Friday, April 19, 2019

Conference Call The Financial Future of Social Security: Highlights from the Trustees' 2019 Reports

Conference Call
The Financial Future of Social Security: Highlights from the
Trustees' 2019 Reports

Tuesday, April 23, 2019
3:00 p.m. - 4:00 p.m.

Dial-in information provided upon registration

Stephen Goss | Chief Actuary, Social Security Administration
Charles Blahous | J. Fish and Lillian F. Smith Chair and Senior Research Strategist, Mercatus Center, George Mason University; Former Public Trustee of the Social Security and Medicare Trust Funds
Robert Reischauer | Distinguished Institute Fellow and President Emeritus, Urban Institute; Former Public Trustee of the Social Security and Medicare Trust Funds

Moderated by:
Marc Goldwein | Senior Vice President and Senior Policy Director, Committee for a Responsible Federal Budget
Kathleen Romig | Senior Policy Analyst, Center on Budget and Policy Priorities

Next week, the Boards of Trustees for the Social Security Trust Funds will release their annual report on the financial challenges facing the two program. This report is a critical benchmarks for policymakers and the public to understand the state of the trust funds. Their financial futures are critical to the millions of people who pay billions in taxes into the funds and use Social Security as the foundation for a secure retirement.

The Funding Our Future campaign invites you to join us for this call as we host the chief actuary for Social Security and the former public trustees for Social Security and Medicare to discuss key takeaways from the 2019 Social Security and Medicare trustees’ reports.

Read more!

Social Security Advisory Board Conference on Microsimulation

Social Security Advisory Board

The Board Invites You to a Policy Forum on MINT Microsimulation

Based on your past work and interest in microsimulation, the Board is pleased to invite you to attend its upcoming policy forum “Informing Policy: A Review of Social Security’s MINT Microsimulation Model,” which will be held on May 30, 2019. A list of tentative speakers is provided below.

Modeling Income in the Near Term (MINT) helps policymakers understand the effects of changes to benefits and payroll taxes. The microsimulation model is built from Social Security's administrative records matched to the Survey of Income and Program Participation. It projects future retirement income, marital trends, Social Security benefits, income, and poverty as well as the effects of policy changes.

The event will bring together MINT users and microsimulation experts to discuss challenges and opportunities facing MINT and other such models and provide recommendations on MINT’s future development. Public participation will be welcomed.

The forum will take place from 9:00 am – 4:00 pm at the National Union Building located at 918 F Street NW, Washington, DC 20004. Register to attend either in person or the live webcast here.

Tentative Speakers:

  • Andrew Biggs, Resident Scholar, American Enterprise Institute
  • Rick Evans, Director, Open Source Economics Laboratory, University of Chicago
  • Eric J. (Rocky) Feuer, Chief, Statistical Research and Applications Branch, Division of Cancer Control and Population Sciences, National Cancer Institute
  • Jagadeesh Gokhale, Director of Special Projects, Penn-Wharton Budget Model
  • Stephen C. Goss, Chief Actuary, Social Security Administration
  • Laura Haltzel, Research Manager, Income Security, Congressional Research Service
  • Kim Hildred, Chair, Social Security Advisory Board
  • Tom Klouda, Senior Domestic Policy Advisor, Committee on Finance, Democrat Staff, U.S. Senate
  • Kathryn Olson, Staff Director, Subcommittee on Social Security, Committee on Ways and Means, U.S. House of Representatives
  • Kathleen Romig, Senior Policy Analyst, Center on Budget and Policy Priorities
  • Mark Sarney, Acting Director, Office of Research, Office of Research, Evaluation, and Statistics, Social Security Administration
  • Amy Shuart, Republican Staff Director, Subcommittee on Social Security, Committee on Ways and Means, U.S. House of Representatives (invited)
  • Jack Smalligan, Senior Policy Fellow, Income and Benefits Policy Center, Urban Institute 
  • Karen E. Smith, Senior Fellow, Income and Benefits Policy Center, Urban Institute
  • C. Eugene Steuerle, Institute Fellow and Richard B. Fisher Chair, Urban Institute 
  • Julie Topoleski, Chief, Long-Term Analysis Unit, Health, Retirement, and Long-Term Analysis Division, Congressional Budget Office
  • Bryan Tysinger, Director, Health Policy Microsimulation, University of Southern California Schaeffer Center
  • Mark Warshawsky, Deputy Commissioner for Retirement and Disability Policy, Social Security Administration
Read more!

