Social Security Retirement Benefits Research Articles

Older workers’ employment and Social Security spillovers through the second year of the COVID-19 pandemic

AbstractThe COVID-19 pandemic triggered a large and immediate drop in employment among U.S. workers, along with major expansions of unemployment insurance (UI) and work from home. We use Current Population Survey and Social Security application data to study employment among older adults and their participation in disability and retirement insurance programs through the second year of the pandemic. We find ongoing improvements in employment outcomes among older workers in the labor force, along with sustained higher levels in the share no longer in the labor force during this period. Applications for Social Security disability benefits remain depressed, particularly for Supplemental Security Income. In models accounting for the expiration of expanded UI, we find some evidence that the loss of these additional financial supports resulted in an increase in disability claiming. Social Security retirement benefit claiming is approximately 3% higher during the second year of the pandemic.

Three little words? The impact of social security terminology on knowledge and claiming intentions

AbstractWe study the impact of changing the existing terminology to describe the rules governing Social Security retirement benefits. We provided respondents from a nationally representative online panel with information pertinent to the decision of when to claim Social Security retirement benefits. The content of the information treatments was identical for all respondents, but some were randomly given an alternative set of terms to refer to the key claiming ages (the experimental treatment group), while others were given the current terms (the control group). Despite the minimal nature of the change, there were significant differences in outcomes. Those in the treatment group spent less time reading the information, but their understanding of the Social Security program improved more than the control group. In addition, the treatment delayed retirement claiming intentions by an average of about two and a half months and increased the recommended claiming age to vignette characters by a similar magnitude. The effects were particularly strong for those with low levels of financial literacy. The relative gains in knowledge persisted several months after the treatment.

Valuing Losses of Pension Benefits

Valuing Losses of Pension Benefits

The impact of Covid-19 on older workers' employment and Social Security spillovers.

The COVID-19 pandemic represents a major threat to health and economic well-being in the USA, especially for older and disabled workers, and may spill over onto Social Security. We use individual-level from the Current Population Survey, state-level monthly Social Security administrative data on disability benefit applications, and national-level monthly data on Social Security retirement benefit applications to assess the impact of the pandemic on older adults’ employment and benefit claiming. State-level monthly Google Trends data are used as a leading indicator of future claiming in the population. We find that employment for older workers dropped substantially more than would have been predicted prior to the pandemic: employment for 50–61-year-olds was 5.7 pp (8.3 percent) lower, while employment for 62–70-year-olds was 3.9 pp (10.7 percent) lower. We find declines in labor force exit due to disability (4–5 percent), applications for disability insurance (15 percent), the average age of disability program applicants, and Google searches for disability (7 percent). We contrast with prior periods of economic downturn and explore potential mechanisms, finding evidence for both supply- and demand-side explanations.Supplementary informationThe online version contains supplementary material available at 10.1007/s00148-022-00915-z.

The relationship of financial stress with the timing of the initial claim of U.S. Social Security retirement income

• Early claiming of U.S. Social Security retirement benefits reduces yearly benefits. • The higher is financial stress the less likely is an early benefit claim. • Increased earnings at age 60 tend to delay claiming retirement benefits. • High financial stress increases the likelihood of raised earnings delaying claiming. A large number of U.S. adults claim Social Security benefits at age 62, substantially earlier than the government specified full retirement age. One implication of an early claim is a reduction in the amount of future monthly benefits. The literature on the timing of Social Security claiming has developed numerous hypotheses to explain this behavior; however, previous empirical work has found few factors are statistically significant explanators of early benefit claims. We propose a new test concerning why some older adults claim Social Security benefits early; specifically, we test whether the level of an individual’s financial stress prior to the claiming decision is associated with a benefit claim at age 62. Our analysis finds that the greater the level of financial stress prior to claiming, the less likely is claiming, controlling for many aspects of an individual’s financial, social, and demographic situation. Comparing two individuals, we find that a person with a relatively high level of financial stress is 4 to 7 percentage points more likely to delay claiming Social Security benefits than a person with a low level of financial stress. We also find that earned income moderates the relationship between an individual’s financial stress and early claiming, where the same increase in financial stress is more likely to result in a delay in claiming for those with higher earnings than those with lower earnings.

