Tuesday, March 31, 2009

Increasing the Social Security Special Minimum Benefit and Updating SSI

Laura Sullivan
Research Assistant, Institute on Assets and Social Policy, Brandeis University

Tatjana Meschede
Research Director, Institute on Assets and Social Policy, Brandeis University

Thomas M. Shapiro
Director, Institute on Assets and Social Policy, Brandeis University

A special minimum benefit was added to the Social Security program in 1974, but few receive it today because it does not keep up with wage growth. Enhancing Social Security for Low-Income Workers: Coordinating an Enhanced Minimum Benefit with Social Safety Net Provisions for Seniors examines ways to update the special minimum benefit so that individuals with 30 years of work covered by Social Security would receive benefits that meet the updated poverty measure of the National Academy of Sciences, which is about 125 percent of the current official poverty threshold. It also proposes to update SSI to reflect inflation since the program began – that is, increase the asset limit for individuals from $2,000 to $6,700 and increase the general income exclusion from $20 to $89.

Click here to download the full policy proposal developed as part of the project, Strengthening Social Security for Vulnerable Groups.

The project was funded by the Rockefeller Foundation’s Campaign for American Workers.

Friday, March 27, 2009

A Social Security Supplement for Low-Income Working Parents

Pamela Herd
Assistant Professor of Public Affairs and Sociology, La Follette School of Public Affairs, University of Wisconsin

Social Security provides benefits for spouses and widowed spouses, but does not provide credit for raising children. A growing portion of retiring women will not qualify for spousal benefits because they are divorced (with less than 10 years of marriage) or never married, yet will have earnings records that are limited because of time spent caring for their children. Crediting Care in Social Security: A Proposal for an Income-Tested Care Supplement proposes to supplement Social Security benefits for retirees who have raised one or more children. The supplement would be an additional 75 percent of the worker’s benefit (80 percent if two or more children were raised) but would be capped to not push the retiree’s household income above 125 percent of the poverty threshold. The benefit and income testing would be administered through individual tax returns, similar to the Earned Income Tax Credit.

Click here to download the full policy proposal developed as part of the project, Strengthening Social Security for Vulnerable Groups.

The project was funded by the Rockefeller Foundation’s Campaign for American Workers.

Wednesday, March 25, 2009

Reducing Eligibility Requirements for Retirement Benefits

Andrew Biggs
Resident Scholar, American Enterprise Institute for Public Policy Research

To qualify for Social Security retired-worker benefits, individuals must have worked at least 40 calendar quarters (ten years) in jobs covered by Social Security. The Effects of Reducing Eligibility Requirements for Social Security Retirement Benefits examines the impact of eliminating the 40-quarters eligibility requirement. A small group of individuals (about 6 percent of those born in 1950) would gain eligibility for Social Security retired-worker benefits. The increases in benefits would often substitute for means-tested SSI benefits. Much of the new benefits would flow to immigrants who are not otherwise eligible for Social Security.

Click here to download the full policy proposal developed as part of the project, Strengthening Social Security for Vulnerable Groups.

The project was funded by the Rockefeller Foundation’s Campaign for American Workers.

Tuesday, March 24, 2009

Protecting Social Security Benefits from Garnishment

John Infranca
Judicial Clerk, The Honorable Berle M. Schiller, Federal Judiciary, Eastern District of Pennsylvania

Because Social Security and Supplemental Security Income (SSI) benefits are essential to meet basic needs, the Social Security Act protects the benefits from garnishment or attachment by creditors. Nevertheless, when benefits are deposited in a bank account, beneficiaries may find that their accounts have been temporarily frozen, or worse, permanently garnished at the behest of a creditor under provisions of state law. Because the government encourages direct deposit, over 80 percent of Social Security and SSI recipients receive their benefits electronically. Safer than the Mattress: A Policy to Ensure that Social Security and Other Exempt Federal Benefits Remain Safe From Garnishment, Attachment, and Freezes when Deposited in a Bank Account proposes a five-part legislative and administrative policy solution to ensure that Social Security and other exempt federal benefits remain safe from garnishment, attachment, and freezes when they are deposited in a bank.

Click here to download the full policy proposal developed as a part of the project, Strengthening Social Security for Vulnerable Groups.

The project was funded by the Rockefeller Foundation’s Campaign for American Workers.

Monday, March 9, 2009

Correcting David Broder on Social Security

Tom Bethell

Dear Mr. Broder,

If Bob Ball were still with us, I'm confident that he would be phoning or writing to you this morning re your Washington Post column of 2/5/09 in which you speak of "the looming bankruptcy" of Social Security, Medicare and Medicaid. He would be pointing out that all of these programs face challenges but none faces actual bankruptcy unless the full faith and credit of the United States is a meaningless phrase. In the case of Social Security in particular he would be dismayed to see you contributing to totally unjustified fears about the program's future. He would be pointing out that an estimated 2-percent-of-payroll shortfall over 75 years is hardly synonymous with bankruptcy and is in fact eminently manageable, and he would also be warning against casual assumptions that bipartisan commissions are panaceas (as he well knew from his experiences on many of them, particularly the Greenspan Commission). Bob is, of course, no longer with us, alas, but having worked with him off and on for 20 years I know he would want me to send you his plan for Social Security (as I know he did himself many times). He was in the process of updating his plan just weeks before his death, a year ago, and I've updated it to 2009 after checking with SSA's chief actuary to be sure that the plan's assumptions and data are valid. The Ball plan is available from the NASI website by clicking here.