New working papers from the Center for Retirement Research

The Center for Retirement Research at Boston College has recently released four working papers:

Is the Drop in Fertility Due to the Great Recession or a Permanent Change?
Alicia H. Munnell, Anqi Chen, and Geoffrey T. Sanzenbacher
Will Fewer Children Boost Demand for Formal Caregiving?
Gal Wettstein and Alice Zulkarnain
The Relationship between Occupational Requirements and SSDI Activity
Matthew S. Rutledge, Alice Zulkarnain, and Sara Ellen King

How Does Contingent Work Affect SSDI Benefits?
Matthew S. Rutledge, Alice Zulkarnain, and Sara Ellen King

Read more!

Wednesday, April 17, 2019

New paper: “Social Security Replacement Rates and Other Benefit Measures: An In-Depth Analysis”

The Congressional Budget Office has issued a comprehensive look at measuring “replacement rates” for Social Security, a measure that compares Social Security benefits to pre-retirement earnings and serves as an indicator of the adequacy of retirement benefits.

CBO’s paper might be a bit of a deep dive for those who haven’t looked at the issue before, and it doesn’t come out with a clear recommendation. But readers will at the least come to understand that how you measure retirement income adequacy is at least as important as the earnings and benefits that you measure.

Read more!

Tuesday, April 16, 2019

Upcoming event: “Can retirement plans provide safe income?” April 18

Running out of money in retirement is one of Americans’ greatest financial fears. Converting retirement saving balances into reliable income is one of the most complex financial decisions people must make. Most 401k and similar plans are not structured to provide lifetime income. Can retirement plans be reformed to provide safe income for the duration of retirees’ lives?

On Thursday, April 18, the Retirement Security Project at Brookings will host an event to explore ways to create lifetime income for people with 401k-type plans. Join Nobel laureate Richard Thaler and several other noted experts as they discuss new Brookings research.

Click here for more details.

Read more!

Friday, April 5, 2019

SSAB Technical Panel Meeting Agenda, April 12, 20919

2019 Technical Panel on Assumptions and Methods 
Meeting Agenda 
April 12th, 2019 

The meeting will be held in the offices of the Social Security Advisory Board: 400 Virginia Avenue SW, Suite 625, Washington DC 20024. 

Friday, April 12, 2019

  • 10:00am-11:30am Beneficiary and average benefit projections Office of the Chief Actuary, SSA 
  • 11:30am-12:30pm Labor force participation and employment projections Gary Burtless, Brookings Institution and member of the 2017 Labor Force Technical Panel 
  • 12:30pm-1:00pm Lunch 
  • 1:00pm-2:30pm Economic assumptions and methods: Interest rates, real wage growth components Louise Sheiner, Technical Panel member
Read more!

Friday, March 15, 2019

New issue brief: “How Much Would It Take?”

EBRI Issue Brief

How Much Would It Take? Achieving Retirement Income Equivalency Between Final-Average-Pay Defined Benefit Plan Accruals and Automatic Enrollment 401(k) Plans in the Private Sector

