Category Archives: Social Security

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.

Social Security Disability Insurance: Participation and Spending

Source: Congressional Budget Office, publication 51443, June 2016

From the summary:
The Social Security Disability Insurance (DI) program pays cash benefits to nonelderly adults who have worked in the past but are judged to be unable to continue performing substantial work because of a disability. The program also pays benefits to some of those adults’ dependents. In 2015, the DI program paid a total of $143 billion, or about 0.8 percent of gross domestic product (GDP), in benefits to almost 9 million disabled beneficiaries and about 2 million of those beneficiaries’ spouses and children. Disabled beneficiaries generally are entitled to Medicare after a two-year waiting period; the cost of those benefits in 2015 was around $85 billion, or about 0.5 percent of GDP, CBO estimates.

How Have Enrollment and Spending Changed Since 1970?
Between 1970 and 2014, the share of working-age people who receive DI benefits as a result of their own disability and whose DI benefits are calculated on the basis of their own disability and work history more than tripled, increasing from 1.3 percent to 4.5 percent, before declining slightly in 2015. The increase in DI beneficiaries since 1970 is attributable to changes in the characteristics of the working-age population, in federal policy, and in employment…..

Social Security’s Financial Outlook: The 2016 Update in Perspective

Source: Alicia H. Munnell, Center for Retirement Research at Boston College, IB#16-10, June 2016

The brief’s key findings are:
– The 2016 Trustees Report shows virtually no change:
– Social Security’s 75-year deficit is 2.66 percent of payroll, just a hair below the 2015 projection.
– The deficit as a percentage of GDP remains at about 1 percent.
– Trust fund exhaustion is still 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.
– Also of note, the Bipartisan Budget Act of 2015 did two things:
– It reallocated payroll taxes to extend the life of the DI trust fund.
– It helpfully eliminated claiming loopholes, which had a small positive effect on program finances.

How Work & Marriage Trends Affect Social Security’s Family Benefits

Source: Steven A. Sass, Center for Retirement Research at Boston College, IB#16-9, June 2016

The brief’s key findings are:
Social Security’s spousal and survivor (“family”) benefits were designed in the 1930s for a one-earner married couple. Today, family benefits contribute less to retirement income because most married women work, and many households are headed by single mothers. Single mothers who were never married are not eligible for family benefits, nor are divorced women who were married less than 10 years. These women often find it harder to earn an adequate Social Security benefit on their own, as their work opportunities are constrained by child-rearing duties. Policy experts have suggested ways to help: Earnings sharing among married couples could raise benefits for women who later become divorced. Caregiving credits could help mothers regardless of their marital status.

Cumulative Advantage and Disadvantage: Across the Life Course, Across Generations

Source: Public Policy & Aging Report, Volume 26, Issue 2, 2016
(subscription required)

From the introduction:
….[M]ost of the attention surrounding “making an issue of income inequality” has focused on the hardships facing working-age and younger people as they struggle to put food on the table and find a place for themselves in the world of work. Receiving less attention in these analyses is the fate of millions of older adults who struggle in both similar and different ways from inequality’s effects. This absence results in part from the cross-sectional view commonly taken of older people: They are there, however they got there, and “God bless them.” But beyond this homogenizing stereotype is the more pernicious and misleading assumption that government programs—Social Security and Medicare in particular—have a major leveling effect on well-being in old age. That these programs are universal—with all the salutary consequences associated with that status—is conflated with assumptions about cross-class redistribution within them of which there is in fact very little. ….

Articles include:
Cumulative Advantage and Disadvantage: Across the Life Course, Across Generations
Robert B. Hudson

Late-Life Inequality in the Second Gilded Age: Policy Choices in a New Context
Stephen Crystal

Frames Matter: Aging Policies and Social Disparities
Renée L. Beard and John B. Williamson

Societal Legacies of Risk and Protection in the Reproduction of Health Disparities
Melissa Hardy

Race, Gender, and Senior Economic Well-Being: How Financial Vulnerability Over the Life Course Shapes Retirement for Older Women of Color
Laura Sullivan and Tatjana Meschede
Cumulative Advantage and Retirement Security: What Does the Future Hold?
Richard W. Johnson

Unequal Aging: Lessons From Inequality’s End Game
Corey M. Abramson

Government Old-Age Support and Labor Supply: Evidence from the Old Age Assistance Program

Source: Daniel Fetter, Lee M. Lockwood, National Bureau of Economic Research (NBER), NBER Working Paper No. w22132, March 2016
(subscription required)

From the abstract:
Many major government programs transfer resources to older people and implicitly or explicitly tax their labor. In this paper, we shed new light on the labor supply effects of such programs by investigating the Old Age Assistance Program (OAA), a means-tested and state-administered pension program created by the Social Security Act of 1935. Using newly available Census data on the entire US population in 1940, we exploit the large differences in OAA programs across states to estimate the labor supply effects of OAA. Our estimates imply that OAA reduced the labor force participation rate among men aged 65-74 by 5.7 percentage points, nearly half of its 1930-40 decline. Estimating a structural model of labor supply, we find that the welfare costs to recipients of the high tax rates implicit in OAA’s earnings test were quite small. Predictions based on our reduced-form estimates and our estimated model both suggest that Social Security could account for at least half of the large decline in late-life work from 1940 to 1960.

The Child Support Enforcement Program: A Legislative History

Source: Carmen Solomon-Fears, Congressional Research Service, CRS Report, R44423, March 21, 2016

The Child Support Enforcement (CSE) program was enacted in 1975 as a federal-state program (Title IV-D of the Social Security Act, P.L. 93-647). It is intended to help strengthen families by securing financial support for children from their noncustodial parent on a consistent and continuing basis and by helping some of these families to remain self-sufficient and off public assistance. Child support payments enable parents who do not live with their children to fulfill their financial responsibility to them by contributing to the payment of childrearing costs. …..

A Young Person’s Guide to Social Security, Third Edition

Source: Kathryn Anne Edwards, Anna Turner, Alexander Hertel-Fernandez, Economic Policy Institute and the National Academy of Social Insurance, January 2016

From the abstract:
UPDATED! Social Security is the nation’s most successful anti-poverty program and it remains a fundamental pillar of the American economy—one that is critical to the long-term economic security of today’s young people. A Young Person’s Guide to Social Security, Third Edition (PDF) released by the Economic Policy Institute and the National Academy of Social Insurance, gives young adults the information they need to participate in debates about Social Security’s future. The 60-page guide is written by young authors for students and young workers and explains why Social Security is not in grave danger as oft-reported.