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Managing Retirement Risks

April 18, 2014 Comments off

Managing Retirement Risks (PDF)
Source: American College of Financial Services

This table was built for the Retirement Income Certified Professional® (RICP®) designation program for financial advisors. Building a retirement income plan starts by making sure that the client’s income needs and other financial objectives are met. But after that is the tough task of evaluating all the risks that retirees face, and developing a plan to address each one. This table identifies 18 risks in six different categories. With each risk, we define the risk, provide an example, identify facts that describe the magnitude and scope of the risk, and offer a wide range of possible solutions.

The solutions offered here are intended to provide ideas. Building a retirement income plan is a complex process and building solutions to retirement risks is much more than just checking the box. For example, solving longevity risk may include deferring Social Security, purchasing annuities with lifetime payouts, buying life insurance to provide an income stream to a surviving spouse, and carefully choosing a withdrawal strategy from a retirement portfolio. In other words, almost every risk described here requires a carefully crafted, balanced set of solutions that requires thought, knowledge, and experience.

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CRS — Social Security Reform: Current Issues and Legislation (updated)

April 3, 2014 Comments off

Social Security Reform: Current Issues and Legislation (PDF)
Source: Congressional Research Service (via University of North Texas Digital Library

Social Security reform is an issue of ongoing interest to policy makers. In recent years, Social Security program changes have been discussed in the context of negotiations on legislation to increase the federal debt limit and reduce federal budget deficits. For example, in August 2011, the Budget Control Act of 2011 (P.L. 112-25) established a Joint Select Committee on Deficit Reduction tasked with recommending ways to reduce the deficit by at least $1.5 trillion over the fiscal year period 2012 to 2021. Social Security program changes were among the measures discussed by the Joint Committee. The Joint Committee, however, did not reach agreement on a legislative proposal by the statutory deadline. Looking ahead, Social Security program changes could again be considered as part of any future negotiations on broad deficit reduction legislation or as stand-alone Social Security legislation.

The spectrum of ideas for reform ranges from relatively minor changes to the pay-as-you-go social insurance system enacted in the 1930s to a redesigned, “modernized” program based on personal savings and investments modeled after IRAs and 401(k)s. Proponents of the fundamentally different approaches to reform cite varying policy objectives that go beyond simply restoring long-term financial stability to the Social Security system. They cite objectives that focus on improving the adequacy and equity of benefits, as well as those that reflect different philosophical views about the role of the Social Security program and the federal government in providing retirement income. However, the system’s projected long-range financial outlook provides a backdrop for much of the Social Security reform debate in terms of the timing and degree of recommended program changes.

Social Security Programs Throughout the World: The Americas, 2013

April 3, 2014 Comments off

Social Security Programs Throughout the World: The Americas, 2013
Source: Social Security Administration

This fourth issue in the current four-volume series of Social Security Programs Throughout the World reports on the countries of the Americas. The combined findings of this series, which also includes volumes on Asia and the Pacific, Africa, and Europe, are published at six-month intervals over a two-year period. Each volume highlights features of social security programs in the particular region.

The information contained in these volumes is crucial to our efforts, and those of researchers in other countries, to review different ways of approaching social security challenges that will enable us to adapt our social security systems to the evolving needs of individuals, households, and families. These efforts are particularly important as each nation faces major demographic changes, especially the increasing number of aged persons, as well as economic and fiscal issues.

Social Security Programs Throughout the World is the product of a cooperative effort between the Social Security Administration (SSA) and the International Social Security Association (ISSA). The ISSA is the principal international institution bringing together social security agencies and orgranizations around the world. Founded in 1927, the ISSA is located at the International Labour Office in Geneva.

Previous editions of this report, which date back to 1937, were issued as one volume and were prepared by SSA staff. With the introduction of the four-volume format in 2002, however, the research and writing has been contracted out to the ISSA. The ISSA has conducted the research largely through its numerous country-based correspondents, as well as its social security databases and other types of data that are drawn together to update this report. Social Security Programs Throughout the World is based on legislation in effect in July 2013, or the last date for which information has been received by SSA or ISSA.