Feb 7, 2019, 22 pages

by Jack VanDerhei


  • A rapidly growing public policy concern facing the United States is whether future generations of retired Americans, particularly those in the Baby Boomer and Gen X cohorts, will have adequate retirement incomes. There have been several policy studies in recent years that suggest that the decreasing relevance of defined benefit (DB) plans relative to defined contribution plans (such as 401(k) plans) since the 1980s will have a negative impact on the percentage of future retirees who will achieve a specified level of retirement income adequacy.
  • 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 plans.
  • The current research expands the previous research by computing the actual final-average DB accrual that would be required to provide an equal amount of retirement income at age 65 as would be produced by the annuitized value of the projected sum of the 401(k) and IRA rollover balances under automatic enrollment (AE) 401(k) plans.
  • Assuming historical rates of return as well as annuity purchase prices reflecting average bond rates over the period from 1986 to 2013, the analysis shows that:
  • For males, defined benefit “break-even” rates — or the percentage accrual rate that would be required in order for a DB plan to generate the same retirement income that is projected to come from 401(k) plan participation for a given worker cohort — are rarely less than 1.5 percent of final pay: in only 2 of the 16 combinations of wage quartiles and years of plan eligibility for males are defined benefit “break-even” rates less than 1.5 percent of final pay per years of service.
  • In the case of females, only 5 of the 16 combinations have “break-even” rates under 1.5 percent.
  • When these findings are subjected to the scrutiny of various “stress tests” both by reducing the rate of return assumptions by 200 basis points as well as utilizing current annuity purchase prices, results show that in many cases the AE 401(k) plans lose their comparative advantage to the stylized, final-average DB plans, especially for lower-paid employees as demonstrated by the lower “break-even” accrual rates.


Read more!

New Working Paper: “How Will Retirement Saving Change By 2050? Prospects for the Millennial Generation”

How Will Retirement Saving Change By 2050? Prospects for the Millennial Generation

William Gale, Hilary Gelfond and Jason Fichtner


We consider prospects for retirement saving for members of the millennial generation, who will be between ages 54 and 69 in 2050. Adequacy of retirement saving preparation among current and near-retirees is marked by significant heterogeneity, a characteristic that will likely hold for Millennials as well. In preparing for retirement, Millennials will have several advantages relative to previous generations, such as more education, longer working lives, and more flexible work arrangements, but also several disadvantages, including having to take more responsibility for their own retirement plans and marrying and bearing children at later ages. The millennial generation contains a significantly higher percentage of minorities than previous generations. We find that minority households have tended to accumulate less wealth than whites in the past, even after controlling for income, education, and marital status, and the difference appears to be growing over time for black households relative to whites. Whether these trends persist is central to understanding how the Millennials will fare in retirement.


Read more!

Friday, March 8, 2019

Urban Institute: “Has Society Gotten Older or Younger?”

Has Society Gotten Older or Younger?

Why Conventional Wisdom is Largely Wrong

C. Eugene Steuerle and Damir Cosic

February 27, 2019

Two powerful demographic processes—the falling birth rate and increasing life expectancy—are reshaping the US population. Longer life expectancy leads to a healthier population, greater capacity to work, and a more active lifestyle, but it also raises the share of the population over age 65—a traditional measure of population aging. This measure overstates aging problems and leads policymakers to misallocate government resources. We construct alternative population aging measures based on the share of the population whose life expectancy is less than a certain number of years. These measures indicate that the population is aging much more slowly than conventional measures indicate.


Read more!

Report: “Enhancing work incentives for older workers: Social Security and Medicare proposals to reduce work disincentives”

In “Enhancing Work Incentives for Older Workers: Social Security and Medicare Proposals to Reduce Work Disincentives” (PDF), Robert L. Clark and John B. Shoven offer three reform proposals that would remove the disincentives for Social Security beneficiaries to remain in the labor force. First, the authors consider the impact of eliminating the earnings test for participants between age 62, the early retirement age (ERA), and the full retirement age (FRA), which is currently 66 and 6 months but will increase to 67 by 2022. Second, they examine the effects of creating a paid-up status for Social Security, a point at which employees and employers would no longer be required to pay the payroll tax and earnings would not alter future benefits. Third, the authors offer a similar proposal for a paid-up status for Medicare, coupled with a policy shift for Medicare that would return the program to its original status as the primary payer for covered expenditures rather than its current status as the secondary payer.

Read the full paper here.

Read more!

Friday, March 1, 2019

Social Security: Welfare or Insurance?

Writing for FedSmith, Brenton Smith tackles the question, with a focus on House Democrats’ Social Security 2100 Act.

I personally think Social Security is a combination of welfare (say, low earners receiving higher replacement rates); insurance (the disability and survivors components); and forced savings (the retirement program for most middle and upper-income households).

