Value Of Social Security Benefits Research Articles

Does Bridge Employment Mitigate or Exacerbate Inequalities Later in Life?

Abstract Most older Americans with career employment change jobs at least once before retiring from the labor market. Much is known about the prevalence and determinants of these bridge jobs, yet relatively little is known about the implications of such job changes—compared to direct exits from a career job—upon economic disparities in later life. In this article, we use 26 years of longitudinal data from the Health and Retirement Study to document the various pathways that older Americans take when exiting the labor force, and examine how bridge employment affects nonhousing wealth and total wealth, including the present discounted value of Social Security benefits. We find that gradual retirement in the form of bridge employment neither exacerbates nor mitigates wealth inequalities among Americans who hold career jobs later in life. That said, we do find some evidence that wealth inequalities grow among the subset of older career workers who transition from career employment to bridge employment at older ages. One policy implication of our article is that it provides evidence that might allay concerns about the potential for disparate financial impacts associated with the gradual retirement process.

Does Bridge Employment Mitigate or Exacerbate Inequalities Later in Life?

This paper explores how gradual retirement impacts inequality later in life, with a focus on transitions from career to bridge employment. We use 26 years of longitudinal data from the Health and Retirement Study to document the various pathways that older Americans take when exiting the labor force, and examine how bridge employment impacts non-housing wealth and total wealth, including the present discounted value of Social Security benefits. We find that gradual retirement in the form of bridge employment neither exacerbates nor mitigates wealth inequalities among Americans who held career jobs later in life. We do find evidence that wealth inequalities grow among the subset of older career workers who transition from career employment to bridge employer at older ages. These findings provide quantitative evidence that bridge employment at older ages is taken by those who need to continue working financially and those who continue working for nonpecuniary reasons.

The Financial and Tax Considerations of Social Security and Early Retirement

Although individuals who delay the receipt of social security benefits are entitled to larger monthly payments, 57% of recipients elect to receive benefits early. This article compares the present value of social security benefits when taken early to the present value of benefits taken at the full or maximum retirement ages, taking into account factors such as average life expectancy and the time value of money. Furthermore, we expand on prior research by investigating how tax rates may affect these comparisons. Overall, our analyses suggest that taking social security early may be advantageous for many individuals. <b>Key Findings</b> ▪ Electing to receive social security benefits early may yield a higher expected present value stream of payments for those with a moderate risk profile. ▪ Early election may be most beneficial for retirees with the majority of their savings in tax-free accounts. ▪ However, the benefit of electing early appears to persist even for those with retirement portfolios subject to substantial taxation.

Love at What Price? Estimating the Value of Marriage

Using a law within Social Security that provides clear financial incentives to delay marriage, we estimate the financial value of a month of marriage. Specifically, the law provides that widows who are eligible for Social Security benefits on their deceased spouse's earnings records are eligible for benefits at age 60, unless they remarry before that age. If they remarry before that age, they cannot claim widow benefits and must wait until at least age 62 to claim spousal benefits on their new husband's record, which are typically less generous than widow benefits. To generate an estimate of what this behavior implies about the value of marriage, we use data from five panels of the Survey of Income and Program Participation linked to administrative data from Social Security. We estimate the cost of marrying before age 60 imposed by the Social Security program. We develop a model that reflects the institutional details of Social Security and generate a likelihood function that reflects that model. By taking advantage of the variation in these costs and when or whether widows remarry before age 60, we estimate the benefit of marriage to be $8000/month. These estimates appear to be reasonable in the context of the short length of time widows are willing to wait and the high value of Social Security benefits.

Cutting social security and tax credit spending

Since being elected in May 2010, the coalition government in the United Kingdom has announced spending cuts that by 2014/15, it is estimated, will save the state £81 billion per annum. It announced the cuts in two exercises – an ‘emergency Budget’ in June 2010 and a Comprehensive Spending Review in October 2010. In this paper we focus on one aspect of the cuts – those related to social security and tax credit spending. The paper examines the scale and nature of the cuts by focusing on the indexation and capping of benefits, making benefits more selective and the fate of contributory benefits in the cuts. The paper argues that the package of cuts to benefits and tax credits represents themes – constraining expenditure by restricting increases in, and the eligibility criteria for, benefits – that are familiar in social security policy. The consequence will be the long-term erosion of the scope and value of social security benefits and tax credits.

