Category Archives: Social Security

Overcoming Barriers to Retirement Security for Women: The Role of Social Security

Source: Joan Entmacher, Mikki Waid, and Benjamin W. Veghte, National Academy of Social Insurance, Social Security Brief No. 49, December 2016

From the abstract:
The share of women working today is near an all-time high. While their earnings and projected retirement incomes have grown compared to previous generations of women, a significant gender gap still exists. At the same time, women continue to bear most of the responsibility of caregiving, and many have to juggle the demands of work and taking care of a child or adult loved one. To compound this struggle, more women are handling these duties on their own, as more are either never married or divorced. These challenges put a strain on women’s ability to work and earn a decent living, making it difficult to achieve economic security in old age.

Social Security has proven to be the most effective vehicle for the achievement of retirement security for most women. Enhancing Social Security benefits would be an effective strategy for improving women’s retirement security—especially for women 75 or older, who face a significantly greater risk of poverty than their male counterparts. Expanding benefits would require increasing system revenue beyond what is necessary to close the projected long-term shortfall. Provisions that increase benefits for low earners, caregivers, or older seniors, or modernize benefits for certain marital statuses such as the divorced and survivors, would address the challenges that women particularly face. But they would be available on a gender-neutral basis and would benefit other economically vulnerable groups, including people of color and people with disabilities.

Social Security and the Racial Gap in Retirement Wealth

Source: Benjamin W. Veghte, Elliot Schreur, and Mikki Waid, National Academy of Social Insurance, December 2016

From the abstract:
Racial and ethnic gaps in wealth are substantial and persistent. The wealth of a the typical white household in 2013 was 13 times that of the typical black household and 10 times that of the typical Hispanic household. Social Security is a crucial component of most Americans’ financial security in retirement and makes up the vast majority of retirement wealth for most households of color. The gap in Social Security wealth between white households and households of color is substantially less than the gap in holdings of pension and IRA wealth. As a result, Social Security has a unique advantage to reduce the gap in retirement wealth for households of color. It provides universal coverage, requires mandatory contributions, and provides greater assets to those who need them most. A range of Social Security reform options are available to further reduce the gap in retirement wealth.

It Pays to Talk

Source: National Academy of Social Insurance, November 2016

From the summary:
Deciding when to take Social Security benefits is one of the most important financial decisions your parents will make. This infographic outlines thre things they should keep in mind to make smart claiming decisions. Depending on your parent’s financial situation, it may pay to wait, but definitely pays to talk.

The infographic is part of a toolkit of resources designed to educate workers approaching retirement, and their families and friends, about their options for taking Social Security benefits, and about why it can pay to wait.
it pays to talk to your parents about social security

The Social Security Retirement Age

Source: Wayne Liou, Congressional Research Service, CRS Report, R44670, October 28, 2016

The full retirement age (FRA) is the age at which workers can claim full Social Security retired worker benefits. The size of the monthly benefits is affected by when the worker claims benefits. The worker’s age when claiming benefits is compared with the FRA, and adjustments are made depending on the number of months before or after the FRA the worker claims benefits. Adjustments for claiming before or after the FRA are intended to result in similar total lifetime benefits, regardless of when the worker claims benefits: retiring before the FRA results in a reduction in monthly benefits (to take into account the longer expected period of benefit receipt) and retiring after the FRA results in an increase in monthly benefits (to take into account the shorter expected period of benefit receipt. The FRA was 65 at the inception of Social Security, but has been gradually increased upwards, to 67 for those born in 1960 or later. Claiming benefits past age 70 does not increase the monthly benefits.

The earliest age retired worker beneficiaries may begin receiving benefits is called the early eligibility age (EEA). The current EEA is 62 for retired workers and their spouses; retirement benefits cannot be claimed by workers or spouses prior to 62. Although workers cannot receive retirement benefits prior to the EEA, dependents could be eligible for benefits earlier than age 62 under certain circumstances. In 2015, approximately 40% of new retired worker beneficiaries claimed benefits at age 62. More than half of beneficiaries who claimed retired worker benefits in 2015 claimed before the FRA.

