Monday, October 24, 2016

New paper: “The Role of Social Security in Overall Retirement Resources: A Distributional Perspective”

The Role of Social Security in Overall Retirement Resources: A Distributional Perspective
by Sebastian Devlin-Foltz, Alice Henriques, and John Sabelhaus.

Median retirement wealth in the bottom 50 is substantially lower than in the top 50. However, when one accounts for Social Security, the differences in total retirement wealth across the distribution are much less severe. To think about retirement readiness, we examine the ratio of retirement assets to usual income (final two columns). The main takeaway message on retirement readiness is that Social Security goes a long way towards explaining why differences in DB and DC retirement wealth do not translate into dramatic shocks to living standards across the income distribution as a given cohort crosses over into retirement. Median total retirement wealth (including Social Security) is much lower for the bottom half of the usual income distribution, but relative to median income, it is roughly the same as for the next 45 percent income group, and more than double the same ratio for the top 5 percent.


Click here to read the whole paper.

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Friday, October 21, 2016

Raising Social Security Taxes Means Big Cuts in Other Tax Revenues

Over at Forbes, I look at how increases in Social Security taxes – either eliminating the ceiling on wages subject to payroll taxes or applying Social Security taxes to investment income – could cause reductions in federal income taxes, Medicare payroll taxes, and state income taxes.

Assuming smaller effects of tax rates on taxable incomes, one-third to one half of Social Security revenue gains from eliminating the payroll tax ceiling would be offset by revenue losses elsewhere in the budget. Using assumptions that find a larger behavioral response, eliminating the Social Security tax max would raise only a small fraction of net revenues than is commonly assumed. Non-Social Security losses from Social Security reforms should not be a trivial concern for policymakers.

You can read the whole article here.

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Monday, October 17, 2016

Upcoming event: ““The Potential Impact of Mandated Employer Pension Programs on Retirement Savings”

Please join us for a meeting of the Savings and Retirement Foundation with guest speaker
Barbara Butrica
Karen E. Smith

Who will discuss their new paper:
“The Potential Impact of Mandated Employer Pension Programs on Retirement Savings”
Tuesday, October 18, 2016
Noon-1:00 p.m.



601 E Street NW
Washington, DC 20005

(Lunch will be provided)

Barbara Butrica is a labor economist with expertise in aging and income dynamics. She studies issues related to the economic security of the baby boom generation, pensions, Social Security, and the engagement of older adults. Butrica has published her research in peer-reviewed journals and has written numerous research reports and briefs for general audiences.

Karen Smith is a senior fellow in the Income and Benefits Policy Center at the Urban Institute, where she is an internationally recognized expert in microsimulation. Over the past 30 years, she has developed microsimulation models for evaluating Social Security, pensions, taxation, wealth and savings, labor supply, charitable giving, health expenditure, student aid, and welfare reform.  

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Upcoming event: “Public Attitudes toward Social Security Reform.”

Please join us October 18 for an event co-hosted by the Committee for a Responsible Federal Budget and Voice of the People focused on where the public stands regarding the need for changes to protect and secure Social Security.

Event Participants Include:

• Dr. Steven Kull (Director, Program for Public Consultation, University of Maryland, School of Public Policy)

• Romina Boccia (Deputy Director and Grover M. Hermann Research Fellow in Federal Budgetary Affairs, The Heritage Foundation)

• Kathleen Romig (Senior Policy Analyst, Center on Budget and Policy Priorities)

• Marc Goldwein (Senior Vice President and Senior Director of Policy, Committee for a Responsible Federal Budget)

Tuesday, October 18

12:00 pm - 1:00 pm

Capitol Building Room HC - 8

(On the House side of the Capitol building - use South Entrance)

Lunch will be served starting at 11:45 am

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Wednesday, October 5, 2016

New paper from the Federal Reserve: “The Role of Social Security in Overall Retirement Resources: A Distributional Perspective”

The Role of Social Security in Overall Retirement Resources: A Distributional Perspective

By Sebastian Devlin-Foltz, Alice Henriques, and John Sabelhaus

During recent decades, the US employer-sponsored retirement system has undergone a major shift from primarily defined benefit (DB)-type plans to primarily defined contribution (DC)-type plans. Furthermore, in the past decade, participation in employer retirement plans has fallen, particularly for younger and lower-income families. In light of this, there is growing concern that wealth accumulation through employer-provided pension plans is falling short, especially for the bottom half of the income distribution.2

However, focusing only on employer-sponsored pensions provides an incomplete picture; it has left the public pension, Social Security, out of the discussion. Social Security provides near universal coverage and calculates benefits progressively, leaving lower-income households with much higher replacement rates relative to their pre-retirement income. Claims to future Social Security benefits are a key component of retirement wealth, and thus failure to include Social Security leads to a biased assessment of the overall distribution of retirement wealth.


