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on Economics of Ageing |
| By: | Péter Hudomiet (RAND); Michael D. Hurd (RAND); Susann Rohwedder (RAND) |
| Abstract: | The prevalence of obesity, diabetes, and other health problems has increased in recent decades in the United States, and there is a growing gap between the health and longevity of individuals with high socioeconomic status (SES) and low SES. These trends likely have implications for Social Security’s financial position in the coming decades. Because high-SES individuals tend to receive higher annual benefits and live longer, increases in health and mortality inequalities may result in increases in aggregate Social Security payouts. This paper uses data from the Health and Retirement Study, and a microsimulation model of health, mortality, and Social Security benefits, to forecast lifetime Social Security benefits of the 1934 to 1959 birth cohorts in the U.S. We compare alternative assumptions about the future course of mortality. We find that accounting for health and mortality inequalities is important. In a baseline model that ignores trends in mortality inequalities, we estimate that lifetime Social Security benefits would grow by 26% in real terms between the 1934 and 1959 birth cohorts due to increasing benefit levels and improvements in average mortality. When we account for mortality inequalities, we find an increase of 28% to 38% in average lifetime benefits, depending on the assumptions of the model. We also forecast lifetime benefits using the alternative assumption that improvements in population mortality will slow for younger birth cohorts. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp412&r= |
| By: | Mark Duggan; Irena Dushi; Sookyo Jeong; Gina Li |
| Abstract: | The delayed retirement credit (DRC) increases monthly OASI (Old Age and Survivors Insurance) benefits for primary beneficiaries who claim after their full retirement age (FRA). For many years, the DRC was set at 3.0 percent per year (0.25 percent monthly). The 1983 amendments to Social Security more than doubled this actuarial adjustment to 8.0 percent per year. These changes were phased in gradually, so that those born in 1924 or earlier retained a 3.0 percent DRC while those born in 1943 or later had an 8.0 percent DRC. In this paper, we use administrative data from the Social Security Administration (SSA) to estimate the effect of this policy change on individual claiming behavior. We focus on the first half of the DRC increase (from 3.0 to 5.5 percent) given changes in other SSA policies that coincided with the later increases. Our findings demonstrate that the increase in the DRC led to a significant increase in delayed claiming of social security benefits and strongly suggest that the effects were larger for those with higher lifetime incomes, who would have a greater financial incentive to delay given their longer life expectancies. |
| JEL: | H55 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28919&r= |
| By: | Marco Angrisani (University of Southern California, Center for Economic and Social Research); Jeremy Burke (University of Southern California, Center for Economic and Social Research); Arie Kapteyn (University of Southern California, Center for Economic and Social Research) |
| Abstract: | In the past few decades, financial products target to consumers have become increasingly complex and recent evidence suggests that older adults are entering retirement with more debt than previous generations. We examine how cognitive ability is related to debt burdens among older adults and whether this relationship has changed over time with the increasingly complex financial landscape. Using data from the Health and Retirement Study spanning 1998 to 2014, we find that cognitive ability is an important predictor of debt burdens in older age and that, in more complex financial environments, individuals with higher cognitive ability have taken on higher debt levels than individuals with lower cognitive ability. In a complementary analysis using data from 2015 to 2019 drawn from the Understanding America Study, we find similar results and evidence that the relationship between cognitive ability and debt exposure is driven by financial sophistication. Our findings are broadly inconsistent with financial intermediaries pushing increasingly complicated financial products onto unsophisticated borrowers. However, we find that even higher cognitive ability individuals may have difficulty managing their debt burdens in more complex environments – they hold less total wealth, less liquid wealth, and are more likely to have debt levels that exceed half their assets than their counterparts prior to the expansion in complexity. All told, we find that individuals with higher cognitive ability disproportionately increased their debt burdens during the increase in financial product complexity, and that subsequently they were more financially fragile than similar individuals in previous cohorts. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp411&r= |
| By: | John B. Shoven; Sita Slavov; John G. Watson |
| Abstract: | The Social Security trust fund will be exhausted in the early 2030s. The U.S. government will need to make a choice about how to address the impending trust fund exhaustion, but it is unclear what it will choose to do. This indecision leaves young and middle-aged workers not knowing whether they will face Social Security benefit cuts, payroll tax increases, or an increase in the full retirement age. This uncertainty about what will happen in the future causes young and middle-aged cohorts who are saving for retirement to make mistakes that could be avoided if the government decided earlier what will happen when the trust fund runs dry. This paper examines the cost of government indecision on Social Security reform. We calculate the value that people in different income classes and different birth cohorts would receive if the government decided now what it will do when the trust funds are exhausted. We find that the cost of indecision can be large. In some cases, the value of knowing today what the policy change will be in 2035 is worth more than two months of labor market earnings. |
| JEL: | G5 G51 H55 J26 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28850&r= |
| By: | David Knapp (University of Southern California and RAND); Jinkook Lee (University of Southern California); Maciej Lis (Organisation for Economic Co-operation and Development); Drystan Phillips (University of Southern California) |
