Research by Author & Topic

Publications by Rudolph G. Penner on Elderly

The article considers special federal tax provisions affecting the elderly. It examines the taxation of Social Security, private retirement accounts, estate taxation and other provisions of the law that mention age. It also analyzes how the elderly might be affected by tax increases necessitated by the dismal long-run budget outlook. In particular, it looks at the possibility that we shall become more reliant on consumption taxes.

This paper estimates the ratio of post- to pre-retirement consumption to explore how well boomers are prepared for retirement. I show that some of the poorest households are best prepared because they can maintain consumption by relying almost solely on Social Security while many of the most affluent households are poorly prepared because they will experience a decline in consumption upon retiring. Nonetheless, affluent households will be able to maintain a consumption level many times that of poor households. The paper discusses whether equalization of pre- and post-retirement consumption provides a useful adequacy yardstick at all income levels.

Pittsburgh Post-Gazette op-ed, September 28, 2008. The current financial crisis poses a severe threat to the economy, but it also creates a tremendous opportunity, writes Rudolph Penner in the Pittsburgh Post-Gazette. It gives politicians cover for undertaking painful actions to get the long-run deficit under control-actions that should have been taken long ago.

Official measures suggest that personal saving has been declining for the past 20 years, and even became negative in 2005. Inadequate saving threatens retirement preparations and reduces investment, which helps boost worker productivity and ultimately wages and living standards. However, neither of the two prominent measures of the saving rate, one based on the National Income and Products Account and the other on the Flow of Funds, exactly conforms to what most people think of as saving. This brief explains the measures and describes how they differ.

Older men who expect high health care costs for themselves or their spouses after age 65 retire about 13 months later than those who expect low costs. The difference for women is 12 months. For those receiving health insurance from their employers, continued work reduces the risk of high out-of-pocket health care costs. Working longer also increases retirement incomes, making health care costs more affordable.

The authors of this paper—longtime federal budget and policy experts—were drawn together by a deep concern about the nation's long-term fiscal outlook. Despite diverse philosophies and political leanings, they found solid common ground and agree that unsustainable deficits in the federal budget threaten the health and vigor of the American economy and the first step toward establishing budget responsibility is to reform the budget decision process so that the major drivers of escalating deficits—Social Security, Medicare, and Medicaid—are no longer on autopilot. The paper provides specific policy recommendations and outlines the reasons action is critical.

Government analysts portray a bleak fiscal future as the retirement of baby boomers and soaring health costs push up expenditures on Social Security, Medicare and Medicaid much faster than projected tax revenues. Some argue that the analysts' economic growth projections are too pessimistic. This analysis argues that official growth projections are quite reasonable, but even if they are too pessimistic, faster growth will accelerate Social Security costs because of the program's structure and health costs are also likely to grow more rapidly. Faster growth will, however, ease the pain associated with necessary reforms.

Rising health care costs threaten financial security at older ages and lead many older Americans to delay retirement. Continued work reduces the risk of high out-of-pocket health care costs for workers receiving health benefits from their employers. Working longer also increases retirement incomes, making health care costs more affordable. This report shows that men with very high expected health care costs after age 65 retire 11 months later than those with very low health care costs. For women, the difference is 12 months.

Fiscal policy is out of control. Programs, such as Social Security and Medicare, have design features that push up spending faster than the growth of revenues. It is time to change the course of the automatic pilot driving these programs. To do so, policymakers can develop “triggers” that automatically curb spending. Triggers will level the playing field between programs that have large automatic growth and those where growth or even maintenance of effort cannot be obtained without new legislation. The paper examines triggers employed to reform Social Security in other advanced democracies and explores design options for an optimal trigger.

International Perspectives on Social Security Reform looks at public pension revision in six countries that, like the United States, are members of the OECD and have a long tradition of social security threatened by population aging. Canada, Sweden, Japan, Germany, the United Kingdom, and Italy have much to teach the United States about what works well—and what works badly. A substantive analysis of each country's reforms is augmented in commentary by distinguished economists, who offer their own opinions. Ideas examined include private accounts, notional accounts, incentives to delay retirement, and automatic systems of pension adjustment.