Friday, March 6, 2009

Social Security is Shovel-Ready

Robert Hudson
Professor and Chair, Department of Social Welfare Policy, Boston University

There can be no question that the current economic crisis is emerging as the most dire that we have seen since the 1930s. And, in terms of both employment opportunities and retirement savings, it seems certain to hit older Americans as hard as it will everyone else. Looking for any silver lining in this situation, one finally occurs to me. In recent years, pressures on age-related programs have built as "the scope of conflict" around aging policy has expanded, meaning that programs that were once politically insulated are now under scrutiny and attack from those who see entitlement spending for older adults leading us toward fiscal doom.

Yet, the very challenge we face has allowed the scope of conflict to expand even wider and, in so doing, place aging policy on a side burner if not a back burner. Specifically in the case of Medicare, the issue is being recast, by President Obama and others, as being centrally about a health care financing and delivery system that is largely out of control and not as part of an entitlement crisis centered on older Americans.

Less certain, but possible, is that Social Security is coming to be seen as either a manageable problem or even as en economic stabilizer both meeting needs and protecting income. There is nothing more shovel-ready in America than Old Age, Survivors, and Disability Insurance.

Tuesday, March 3, 2009

A Bright Light in a Dismal Landscape

Alicia H. Munnell
Peter F. Drucker Professor of Management Sciences and Director of the Center for Retirement Research, Boston College
Original Published 3/25/09, The Boston Globe

President Barack Obama has said that overhauling Social Security and Medicare would be "a central part" of his administration's efforts to contain federal spending. But amid all the economic calamity, the Social Security program is functioning perfectly, meeting the crucial economic needs for millions of Americans. When older workers are losing their jobs and their 401(k) accounts are down about 30 percent, the ability to claim Social Security benefits serves as a backstop against severe economic hardship. Therefore, policymakers should tread carefully.

Social Security checks are not large, but they are reliable. For workers who claim benefits at age 66, the full retirement age, monthly benefits range from $850 for low-paid workers to about $2,200 for those who have consistently earned the maximum taxable amount. In fact, many workers claim early and receive reduced benefits. But Social Security benefits are increased each year to reflect changes in the cost of living, and they continue for as long as the recipient lives. So, despite the modest amounts, the benefits are predictable and people can count on them.

Are these valuable Social Security benefits endangered by the current economic crisis?

Certainly, a higher-than-predicted unemployment rate means that fewer people will be working and contributing to the system than originally projected. This shortfall could be a problem if Social Security operated on a pure pay-as-you-go basis, where today's contributions were the only source of funds for benefit payments. But the system has always had a contingency reserve to serve as a buffer in the event of economic downturns, and today's trust fund is more than adequate to ensure full benefit payments for decades.

How about Social Security's long-run outlook?

A worse-than-expected short-term economy will have only a tiny impact on Social Security's 75-year projections; the long-run costs of the program are driven mainly by the aging of the population, which has not changed. Over the next 75 years, the Social Security actuaries project a program shortfall equal to 1.70 percent of taxable earnings.

This number equals the size of the tax increase required to maintain solvency for 75 years. That is, if the payroll tax rate were raised immediately by roughly 1.70 percentage points - 0.85 percentage point each for the employee and the employer - the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2082.

A lasting fix for Social Security would require a little more attention to the fact that the aging of the population will present an increasing financial challenge over the 75-year period. Thus, a lasting fix for Social Security could have smaller tax increases initially and larger ones later. This pattern would avoid the prospect of suddenly running short of money right after the end of the 75 years, and would achieve "sustainable solvency."

When crafting a solution to Social Security's long-term deficit, the lesson from the current financial crisis is that Social Security benefits are crucially important to older Americans.

This importance has increased with the shift in the private sector from traditional defined benefit pensions, which promised benefits for life, to 401(k) plans, which are exposed to the vagaries of the stock market. Americans, with little else to rely on in retirement, may be willing to pay up to maintain the country's successful Social Security program.

Building on Social Security’s Success

Virginia P. Reno
Vice President for Income Security, National Academy of Social Insurance

The United States needs a new conversation about how Social Security is part of the solution to the growing economic risks American workers face. The key question is: How can we build on the strengths of Social Security – its fiscally responsible design, its universality, progressivity, efficiency, and it effectiveness – to meet the needs of working families in the 21st century?

