Authors

Publications by Melissa Favreault for Retirement Policy

Back to Browse by Author

More about Melissa Favreault's areas of expertise can be found on this Urban Institute expert's page.

I argue that Social Security benefits for long-term, low-wage workers are modest and need to be increased. There are many ways to bolster benefits for low-income retirees, each with strengths and weaknesses, so technical details of each proposal will determine its effectiveness. Any Social Security reform package will include multiple provisions that interact with one another. Certain provisions to help low-earners may be more or less desirable depending on a package's other components. Finally, some low-income older and disabled Americans are beyond Social Security's reach. To help them, Congress should consider expanding the Supplemental Security Income program.

This commentary suggests ways of making the upcoming debate on Social Security reform more productive than some past efforts. Participants must be open to a range of solutions, financing must be transparent, and effects on disabled workers must be addressed. Reform efforts must acknowledge the changing economic environment, including increasing wage inequality, and shifting individual and family demographics. Guaranteed inflation-protected benefits are crucial, and the sacrifices necessary to balance the system should be shared across generations.

Recent growth in wage inequality has important implications for Social Security solvency and benefit distributions. Because only earnings below the taxable maximum are subject to payroll taxes, concentrated wage growth among higher earners generates less revenue than more evenly distributed growth. Social Security's progressive benefit formula increases benefit payouts when shares of workers with low wages grow. We use a dynamic microsimulation model to examine aggregate and distributional consequences of alternative scenarios about future wage growth. We find that relatively modest changes in assumptions about wage differentials generate marked changes in projected Social Security benefits, poverty, and long-term financing status.

Over the past several decades, the volatility of family income has increased markedly, and own earnings volatility has remained relatively flat. Volatility may affect retirement wealth, depending on whether volatility affects accrued pension contributions or withdrawals or earnings credited toward future Social Security benefits. This project assesses the effect of the volatility of individual and family earnings on asset accumulation and projected retirement wealth using survey data matched to administrative earnings records.

Despite working hard and playing by the rules over long periods, many workers end up poor in retirement. We propose an enhanced minimum benefit for Social Security that targets long-career workers with low lifetime earnings along with a modest credit that compensates workers for up to three years out of the labor market due to caregiving, unemployment, or poor health. By combining these elements, the proposal provides work incentives, yet recognizes realities facing low-wage workers, many of whom have had intermittent work careers. We show that these proposed enhancements would allow more adults to retire with a secure financial foothold.

This paper reviews why Social Security fails to lift more aged low-wage workers and people of color out of poverty. It examines the payroll tax and benefit formula and reviews literature about OASDI outcomes by race, gender, and earnings level. It describes how mortality, earnings, disability, childbearing, immigration and emigration, and marriage patterns all differ across U.S. racial/ethnic groups, and highlights the importance of these differences for program outcomes. The paper then uses the DYNASIM model to examine lifetime OASDI redistribution under current law and a trust fund-neutral reform package that would enhance system progressivity and improve outcomes for some vulnerable to retirement poverty.

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.

This report describes the work the Urban Institute performed to generate the Model of Income in the Near Term, Version 5 (MINT5). MINT is a tool developed for The Division of Policy Evaluation (DPE) of 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 2018. It starts with a rich set of income and demographic characteristics from the 1990 to 1996 Survey of Income and Program Particpation (SIPP) data linked to SSA data on earnings and benefits. MINT then projects these characteristics until death or the year 2099.

Social Security spouse and survivor benefits advantage single-earner families relative to dual-earner families paying the same total taxes. Our paper considers earnings sharing—through which husbands' and wives' earnings records are combined and averaged throughout their marriage when computing benefits—as well as other changes to spouse/survivor benefits, including caregiver credits and minimum benefits. All the roughly cost-equivalent packages examined improve adequacy and horizontal equity compared to current law. The earnings-sharing proposal, however, only reduced poverty with significant adjustments to the treatment of surviving spouses. The packages reveal tradeoffs among beneficiary groups, with particular tensions around work and marital status.

Although Social Security does not currently guarantee low-wage workers a minimum retirement benefit, several proposed reforms include benefit minimums. Our analysis suggests that such policies could help reduce poverty among older adults. However, the way the minimums are designed could affect the extent to which poverty rates decline. Using the Urban Institute's dynamic microsimulation model, we examine five alternative benefit options. Several lessons emerge from these simulations that could help guide designers of Social Security proposals. Understanding how a well-designed minimum benefit could reduce poverty is especially important now, when the program's long-term fiscal deficit threatens future benefit reductions.

Return to list of authors.