Study Finds Women Retiring Early Creates Gender Gap in Social Security Wealth

The National Bureau of Economic Research has released a study showing that the the pattern of women tending to marry men who are older and then retiring at the same time as their husbands contributes to a substantial gender gap in Social Security wealth [SSW].

In "The Return to Work and Women's Employment Decisions" (NBER Working Paper No. 24429), Nicole Maestas reports that "the opportunity cost of retirement—-in terms of foregone potential earnings and accruals to Social Security wealth—-may be larger for married women than for their husbands," and that using the Health and Retirement Study (HRS), she finds "evidence that the returns to additional work beyond mid-life are greater for married women than for married men. The potential gain in Social Security wealth alone is enough to place married women on nearly equal footing with married men in terms of Social Security wealth at age 70."

For both female cohorts, real earnings increased until age 55 and began to decline at age 57. Men's earnings, on the other hand, continuously decreased from ages 51 to 61. In addition, women's earnings increased by 31 percent across cohorts, but men's earnings increased only 10 percent. So the gender earnings gap shrinks as individuals age into retirement.

For both cohorts, women were more likely than men to retire "early" — before age 62 — or move from full- to part-time employment. In the boomer cohort, 47 percent of women retired or reduced work early, but only 41 percent of men did so.

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When ranked by the amount of additional SSW they would receive if they worked to age 70, married women in the top quartile would gain an average of over $36,000, compared with only $1,300 for those in the bottom quartile. Despite these potentially significant differences in the financial consequences of early retirement, Maestas finds that the early retirement rate among women with a lot to gain from continued work is comparable to that for women with relatively little potential gain. "This suggests that individuals do not factor these potential gains into their employment decisions, and it raises the question of whether individuals are able to correctly assess the opportunity costs associated with reducing work effort before age 70."

Source: NBER Digest "Married Women Who Retire Early May Forfeit Social Security Wealth" (June 2018)

Research: Eliminating Social Security Taxes on Older Workers Would Encourage Longer Working Lives, Reduce Government Expenses

According to research published by the University of Michigan's Institute for Social Research, eliminating social security payroll taxes starting when workers are 55-years-old would lead to their take-home pay jumping by 10.6%, and they would work 1.5 years longer on average, paying more income taxes, and helping to reduce the Federal deficit. In their article "Consumption, retirement and social security: Evaluating the efficiency of reform that encourages longer careers," in the Journal of Public Economics, University of Michigan economists John Laitner and Dan Silverman explore how tax cuts targeted at older workers would affect the likelihood of working longer and the size of the federal deficit.

According to their abstract, "The estimated magnitude of the change in consumption–expenditure depends importantly on the treatment of consumption by adult children of the household. Simulations indicate that the reform could increase retirement ages one year or more, equivalent variations could average more than $4000 per household, and income tax revenues per household could increase by more than $14,000."

However, in order for the Social Security system to break even,
workers would need to pay about one percent higher payroll taxes a year until age 55. Thus, Laitner said:

Households with a strong preference for very early retirement would pay the slightly higher payroll tax before age 55, but leave the labor force before gaining much from the elimination of the payroll tax after that. Late retirees would, by the same token, be big winners. And the point of the reform, after all, is to encourage work by rewarding it.

Source: Institute for Social Research, University of Michigan Research Release (August 28, 2012)

Study: Labor Force Participation and Increased Participation by Older Workers

The Urban Institute has released a report suggesting that changing age demographics have powerful implications for the shape of the nation's work force, but that "formal models of labor force participation fail to take into account that as the relative supply of younger workers declines, employers will increasingly turn to older workers to meet their demand for labor to provide goods and services." According to "Correcting Labor Supply Projections for Older Workers Could Help Social Security and Economic Reform," by C. Eugene Steuerle and Caleb Quakenbush, increased labor force participation among older workers can add to the solvency of Social Security and the broader federal budget. Policymakers in both the public and private sectors can accommodate this trend by removing barriers that discourage hiring and retaining older workers.

