"Social Security Benefits Formula 101: A Practical Primer" 

American Bar Association - Section of Taxation News Quarterly, Vol. 29, No. 4, Summer 2010

FRANCINE J. LIPMAN, Chapman University - School of Law
Email: lipman@chapman.edu
JAMES E. WILLIAMSON, San Diego State University - College of Business Administration
Email: james.williamson@sdsu.edu

Despite the broad and deep reliance on Social Security benefits, very few of the hundreds of millions of current and future beneficiaries understand how the program works. This article presents through a hypothetical couple some of the basic concepts of the Social Security benefits formula.

"Coverage of the Fully Funded Private Social Security System in Chile, Colombia, and Mexico" 

RAND Working Paper Series WR- 642

EMMA AGUILA, RAND Corporation
Email: eaguila@rand.org
ORAZIO ATTANASIO, University College London - Department of Economics, Institute for Fiscal Studies (IFS), Centre for Economic Policy Research (CEPR), National Bureau of Economic Research (NBER)
Email: o.attanasio@ucl.ac.uk
XIMENA QUINTANILLA, University College London
Email: x.quintanilla@ucl.ac.uk

This paper compares the differences of individual coverage in the fully-funded social security systems of three Latin American countries. Chile, Columbia, and Mexico each have defined contributions social security systems, yet there are significant differences in system design and incentive that may affect individuals’ participation. Here, we examine social security coverage by comparing the system design, economic performance, and labor market structure of each country. We consider the different macroeconomic paths and labor markets structures of each country, especially those regarding the informal labor sector. Micro-data is also used to examine how personal and household characteristics affect the social security system participation. For Colombia, only cross-section estimations are carried out, while panel data for Chile and Mexico allows control for unobserved heterogeneity. Our study reveals the low coverage rates of each social security system is strongly related to economic cycles and the lack of compulsory contributions to the system by self-employed workers. We find a higher probability to contribute to the system for men, head of households, higher number of household members, married, and higher levels of education. Also, females with high levels of education are more likely to contribute to the social security system.

Este estudio compara las diferencias de cobertura en los sistemas de pensiones de capitalización individual en tres países de Latinoamérica. En Chile, Colombia y México, aún cuando cada uno de ellos tiene sistema de pensiones de contribuciones definidas, hay diferencias significativas en el diseño e incentivos de cada sistema que pueden afectar la participación de los individuos en el mismo. El presente estudio examina la cobertura del sistema de pensiones comparando el diseño de los sistemas, el desempeño económico y la estructura del mercado laboral de cada país. Se consideraron las diferentes trayectorias macroeconómicas y las estructuras de los mercados laborales de cada país, especialmente las relativas al sector laboral informal. Adicionalmente, utilizamos micro-datos para examinar cómo las características personales y del hogar afectan la participación en el sistema de pensiones. En el caso de Colombia, sólo se llevan a cabo estimaciones de corte transversal, mientras que para Chile y México los datos longitudinales permiten controlar la heterogeneidad no observada. Nuestro estudio revela que las bajas tasas de cobertura de cada sistema de pensiones está estrechamente relacionada con los ciclos económicos y la falta de contribuciones obligatorias al sistema por los trabajadores independientes. Encontramos que los hombres, jefes de familia, con un mayor número de miembros en el hogar, casados y con mayores niveles educativos tiene una mayor probabilidad de contribuir al sistema. Asimismo, las mujeres con altos niveles de educación tienen más probabilidad de contribuir al sistema de pensiones.

"Work and Retirement Patterns for the G.I. Generation, Silent Generation, and Early Boomers: Thirty Years of Change" 

Boston College Center for Retirement Research Working Paper No. 2010-8

RICHARD W. JOHNSON, Urban Institute - Income and Benefits Policy Center, National Academy of Social Insurance (NASI)
Email: rjohnson@ui.urban.org
BARBARA A. BUTRICA, The Urban Institute
Email: bbutrica@ui.urban.org
CORINA MOMMAERTS, affiliation not provided to SSRN
Email: cmommaerts@urban.org

This study examines how the shifting choices and constraints facing older workers have changed work and retirement patterns over the past 30 years. Health improvements, declines in physical job demands, changes in Social Security rules, and the erosion in traditional defined benefit pension coverage and employer-sponsored retiree health insurance have altered work incentives at older ages. This paper compares labor force exits by older workers born 1913 to 1917 (part of the G.I. Generation), 1933 to 1937 (part of the Silent Generation), and 1943 to 1947 (part of the Baby Boom Generation). The analysis uses 16-year longitudinal panels from the Health and Retirement Study and decades-long administrative earnings records linked to respondents in the Survey of Income and Program Participation.

The results show that early boomers worked longer than members of the Silent Generation, and that the pathways older workers follow out of the labor force have become more complex over time. The median retirement age for men was about one-half year higher in the 1943–47 cohort than in the 1933–37 cohort (62 vs. 61.5), but differences were more pronounced at older ages. By age 65, for example, 40 percent of early boomer men had not yet retired, compared with only 20 percent of Silent Generation men. Both male and female workers in the 1933–37 cohort were much less likely than their counterparts in the 1913–17 cohort to follow the traditional retirement path of exiting the labor force from full-time employment and never returning to work.

