"Recessions, Reeling Markets, and Retiree Well-Being" 

NBER Working Paper No. w16066

COURTNEY COILE, Wellesley College - Department of Economics, National Bureau of Economic Research (NBER)
Email: CCOILE@WELLESLEY.EDU
PHILLIP B. LEVINE, Wellesley College, National Bureau of Economic Research (NBER)
Email: PLEVINE@WELLESLEY.EDU

This paper examines the impact of late-career investment returns and job loss on subsequent retiree well-being. Specifically, we explore whether there is a link between the income of retirees aged 70 to 79 and the stock market and labor market conditions that existed around the time of their retirement. We use data from the 2000 Census and the 2001 through 2007 American Community Surveys and consider both total personal income and income by type. We find that a long-term decline in the stock market in the years leading up to retirement leads to a modest reduction in investment income a decade or so later for those in the top third of the income distribution. The consequences of approaching retirement when the labor market is weak are more severe. A higher unemployment rate around the time of retirement reduces Social Security income for those in the bottom two-thirds of the income distribution; we estimate that an unemployed worker experiences a roughly 20 percent drop in Social Security income, consistent with claiming benefits several years early. Overall, our results indicate the importance of the challenges faced by lower-income workers who face a weak labor market as they approach retirement.

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

"Unemployment Insurance with Hidden Savings" 

Journal of Economic Theory, Forthcoming

MATTHEW F. MITCHELL, Rotman School of Management
Email: matthew.mitchell@rotman.utoronto.ca
YUZHE ZHANG, University of Iowa - Henry B. Tippie College of Business
Email: yuzhe-zhang@uiowa.edu

This paper studies the design of unemployment insurance when neither the searching effort nor the savings of an unemployed agent can be monitored. If the principal could monitor the savings, the optimal policy would leave the agent savings-constrained. With a constant absolute risk-aversion (CARA) utility function, we obtain a closed form solution of the optimal contract. Under the optimal contract, the agent is neither saving nor borrowing constrained. Counter-intuitively, his consumption declines faster than implied by Hopenhayn and Nicolini. The efficient allocation can be implemented by an increasing benefit during unemployment and a constant tax during employment.

"How Well are Social Security Recipients Protected from Inflation?" 

NBER Working Paper No. w16212

GOPI SHAH GODA, Stanford University
Email: gopi@stanford.edu
JOHN B. SHOVEN, Stanford University - Department of Economics, National Bureau of Economic Research (NBER)
Email: shoven@stanford.edu
SITA N. SLAVOV, Occidental College - Department of Economics
Email: sslavov@oxy.edu

Social Security is widely believed to protect its recipients from inflation because benefits are indexed to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, the CPI-W may not accurately reflect the experience of retirees for two reasons. First, retirees generally have higher medical expenses than workers, and medical costs, in recent years, have tended to rise faster than the prices of other goods. Second, even if medical costs did not rise faster than the prices of other goods, as retirees aged, their medical spending would still tend to increase as a share of income; that is, each cohort of retirees would still see a decline in the real income left over for non-medical spending. We show that Social Security benefits net of average out-of-pocket medical expenses have declined relative to a price index for non-medical goods by almost 20 percent for men, and almost 27 percent for women, in the 1918 birth cohort. We also explore the extent to which indexing Social Security benefits to the CPI-E, an experimental measure of inflation for the elderly, would change these results.

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

"Administering Social Security: Challenges Yesterday and Today" 

Social Security Bulletin, Vol. 70, No. 3, pp. 27-78, 2010

CAROLYN PUCKETT, affiliation not provided to SSRN
Email: carolyn.puckett@ssa.gov

In 2010, the Social Security Administration (SSA) celebrates the 75th anniversary of the passage of the Social Security Act. In those 75 years, SSA has been responsible for programs providing unemployment insurance, child welfare, and supervision of credit unions, among other duties. This article focuses on the administration of the Old-Age, Survivors, and Disability Insurance program, although it also covers some of the other major programs SSA has been tasked with administering over the years - in particular, Medicare, Black Lung benefits, and Supplemental Security Income. The article depicts some of the challenges that have accompanied administering these programs and the steps that SSA has taken to meet those challenges. Whether implementing complex legislation in short timeframes or coping with natural disasters, SSA has found innovative ways to overcome problems and has evolved to meet society’s changing needs.