Delaying Social Security Retirement Benefits: The Bridge to Better Outcomes in Defined Contribution Plans?

Delaying Social Security Retirement Benefits: The Bridge to Better Outcomes in Defined Contribution Plans?

Housing wealth shocks, home equity withdrawal, and the claiming of Social Security retirement benefits

AbstractThis paper examines the impact of changes in house prices on when eligible individuals start receiving Social Security benefits. If house prices appreciate, financially constrained households may draw upon the additional home equity and delay receipt of Social Security. To address concerns that house price changes are correlated with unobserved local demand shocks, we use a control function approach and two different instrumental variables. We find that individuals delay Social Security claiming when house prices increase during the housing boom period. We also find that the total home loan amount increases, indicating households are drawing upon their home equity.

The Growing Socioeconomic Gap in Lifetime Social Security Retirement Benefits: Current and Future Retirees.

Increasing socioeconomic disparities, including in life expectancy, have important implications for the U.S. Social Security program. This study examined inter- and intracohort trends in Social Security retirement benefits, paying special attention to how lifetime benefit trajectories by socioeconomic circumstance shift across cohorts encompassing current and future retirees. Using a dynamic microsimulation model based on representative survey data linked to administrative records, we developed a set of cohort-specific projections that estimate monthly and lifetime Social Security retirement benefits for retirees spanning the early baby boom (1945-1954) to Generation X (1965-1974) cohorts. We found a widening socioeconomic gap in projected monthly and lifetime benefits for men and women, especially on a lifetime basis. This divergence is associated with stagnation of benefit levels among lower socioeconomic status groups coupled with upward shifts among higher strata groups. Distributional changes are linked with increasing differential mortality, but other factors also likely play a role such as rising education premiums, growing earnings inequality, and changes in women's work and relationship histories. Widening mortality differentials can lead to distributional changes in the U.S. Social Security program. Microsimulation methodology lends insights into how the socioeconomic gap in monthly and lifetime benefit distributions may change among future older Americans in the context of differential mortality and other demographic changes. Moving forward in time, these complex patterns could offset some of the progressivity built into the system.

The Consequences of Current Benefit Adjustments for Early and Delayed Claiming

Workers have the option of claiming Social Security retirement benefits at any age between 62 and 70, with later claiming resulting in higher monthly benefits. These higher monthly benefits reflect an actuarial adjustment designed to keep lifetime benefits equal, for an individual with average life expectancy, regardless of when benefits are claimed. The actuarial adjustments, however, are decades old. Since then, interest rates have declined; life expectancy has increased; and longevity improvements have been much greater for high earners than low earners. This paper explores how changes in longevity and interest rates have affected the fairness of the actuarial adjustment over time and how the disparity in life expectancy affects the equity across the income distribution. It also looks at the impact of these developments on the costs of the program and the progressivity of benefits. The paper found that: • The increases in life expectancy and the decline in interest rates argue for smaller reductions for early claiming and a smaller delayed retirement credit for later claiming. • Specifically, the benefit at 62 should equal 77.5 percent, as opposed to 70.0 percent, of the full age-67 benefit, and the benefit at 70 should equal 119.9 percent, instead of 124.0 percent, of the full benefit. • The outdated actuarial adjustments are a modest moneymaker for the program – about $1.9 billion in 2018, with most of the gains coming from those claiming at 62, who are typically lower earners. Surprisingly, the correlations between earnings and life expectancy and between earnings and claiming behavior have only modest implications for both the cost and progressivity of Social Security benefits. • Finally, the cost and distributional effects of earnings-related life expectancy and claiming cannot be addressed through the actuarial adjustments for early and late claiming. They reflect the fact that high earners get their large benefits for a long time and low earners get their more modest benefits for a shorter time. The policy implications of the findings are: • Increases in life expectancy and the decline in interest rates suggest smaller reductions for early claiming and a smaller delayed retirement credit for later claiming. • Accounting for differential mortality would involve changing benefits, and is not a problem that can be solved by tinkering with the actuarial adjustments.