But you be the judge!

Read more!

Sign up for the Social Security Policy Innovations Challenge!

The Social Security Policy Innovations Challenge: Ensuring Adequacy for Workers is open to individuals, teams of individuals, or organizations concerned about workers with limited employment opportunities who lack the financial security to postpone claiming Social Security benefits until they reach full retirement age.

Under the current Social Security benefit structure, early claimants receive substantially reduced monthly benefits throughout their lifetimes. Given that the average retirement benefit is only slightly above the federal poverty level for income, and that most beneficiaries rely on their Social Security benefits as their principal or only source of income, this reduction in benefits likely leaves early claimants without adequate income for the remainder of their lives.

The National Academy of Social Insurance, in collaboration with AARP, seeks to identify three-to-five innovative ideas for addressing the income adequacy needs of older workers, who must claim Social Security retirement benefits before their full retirement age due to ill health, an inability to continue to perform physically demanding jobs, or other factors. Each winning proposal will receive an award of up to $20,000-$25,000.

Read the press release.
Download the RFP.

Interested in participating?
Step 1: Sign-up to follow this Challenge. You will receive regular updates about the application process and each stage of the competition.
Step 2: Stay tuned for your invitation to join a facilitated discussion (to be held March 5, 2019) to learn more about Social Security and older workers. Participation in this training event is a requirement for competing in the Challenge.

Read more!

Thursday, February 28, 2019

New paper: “Why Has Poverty Declined for Widows?”

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

“Why Has Poverty Declined for Widows?”

by Alicia H. Munnell, Geoffrey T. Sanzenbacher, and Alice Zulkarnain

The brief’s key findings are:

  • Since the mid-1990s, the poverty rate for widows has dropped sharply.
  • Potential reasons include rising levels of education and work experience for women generally and a higher marriage rate among women with more education.
  • The findings show that, so far, the drop in widows’ poverty has primarily been driven by the general increase in women’s education and work experience.
  • Going forward, the poverty rate should continue to fall not only because of education and work patterns but also because of marriage selection.
  • Despite the progress, widows will remain at greater risk of poverty than married women.

This brief is available here. Read more!

Monday, February 25, 2019

New NBER Working Papers on Retirement

Retirement Implications of a Low Wage Growth, Low Real Interest Rate Economy

Jason Scott, John B. Shoven, Sita Slavov, John G. Watson

NBER Working Paper No. 25556
Issued in February 2019
NBER Program(s):Aging

We examine the implications of persistent low real interest rates and wage growth rates on individuals nearing retirement. We begin by reviewing the concept of r star – the long-term real, safe interest rate that is neither expansionary nor contractionary – and presenting recent estimates suggesting that this value has declined. We then examine the implications of low returns and low wage growth for individuals currently aged 45 and 55. We find that low returns and low wage growth have substantial welfare effects, with compensating variations that are often in the hundreds of thousands of dollars. Low returns increase optimal Social Security claiming ages and the marginal benefit of working longer, while low wage growth decreases the marginal benefit of working longer. Low economy-wide wage growth has a much larger welfare effect than low individual wage growth due to wage indexation of the initial benefit and the progressivity of the Social Security benefit formula. When individual wage growth alone is low, wage indexation is unchanged, and the progressivity of the benefit formula provides insurance. When economy-wide wage growth is low, wage indexation is less generous and there is no insurance benefit from progressivity as average wages fall along with individual wages.

