Early retirees under Social Security: health status and economic resources.

Some proposals to change the Social Security program to ensure long-run solvency would reduce or eliminate benefits for early retirees. This article documents the health and financial resources of Old-Age and Survivors Insurance (OASI) beneficiaries aged 62-64. It identifies a substantial minority of early retirees who might be economically vulnerable if either the early eligibility age or normal retirement age was raised. Attention is directed at the extent to which poor health limits work in this age group and the extent to which curtailment of early OASI benefits might lead to increases in the Disability Insurance (DI) program rolls. Using a set of comprehensive health measures, we estimate that over 20 percent of OASI beneficiaries aged 62-64 have health problems that substantially impair their ability to work. This finding implies that in this age range, as many severely disabled persons receive OASI benefits as disability benefits. In fact, 12 percent of early beneficiaries would meet a more stringent criterion for being classified "disabled"--SSA's medical standard for disability benefits. The evidence therefore indicates that OASI functions as a substantial, albeit unofficial, disability program for early retirees. Compared with those who have no health problems or are less severely impaired, early OASI beneficiaries who meet the medical criteria for disability benefits are more likely to be living alone and more likely to be poor or "near poor." The great majority of the group--almost 80 percent--are women. Analysis of their earnings histories suggests that most of these beneficiaries do not satisfy the insured-status requirements for Disability Insurance benefits. The article considers the different roles of the OASI program and the DI program for health-impaired individuals aged 62-64. Disability modelers sometimes overlook an important aspect of program administration. Under customary screening procedures implemented in Social Security field offices, applicants for early OASI benefits who appear to be severely impaired simultaneously apply for DI benefits if they are disability insured. If they are found eligible for DI benefits, those applicants become DI beneficiaries. The implication is that raising the earliest entitlement age would have little impact on the DI rolls. Unless there are changes in eligibility criteria, the DI program would not serve as a safety net for many of the most severely disabled early retirees.

Modeling SSA's sequential disability determination process using matched SIPP data.

We model the Social Security Administration's (SSA's) disability determination process using household survey information exact matched to SSA administrative information on disability determinations. Survey information on health, activity limitations, demographic traits, and work are taken from the Survey of Income and Program Participation (SIPP). We estimate a multistage sequential logit model, reflecting the structure of the determination procedure used by State Disability Determination Services agencies. The findings suggest that the explanatory power of particular variables can be appropriately ascertained only if they are introduced at the relevant stage of the determination process. Hence, as might be expected by those familiar with the process, medical variables and activity limitations are major factors in the early stages of the process, while past work, age, and education play roles in later stages. The highly detailed administrative information on outcomes at each stage allows clarification of the roles of particular variables. Planned future work will include policy estimates, such as the number of persons in the general population eligible for the disability programs, as well as analysis of applications behavior in a household context.

Policy analysis through microsimulation: the STATS model.

This article gives a nontechnical introduction to a microsimulation model developed by the Social Security Administration to consider the effects of tax and benefit proposals on the economic status of population groups. This model, the Simulated Tax and Transfer System (STATS) model, uses information from a nationally representative survey of households to calculate taxes or benefits for thousands of persons or families, case by case. Then the model aggregates across individual cases to produce estimates for economic and demographic groups of interest to policymakers. Groups are defined by such characteristics as family income, age, sex, and marital status. The article explains the model's microsimulation approach and its emphasis on the economic status of population groups. It describes the procedures for simulating taxes and benefits and then illustrates the use of the model by considering a proposal to change the way Social Security benefits are taxed. The article also discusses the primary data source and the extent to which it limits the types of estimates that the model can produce.