Strategies for Maximizing Social Security Benefits: A Reply

Atkins and Caliendo [2009] analyze the choice of when to optimally initiate the receipt of Social Security benefits. They assume an individual choosing to receive benefits early can invest the proceeds at a return greater than the risk-free rate. This reply argues that the present value of Social Security benefits should be discounted using the risk-free rate instead. This insight is drawn from the extant wealth management literature as well as the asset-liability management framework of defined-benefit pension plans. <b>TOPIC:</b>Social security

Social security and elderly homeownership

Over the last twenty-five years, the homeownership rate of households 65 years and older has risen steadily, while the homeownership rate for 35–64 year old households has remained relatively unchanged. At the same time, the real value of Social Security benefits has risen substantially. Using data from the March 1978 to 2001 Current Population Surveys, this paper documents the evolution and assesses the causal role of the Social Security program in increasing elderly homeownership. To isolate the causal effect, the analysis develops an instrumental-variable approach that relies on the large variation in benefits for birth cohorts from 1900 to 1930 due to double indexation of the system and the so-called Social Security “notch.” For all elderly, the estimated elasticity of homeownership to Social Security benefits ranges from 0.26 to 0.49. Across marital groups, the widowed have the greatest responsiveness to benefits. Increases in benefits also increase household formation among the elderly. Overall, the estimates indicate that between half and as much as all of the time-series rise in elderly homeownership over the last twenty-five years can be attributable to the rise in Social Security benefits and suggest that reductions in benefits would alter homeownership among the elderly significantly.

Accounting for Social Security Benefits

Every year, the Social Security Administration mails Social Security Statements to all eligible workers over the age of 25. These Statements include estimates of monthly retirement and other benefits that participants are projected to receive under the Social Security Act. The Statements also summarize Social Security Administration (SSA) records about participants' earnings history, which determines benefit levels, and provide various background information about the Social Security program and its finances. For many Americans, the Social Security Statement is the principal source of information about Social Security benefits. This paper analyzes the content of the current Social Security Statement. While the Social Security Statements are useful tools for certain kinds of financial planning and allow participants to check the accuracy of the Administration's records of their earnings history, the Statements may also lead participants to misinterpret the value of their Social Security benefits and may make it difficult for participants to compare Social Security benefits to other sources of retirement savings. In addition, the current Social Security Statements obscure the extent to which additional years of labor market participation increase the value of Social Security benefits. After reviewing the strengths and weakness of the current structure of Social Security Statements, the chapter then describes how these statements might be supplemented with estimates of the actuarial value of Social Securities benefits for individual participants. This supplemental information would make it easier for participants to compare Social Security benefits to other sources of retirement incomes, and would highlight the manner in which participants' Social Security benefits accrue over time thereby mitigating some of the labor market inefficiencies associated with Social Security payroll taxes. The chapter concludes with a review of several potential drawbacks of supplementing Social Security Statements with accrued values, including the possibility that this supplemental information would make it more difficult to change Social Security benefits in the future, the possibility that disclosing the accrued value of Social Security benefits could lead some workers to make offsetting reductions in other forms of retirement savings, and the possibility that this supplemental information might make the redistributive aspects of the Social Security system more transparent, potentially weakening support for the program among some constituencies.

Strategic Asset Allocation for Individual Investors: The Impact of the Present Value of Social Security Benefits

Strategic Asset Allocation for Individual Investors: The Impact of the Present Value of Social Security Benefits

Retirement and wealth.

The decision to retire is related to the decision to save and to a number of other decisions, including decisions of when to claim Social Security benefits and what share of assets to hold as pensions, Social Security, and in other forms. This article explores the relationships among these various decisions and then explains why it is important to take them into account when attempting to understand the effects of changing Social Security and related policies on retirement outcomes. To understand how Social Security benefits affect retirement behavior, and the implications of changing such features as the Social Security early retirement age, the Social Security Administration and others have begun to estimate and use single-equation models of retirement. We explain why the kind of simple model they use is likely to provide a misleading guide for policy. Even if one's primary interest is in the relationship between Social Security policy and the decision to retire, it is important to incorporate other key decisions into the analysis. These simple models relate the probability of retiring to measures of changes in the value of Social Security benefits when retirement is postponed. The basic problem is that because the omitted factors are related systematically both to retirement outcomes and to the measured reward to postponing retirement, a simple retirement equation credits the effects of the omitted factors to the included measures of changes in Social Security benefits. New policies will change the relationship between retirement and the increase in the value of Social Security benefits with postponed retirement, resulting in incorrect predictions of the effects of new policies. When we fit single-equation retirement models, we find a variety of evidence that important behaviors have been omitted. These models include variables measuring the age of the respondent. These age variables suggest there is a sharp increase in the probability of retirement at age 62. This is a sign that even though the equations include measures of the increase in the value of Social Security with delayed retirement, the cause of the increased retirement behavior at age 62 has not been included in the model. In addition, the estimated effect of a variable measuring the future value of Social Security and pensions on retirement suggests that if the Social Security early retirement age were to be abolished, more people would retire earlier rather than later--a counter-intuitive prediction. There is even more direct evidence of the need for a more comprehensive model of behavior. We show that if individuals' preferences for leisure time were unrelated to their preferences for saving, then a simple retirement equation would yield an unbiased estimate of the effects of Social Security on retirement. An implication of such a model is that those who retire earlier for particular reasons would also save more for those same reasons. But when we estimate an equation with wealth accumulated through 1992 as a dependent variable, together with the simple retirement equation, we do not observe that the factors associated with earlier retirement are also associated with higher saving. These and related findings suggest that those who wish to retire earlier also have a weaker preference for saving, a relationship that is ignored in the simple model and can only be measured in a more complex model. Still other evidence also warns of internal inconsistencies in the simple retirement equations that are being estimated. Social Security incentives are often measured by the increment in the value of benefits associated with deferred retirement, but the incremental value depends on when benefits are claimed. Our findings show that those who retire completely are claiming their benefits too early to be maximizing the expected value of the benefits. Yet the measures of Social Security benefit accrual used in these retirement models often include the increase in the value of benefits from deferred claiming in their measure of the gain to deferring retirement. On the one hand, early retirees are seen not to defer benefit acceptance despite the actuarial advantage. On the other hand, later retirees are said to defer their retirement in order to gain the advantage of deferring benefit acceptance. Our empirical analysis is based on data from the first four waves of the Health and Retirement Study (HRS), a longitudinal survey of 12,652 respondents from 7,607 households with at least one respondent who was born from 1931 to 1941. Our analysis also uses linked pension and Social Security data together with respondents' records from the HRS. We also evaluate a number of specific features of retirement models and suggest improvements. We develop a measure of the future value of pensions and Social Security--the premium value--that is not subject to a problem plaguing other measures in that it handles the accrual of benefits under defined contribution plans very well. We also introduce a new definition of retirement status that blends information on objective hours worked with subjective self-reports of retirement status. Our findings also explore the effects of Social Security incentives on partial retirement and consider the importance of incorporating partial retirement in any study of the relation of Social Security to retirement behavior.

