Saturday, November 18, 2017

New paper: “US municipal yields and unfunded state pension liabilities”

U.S. municipal yields and unfunded state pension liabilities
by Zina Lekniῡtė, Roel Beetsma and Eduard Ponds


We present empirical evidence that municipal bond yields are increasing in the pension debt towards U.S. state civil servants. However, positive yield effects of both pension and explicit debt are found only for the period since the start of the crisis, suggesting that the crisis triggered awareness of budgetary sustainability. The marginal yield effect of higher pension debt is smaller than that of higher explicit debt, but still economically meaningful. The effect of higher pension debt seems stronger when using market values of pension assets than actuarial values, suggesting that investors pay more attention to market values.

The full paper is available here.

Read more!

Friday, November 17, 2017

Social Security Advisory Board Releases Research Roundtable Summary

Social Security Advisory Board Releases Research Roundtable Summary: Participants' views on a long-range research agenda for the Social Security Administration

Today the Social Security Advisory Board announces the release of a new document: “Research Roundtable Summary: Participants’ views on a long-range research agenda for the Social Security Administration.”

In August 2017, the board held a roundtable discussion in Washington, DC with scholars from around the country who were asked to suggest ideas for a long-range Social Security research agenda and to discuss the data needs they think are required to carry out that agenda. Additional scholars who did not attend the meeting submitted written suggestions. The document being released today summarizes thoughts and recommendations from over 30 individuals who participated in this process. The points made in this report do not necessarily reflect or represent the views of individual board members and are not exhaustive of all the important insights that other researchers and experts may have to offer. Still, they highlight a number of issues the board hopes the public and the Social Security Administration will find useful to consider.

Most participants emphasized the need for additional investments in data infrastructure and greater access to and sharing of the administrative data necessary to address key research questions. Some recommended continuing the development of policy evaluation models and suggested a number of topics that could be addressed through demonstration projects. Among the numerous issues identified, some notable examples include the need to better understand:

  • what factors contribute to the economic security or insecurity of retirees,
  • how changing patterns of work, health, retirement, asset and debt accumulation and decumulation will affect the economic security of today’s workers,
  • how SSA’s communication with the public affects decision-making by workers, claimants and beneficiaries,
  • how disabilities develop, how SSA determines eligibility for benefits and what conditions are necessary for individuals to keep working or to return to work, and
  • the reasons for and implications of recent downward trends in disability applications and awards.

To read the full report click here

Read more!

Monday, November 13, 2017

Upcoming event: "What’s Next for Tax and Entitlement Reform”

National Economists Club

Featuring Marc Goldwein of the Committee for a Responsible Federal Budget

Chinatown Garden Restaurant 618 H St NW Washington DC
Date: 16 Nov 2017 12:00 PM

Marc Goldwein

Senior Vice President & Policy Director

Committee for a Responsible Federal Budget

"What’s Next for Tax and Entitlement Reform”

Marc Goldwein is the Senior Vice President and Senior Policy Director for the Committee for a Responsible Federal Budget, where he guides and conducts research on a wide array of topics related to fiscal policy and the federal budget. He is frequently quoted in a number of major media outlets and works regularly with Members of Congress and their staffs on budget-related issues.

In 2010, Marc served as Associate Director of the National Commission on Fiscal Responsibility and Reform (The Fiscal Commission), and in 2011 he was a senior budget analyst on the Joint Select Committee on Deficit Reduction (The Super Committee).  He has also conducted research for the Government Accountability Office, the World Bank, the Historian's Office at the Social Security Administration, and the Institute of Governmental Studies at UC Berkeley. In addition to his work at the Committee, Marc teaches economics at the University of California DC and at Johns Hopkins University, where he was the 2013 recipient of Excellence in Teaching Award. In 2011, Marc was featured in the Forbes "30 Under 30" list for Law & Policy.

Note: Registration is open through Wednesday, 11-8-17. 

Press: Please email with your attendance status and the date of attendance. It will be assumed that lunch is NOT requested.   If lunch is requested, please contact me in advance, prior to the date of the event, for registration and payment instructions.

Credit Card payment is non refundable but you may substitute someone in your place for attendance.

Visit for registration information.

Read more!

Thursday, November 9, 2017

Smith: Three Myths About Fixing Social Security

Writing for, Brenton Smith outlines three myths about Social Security’s funding health:

Social Security is the largest, and arguably most important, program in the federal government. It is a life-line for millions. For the rest of us the program is a set of never-ending, polarizing arguments.

The contentiousness is caused in large part by the number and conflicting nature of the urban legends surrounding the system. Everyone has a fact that is someone else’s myth.

These convictions about the program shape who voters elect, and seriously limit what candidates are willing to say to the electorate. These beliefs have so penetrated the public conscience that actual policy makers are left herding unicorns.

Check out the whole article here.

Read more!

Saturday, November 4, 2017

CBO Projects Small Improvement in Social Security Financing

The Congressional Budget Office released new projections of Social Security's long-term financial health. While still showing a much larger funding deficit than the figures released by Social Security's Trustees, the CBO shows a small improvement relative to last year's figures. Over 75 years, the CBO projects a shortfall equal to 4.5 percent of employee payroll, versus a 4.7 percent gap in the office's 2016 projections.

