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Volume 14, Issue 3 - October 2014

Policy focus marks 2014 RRC Meeting: ‘Social Security and the Retirement Income System’

Five MRRC researchers—Kathleen McGarry, John Bound, Victoria Prowse, Arie Kapteyn, and Olivia S. Mitchell—presented their latest Social Security Administration-funded work at the 16th Annual Retirement Research Consortium meeting held August 7 & 8, at Washington, D.C.’s National Press Club. SSA Deputy Chief of Staff Katherine Thornton provided opening remarks. (See related article.) A total of 21 projects were presented, with seven panels on “Social Security Provisions,” “Social Security and Vulnerable Populations,” “Social Security Claiming,” “401(k)s: Saving and Investing Decisions,” “Retirement Saving: Adequacy and Risks,” “Working Longer,” and “Lessons from Other Nations.” Researchers generally kept presentations focused on policy implications to better serve government-affiliated audience members.

This year’s meeting organizer, the Center for Retirement Research of Boston College, arranged for streaming of the proceedings. Sixty-seven remote users watched at least part of Thursday’s stream, while 45 streamed portions of Friday’s presentations.

“Understanding Participation in SSI”

McGarry presented the preliminary results of her 2014 project cowritten with Robert K. Schoeni. She noted that 2014 marked the 40th anniversary of Supplemental Security Income Program (SSI), the guaranteed income program for the elderly, blind, and disabled.

Only about half of those who are eligible participate in the program, and participation has remained relatively constant since the program’s initiation. In their study, McGarry and Schoeni examined SSI participation rate over time and looked to explain why people may not participate in the program or where they may be getting their incomes

The researchers wondered whether family assistance was determining participation. “If there is some sort of stigma from accepting welfare, and your children can provide you with help, maybe you’ll avoid signing up for that program and get the assistance elsewhere,” said McGarry.

The researchers found that eligible nonparticipants were actually getting more from their children than those who are wealthier and whose children are wealthier. “This income from children does seem to play a role,” McGarry said. “Even though it’s only about 11 percent who are getting income from their children, for those that do, it’s a substantial amount.”

“The Implications of Differential Trends in Mortality for Social Security Policy”

Life expectancy in the U.S. has gone up dramatically—by more than 10 years—since Social Security was introduced. There also is evidence that morbidity amongst the elderly has also declined. This suggests that the normal retirement age could be increased. However, some recent studies have found that the increases in life expectancy have not been shared across socioeconomic and racial backgrounds. Bound presented work, completed with Timothy A. Waidmann and Javier Rodriguez, that examined the robustness of one such study, Olshansky et al. 2012. Published in Health Affairs, the report found a significant drop in life expectancy among white men and women with less than a high school education.

Could the researchers replicate Olshansky’s findings using the same data (U.S. Census, National Vital Statistics System cause of death records)? “The basic answer to that is, we can,” said Bound. “Using educational attainment levels, we basically replicate the Olshansky finding.”

The data also pose numerous problems, according to Bound, making it difficult to align information on educational levels between census surveys and death certificates, with more misreporting for non-whites. Because of this, Bound and Waidmann also took the alternate approach of looking at survival curves. If Olshansky is correct and a segment of the population is dying at younger ages while others are living longer, two closely related patterns should emerge: “1. There should be a spreading out of the distribution of the age at death, with more dying at young ages at the same time that [others] are dying at older ages; and 2. The probability a person reaches the age of 45 or 65 should drop, while the probability they reach 75 or 85 should rise,” the authors state.

“There’s little evidence in this data that there are segments of the population that are getting worse, whose mortality prospects are deteriorating over time,” said Bound. “…When we stratified by measures of socioeconomic status, like lots of other people have done, we find widening gaps. If you just look at the outcome…we don’t replicate Olshansky at all.”

