The Growing Socioeconomic Gap in Lifetime Social Security Retirement Benefits: Current and Future Retirees.

OBJECTIVES: Increasing socioeconomic disparities, including in life expectancy, have important implications for the U.S. Social Security program. This study examined inter- and intracohort trends in Social Security retirement benefits, paying special attention to how lifetime benefit trajectories by socioeconomic circumstance shift across cohorts encompassing current and future retirees. METHODS: Using a dynamic microsimulation model based on representative survey data linked to administrative records, we developed a set of cohort-specific projections that estimate monthly and lifetime Social Security retirement benefits for retirees spanning the early baby boom (1945-1954) to Generation X (1965-1974) cohorts. RESULTS: We found a widening socioeconomic gap in projected monthly and lifetime benefits for men and women, especially on a lifetime basis. This divergence is associated with stagnation of benefit levels among lower socioeconomic status groups coupled with upward shifts among higher strata groups. Distributional changes are linked with increasing differential mortality, but other factors also likely play a role such as rising education premiums, growing earnings inequality, and changes in women's work and relationship histories. DISCUSSION: Widening mortality differentials can lead to distributional changes in the U.S. Social Security program. Microsimulation methodology lends insights into how the socioeconomic gap in monthly and lifetime benefit distributions may change among future older Americans in the context of differential mortality and other demographic changes. Moving forward in time, these complex patterns could offset some of the progressivity built into the system.

Longevity-Related Options for Social Security: a Microsimulation Approach to Retirement Age and Mortality Adjustments.

We consider the distributional implications of Social Security policy changes in the context of increases in life expectancy and differential mortality. Using a robust microsimulation model, we examine how several options for raising the retirement age, including a scenario that applies a mortality adjustment in combination with such policies, affect different types of individuals and households. Policy changes are simulated for Social Security beneficiaries in 2030 using the Modeling Income in the Near Term (MINT) microsimulation model. The analysis shows that increasing either the age at which individuals receive their full retirement benefit alone or the early eligibility and full retirement ages together result in across-the-board reductions in benefit levels. The policies are projected to result in slightly higher poverty, but the expected rise is sharper among groups known to experience higher rates of mortality, as well as many disadvantaged groups. Analysis of a hypothetical adjustment to offset the historical impacts of differential mortality by lifetime earnings on lifetime benefit receipt, when combined with these retirement age increases, shows varied results. While some groups of individuals experience sharper reductions in median monthly benefits, the adjustment has an offsetting and protective effect for the benefits of disadvantaged groups when combined with options that would raise the retirement age. This combined package of policies, as well as simulations that incorporate a behavioral adjustment in benefit claiming ages, result in an increase of less than one percentage point in the average poverty rate.

The Distributional Impact of Social Security Policy Options.

Using microsimulation, we estimate the effects of three policy proposals that would alter Social Security's eligibility rules or benefit structure to reflect changes in women's labor force activity, marital patterns, and differential mortality among the aged. First, we estimate a set of options related to the duration of marriage required to receive divorced spouse and survivor benefits. Second, we estimate the effects of an earnings sharing proposal with survivor benefits, in which benefits are based entirely on earned benefits with spouses sharing their earnings during years of marriage. Third, we estimate the effects of adjusting benefits to reflect the increasing differential life expectancy by lifetime earnings. The results advance our understanding of the distributional effects of these alternative policy options on projected benefits and retirement income, including poverty and supplemental poverty status, of divorced and widowed women aged 60 or older in 2030.

Social Security income measurement in two surveys.

As a major source of income for retired persons in the United States, Social Security benefits directly influence economic well-being. That fact underscores the importance of measuring Social Security income accurately in household surveys. Using Social Security Administration (SSA) records, we examine Social Security income as reported in two Census Bureau surveys, the Survey of Income and Program Participation (SIPP) and the Current Population Survey (CPS). Although SSA usually deducts Medicare premiums from benefit payments, both the CPS and the SIPP aim to collect and record gross Social Security benefit amounts (before Medicare premium deductions). We find that the Social Security benefit recorded in the CPS closely approximates the gross benefit recorded for CPS respondents in SSA's records, but the Social Security benefit recorded in the SIPP more closely approximates SSA's record of net benefit payments (after deducting Medicare premiums).