Social Security: Improvements to Claims Process Could Help People Make Better Informed Decisions about Retirement Benefits

Source: U.S. Government Accountability Office (GAO), GAO-16-786, September 14, 2016

From the summary:
GAO’s review of nine surveys and academic studies, and interviews with retirement experts, suggest that many individuals do not fully understand key details of Social Security rules that can potentially affect their retirement benefits. For example, while some people understand that delaying claiming leads to higher monthly benefits, many are unclear about the actual amount that benefits increase with claiming age. The studies and surveys also found widespread misunderstanding about whether spousal benefits are available, how monthly benefits are determined, and how the retirement earnings test works. Understanding these rules and other information, such as life expectancy and longevity risk, could be central to people making well-informed decisions about when to claim benefits. By having this understanding of retirement benefits, people would also be in a better position to balance other factors that influence when they should claim benefits, including financial need, poor health, and psychological factors.

The Social Security Administration (SSA) makes comprehensive information on key rules and other considerations related to claiming retirement benefits available through its publications, website, personalized benefits statements, and online calculators. However, GAO observed 30 in-person claims at SSA field offices and found that claimants were not consistently provided key information that people may need to make well-informed decisions. For example, in 8 of 26 claims interviews in which the claimant could have received higher monthly benefits by waiting until a later age, the claims specialist did not discuss the advantages and disadvantages of delaying claiming. Further, only 7 of the 18 claimants for whom the retirement earnings test could potentially apply were given complete information about how the test worked. SSA’s Program Operations Manual System (POMS) states that claims specialists should explain the advantages and disadvantages of filing an application so that the individual can make an informed filing decision. The problems we observed during the claims interviews occurred in part because the questions included in the claims process did not specifically cover some key information.
Online applicants have more access to key information on the screen or through tabs and pop-up boxes as they complete an application. However, similar to in-person interviews, the online application process does not inform claimants that benefits are based on the highest 35 years of earnings or that life expectancy is an important consideration in deciding when to claim.

Social Security Benefits, Finances, and Policy Options: A Primer

Source: National Academy of Social Insurance, August 2016

From the summary:
**Updated to reflect the estimates of the 2016 Trustees Report.**
The primer is a PowerPoint presentation of approximately 40 slides that provides factual background about Social Security, its benefits and finances, and some policy options to improve the program. The Academy’s income security staff ensures that the data in the presentation are up-to-date.
Topics covered include:
• Who receives Social Security? What are typical Social Security benefits? How do benefits compare to earnings for retirees at different wage levels?
• Who pays for it?
• How many older Americans receive employer-sponsored pensions?
• How are Social Security retirement benefits projected to change in the future?
• What is Social Security disability insurance?
• What are the “best estimate” long-range projections of Social Security finances? What do the high-cost and low-cost projections show? What is the actuarial deficit?
• Why will Social Security cost more in the future? Can we afford Social Security in the future? How can we strengthen Social Security in the future? What are our options? Why consider revenue enhancements to balance Social Security?
• What do American workers say?

Users can download the PowerPoint presentation and sort the slides in a different order or pick and choose a subset to use. The presentation includes talking points that go with each slide. To view the talking points, simply go to View > Notes Page. The sources for the factual material are listed on each slide.

The PDF versions include both the slides and the notes pages that go with them on the same page.

How Can We Realize the Value That Annuities Offer in a 401(k) World?

Source: Steven A. Sass, Center for Retirement Research at Boston College, IB#16-12, July 2016

The brief’s key findings are:
• A growing number of people are entering retirement with more 401(k) savings and less annuity income from Social Security and traditional pensions.
• Annuities assure a lifelong income stream and – compared to other draw-down options – can provide attractive payouts, which can help cover late-life health costs.
• But few individuals buy annuities, partly due to behavioral barriers such as the complexity of valuing the product and the way that draw-down options are framed.
• Options for overcoming these barriers include:
• educating individuals to focus more on the income they can draw from their nest egg, rather than its size; and
• automatically putting a portion of 401(k) assets in an annuity, perhaps an Advanced Life Deferred Annuity that kicks in later in retirement.

Are Early Claimers Making a Mistake?

Source: Alicia H. Munnell, Geoffrey T. Sanzenbacher, Anthony Webb and Christopher M. Gillis, Center for Retirement Research at Boston College, WP#2016-5, July 2016

From the abstract:
Using Health and Retirement Study (HRS) data and Latent Class Analysis for three cohorts (those born in 1931-1936, 1937-1941, and 1942-1947), this paper explores: 1) who claims Social Security benefits at age 62; 2) what percentage of households claiming at 62 are unprepared for retirement; and 3) whether the unprepared early claimers were pushed into claiming through job shocks and/or poor health or simply decided to take benefits early. Looking across three cohorts makes it possible to see whether these patterns have changed as the average claim age has increased and pension coverage has shifted away from defined benefit (DB) plans. That is, have those who have moved out of age-62 claiming been educated, financially prepared households or unprepared households that have recognized the need to delay claiming?

