The Role of Social Security in Overall Retirement Resources: A Distributional Perspective
Sebastian Devlin-Foltz1, Alice Henriques, and John Sabelhaus
During recent decades, the US employer-sponsored retirement system has undergone a major shift from primarily defined benefit (DB)-type plans to primarily defined contribution (DC)-type plans. Furthermore, in the past decade, participation in employer retirement plans has fallen, particularly for younger and lower-income families. In light of this, there is growing concern that wealth accumulation through employer-provided pension plans is falling short, especially for the bottom half of the income distribution. However, focusing only on employer-sponsored pensions provides an incomplete picture; it has left the public pension, Social Security, out of the discussion. Social Security provides near universal coverage and calculates benefits progressively, leaving lower-income households with much higher replacement rates relative to their pre-retirement income. Claims to future Social Security benefits are a key component of retirement wealth, and thus failure to include Social Security leads to a biased assessment of the overall distribution of retirement wealth.
Read the whole paper here.
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More dribble on Social Security and its mythical importance to workers while at the same time not facing the fact that if payroll taxes go up, wealth accumulation by workers goes down and dependency on a program that cannot pay scheduled benefits in the future goes down.
The 20 lifeboats the SS Titanic could only accommodate 1,178 people, despite the fact that there were approximately 2,224 on board. Titanic had a maximum capacity of 3,327 passengers and crew. In terms of adequacy, this was 35.4% of maximum passenger and crew.
Who would book passage on the SS Social Security knowing that it had less than 15 years ability to pay scheduled benefits and thereafter could pay less than 75% and decreasing there after until it reached 60%? Or who would book passage on the SS Titanic being told that it would cost 10.6% of wages in return for 41% of life time indexed wage benefit for life only to know that this was false and that either the payment had to dramatically increase or the benefit dramatically reduced?
Adequacy is the question we should be asking of Social Security. Does Social Security provided adequate coverage for the cost?
None of us like playing games when we were young when others kept changing the rules.
"in the past decade, participation in employer retirement plans has fallen"
but here you say "Contributions to retirement plans are at record levels compared to the past". Can you explain more?
Good question. The two statements aren't inconsistent -- contributions can rise even if participation falls -- but I'm not sure about the decline in retirement plan participation. The SCF, like other household surveys, relies on individuals to tell the surveyor if they are offered a retirement plan and if they participate in one. Researchers at SSA have shown -- by comparing individuals' responses to questions on retirement plan participation to tax records showing whether the respondent actually had a plan -- that people understate their participation rates, by around 10 percentage points. That by itself doesn't explain a CHANGE in participation rates reported by surveys, but it does show that participation is understated. I checked in the BLS National Compensation Survey, which uses employer data. The broadest range of dates I could find was 2010 thru 2016. In 2010, 69% of civilian employees were offered a retirement plan of any kind, and 55% participated. In 2016 those numbers were 69%/55%, not statistically significant in difference. Maybe there was a drop in the first couple of years of the great recession, but the NCS doesn't cover those very well. But I'll see if I can dig up the prior database and see what it says.
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