Older workers are to the first half of the 21st century what women were to the last half of the 20th: the largest underused source of labor and human capital in the economy. Few policymakers are taking this extraordinary possibility into account in their reform packages. In an increasingly informationand service-based economy, older workers represent a valuable source of knowledge and experience that employers will tap, especially if Social Security and related economic reforms attempt to channel rather than obstruct these forces.

Source: Urban Institute Publication News (August 10, 2012)

Research: Increased in Earned Income Attributable to Increased Labor Participation by Older Workers

A report from the Division of Economic Research, Office of Research, Evaluation, and Statistics, Office of Retirement and Disability Policy, Social Security Administration, shows that higher labor force participation rates for people aged 62–79 are associated with a dramatic increase in the share of their total money income attributable to earnings. According to "The Increasing Labor Force Participation of Older Workers and its Effect on the Income of the Aged", by Michael V. Leonesio, Benjamin Bridges, Robert Gesumaria, and Linda Del Bene, for persons aged 65–69, the earnings share increased from 28% in 1980 to 42% percent in 2009.

They also found that while, two decades ago, Social Security benefits and earnings were roughly equal shares of total money income (about 30%), the earnings share is now more than 12 percentage points larger. The marked increase in the importance of earnings as an income source is also evident throughout the 62–79 age range among Social Security beneficiaries.

In reviewing the many factors that have likely contributed to the increase in late-life earnings, the authors note, among other things, legislative changes such as bans on age discrimination, the low private savings rates in the United States, increasing cost of health care, a healthier older population, and changes in social security rules for earned income.

Source: U.S. Social Security Administration Social Security Bulletin Vol. 72, No. 1 (February 2012)

Study: Many Older Workers in Difficult or Physically Demanding Jobs Could Lose Out if Retirement Age Increases

The Center for Economic and Policy Research (CEPR) has published a study that demonstrates that a large number of U.S. workers--in particular, those in physically demanding jobs or jobs with difficult work conditions--would be adversely affected by raising the normal retirement age for Social Security. In "Hard Work? Patterns in Physically Demanding Labor Among Older Workers", researcher Hye Jin Rho found that, in 2009, 45% of workers age 58 and older had physically demanding jobs or jobs with difficult working conditions and that, among other things, these were disproportionately held by less educated, poorer, and minority workers.

The study reports that, among other things:

• difficult jobs were held by 62.4% of Latino workers, 53.2% of black workers, 50.5% of Asian Pacific American workers, and 42.6% percent of white workers.
  
• older workers with less than a high school diploma had the highest share of workers (77.2%) in difficult jobs.
  
• 56.4% of older workers in the bottom wage quintile had physically demanding jobs compared to only about 17% of those in the top quintile.
  
• 63.3% of older workers in the bottom wage quintile had difficult jobs compared to only about 25% of those in the top quintile.

According to Rho, "Many older workers are in jobs that require substantial physical effort, jobs that may not afford them the option of working into their 70s in order to get full retirement benefits."

Source: Center for Economic and Policy Research News Release (August 5, 2010)

Additional Resource: New York Times "Retiring Later Is Hard Road for Laborers" (September 12, 2010)

Commnetary: Raising Social Security Retirement Age, Different Effect on Knowledge Workers and Others

In his economics blog, Ezra Klein and his readers riff on a suggestion by Larry Mishel that raising the Social Security age "makes much more sense for affluent individuals who work in knowledge-oriented industries than for lower-income people whose jobs require more physical labor." This follows posts a year earlier about Klein's own oppostion to raising the retirement age" and a response to that suggesting raising the retirement age to 70.

Klein suggests pondering the suggestion and adds these talking points:

1. At what age do you want to retire?
   
2. An increase in the retirement age could lead to more people going on disability.
   
3. If we're going to increase the age at which these folks can get full Social Security benefits, we'd better figure out some solutions to make it easier for them to keep working.