Pension plan participation among married couples.

We present descriptive statistics on pension participation and types of pensions among married couples, using data from the 1996/2008 Panels of the Survey of Income and Program Participation and Social Security administrative records. Previous research has focused on pension coverage by marital status, but has not examined couples as a unit. Because couples usually share income, viewing them as a unit provides a better picture of potential access to income from retirement plans. Our analysis compares 1998 and 2009 data because substantial changes occurred in the pension landscape over this decade that could have influenced the prevalence of different pension plans, although we observe modest changes in participation rates and types of plans over the period. We find that in 20 percent of couples, neither spouse participated in a pension plan; in 10 percent, the wife was the only participant; and in 37 percent, the husband was the only participant.

Contribution dynamics in defined contribution pension plans during the great recession of 2007-2009.

We investigate changes in workers' participation and contributions to defined contribution (DC) plans during the Great Recession of 2007-2009. Using longitudinal information from W-2 tax records matched to a nationally representative sample of respondents from the Survey ofl Income and Program Participation, we find that the recent economic downturn had a considerable impact on workers' participation and contributions to DC plans. Thirty-nine percent of 2007 participants decreased contributions to DC plans by more than 10 percent during the Great Recession. Our findings highlight the interrelationship between the dynamics in DC contributions and earnings changes. Participants experiencing a decrease in earnings of more than 10 percent were not only more likely to stop contributing by 2009 than those with stable earnings (30 percent versus 9 percent), but they also decreased their contributions substantially (-$1,839 versus -$129). The proportion of workers who decreased or stopped contributions during the crisis exceeded the proportion observed prior to it (2005-2007).

The impact of retirement account distributions on measures of family income.

In recent decades, employers have increasingly replaced defined benefit (DB) pensions with defined contribution (DC) retirement accounts for their employees. DB plans provide annuities, or lifetime benefits paid at regular intervals. The timing and amounts of DC distributions, however, may vary widely. Most surveys that provide data on the family income of the aged either collect no data on nonannuity retirement account distributions, or exclude such distributions from their summary measures of family income. We use Survey of Income and Program Participation (SIPP) data for 2009 to estimate the impact of including retirement account distributions on total family income calculations. We find that about one-fifth of aged families received distributions from retirement accounts in 2009. Measured mean income for those families would be about 15 percent higher and median income would be 18 percent higher if those distributions were included in the SIPP summary measure of family income.

Shifting income sources of the aged.

Traditional defined benefit pensions, once a major source of retirement income, are increasingly giving way to tax-qualified defined contribution (DC) plans and individual retirement accounts (IRAs). This trend is likely to continue among future retirees who have worked in the private sector. This article discusses the implications of those trends for the measurement of retirement income. We conclude that Census Bureau's Current Population Survey (CPS), one of the primary sources of income data, greatly underreports distributions from DC plans and IRAs, posing an increasing problem for measuring retirement income in the future. The CPS and other data sources need to revise their measures of retirement income to account for periodic (irregular) distributions from DC plans and IRAs.

The implications of marital history change on women's eligibility for Social Security wife and widow benefits, 1990-2009.

Social Security retirement benefits in the United States (US) reflect marital histories and lifetime earnings of current and former married couples. Focusing on the link between marital history and benefit eligibility, this article examines women's marital patterns over the past two decades. Using the 1990 and 2009 Marital History Modules to the Census Bureau's Survey of Income and Program Participation, descriptive/regression analysis reveals substantial changes in women's marital patterns among baby boomers and generation Xers. Those changes have prompted a decline in qualifying marital histories for Social Security spouse and widow benefits. The findings also reveal substantial variation by race/ethnicity. Black women are significantly more likely to be potentially ineligible for a marriage-based benefit than white women, particularly in more recent cohorts. Hispanic women's marriage-based eligibility is between that of black and white women. US-born Hispanic women had higher shares without a qualifying marital history compared with the foreign born.

