Trends in the economic status of the elderly, 1976-2000

The economic well-being of elderly Americans (aged 65 or older) improved between 1976 and 2000. Overall, poverty rates fell during this period, median real income rose, and median income relative to the working-age population was relatively stable. Most population subgroups shared in the reduced poverty rates; however, the economic status of elderly Hispanics did not improve. This article attempts to explain those economic trends by identifying changes in five sources of income for the elderly and analyzing the changes in the context of demographic changes in the elderly populations over the past 25 years. As a result of increased longevity, for example, larger proportions of elderly men and women are now 80 or older, and smaller proportions are 65 to 69. Hispanics and Asian Americans make up a larger share of the elderly population and whites a smaller share. The fraction of women who are married has increased, the fraction who are widowed has fallen, and the fraction who are divorced has grown. Such demographic changes can greatly affect the economic status of subgroups as well as the overall elderly population. Of the five sources of income for the elderly, Social Security remains the most prevalent and important. While both the rate of receipt and the share of aggregate income from Social Security benefits stayed relatively steady over the past 25 years, the average real Social Security benefit increased because of rising wages. Income from assets, the second most important source of income for the elderly, fluctuated. Because the elderly are more likely to hold interest-bearing assets such as bonds rather than stocks, their asset income is responsive to changes in nominal interest rates and bond yields. Receipt of pension income increased during this period, although it leveled off during the 1990s. Factors contributing to this pattern include enactment of the Employee Retirement Income Security Act of 1974, which increased protections of pension benefits for spouses, and improved labor market opportunities for blacks and women. In recent years, defined contribution pension plans have become more prevalent than defined benefit plans, but the full effect of this change on pension income may not yet be apparent. After decades of decline, labor force participation rates of older men leveled out in the mid-1980s and then increased. For older women, the trend before the mid-1980s was flat, but since then rates have risen substantially. The increased use of part-time jobs or self-employment to ease the transition into retirement, the economic expansion of the 1990s, and the liberalization of the Social Security earnings test may all have contributed to those trends. Although the percentage of elderly people with earnings has increased only modestly in the past few years, the share of income from earnings has grown substantially--from 16 percent of income in 1984 to 23 percent in 2000. Finally, Supplemental Security Income (SSI) benefits are indexed for inflation but not for growth in real wages. As real incomes of the elderly rose, therefore, fewer elderly persons were eligible to receive SSI or, for those receiving SSI, were eligible for smaller benefits. The proportion of elderly persons receiving public assistance, primarily SSI, declined from 11 percent in 1976 to 5 percent in 2000.     

Postwar changes in the income position of the aged

Since the war the relative number of aged persons with income from employment has declined, while the proportion with income from social insurance benefits has increased. Despite the fact that social insurance benefits yield a lower average income than do earnings, the averaged aged person's income in 1952 was higher in both current dollars and dollars of stable purchasing power than it was in 1945. The improvement is the result of several factors, including larger earnings by aged workers, increased benefits paid retired workers and their aged survivors under social insurance and related programs higher old-age assistance payments and the rise in the relative number of persons with money income. The growth in the average aged person's income, however, has been at a rate lower than that of the average income of the population as a whole. As a result the average person has had a smaller share in total consumer income in each of the years since 1945 that he had in that year.     

Projecting retirement income of future retirees with panel data: results from the modeling income in the near-term (MINT) project

Cross-sectional data capture only a point in time and miss individual changes in earnings, labor force participation, marriage, fertility, and health. Because panel data follow individuals over time, they do not have this problem. The problems or concerns with cross-sectional data may be compounded when these data are used to make projections. Iams and Sandell (1997) found that using panel data on earnings explained much more variation in future earnings than using cross-sectional survey data. Panel data are also needed to estimate Social Security benefits, especially for women. Because of auxiliary benefits paid to spouses, ex-spouses, and widow(er)s of entitled workers, an individual's Social Security retirement benefit depends not only on his or her earnings history, but also on his or her marital history and the earnings histories of current and previous spouses. When we compare projected unreduced Social Security benefits with what they would be if we didn't have marital history or earnings history data for men, we find that: Benefits computed using only earnings histories are not very different from benefits computed using both earnings and marital histories. Benefits computed using only current earnings and marital histories underestimate benefits for those in earlier birth cohorts and overestimate benefits for those in the most recent birth cohort. Benefits computed without either marital or earnings histories underestimate benefits for all birth cohorts, but by much more for earlier cohorts than for more recent cohorts. For women we find that benefits computed without marital or earnings histories underestimate benefits in all birth cohorts. The largest differences are for women in earlier birth cohorts. Using both marital and earnings histories to estimate unreduced Social Security benefits, we find that men are projected to continue receiving higher benefits than women, although the gap is expected to narrow as the baby boomers near retirement age. We also look at the composition of projected total income available at retirement for those with incomes in the 45th-55th percentiles of the income distribution and find that: Total income at retirement is projected to be larger for men than for women in every birth cohort. Women are projected to receive the largest share of their total income from Social Security benefits. Men are projected to receive the largest share of their total income from other income sources, although this share declines as the baby boomers near retirement age.     