Source: Ezra Klein, Washington Post "More on raising the retirement age" (July 7, 2010)

Additional Sources: MarketWatch "Fix Social Security by hiking retirement age" (July 2, 2010)

AARP Research Report Explores New Means for Transitioning to Retirement

An AARP research report has been published exploring the concern that policies being explored to extend working lives—-and delay the claiming of Social Security benefits—-as a means to ensure workers' retirement security and Social Security's finances may inflict real hardship on some older workers who retire earlier because of health and related problems. Accordingly, in "Employment Support for the Transition to Retirement: Can a New Program Help Older Workers Continue to Work and Protect Those Who Cannot?", David Stapleton of Mathematica Policy Research, Inc., proposes a new program--Employment Support for the Transition to Retirement (ESTR)--that could help “break the deadlock” that stymies efforts to adopt policies that encourage later retirement.

Stapleton's vision of ESTR is that it would provide assistance to workers who experience large involuntary earnings losses as they approach age 62. It would provide a wide range of benefits, tailored to individual need—including wage subsidies and other work supports, health insurance subsidies, disability benefits, extended unemployment benefits, and employment counseling. While not individually new, what is new is the idea of a substantial and coordinated expansion of these elements in the context of retirement policy reform.

Source: AARP Research Report In Brief (April 2009)

Survey: Older Workers Concerned about Social Security and Medicare Promises

According to Watson Wyatt, many workers 50-64, particularly those without employer-sponsored retirement plans, retiree medical plans or other financial resources, do not expect to receive their full Social Security or Medicare payments after they retire. Specifically, 61% of older workers are not confident of receiving unreduced Medicare benefits, and 52% are not confident of receiving unreduced Social Security benefits.

Based on an analysis of a 2007 Watson Wyatt survey of 5,000 older employees, "Social Security, Medicare and Americans’ Confidence in Their Retirement Future" also suggests that confidence in these government programs is partly associated with how secure workers are in their own financial resources for retirement.

"Retirement income has traditionally been likened to a three-legged stool consisting of government plans, employer plans and personal savings," said Mark Warshawsky, director of retirement research at Watson Wyatt. "With the future of Medicare and Social Security uncertain, it is critical for employers and their employees to adequately prepare for future retirement needs."

Source: Watson Wyatt Press Release (October 2, 2008)

U.S. Economists Urge Raising Social Security Retirement Age

According to a working paper issued by the National Bureau of Economic Research, absent adjustment for higher life expectancies, the percentage of the U.S. population eligible for full Social Security benefits will climb by 2050 to about 20%. In "Adjusting Government Policies for Age Inflation", economists John B. Shoven and Gopi Shah Goda find that historical adjustment of eligibility ages for age inflation would have increased ages of eligibility by approximately 0.15 years a year.

The authors state that, at the time Social Security was created in 1935, an average 65-year-old retiree could expect to live just over 12 additional years; however, by 2004, an average 65-year-old could expect an additional 19 years of life. Accounting for higher life expectancies, "the Normal Retirement Age for Social Security in 2004 would have to be at least 71…and more likely 73 or 74" to be consistent with the retirement age of 65 in 1935, the authors wrote.

Source: Wall St. Journal Blog "Economists Warn of Effects of Age Inflation" (August 19, 2008)

Legislation Introduced in U.S. Senate To Expand Opportunities for Older Workers

Senators Gordon H. Smith (R-OR), Herb Kohl (D-WI), and Kent Conrad (D-ND) have introduced the "Incentives for Older Workers Act," which is designed to provide incentives and eliminate barriers for older Americans wishing to stay in the workforce longer, and encourage employers to recruit and retain older workers.

"This legislation confronts the changing face of retirement. The divide between working and retirement is no longer the bright line it once was. Many workers stay on the job longer, not just because they have to but also because their employers want them to stay," Senator Conrad said. "“What we offer in the Incentives for Older Workers Act would make sure older employees who want to cut back their work schedules won't lose pension benefits as a result."

The proposed legislation (S. 2933, text not yet available) would, among other things:

• remove penalties in certain pension plans for workers who phase into retirement by receiving a lower salary while working reduced hours;
• allow seniors to earn delayed retirement credits for Social Security purposes for an additional two years until age 72, instead of age 70;
• reduce the amount of Social Security benefits lost to seniors who claim benefits before reaching normal retirement age and while they continue working;
• require states to include older worker representatives on the state and local workforce investment boards and set aside five percent of the Workforce Investment Act (WIA) funds to assist older individuals.

