WEI SUN, Boston College
Email: wei.sun@bc.edu
ANTHONY WEBB, Boston College - Center for Retirement Research
Email: webbaa@bc.edu

Individuals can claim Social Security at any age from 62 to 70 although most claim at 62 or soon thereafter. Those who delay claiming receive increases that are approximately actuarially fair. We show that expected present value calculations substantially understate both the optimal claim age and the losses resulting from early claiming because they ignore the value of the additional longevity insurance acquired as a result of delay. Using numerical optimization techniques, we illustrate that for plausible preference parameters, the optimal age for non-liquidity constrained single individuals and married men to claim benefit is between 67 and 70. We calculate that Social Security Equivalent Income, the amount by which benefits payable at sub-optimal ages must be increased so that a household is indifferent between claiming at those ages and the optimal combination of ages, can be as high as 19.0 percent.

MARIACRISTINA DE NARDI, Federal Reserve Bank of Chicago, National Bureau of Economic Research (NBER) - Public Economics
Email: mariacristina.denardi@chi.frb.org
ERIC FRENCH, Federal Reserve Bank of Chicago
Email: eric.french@frbchi.org
JOHN BAILEY JONES, State University of New York
Email: jbjones@albany.edu

This paper constructs a rich model of saving for retired single people. Our framework allows for bequest motives and heterogeneity in medical expenses and life expectancies. We estimate the model using AHEAD data and the method of simulated moments. The data show that out-of-pocket medical expenses rise quickly with both age and permanent income. For many elderly people the risk of living long and requiring expensive medical care is a more important driver of old age saving than the desire to leave bequests. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest. These government programs, however, also benefit the rich because they insure them against their worst nightmares about their very old age: either not being able to afford the medical care that they need, or being left destitute by huge medical bills.

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KAIJI CHEN, University of Oslo
Email: kaijic@econ.uio.no

This paper incorporates two features of housing in a life-cycle analysis of social security: housing as a durable good and housing market frictions. We find that with housing as a durable good, unfunded social security substantially crowds out housing consumption throughout the life cycle. By contrast, aggregate non-durable consumption is higher when social security is present, although it is postponed until late in life. Moreover, in the presence of housing market frictions, social security lowers the aggregate home ownership rate and reduces the average size of owner-occupied housing. The effects of social security on housing position, furthermore, exhibit substantial heterogeneity across households of different income levels.

FRANK CALIENDO, Colorado State University - Department of Economics

This paper considers the quantitative role of growth in the size of the social security program in contributing to the collapse of personal saving in the U.S. over the last few decades. Using a calibrated, general equilibrium life-cycle model this paper shows that social security may not be to blame. Specifically, the model predicts that a 50-percent increase in the social security tax rate (as in the U.S. over the last half century) produces a modest decline in the personal saving rate from 10 percent down to 9.6 percent. This result runs counter to some popular opinion.

JAN C. VAN OURS, Tilburg University - Department of Economics, Institute for the Study of Labor (IZA), Centre for Economic Policy Research (CEPR)
Email: vanours@uvt.nl

For various reasons the relationship between age and productivity is a matter of policy concern. I present new empirical research showing how productivity is affected by age. I study age effects at the individual level by analyzing data on running and publishing in economic journals. Furthermore I present empirical evidence at the firm level on the relationship between age, wage and productivity. In particular I address the potential wage-productivity gap that might occur at higher ages. I conclude that the productivity of older workers indeed decreases with their age. Nevertheless, the decline is limited. Furthermore, I find no evidence of a pay-productivity at higher ages.

CHRISTIAN GOEBEL, Centre for European Economic Research (ZEW), Catholic University of Louvain
Email: goebel@zew.de
THOMAS ZWICK, Ludwig Maximilians University of Munich, Center for European Economic Research (ZEW)
Email: zwick@bwl.lmu.de

In most Western, industrialised countries the workforce is ageing rapidly. In order to assess the possible consequences of an ageing workforce, this paper measures the impact of changes in the age structure of establishments on productivity using representative linked employer-employee panel data. We take into account that the levels as well as the changes in the age structure of establishments and their production are likely to be simultaneously determined and apply dynamic GMM methods. We find that establishment productivity increases with the share of employees until the age of 50-55 and only decreases slightly afterwards. Our findings suggest that previous estimations are biased because they either do not take into account endogeneity, time dependencies, or crucial information correlated with age shares and productivity. Large standard deviations point to important variation in the age productivity profile among establishments.

LAWRENCE A. FROLIK, University of Pittsburgh - School of Law
Email: frolik@pitt.edu

In devising programs to assist the elderly, the United States has, for the most part, rejected the social welfare model, which is premised on a belief that the government has an obligation to care for the elderly. Many Americans believe that beyond a minimum safety net, the government should not, and likely cannot, save everyone from every bad outcome. Individuals must accept personal responsibility and care for themselves.

As a result of this conflict in values, the United States does not usually operate programs modeled on social insurance, but rather provides care to those identified as 'needy.' The degree of economic assistance that the government ought to provide to the elderly is a political question open to challenge and debate. Even the premise that the government might want to assist the elderly is open to question in the minds of some.

Consequently, the fundamental question is not, 'How much should the government assist the elderly?' but rather, 'Should the government assist the elderly?' The answer to the question of whether the government should assist the elderly is almost always 'yes,' but merely asking the question colors the debate as to who the government should assist, in what way, and how much assistance should be provided.

With subsidies for the elderly open to challenge, advocates for the elderly must be prepared to provide answers to the three basic questions: 'Who among the elderly should the government assist?' 'What form should the assistance take?' and 'How much assistance should be provided?'

CRAIG COPELAND, Employee Benefit Research Institute (EBRI)
Email: COPELAND@EBRI.ORG

Social Security (technically called the Old-Age, Survivors, and Disability Insurance Program, or OASDI) is currently facing a long-term projected financial shortfall, due in large part to the changing demographics and aging of the U.S. population, and it has been in this position for a number of years (a significant worsening in the funding status was reported in 2009). This projected shortfall has been the center of discussion whenever advocates and policymakers have called for significant changes to the program to address the issues that are pushing it into financial trouble. Without changes to eliminate the shortfall, the program ultimately will be able to pay only about 75 percent of promised benefits called for under current law. This paper analyzes various potential reform provisions that have been widely discussed that would affect the benefit levels and program revenues of Social Security. This analysis also discusses the potential impact of these provisions on the financial status of the OASDI program. The provisions discussed are those that would: lower the scheduled increase in future benefit levels by changes to the benefit formula; change the contribution and benefit base (amount of earnings that are taxable and used for the calculation of benefits under OASDI) and the taxation of benefits; increase the retirement age. All of these approaches have been part of various comprehensive reform proposals over the last two decades. The degree to which any of the options analyzed in this paper would improve the actuarial balance of Social Security depends on how much emphasis policymakers might place on a specific provision. Consequently, a range of provisions is presented showing a variety of possible results. Each provision has certain drawbacks, but if the projected funding status of the program is to be improved, some compromises will have to be made: either benefits will need to be cut, or revenues raised, or some combination of these two options.