals however significant gaps arise for low-income individuals as longevity improves. Without addressing these issues, government expenditure is expected to increase substantially.

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