2014 Social Security Quick Fact Sheets

March 14, 2014 Comments off

2014 Social Security Quick Fact Sheets
Source: AARP Research

This set of fact sheets and easy-to-read corresponding infographics provides a one-page overview of quick facts on Social Security benefits and beneficiaries for each of the 50 states, Puerto Rico, the U.S. Virgin Islands, and the District of Columbia.

Information is provided about each state’s older population, Social Security beneficiaries, Social Security benefits, Social Security’s role in lifting retirees out of poverty, Social Security’s impact on the state economy, and the Percent of Social Security as the only source of income among older residents.

CRS — Budgetary and Distributional Effects of Adopting the Chained CPI

March 11, 2014 Comments off

Budgetary and Distributional Effects of Adopting the Chained CPI (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

This report examines the budgetary and distributional effects of using what is referred to as the Chained Consumer Price Index (C-CPI-U or chained CPI) as the official measure of inflation for adjusting federal revenue and spending programs for inflation.

How Much of the Growth in Disability Insurance Stems From Demographic Changes?

March 4, 2014 Comments off

How Much of the Growth in Disability Insurance Stems From Demographic Changes?
Source: Center on Budget and Policy Priorities

The Disability Insurance (DI) program — a vital part of Social Security that pays modest benefits to people who can no longer support themselves by working due to severe medical impairments — has grown rapidly in recent decades. The program’s chief actuary has consistently stated that demographic changes account for the bulk of the program’s growth, while some other analyses appear to tell a different story. These differences largely reflect variations in the measure of DI growth that the studies use, the factors considered, and the time period analyzed. Thus, there is no single correct answer to “how much of DI’s growth stems from demographic factors?”

Social Security — Same-Sex Couples — FAQs

February 27, 2014 Comments off

Same-Sex Couples — FAQs
Source: Social Security Administration

  • What should I do if I think I might be eligible for benefits?
  • When will Social Security begin paying benefits to same-sex married couples and surviving spouses?
  • Do I qualify for benefits if I am now in, or the surviving spouse of, a civil union or other legal same-sex relationship?
  • Do I qualify for benefits if I live in a place that prohibits or does not recognize same-sex marriages or other legal same-sex relationships?
  • How does the recent Supreme Court decision about the Defense of Marriage Act affect Social Security benefits?
  • Will Social Security recognize a same-sex marriage if the ceremony took place in a foreign country?
  • What if I apply but Social Security decides I do not qualify for benefits? Will I receive a penalty or fine?
  • I am in a same-sex marriage. Could that affect my Supplemental Security Income (SSI) payment?
  • I get Supplemental Security Income (SSI). Must I tell Social Security I am in a same-sex marriage?

High Interest GAO Report — Retirement Security: Trends in Marriage and Work Patterns May Increase Economic Vulnerability for Some Retirees

February 26, 2014 Comments off

Retirement Security: Trends in Marriage and Work Patterns May Increase Economic Vulnerability for Some Retirees
Source: Government Accountability Office

Over the last 50 years, the composition and work patterns of the American household have changed dramatically. During this period, the proportion of unmarried and never-married individuals in the population increased steadily as couples chose to marry at later ages and live together prior to marriage. At the same time, the proportion of single-parent households more than doubled. These trends were more pronounced for individuals with lower levels of income and education and for certain racial and ethnic groups. Over the same period, labor force participation among married women nearly doubled.

Taken together, these trends have resulted in a decline in the receipt of spousal and survivor benefits and married women contributing more to household retirement savings. From 1960 through 2011, the percentage of women aged 62 and older receiving Social Security benefits based purely on their spouse’s (or deceased spouse’s) work record declined from 56 to 25. At the same time, the percentage of women receiving benefits based purely on their own work records rose from 39 to 48. Further, as of 2010, among married households receiving pensions, 40 percent had elected not to receive a survivor benefit. Rising labor force participation among married women enabled them to contribute more to household retirement savings. From 1992 to 2010, married women’s average contributions to household retirement savings increased from 20 to 38 percent.

