Changing Longevity, Social Security Retirement Benefits, and Potential Adjustments

Long-term increases in life expectancy have varied for individuals with different lifetime earnings levels. This article examines two hypothetical adjustments to Social Security Old-Age and Survivors Insurance benefits that would offset the differential changes in projected life expectancy. The authors use the Modeling Income in the Near Term microsimulation model to analyze how the adjustments would affect benefits for beneficiaries across the lifetime earnings distribution.

A Field Guide to Social Security Distributional Analysis

A stylized example neatly and efficiently answers the question of how much Social Security benefits would change because a stylized worker's situation is straightforward and does not require demographic or statistical knowledge to understand. However, it leaves other questions unanswered, such as how many people are like that worker and would anyone fall into poverty? To answer these types of questions, you need to use distributional analysis, which examines how something, such as income, benefits, or policy effects, is distributed across a group of people. This note describes the use of distributional analysis in Social Security policy discussions by analyzing the distributional effects of three real-life Social Security policy options.

Distributional Effects of Applying Social Security Taxes to Employer-Sponsored Health Insurance Premiums

This policy brief analyzes how applying the Social Security tax to employer-sponsored health insurance premiums could affect Social Security beneficiaries. Specifically, the brief examines an option presented by the Social Security Advisory Board in which both employee and employer premiums would count as wages for Social Security tax calculations, and later for benefit calculations. Using the Modeling Income in the Near Term model, the results show that for most Social Security beneficiaries aged 60 or older from 2017 to 2080, benefits would gradually increase and the poverty rate would decrease faster than the rate under current law. Counting employer-sponsored health insurance premiums as wages for Social Security purposes would increase Social Security taxes for most individuals and those taxes would increase more than Social Security benefits for individuals at all earning levels.

Married Women's Projected Retirement Benefits: An Update

This note examines how changes in women's labor force participation and lifetime earnings will affect the Social Security benefits of future beneficiary wives. The Social Security Administration's Modeling Income in the Near Term (version 7) projects that at least four-fifths of wives in the late baby boom (born 1956–1965) and generation X (born 1966–1975) cohorts will receive their initial Social Security benefits based solely on their own earnings. For wives in those cohorts, most of the average benefit amount (91–92 percent) will be attributable to their own earnings histories.

Income Taxes on Social Security 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.

Education, Earnings Inequality, and Future Social Security Benefits: A Microsimulation Analysis

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.

Understanding the Social Security Family Maximum

Social Security's family maximum rules limit the total benefits payable to a beneficiary's family. Different family maximum rules apply to retirement and survivor benefits than to disability benefits. The rules for calculating family maximum benefits are complicated. In some particularly complex cases, it is difficult to properly implement the family maximum, which can result in over- or underpayments. This article explains how the family maximum rules work and describes their evolution. The authors use Modeling Income in the Near Term, Version 6 data to analyze who is affected by the family maximum and to what extent their benefits are changed.

Incentivizing Delayed Claiming of Social Security Retirement Benefits Before Reaching the Full Retirement Age

Claiming Social Security retirement benefits before the full retirement age (FRA) results in permanently lower benefits, while delaying claiming permanently increases benefits. This article uses Modeling Income in the Near Term data to determine the socioeconomic characteristics of individuals who claim at various ages. The authors then describe a number of novel approaches aimed at encouraging individuals to delay claiming in the months and years before reaching their FRA. Lastly, the authors model one of those approaches to examine how a 1-year delay in claiming affects benefits and poverty in the future.

Proposed Revisions to the Special Minimum Benefit for Low Lifetime Earners

Social Security's special minimum benefit is declining in relative value, does not provide a full benefit equal to the poverty threshold, and reaches fewer beneficiaries each year. Members of Congress and other key policymakers have proposed several methods for revising the special minimum benefit, either as part of reforming Social Security more broadly or as stand-alone policy options. Most of the new options would index the benefit to wages, helping ensure its sustainability into the future. The options differ in how they define a “year of coverage,” how many years of coverage are required to be eligible for any benefit increase, and how much the full benefit increase should be. Those choices will determine who will receive the benefit increase and how adequate their benefit will be.

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.

