Graham: Social Security Trustees Overstate Economic Growth

The headline of Jed Graham's Investors Business Daily piece -- "Why The Social Security Trustees Can't Be Trusted" -- is over the top, but he hits at an interesting question: Do the Trustees' projections for Social Security's financing health rely on excessively optimistic assumptions regarding economic growth?

In the past they've been accused of being excessively pessimistic, a charge I defended them against at the time, but I believe there may be something to Graham's case -- and that has repercussions beyond merely how long we expect Social Security's trust fund to last. I'll be writing on that in the near future, but in the meantime check out Jed's piece and join the argument here.




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Washington Post: Reform Disability, Not Just Refinance It

The Washington Post's editorial board weighs in on Social Security Disability, arguing that -- in addition to merely keeping the program solvent -- policymakers also need to reform the program to make it work better:

"The problem is that SSDI is far from functioning optimally; while most of the program’s rising cost is, indeed, due to demographics, not all of it is. As recent research in labor economics has shown, some of the growth is due to post-1984 program rules that made it easier to claim disability on the basis of mental or musculoskeletal ailments. Perversely, SSDI provides employers no incentive to keep individuals at work, earning wages, while providing those who get benefits no incentive to return to the workforce. As economist David Autor of MIT has written, “the SSDI program spends too few societal resources helping individuals with disabilities to remain employed and too many resources supporting the long-term dependency of individuals who could be self-sufficient with . . . appropriate accommodation and support.”

Check out the whole piece here. Read more!

No Social Security COLA for 2016?

My former SSA collague Jason Ficthner of the Mercatus Center, writes for Marketwatch on the prospect that Social Security won't pay a Cost of Living Adjustment (COLA) in 2016. 

Lost in the news surrounding the release of the 2015 Social Security Trustees report is the likelihood that Social Security beneficiaries won't see a cost-of-living adjustment increase, or COLA, in 2016. According to the Trustees, Social Security beneficiaries can expect to receive a COLA increase of 0.0 percent. That's right ... a goose egg.

Why? Well, not much inflation. Check out Jason's piece for more details.

Side note: here's a New York Times piece on the COLA I wrote with Alicia Munnell back in 2010, when beneficiaries also faced the prospect of a zero COLA. Of all the  things I've written -- including some that in retrospect were incendiary and probably ill-considered -- none produced as strong and negative response as this piece. Some of the emails I received were scary. 




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New paper: “Social Security’s Financial Outlook: The 2015 Update in Perspective”

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

“Social Security’s Financial Outlook: The 2015 Update in Perspective”

by Alicia H. Munnell

The brief’s key findings are:

• The 2015 Trustees Report shows little change from last year:

• Social Security’s 75-year deficit declined modestly from 2.88 percent to 2.68 percent of payroll.

• The deficit as a percent of GDP remains at about 1 percent.

• Trust fund exhaustion moved back slightly from 2033 to 2034, after which payroll taxes still cover about three quarters of promised benefits.

• The shortfall is manageable, but action should be taken soon to restore confidence in the program and give people time to adjust to needed changes.

·   In addition, the disability insurance program needs immediate attention, as its trust fund is expected to be exhausted next year.

This brief is available here.  Read more!

Leading House Dem Proposes Bill to Merge Trust Funds

Rep. Xavier Becerra (D-CA) has introduced legislation that would merge the Social Security retirement and disability trust funds. The purpose of the merge is to reallocate revenues from the retirement to the disability plan, which would forestall the disability plan's insolvency, projected for late 2016. The Committee for a Responsible Federal Budget has a nice blog post summarizing the issues surrounding a trust fund merger.

But I'll be more blunt: merging the trust funds is an effort to -- almost literally -- paper over the larger policy problems with the Disability Insurance program. Yes, DI is suffering financially due to population aging and the larger number of women who qualify for benefits.

But if these were the only factors, it's unlikely we'd have seen such a large shift in the causes of disability applications from things like circulatory disorders (think heart disease) to mental and musculoskeletal disorders. Congressional changes in eligibility rules in the 1980s made it easier to apply for benefits based on those latter types of ailments.

It's also unlike we would have seen the shift in applicants toward less-educated, less-skilled workers had loosened eligibility rules, combined with stagnating wages for working-class individuals, made DI benefits more attractive.

But living on DI isn't an attractive life. You can survive, but only just. And you'll never get ahead, even modestly. It's not a life you'd wish for someone if there were any good alternatives. And there are. A substantial number of studies show that many DI beneficiaries have significant ability to work. If we reward work -- say, by making the EITC more generous -- and require that DI applicants first go through rehabilitation and re-employment training, we can shift the incentives toward staying in the workforce

But that's only going to happen if we decide to grapple seriously with disability reform. Rep. Becerra's bill to paper over the DI program's problems indicated that such an effort isn't likely. Read more!