Household Responses to Transfers and Liquidity: Evidence from Social Security's Survivors Benefits

Itzik Fadlon, Shanthi P. Ramnath, Patricia K. Tong

NBER Working Paper No. 25586
Issued in February 2019
NBER Program(s):Aging, Labor Studies, Public Economics

We use administrative tax data that cover the U.S. population to identify the causal effects of Social Security’s survivors benefit receipt on American families’ behavior and financial well-being. We analyze over a quarter of a million widowed households in which the husband died between 2002-2007, and we exploit a sharp age discontinuity in benefit eligibility to study the responses of financially vulnerable households to government transfers. We first study how households respond to unanticipated benefit receipt in the immediate periods following a large financial shock to investigate the protective role of transfers. We find significant impacts of the program on newly-widowed families’ net income and labor supply behavior, which points to considerable allocative inefficiencies in the life insurance market and to a high valuation of survivors benefits in protecting Americans against mortality shocks. Second, to investigate the particular role of liquidity and benefit timing, we then study how already-widowed women’s labor supply responds to anticipated survivors benefit receipt. We find considerable responses to cash-on-hand via benefit availability that underscore allocative inefficiencies in the credit market and the value of liquidity itself provided by government transfers. These responses and their heterogeneity highlight mechanisms that underlie the labor supply behavior of older vulnerable households, and they point to liquidity constraints, rather than myopia or benefit-schedule misperceptions, as the likely operative channel. Our results have implications for survivors benefits in the U.S., and, more generally, for retirement behavior and response mechanisms to transfers among older vulnerable populations.

Employer Concerns and Responses to an Aging Workforce

Robert L. Clark, Steven Nyce, Beth Ritter, John B. Shoven

NBER Working Paper No. 25572
Issued in February 2019
NBER Program(s):Aging

Economist and public policy analysts have devoted considerable research to examining the work and retirement decisions of employees. Much less effort has been spent on understanding the concerns and challenges of employers if their workers delay retirement and remain on the job until older ages. In this study, we report findings from three employer surveys with the objective of learning how organizations are responding to the aging of their workforces. The surveys provide several important observations. First, employer concerns about workforce aging vary considerably across the economy. To some firms, these demographic changes are of immediate concern and are viewed as a significant risk to the organization while other firms remain more concerned about potential productivity and cost effect of an older labor force. Second, most employers expect the importance of workforce aging to increase in the next five years. In response, a significant proportion of organizations are making changes to working conditions and compensation policies. Third, firms remain reluctant to adopt formal phased retirement policies but are more willing to offer part-time employment, return to work, and other policies on a case by case basis.

Read more!

Washington Post endorses “progressive price indexing” for Social Security

In an editorial, the Washington Post opposed Social Security expansion and endorsed a Bush-era reform to reduce benefits for middle and income retirees in the future.

The Social Security 2100 Act, co-sponsored by over 200 House Democrats, would

divert scarce resources toward a vast majority of Social Security recipients who are not only not poor but, in many cases, perfectly comfortable. We are all for making the overall tax system more progressive than it already is, including by taxing high earners, as the Social Security 2100 Act would do. You can tap “the rich” only so many times, however; and the priority should be to use that money for children, who are almost twice as likely to be poor as senior citizens.

Instead, the Post argues, we should consider a proposal that was part of President George W. Bush’s Social Security reform proposals, so-called “progressive price indexing.”

There is an alternative proposal to make Social Security both protective of the elderly poor and more solvent over the long term. The plan would retain Social Security’s current benefit formula for the 30 percent of workers with the lowest lifetime earnings, while reducing the growth rate of initial benefits for the top 70 percent. Phased in over the next 30 years, it would save a relatively modest $77 billion in the first decade. Savings would accumulate more quickly thereafter, though, to reduce Social Security’s total claim on national output in 2048 from 6.3 percent under current law to 5.7 percent, according to the Congressional Budget Office. The CBO refers to the proposal as “progressive price indexing.” Given that it allocates the nation’s limited retirement-income resources to those who need them most, instead of promising more benefits to practically everyone, the “progressive” label does indeed apply.

I certainly wouldn’t oppose a reform package based on progressive price indexing. At the same time, it’s a proposal that’s very difficult for the public to understand and doesn’t have any end goal of what we want our Social Security program to look like. Progressive price indexing says simply that we’re going to reduce benefit growth for middle and high earners, not what we (as a society or as policymakers) think the appropriate benefit levels are for Americans of different means.

That’s why over time I came to favor a different, and more radical approach: a flat dollar benefit that provides a true guarantee against poverty in old age, while requiring middle and high earners to save more for retirement. This flat dollar benefit approach is similar to New Zealand’s retirement system, along with reforms that have been enacted in the U.K.