Income of retirement-aged persons in the United States

This article reviews the composition and level of retirement income in the United States and how this has changed over time, focusing on two overlapping but distinct groups--the entire population aged 65 or older, and recent retirees. Changes in the composition of income of the aged over the past 20-30 years, including greatly expanded Social Security and pension coverage and an increasing number of persons with retirement savings, have improved the economic status of the aged not only in comparison with the aged in earlier years, but also in comparison with younger adults who derive most of their income from earnings. New retired workers are better off than the total aged population in several respects. The younger cohorts now in the labor force will spend more of their working lives in the more favorable conditions now present than was true of past new beneficiaries or the aged as a whole. It is, therefore, not unreasonable to expect that today's workers will enjoy more and larger pensions and increased income from savings to supplement their Social Security benefits when they retire.     

Changes in the incomes of age groups, 1984-89.

In terms of changes in the incomes of age groups, the 1984-89 period was very different from the periods that immediately preceded it. This summary focuses on changes for aged family units. During the 1984-89 period, the rate of growth of real median income of aged units was substantially lower than in other subperiods since 1967, the first year for which comparable detailed estimates are available. During the 1984-89 period, the ratio of aged to nonaged median incomes fell for 4 consecutive years, after generally rising since about 1970. The relative medians of almost all detailed aged age groups fell at least slightly from 1984 to 1989, after a period of substantial rises. The increases in income for aged units during 1984-89 were higher for high-income units than for low-income units, producing an increase in inequality. The percentage of aged persons who were poor fell slightly from 1984 to 1989, but that percentage remained above the rates for other adult age groups. A relatively high percentage of aged persons had income that was less than 50 percent above the poverty threshold. The increase in the real mean total income of aged units from 1984 to 1989 was the net result of substantial increases in earnings and pension income and a substantial decrease in property income. In contrast, the much larger increase in real mean total income for aged units from 1979 to 1984 was characterized by a large increase in property income, substantial increases in Social Security benefits and pension income, and a small decrease in earnings.     

Economic security, 1935-85

The economic well-being of both working and retired persons has improved significantly since the Social Security Act was passed in 1935. More people are employed now than at any time since then, despite declining employment among the aged and more years of school attendance among the young. The ratio of non-workers to workers--a broad measure of dependency--is lower now than at any time since the 1930's. Social security has grown and matured to become a strong foundation of retirement income, and other work-related employee benefits have grown in tandem with social security. Employer contributions for social insurance and related employee benefits have grown from being about a 1-percent supplement to aggregate wages and salaries in 1929 to nearly 20 percent today. Social security and Medicare account for just over a fourth of employer contributions, while other public and private retirement systems represent just over another fourth. The balance of benefits for active workers includes group health and life insurance, unemployment insurance, workers' compensation, temporary disability insurance, and related benefits. Pay for holidays, vacations, and sick leave is estimated to have increased from less than 1 percent of aggregate pay in 1929 to about 10 percent today. The improved economic status of the aged has been documented by a series of surveys beginning in 1941-42 and carried out from time to time until 1972 and biennially since 1976. The earlier surveys were supplemented with estimates from record data and tables from the Bureau of the Census. The income of the aged as a whole has grown by about 75 percent over the past 2 decades after taking inflation into account. The income of the aged as a whole grew faster than that of the nonaged in the 1970's and early 1980's when real social security benefits increased faster than inflation and wages lagged behind it. New beneficiaries in 1982 were in better health and were more likely to retire because they wanted to than was true of their counterparts in the early 1940's. Not only have benefits continued to be the main component of income of the aged as total incomes have grown, but also benefits have become much larger in relation to average earnings than used to be the case. Retired workers are much more likely now than in the early 1940's to have other pensions or income from assets to supplement benefits.(ABSTRACT TRUNCATED AT 400 WORDS)     

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.     