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 persons born in generation X (GenX) compared with current retirees. We use the Social Security Administration's Modeling Income in the Near Term (MINT) model to project retirement income and assets, poverty rates, and replacement rates for current and future retirees at age 67. We find that, in absolute terms, retirement incomes offuture cohorts will increase over time, and poverty rates will fall. However, projected income gains are larger for higher than for lower socioeconomic groups, leading to increased income inequality among future retirees. Finally, because postretirement incomes are not expected to rise as much as preretirement incomes, baby boomers and GenXers are less likely to have enough postretirement income to maintain their preretirement standard of living compared with current retirees.

Earnings sharing in the U.S. Social Security system: a microsimulation analysis of future female retirees.

PURPOSE: As part of an ongoing effort to analyze the distributional implications of potential policy reforms to the U.S. Social Security system, we consider the widely discussed reform of earnings sharing. Such an approach has been viewed as a way to "update" Social Security's family benefits based on marital status and as a means to make the system more marriage neutral. DESIGN AND METHODS: We use the Social Security Administration's Modeling Income in the Near Term model to simulate the distributional effects of two earnings sharing alternatives, a basic option and a modified inheritance option, on the projected retiree population in 2030. We focus our analysis on uncovering how different subgroups of women would be affected under the alternative system. RESULTS: Widows and surviving divorced women, particularly those in lower socioeconomic groups, would face some of the steepest benefit decreases. Adding an inheritance provision would mitigate reductions across the board; however, it may not provide as much benefit adequacy to widows as might be expected. IMPLICATION: Certain groups of women would fare far better under the current Social Security system than under earnings sharing. Linking benefits with earnings sharing would be particularly problematic for lower income widows and single-earner married couples. Never-married persons are unaffected.

The impact of response error on participation rates and contributions to defined contribution pension plans.

The accuracy of information about coverage and contributions to defined contribution (DC) pension plans is important in understanding the economic well-being of future retirees because these plans are an increasingly important part of retirement income security. Using data from the 1996 and 2004 panels of the Survey of Income and Program Participation (SIPP) merged with information from W-2 tax records, we examine the extent to which estimated participation rates and contribution amounts to DC plans derived from SIPP reports differ from estimates obtained from tax-deferred contributions in the W-2 tax records. Findings indicate that the participation rate in DC plans is about 11 percentage-points higher when using W-2 tax records rather than survey reports. The analysis of possible sources of reporting error regarding plan participation indicates that an error is more likely to occur when missing data are imputed by the Census Bureau than in actual reports by respondents.

The disappearing defined benefit pension and its potential impact on the retirement incomes of baby boomers.

This article uses a microsimulation model to estimate how freezing all remaining private-sector and one-third of all public-sector defined benefit (DB) pension plans over the next 5 years would affect retirement incomes of baby boomers. If frozen plans were supplemented with new or enhanced defined contribution (DC) retirement plans, there would be more losers than winners, and average family incomes would decline. The decline in family income would be much larger for last-wave boomers born from 1961 through 1965 than for those born from 1946 through 1950, because younger boomers are more likely to have their DB pensions frozen with relatively little job tenure. Higher DC accruals would raise retirement incomes for some families by more than their lost DB benefits. But about 26 percent of last-wave boomers would have lower family incomes at age 67, and only 11 percent would see their income increase.

Earnings sharing in Social Security: projected impacts of alternative proposals using the MINT model.

