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.

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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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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.

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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

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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.

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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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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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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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