Monday, March 19, 2018

Brenton Smith on the “Second-Litter Subsidy”

Over at FedSmith, Brenton Smith writes on the Social Security benefits paid to the children of retirement-age fathers, known as the “second-litter subsidy.” If a person of retirement age has a child, they are allowed to receive a child benefit in addition to their own retirement benefits, regardless of their income.

But as Smith points out, there’s more going on than simply a facet of the benefit formula, including politics and intergenerational fairness. Read on.

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Elizabeth Bauer, a New Resource on Retirement Policy

Elizabeth Bauer, an actuary who Tweets as Jane the Actuary, has begun writing longer-form piece for Forbes, with an emphasis on retirement policy. You can access here Forbes articles here, and here are direct link to her first batch. Well worth reading.

No, Andrew McCabe Isn't 'Losing His Pension'

(How) Should We Make Social Security Fairer For Moms?

Social Security Isn't Fair - And That's Actually The Point

News Flash: The U.K. Adopts My Social Security Reform Proposal

Take Cover - It's Another Retirement Reform Proposal

Elegy For The Pension Plan

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New paper: “The Retirement-Consumption Puzzle: New Evidence from Personal Finances”

The Retirement-Consumption Puzzle: New Evidence from Personal Finances
by Arna Olafsson, Michaela Pagel  -  #24405 (AG AP LS)


This paper uses a detailed panel of individual spending, income,
account balances, and credit limits from a personal finance
management software provider to investigate how expenditures,
liquid savings, and consumer debt change around retirement.  The
longitudinal nature of our data allows us to estimate individual
fixed-effects regressions and thereby control for all selection
on time-invariant (un)observables.  We provide new evidence on
the retirement-consumption puzzle and on whether individuals save
adequately for retirement. We find that, upon retirement,
individuals reduce their spending in both work-related and
leisure categories.  However, we feel that it is difficult to
tell conclusively whether expenses are work related or not, even
with the best data. We thus look at household finances and find
that individuals delever upon retirement by reducing consumer
debt and increasing liquid savings.  We argue that these findings
are difficult to rationalize via, for example, work-related
expenses.  A rational agent would save before retirement because
of the expected fall in income, and dissave after retirement,
rather than the exact opposite

Read more!

Monday, March 5, 2018

New paper: "The Reintroduction of the Social Security Statement and Its Effect on Social Security Expectations, Retirement Savings, and Labor Supply Across the Age Distribution”

The Reintroduction of the Social Security Statement and Its Effect on Social Security Expectations, Retirement Savings, and Labor Supply Across the Age Distribution

Philip Armour Cornell University

Michigan Retirement Research Center Research Paper No. 2017-373


This paper examines how the 2014 reintroduction of the Social Security statement, staggered by every fifth birth year, affected American Life Panel respondents’ Social Security expectations, savings behavior, and labor supply. The rich panel design of the ALP allows for controls for prior Social Security knowledge and behavior, and a specialized module fielded to ALP respondents elicited recall of the Statement and use of alternate information. The majority of individuals who were sent a Statement recall receiving one, with high rates of nonrecall concentrated among younger respondents. Statement recipients and my Social Security account holders highly value the information therein for retirement planning. Recipients measurably increased their likelihood of expecting future benefits, especially disability benefits, and were less pessimistic about future cuts to the program. Recipients were more likely to work after receipt, especially younger workers, although those already working more than 40 hours per week decreased their hours worked on the intensive margin. There were no statistically significant effects on retirement savings, although additional research is required for estimating heterogeneous effects.

View on SSRN

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Monday, February 12, 2018

New paper: "How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior"

How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior

by Vanya Horneff, Raimond Maurer, Olivia S. Mitchell

This paper explores how an environment of persistent low returns 
influences saving, investing, and retirement behaviors, as compared to what in the past had been thought of as more "normal" financial conditions.  Our calibrated lifecycle dynamic model with realistic tax, minimum distribution, and Social Security benefit rules produces results that agree with observed saving, work, and claiming age behavior of U.S. households. In particular, our model generates a large peak at the earliest claiming age at 62, as in the data.  Also in line with the evidence, our baseline results show a smaller second peak at the (system-defined) Full Retirement Age of 66. In the context of a zero return environment, we show that workers will optimally devote more of their savings to non-retirement accounts and less to 401(k) accounts, since the relative appeal of investing in taxable versus tax-qualified retirement accounts is lower in a low return setting. Finally, we show that people claim Social Security benefits later in a low interest rate environment. Read more!