"The Future Financial Status of the Social Security Program" 

Social Security Bulletin, Vol. 70, No. 3, pp. 111-125, 2010

STEPHEN GOSS, Social Security Administration - Office of the Actuary
Email: Stephen.Goss@ssa.gov

The concepts of solvency, sustainability, and budget impact are common in discussions of Social Security, but are not well understood. Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75  percent of scheduled benefits. This increase in cost results from population aging, not because we are living longer, but because birth rates dropped from three to two children per woman. Importantly, this shortfall is basically stable after 2035; adjustments to taxes or benefits that offset the effects of the lower birth rate may restore solvency for the Social Security program on a sustainable basis for the foreseeable future. Finally, as Treasury debt securities (trust fund assets) are redeemed in the future, they will just be replaced with public debt. If trust fund assets are exhausted without reform, benefits will necessarily be lowered with no effect on budget deficits.

"The Development of Social Security in America" 

Social Security Bulletin, Vol. 70, No. 3, pp. 1-26, 2010

LARRY DEWITT, Social Security Administration
Email: larry.dewitt@ssa.gov

This article examines the historical origins and legislative development of the U.S. Social Security program. Focusing on the contributory social insurance program introduced in title II of the Social Security Act of 1935, the article traces the major amendments to the original program and provides an up-to-date description of the major provisions of the system. The article concludes with a brief overview of the debate over the future of the program, and it provides a summary assessment of the impact and importance of Social Security as a central pillar of the U.S. social welfare system.

"U.S. Social Security at 75 Years: An International Perspective" 

Social Security Bulletin, Vol. 70, No. 3, pp. 79-87, 2010

DALMER HOSKINS, International Social Security Association
Email: dhoskins@aarp.org

Is the historical development of the Old-Age, Survivors, and Disability Insurance (OASDI) program unique or similar to the development of social security programs in other industrialized countries? The U.S. Social Security program was adopted some 40 to 50 years after those of most Western European nations. The United States thus had the opportunity to choose from a number of models and clearly chose to follow the classic social insurance path of such countries as Austria, France, and Germany, which in 1935 already had considerable experience administering earnings-related, employer/worker-financed old-age pension programs. Although based on the traditional social insurance model, OASDI evolved in certain unique ways, including the rejection over the course of succeeding decades of any reliance on general revenue financing, the importance attached to long-range (75-year) actuarial projections, and the relative generosity of benefits for survivors and dependents.

"Widows and Social Security" 

Social Security Bulletin, Vol. 70, No. 3, pp. 89-109, 2010

DAVID A. WEAVER, Social Security Administration
Email: David.A.Weaver@ssa.gov

This article provides policymakers with context for understanding past and future policy discussions regarding Social Security widow benefits. Using data from surveys, projections from a microsimulation model, and recent research, it examines three types of benefits - those for aged widows, widows caring for children, and disabled widows. The economic well-being of aged widows has shifted from one of widespread hardship to one in which above-poverty, but still modest, income typically prevails. Many aged widows experience a decline in their standard of living upon widowhood, a pattern which is pronounced among those with limited education. Widows caring for children have been a sizeable beneficiary group historically, but policy changes and demographic trends have sharply reduced the size of this group. Family Social Security benefits ensure a modest level of household income for widows caring for children. Disabled widows differ from the other groups because they are at higher risk for poverty.

"Earnings Sharing in the U.S. Social Security System: A Microsimulation Analysis of Future Female Retirees" 

The Gerontologist, Vol. 50, No. 4, pp. 495-508, 2010

HOWARD IAMS, U.S. Social Security Administration
Email: Howard.m.iams@ssa.gov
GAYLE REZNIK, Social Security Administration
Email: Gayle.Reznik@ssa.gov
CHRISTOPHER R. TAMBORINI, U.S. Social Security Administration
Email: Chris.Tamborini@ssa.gov

As part of an ongoing effort to analyze the distributional implications of potential policy reforms to the U.S. Social Security system, we consider the widely discussed reform of earnings sharing. Such an approach has been viewed as a way to “update” Social Security’s family benefits based on marital status and as a means to make the system more marriage neutral. We use the Social Security Administration’s Modeling Income in the Near Term model to simulate the distributional effects of two earnings sharing alternatives, a basic option and a modified inheritance option, on the projected retiree population in 2030. We focus our analysis on uncovering how different subgroups of women would be affected under the alternative system. Widows and surviving divorced women, particularly those in lower socioeconomic groups, would face some of the steepest benefit decreases. Adding an inheritance provision would mitigate reductions across the board; however, it may not provide as much benefit adequacy to widows as might be expected. Certain groups of women would fare far better under the current Social Security system than under earnings sharing. Linking benefits with earnings sharing would be particularly problematic for lower income widows and single-earner married couples. Never-married persons are unaffected.

"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.