Disability beneficiaries who work and their experience under program work incentives.

This research examines the return to work by Disability Insurance beneficiaries who were first entitled to benefits in 1980-81 and who were originally selected to be interviewed in the New Beneficiary Survey. To facilitate an examination of actual labor-force participation by beneficiaries, information on work and participation in program work incentives was collected from their claims folders. The analysis shows that approximately 10 percent of disability beneficiaries work during their initial period of benefit entitlement. About 80 percent are granted a trial work period, and over 70 percent of those granted trial work successfully complete it. More than half of them, however, were not successful in leaving the rolls through their work effort. In fact, benefit terminations due to work occurred for fewer than 3 percent of all beneficiaries in the cohort; approximately one-third of them had returned to the rolls by the end of the period under study. Beneficiaries most likely to make a work attempt were young and had a high level of education. Those with a high Social Security benefit amount were less likely to make a work attempt.     

Employment among Social Security disability program beneficiaries, 1996-2007

We use linked administrative data from program and earnings records to summarize the 2007 employment rates of Social Security disability program beneficiaries at the national and state levels, as well as changes in employment since 1996. The findings provide new information on the employment activities of beneficiaries that should be useful in assessing current agency policies and providing benchmarks for ongoing demonstration projects and future return-to-work initiatives. The overall employment rate--which we define as annual earnings over $1,000--was 12 percent in 2007. Substantial variation exists within the population. Disability Insurance beneficiaries and those younger than age 40 were much more likely to work relative to other Social Security beneficiaries. Additionally, substantial regional variation exists across states; employment rates ranged from 7 percent (West Virginia) to 23 percent (North Dakota). Moreover, we find that the employment rates among beneficiaries were sensitive to the business cycle and persistent over time.     

Earnings histories of SSI beneficiaries working in December 1997.

Disabling conditions previously considered to be permanent and total are no longer viewed as automatic barriers to work. Medical advances, improved accommodations in the workplace, and changes in the nature of work for the working disabled have allowed many disabled people to rejoin the workforce. The Social Security Administration (SSA) has followed those developments with a view toward encouraging people receiving disability benefits to consider returning to work. To effectively target SSA's efforts and evaluate their success, information about previous work histories of the Supplemental Security Income (SSI) beneficiary population is used to provide baseline data. This article examines the earnings histories of 300,000 disabled SSI beneficiaries--one of the populations targeted by the expanded work-incentive measure under Public Law 106-70--who were working in December 1997. The article also investigates whether beneficiaries who are working have significant lifetime earnings and whether earnings patterns exist that might assist with SSA's work-support activities. SSI program records were matched to data in the Master Earnings File to explore the characteristics and earnings patterns before and after a person applies for benefits. The article addresses several questions: What are the general characteristics of disabled SSI beneficiaries? What are their earnings histories? Did they have an earnings record when they applied for SSI? Of the SSI beneficiaries working in December 1997, most tended to be younger than other disabled beneficiaries, to have some sort of mental disability, and to have earnings well below levels that would suggest their eventual, complete independence from the SSI cash benefits program. A look at past covered earnings revealed that the vast majority of SSI workers had a history of earnings before they applied for SSI benefits. Despite their severe impairments and age at the time of first eligibility, nearly 40 percent had earnings in 11 years or more. The amounts of those earnings were quite low, however, and were usually not high enough to preclude SSI eligibility. Examining the years immediately before and after the point of application indicated whether recent pre-application earnings were consistent with post-application return to work. Results were a bit surprising. They revealed that one-third of the 1997 SSI workers had no earnings, and another 28 percent returned to work despite having no earnings in the 4-year period before application. Persons receiving SSI because of mental retardation seemed to have poorer earnings histories than other workers but were more likely to return to work after application. That may be explained by their younger ages or may reflect the outside assistance they received in responding to SSA work incentives.     

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.     

Income of new disabled-worker beneficiaries and their families: findings from the New Beneficiary Survey

In 1982, disabled workers who came on the social security disability insurance rolls from mid-1980 to mid-1981 had median monthly incomes of less than $500 if they were unmarried and less than $1,300 if they were married. These median monthly income levels, which include the income of a spouse and minor children if present, are roughly half those of the noninstitutionalized population aged 25-64. Social security benefits are the most important source of income for disabled workers and their families: They account for 40 percent of the total family income of married disabled workers and 65 percent of the total income of unmarried disabled workers. Social security benefits provide at least half of all income for more than 80 percent of unmarried disabled-worker beneficiaries and for 50 percent of the married beneficiaries. For married disabled-worker beneficiaries, earnings of the spouse are the second most important income source. Spousal earnings account for 28 percent of total income. Pensions and asset income each account for about 10 percent of total income for these married beneficiaries. Earnings are not an important source of income for unmarried disabled-worker beneficiaries for whom they amount to only about 3 percent of total income. Pensions, asset income, and public transfers each account for about 10 percent of total income of the unmarried beneficiaries.     