Social Security Privatization and Market Risk

Under Social Security privatization, workers would be allowed to divert some of the money that currently goes to Social Security into private accounts. This would expose them to market risk, that is, the risk of a substantial drop in equity prices or of a prolonged bear market. This could result in generations of workers with less money than they thought they would have for retirement. Depending on a worker's birth date, if the privatization approach proposed by President Bush's Commission to Strengthen Social Security had been enacted at the start of the Social Security program, the retirement benefits generated from putting 10% of earnings in a private account for 35 years would have ranged from 100% to less than 20% relative to pre‐retirement earnings. The extraordinarily high retirement income generated from the booming 1990s stock market was the equivalent of winning the generational lottery—unlikely to be repeated regularly. Even under these beneficial circumstances, a privatized system could have cost the government more than $1 trillion in today's dollars over the past 3 decades if the government decided to help out those who accumulated too little for retirement. The primary alternative to a government bailout of the Social Security system, older workers working longer, would likely not generate the desired results. Workers wanting to work longer would create labor market pressures typically at times when unemployment is already high.     

Social Security's special minimum benefit

Social Security's special minimum primary insurance amount (PIA) provision was enacted in 1972 to increase the adequacy of benefits for regular long-term, low-earning covered workers and their dependents or survivors. At the time, Social Security also had a regular minimum benefit provision for persons with low lifetime average earnings and their families. Concerns were rising that the low lifetime average earnings of many regular minimum beneficiaries resulted from sporadic attachment to the covered workforce rather than from low wages. The special minimum benefit was seen as a way to reward regular, low-earning workers without providing the windfalls that would have resulted from raising the regular minimum benefit to a much higher level. The regular minimum benefit was subsequently eliminated for workers reaching age 62, becoming disabled, or dying after 1981. Under current law, the special minimum benefit will phase out over time, although it is not clear from the legislative history that this was Congress's explicit intent. The phaseout results from two factors: (1) special minimum benefits are paid only if they are higher than benefits payable under the regular PIA formula, and (2) the value of the regular PIA formula, which is indexed to wages before benefit eligibility, has increased faster than that of the special minimum PIA, which is indexed to inflation. Under the Social Security Trustees' 2000 intermediate assumptions, the special minimum benefit will cease to be payable to retired workers attaining eligibility in 2013 and later. Their benefits will always be larger under the regular benefit formula. As policymakers consider Social Security solvency initiatives--particularly proposals that would reduce benefits or introduce investment risk--interest may increase in restoring some type of special minimum benefit as a targeted protection for long-term low earners. Two of the three reform proposals offered by the President's Commission to Strengthen Social Security would modify and strengthen the current-law special minimum benefit. Interest in the special minimum benefit may also increase because of labor force participation and marital trends that suggest that enhancing workers' benefits may be a more effective means of reducing older women's poverty rates than enhancing spousal or widow's benefits. By understanding the Social Security program's experience with the special minimum benefit, policymakers will be able to better anticipate the effectiveness of other initiatives to enhance benefits for long-term low earners. This article presents the most recent and comprehensive information available about the special minimum benefit in order to help policymakers make informed decisions about the provision's future. Highlights of the current special minimum benefit include the following: Very few persons receive the special minimum benefit. As of December 2001, about 134,000 workers and their dependents and survivors were entitled to a benefit based on the special minimum. Of those, only about 79,000 received a higher total benefit because of the special minimum; the other 55,000 were dually entitled. (In effect, when persons are eligible for more than one type of benefit--that is, they are dually eligible--the highest benefit payable determines total benefits. If the special minimum benefit is not the highest benefit payable, it does not increase total benefits paid.) As of February 2000, retired workers who were special minimum beneficiaries with unreduced benefits and were not dually entitled were receiving, on average, a monthly benefit of $510 per month. That amount is approximately $2,000 less than the annual poverty threshold for an aged individual. Special minimum benefits provide small increases in total benefits. For special minimum beneficiaries who were not dually entitled as of December 2001, the average special minimum monthly PIA was just $39 higher than the regular PIA. Most special minimum beneficiaries are female retired workers. About 90 percent of special minimum beneficiaries are retired workers, and 77 percent of those retired workers are women. The special minimum benefit has never provided poverty-level benefits. Maximum payable special minimum benefits (unreduced for early retirement) equal 85 percent of the poverty level for aged persons, down from 96 percent at the provision's inception. Major public policy considerations raised by this analysis include the following: Social Security benefits alone do not protect all long-term low earners from poverty. Low earners with 30 years of earnings equal to the annual full-time minimum wage who retired in selected years from 1982 to 2000 received benefits that were 3.9 percent to 20.1 percent below the poverty threshold, depending on the year they retired. For 40-year earners, the range was 3.9 percent to 15.3 percent below poverty. Furthermore, in 1993, 29.2 percent of retired-worker beneficiaries who were poor had 30 or more years of coverage. The size of the universe of persistently low earners with significant attachment to the covered workforce is unknown. Available research that examines two 28-month periods suggests that only 4 percent to 6 percent of full-time, full-period earners had below-minimum wages for more than 12 consecutive months. Targeting enhanced benefits only toward long-term, regular workers who are low earners is difficult under the current Social Security program. All else being equal, if total wage-indexed lifetime covered earnings are the same for both a full-career low earner and for a high earner who has worked only occasionally, then their Social Security benefits will be identical. Social Security has no information on number of hours worked, hourly wages, or other information that could distinguish between two such persons.     

