Research by Author & Topic

Publications by Adam Carasso on Retirement/Pensions

The inadequacy of the current U.S. public and private pension systems may warrant the establishment of a universal pension system (UPS), which would cover all workers—full-time and part-time—and require them to contribute at a level that can help provide them with adequate incomes when they retire. This paper develops options for a system of individual accounts to which, starting in 2007, each employee or self-employed worker would be required to contribute 3 percent of covered payroll (i.e., 3 percent of up to $97,500 in 2007). The UPS we describe would raise the total "replacement rate" for average wage men to 49.0 percent of final wages—provided Social Security is fixed—or 39.8 percent if not

To encourage saving for retirement, private pensions such as employer sponsored 401(k) plans or IRAs receive favorable tax treatment by the federal government. A major goal of such tax provisions is to increase personal saving. A measure of the value of these tax benefits is provided by the Treasury Department, and the National Income and Product Accounts contains a measure of personal saving. With the sudden drop in personal savings in 1999 and its steady decline in more recent recession years, government tax expenditures on pension benefits began to approach the personal savings level by the end of the 1990s.

This brief note describes the assumptions and methods behind the USA TODAY's Social Security and Medicare Lifetime Benefits Calculator, which uses tabulations produced by C. Eugene Steuerle and Adam Carasso of the Urban Institute.

In reviewing reform proposals, lawmakers typically assess the adequacy of retirement benefits by looking just at annual benefits in the Social Security program alone. However, it is the lifetime package of retirement benefits--including Medicare--that gives the most comprehensive picture of what government is being asked to provide for the elderly. Moreover, it is only by considering benefits as a whole that reformers can consider trade-offs among cash versus medical benefits, more years of retirement versus higher annual benefits, and benefits for the very old versus the younger old. This brief estimates the value of lifetime retirement benefits and taxes promised under current law.

Social Security reform - regardless of the success of the 16-member commission appointed in May by President George W. Bush - is inevitable. Although the reform debates usually raise the specter of scaled-back benefits growth, systemic change could also improve basic Social Security benefits for the poor and near poor. While we think enhancing the prospects of the poor makes economic sense, we also see a political case for making antipoverty protection a reform goal.

Social Security has had great success in reducing poverty, on average, among the elderly. Today, the elderly poverty rate is less than one-third the 35 percent rate seen in 1960. Social Security also protects people from inflation and other risks (as we think it should). The success of any program, however, cannot be judged solely by how well that program succeeds on average. To assess Social Security’s marginal success, a good measure is how much each additional dollar spent improves the lot of the population it serves. Here, we describe three pieces of evidence suggesting that Social Security’s ability to meet one of its most fundamental tenets - alleviating old-age poverty - has hit several roadblocks.

The Social Security solvency problem extends far beyond the structure of the current system. The core dilemma is that many economists are projecting a very large drop in the percentage of adults who are working, a scenario that translates into a very large drop in the number of taxpayers supporting not just Social Security but education, defense, Medicare, and every other public program.

Much of the public debate over Social Security reform has focused on a single issue: investing in privately owned but regulated accounts that hold stock and other assets. Indeed, last year both presidential candidates endorsed reform proposals that included some version of individual accounts. At least in these initial proposals, President Bush envisioned individual accounts as a substitute for part of Social Security, while Vice President Gore saw them as an add-on financed out of general revenues.

In the spirit of politics, lawmakers tend to paint rival Social Security reform proposals in extremes: If one privatizes and another preserves, then never the twain shall meet. The polarized way in which proposals are debated, more than the actual substance of the proposals, makes compromise difficult. However, compromise doesn’t have to be so daunting a task. Considerable overlap exists among reform proposals presented by lawmakers on both sides of the aisle. Agreement can be found in the following areas.

Many workers believe that the Social Security benefits suggested by current law belong to them - that they have "property rights" to future payments. However, 40 years ago, the Supreme court ruled that this isn't the case: Retirees have no legal right to claim ownership over unpaid benefits. The ruling deters beneficiaries from suing the federal government if an altered benefit formula delivers payments that fall short of expectations.