New papers from the Social Science Research Network

"Evidence of Increasing Differential Mortality: A Comparison of the HRS and SIPP" 
Center for Retirement Research at Boston College Working Paper No. 2015-13

BARRY BOSWORTH, Brookings Institution - Economic Studies Program
Email: bbosworth@brookings.edu
KAN ZHANG, Brookings Institution
Email: KZhang@brookings.edu

This paper uses data from the Survey of Income and Program Participation (SIPP) and the Health and Retirement Study (HRS) to explore the extent of a widening in life expectancies by socioeconomic status (SES) for older persons. We construct four alternative measures of SES, using educational attainment, average (career) earnings in the prime working ages of 41-50, wealth, and occupational classifications.

The paper finds that: There is strong statistical evidence in both the SIPP and HRS of a growing inequality of mortality risk by SES across birth cohorts from 1910 to 1961. Growing inequality in mortality risk is evident using all four indicators of SES, but it is strongest for the measures based on career earnings and educational attainment. The secular changes in differential mortality are very large, but their influence on the length of time for which people receive benefits has been dampened by legal restrictions on early retirement for low-SES individuals and by voluntary postponement of retirement at the top of the distribution. Self-reported health status is a highly significant predictor of mortality risk, but its inclusion in the statistical models has only a marginal effect on the evidence of differential mortality operating through the various SES indicators. The combination of survey measures of the various SES indicators and the administrative records covering earnings, death records, and OASDI benefits provides a particularly large and rich data set for the analysis of mortality experience and its implications for the distribution of benefits.

The policy implications of the findings are: Indexing the retirement age to increases in average life expectancy to stabilize OASDI finances may have substantial unintended distributional consequences, because most mortality gains have been concentrated among workers with relatively high SES.

"Facing a Biased Adviser While Choosing a Retirement Plan. The Impact of Financial Literacy and Fair Disclosure." 
Journal of Consumer Affairs, 2015 Forthcoming

EYAL CARMEL, Ben-Gurion University of the Negev
Email: carmeley@gmail.com
DANA CARMEL, Ben-Gurion University of the Negev - Department of Psychology
Email: bomzedana@gmail.com
DAVID LEISER, Dept. of Psychology - Ben Gurion University of the Negev
Email: dleiser@bgu.ac.il
AVIA SPIVAK, Ben-Gurion University of the Negev - Department of Economics
Email: avia@bgumail.bgu.ac.il

Buying a retirement saving plan in Israel involves meeting with an agent whose interests may differ from those of his or her customers. The aim of the present study was to explore the effect of the advice given by the agent, along with that of two further factors: a fair disclosure statement regarding ‎the agent’s ‎conflict of interest, and the customer's degree of financial literacy. Two experiments conducted among undergraduate students in Israel showed that customers ‎mostly ‎follow the agent's recommendation, even against their best ‎interest, and despite the presence of a fair disclosure statement. Only participants with high financial literacy, who received a disclosure statement, did examine the alternatives closely and rejected the advice when the recommendation was damaging. We also ruled out the existence of a negative psychological reactance response to a disclosure statement that would work to the detriment of financially literate participants.

"Shifting the Place of Social Security: Welfare Reform and Social Rights Under the Coalition Government's Austerity Programme" 
Jed Meers, 'Shifting the Place of Social Security: Welfare Reform and Social Rights under the Coalition Government's Austerity Programme' (2015)

JED MEERS, University of York, York Law School, Students

Email: jed.meers@york.ac.uk

The overall focus of the changing nature of social rights protection under austerity needs to be linked, of course, with specific investigations of the administration of social welfare law and policy in the age of austerity. As part of this, a report has been complied analysing the UK Coalition Government’s welfare reform agenda by Jed Meers.

It seeks to outline and analyse the key reforms and legal challenges stemming from the Welfare Reform Act 2012, and identify key problems with the current legal tools available to challenge reforms and key themes arising in the case law

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Summary of 2015 Trustees Report from the Committee for a Responsible Federal Budget

The CRFB has produced a detailed but still readable summary of the 2015 Social Security Trustees Report, which was released yesterday. The report projected a small improvement in the program's finances versus the 2014 Report, with the combined trust funds projected to last an additional year and the long-term actuarial deficit slightly reduced.

The the Trustees still project that Social Security isn't close to financially sustainable without reforms. In particular, the Disability Insurance trust fund is projected to run out next year.

Click here to read their whole report.

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