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Tuesday, October 4, 2016

Social Security Advisory Board Releases Annual Report

Board releases 2015 annual report

The Board is pleased to release the 18th Annual Report of the Social Security Advisory Board. The annual report is also available on the Board’s website ( It chronicles the events and activities in which the Board engaged in during 2015.

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New papers from the Social Science Research Network

"What's Happening with Retirement Saving and Retirement Incomes? Better Data Tell a Better Story"

ANDREW G. BIGGS, American Enterprise Institute

Both households and policymakers are concerned about retirement security, amidst widespread perceptions that households are not saving adequately for retirement. But many of the commonly-cited data understate retirement plan availability and participation as well as the income that retirees derive from IRA and 401(k) plans. Moreover, many observers contrast these unduly pessimistic data with a prior "Golden Age" of traditional pensions, when data show that most U.S. workers never participated in such plans and onerous vesting requirements prevented many from receiving substantial benefits. A perception that most Americans are falling far short of their retirement saving goals may cause policymakers to overlook targeted polices to assist the smaller number of households who truly are at risk of an inadequate income in retirement.

"Do Savings Increase in Response to Salient Information About Retirement and Expected Pensions?"
ZEW - Centre for European Economic Research Discussion Paper No. 16-059

MATHIAS DOLLS, Centre for European Economic Research (ZEW), Institute for the Study of Labor (IZA)
PHILIPP DOERRENBERG, Centre for European Economic Research (ZEW), Institute for the Study of Labor (IZA), CESifo Institute
ANDREAS PEICHL, Centre for European Economic Research (ZEW), University of Mannheim - School of Economics (VWL), Institute for the Study of Labor (IZA), University of Essex - Institute for Social and Economic Research (ISER)
HOLGER STICHNOTH, Centre for European Economic Research (ZEW)

How can retirement savings be increased? We explore a unique policy change in the context of the German pension system to study this question. As of 2004, the German pension authority started to send out annual letters providing detailed and comprehensible information about the pension system and individual expected pension payments. This reform did not change the level of pensions, but only manipulated the knowledge about and salience of expected pension payments. Using German tax return data, we exploit two discontinuities in the age cutoffs of receiving such a letter to study their effects on private retirement savings. Our results show that the letters increase private retirement savings. The effects are fairly sizable and persistent over several years. We further show that the letter increases labor earnings, and that the increase in savings partly crowds out charitable donations. Moreover, we present evidence suggesting that both information and salience drive the savings effect. Our paper adds to a recent literature showing that policies that go beyond the traditional neoclassical reasoning can be powerful to increase savings rates.

"How Does Student Debt Affect Early-Career Retirement Saving?"
CRR WP 2016-9

MATTHEW S. RUTLEDGE, Boston College, Center for Retirement Research
GEOFFREY SANZENBACHER, Boston College Economics Department
FRANCIS M. VITAGLIANO, Boston College - Center for Retirement Research

This paper examines the relationship between student loans and retirement saving behavior by 30-year-old workers. Total outstanding student loan debt in the United States has quintupled since 2004. Rising student debt levels mean that young workers must reduce either their consumption or their saving. To what extent do these workers cut back on retirement saving? Existing studies have lacked adequate data or controls for studying this issue: conventional financial datasets include too few younger households; the study samples used include older households whose student debt may be from their children’s education instead of their own; and many studies lack important controls to capture differences between attendees with more or less student debt. This study uses the National Longitudinal Survey of Youth 1997 Cohort, a larger sample of workers turning 30, and includes detailed controls including school quality, parental background, and the underlying ability of the college attendee. The analysis focuses on participation in an employer-sponsored retirement plan and retirement assets as of age 30.
This paper found that:
- The estimated relationship between student debt and participating in a retirement plan – whether or not their employer offers one – is small and statistically insignificant, and we can rule out any large negative correlation.
- Contrary to expectations, individuals with a large loan balance who were offered a plan are more likely to accept it, though the estimated relationship is small.
- Some evidence indicates that bachelor’s degree-holders who have student loans have lower retirement assets at age 30, though the estimates are statistically insignificant, and retirement assets levels are unrelated to the size of their student loan balances.
The policy implications of this paper are:
- Though young workers’ balance sheets are clearly hurt by student debt, the preliminary results indicate that they do not substantially reduce retirement saving to compensate.
- This lack of a relationship between student loans and retirement plan saving suggests that the detrimental effect of student debt manifests itself either through reduced consumption or other reductions in net worth, such as credit card debt.
- Despite these findings, it will be worth watching future cohorts to determine whether a stronger relationship between student debt and retirement savings will emerge in the future, as those who built up even more debt move toward financial and economic maturity.