Lifetime distributional effects of Social Security retirement benefits

This article presents three measures of the distribution of actual and projected net benefits (benefits minus payroll taxes) from Social Security's Old-Age and Survivors Insurance (OASI) for people born between 1931 and 1960. The results are based on simulations with the Social Security Administration's Model of Income in the Near Term (MINT), which projects retirement income through 2020. The base sample for MINT is the U.S. Census Bureau's Survey of Income and Program Participation panels for 1990 to 1993, matched with Social Security administrative records. The study population is grouped into 5-year birth cohorts and then ranked by economic status in three ways. First, the population is divided into five groups on the basis of individual lifetime covered earnings, and their lifetime present values of OASI benefits received and payroll taxes paid are calculated. By this measure, OASI provides much higher benefits to the lowest quintile of earners than to other groups, but it becomes less redistributive toward lower earners in more recent birth cohorts. Second, people are ranked by shared lifetime covered earnings, and the values of shared benefits received and payroll taxes paid are computed. Individuals are assumed to split covered earnings, benefits, and payroll taxes with their spouses in the years they are married. By the shared covered earnings measure, OASI is still much more favorable to persons in the lower income quintiles, although to a lesser degree than when people are ranked by individual covered earnings. OASI becomes more progressive among recent cohorts, even as net lifetime benefits decline for the entire population. Finally, individuals are ranked on the basis of their shared permanent income from age 62, when they become eligible for early retirement benefits, until death. Their annual Social Security benefits are compared with the benefits they would have received if they had saved their payroll taxes in individual accounts and used the proceeds to buy either of two annuities that provide level payments from age 62 until death: a unisex annuity that is based on the average life expectancy of the birth cohort or an age-adjusted annuity that is based on the worker's own life expectancy. On the permanent income measure, OASI is generally more favorable to people in higher income quintiles. Moreover, it is particularly unfavorable to those in the lowest quintile. Because people in the lowest quintile have a shorter life expectancy, they receive OASI benefits for a shorter period. This group would receive greater benefits in retirement if they invested their payroll taxes in the age-adjusted annuity. OASI is more favorable to them than the unisex annuity, however, OASI is becoming more progressive in that the net benefits it provides drop more rapidly among higher income quintiles than lower ones. This article also examines how OASI affects individuals by educational attainment, race, and sex. On both the lifetime covered earnings and the permanent income measures, OASI is more favorable to workers with less education and more favorable to women. The results by race and ethnicity are mixed. When people are ranked by the present value of their shared lifetime covered earnings, OASI appears more favorable to non-Hispanic blacks and Hispanics than to non-Hispanic whites. When people are ranked by shared permanent income in retirement, however, OASI produces negative returns for both non-Hispanic blacks and non-Hispanic whites in the most recent birth cohorts, with non-Hispanic blacks faring relatively worse. The changes across cohorts occur partly because of changes in tax rates and benefits, but more importantly because of changing demographics and earnings patterns of the workforce. Of particular importance is the increasing share of beneficiaries who receive worker benefits instead of auxiliary benefits as wives or widows. OASI benefits are based on the lifetime covered earnings of current or former married couples, as well as on earned retirement benefits of individuals. The reduced importance of auxiliary benefits (due to the higher lifetime covered earnings of women) and the increased proportion of divorced retirees make OASI more progressive--even as net benefits decline--for current and future cohorts than for cohorts who retired in the 1990s. Analysis of these findings suggests that simulations of policy changes in Social Security must take into account the decreasing importance of auxiliary benefits across birth cohorts and the complex changes in individuals' marital histories.     

