Our extensive work on retirement policy covers the many ways the aging of America will trigger changes in how we work, retire, and spend federal resources.
The number of Americans age 65 and over will rise from about 13 percent in 2008 to 20 percent by 2040. The recession dealt a heavy blow to retirement accounts, leaving many older adults worried about their retirement security. Read more.
Including employer-sponsored health insurance (ESI) in taxable compensation would increase income and payroll tax receipts, but would also increase Old Age, Survivors, and Disability Insurance (OASDI) benefits by adding ESI to the OASDI earnings base. The increased present value of OASDI benefits from including ESI in the wage base in 2014 would offset about 22 percent of increased income and payroll taxes, 57 percent of increased payroll taxes, and 72 percent of increased OASDI taxes. Both taxes and benefits as a share of income would increase between the bottom and middle quintiles and then decline for higher income taxpayers.
That shiny retirement nest egg may not be so golden for the nation’s 19 million state and local government workers, an exhaustive Urban Institute analysis of 660 state-administered pension plans shows.
Kentucky recently replaced its traditional pension with a new cash balance plan for state and county employees hired after 2013. Employees who join the government payroll at relatively young ages and remain for no more than 25 years will accumulate more benefits in the cash balance plan than the traditional plan, while many of those with more years of service and hired at older ages will accumulate less. More than half of employees hired in 2014 who complete at least five years of service will fare better in the cash balance plan, which distributes benefits more evenly across the workforce.
Traditional defined benefit pension plans that cover nearly all state and local government employees generally penalize work at older ages. In more than three-fifths of state-administered plans, employees hired at age 25 will receive lower lifetime pension benefits if they continue working after age 57 because retirement-eligible workers cannot receive benefit checks while they remain on the job. This reduction in benefits can create strong retirement incentives, which are hard to justify as the population ages and health gains and declines in physical work enable more older people to work. Well-designed public pension reforms could eliminate these work disincentives.
Traditional defined benefit pension plans that cover nearly all state and local government employees generally provide generous retirement benefits to long-tenured public servants but little retirement security to those with shorter tenures. Virtually every plan requires employee contributions. In half of those plans, employees must work at least 20 years before their future benefits are worth more than those contributions. Employees who separate earlier get nothing from their plan. Alternative designs like cash balance plans distribute benefits more equally across the workforce and allow employees who spend less than a full career in public service to accumulate retirement benefits.
State and local pension plans often allow employees who have completed 25 or 30 years of service to collect benefits regardless of their age, instead of waiting until they reach their plan’s normal retirement age. The lifetime value of their pension surges when they qualify for early benefits. Our analysis shows that on average, half the benefits employees have accumulated by their early 50s or late 40s are earned from a single year of work. These patterns create strong incentives for mid-career workers to remain on the payroll until they realize these windfalls, including those ill-suited for their jobs.
Jonathan Schwabish, an economist with the Congressional Budget Office, will join the Urban Institute on May 7 as a senior researcher and data visualization expert. A leading voice calling for clarity and accessibility in research, Schwabish will boost the Institute's capabilities in data visualization and conduct research on older workers, people with disabilities, food security, immigration policy, and microsimulation modeling at Urban's Income and Benefits Policy Center.
As policymakers consider ways to slow the growth in Medicare spending as part of broader efforts to reduce the federal debt or offset the cost of other spending priorities, some have proposed to increase beneficiary contributions through higher Medicare premiums. Some proposals would increase Medicare premiums paid by all beneficiaries, while others would raise premiums only for beneficiaries with higher incomes. This issue brief explains provisions of current law that impose income-related premiums under Medicare Part B and Part D, describes recent proposals to modify these requirements, and analyzes the potential implications for the Medicare population.
Many Medicare beneficiaries live on fixed incomes supplemented by the savings they accumulated during their working years. Their income and savings are tied to many life experiences, including their education, health status, marital status, number of work years, household income, access to employer retirement benefits, inheritance, and various economic factors. As a result, the income and assets of Medicare beneficiaries vary greatly. This brief describes the income and assets of Medicare beneficiaries now and in the future and provides context for understanding the extent to which current and future generations of beneficiaries can afford to absorb higher health care costs.
This data brief reports quarterly labor force statistics for older Americans, a growing segment of the workforce. It reports labor force participation rates, unemployment rates, employment-to-population ratios, and the share of unemployed workers who have been out of work for more than six months, and compares outcomes to earlier years. Labor market outcomes did not improve much for older or younger workers in the third quarter of 2013. Older workers continue to fare better than their younger counterparts, although older unemployed adults take longer to find work.