Employment of individuals in the Social Security disability programs

The articles in this special issue present findings from research on the employment and work-related activities of individuals receiving benefits through the Social Security Disability Insurance and Supplemental Security Income programs, and on the factors that hinder their efforts to work at levels that lead to exiting the disability rolls. This article introduces the other articles, highlights their important findings, and discusses the implications for ongoing efforts to increase the earnings and self-sufficiency of these beneficiaries, such as the Ticket to Work program and the Benefit Offset National Demonstration.     

Income changes at and after Social Security benefit receipt: evidence from the Retirement History Study

This article details the changes in total income and the composition of its sources that occur upon initial receipt of Social Security benefits, and in the first 4 years thereafter. The study shows that, for many persons, "retirement" is a gradual process rather than an immediate cessation of all paid work. About half the persons entering the rolls continue at least some paid employment after benefit receipt. Even more do so if previous earnings were low or if they have no pension to supplement their benefits. In real terms, the average couple initially loses about one-third of its previous income, while nonmarried women, with less to begin with, lose somewhat less. In the time period studied, inflation was high in historical terms: the Consumer Price Index rose by approximately one-third in the 4-year period following benefit receipt. During that time, the real income of beneficiaries declined by about 10 percent from the levels immediately after benefit receipt. Fewer beneficiaries continued to work 4 years later, so earnings played a smaller role in total income. The real value of private pensions declined by about 20 percent in the 4-year period, but because most persons with such pensions had other, better-protected sources of income, their total income declined by less than 10 percent.     

How common is "parking" among Social Security Disability Insurance beneficiaries? Evidence from the 1999 change in the earnings level of substantial gainful activity

Fewer Social Security Disability Insurance (DI) beneficiaries have their earnings suspended or terminated because of work than those who are actually working, partly because beneficiaries "park" earnings at a level below substantial gainful activity (SGA) to retain benefits. We assess the extent of parking by exploiting the 1999 change in the SGA earnings level from $500 to $700 monthly for nonblind beneficiaries using a difference-indifference analysis that compares two annual cohorts of beneficiaries who completed their trial work period, one that was affected by the SGA change and one that was not. Our impact estimates, along with results from other sources, suggest that from 0.2 to 0.4 percent of all DI beneficiaries were parked below the SGA level in the typical month from 2002 through 2006. The SGA change did not yield any difference in mean earnings, although it did result in a small reduction in months spent off of the rolls because of work.     

Longitudinal outcomes of an early cohort of Ticket to Work participants

Using 2004-2006 National Beneficiary Survey data matched to Social Security administrative data, we follow a cohort of disability beneficiaries participating in the Ticket to Work (TTW) program for several years to assess changes in their service use, health status, employment, and income. About 20 percent of TTW participants achieved employment at levels that would significantly reduce their disability benefits. Another 40 percent achieved some employment success, but the remaining 40 percent reported no earnings during 2003-2005. Use of TTW support services during 2003-2005 was modest. Many participants experienced significant changes in their health status across survey rounds, which might have affected their ability to actively participate in TTW and to become employed. Many also experienced significant employment and income instability. The findings suggest that employment among TTW participants was associated with reduced poverty.     

Disability benefits suspended or terminated because of work

We use a new variable in the Social Security Administration's Ticket Research File to produce statistics on the first month of suspension or termination for work (STW) for Social Security Disability Insurance (DI) and Supplemental Security Income (SSI)-only beneficiaries as well as on the number of months in nonpayment status following suspension or termination for work (NSTW) before their return to the rolls, attainment of the full retirement age, or death--in each year from 2002 through 2006. Less than 1 percent of beneficiaries experienced their first STW in each year, but more were in NSTW in at least 1 month. Ticket to Work (TTW) participants were more likely to have a first STW than nonparticipants, but most of those who had an STW were not TTW participants, reflecting low use of TTW. Employment networks often failed to file claims for outcome payments during months when their TTW clients were in NSTW.     

