Social Security

These tables update previous estimates of the lifetime value of Social Security and Medicare benefits and taxes for typical workers in different generations at various earning levels based on new estimates of the Social Security Actuary. The "lifetime value of taxes" is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation). The "lifetime value of benefits" represents the amount needed in an account (also earning a 2 percent real interest rate) to pay for those benefits. All amounts are presented in constant 2012 dollars.

Changing age demographics have powerful implications for the shape of the nation's work force. Formal models of labor force participation fail to take into account that as the relative supply of younger workers declines, employers will increasingly turn to older workers to meet their demand for labor to provide goods and services. Increased labor force participation among older workers can add to the solvency of Social Security and the broader federal budget. Policymakers in both the public and private sectors can accommodate this trend by removing barriers that discourage hiring and retaining older workers.

After peaking in the wake of the Great Recession, Social Security retirement and disability awards fell in 2011 as the economy improved. Only 27 percent of Americans age 62 and older began collecting retirement benefits that year, the lowest take-up rate since 1976. Disability applications and awards remained unusually high, however. In 2011, 18.9 insured workers per 1,000 applied for Social Security disability benefits, more than in any year except 2010. The surge in disability applications and awards exacerbated Social Security’s financial problems.

Social Security claiming behavior matters because early claimants receive lower monthly benefits for the rest of their lives. Early claiming fell over the past decade, after increasing over the previous 10 years. However, high unemployment encourages early claiming by less-educated men. A 1 percentage point increase in the state unemployment rate is associated with a 0.4 percentage point increase in the monthly claiming probability by men who never attended college, implying that the Great Recession boosted their claiming rates by about 40 percent. In contrast, claiming behavior by women and well-educated men is not significantly correlated with the unemployment rate.

Women's labor force participation and earnings dramatically increased after World War II. Those changes have important implications for women's Social Security benefits. This article uses the MINT model to examine Social Security benefits for current and future beneficiary wives. The projections show that fewer wives in more recent birth cohorts will be eligible for auxiliary benefits as spouses because their earnings are too high. Most wives will still be eligible for survivor benefits because they typically have lower earnings than their husbands. The share of wives who would be ineligible for widow benefits is projected to double between cohorts.