The Projected Effects of Social Security Benefit Increase Options for Older Beneficiaries

In conjunction with larger Social Security solvency plans, many policymakers have proposed introducing benefit increases for older beneficiaries. This brief analyzes the projected effects of two such policy options on beneficiaries aged 85 or older in 2030 using the Modeling Income in the Near Term model. Both options target older beneficiaries' primary insurance amounts for a 5 percent increase, but they differ in how the increase would be calculated. Both proposals would increase monthly benefits for nearly all older beneficiaries, and both would reduce poverty levels among the aged, relative to currently scheduled benefits. However, the options differ in how the benefit increases would be distributed among older beneficiaries across shared lifetime earnings quintiles.

Modeling Behavioral Responses to Eliminating the Retirement Earnings Test

The retirement earnings test (RET) is an often-misunderstood aspect of the Social Security program. Policymakers have proposed reforming the RET as a way to encourage working at older ages. However, this could also cause earlier benefit claiming. We use Modeling Income in the Near Term data to analyze the complete repeal of the earnings test for beneficiaries aged 60 or older, first assuming no behavioral responses to repeal and secondly assuming changes to benefit claiming and workforce participation behaviors. Our lifetime results show that the assumed behavioral response—particularly the benefit claiming change—has a bigger effect than the RET policy change itself.

Mind the Gap: The Distributional Effects of Raising the Early Eligibility Age and Full Retirement Age

Policymakers have proposed increases to the early eligibility age (EEA) and/or full retirement age (FRA) to address increasing life expectancy and Social Security solvency issues. This analysis uses the Social Security Administration's Modeling Income in the Near Term (MINT) model to compare three retirement-age increases suggested by the Social Security Advisory Board: (1) increase the FRA alone, (2) increase both the EEA and FRA to maintain a 4-year gap between them, and (3) increase both the EEA and FRA to maintain a 5-year gap between them. This distributional analysis shows the impact these varying reforms would have on Social Security beneficiaries in the future.

Measures of Health and Economic Well-Being Among American Indians and Alaska Natives Aged 62 or Older in 2030

This Research and Statistics Note uses Modeling Income in the Near Term (MINT) projections to provide an overview of the demographic, health, and economic characteristics of the American Indian and Alaska Native (AIAN) population aged 62 or older in 2030. MINT projects that the AIAN population will fare worse than the overall aged population in 2030 according to measures of health status, work limitation status, disability status, lifetime earnings, per capita Social Security benefits, per capita income, per capita wealth, and poverty.

This Is Not Your Parents' Retirement: Comparing Retirement Income Across Generations

This article examines how retirement income at age 67 is likely to change for baby boomers and generation Xers compared with current retirees. The authors use the Modeling Income in the Near Term model to project retirement income, assets, poverty rates, and replacement rates for current and future retirees at age 67. In absolute terms, retirement incomes of future cohorts will increase over time, and poverty rates will fall. However, projected income gains are larger for high than for low socioeconomic groups, leading to increased income inequality among future retirees.

Racial and Ethnic Differences in the Retirement Prospects of Divorced Women

The authors use the Social Security Administration's Modeling Income in the Near Term (version 6) to describe the likely characteristics, work experience, Social Security benefit status, and economic well-being of future divorced women at age 70, by race and ethnicity. Factors associated with higher retirement incomes include having a college degree; having a strong history of labor force attachment; receiving Social Security benefits; and having pensions, retirement accounts, or assets, regardless of race and ethnicity. However, because divorced black and Hispanic women are less likely than divorced white women to have these attributes, income sources, or assets, their projected average retirement incomes are lower than those of divorced white women.

The Retirement Prospects of Divorced Women

To project the retirement resources and well-being of divorced women, the authors use the Social Security Administration's Modeling Income in the Near Term (version 6). Findings show that Social Security benefits and retirement incomes are projected to increase for divorced women and that their poverty rates are projected to decline, due in large part to women's increasing lifetime earnings. However, not all divorced women will be equally well off; economic well-being in retirement varies by Social Security benefit type.