In the future, fewer retirees will receive spousal or survivor benefits from Social Security and private employer-sponsored pension plans, increasing vulnerabilities for some. Eligibility for Social Security spousal benefits among women is projected to decline, in part, because fewer women are expected to qualify based on marital history and more are expected to qualify for their own benefit based on their own work record. For many women, this shift will be positive, reflecting their greater earnings and capacity to save for retirement. However, women with low levels of lifetime earnings and no spouse or spousal benefit may face greater risk of poverty in old age. For private plans, the shift from defined benefit (DB) to defined contribution (DC) plans increases the vulnerability of spouses because of different federal protections for spouses under these plans. DB plans are required to offer survivor benefits, which can only be waived with spousal consent. In contrast, DC plan participants generally do not need spousal consent to withdraw funds from the account.

How Well Did Social Security Mitigate the Effects of the Great Recession?

February 24, 2014 Comments off

How Well Did Social Security Mitigate the Effects of the Great Recession?
Source: Federal Reserve Board

This paper quantifies the welfare implications of the U.S. Social Security program during the Great Recession. We find that the average welfare losses due to the Great Recession for agents alive at the time of the shock are notably smaller in an economy with Social Security relative to an economy without a Social Security program. Moreover, Social Security is particularly effective at mitigating the welfare losses for agents who are poorer, less productive, or older at the time of the shock. Importantly, in addition to mitigating the welfare losses for these potentially more vulnerable agents, we do not find any specific age, income, wealth or ability group for which Social Security substantially exacerbates the welfare consequences of the Great Recession. Taken as a whole, our results indicate that the U.S. Social Security program is particularly effective at providing insurance against business cycle episodes like the Great Recession.

Social Security and Divorce Decisions

February 7, 2014 Comments off

Social Security and Divorce Decisions
Source: Upjohn Institute for Employment Research

People who have divorced are entitled to Social Security spousal benefits if their marriages lasted at least ten years. This paper uses 1985–1995 Vital Statistics data and the 2008–2011 American Community Surveys to analyze how this rule affects divorce decisions. I find evidence that the ten-year rule results in a small increase in divorces for the general population; however, the effects vary greatly by age. Divorce decisions change very little for people under the age of 35. For people 55 and older, however, divorces increase by approximately 20 percent around the ten-year cutoff, which leads to an increase in the likelihood of being divorced of 11.7 percent at ten years of marriage. For people between the ages of 35 and 55, who account for over half of divorces, the likelihood of being divorced increases by almost 6 percent as marriages cross the ten-year mark. This heterogeneity across ages likely exists because older people are more focused on retirement and have less time to remarry. These results indicate many people delay divorcing because they need Social Security benefits.

How Long Do Unemployed Older Workers Search for a Job?

February 5, 2014 Comments off

How Long Do Unemployed Older Workers Search for a Job?
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • The Great Recession threw many older individuals out of work, so it is important to understand their job search activity.
  • The results show little tolerance for a lengthy search; the vast majority either find a job or exit the labor force within a year.
  • Those with financial resources, such as Social Security, leave even sooner.
  • Interestingly, the strength of the local labor market does not seem to have much impact on the duration of job search.

African Americans: Description of Social Security and Supplemental Security Income Participation and Benefit Levels Using the American Community Survey

February 3, 2014 Comments off

African Americans: Description of Social Security and Supplemental Security Income Participation and Benefit Levels Using the American Community Survey
Source: Social Security Administration

African Americans encounter significant economic disadvantages, making them a critical focus for social insurance programs. Examining how the African American population uses Old-Age, Survivors, and Disability Insurance (OASDI, or Social Security) benefits and Supplemental Security Income (SSI) payments clarifies the role these programs play in supporting at-risk populations.