Evaluating the initial impact of eliminating the retirement earnings test

Under the retirement earnings test, Social Security benefits are reduced if earnings exceed specified amounts, although the benefit reduction is partly offset by future benefit increases. By imposing a tax on the earnings of beneficiaries, the earnings test provided a disincentive for them to supplement retirement income by working. The Senior Citizens Freedom to Work Act of 2000 eliminated the earnings test for Social Security beneficiaries who have reached the full retirement age. This article presents the first study of labor force activity (earnings and employment) among individuals aged 65-69 before and immediately after this sudden rule change. Drawing on Social Security administrative data, the author examines three widely expected reactions: increased return to work, increased hours worked, and accelerated applications for old-age benefits. The analysis finds that removing the retirement earnings test: Encouraged some workers to increase their earnings. The increases in earnings are large and significant among higher earners but are not statistically significant among lower earners. Had little effect on employment. Removing the earnings test appears to have had no immediate, significant effect on the employment rate of older workers. Employment of older people may be affected in the longer run, however. Slightly increased the pace of applications for benefits. Applications rose about 2 percent in the 65-69 age group in 2000. The overall acceleration will probably be small, however, because most individuals in this age group apply for benefits before reaching the full retirement age. Although the current analysis captures the effects of retaining older workers in the labor force, these initial results may not capture all the effects of eliminating the retirement earnings test, however, for two reasons. First, the analysis covers only a single year--the year the earnings test was eliminated. Since eliminating the earnings test may have had little effect on people who had already retired, its full effect may not be apparent for several years. Second, the analysis applies only to workers aged 65-69. Eliminating the earnings test for people above the full retirement age may also encourage younger workers to delay retirement and therefore increase their labor supply. Further analysis will therefore be required to determine the longer-run impact of eliminating the retirement earnings test.     

Improving return-to-work strategies in the United States disability programs, with analysis of program practices in Germany and Sweden

The General Accounting Office (GAO) has made recommendations for improving the disability programs by citing practices that have been successful in Germany, Sweden, and the private sector. This issue is important in the United States because the number of disability beneficiaries is growing rapidly, program costs are increasing proportionately, and few disability recipients are leaving the disability rolls to resume work activity. GAO points out that the estimated lifetime savings for removing an additional 1 percent of the disabled beneficiaries from the rolls of the Disability Insurance (DI) and the Supplemental Security Income (SSI) programs each year will ultimately reach $3.0 billion. GAO cites three specific practices as showing the most promise for returning the disabled to work. They are (1) intervening as soon as possible after a disabling event to promote and facilitate return to work, (2) identifying and providing necessary return-to-work assistance and managing cases to achieve return-to-work goals, and (3) structuring cash and health benefits to encourage people with disabilities to return to work. This article examines these suggestions to improve the rate of rehabilitation of disabled workers using research by experts on return-to-work practices in Germany, Sweden, and the United States. Experts caution that any consideration of borrowing practices from other countries needs to take into account the unique economic, social, and political elements in each country. Although other countries appear to be very successful in their rehabilitation programs, practices that are successful in one country may not necessarily work well in another. Countries have different definitions of disability and payment structures. The existence of temporary and partial awards in Germany and Sweden may ensure a number of easily rehabilitated individuals, while the U.S. vocational rehabilitation (VR) agencies have been mandated to focus on only the most severely disabled individuals. Public expenditures for vocational rehabilitation, work for the disabled, and disability benefits are much higher as a percentage of gross domestic product in Germany and Sweden than they are in the United States. Compared with the United States, Germany spent twice as much for VR, and Sweden spent 2.6 times more. Impediments to GAO's suggestions include divergent goals of the Social Security program and VR agencies, lack of availability of VR services, the timing of VR referral (which is significantly later than the onset of the disability), and little incentive for return to work built into the payment structure. The Work Incentives Improvement Act of 1999 is currently being considered by a Congressional conference committee. The bill would establish a Ticket to Work and Self-Sufficiency program and would require or authorize the Social Security Administration to demonstrate and evaluate different ways of encouraging return to work. In designing these demonstrations, early intervention after a potentially disabling illness or injury is an approach that merits serious attention.     

