Social Security

This study uses the Urban Institute's DYNASIM model to project wealth and income at retirement for low-income boomers. The findings suggest that most with low lifetime earnings will also have low incomes at older ages unless they either continue working or move in with others who help support them financially. Saving more, working more consistently over their lifetime, and delaying retirement is projected to improve outcomes for low-earning boomers, but none of these actions will increase retirement living standards dramatically.

In this interview for the American Bar Association Taxation Section News Quarterly, Eric Toder discusses the relationship between the Social Security trust fund account surplus and budget deficits, prospects for future tax reform, reforms of corporate taxation, and the possible future role of consumption taxes in the federal tax code.

Increasing older people's employment rates could reduce the economic pressures of an aging population, and many older adults say they want to delay retirement. Yet, numerous public policies and private practices continue to encourage early retirement. The Urban Institute, with support from the Alfred P. Sloan Foundation, sponsored an October 2007 roundtable to examine the value of older adults' work. Researchers, practitioners, employers, and policymakers discussed the potential supply of and demand for older workers, the benefits of working longer, barriers to continued employment, and policy solutions to encourage work at older ages. This document summarizes the issues and discussion.

Growing fiscal pressures and increasing life expectancy have prompted calls to raise retirement ages. Some fear this change might harm long-career, lower-wage workers. Tying retirement benefit eligibility to years of service might protect low-wage workers who start their careers early. But higher disability rates and greater employment volatility could offset lower-wage workers’ early labor force starts. Using survey data matched to administrative records, we describe how work histories vary by gender, education, and other characteristics. We find that years of service are not likely to effectively protect the lowest-wage workers, as those with the least education also work the least.

Tax rates can affect decisions regarding work, investment in human capital, and wealth accumulation, each of which modulates intra- and intergenerational economic mobility. Similarly, government spending affects mobility either by purchasing goods that may drive mobility, such as education and health, or by effectively lowering the cost of mobility-enhancing goods through tax deductions and credits. This review summarizes the literature on the effects of government tax and spending policy on economic mobility, with a focus on the impacts of changes in marginal tax rates, the tax treatment of wealth, and government spending on health care, education, and Social Security. (Review 10 of 11.)

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.

People think of retirement security as balancing on a three-legged stool, with income from assets, private pensions, and Social Security as the legs. However, despite growing awareness about the importance of saving for retirement, many elderly people cannot rely on their financial assets. According to data from the 2004 Health and Retirement Study, lower-income adults age 65 and older rely less on income from assets and traditional defined-benefit pensions than their higher-income counterparts. Instead, older adults with lower income rely primarily on Social Security and public transfers for their retirement security.

Income tax provisions affect the buildup of retirement assets during workers' careers and after-tax income following retirement. This paper uses the Urban Institute's DYNASIM model to simulate how potential changes in the tax treatment of retirement saving, Social Security benefits, and income from assets outside retirement accounts may affect boomers' retirement incomes. Changes in the income thresholds for taxing Social Security benefits have the largest impact on middle-income boomers, while changes in contribution limits for retirement saving plans and tax rates on capital gains and dividends have the largest impact on the highest-income boomers.

Baby boomers have changed the nature of work, why not the nature of retirement? Options will multiply, retirement expert Richard W. Johnson writes in The San Diego Union-Tribune, if Medicare rules, payroll taxes, and age-discrimination and tax laws become more congenial to work.

About one-quarter of workers age 51 to 55 in 1992 developed health-related work limitations and about one-fifth were laid off from their jobs before age 62. Although late-career health and employment shocks often derail retirement savings plans, Social Security’s disability insurance, spouse and survivor benefits, and progressive benefit formula provide important protections. In fact, health shocks increase Social Security's lifetime value, primarily because the system’s disability insurance allows some disabled workers to collect benefits before age 62. However, if the system’s disability insurance program did not exist, the onset of health-related work limitations would substantially reduce Social Security wealth.