How the COVID-19 pandemic could reduce near-retirees' Social Security benefits

AbstractA quirk in the Social Security benefit formula interacting with the sharp economic downturn due to the COVID-19 pandemic could cause certain groups of near-retirees to suffer significant and permanent reductions to their Social Security retirement benefits. A sudden decline in the Social Security Administration (SSA)'s measure of economywide average wages in the year a worker turns 60 causes the Social Security benefit formula to devalue all the worker's earnings prior to age 60, resulting in a lower measure of career-average earnings and a lower benefit in retirement. A middle-income worker aged 60 in 2020 could receive an annual Social Security benefit reduction of around 9%, with losses through retirement approaching $46,000. Individuals becoming eligible for Social Security Disability Insurance benefits would be subject to similar reductions in percentage terms. Several methods are discussed to reduce or eliminate the likelihood of similar benefit ‘notches’ occurring in the future.

How Self-Employed Older Adults Differ by Age: Evidence and Implications From the Health and Retirement Study.

There has been increased attention in recent years on self-employment in later life, with about 1 in 5 workers past of the age of 50 working for themselves. This study aims to build upon previous documentation of the characteristics of self-employed older adults by estimating how these characteristics vary by age. Using 7 waves of the Health and Retirement Study with a sample of more than 16,000 working older adults, this study considers how the association between self-employment and sociodemographic characteristics; indicators of human, social, and financial capital; and risk tolerance differ between adults aged 50-61 and 62 years and older. Binary logistic regression and seemingly unrelated estimation are used to estimate and compare the characteristics by age group. Compared to wage-and-salary work and controlling for all other factors in the models, the oldest self-employed group was more likely to identify as Black, report lower health, and receive health insurance from several sources than the younger group. Further, the older group reported lower individual earnings from work yet higher total household income (less individual earnings) and was also less likely to formally volunteer at the highest commitment levels. With some exceptions, these results indicate that the diversity of self-employed older adults within traditional retirement age is greater than among those before this age. Implications regarding how access to key safety net programs, such as Social Security retirement benefits and Medicare, may lead to this finding are discussed.

Funding Direct Payments to Americans Through Social Security Deferral

We analyze in this whitepaper a way of addressing both targeting and financing in a direct payment (or “stimulus check”) program to provide households with additional liquidity during the economic downturn associated with the COVID-19 virus: by allowing voluntary loans to individuals in which the proceeds would be paid back through deferral of Social Security retirement benefits at the time when the individual claims Social Security. Specifically, those individuals that choose to receive a check would have the balance carried forward at a pre-specified, favorable government interest rate until the time that they choose to claim Social Security. At that time, the loan would be repaid out of the very first Social Security checks the individual would otherwise receive. Those who choose to receive no check would keep their Social Security retirement benefits unchanged. For most individuals, the delay that could be expected to repay a $5,000 check would be at most 3 months in order to make the program budget neutral.

Social Security and Trends in Inequality

Recent influential work finds large increases in inequality in the U.S. based on measures of wealth concentration that notably exclude the value of social insurance programs. This paper revisits this conclusion by incorporating Social Security retirement benefits into measures of wealth inequality. We find that top wealth shares have not increased in the last three decades when Social Security is properly accounted for. This finding is robust to assumptions about how taxes and benefits may change in response to system financing concerns. When discounted at the risk-free rate, real Social Security wealth increased substantially from $4.9 trillion in 1989 to $52.6 trillion in 2019. When we adjust the discount rate for long-run macroeconomic risk, this increase remains sizable, growing from over $4.0 trillion in 1989 to $41.2 trillion in 2019. Consequently, by 2019, Social Security wealth represents 59% of the wealth of the bottom 90% of the wealth distribution.

How the Coronavirus Could Permanently Cut Near-Retirees’ Social Security Benefits

As a group, retirees are more financially insulated from the economic effects of the COVID-19 pandemic than are most other demographic groups in the United States. Yet due to how the Social Security benefit formula interacts with the sharp economic downturn due to the Coronavirus, some groups of near-retirees are likely to suffer substantial permanent reductions to their Social Security retirement benefits. Assuming a 15 percent decline in the Social Security Administration's measure of economywide average wages in 2020, a middle-income worker born in 1960 could have his annual Social Security benefits in retirement reduced by around 13 percent, with losses over the retirement period in excess of $70,000. Methods of addressing this problem are discussed, including both ad hoc adjustments applying only to affected cohorts, and also permanent changes to the benefit formula to prevent similar benefit “notches” from occurring in the future.

