Social Security

Amid much conversation about the future of Social Security, personal retirement savings are becoming more critical than ever before. Many employers contribute to their workers' retirement savings, but who benefits most from this and how much do these people lose in wages as a result of these contributions? Karen Smith, a senior research associate at the Urban Institute's Program on Retirement Policy, talks about employer contributions to retirement savings, who benefits most, and who loses the most wages in return for retirement contributions.

The lackluster economy, eroding traditional pensions, and volatile stock market suggest that baby boomers - those born between 1945 and 1965 - face increasingly uncertain retirements. Our projections show that lower - and moderate-income boomers will continue to rely on Social Security for most of their retirement income. While the projections reflect some good news - women will reap the rewards of working and earning more than previous generations - they also raise alarms. Between 30 and 40 percent of boomers will not have enough income at age 70 to replace 75 percent of their preretirement earnings, a common standard for measuring retirement income adequacy.

This report describes the work the Urban Institute performed to generate the Model of Income in the Near Term, Version 6 (MINT6). MINT is a tool developed for 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 2075. It starts with a rich set of income and demographic characteristics from the 2001 and 2004 Survey of Income and Program Participation (SIPP) data linked to SSA data on earnings and benefits. MINT then projects these characteristics until death or the year 2099.

A little more than a year ago, the National Commission on Fiscal Responsibility and Reform produced a report that proposed restructuring Social Security. However, the commission failed to get the supermajority needed to recommend the plan to Congress. While some in the media and on the political scene called the report a useful starting point, no action was taken to reshape Social Security in 2011. With presidential and congressional elections coming in November, the topic is sure to heat back up. This video features Melissa Favreault, a senior fellow at the Urban Institute's Program on Retirement Policy, discussing the ways the Bowles-Simpson plan would change Social Security, who would be affected the most, and what the timeframe is for taking action.

Using the Dynamic Simulation of Income Model, we project how Social Security benefits and payroll taxes would change were Congress to enact the National Commission on Fiscal Responsibility and Reform’s proposal. We show benefits at several points in time and relative to pre-retirement income, a low-income standard, and lifetime payroll tax contributions. The proposal’s projected effects are particularly deep relative to current law scheduled for those reaching retirement in several decades. Projected benefit reductions relate closely to lifetime earnings: Lower earners are largely shielded, higher earners face significant reductions. Projections are sensitive to workers’ assumed responses to certain proposal provisions.

Immigration is transforming the U.S. labor force with important consequences for Social Security's adequacy and finances. Using longitudinal data from the Survey of Income and Program Participation matched to administrative data on lifetime earnings and benefit receipt, we measure the extent to which nonnatives' lifetime earning patterns, payroll taxes paid, benefits received, and total incomes differ from those for the U.S.-born population. We consider other outcomes important to retirement security, like health status, marital status, and financial wealth. We also compare various immigrant groups with one another. Our findings stress heterogeneity in labor force and Social Security experiences among immigrants.

Earlier this month Texas Gov. Rick Perry made waves when he called Social Security a Ponzi scheme during a Republican Party presidential debate, an assertion he originally made in his 2010 autobiography "Fed Up." In this video Rudolph G. Penner - an Institute Fellow at the Program on Retirement Policy and a former director of the Congressional Budget Office - explains what a Ponzi scheme is, how it compares with Social Security, and what can be done to fix the program's underlying structural problems.

The Congress, the President, and various commissions have begun discussing real Social Security, Medicare, and Medicaid reform. This paper suggests that as these discussions move forward, it would be helpful to examine lifetime contributions and benefits for Medicare and Social Security to understand the programs’ internal fiscal situations and their broader role in overall budget policy and, most importantly, as a way toward a more unified and coherent approach to entitlement reform for seniors. This approach also provides a useful window on how equitably lifetime benefits and taxes are distributed and on the fiscal stability of the overall system.