The Impact of Rehabilitation and Counseling Services on the Labor Market Activity of Social Security Disability Insurance (SSDI) Beneficiaries

We use data from a social experiment to estimate the impact of a rehabilitation and counseling program on the labor market activity of newly entitled Social Security Disability Insurance (SSDI) beneficiaries. Our results indicate that the program led to a 4.6 percentage point increase in the receipt of employment services within the first year following random assignment and a 5.1 percentage point increase in participation in the Social Security Administration's Ticket to Work program within the first three years following random assignment. The program led to a 5.3 percentage point increase, or almost 50 percent increase, in employment, and an $831 increase in annual earnings in the second calendar year after the calendar year of random assignment. The employment and earnings impacts are smaller and not statistically significant in the third calendar year following random assignment, and we describe SSDI rules that are consistent with this finding. Our findings indicate that disability reform proposals focusing on restoring the work capacity of people with disabilities can increase the disability employment rate.     

The impact of changing financial work incentives on the earnings of Social Security Disability Insurance (SSDI) beneficiaries

SSDI beneficiaries lose their entire cash benefit if they perform work that is substantial gainful activity (SGA) after using Social Security work incentive programs. The complete loss of benefits might be a work disincentive for beneficiaries. We report results from a pilot project that replaces the complete loss of benefits with a gradual reduction in benefits of $1 for every $2 earned above an earnings disregard level. Beneficiaries who volunteered to participate in the project were randomly assigned to a group receiving the new program or to a control group. The policy led to a 25 percent increase in the percentage of beneficiaries with earnings above the annualized SGA amount, or $11,760 in 2009 dollars. It did not result in a reduction in benefit payments. © 2011 by the Association for Public Policy Analysis and Management.     

A profile of children with disabilities receiving SSI: highlights from the National Survey of SSI Children and Families

This article provides a nationally representative profile of noninstitutionalized children 0 to 17 years of age who were receiving support from the Supplemental Security Income (SSI) program because of a disability. To assess the role of the SSI program in providing assistance to low-income children with disabilities and their families, it is important to obtain detailed information on demographic characteristics, income and assets, health and disabilities, and health care utilization. Yet administrative records of the Social Security Administration do not contain many of the relevant data items, and the records provide only an incomplete picture of the family relationships affecting the lives of children with disabilities. The National Survey of SSI Children and Families fills this gap. This summary article is based on survey interviews conducted between July 2001 and June 2002 and provides some highlights characterizing children with disabilities who were receiving SSI and their families. Most children receiving SSI (hereafter referred to as "SSI children") lived in a family headed by a single mother, and less than one in three lived with both parents. A very high proportion, about half, were living in a household with at least one other individual reported to have had a disability. About 70 percent of children received some kind of special education. SSI support was the most important source of family income, with earnings a close second. On average, SSI payments accounted for nearly half of the income for the children's families, and earnings accounted for almost 40 percent. When all sources of family income were considered, slightly more than half (54 percent) of SSI children lived in families above the poverty threshold, a notable fact given that the federal SSI program guarantees only a subpoverty level of income. However, beyond these averages there was substantial variation, with some children living in families with income well below the poverty threshold and others having income well over 200 percent of the poverty threshold. About one-third of SSI children lived in families owning a home, two-thirds lived with parents or guardians with at least one car, and about 40 percent lived with parents or guardians with zero liquid assets. Less than 4 percent lived with adults who owned stocks, mutual funds, notes, certificates of deposit, or savings bonds. The Social Security Administration's administrative records contain only a limited amount of information about disability diagnoses. The National Survey of SSI Children and Families supplements those records with data from an array of questions on functional limitations, self-reported health, and the perceived severity of disabilities. The data suggest that a great degree of variation in severity exists within the childhood caseload, as reflected in reports of the presence or absence of six functional limitations, perceived overall health status, and perceived impact of disability on the child's ability to do things. Overall, 36 percent of the children were reported to have had disabilities that affected their abilities to do things "a great deal," and for 21 percent their difficulties had very little or no impact. Physical disabilities were most common among children aged 0 to 5, and mental disabilities dominated the picture for the other two age groups: 6 to 12 and 13 to 17. Virtually all SSI children are covered by some form of health insurance, with Medicaid being by far the most common source of health insurance coverage. Just as in the case of the severity of disabilities, substantial variation was reported in health care utilization among SSI children. Almost 30 percent of children had two or fewer doctor visits during the 12 months preceding the interview, and close to 50 percent had five or more doctor visits. About four-fifths of the children had no reported hospitalizations or surgeries during the previous year. More than 40 percent of the children visited an emergency room during the previous year, most of them more than once. Importantly, no out-of-pocket costs associated with medical care were reported for more than two-thirds of the children, and only about 3 percent had annual expenses exceeding $1,000 for physical and mental health care. This finding suggests that SSI payments are not used to cover medical expenses for the overwhelming majority of children. The use of supportive therapies varied widely among SSI children: more than half reported having used physical, occupational, or speech therapy; only 8 percent used respite care for the parents or other family members. An analysis of the perception of the survey respondents shows that more than one-third of children had unmet needs for mental health counseling services, and about three-quarters of families had unmet needs for respite care. In several service categories, the proportion perceived to have had unmet service needs was around 10 percent or less. In the dominant service category of physical, occupational, and speech therapy, only 11 percent perceived to have had unmet service needs.     