The Impact of Changes in Couples' Earnings on Married Women's Social Security Benefits

This article uses the Social Security Administration's Modeling Income in the Near Term (version 6) to examine how changes in married women's labor force participation and earnings will impact the Social Security benefits of current and future beneficiary wives. Over the next 30 years, a larger share of wives will be eligible for Social Security benefits based solely on their own earnings, and wives' average Social Security benefits are expected to increase by 50 percent. Despite rising female lifetime earnings, wives' earnings typically remain below those of their husbands, so many wives who are retired-worker-only beneficiaries while their husbands are alive will receive auxiliary benefits when their husbands die.

Who Never Receives Social Security Benefits?

Approximately 4 percent of the aged population will never receive Social Security benefits. This article examines the prevalence, demographic characteristics, and economic well-being of these never-beneficiaries. Most never-beneficiaries do not have sufficient earnings to be eligible for benefits, and most of these insufficient earners are either late-arriving immigrants or infrequent workers. About 44 percent of never-beneficiaries are in poverty, compared with about 4 percent of current and future beneficiaries.

Distributional Effects of Accelerating and Extending the Increase in the Full Retirement Age

This policy brief compares two options set forth by the Social Security Advisory Board to increase the full retirement age (FRA), the age at which claimants may receive unreduced Social Security old-age benefits. One option would raise the FRA from the current target of 67 years to 68 years; the other would raise the FRA to 70 years. The brief examines the effects of both options on the level of benefits of Social Security beneficiaries aged 62 or older in 2070 using Modeling Income in the Near Term (MINT) projections, and on Trust Fund solvency using estimates from the Social Security Administration's Office of the Chief Actuary. The brief finds that both options would reduce benefits, improve solvency, and slightly increase the poverty rate. Within each option, effects on benefits are relatively uniform across beneficiary characteristics, although some surviving spouse and disabled beneficiaries would be shielded from benefit reductions.

Distributional Effects of Price Indexing Social Security Benefits

This policy brief compares five options (four progressive price indexing and one full price indexing option) set forth by the Social Security Advisory Board to index initial benefits to price growth. It examines the distribution of benefits of Social Security beneficiaries aged 62 or older in 2030, 2050, and 2070 using Modeling Income in the Near Term (MINT) model projections. The brief finds that the full price indexing option Shield 0% would more than achieve long-term solvency by reducing benefits by about 35 percent in 2070 and would increase the aged poverty rate compared with scheduled levels. The four progressive price indexing options (Shields 30%, 40%, 50%, 60%) would produce smaller benefit reductions by exempting varying proportions of lower earners from price indexing. Those options would not increase poverty above scheduled levels, but would reduce benefits for some low earners because their auxiliary benefits come from the reduced benefits of a higher-earning spouse. The progressive price indexing options would make Social Security more progressive compared with scheduled and payable benefits, both when looking at household benefit reductions by household income in a given year and when examining the distribution of lifetime taxes and benefits.

Distributional Effects of Reducing the Social Security Benefit Formula

A person's Social Security benefit, or primary insurance amount (PIA), is 90 percent of the lowest portion of lifetime earnings, plus 32 percent of the middle portion of lifetime earnings, plus 15 percent of the highest portion of lifetime earnings. This policy brief analyzes the distributional effects of three options (the three-point, five-point and upper) discussed by the Social Security Advisory Board to reduce the PIA. The first option would reduce the PIA by 3 percentage points; the second would reduce it by 5 percentage points; and the third would reduce the 32 and 15 percentages of the PIA to 21 and 10 percent, respectively. The third option would exempt about one quarter of the lowest earning beneficiaries, while reducing benefits by a median average of 19 percent in 2070. None would eliminate Social Security's long-term fiscal imbalance, although the third option would eliminate more (76 percent) of the deficit than the three-point (18 percent) and five-point (31 percent) options.

Widows and Social Security

This article provides policymakers with context for understanding past and future policy discussions regarding Social Security widow benefits. Using data from household surveys, projections from a microsimulation model, and recent research, it examines three types of benefits—those for aged widows, widows caring for children, and disabled widows.