The paper found that:
• Consistent with previous research, the HRS shows a decline in those claiming at 62.
• Age-62 claimers are less well off than “postponers” in some ways and better off in others.
• Latent class analysis shows that this mixed picture reflects the average of: 1) those with little education and poor job prospects (disadvantaged); and 2) those with at least some college and sufficient resources to claim early (advantaged).
• The percentage of the age-62 claimers in each of these groups has remained virtually constant over the three cohorts.
• Comparing the calculated household replacement rates with target rates from previous research shows that, overall, roughly 65 percent of households claiming at 62 are not prepared; the rate for the disadvantaged group is twice the rate of the advantaged group.
• The percentage unprepared at 62 has increased over time, reflecting an overall trend toward less preparedness.
• A simple probit regression suggests that health and employment shocks and the absence of a DB pension are related to the lack of preparedness for both the disadvantaged and advantaged.

The policy implications of the findings are:
• Given the increasing trend in unpreparedness, further cuts to Social Security benefits would exacerbate this problem.
• Workers claiming at 62 with DB plans were especially likely to be prepared; these plans are not coming back, so the challenge is whether the 401(k) system can be enhanced.

How Would Investing in Equities Have Affected the Social Security Trust Fund?

Source: Gary Burtless, Anqi Chen, Wenliang Hou, Alicia H. Munnell and Anthony Webb, Center for Retirement Research at Boston College, WP#2016-6, July 2016

From the abstract:
Some observers believe that investing a portion of the Social Security Trust Fund in equities would strengthen its finances and improve the program’s intergenerational risk-sharing. However, equity investments would also expose the program to greater financial risk and potentially greater political risk. Monte-Carlo simulation methods are used to investigate whether equity investments would likely strengthen the long-term outlook of the Trust Fund relative to the current policy of investing 100 percent of reserves in U.S. government bonds. The issues surrounding equity investments also go beyond expected returns on the Trust Fund portfolio. Concerns of government interference with the allocation of capital in the economy and with corporate decision-making as well as the accounting treatment of equity investments are also discussed.

This paper found that:
• Both prospective and retrospective analyses suggest that investing a portion of the Social Security Trust Fund in equities would have improved its finances.
• Little evidence exists that Trust Fund equity investments would disrupt the stock market.
• Accounting for returns on a risk-adjusted basis would not show any up-front gains from equity investment, but gains would become evident over time if higher returns were realized.
• Equity investments could be structured to avoid government interference with capital markets or corporate decision-making.

The policy implications of this paper are:
• Investing a portion of trust fund assets in equities would likely reduce the need for higher payroll taxes.
• At the 50th percentile of outcomes, equity investing has the potential to maintain a healthy Trust Fund ratio through the 75-year period.
• The experience with the Thrift Savings Plan provides a road map for separating the government from actual investment decisions.

Raising the Retirement Age, Fairly

Source: Anne Alstott, Yale Law School, Public Law Research Paper No. 566, March 1, 2016

From the abstract:
A growing chorus of policy analysts is calling for an increase in the Social Security retirement age. Even staunch defenders of Social Security have begun to concede that the retirement age of 66 is too low, in light of the increasing longevity, improving health, and expanding work options of older Americans. Still, some progressives worry that the only way to protect disadvantaged workers is to leave the early and full retirement ages as they are. The result is a debate that pits intergenerational fairness against intragenerational fairness: either we shortchange the young (by paying unneeded benefits to the old) or else we shortchange the disadvantaged (by raising the retirement age to levels that are unrealistic for low-earners).

We can solve the policy deadlock by reframing the question. Policy debates tend to focus on how high the retirement age should rise. But age is, more and more, a contingent category, with shifting physical and social meaning. Instead of beginning with chronological age, we can and should start with a deeper account of the objectives of retirement policy.

These two chapters from A NEW DEAL FOR OLD AGE (Harvard University Press, 2016) lay out criteria for inter- and intragenerational justice and show that it is possible, both technically and politically, to preserve Social Security early retirement for workers who need it while creating financial incentives for better-off workers, still able to work, to delay their Social Security claims. And well-crafted reforms could accomplish this progressive goal while preserving the appearance of universality.