| Abstract: | Social Security provides retirement benefits to age-eligible workers and their spouses. Benefits are permanently increased if initial receipt is delayed. For benefits paid to spouses, these incentives reflect a complex interaction of the worker’s and spouse’s earnings histories, benefit claiming decisions, and age difference. We demonstrate that the benefit increment from delaying initial receipt of spousal and survivor benefits is substantial for some households. Past studies find that workers respond to potential increments in their own benefit by delaying labor force exit. Using a nationally representative panel, we investigate whether an additional dollar in expected lifetime benefits paid to the worker directly is treated the same as an additional dollar paid to the worker’s spouse from spouse and survivor benefits. We find minimal evidence that workers or their spouses change retirement behavior in a way that is theoretically consistent with spouse and survivor benefit claiming incentives. The lack of responsiveness suggests that incentives to delay claiming for benefits other than the worker’s own are not salient in the worker’s decision-making. This may reflect the complexity of benefit rules or different preferences concerning benefits paid to others. A parallel analysis using German data, where rules surrounding survivor benefits are simpler, finds that workers respond in a theoretically consistent way, but small sample sizes prevent conclusive results. Our findings suggest models estimating the policy impact of reducing spousal and survivor benefits on female labor supply are likely overstated, and that a greater understanding of survivor benefits may lead to better claiming decisions for couples. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp417&r= |
| By: | Mariacristina De Nardi; Eric French; John Bailey Jones; Rory McGee |
| Abstract: | While the savings of retired singles tend to fall with age, those of retired couples tend to rise. We estimate a rich model of retired singles and couples with bequest motives and uncertain longevity and medical expenses. Our estimates imply that while medical expenses are an important driver of the savings of middle-income singles, bequest motives matter for couples and high-income singles, and generate transfers to non-spousal heirs whenever a household member dies. The interaction of medical expenses and bequest motives is a crucial determinant of savings for all retirees. Hence, to understand savings, it is important to model household structure, medical expenses, and bequest motives. |
| Keywords: | Couples; Singles; Savings; Medical expenses; Bequest motives |
| JEL: | D15 D31 E21 H31 |
| Date: | 2021–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:92751&r= |
| By: | John Sabelhaus (University of Michigan); Alice Henriques Volz (Federal Reserve Board) |
| Abstract: | Social Security wealth (SSW) is the present value of future benefits an individual will receive less the present value of future taxes they will pay. When an individual enters the labor force, they generally face a lifetime of taxes to pay before they will receive any benefits and, thus, their initial SSW is generally low or negative. As an individual works and pays into the system their SSW grows and generally peaks somewhere around typical Social Security benefit claiming ages. The accrual of SSW over the working life is most important for lower income workers because the progressive Social Security benefit formula means that taxes paid while working are associated with proportionally higher benefits in retirement. We estimate SSW for individuals in the Survey of Consumer Finances (SCF) for 1995 through 2019 using detailed labor force history and expectations modules. We use a pseudo-panel approach to empirically demonstrate life-cycle patterns of SSW accumulation and drawdown. We also show that including SSW in a comprehensive wealth measure generally reduces estimated levels of U.S. wealth inequality, but does not reverse the upward trend in top wealth shares. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp416&r= |
| By: | Uchida, Yuki; Ono, Tetsuo |
| Abstract: | This study presents a political economy model with overlapping generations to analyze the effects of population aging on fiscal policy formation and the resulting distribution of the fiscal burden across generations. The analysis focuses on the role of endogenous labor supply and shows that increased political weight of the old, arising from population aging, leads to an increase in the ratios of public debt and labor income tax revenue to GDP and an initial decrease followed by an increase in the ratio of capital income tax revenue to GDP. The result fits well with the evidence in OECD countries. |
| Keywords: | Generational burden; Overlapping generations; Political economy; Population aging; Public debt |
| JEL: | D70 E24 E62 H60 |
| Date: | 2021–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108439&r= |
| By: | Thomas Barnay; Éric Defebvre (TEPP - Travail, Emploi et Politiques Publiques - CNRS - Centre National de la Recherche Scientifique - UPEM - Université Paris-Est Marne-la-Vallée, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Date: | 2021–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03238458&r= |
| By: | Richard Rogerson; Johanna Wallenius |
| Abstract: | Employment rates of males aged 55-64 have changed dramatically in the OECD over the last 5 decades. The average employment rate decreased by more than 15 percentage points between the mid-1970s and the mid-1990s, only to increase by roughly the same amount subsequently. One proposed explanation in the literature is that spousal non-working times are complements and that older males are working longer as a result of secular increases in labor supply of older females. In the first part of this paper we present evidence against this explanation. We then offer a new narrative to understand the employment rate changes for older individuals. We argue that the dramatic U-shaped pattern for older male employment rates should be understood as reflecting a mean reverting low frequency shock to labor market opportunities for all workers in combination with temporary country specific policy responses that incentivized older individuals to withdraw from market work. |
| JEL: | E24 J21 J26 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28914&r= |