Distributional Effects of Raising the Social Security Payroll Tax

This policy brief analyzes the lifetime tax effects of two options for addressing the Social Security system's long-range solvency by raising the Social Security payroll tax rate. The first, an immediate increase, would have raised the payroll tax rate from its current 12.4 percent to 14.4 percent in 2006; the second, a phased increase, would raise the payroll tax rate to 14.5 percent in 2020, and then to 16.6 percent in 2050. The brief also analyzes a comparative scenario in which the current tax rate is maintained through 2041 and then raised each year as needed to pay scheduled benefits. The lifetime taxes of people born 1936–2015 are analyzed using Modeling Income in the Near Term (MINT) projections. Results show that the longer a tax rate increase is delayed, the fewer workers are affected, but also the higher the increase in lifetime taxes for later generations. The results also show that both options reduce the cross-cohort variability in the ratio of benefits received to taxes paid.

The Disappearing Defined Benefit Pension and Its Potential Impact on the Retirement Incomes of Baby Boomers

A large share of traditional defined benefit pension plans have frozen within the past decade and evidence suggests that this trend will continue in the future. This article uses the Model of Income in the Near Term (MINT) microsimulation model to project the impact on boomers' retirement incomes of freezing traditional pension plans and replacing them with 401(k)-type plans. The projections suggest that the largest impact will be for the most recent boomers born between 1961 and 1965.

Distributional Effects of Raising the Social Security Taxable Maximum

As of 2009, Social Security's Old-Age, Survivors, and Disability Insurance program limits the amount of annual earnings subject to taxation at $106,800, and this value generally increases annually based on changes in the national average wage index. This brief uses Modeling Income in the Near Term (MINT) projections to compare the distributional effects of four options for raising the maximum taxable earnings amount beyond its scheduled levels. Two of the options would raise this value so that it covers 90 percent of all covered earnings and two would remove the maximum completely. Within each set of options, the proposals are differentiated by whether the new taxable amounts are used in computing benefits. Most workers would not be affected by these proposals, but some higher earners would experience a substantial increase in taxes. Correspondingly, benefit increases are largely isolated to higher earners, although the return in benefits for taxes paid would also decline. Because the proposals are targeted toward high earners, Social Security's progressivity would increase.

Earnings Sharing in Social Security: Projected Impacts of Alternative Proposals Using the MINT Model

Earnings sharing is an alternate method of calculating Social Security retirement benefits whereby earnings are assumed to be shared by married couples. This article presents a microsimulation analysis to estimate the impact of three earnings sharing proposals on the aged population of married, divorced, and widowed men and women in 2030. The impact of earnings sharing differs by marital status and sex, as measured by the percentage change in benefits and by the percentage of beneficiaries with increased and reduced benefits.

Social Security and Marginal Returns to Work Near Retirement

Using the Social Security Administration's MINT (Modeling Income in the Near Term) model, this paper calculates the marginal returns to work near retirement, as measured by the increase in benefits associated with an additional year of employment at the end of an individual's work life. With exceptions for certain population subgroups, the analysis finds that marginal returns on Social Security taxes paid near retirement are generally low. The paper also tests the effects on marginal returns of a variety of potential Social Security policy changes designed to improve incentives to work.

A Progressivity Index for Social Security

Using the Social Security Administration's MINT (Modeling Income in the Near Term) model, this paper analyzes the progressivity of the Old-Age, Survivors and Disability Insurance (OASDI) program for current and future retirees. It uses a progressivity index that provides a summary measure of the distribution of taxes and benefits on a lifetime basis. Results indicate that OASDI lies roughly halfway between a flat replacement rate and a flat dollar benefit for current retirees. Projections suggest that progressivity will remain relatively similar for future retirees. In addition, the paper estimates the effects of several policy changes on progressivity for future retirees.

Estimated Retirement Benefits in the Social Security Statement

The Never-Married in Old Age: Projections and Concerns for the Near Future

This article focuses on a growing yet understudied subgroup of the elderly in the United States—the never-married. The first section, based on data from the Current Population Survey and a review of the academic literature, examines the current circumstances of never-married retirees, particularly their economic and health well-being. The succeeding section uses the Modeling Income in the Near Term (MINT) model to assess the projected (1) changes in the marital status composition of the future retirement-age population; (2) demographics of future never-married retirees, and (3) economic well-being of never-married retirees. The results highlight important links between marital trends, Social Security, and retirement outcomes and offer insight into some of the characteristics of current and future never-married retirees.