Changes in American family and work patterns over the past decades have prompted various policy proposals for changing the structure of Social Security benefits. In this article, we use the Social Security Administration's Modeling Income in the Near Term (MINT) microsimulation model to project how Social Security benefit amounts would change in response to incorporating earnings sharing into benefit calculations for the population aged 62 or older in 2030 under three hypothetical policy scenarios. The earnings sharing scenarios modeled in the article would reduce benefits for the majority of individuals, although there are important differences among married, divorced, and widowed individuals. Some groups of men and women would experience increases in Social Security benefits, while some would receive reduced benefits in comparison to current law, particularly widowed individuals. Allowing widows to inherit the earnings records of their deceased husbands would improve their outcomes.

Cohort differences in wealth and pension participation of near-retirees.

The approaching retirement of the baby-boom generation has attracted both research and public policy attention. Many social and economic changes occurred during the second half of the twentieth century, changes that are likely to affect the retirement economic security of recent cohorts in many ways. In this article, using data from the Health and Retirement Study (HRS), a longitudinal, nationally representative survey of older Americans, we compare potential retirement economic resources-pension participation and nonpension net worth-of two cohorts of near-retirees. Particularly we look at individuals born from 1933 through 1939, often referred to as depression babies, who were ages 55-61 in 1994 and the more recent cohort consisting of individuals of the same ages (55-61) in 2004, who were born from 1943 through 1949. Our findings indicate that the more recent cohort of near-retirees has a significantly higher pension participation rate over their working life, and therefore greater opportunity to establish pension income through their working life, compared with the earlier cohort (82 percent versus 64 percent). The increase in pension participation was more pronounced among the recent cohort of women, an expected outcome given the increase in labor force participation of women over the past half century. As a result, although differences by sex in pension participation remained significant, the gap has narrowed for the recent cohort of near-retirees. In addition, we find that the gap in participation rate between those in the highest and the lowest wealth quintiles has widened over time (from 22 percent in 1994 to 26 percent in 2004). For both cohorts of near-retirees, the evidence indicates that those without a pension have much lower levels of net total worth than those who report having a pension. The pattern that emerges for both cohorts is that about one-fifth of individuals aged 55-61 hold little or no wealth at all, whereas about two-fifths hold a substantial amount of wealth. In addition, housing equity, which rarely is used to finance consumption in retirement, comprises more than one-half of total nonpension net worth for about 60 percent of all households, leaving--on average less than $45,000 jointly in nonhousing wealth and IRA/Keogh assets--a much smaller amount of wealth that is readily accessible if the need arises. The fact that many near-retirees (about 40 percent) in the lowest-two wealth quintiles have no pension to potentially draw income from, coupled with the very low level of total nonpension wealth raises concern about their income security in retirement; they may be likely to rely heavily on Social Security, rely on welfare programs, or continue work in retirement.

Cohort changes in the retirement resources of older women.

Dramatic changes in life expectancy, women's roles in the labor market, the structure of the workforce, and pension systems have occurred in recent decades, all influencing the wellbeing of future retirees. This article uses different sources of U.S. data to focus on the retirement resources of women aged 55-64. By comparing the resources for this age group in 2004 to their counterparts in 1994 and 1984, this analysis provides some indication of changes in the retirement preparedness of three different cohorts of women. Our findings indicate that notable changes have occurred with women's pathways into retirement that are due to increased education and lifetime work experience. As a consequence, there are marked differences in potential retirement outcomes. We find that women aged 55-64 today are better prepared in several respects than their counterparts of the same age 10 or 20 years ago.

The impact of minority group status on the projected retirement income of divorced women in the baby boom cohort.

Using projections from the Social Security Administration's Modeling Income in the Near Term (MINT1), we examine the characteristics and retirement income of white non-Hispanic, black non-Hispanic, and Hispanic divorced women in the baby boom cohort. Although we find significant differences in retirement income for divorced women of different racial and ethnic groups, the characteristics associated with higher or lower retirement income are very similar. That is, being college educated, owning a home, and having pension and asset income, for example, correspond to increased retirement income for all racial and ethnic groups. However, because black and Hispanic women are less likely than white women to be college educated, to own their home, and to have pension and asset income, their retirement income tends to be lower than that of white women. We conclude the paper by briefly discussing policy options to address the retirement needs of divorced women.