"Through the Doughnut Hole: Reimagining the Social Security Contribution and Benefit Base Limit" 

Administrative Law Review, Vol. 62, No. 2, p. 367, 2010
University of Florida Levin College of Law Research Paper No. 2010-14

PATRICIA DILLEY, University of Florida Levin College of Law, National Academy of Social Insurance (NASI)
Email: dilley@law.ufl.edu

The Obama campaign proposal to address Social Security's future financing shortfalls by increasing the Social Security tax base limit only for those making more than $250,000 per year raises the broader question of the function of the base limit from a Social Security program perspective. The public supports increasing the wage base above all other possible avenues for solving long term financing issues, but the problems with the Obama "doughnut hole" proposal are substantial from several perspectives. In this article, the author suggests that the function of the base limit be reconsidered, and the benefit accrual function of the earnings base be considered separately from the revenue function of the tax base. The little recognized fact that Social Security benefits are based on earnings, not on taxes, should be the central organizing principle in a reconsideration of the base limit and of options for future revenue sources for Social Security.

"Social Security Reform Opinions: A Response to Risky Markets" 

CHERIE MAESTAS, Florida State University - Department of Political Science
Email: cmaestas@fsu.edu
WILLIAM M. POLLOCK, Florida State University
Email: wmp06@fsu.edu

The national debate over Social Security reform remains centered on the distributive structure the program. Individual-level support or opposition for privatization can be viewed as a choice between an uncertain outcome in which market forces determine the value of one's future benefit, and a certain outcome in which benefits are predefined and guaranteed. We theorize that risk-averse individuals discount positive economic expectations when forming their opinion regarding privatization, and that risk acceptant individuals weigh positive expectations more heavily. Thus, the endearing effect of economic confidence on privatization is greater as risk tolerance increases. We use national survey data from the 2008 Cooperative Congressional Election Survey to form a multiplicative interaction model to test this hypothesis. Preliminary results yield strong evidence that risk orientation affects the degree to which positive expectations increase support for the privatization of Social Security. These results affirm an important dimension of Social Security reform opinion yet to be explained, and, with regard to other market-driven policy solutions such as trade policy, regulatory policy, and healthcare reform, reinforces the need to account for influence of individual attitudes toward risk.

"Income and the Utilization of Long-Term Care Services: Evidence from the Social Security Benefit Notch" 

NBER Working Paper No. w16076

GOPI SHAH GODA, Stanford University
Email: gopi@stanford.edu
EZRA GOLBERSTEIN, University of Michigan at Ann Arbor
Email: egolber@umich.edu
DAVID C. GRABOWSKI, Harvard University - Department of Health Care Policy
Email: grabowski@med.harvard.edu

This paper estimates the impact of income on the long-term care utilization of elderly Americans using a natural experiment that led otherwise similar retirees to receive significantly different Social Security payments based on their year of birth. Using data from 1993 and 1995 waves of the AHEAD, we estimate instrumental variables models and find that a positive permanent income shock lowers nursing home use but increases the utilization of paid home care services. We find some suggestive evidence that the effects are due to substitution of home care for nursing home utilization. The magnitude of these estimates suggests that moderate reductions in post-retirement income would significantly alter long-term utilization patterns among elderly individuals.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

"How Common is 'Parking' Among Social Security Disability Insurance (SSDI) Beneficiaries? Evidence from the 1999 Change in the Level of Substantial Gainful Activity (SGA)" 

JODY SCHIMMEL, Mathematica Policy Research, Inc.
Email: jodyschimmel@gmail.com
DAVID C. STAPLETON, Cornell University Institute for Policy Research (CUIPR)
Email: dcs28@cornell.edu
JAE SONG, U.S. Social Security Administration
Email: jae.song@ssa.gov

Fewer Social Security Disability Insurance (DI) beneficiaries have their earnings suspended or terminated because of work than those who return to work, partly because beneficiaries “park” earnings at a level below substantial gainful activity (SGA) to retain benefits. We assess the extent of parking by examining how beneficiary earnings and months off the rolls for work responded to a 1999 change in the SGA level for non-blind beneficiaries from $500 to $700 per month. Specifically, our difference-in-difference analysis compares longitudinal data for two beneficiary cohorts with different incentives to park their earnings; one experienced the increased SGA level the first year after its Trial Work Period (TWP), when beneficiaries can earn any amount without losing benefits, while the two-year-earlier cohort did not. The impact of the increased SGA level is consistent with parking, but its magnitude small. The reduction in TWP completers with earnings less than $500 was 0.9 percentage points, the reduction in the percentage with earnings over $700 was 1.2 percentage points, and the increase for those with earnings between $500 and $700 was 2.2 percentage points. However, there was no change in mean earnings; small increases for those with relatively low earnings were offset by reductions for those with relatively high earnings. The SGA increase had a significant negative effect on the average number of months that beneficiaries were off the rolls for work; the effect was largest - about six-tenths of a month - for those who earned $500 to $700 during in year they completed their TWP.