Research & Analysis by Patrick J. Purcell
Retirement and Socioeconomic Characteristics of Aged Veterans: Differences by Education and Race/Ethnicity
This article's authors use data from the 1995 and 2015 Current Population Surveys to provide multi-layered descriptive statistics on the retirement and socioeconomic characteristics of veterans aged 55 or older. The authors explore indicators of family structure, work, income from Social Security and other sources, and economic security. They also investigate differences in educational attainment and race/ethnicity within and across veteran and nonveteran samples over the two-decade span. Further, they account for age and cohort effects by separately analyzing three age groups: 55–61, 62–69, and 70 or older. The authors find important within-group differences among aged veterans across education and racial/ethnic groups and over time, and discuss the implications of their findings.
The Social Security Administration maintains wage-and-salary earnings records for all American workers. From those administrative records, the agency extracts a 1-percent sample called the Continuous Work History Sample (CWHS) for research and statistical purposes. This article uses CWHS data to examine trends in women's real wage-and-salary earnings from 1981 through 2015. It first describes broad trends for all women aged 25–59. Then it describes the trends over that same span for women in each of seven 5-year age intervals (25–29, 30–34, 35–39, 40–44, 45–49, 50–54, and 55–59), with detail by individual birth cohort. A series of charts shows how women's real wages changed over time both across age groups and across birth cohorts within an age group.
The Social Security Administration maintains wage and salary earnings records for all American workers. From those administrative records, the agency extracts a 1 percent sample called the Continuous Work History Sample (CWHS) for research and statistical purposes. This article uses CWHS data to examine trends in men's real wage and salary earnings from 1981 through 2014. It first describes broad trends for all men aged 25–59. Then it describes the trends over that same span for men in each of seven 5-year age intervals (25–29, 30–34, 35–39, 40–44, 45–49, 50–54, and 55–59), with detail by individual birth cohort. A series of charts shows how men's real wages changed across age groups and birth cohorts within each age group.
Eligible workers can claim Social Security retirement benefits at age 62, the earliest eligibility age; however, those who claim benefits before attaining full retirement age receive permanently reduced benefits. Working longer and claiming benefits later can result in higher Social Security benefits and greater financial security in retirement. This article presents data on trends in the labor force participation rate of older Americans and the age at which people claim Social Security retired-worker benefits.
Since 1984, Social Security beneficiaries with total income exceeding certain thresholds have been required to pay federal income tax on some of their benefit income. Because those income thresholds have remained unchanged while wages have increased, the proportion of beneficiaries who must pay income tax on their benefits has risen over time. A Social Security Administration microsimulation model projects that an annual average of about 56 percent of beneficiary families will owe federal income tax on part of their benefit income from 2015 through 2050. The median percentage of benefit income owed as income tax by beneficiary families will rise from 1 percent to 5 percent over that period. If Congress does not adjust income tax brackets upward to approximate the historical ratio of taxes to national income, the proportion of benefit income owed as income tax will exceed these projections.
This article explores how faster rates of wage growth for college graduates than for nongraduates could affect the Social Security benefits of future retirees. Using a Social Security Administration microsimulation model called Modeling Income in the Near Term, the authors estimate the effect of different rates of wage growth by educational attainment on the future earnings and Social Security benefits of individuals born between 1965 and 1979, sometimes referred to as “Generation X.” They find that for members of the 1965–1979 birth cohorts, different rates of wage growth by education would substantially increase the gap in annual earnings between college graduates and nongraduates, but that differences in Social Security benefits would increase by a smaller proportion, primarily because of Social Security's progressive benefit formula.
The Effects of Alternative Demographic and Economic Assumptions on MINT Simulations: A Sensitivity Analysis
The Social Security Administration's (SSA's) Modeling Income in the Near Term (MINT) estimates income/wealth of future retirees. Estimates are based on demographic information from the Survey of Income and Program Participation: individual earnings histories and projections of interest rates, wage growth, mortality rates, and disability rates. Historically, MINT simulations were based exclusively on SSA's Office of the Chief Actuary's (OCACT's) intermediate-cost projections of key demographic/economic variables. The authors present the results of a sensitivity analysis in which they ran MINT using OCACT's low-cost/high-cost projections of mortality and disability trends. Those simulations estimated characteristics of the population aged 65 or older in 2040 under alternative projections of mortality/disability trends. The authors then describe simulations in which future real rates of return on stocks held in retirement accounts differ from the historical mean real rate of return used in baseline simulations. Sensitivity analyses can help MINT users choose model parameters with the greatest impact on simulation results.
How Do Trends in Women's Labor Force Activity and Marriage Patterns Affect Social Security Replacement Rates?
Changes in the role of women in the economy and in the family have affected both the amount and the type of Social Security benefits they receive in retirement. Women's labor force participation rate increased from less than 40 percent in 1950 to more than 70 percent in 2011. Over much of the same period, marriage rates fell and divorce rates rose. This article examines how women's higher earnings and lower marriage rates have affected Social Security replacement rates over time for individuals and for households.
The deduction of Medicare premiums from Social Security benefit payments complicates the estimation of Social Security income in household surveys. Although the Census Bureau's Current Population Survey (CPS) and Survey of Income and Program Participation (SIPP) both aim to collect and record gross Social Security benefit income before Medicare premium deductions, comparing the survey data with Social Security records indicates that the CPS and SIPP estimates differ and suggests that some survey respondents may report net benefit income.
The income of the aged is composed largely of Social Security benefits, asset income, and pension income. Over the past three decades, the primary form of employer-sponsored pension has shifted from the traditional defined benefit plan to defined contribution plans, such as the 401(k). That trend creates problems for measuring the income of the aged because most household surveys of income either do not collect information about distributions from defined contribution retirement accounts or do not include those distributions in their summary measures of income. This article examines the impact of including distributions from retirement accounts on the estimated income of families headed by persons aged 65 or older.
Income typically falls in retirement, and the timing and extent of that decline concerns policymakers. If income from Social Security, pensions, and savings do not allow retirees to maintain their desired standard of living, they will face difficult and perhaps unexpected choices about reducing or eliminating certain kinds of expenditures. The income replacement ratio—retirement income expressed as a percentage of preretirement income—has become a familiar metric for assessing the adequacy of retirement income. This article presents the income replacement ratios experienced by members of the original sample cohort of the Health and Retirement Study (HRS), who were born between 1931 and 1941. Median replacement ratios among this sample fall as the retirement period grows longer.
This article discusses the importance of 401(k)-type defined contribution plans and individual retirement accounts in providing retirement income for current and future retirees. The rising prevalence and importance of this type of income creates measurement errors in the Current Population Survey and other sources of data on the income of the aged because those sources substantially underreport the distributions from such retirement plans.
This article summarizes recent trends in employer sponsorship of retirement plans and employee participation in those plans. It is based on data collected in surveys of employers conducted by the U.S. Department of Labor's Bureau of Labor Statistics and surveys of households conducted by the U.S. Census Bureau.