Source: U.S. Senate Select Commitee on Aging Press Release (April 29, 2008)

Rhode Island; Governor Signs Bills Banning Social Security Offset

Rhode Island Governor Carcieri has signed into law bills that forbid the state Department of Labor and Training from taking into account Social Security benefits when calculating the amount of unemployment compensation. According to a report in the Providence Journal, Carcieri said “Individuals receiving Social Security have earned it from years of work. They are entitled to it and should not be penalized for it. They deserve to receive full unemployment benefits while they look for another job.” In addtion, he said, “This legislation will encourage Rhode Island seniors to remain in the work force [for] as long as they can continue making a positive contribution to the economy.”

Source: Providence Journal"Older workers no longer punished" (June 26, 2007)

Rhode Island: Legislature Again Takes Up Unemployment Benefits and the Social Security Offset

Neil Downing, a columnist for The Providence Journal, writes again about the unfairness to older workers of Rhode Island's law offsetting unemployment benefits for social security benefits. He reports on House hearings on a measure (H5296) that would end the Social Security offset, which follows Senate passage of a similar bill (S0161). "No one spoke in opposition, but there were several supporters, including the AARP, a membership organization for people 50 and older."

Source: The Providence Journal "State law penalizing older workers" (May 9, 2007)

Subsequent History: The House passed H5296 on May 30, 2007.

United States: Federal Reserve Bank Study of Aging Demographics Suggests Retaining Older Workers Can Help Reduce Decline in Consumption Rates

In a paper discussing the consequences of population aging from a macroeconomic perspective and considering alternative paths the U.S. economy could follow in response to population aging, three Federal Reserve Bank economists conclude that, barring a significant increase in labor force participation, population aging will lead to a reduction in per capita consumption relative to a baseline in which the demographic composition of the population does not change.

Among other things, Louise Sheiner, Daniel Sichel, and Lawrence Slifman suggested that an alternative to reducing consumption is to raise output by increasing labor force participation and presented the results of simulations with higher labor force participation by the elderly. Accordingly, one of the main macroeconomic policy questions for the nation is "How much can we (and should we) raise labor force participation?"

In all likelihood, a rise in participation rates for workers aged 55 and over would be necessary. An increase of this magnitude would probably require major adjustments to both business and government policies. For example, businesses could re-structure their operations to include more opportunities for part-time or flexible work schedules, which are often appealing to older workers, or the government could make adjustments to such things as the age at which workers are first entitled to receive Social Security benefits (the early retirement age) and the age at which they are eligible to receive Medicare as well.

Source: The Federal Reserve Bank Finance and Economics Discussion Series 2007-1: "A Primer on the Macroeconomic Implications of Population Aging" (January 16, 2007)

Urban Institute Research Assess Impact of Raising Social Security Retirement Age

Research from the Urban Institute's Retirement Policy Project looking into proposals that would raise the age at which workers can first receive Social Security retirement benefits suggests that lifetime benefits for all groups would be lower, but less so for those with lower lifetime earnings and less education. However, it would push more retirees into poverty: raising the age to 69, for example, would increase the share of retirees with incomes below the wage-indexed poverty level in 2050 from 14.4% under the current system to 16.2% percent, an increase of 1.5 million people.

The Urban Institute's research is included in five separate research briefs. One--"How Long Do Boomers Plan to Work?" by Gordon Mermin, Richard W. Johnson, and Dan Murphy--finds that as boomers approach retirement, "they intend to work longer than people born a dozen years earlier did, a shift that will help promote economic growth and partly offset the economic pressures created by an aging population." Among workers ages 51-56 in 2004, 51% said they expect to work past age 62, up from 47% among comparable workers in 1992.

