Research by Author & Topic

Publications by Melissa Favreault on Retirement/Pensions

Recent growth in wage inequality has important implications for Social Security solvency and benefit distributions. Because only earnings below the taxable maximum are subject to payroll taxes, concentrated wage growth among higher earners generates less revenue than more evenly distributed growth. Social Security's progressive benefit formula increases benefit payouts when shares of workers with low wages grow. We use a dynamic microsimulation model to examine aggregate and distributional consequences of alternative scenarios about future wage growth. We find that relatively modest changes in assumptions about wage differentials generate marked changes in projected Social Security benefits, poverty, and long-term financing status.

Over the past several decades, the volatility of family income has increased markedly, and own earnings volatility has remained relatively flat. Volatility may affect retirement wealth, depending on whether volatility affects accrued pension contributions or withdrawals or earnings credited toward future Social Security benefits. This project assesses the effect of the volatility of individual and family earnings on asset accumulation and projected retirement wealth using survey data matched to administrative earnings records.

This report describes the work the Urban Institute performed to generate the Model of Income in the Near Term, Version 5 (MINT5). MINT is a tool developed for The Division of Policy Evaluation (DPE) of the Social Security Administration (SSA) to analyze the distributional consequences of Social Security reform proposals. MINT is a micro-level data file of individuals born between 1926 and 2018. It starts with a rich set of income and demographic characteristics from the 1990 to 1996 Survey of Income and Program Particpation (SIPP) data linked to SSA data on earnings and benefits. MINT then projects these characteristics until death or the year 2099.

Although Social Security does not currently guarantee low-wage workers a minimum retirement benefit, several proposed reforms include benefit minimums. Our analysis suggests that such policies could help reduce poverty among older adults. However, the way the minimums are designed could affect the extent to which poverty rates decline. Using the Urban Institute's dynamic microsimulation model, we examine five alternative benefit options. Several lessons emerge from these simulations that could help guide designers of Social Security proposals. Understanding how a well-designed minimum benefit could reduce poverty is especially important now, when the program's long-term fiscal deficit threatens future benefit reductions.

Despite Social Security's success at bolstering retirement security, many older Americans remain mired in poverty. Because Social Security does not guarantee a minimum benefit, many long-service, low-wage workers receive benefits that leave them below the poverty line. African Americans, Hispanics, and unmarried women are especially vulnerable. Although productivity gains are likely to reduce old-age poverty over time, Social Security's long-term financing problem makes future benefit cuts likely. This analysis explores two potential minimum-benefit designs and shows that an effective minimum benefit could help protect the highest-risk groups.

In light of Social Security reform proposals that include provisions for minimum benefits, this paper considers the redistributive purpose of Social Security and whether a minimum benefit may reduce need among aged and disabled people more equitably or efficiently than current law structures. We then examine several minimum benefit designs. We find that minimum benefits could help reduce poverty among the aged substantially, even in the context of benefit reductions to improve the program's long-term fiscal deficit. However, trade-offs exist; generous minimums could reduce Social Security’s earnings relationship, which has helped the program garner strong political support.

Employment rates for single mothers with dependent children have been rising, partly because of welfare reform and expansions in the Earned Income Tax Credit. This paper examines this trend and implications for future retirement security. The results show that employment and earnings gains for single mothers during the late 1990s will translate into modestly higher Social Security benefits and better retirement outcomes when they reach later life, assuming these trends persist. However, most single mothers will fare worse in retirement than other women, primarily because they generally earned low wages over their lifetimes and many lack financial support from spouses.

This final report presents the retirement income projections from Modeling Income in the Near Term (MINT4) data system. Key findings include that the 1996 SIPP panel has lower-than-average lifetime earnings compared with the 1990 to 1993 SIPP panels, but the variance is within the bounds of the sampling error. Retirement income will become increasingly unequally distributed as both the top of the distribution rises and bottom falls. Aged poverty rates decline as retirement income grows faster than prices through years of positive real wage growth.

This project explores distributional consequences of Plan 2 of the President's Commission to Strengthen Social Security using dynamic microsimulation. This plan includes: voluntary personal account "carve outs," minimum benefits, widow(er)s benefit increases, and initial benefit formula shifts (from wage- to price-indexing). The analysis develops a baseline using Office of the Chief Actuary assumptions regarding portfolio allocation, rates of return, administrative costs, and annuitization. We compare results with promised benefits and current-law adjusted to match costs of the baseline without accounts. We test the estimates' sensitivity to assumptions using historical data, values from the literature, and models estimated from SCF data.

This primer provides an overview of the Urban Institute's Dynamic Simulation of Income Model (DYNASIM3). DYNASIM3 is a dynamic microsimulation model that projects the population and analyzes the long-run distributional consequences of retirement and aging issues. The model starts with a representative sample of individuals and families and ages the data year by year, simulating demographic and economic events including all of the key components of retirement incomes. The model has been used recently to examine the long-term consequences of recent patterns of savings and earnings inequality and to simulate potential changes in Social Security benefits.