As employers’ shift away from traditional pensions to 401(k) plans, workers shoulder more financial risks. Social Security offers employers what they want – freedom from financial risk and fiduciary burdens, and it provides workers what they need – economic security.

Social Security has features of an ideal pension plan. It covers virtually everyone and is fully portable between jobs. Its retirement benefits last for life, keep up with the cost of living, and continue for widowed spouses in old age. Social Security provides family life insurance and disability protection. It has a permanent sponsor (the federal government) that will not go out of business or move its operations overseas. And Social Security is remarkably efficient – spending less than 1 percent of income on administration.

Social Security will continue to be affordable in the future. It is not part of an “entitlement crisis.” Its cost is projected to rise from 4.3 percent of gross domestic product (GDP) today to 6.0 percent by 2030, and then decline slightly and level off for the rest of the next 75 years. The increase in the share of GDP going to Social Security (1.8 percentage points) is smaller than the increase in national security spending in just the last 7 years (2.0 percentage points). It is also smaller than the increase in spending for public education (2.8 percentage points) when boomers were children and showed up in record numbers to enroll in kindergarten.

Social Security provides bedrock security for seniors. But benefits are modest. The case for improving Social Security benefits rests on the facts that:

  • U.S. seniors have lower replacement rates from Social Security and are more likely to be poor than are seniors in other advanced economies;

  • Benefit cuts already enacted and rising automatic deductions for Medicare premiums mean that seniors will need higher benefits in the future just to maintain replacement rates that retirees have had for the past 25 years; and

  • The rest of the retirement system is becoming less adequate and subjecting workers to more risks.

All these findings were true even before 2008 put in jeopardy all other resources that workers hope to have in retirement – home values, pensions, 401(k)s, savings accounts, and jobs.

Policymakers have an excellent tool at hand to strengthen retirement security. Social Security is well designed, secure, and efficient. With its proven track record, it holds the best prospect for using new money effectively to improve retirement security for American workers. Wise policy would first balance Social Security finances without cutting benefits. It would then make benefits more adequate before subsidizing other retirement income tools.

This post is based on a paper presented at an Economic Policy Institute briefing. The views are those of the author. The full paper can be downloaded here.

Longevity Insurance: Strengthening Social Security for People Age 82 and Older

John A. Turner
Director, Pension Policy Center

People in their 80's with low Social Security benefits are economically vulnerable. Few are able to compensate for a loss of non-Social Security income through work. People in this age group may not have sufficient resources to enjoy the last years of their lives with dignity.

Policymakers should add longevity insurance that targets beneficiaries age 82 or older with low Social Security benefits and long work histories to our current Social Security program. Age 82 is approximately the average life expectancy at age 65. Elderly poverty is high among this age group—a third higher than for people age 65-69. People in this age group are at risk of having fallen into poverty even though they had not been poor earlier in life. They have greater difficulty leaving poverty than people at younger ages. Strengthening Social Security for this group would provide cost effective social insurance.

Longevity insurance is a deferred annuity that starts at an advanced age. Much of the utility value to workers of annuitization comes from insuring against the possibility of running resources down to a very low level if one lives to be older than expected.

The longevity insurance benefit proposed here is a delayed annuity paid in the form of a minimum Social Security benefit or an enhanced Social Security benefit starting at age 82. Qualifying persons receiving a Social Security benefit below a minimum level would have their benefit raised at that age. Recognizing this enhanced insurance protection, Social Security OASI would be renamed Old-Age, Survivors and Longevity Insurance (OASLI). The renaming would inform people about the benefit. This “framing” would help people focus on and better understand the economic risk of living longer than their life expectancy.

In addition to serving as an enhanced insurance benefit, longevity insurance can simplify the problem of planning asset decumulation in old age. Some retirees have difficulty planning the spend down of their financial resources because of the uncertainty of age at death. With a longevity insurance benefit, that problem is simplified. Instead of planning for an uncertain period, they can plan for the fixed period from the date of their retirement to age 82, the date at which they start receiving the longevity insurance benefit.

Longevity insurance can be an important component of a policy package to restore Social Security solvency. Public policy changes likely will reduce the generosity of Social Security old-age benefits as part of a package to restore solvency. Most reform packages that cut benefits raise elderly poverty. To offset that effect, there will be a need to increase the generosity of some benefits to better target benefits to vulnerable groups. That goal could be achieved by providing longevity insurance benefits. This policy shifts Social Security resources toward persons who are both old and have low incomes.

As an alternative, survivors’ benefits could be raised, but that would be less targeted and thus more expensive for achieving the same results for vulnerable persons. Another alternative would be to raise minimum benefits, with the benefits being available at an earlier age, such as age 62. Longevity insurance would be better targeted by age. As life expectancy continues to increase, age 62 has become a relatively younger age compared to expected age at death. Further, providing minimum benefits at an earlier age would more likely affect labor supply.

To read the full proposal, click here.