Earlier research has explored various facets of the relationship between Social Security and African Americans. For instance, many studies investigate African Americans’ low retirement benefit receipt rates relative to whites (Abbott 1977, 1980; Thompson 1975; Huntley 1979; Parsons 1980; Gibson 1987, 1991, 1994; Farley 1988; Hayward, Friedman, and Chen 1996; O’Rand 1996; Gendell and Siegel 1996; Choi 1997; Hendley and Bilimoria 1999; Gustman and Steinmeier 2004; Bridges and Choudhury 2007, 2009; Favreault 2010). Others examine the prominent role of children’s benefits for African Americans (Newcomb 2003/2004; Tamborini, Cupito, and Shoffner 2011). This analysis contributes to that body of research by using a relatively new, publicly available, and comprehensive data source, the American Community Survey (ACS), to document the demographic and economic characteristics of African American OASDI beneficiaries and SSI recipients. It is designed to lay the groundwork for future detailed analyses of how African Americans interact with Social Security and related programs.

In this note, we first discuss the strengths of the ACS and the methodology of this analysis. Next, we present the demographic and economic characteristics of the African American population in the 2009 ACS. Then, we present ACS data on OASDI and SSI participation and benefit levels, comparing African American participants with overall participants in three age distributions: the full age range for which benefit statistics are available in the ACS (15 or older), working age (18–61), and retirement age (62 or older).

Does Household Debt Influence the Labor Supply and Benefit Claiming Decisions of Older Americans?

January 7, 2014 Comments off

Does Household Debt Influence the Labor Supply and Benefit Claiming Decisions of Older Americans?
Source: Center for Retirement Research at Boston College

Americans’ indebtedness has increased dramatically since the 1980s – a trend likely to have important implications for retirement security. This study finds that older adults with debt are 8 percentage points more likely to work and 2 percentage points less likely to receive Social Security benefits than those without debt. Not only does the presence of debt influence older adults’ behavior, but so do the amount and type of debt – particularly outstanding mortgages. Increasingly, retirement security will depend on having enough income and assets to pay for basic living expenses and to service debt.

New From the GAO

December 27, 2013 Comments off

New GAO Reports
Source: Government Accountability Office

1. Social Security Death Data: Additional Action Needed to Address Data Errors and Federal Agency Access. GAO-14-46, November 27.
http://www.gao.gov/products/GAO-14-46
Highlights - http://www.gao.gov/assets/660/659290.pdf

2. National Preparedness: HHS Is Monitoring the Progress of Its Medical Countermeasure Efforts but Has Not Provided Previously Recommended Spending Estimates. GAO-14-90, December 27.
http://www.gao.gov/products/GAO-14-90
Highlights - http://www.gao.gov/assets/660/659950.pdf

CBO — The 2013 Long-Term Projections for Social Security: Additional Information

December 18, 2013 Comments off

The 2013 Long-Term Projections for Social Security: Additional Information
Source: Congressional Budget Office

Social Security is the federal government’s largest single program. Of the 58 million people who currently receive Social Security benefits, about 70 percent are retired workers or their spouses and children, and another 11 percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age and Survivors Insurance (OASI). The other 19 percent of beneficiaries are disabled workers or their spouses and children; they receive Disability Insurance (DI) benefits.

In fiscal year 2013, Social Security’s outlays totaled $808 billion, almost one-quarter of federal spending; OASI payments accounted for about 83 percent of those outlays, and DI payments made up about 17 percent. Each year, CBO prepares long-term projections of revenues and outlays for the program. The most recent set of 75-year projections was published in September 2013. This publication (shown below) presents additional information about those projections.

CRS — Social Security: Cost-of-Living Adjustments

December 4, 2013 Comments off

Social Security: Cost-of-Living Adjustments (PDF)
Source: Congressional Research Service (via University of North Texas Digital Library)

To compensate for the effects of inflation, Social Security recipients usually receive an annual cost-of-living adjustment (COLA). Benefits will be increased by 1.5% in 2014, after an increase of 1.7% in 2013.