“The Insurance Role of Household Labor Supply for Older Workers: Preliminary Results”

Several past studies have documented the “added worker effect,” where the labor supply of the secondary earner (usually the wife) increases when the primary worker’s supply decreases due to job or income loss. Prowse and Yanan Li’s study compared the insurance function of a household’s secondary earner for younger versus older workers to see if the added worker effect happened equally across ages. Younger households were defined as those where the man is younger than 40 at the start of his unemployment; older households are those where than man is 40 or older at the start of unemployment. Data was drawn from the 2003, 2005, 2007, 2009, and 2011 waves of the Panel Study of Income Dynamics (PSID).

Some of the researchers’ findings were in line with previous studies, e.g., older men face more persistent unemployment. They also found that while there is a substantial added worker effect for younger households, older women do not increase employment. “What we’re seeing is that wives are two to five percentage points more likely to be unemployed following their husband’s employment shock when we’re focusing on these older households,” Prowse said. “This suggests that these women want to be in employment, but they’re somehow not able to implement that.”

“Is Working Longer Good for You? A Simultaneous Equations Approach”

Arie Kapteyn presented a study he did with Raquel Fonseca, Jinkook Lee, and Gema Zamarro. Many countries have used increases in pension entitlement ages as a remedy for insolvency of public pensions. The impact of this on subjective well-being is largely unknown. Using 2004 to 2010 data from the U.S.’ Health and Retirement Study (HRS) and Survey of Health, Ageing, and Retirement in Europe (SHARE), which looks at 11 countries, the researchers examined the effect of retirement on life satisfaction and depression. The researchers used comparable questions across the surveys and constructed harmonized variables for retirement, income, depression, and life satisfaction to allow cross-country comparisons. The analysis includes explanatory variables for household wealth, year dummies, age, gender, marital status, education, health, country dummies, and regional dummies for the United States.

Using their models, the researchers found that retirement reduces the probability of depression. They also saw

· “A significant positive effect of retirement on life satisfaction…

· “A strong effect of unemployment replacement rates on the life satisfaction of the unemployed.

· “Retirement does not respond very strongly to replacement rates, but it does respond to eligibility ages.”

Although the raw data showed a strong relationship between income and depression and life satisfaction, the models did not. “The income mechanism…doesn’t seem to play much of a role once you account for everything else,” Kapteyn said.

“Americans’ Willingness to Voluntarily Delay Retirement”

While there are current incentives to delay claiming, most Americans still claim Social Security benefits around 62 to 63 years old. Mitchell, along with fellow researchers Raimond H. Maurer, Tatjana Schimetschek, and Ralph Rogalla, wondered whether people would “delay claiming their Social Security if they got the benefit boost as an actuarially fair lump sum instead of a higher monthly payment for the rest of their life?”

To test their theory that workers might delay retirement by one and a half to two years if offered lump sums, the researchers designed a module for the American Life Panel, a survey managed by the RAND Corporation that regularly interviews 6,000 U.S. households over the Internet. Each participant was shown his or her anticipated status quo benefit for claiming between the ages of 62 and 70. He or she was asked to give their expected claiming age.

Participants were then presented with two scenarios in random order. In one, he or she would receive the status quo age-62 benefit no matter what age they claimed, but in addition, this annuity would be paired with an actuarially fair lump sum payable at the actual claiming date. The other scenario adjusted the monthly payment upward for delayed claiming until full retirement age (FRA) per the status quo. For those claiming later than FRA, the monthly benefit would be fixed at FRA level, but upon claiming, the claimant would also receive a lump sum equal to the value of the delayed retirement credit. Respondents were then asked how much longer they would work given the presented scenario.

The researchers found that the lump sum offers were more likely to incentivize women, those who are risk averse, people who are optimistic about their longevity potential, and people who say they are in high debt. “Paying delayed retirement…could raise the median claiming age as much as two years” Mitchell said. “This potentially could be a politically viable way to reform Social Security. We’re not reducing benefits, we may be somewhat increasing the tax revenue…longer work lives could enhance system solvency.” •