Multiple Myopias, Multiple Selves, and the Under-Saving Problem

In both public policy debate and the academic literature, there is widespread, though not universal, agreement that millions of Americans are saving too little for their own retirements. If this is true, we could potentially increase such individuals’ welfare through the adoption of policies that resulted in their saving more. A key dilemma, however, is that, unless one understands why people are under-saving, it is hard to evaluate the likely responses to or merits of a given policy.Possible explanations for systematic under-saving include at least the following: (1) naive myopia, (2) sophisticated or self-aware myopia, (3) procrastination, or putting off any active decision because deciding is difficult or stressful, (4) mistake aversion, or not wanting to risk regret of an “active” decision that turns out poorly, and (5) acting as if one had multiple selves with distinct utility functions, causing decisions to depend on which is dominant at a given time.These causal accounts differ predictively, with regard to how they suggest people subject to them would respond to a given policy. They also differ diagnostically, with regard to whether the increased saving induced would be by the “right” people (i.e., those whom we believe are under-saving). Yet they can be hard to tell apart in practice. What is more, the same individual may be subject to several at once, or to alternative ones at different times.The alternative explanations for systematic under-saving can have very differing implications for such issues in U.S. public policy debate as the following:1) Should income tax benefits for retirement saving be reduced or even repealed?2) Should the U.S. federal income tax be partly or fully replaced by a consumption tax?3) Should “nudges” such as automatic enrollment be used to increase employee participation in employer-run retirement savings plans?4) Should Social Security retirement benefits be scaled back for long-term fiscal plans, or alternatively expanded?5) Should the design of Social Security be changed, such as by making the relationship between payroll taxes paid and benefits received both actually and optically clearer?The paper’s aim is not to offer definite answers to any of these questions, but simply to improve understanding of the likely relationship between leading theoretical explanations for under-saving and the above issues.

Three Little Words? The Impact of Social Security Terminology

We study the impact of changing the existing terminology used to describe the rules governing Social Security retirement benefits. We provided respondents from a nationally-representative online panel with information pertinent to the decision of when to claim Social Security retirement benefits. The content of the information treatments was identical for all respondents, but some were randomly given an alternative set of terms to refer to the key claiming ages (the experimental treatment group) while others were given the current terms (the control group). Despite the minimal nature of the change, there were significant differences in outcomes. Those in the treatment group spent less time reading the information but their understanding of the Social Security program improved more than in the control group. In addition, the treatment had the effect of delaying retirement claiming intentions by an average of about two and a half months. Respondents in the treatment group also were more likely to state they would advise standardized characters in hypothetical vignettes to claim later in life. Direct elicitation of all respondents’ preferences also revealed they thought the alternative terms were clearer. The relative gains in knowledge among those exposed to the alternative terms persisted several months after the treatment. These effects are stronger for those with low baseline levels of financial literacy.

The potential impact of policies to reduce Social Security funding shortfalls on consumers' expected benefits and behavior

AbstractTo ensure the long-term sustainability of the US Social Security System, several policy alternatives can theoretically be implemented. However, in practice, consumer responses can be challenging for policymakers to anticipate. We conducted a randomized survey on the nationally-representative Understanding America Study (UAS) panel where respondents were presented with a series of ‘policy scenarios’ in which the government enacts alternative reforms aimed to reduce the expected shortfall in the trust fund that pays Social Security retirement benefits. These scenarios included an increase in the Social Security payroll tax, an increase in the wage ceiling, and a reduction of benefits. We find that changes in respondents’ subjective expectations about their benefits and how this will affect their behaviors are directionally consistent with what would be expected when individuals are attentive to the available information and form rational expectations (e.g., monthly benefit expectations increase upon the announcement of an increase in the Social Security tax rate or in the wage ceiling, and they decrease less-than-proportionally with hypothetical benefit cuts). However, surprisingly, these changes are not sensitive to the magnitudes of policy change (e.g., the increase in expected benefits is about the same regardless of the size of Social Security payroll tax increases). Individuals with higher levels of education, cognitive ability, and financial literacy are more likely to adjust their expectations as predicted by theory.