Social Security COLAs are based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), updated monthly by the Department of Labor’s Bureau of Labor Statistics (BLS). The COLA equals the growth, if any, in the index from the highest third calendar quarter average CPI-W recorded (most often, from the previous year) to the average CPI-W for the third calendar quarter of the current year. The COLA becomes effective in December of the current year and is payable in January of the following year. (Social Security payments always reflect the benefits due for the preceding month.)

If there is no percentage increase in the CPI-W between the measuring periods, no COLA is payable. No COLA was payable in January 2010 because the average CPI-W for the third quarter of 2009 did not increase from the average CPI-W for the third quarter of 2008, and again in 2011 because the average CPI-W for the third quarter of 2010 remained below the average CPI-W for the third quarter of 2008. When the average CPI-W for the third quarter of 2011 exceeded that for 2008, establishing a new benchmark, a COLA was payable in 2012. Since the average CPI-W for the third quarters of 2012 and 2013 exceeded the average CPI-W for the third quarters of each respective preceding year, 2014 will be the third consecutive year in which a COLA will be paid.

Because a COLA of 1.5% will be paid to Social Security beneficiaries in 2014, identical percentage increases in Supplemental Security Income (SSI) and railroad retirement “tier 1” benefits will be paid, and other changes in the Social Security program will be triggered. Although COLAs under the federal Civil Service Retirement System (CSRS) and the federal military retirement program are not triggered directly by the Social Security COLA, these programs use the same measuring period and formula for computing their COLAs. As a result, their recipients similarly will receive a 1.5% COLA in January 2014.

The Congressional Budget Office (CBO) and the trustees for the Social Security trust funds both project annual COLAs beyond 2014. This report is updated annually.

Growth in New Disabled-Worker Entitlements, 1970–2008

November 19, 2013 Comments off

Growth in New Disabled-Worker Entitlements, 1970–2008
Source: Social Security Administration

We find that three factors—(1) population growth, (2) the growth in the proportion of women insured for disability, and (3) the movement of the large baby boom generation into disability-prone ages—explain 90 percent of the growth in new disabled-worker entitlements over the 36-year subperiod (1972–2008). The remaining 10 percent is the part attributable to the disability “incidence rate.” Looking at the two subperiods (1972–1990 and 1990–2008), unadjusted measures appear to show faster growth in the incidence rate in the later period than in the earlier one. This apparent speedup disappears once we account for the changing demographic structure of the insured population. Although the adjusted growth in the incidence rate accounts for 17 percent of the growth in disability entitlements in the earlier subperiod, it accounts for only 6 percent of the growth in the more recent half. Demographic factors explain the remaining 94 percent of growth over the 1990–2008 period.

The Projected Effects of Social Security Benefit Increase Options for Older Beneficiaries

November 19, 2013 Comments off

The Projected Effects of Social Security Benefit Increase Options for Older Beneficiaries
Source: U.S. Social Security Administration

Many reform plans designed to return the Social Security program to long-term solvency also include a benefit increase targeted toward older beneficiaries. Policymakers use two core rationales for such targeted increases. First, older beneficiaries tend to be more economically vulnerable and reliant on the income Social Security provides. Second, certain benefit reductions (such as changes to cost-of-living adjustments) can compound over time, and including a benefit increase for older retirees in a larger reform plan can ameliorate those reductions.

Generally, the benefit increase proposals provide slightly larger monthly benefits starting at around age 80, but can vary along multiple lines. This policy brief analyzes two options, and projects their respective effects. The two options vary in how the benefit increase is calculated:

  • The Individual PIA plan provides an increase of 5 percent of the individual’s primary insurance amount (PIA), which is the benefit an individual will receive based on lifetime earnings, if retirement benefits start at the normal retirement age.
  • The Average PIA plan provides an increase of 5 percent of the average PIA for all retired workers, rather than an individual’s own PIA.

We analyze those two particular provisions because they appear in various publicly available reform plans. Both 5 percent targets may appear identical when described only as “a 5 percent benefit increase,” but they can produce different outcomes for beneficiaries.