Read more!

Monday, February 18, 2019

Social Security expansion could be a disappointment for the poor.

Over at National Review Online, I write on how Social Security expansion as proposed by Rep. John Larson and his 200 House co-sponsors and Sen. Bernie Sander’s separate bill may end up disappointing poor retirees, the ones you think would most need the extra benefits.

On paper, plans like the Social Security 2100 Act offer very large benefit increases to very low earners, who make up about the poorest fifth of retirees. The SSA actuarial memos for these plans offer examples showing benefit increases of up to 44%.

But these examples look at individuals who work a full career and receive benefits based on their own earnings. But that’s not always the reality for low-income retirees. Many failed to work a full career; a short working career is the easiest route to a low income in retirement. Others low-wage workers end up being “dually-entitled” in retirement, meaning that they receive a benefit based upon their own earnings plus an additional “auxiliary benefit” based on the earnings of a higher-earning spouse. Their total benefit is capped at half of the higher-earning spouse’s check. Social Security expansion might boost a retirees’ own earned benefit, but in most cases that would simply result in a lower auxiliary benefit. While higher-earning retirees would be eligible for much smaller benefit increases, because these high earners don’t receive auxiliary benefits they might be more likely to receive what they’ve been promised.

Social Security expansion also favors high earners in a another way: they live longer. This counts not just for increases in initial retirement benefits, but also in the higher COLAs that Social Security expansion plans offer.

I’ve argued for boosting benefits for low-income retirees. We’re a rich nation and can afford to keep seniors out of poverty. But since Social Security is a complex program, we should think carefully about how we go about doing it.

Read more!

Tuesday, February 12, 2019

New study: “Retiring Earlier than Planned: What Matters Most?”

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

“Retiring Earlier than Planned: What Matters Most?”

by Alicia H. Munnell, Matthew S. Rutledge, and Geoffrey T. Sanzenbacher

The brief's key findings are:

  • More than a third of older workers retire earlier than planned: the question is why?
  • This study looks at: 1) the impact of unexpected changes in health, employment, family, and finances on early retirement; and 2) the prevalence of these shocks.
  • The findings suggest that:
    • Health shocks play the largest role, mainly because they are widespread.
    • Job loss without finding a new job, while not as prevalent, is also important.
    • Family transitions have a modest impact, while financial shocks appear to have little effect.
  • A key caveat is that all the shocks combined explain only about a quarter of earlier-than-planned retirements, so clearly other factors are also at play.

This brief is available here. Read more!

Wednesday, January 16, 2019

Meeting of the 2019 Technical Panel on Assumptions and Methods

The 2019 Social Security Technical Panel on Assumptions and Methods will hold its third public meeting Friday, January 25th, 2019 from 9:30am to 2:30pm. The meeting will be held at Social Security Administration Headquarters in Baltimore(6401 Security Blvd.; Gwynn Oak, MD 21207

Room: 1700A Robert M. Ball Building). The meeting agenda is attached to this invitation.

Because of security considerations at SSA and space limitations, those wishing to attend in person should RSVP to the Social Security Advisory Board staff: , call our office at 202-475-7700 or reply to this email by Friday, January 18. Additional details for entry to SSA facilities and parking will communicated next week.

For those who cannot attend in person, there will be a teleconference line available for the entirety of the meeting 9:30am-2:30. Please RSVP with a request for the teleconference information. Material presented to the panel at the meeting will be made available by the meeting time on the panel’s public information page (see below).

Information on the 2019 Technical Panel on Assumptions and Methods can be found on the panel’s public information page. Meeting agendas will be posted to the site approximately one week before meeting dates and material presented at meetings, such as handouts or presentation slides will posted following the meeting.

Attendees who require a reasonable accommodation,  should please call 202-475-7700 at least three days before the meeting date.