Since last year, CBO has made changes to its projections of five key inputs: productivity in the economy, interest rates, the population, the labor force participation rate, and the share of earnings that is subject to Social Security payroll taxes. The changes to the first three of those inputs worsen the Social Security system’s projected finances, whereas the changes to the last two improve them. Moreover, an additional year of deficit—2091—is now included in the calculation of the actuarial balance, which worsens the 75-year outlook.
CBO projects larger deficits in Social Security’s finances than do the Social Security Trustees. That difference is largely explained by CBO’s and the trustees’ different projections of several major inputs into estimates of the system’s finances: earnings subject to the Social Security payroll tax, components of GDP growth, the population, and real interest rates (that is, interest rates adjusted to remove the effects of inflation).
Nevertheless, while the CBO projects a small improvement relative to its 2016 figures, the longer-term trend has been troubling. In the mid-2000s, progressives and Congressional Democrats often cited the CBO's projections in preference to the Trustees' figures, because the CBO showed a smaller deficit and this seemingly weakened the case for reform. Since that time, however, the CBO's projected long-term deficit has more than tripled. Both parties should pay attention to the CBO's projections. If the office proves to be correct, the Social Security shortfall will be far larger than either party's preferred policy changes could tackle.

Read more!

Monday, October 30, 2017

New article from the CBO: "Measuring Retirement Income Adequacy"

The Congressional Budget Office has a very nice new study titled "Measuring Retirement Income Adequacy: A Primer," which outlines the economic theory behind retirement income adequacy and the choices of calculation you need to make when applying that theory to data.

The study hits on a number of issues I've discussed in how to measure replacement rates, which are a key shorthand for measuring retirement income adequacy. I appreciate that the CBO cites my work in a couple of places.

The basic theory of retirement saving is the so-called "life cycle model," which -- in simplified terms -- predicts that people will tend to spend the same amount from year to year.

Two key points I'd make regarding how to measure replacement rates, which represent Social Security benefits or total retirement income as a percent of pre-retirement earnings.

First, pre-retirement earnings should be calculated in real, inflation-adjusted terms. These allow you to compare the buying power of retirement income to the purchasing power that the retiree had when he was working. That's how the life cycle model would tend to see things. Social Security's actuaries, by contrast, compare retirement benefits to the "wage-indexed" average of pre-retirement earnings. This overstates the real purchasing power of the retiree's pre-retirement earnings and inappropriately raises the bar on what counts as an adequate retirement income.

Second, if you're calculating replacement rates using administrative data -- meaning, real earning records rather than stylized earners -- you're faced with the issue of whether to include years of zero earnings in the measure of average pre-retirement earnings. The life cycle model says that you should: if people smooth their consumption across years, that means that their average spending will be a function of all their years of earnings, including years of zero earnings. The SSA actuaries include 'zero years' when they calculate replacement rate relative to career-average earnings. But when they calculate replacement rates relative to 'final earnings' -- meaning, earnings in the years approaching retirement -- they exclude zero years. Doing so raises the measure of pre-retirement earnings, and so makes Social Security replacement rates look lower. The actuaries' argument is that there are too many 'zero years' in the years approaching retirement. But as I showed using the actuaries' own data, zero years aren't that much more common in the years immediately preceding retirement than they are earlier in life, when people may leave the workforce due to education, unemployment or child raising.

Where does the rubber meet the road? Well, if you were to ask SSA, they'd tell you that the average person receives a Social Security replacement rate of about 40% and that they need a replacement rate of about 70% in order to maintain their standard of living in retirement. Properly measured, I believe the average Social Security replacement rate isn't 40% but something in the 50-55% range. That helps explain why most retirees say they're doing well, even if they don't seem to have much savings on top of their Social Security.

In any case, the new CBO primer is highly recommended. Many commentators and journalists write about how much is "enough" retirement income, but the reality is that you can't really know what your opinion is until you wrestle with the sorts of choices that the CBO lays out. Read more!

Tuesday, October 17, 2017

Upcoming event: “How employer-sponsored rainy day savings accounts can help workers prepare for emergencies”

Join us Oct. 26 for a discussion of practical steps to increase workers' savings.

Brookings Event Invitation

How employer-sponsored rainy day savings accounts can help workers prepare for emergencies

Thursday, October 26, 2017, 10:30 a.m. – 12:00 p.m.
The Brookings Institution, Falk Auditorium, 1775 Massachusetts Avenue, N.W.
Washington, DC 20036

RSVP to attend in person

RSVP for the webcast

Many Americans live paycheck to paycheck, carry credit card debt, and have little or no money set aside for emergencies such as sickness, car or home repairs, job loss, or economic downturns. One consequence of this financial vulnerability is that many individuals use a portion of their retirement savings during their working years. Research suggests that for every $1 that flows into 401(k)s and similar accounts, between 30¢ and 40¢ leaks out before retirement. Helping American households build up their emergency savings would increase their financial security today and in retirement, and one innovative policy idea for doing that is an employer-sponsored rainy day savings account.
On October 26, the Retirement Security Project at Brookings will host a discussion on the practical considerations and challenges of helping households accumulate rainy day savings for use during their working years. The event will feature a presentation of forthcoming research by David John and Brigitte Madrian on the possibility of using employer-sponsored rainy day savings accounts to help workers prepare for an emergency. Following a presentation of the research, a panel of experts reflect on these options and next steps for policymakers and employers. The speakers will take questions from the audience.
Join the conversation on Twitter using #RainyDaySavings.

Presentation of research

David C. John, Deputy Director, Retirement Security Project
Brigitte C. Madrian, Aetna Professor of Public Policy and Corporate Management, Harvard Kennedy School; Research Associate, National Bureau of Economic Research

Panel discussion

Moderator: William G. Gale, Arjay and Frances Fearing Miller Chair in Federal Economic Policy and Director, Retirement Security Project, The Brookings Institution
Diane Garnick, Chief Income Strategist, TIAA
David C. John, Deputy Director, Retirement Security Project
Brigitte C. Madrian, Aetna Professor of Public Policy and Corporate Management, Harvard Kennedy School; Research Associate, National Bureau of Economic Research
David Newville, Director, Federal Policy, Prosperity Now

Read more!