Our analysis focuses on beneficiaries aged 85 or older in 2030 and we express the results as percentage differences from scheduled benefits under current law. We do not project the relative costs of the proposals.

The analysis is based on data from the Modeling Income in the Near Term model, version 6 (MINT6). MINT6 includes data for respondents to the 2001 and 2004 Surveys of Income and Program Participation (SIPP), matched to Social Security administrative records through 2009. For 2010 and later, MINT6 projects life events, earnings, and benefits for those respondents.

The Decision to Delay Social Security Benefits: Theory and Evidence

November 8, 2013 Comments off

Recent changes in the gains from delaying Social Security (PDF)
Source: National Bureau of Economic Research

Social Security benefits may be commenced at any time between age 62 and age 70. As individuals who claim later can, on average, expect to receive benefits for a shorter period, an actuarial adjustment is made to the monthly benefit amount to reflect the age at which benefits are claimed. We investigate the actuarial fairness of this adjustment. Our simulations suggest that delaying is actuarially advantageous for a large subset of people, particularly for real interest rates of 3.5 percent or below. The gains from delaying are greater at lower interest rates, for married couples relative to singles, for single women relative to single men, and for two-earner couples relative to one-earner couples. In a two-earner couple, the gains from deferring the primary earner’s benefit are greater than the gains from deferring the secondary earner’s benefit. We then use panel data from the Health and Retirement Study to investigate whether individuals’ actual claiming behavior appears to be influenced by the degree of actuarial advantage to delaying. We find no evidence of a consistent relationship between claiming behavior and factors that influence the actuarial advantage of delay, including gender and marital status, interest rates, subjective discount rates, or subjective assessments of life expectancy.

CRS — Social Security: What Would Happen If the Trust Funds Ran Out?

October 28, 2013 Comments off

Social Security: What Would Happen If the Trust Funds Ran Out? (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

The Social Security trust funds are projected to become exhausted in 2033, according to the 2013 Social Security Trustees Report. If Congress does not act before then, the trust funds would be unable to pay full Social Security benefits on time. The Social Security Act does not specify what would happen to benefits if the trust funds became insolvent. However, it is clear that full Social Security benefits could not be paid on time because the Antideficiency Act prohibits government spending in excess of available funds. After insolvency, Social Security would continue to receive tax income, from which approximately 77% of benefits could be paid. Either full benefit checks would be paid on a delayed schedule or reduced benefits would be paid on time. In either case, Social Security beneficiaries and qualifying applicants would remain legally entitled to full benefits and could take legal action to claim the balance of their benefits.

Social Security solvency could be restored by cutting Social Security’s spending, increasing its income, or some combination of the two. Over the long range (i.e., over the next 75 years), the Social Security trustees estimate that the trust funds have a shortfall of $9.6 trillion in present value terms, or 2.72% of taxable payroll. The sooner Congress acts to fill this gap, the smaller the changes to Social Security need to be, because earlier changes could be spread to a larger number of workers and beneficiaries over a longer period of time. If Congress waits until the moment of insolvency to act, the trust funds’ annual deficits could be eliminated with benefit cuts of about 23% in 2033 that will gradually rise to about 27% by 2087. Congress could also eliminate annual deficits by raising the Social Security payroll tax rate from 12.40% to 16.1% in 2033, then gradually increasing it to 17.2% by 2086. To maintain annual balance after 2086, larger benefit reductions or tax increases would be required.

Prompt action to restore Social Security solvency would be advantageous. The combined trust funds began to run annual cash-flow deficits in 2010. Cash-flow deficits require the redemption of government bonds accumulated in earlier years. Cash-flow deficits do not affect Social Security directly. However, if the non-Social Security portion of the federal budget is in deficit, redemption of trust fund bonds puts additional pressure on the overall federal budget. Earlier changes would allow workers and beneficiaries time to adjust their retirement plans. Finally, if Congress were to act today, the benefit cuts or tax increases necessary to restore solvency until 2087 would be smaller than those needed if Congress waited until the trust funds became insolvent to act.

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