Strategic asset allocation for individual investors: the impact of the present value of Social Security benefits

This paper demonstrates the dramatic effect of Social Security wealth on individuals’ asset allocation. We first discuss why Social Security wealth should be included in portfolio asset-mix decisions. We then draw parallels between Social Security benefits and inflation-indexed treasury bonds to help quantify the present value of Social Security benefits. Finally, we show the portfolio impact of including Social Security wealth under several asset-mix decision rules. Excluding Social Security wealth from the asset mix decision results in suboptimal portfolios. Including Social Security wealth provides an incentive for including more stock in the asset mix.

Effects of pensions on savings: analysis with data from the health and retirement study

This paper examines the composition and distribution of total wealth for a cohort of 51- to 61-year olds from the Health and Retirement Study (HRS), and the role of pensions in forming retirement wealth. Pension coverage is widespread, covering two-thirds of households and accounting for one-quarter of accumulated wealth. Social security benefits account for another quarter of total wealth.As calculated from earnings records, the present discounted value of social security benefits is less than the present value of taxes paid. Earlier than many expected, social security is already a poor investment on average for this cohort on the verge of retirement. When pensions and social security are included, wealth accumulated by the HRS population to date is substantial. At their expected retirement date, using only the wealth accumulated by their mid-fifties, the HRS household with median replacement rate could finance a fixed, nominal two-thirds joint and survivor annuity replacing 79 percent of last earnings, and a real annuity replacing 52 percent of last earnings. Replacement rates for median earners are higher. Additional savings made over the seven years remaining until retirement will raise those replacement rates by about a fifth. When measured against a standard of adequacy based on average yearly earnings over the worklife, with adjustments made for the absence of preretirement savings, children, taxes, work-related expenses and other factors, these replacement rates appear adequate.Lifetime earnings are measured for each individual in the HRS from social security earnings records augmented by self-reported earnings histories. When pensions and social security are counted in total wealth, the ratio of wealth to lifetime earnings declines from very high levels in the bottom ten percent of the earnings distribution, remains at roughly 40 percent from the 25th through 95th percentile of the lifetime earnings distribution, and then falls to 32 percent for those in the top five percent of the earnings distribution.This result is consistent with the predictions of a simple, stripped-down life-cycle model. Also consistent is a finding that the ratio of wealth to lifetime earnings is no higher for those with pensions than for those without pensions. However, heterogeneity is quite important. Real estate and business wealth are a larger share of total wealth for those without pensions, reflecting the importance of self-employment in wealth accumulation.Multivariate regressions relating total wealth to pension coverage and pension value, which standardize for sources of heterogeneity, suggest that pensions cause very limited displacement of other wealth, if any. Pensions add to total wealth by at least half the value of the pension, and in most estimates by a good deal more.These findings are not consistent with a simple life-cycle explanation for savings. They also raise questions about whether pensions are fundamentally a tax avoidance device, allowing substitution of pension for nonpension savings.

Welfare implications of net social security wealth

Real net social wealth (NSSW), the real present value of social security benefits received minus social security taxes paid, is frequently used as a direct proxy measure for the impact of a social security system on generation welfare. The present paper establishes to the contrary, for a class of overlapping generation economies, that NSSW can be simultaneously negatively correlated with welfare for every agent in every generation. More generally, the paper determines the extent to which social security is needed in these economies to ensure social optimality, and investigates the proper subset of economies for which NSSW and generation welfare exhibit positive correlation.