Income of new retired workers by age at first benefit receipt: findings from the New Beneficiary Survey

Using data from the New Beneficiary Survey (NBS) of the Social Security Administration (SSA), this article examines how income sources and total monthly income received by newly retired social security beneficiaries vary with the age at which the first benefit check was received. The NBS respondents who received a first benefit at age 65 or older were better off economically than were those who received a first benefit at ages 62-64. At the time of the interview, 18-30 months after receiving a first benefit, these older beneficiaries had higher levels of total income and were more likely to have income from earnings and assets. Pension receipt rates did not vary by the age at which the first social security benefit was received except for married women retired workers, for whom the rate was higher at the older ages. The largest proportion of aggregate income (slightly more than one-third) was derived from social security benefits. More than 90 percent of the NBS Medicare-only respondents--a sample of nonbeneficiaries who were eligible for monthly cash benefits but had established their entitlement only for the purpose of enrolling in the Medicare program--reported earnings income. They had lower rates of pension receipt and higher rates of asset income receipt than the retired workers. The Medicare-only respondents had substantially higher incomes than did retired workers, and most of their aggregate income was from earnings. The NBS retirees were generally in better financial condition than a group of social security beneficiaries aged 65 or older from all benefit categories in the Current Population Survey Income Supplement with whom they were compared.     

Jobs of persons working after receiving retired-worker benefits

This article describes the jobs of new Social Security retired-worker beneficiaries about 2 years after they received their first benefit payment and compares the characteristics of these jobs with those of jobs they were in before they received a benefit. The data are from the Social Security Administration's 1982 New Beneficiary Survey (NBS). The NBS data show that more than one-fifth of the new retired-worker beneficiaries were working 18-30 months after receipt of their first benefit payment. Most of the respondents usually worked less than full time at modest hourly wages rates--often for fewer hours and at lower wages than on the jobs they were in before benefit receipt. Thus, their annual earnings generally also were modest. The working NBS respondents were employed in all categories of occupations, but the majority were in white-collar jobs, often in the same major occupational or industrial category that they had been in before benefit receipt. When job changes had occurred, the tendency was to move into work in the service industries. Those individuals who were working were only slightly more likely to be self-employed in the postbenefit period than they had been in the prebenefit period.     

The earnings test and the short-run work response to its elimination

Eliminating the earnings test will have different effects on the work effort of persons aged 65-69, depending on whether or not they are currently working or currently receiving Social Security benefits. This article reviews the development of the earnings test and examines the theoretical implications on work effort of removing the test for members of this age group. It looks at the Current Population Survey (CPS) data to determine how many persons aged 65-69 have characteristics that can be identified with groups that would theoretically increase, decrease, or not change their work effort should they no longer be subject to the earnings test. This analysis suggests that at least 80 percent, and perhaps more than 90 percent, of the 9.7 million persons aged 65-69 will not change their level of work effort if the earnings test is eliminated. Individuals who would modify their hours worked and earnings are fairly evenly split among those who would increase, decrease, or have an undetermined direction of change in their work effort.     