RETIRING AND CAREGIVING IN THE AGE OF STUDENT LOANS: THE IMPACT OF STUDENT DEBT ON RETIREMENT AND LONGEVITY PLANNING

Saving for retirement and the ability to provide care for a loved one can be dramatically affected by student loan debt. Currently, approximately 44 million people of all ages in the United States carry the weight of over 1.4 trillion dollars of student loan debt. Student loan borrowers of all ages may experience lower financial preparedness for retirement as well as decreased ability to provide care for family members, including aging parents. While older adults hold a relatively small proportion of student loans, they are the fastest growing subset of student loan borrowers and have disproportionately high rates of student loan defaults. As a result of their defaults, the Social Security retirement benefits of Americans ages 65 and older experienced a 500% increase in offsets over the last decade. This presentation will spotlight an MIT AgeLab mixed methods study about how student loan borrowers between the ages of 51 and 75 experience student loans within family systems and perceive and prioritize longevity planning in light of their student loans. Data collected for this study include focus groups and a large national survey. Preliminary findings suggest that for older borrowers, student loans are generally one of several financial constraints that can inform spending and saving decisions. For most, student loan payments are regarded as stunting overall retirement savings while the minority regard the two separately. Older borrowers also tend to have increased financial and familial responsibilities, including caring for aging parents, that compete for borrowers’ limited financial and temporal resources.

ASSESSING THE ADEQUACY OF SOCIAL SECURITY RETIREMENT BENEFITS ACROSS RACE-ETHNICITY, GENDER, AND AGE OF RETIREMENT

This research assessed the adequacy of Social Security retirement benefits across race-ethnicity, gender, and age of retirement, and in turn, whether the differing levels of benefit adequacy have any relation to mortality risk. Prior studies generally find that a replacement rate of between 70 to 80 percent of prior earnings would likely allow a worker to maintain his or her standard of living in retirement since various work-related expenses are reduced or eliminated at the point of transition. As such, the current study used panel data from the 1996 - 2016 waves of the Rand version of the Health and Retirement Study to 1) determine earnings replacement rates for non-Hispanic White, non-Hispanic Black, and Hispanic males and females in the first period of retirement, and 2) to examine whether earnings replacement rates are associated with mortality risk in a Cox regression model. The findings revealed that for those retiring at age 65 or later, Hispanic females and White males had the lowest earnings replacement rates at 39.3% and 40.7%, respectively. For those retiring before age 65, Hispanic males and White males had the lowest earnings replacement rates at 30.3% and 26.7%. Although replacement rates should indeed be lower for high earners due to Social Security’s progressive benefit formula, the low replacement rates determined for Hispanic males and females were unexpected. Moreover, mortality risk was found to be significantly associated with earnings replacement rates in the final model, but the combination of race-ethnicity and gender still showed a stronger relation.

Building a Sustainable Construction Workforce.

The average U.S. construction worker is aged 42.6 years, and will not be eligible for full Social Security retirement benefits until age 67. Delayed retirement is largely driven by economic need, but construction workers face considerable challenges in remaining on the job. This study explores trade-specific age trends within the construction industry, and the experiences of building trade unions with aging membership. A mixed-methods approach used trade-specific age statistics from the Current Population Survey and key informant interviews with labor leaders, in order to identify union experiences and interventions. Mean and median ages for all subgroups in construction increased from 2003 to 2017. Immigrant construction workers were significantly younger than workers who were born in the U.S. (41 vs. 43, p < 0.001). Union workers were older than non-union workers (42 vs. 39 in 2017, p < 0.001); the age differential between self-employed and wage-and-salary workers was wide (49 vs. 40, p < 0.001). Union leaders described barriers, such as age discrimination and the loss of previously available light tasks, as well as current and potential solutions through union contract language requiring the inclusion of older workers, or establishing limits for lifting. Other solutions included career pathways for training and safety, with their attendant limitations; mentoring/pairing opportunities with apprentices; and the potential opportunities and training needs for site management positions.