Divorced women at retirement: projections of economic well-being in the near future.

The Modeling Income in the Near Term (MINT) data system projects retirement income for persons retiring in the 1990s through 2020. Using those data, we examine the economic well-being of divorced women at retirement. The MINT data system improves upon previous estimates of Social Security benefits by: Measuring and projecting years of marriage to determine if the 10-year requirement has been met, Projecting lifetime earnings until retirement and eligibility for Social Security retirement benefits, and Estimating lifetime earnings of former spouses. MINT also makes independent projections of each retiree's income from pensions, assets, and earnings (for working beneficiaries). As a result of changes in marital patterns, MINT projects that the proportion of women who are divorced will increase. At the same time, the proportion of those women who are eligible for auxiliary benefits is projected to decrease, for two main reasons. First, changes in women's earnings and work patterns result in more women receiving retired-worker benefits based on their own earnings. Second, an increased number of divorced women will not meet the 10-year marriage requirement for auxiliary benefits. Despite the projected decrease over time in eligibility rates for auxiliary benefits, the level of Social Security benefits is projected to change little between the older and younger birth cohorts of divorced women entering retirement. According to the MINT data, the most vulnerable of divorced women will be those who have not met the 10-year marriage requirement. Poverty rates will be higher for them than for all other divorced women. This group of divorced women is projected to grow as more and more women divorce from shorter marriages. With more women divorcing and with fewer divorced women meeting the 10-year marriage requirement, the proportion of economically vulnerable aged women will increase when the baby boom retires. Further research is warranted on this long neglected subject. Analyses of divorced women's economic well-being by major socioeconomic characteristics such as race and ethnicity and education are of particular interest. Such analyses can be supported by the MINT data system.     

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.     

Workers' compensation: 1984-88 benchmark revisions.

About 93.1 million workers were covered under workers' compensation laws in 1988--an increase of 11 percent from the 1984 total. Benefit amounts totaled $30.7 billion--an increase of about 56 percent since 1984. Of the total payments made under the workers' compensation program, $17.6 billion went to disabled workers, $1.6 billion to their survivors, and $11.5 billion for medical care. The Social Security Administration (SSA) is interested in measuring economic security in the United States, and workers' compensation plays a large role in that measurement. This article represents one part of our overall effort to determine the roles the various income-maintenance programs play in helping citizens of the United States achieve economic security. The figures presented here provide readers with an opportunity to review workers' compensation program operations during much of the 1980's. Workers' compensation is also important to SSA because that program is directly related to the Social Security Disability Insurance program. Since 1965, Social Security disability benefits have been subject to reduction if the beneficiary also receives workers' compensation and the combined benefits exceed 80 percent of previous earnings. In addition, SSA has been directly involved in providing income maintenance for disability from work-related diseases since 1969 when the Federal Black Lung benefits program was established.     

The impact of changes in couples' earnings on married women's Social Security benefits

Women's labor force participation and earnings dramatically increased after World War II. Those changes have important implications for women's Social Security benefits. This article uses the Social Security Administration's Modeling Income in the Near Term (version 6) to examine Social Security benefits for current and future beneficiary wives. The projections show that fewer wives in more recent birth cohorts will be eligible for auxiliary benefits as spouses because their earnings are too high. If their husbands die, however, most wives will still be eligible for survivor benefits because, despite the increase in their earnings over time, they still typically have lower earnings than their husbands. Even so, the share of wives who would be ineligible for widow benefits is projected to double between cohorts.     