Projections of Economic Well-Being for Social Security Beneficiaries in 2022 and 2062

This article assesses the prospects for retirement security among Social Security beneficiaries in 2022 and 2062. In absolute terms, beneficiaries in 2062 will be better off than those in 2022, at least assuming Social Security benefits scheduled under current law. Relative measures of well-being, however, suggest a decline in well-being between 2022 and 2062. Projected improvements over time would lessen, and declines would be exacerbated, if Social Security benefits are reduced according to what is payable under current-law taxes.

The Distributional Consequences of a "No-Action" Scenario: Updated Results

Under the Social Security program, benefits are paid to retired workers, survivors, and disabled persons out of two trust funds—the Old-Age and Survivors Insurance and the Disability Insurance (OASDI) Trust Funds. In their 2005 report, the Social Security Trustees projected that the combined OASDI trust funds would be exhausted in 2041. Because the trust funds are used to pay benefits, retirement benefits would have to be reduced somewhat in 2041 and more drastically in 2042.

If no action were taken to strengthen Social Security, the benefit reductions necessitated by the exhaustion of the trust funds would double the poverty rate of Social Security beneficiaries aged 64–78 in 2042, from 1.5 percent to 3.3 percent. However, this increased poverty rate would still be lower than the current poverty rate for beneficiaries aged 62–76, which is 4.6 percent. In addition, the trust funds' exhaustion could lead to lower returns on payroll taxes using traditional "money's-worth" measures.

Poverty-level Annuitization Requirements in Social Security Proposals Incorporating Personal Retirement Accounts

In the current discussions of Social Security reform, voluntary personal retirement accounts have been proposed. Recent research and debate have focused on several aspects of these accounts, including how such accounts would affect aggregate saving, system finances, and benefit levels. Little attention, however, has been paid to policies that would govern the distribution of account balances. This analysis considers such policies with respect to the annuitization of account balances at retirement using the Social Security Administration's Modeling Income in the New Term (MINT) model and a modified version of a recent legislative proposal to evaluate the effects of partial annuitization requirements.

The Distributional Consequences of a "No-Action" Scenario

The 2001 report of the Social Security trustees projected that the combined trust funds for the Old-Age and Survivors Insurance and Disability Insurance programs will be exhausted in 2038. This analysis explains the effects of insolvency on future retirement benefits and poverty rates of beneficiaries if no action is taken to strengthen Social Security.

Divorced Women at Retirement: Projections of Economic Well-Being in the Near Future

This article describes the economic resources and economic well-being of future divorced women at retirement using data from the Social Security Administration's project on Modeling Income in the Near Term (MINT). The MINT model projects that in the near term, there will be more divorced women of retirement age. Because fewer of those women are projected to meet the 10-year marriage requirement, the proportion of economically vulnerable aged women is expected to increase when the baby boom retires.

Methods in Modeling Income in the Near Term (MINT I)

This paper summarizes the work completed by SSA, with substantial assistance from the Brookings Institution, RAND, and the Urban Institute, for the Modeling Income in the Near Term (MINT I) model. In most cases, several methods of estimating and projecting demographic characteristics and income were researched and tested; however, this appendix describes only those methods eventually used in the MINT I model.

Projecting Retirement Income of Future Retirees with Panel Data: Results from the Modeling Income in the Near Term (MINT) Project

This article describes a model that projects the retirement income of Social Security beneficiaries from 1997 through 2031 using a number of panel data sources. With these data, we examine the composition of retirement income for future retirees in various birth cohorts, racial groups, marital states, and educational categories.

The Distributional Effects of Changing the Averaging Period and Minimum Benefit Provisions

This study evaluates the effects of changing the averaging period used to calculate Social Security benefits from 35 years to 38 or 40 years and the introduction of a minimum benefit provision for future retirees born during the early part of the baby boom generation. Proposals to change the averaging period have been recommended by a majority of the 1994–96 Advisory Council on Social Security. Based on the Survey of Income and Program Participation (SIPP) matched to Social Security Administration earnings records, the study projects retirement benefits for different subgroups of the population under existing and proposed benefit rules. The magnitudes of the retirees' benefit changes vary by demographic group. The minimum benefit provision substantially mitigates the effects of the change to a 40-year averaging period for some groups of women.