New paper: "Intergenerational Spillovers in Disability Insurance"

Intergenerational Spillovers in Disability Insurance

by Gordon B. Dahl, Anne C. Gielen  -  #24296 (CH LS PE)

Does participation in a social assistance program by parents have
spillovers on their children's own participation, future labor
market attachment, and human capital investments? While
intergenerational concerns have figured prominently in policy
debates for decades, causal evidence is scarce due to nonrandom
participation and data limitations.  In this paper we exploit a
1993 policy reform in the Netherlands which tightened disability
insurance (DI) criteria for existing claimants, and use rich
panel data to link parents to children's long-run outcomes.  The
key to our regression discontinuity design is that the reform
applied to younger cohorts, while older cohorts were exempted
from the new rules.  We find that children of parents who were
pushed out of DI or had their benefits reduced are 11% less
likely to participate in DI themselves, do not alter their use of
other government safety net programs, and earn 2% more in the
labor market as adults.  The combination of reduced government
transfers and increased tax revenue results in a fiscal gain of
5,900 euros per treated parent due to child spillovers by 2014. 
Moreover, children of treated parents complete an extra 0.12
years of schooling on average, an investment consistent with an
anticipated future with less reliance on DI.  Our findings have
important implications for the evaluation of this and other
policy reforms:  ignoring parent-to-child spillovers understates
the long-run cost savings of the Dutch reform by between 21 and
40% in present discounted value terms. Read more!

New paper: "Earnings Test, Non-actuarial Adjustments and Flexible Retirement"

Earnings Test, Non-actuarial Adjustments and Flexible Retirement

by Axel H. Boersch-Supan, Klaus Haertl, Duarte N. Leite  -  #24294 (AG PE)

In response to the challenges of increasing longevity, an obvious policy response is to gradually increase the statutory eligibility age for public pension benefits and to shut down pathways to early retirement such as special rules for women. This is, however, very unpopular. As an alternative, many countries have introduced "flexibility reforms" which allow combining part-time work and partial retirement.  A key measure of these reforms is the abolishment of earnings tests.  It is claimed that these reforms increase labor supply and therefore, also the sustainability of pension systems.  We show that these claims may not be true in the circumstances of most European countries.

To this end, we employ a life-cycle model of consumption and labor supply where the choices of labor force exit and benefit claiming age are endogenous and potentially separate.  Earnings tests force workers to exit the labor market when claiming a pension.  After abolishing the earnings test, workers can claim their benefits and can keep on working, potentially increasing labor supply.  Our key result is that the
difference between exit and claiming age strongly depends on the actuarial neutrality of the pension system and can become very large.  Abolishing an earnings test as part of a "flexibility reform" may therefore create more labor supply but at the same time, reduce the average claiming age when adjustments remain less than actuarial, thereby worsening rather than improving the sustainability of public pension systems. Read more!

Friday, January 26, 2018

New paper: “Will Millennials Be Ready for Retirement?”

“Will Millennials Be Ready for Retirement?”

By Alicia H. Munnell and Wenliang Hou

The brief’s key findings are:

  • Millennials – despite high education levels – are behind previous cohorts on many indicators that help boost retirement preparedness.
  • Having entered the labor market in tough times, Millennials have lower wages and fewer fringe benefits than Gen-Xers and late Baby Boomers did as young adults.
  • This difficult start, combined with high levels of student debt, has delayed them from getting married and buying a home. 
  • Not surprisingly, then, Millennials have less wealth than previous cohorts, even though they will need more due to longer lifespans and reduced Social Security.
  • The one piece of good news is that retirement is still a long way off, so they have time to get back on track.

This brief is available here.

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New paper: “The Welfare Cost of Perceived Policy Uncertainty: Evidence from Social Security”

The Welfare Cost of Perceived Policy Uncertainty: Evidence from Social Security

Erzo F. P. Luttmer and Andrew A. Samwick

Policy uncertainty reduces individual welfare when individuals have limited opportunities to mitigate or insure against the resulting consumption fluctuations. We field an original survey to measure the degree of perceived policy uncertainty in Social Security benefits and to estimate the impact of this uncertainty on individual welfare. Our central estimates show that on average individuals are willing to forgo 6 percent of the benefits they are supposed to get under current law to remove the policy uncertainty associated with their future Social Security benefits. This translates to a risk premium from policy uncertainty equal to 10 percent of expected benefits.

Full-Text Access | Supplementary Materials

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Monday, January 15, 2018

Social Security Advisory Board Recommends Improvements to Rep Payee Programs at SSA and Across Government

Social Security Advisory Board Recommends Improvements to Rep Payee Programs at SSA and Across Government

Today, the Social Security Advisory Board (board) is releasing the culmination of two years’ work pertaining to the Social Security Administration’s (SSA’s) representative payee (rep payee) program. The report, Improving Social Security’s Representative Payee Program, outlines concrete steps to protect vulnerable Social Security beneficiaries and recipients.