"What are the Effects of Doubling Up on Retirement Income and Assets?"
CRR WP 2016-10

DEIRDRE PFEIFFER, Arizona State University (ASU) - School of Geographical Sciences and Urban Planning
KATRIN B. ANACKER, George Mason University - School of Policy, Government, and International Affairs
BROOKS LOUTON, Arizona State University (ASU) - School of Criminology & Criminal Justice

The Great Recession has amplified the increase in socioeconomic instability and inequality in the United States. While much work has been conducted on retirement income and assets, not much work has been undertaken on seniors moving in with their adult children and grandchildren, possibly to save on housing costs. Utilizing Survey of Income and Program Participation (SIPP) 1996, 2001, 2004, and 2008 data for seniors 65 and older, we conducted descriptive statistics and three types of models. First, we used discrete-time event history modeling to analyze the effect of changes in retirement income, assets, debt, and social welfare program participation between the current and previous interview on the propensity of moving into a multigenerational household, controlling for other factors. Then, we used logistic and linear regression to understand the effect of living in a multigenerational household on changes in seniors’ retirement income, assets, debt, and program participation, controlling for other factors. We also expanded our analyses to control for household type, i.e., a senior moving in with their adult children or grandchildren or vice versa, and for time, i.e., whether the recession impacts our results.
The paper found that:
- Experiencing economic distress increased the odds that a senior would move into a multigenerational household over the previous year or previous four months.
- Seniors living in multigenerational households were more economically disadvantaged than seniors not living in multigenerational households.
- Seniors living in multigenerational households were more likely to enroll in a social welfare program over the past four months than seniors not living in multigenerational households.
- The relationships between seniors’ multigenerational household formation and economic outcomes did not change much during the recession.
The policy implications of the findings are:
- Living in a multigenerational household may have a potentially destabilizing effect on seniors’ economic well-being.
- Policymakers may want to target financial education and counseling to seniors living in multigenerational households.

"Adequacy, Fairness and Sustainability of Pay-as-You-Go-Pension-Systems: Defined Benefit Versus Defined Contribution"

JENNIFER ALONSO-GARCÍA, University of New South Wales (UNSW) - ARC Centre of Excellence in Population Ageing Research (CEPAR)
MARÍA EL CARMEN BOADO-PENAS, University of Liverpool
PIERRE DEVOLDER, Catholic University of Louvain

There are three main challenges facing public pension systems. First, pension systems need to provide an adequate income for pensioners in the retirement phase. Second, participants wish a fair level of benefits in relation to the contributions paid. Last but no least, the pension system would need to be financially sustainable in the long run. In this paper, we analyse defined benefit versus defined contribution schemes in terms of adequacy, fairness and sustainability jointly. Also, risk sharing mechanisms, that involve changes in the key variables of the system, are designed to restore the financial sustainability at the same time that we study their consequences on the adequacy and fairness of the system.

"Initiate Deficits to Strengthen Public Finances: The Role of Private Pensions"

ALES S. BERK, University of Ljubljana - Faculty of Economics
JOZE SAMBT, University of Ljubljana - Faculty of Economics

In this paper we use our comprehensive pension system model calibrated to the real demographic, employment and retirement data, measure transition costs of implementing mandatory private second-pillar into the pension landscape and consider fiscal sustainability of pension system. We report sensitivity to the most relevant parameters both within a second-pillar and a pay-as-you-go, and argue that fiscal sustainability and improved (higher) accrual rates are not incompatible policy goals if only pension reform is properly designed and implemented early enough. The introduction of a private pension pillar has to be implemented in times when public debt burden remains manageable and has to be accompanied by further parametric reform within the pay-as-you-go system that keeps the system fiscaly stable, as well as that further improves net accrual rates. We call for reconsideration of pension policy reversals that happened after 2008 in quite some coutries.

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