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.     

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.     

Projections of economic well-being for Social Security beneficiaries in 2022 and 2062

Policymakers considering potential changes to the Social Security program need to be able to assess how such changes would affect the economic well-being of future retirees. The first step to understanding these effects is to determine the well-being of future retirees under the current Social Security system. To this end, this article projects the retiree populations aged 62 or older in 2022 and 2062 using the Social Security Administration's MINT (Modeling Income in the Near Term) model and assesses their well-being. Because no one measure can fully capture whether future retirees will have adequate resources to meet their needs, we employ several indicators to assess retirement prospects. In addition, because current-law Social Security promises cannot be financed from current-law taxes, we project an alternative 2062 baseline that adjusts Social Security benefits downward to reflect the amounts that current-law taxes can support. Our results illustrate the importance of using several measures when assessing the well-being of future Social Security beneficiaries. When using absolute measures, retirement well-being will improve for Social Security beneficiaries in 2062 compared with those in 2022. Median per capita income of Social Security beneficiaries is projected to increase by a third (in real terms) between 2022 and 2062, with a corresponding decline in projected poverty rates. In addition, median financial wealth will increase between 2022 and 2062. Relative measures of well-being, however, suggest a decline in well-being between Social Security beneficiaries in 2022 and those in 2062. The share of beneficiaries who have low income relative to their peers, measured as the share whose income-to-needs ratio is less than half of the median ratio, will increase over time. In addition, income replacement rates are projected to fall between 2022 and 2062, indicating a decline in how well-being during retirement compares with that during the working years. And although median financial wealth will increase between 2022 and 2062, it will actually fall relative to economy-wide average wages. Projected improvements over time would lessen, and declines would be exacerbated, if instead of assuming the payment of currently scheduled Social Security benefits we assumed that benefits would be reduced according to what is payable under current-law taxes. Regardless of which measure of well-being is used, certain groups fare worse than others, including beneficiaries who never married, nonwhites, beneficiaries without a high school degree, and those with fewer years of labor force experience and low lifetime earnings. These vulnerable groups are likely to be more dependent on Social Security benefits for their retirement income. As a result, they fare particularly poorly under the assumption that Social Security benefits are reduced to reflect what is payable under current-law taxes.     

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 upper part of the earnings distribution in the United States: how has it changed?

This article uses Social Security Administration data to examine changes in the upper end of the earnings distribution over the period 1982-1995. These data provide a unique opportunity for analyzing those changes because they come directly from W-2 forms and are not topcoded--obvious advantages over data typically provided by surveys such as the Current Population Survey. Although they do not provide some of the information necessary to explain what one observes occurring at the top of the earnings distribution (no educational attainment information, for example), these data are sufficient for describing in great detail what happened to high earners through the 1980s and into the 1990s. This analysis clearly demonstrates the extent to which earnings are concentrated at the top of the distribution. The study's findings reinforce those of Feenberg and Poterba (2000) by showing that the very highest earners--those in the upper 1 percent--experienced the largest relative increase in earnings share from 1982 to 1995. Even within that upper 1 percent, those with earnings in the upper 0.1 percent were the ones driving the increase in the group's earnings share. Perhaps not surprisingly, the overwhelming majority of the highest earners are white men who are in the middle to latter part of their working lives. Women have made strides toward entering this elite group of earners but still form a very small percentage of the group relative to their size in the working population. Very few blacks are in the extreme upper tail of the earnings distribution, and they have made very little progress (in absolute terms) over the period 1982-1995 in increasing their numbers. In contrast, persons of racial/ethnic backgrounds other than white or black have increased their presence among top earners. They went from being relatively underrepresented in the top 0.1 percent in 1982 to being overrepresented by 1995; that is, they accounted for a larger share of the top 0.1 percent of earners than they did of the entire working population. Finally, the study also finds that the percentage of overall wage and salary earnings from Social Security-covered employment that is not taxed for the purposes of Old-Age, Survivors, and Disability Insurance because of the taxable maximum generally increased over the 1982-1995 period. Wage and salary earnings above the taxable maximum rose at a faster rate than is the average wage.     

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.