The report includes recommendations for Congress, the Office of Management and Budget and SSA to strengthen the current administrative process, create better monitoring and explore comprehensive, government-wide coordination and cross-agency reform of rep-payee processes. A link to these recommendations may be found here.

To accompany the report, an interactive chart collection has been published on the board's website. The chart collection highlights data related to the administration of the program and emphasizes the growing need for rep payees in the future.

The board is proud of its efforts to advance the discussion around these vital programs. If you or your organization would like to discuss the report, please contact the board. 

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Thursday, January 11, 2018

Are Grandparents Stealing From their Grandchildren?

That’s the theme of a recent article in The Atlantic, which by its title – “It’s the Grandparents Stealing from the Grandchildren” – gives you the author’s answer. The article is worth a read for context.

But I don’t totally agree with its conclusion. Yes, it used to be the case that retirees received an incredible deal from Social Security, receiving far more in benefits than they paid in taxes. But for people retiring today, expected lifetime benefits are about equal to lifetime taxes, meaning that they’re neither big winners nor big losers.

Still, we know that future retirees will be big losers. Whether it’s via tax increases or benefit cuts, they can’t get the same deal from Social Security that today’s retirees are getting. So, for the sake of fairness and economic efficiency, it makes sense to spread the costs of Social Security’s $10 trillion-plus unfunded liability over as many generations as possible. Putting off reform exempts more cohorts from bearing those costs and puts more of the cost on younger Americans. That’s not right.

Image result for retirees stealing from grandchildren

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New study: “National Retirement Risk Index Shows Modest Improvement in 2016”

National Retirement Risk Index Shows Modest Improvement in 2016

by Alicia H. Munnell,Wenliang Hou and Geoffrey T. Sanzenbacher

The brief’s key findings are:

  • Between 2013 and 2016, the National Retirement Risk Index improved modestly, dropping from 52 percent to 50 percent of working-age households.
  • The improvement was driven mainly by rising home prices, with stock market gains also contributing.
  • At the same time, Social Security’s rising “Full Retirement Age” and declining interest rates served as a headwind against greater progress.
  • The bottom line is that retirement security remains a major challenge that requires today’s workers to save more and/or work longer.

Read more!

Wednesday, January 10, 2018

In Survey, Economists Say to Raise Pension Retirement Age

The University of Chicago Business School’s regular survey of prominent economists touched on whether retirement ages for national pension systems (in Europe, though we can infer that this group would apply the same logic to the U.S.) should increase to account for rising longevity.

Of the group, 77% favored increasing the retirement age; 2% were opposed; and 12 percent were unsure. Read more here.


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Monday, January 8, 2018

New study from GAO: “Social Security Disability: Additional Measures and Evaluation Needed to Enhance Accuracy and Consistency of Hearings Decisions.”

The Government Accountability Office has a new study on the Social Security disability insurance application process.

Allowance rates—the rate at which Social Security Administration (SSA) administrative law judges allowed disability benefits to be paid when claimants appealed—varied across judges, even after holding constant certain characteristics of claimants, judges, hearing offices, and other factors that could otherwise explain differences in allowance rates. Specifically, GAO estimated that the allowance rate could vary by as much as 46 percentage points if different judges heard a typical claim (one that was average in all other factors GAO analyzed). SSA officials said that this level of variation is not surprising, given the complexity of appeals and judicial discretion. Nonetheless, the variation declined by 5 percentage points between fiscal years 2007 and 2015 (see figure), a change officials attributed to enhanced quality assurance efforts and training for judges. GAO also identified various factors that were associated with a greater chance that a claimant would be allowed benefits. In addition to characteristics related to disability criteria, such as the claimant's impairment and age, GAO found that claimants who had representatives, such as an attorney or family member, were allowed benefits at a rate nearly 3 times higher than those without representatives. Other factors did not appear related to allowance rates, such as the percentage of backlogged claims in a hearing office.

You can find the whole study here.

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Wednesday, January 3, 2018

New paper: “The Funded Status of Local Pensions Inches Closer to States”

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

“The Funded Status of Local Pensions Inches Closer to States”

By Jean-Pierre Aubry, Caroline V. Crawford, and Alicia H. Munnell

The brief’s key findings are:

  • Since 2001, the aggregate funded status of local pension plans has lagged behind that of state plans, but the gap has been closing recently for two reasons.
  • First, local plans continue to receive more of their required contributions than state plans and are a bit more likely to use stringent funding methods.
  • Second, in recent years, local plans have earned stronger investment returns than state plans, perhaps partly due to a lower allocation to alternative investments.
  • Despite this progress, many local plans – like their state counterparts – still face significant funding challenges. 

This brief is available here.

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