Meeting Agenda

9:30am -11:00am Economic assumptions and methods
Presentation: Office of the Chief Actuary

11:00am-12:30pm Trends in economic inequality and implications for Social Security
Presentation: David Deming, Professor of Public Policy, Harvard
Kennedy School; Professor of Education and Economics, Harvard
Graduate School of Education

12:30pm-1:00pm Lunch

1:00pm-2:30pm Technology and the future of work and employment
Presentation: Michael Chui, Partner, McKinsey and Company,
and McKinsey Global Institute

Read more!

Thursday, January 3, 2019

New Issue Brief: “What Financial Risks Do Retirees Face in Late Life?”

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

What Financial Risks Do Retirees Face in Late Life?

by Matthew S. Rutledge and Geoffrey T. Sanzenbacher

The brief’s key findings are:

  • As life expectancy rises, more retirees will face late-life financial risks, including: high health costs, financial mistakes due to cognitive decline, and widowhood.
  • To date, the research literature suggests that these risks severely affect only a minority of retirees, but the impact may become more widespread in the future.
  • The reasons include growing health costs; the rise of 401(k)s, which can be more vulnerable to fraud; and the declining role of Social Security’s widow benefits.

Read more!

Wednesday, January 2, 2019

Does Early Retirement Cause Earlier Death?

Early Retirement and Mortality Rates of Blue-Collar Men

For blue-collar male workers in Austria, an extra year of early retirement, induced by a policy change, was associated with an increase in the probability of death before age 73 of 1.85 percentage points.

Many workers dream of retiring as early as possible to pursue travel, leisure, sport, and other pursuits. But the research findings in Fatal Attraction? Extended Unemployment Benefits, Labor Force Exits, and Mortality (NBER Working Paper No. 25124), a study by Andreas Kuhn, Stefan Staubli, Jean-Philippe Wuellrich, and Josef Zweim├╝ller, suggest that some individuals, particularly men, might want to postpone retirement if possible. Studying a temporary change in unemployment insurance rules in Austria which allowed workers to retire early, they find that men who retired before the normal retirement age experienced an increased risk of premature death. They do not find any statistically significant effect of early retirement on women.

Many nations are grappling with aging populations and the strains that pension and medical-care obligations place on government budgets. Some are considering changes to retirement programs, such as raising the age of eligibility or reducing benefits. The effect of such changes on the health and well-being of the elderly is a subject of ongoing debate.

To shed light on this question, the researchers analyze a unique public program in Austria in the late 1980s and early 1990s that was adopted when that nation's steel sector underwent dramatic downsizing. The shock affected tens of thousands of workers and their family members, and to cushion the economic blow to older workers, the Austrian government implemented the Regional Extended Benefits Program (REBP). This program effectively allowed workers to take early retirement via disability insurance or old-age pension programs. The program was only available in some regions of the country.
Using information from the Austrian Social Security Database, the researchers were able to compare the employment histories, incomes, gender, age, retirement dates, and age at death of those who took early retirement and those who were eligible but did not. They ultimately compiled information on 310,440 men and 144,532 women — excluding those from the steel sector — and compared data from REBP — eligible regions and nearby non-REBP regions.

The program induced a significant increase in early retirement. When the researchers examined the mortality rates of those who took early retirement, they found that an additional year in early retirement increased a man's probability of death before age 73 by 1.85 percentage points — equivalent to a relative increase of 6.8 percent — and reduced the age at death by 0.2 years. For women, early retirement was not associated with elevated mortality, a finding that is in line with previous research by others.

Men in blue-collar occupations, men with low work experience, and men who had some pre-existing health impairment displayed higher mortality effects than men in white-collar occupations. An additional year in early retirement increased the probability of death before age 73 by 1.91 percentage points for blue-collar men, 3.45 percentage points among men who have spent some time on sick leave, and by 2.42 percentage points among men with low work experience.

To check the robustness of their findings, the researchers analyzed data from before and after the early retirement program and found no differences in mortality and early retirement trends between those two periods. They also found that the changes in lifetime income associated with early retirement were negligible, particularly when generous government old-age benefits were counted, and that they could not explain the increased mortality among certain groups of the population. The researchers suggest that lifestyle changes may explain the study's mortality findings.

Jay Fitzgerald

Read more!