The other four reports are:

• "Would Raising the Social Security Retirement Age Harm Low-Income Groups?"
• "Minimum Benefits in Social Security: Design Details Matter"
• "Minimum Benefits in Social Security Could Reduce Aged Poverty"
• "Racial Differences in Baby Boomers' Retirement Expectations"

Source: Urban Institute Press Release (January 30, 2007)

Connecticut: Governor Signs Bill To End Social Security Offset for Worker's Comp

On May 30, 2006, Connecticut Governor M. Jodi Rell signed into law a bill to end the policy of cutting the worker's compensation payments to disabled employees if those workers collect or qualify for Social Security, one of ten states to do so. Passed by the state senate as Senate Bill No. 25, proponents said the offset hurt aging residents who've kept their jobs or returned to the workforce to supplement their income.

Source: Public Act 06-84 and legislative history.

Additional Source: "Senators say state's older employees hurt by worker comp policy" Associated Press (April 28, 2006)

Connecticut: Repeal of Social Security Offset from Workers Comp Advances

As of May 17, the legislation (Public Act 06-84) in Connecticut to repeal the social security offset from workers' compensation benefits had passed both houses and had been trasmitted to the Secretary of State. See eaelier Aging Workforce News article. Opponents of the legislation have stated that "the cost of this proposal (SB-25) to Connecticut employers is expected to be $8 million in the first year alone, according to a recent impact statement issued by the National Council on Compensation Insurance (NCCI). That increased cost would continue in future years."

Source: Senate Bill 25 Legislative History

Commentary: Raising Social Security Age Wrong Response to Longer Lives

William Saletan, who covers science and technology for Slate, responds to the latest U.S. Census Bureau report on aging with its bad news that we are living longer and its good news that we are staying healthy longer by challenging "the intuitive remedy is to raise the retirement age [for Social Security benefits] well beyond the measly increases currently scheduled."

According to Saletan, inequality in how individuals age means that age is a bad proxy for disability, which is a good proxy for need, and that "abolishing age as a standard of fitness would be fairer than simply raising the eligibility age." In addition, he notes that in encouraging the "young old"--the current, healthier experience of being 65 to 74--to keep working, the ADEA has been effective in rooting out rampant age discrimination. He also points out that U.S. jobs have gotten much less strenuous for 65-year-olds since Social Security was created m 1935.

Source: "Curse of the Young Old" The Washington Post (March 19, 2006)

Ohio: Pushing To Eliminate Social Security Offset for Unemployment Benefits

According to a report in the Canton Repository, "[a]dvocates for seniors and the jobless are pushing for changes that would allow Social Security recipients who work to draw full unemployment benefits if they lose their job." Policy Matters Ohio is a nonprofit research organization that advocates changing the state’s system, and Ohio’s Unemployment Compensation Advisory Council, which makes recommendations to lawmakers, is expected to discuss the reduction at a meeting Feb. 8.

Source: "Social Security recipients see jobless benefits reduced" The Canton (OH) Repository (Janaury 31, 2006)

Additional Resources:

A Janaury 22, 2006 article in the Columbus Dispatch says that Rep. William J. Seitz, Cincinnati, a Republican state lawmaker, is pushing to end Ohio's "offset" of Social Security. He hopes "to help our senior citizens who are rudely awakened to find their Social Security benefits are offset against their unemployment comp benefits when they have to get a second job merely because Social Security isn't enough."

See prior AgingWorkforceNews.com article on the AARP campaigns to repeal Social Security offset provisions in state unemployment laws.

AARP Campaigns To Repeal Social Security Offset Provision in State Unemployment Laws

According to an article by Diane E. Lewis in The Boston Globe, AARP has launched a campaign to encourage Massachusetts and eight other states to end state laws that deduct a portion of older workers' weekly Social Security payments from their unemployment benefits. According to AARP, laws in theses states, which include Rhode Island, Maine, Colorado, Ohio, Utah, Illinois, Louisiana, Minnesota, and South Dakota, cause such workers to forfeit $7.5 million per year.

"Two legislative proposals in Massachusetts could lead to a repeal. One, filed by House Minority Leader Bradley H. Jones Jr., a North Reading Republican, would provide enhanced jobless benefits to laid-off older workers. A second bill, filed by Senate Minority Leader Brian Lees, a Republican representing the First Hampden and Hampshire district, would eliminate the Social Security unemployment insurance offset."

Source: "AARP hits law that cuts elders' jobless benefits" The Boston Globe (January 10, 2006)