The reservation wages of Social Security Disability Insurance beneficiaries

There exists a lot of research on the reservation wages of the unemployed as a determinant of unemployment duration. Little is known about the reservation wages of those who are not in the labor force but might be potential labor force returnees, such as Social Security Disability Insurance (DI) beneficiaries. The main objective of this article is to assess what can be learned from the subjective reservation wages of DI beneficiaries. Using the New Beneficiary Data System (NBDS), the article assesses the magnitudes of reservation wages compared to the last wage earned and the benefit amount, as well as the determinants of reservation wages in a regression framework. The NBDS is unique in that it provides the reservation wages and the work history of DI beneficiaries before and after joining the DI rolls. The article has several noteworthy results and policy implications: *Data show that a significant portion of beneficiaries report being likely to accept a job if offered one. Based on the NBDS, 13 percent of DI beneficiaries who did not work since joining the rolls in 1981-1982 reported in 1991 that they would be willing to work if offered a job and provided their reservation wages. *DI beneficiaries do not appear to price themselves out of the labor market. Half of them would want a wage that is 80 percent or less of the last wage earned before receiving DI. It is estimated that approximately 7 percent of long-term DI beneficiaries may potentially return-to-work if they search for jobs and have a wage offer distribution with a mean at 80 percent of their last wage. *The nonlabor income in addition to the benefit is positively and significantly associated with the reservation wage, while the benefit amount per se is not. However, this result needs to be treated with caution given that nonlabor income is endogenous to the model. *Heterogeneity exists between persons still under the DI program and those that have moved to the Old-Age program. The subsamples of persons who have shifted to the Old-Age program and those who are still under the DI program have median reservation wage to the last wage ratios of 0.69 and 0.93, respectively. A significantly lower reservation wage for persons who have moved to the Old-Age program was also found in a regression framework. This heterogeneity between the two groups may result in part from the different program characteristics both groups face, for instance, in terms of benefit termination and Medicare eligibility rules. *Subjective reservation wage data can be useful to study populations that are out of the labor force. This article is innovative in that it focuses on a group of persons who are typically considered as being out of the labor force, and therefore are not asked reservation wages in general household surveys such as the Current Population Survey. It would be of great interest to collect more reservation wage data for DI beneficiaries in a longitudinal data set to expand this analysis, for instance, to assess conclusively the effects of changing program characteristics on reservation wages and return-to-work outcomes as beneficiaries transition to the Old-Age program or as new return-to-work programs are put in place.     

Using data for couples to project the distributional effects of changes in Social Security policy

Under Social Security program rules, the aged receive Social Security benefits either as retired workers, spouses, divorced spouses, or widow(er)s. Retired-worker benefits are paid to workers who have 40 quarters of coverage over their lives. Auxiliary benefits are paid to spouses, divorced spouses, and widow(er)s of retired workers. Spouse benefits are computed using the earnings history of the current spouse for individuals who are married when they apply for benefits. Divorced spouse and widow(er) benefits are computed using the earnings history of the ex-spouse or deceased spouse with the highest PIA. A large number of retired women are entitled to auxiliary benefits. Some women receive only auxiliary benefits, while the majority of women have their retired-worker benefit supplemented by auxiliary benefits. Because the level of Social Security benefits can reflect the relative lifetime earnings of both spouses, as a couple, using individual data to estimate Social Security benefits will tend to underestimate actual benefits, particularly for women. However, detailed data for couples are often difficult to obtain. There is currently no known single data source that includes both marital and earnings history information. As a result, many researchers resort to estimating Social Security benefits using individual data or aggregate data, such as the average earnings of men and women. The Social Security Administration's Office of Research, Evaluation, and Statistics, with substantial assistance from the Brookings Institution, the Urban Institute, and the RAND Corporation, is developing a model that overcomes this problem by using the marital and earnings histories of both marital partners to estimate Social Security benefits. The Modeling Income in the Near Term (MINT) model projects retirement income (Social Security benefits, pension income, asset income, and earnings of working beneficiaries) from 1997 through 2031 for current and future Social Security beneficiaries using a unique data source--the Survey of Income and Program Participation (SIPP)--matched to Social Security Administration records. Using MINT data, this article establishes the importance of using data for couples rather than individuals by examining the impact of changing Social Security benefits to reflect 40 years of lifetime earnings rather than the 35 years required under current law. We compare the effect of this policy change on married women by estimating their benefits with data for couples and with individual data. Results indicate that: Using individual data overestimates the projected reduction in retirement benefits brought about by the policy change and makes the effects on women look more severe than they actually are. Because older birth cohorts are more likely than younger cohorts to receive auxiliary benefits based on their husbands' average lifetime earnings, the bias created by using individual data is projected to be much larger for older cohorts than for younger cohorts. This article emphasizes the importance of using data for couples to estimate Social Security benefits, particularly for women. Although our focus is on married women, using data for couples is just as important for calculating the retirement benefits of divorced and widowed individuals. For individuals who are divorced or widowed at retirement, their Social Security benefits are based on their own earnings history, as well as the earnings histories of each of their previous spouses.