Nahid Tabatabai

Redistribution under the Social Security benefit formula at the individual and household levels, 1992 and 2004

Studies using data from the early 1990s suggested that while the progressive Social Security benefit formula succeeded in redistributing benefits from individuals with high earnings to individuals with low earnings, it was much less successful in redistributing benefits from households with high earnings to households with low earnings. Wives often earned much less than their husbands. As a result, much of the redistribution at the individual level was effectively from high earning husbands to their own lower earning wives. In addition, spouse and survivor benefits accrue disproportionately to women from high income households. Both factors mitigate redistribution at the household level. It has been argued that with the increase in the labor force participation and earnings of women, Social Security now should do a better job of redistributing benefits at the household level. To be sure, when we compare outcomes for a cohort with a household member age 51 to 56 in 1992 with those from a cohort born twelve years later, redistribution at the household level has increased over time. Nevertheless, as of 2004 there still is substantially less redistribution of benefits from high to low earning households than from high to low earning individuals.

The Social Security Windfall Elimination and Government Pension Offset Provisions for Public Employees in the Health and Retirement Study

Introduction The Windfall Elimination Provision (WEP), enacted in 1983, reduces Social Security benefit payments to beneficiaries whose work histories include both Social Security-covered and noncovered employment, with the noncovered employment also providing pension coverage. To be affected by the WEP, an individual must have worked in covered employment long enough to qualify for Social Security benefits; must have also worked in noncovered employment, meaning that Federal Insurance Contributions Act (FICA) Social Security payroll taxes were not paid; and, importantly, must have earned a pension in that noncovered job. The WEP reduces the share of preretirement earnings that Social Security benefits replace. For roughly the first

The Great Recession, Decline, and Rebound in Household Wealth for the Near-Retirement Population

10,000 in average annual earnings, the WEP reduces the replacement rate from 90 percent to as low as 40 percent, depending on years of coverage under Social Security; however, the reduction cannot exceed 50 percent of the amount of the pension received from noncovered employment. A related provision, the Government Pension Offset (GPO), reduces Social Security benefits paid to spouses or survivors when the spouse or survivor earned a pension from a government job that was not covered by Social Security. The GPO reduction is equal to two-thirds of the amount of the pension payment from noncovered government work (SSA 2012). Although the WEP and the GPO affect only about 3.5 percent of households, the provisions may have a substantial effect on benefits in those households. Our analysis suggests that the present value of lifetime Social Security benefits for affected households is reduced by roughly one-fifth, which amounts to 5-6 percent of their total wealth. For that reason, and because the provisions leave some inequities in place, considerable political pressure has been brought to reduce their impact, with some members of Congress pressing for modifying or eliminating current law. To inform that legislative interest, the Congressional Research Service prepares annual reports on the two provisions (Scott 2013a, 2013b). Analyzing the effects of the WEP and the GPO requires information on work history in covered employment, work history in noncovered government and nongovernment employment, and pensions from noncovered employment. It also requires household-level data to determine spouse and survivor benefits. Information on household wealth allows us to compare the Social Security and pension benefits of affected households with those of households that are not affected by the provisions, and it reveals where affected households stand in the wealth distribution. (1) The Health and Retirement Study (HRS) contains all the required information. We estimate the relative importance of two WEP features: (1) the lower replacement rate (from 90 percent to as low as 40 percent up to the first bend point in the benefit calculation formula, described below) and (2) the limit on that reduction to an amount equal to 50 percent of the pension received from noncovered employment. We believe that our analysis provides useful information to policymakers considering changes in the WEPs current design. Similarly, we believe the findings regarding the wealth of households affected by the GPO are also of use to policymakers. Because both provisions affect only households that include a worker who has a pension from noncovered employment, those households typically have higher average combined pension and Social Security benefit income and higher total wealth than unaffected households. The remainder of this article is arranged in five sections. The first discusses the WEP and GPO provisions in detail. The second discusses the variables needed to estimate WEP and GPO adjustments with HRS data and the reasons we used a mix of respondent and administrative data. In the third section, we estimate WEP and GPO incidence and analyze the effects of the provisions on Social Security benefits. …

Retirement and the Great Recession

This article uses data from the Health and Retirement Study (HRS) to examine the effects of the Great Recession on wealth held by the near-retirement-age population over 2006–2012. Despite a severe decline in asset values during this period, the wealth of early Baby Boomers (ages 51 to 56 in 2004), fell by only 3.6%. Much of the decline was cushioned by the wealth represented by Social Security and defined benefit (DB) pensions. The rebound in asset values observed between 2010 and 2012 mitigated, but did not erase, the losses experienced earlier. Those in the highest wealth deciles, with a larger share of financial assets, were hurt most severely. Unlike those in lower wealth deciles, they have yet to regain the wealth lost during the recession. Although the losses in assets imposed by the Great Recession were relatively modest, the failure of assets to grow above their initial levels has imposed a cost on recent retirees.

Declining Wealth and Work Among Male Veterans in the Health and Retirement Study

This article uses data from the Health and Retirement Study to examine retirement and related labor market outcomes for the Early Boomer cohort, those in their mid-fifties at the onset of the Great Recession. Outcomes are then compared with older cohorts at the same age. The Great Recession increased their probability of being laid off and the length of time needed to find other full-time employment. Differences in layoffs between those affected by the recession and members of older cohorts in turn accounted for almost the entire difference between cohorts in employment change with age. However, The Great Recession does not appear to have depressed wages in subsequent jobs for those who experienced a layoff. In 2010, 17% of the Early Boomers were Not Working and Not Retired or Partially Retired, and 6% were unemployed, leaving at least 11 percent who were not unemployed but not retired or only partially retired. At the recession’s peak, half of those who experienced a layoff ended up in the Not Retired or Partially Retired, Not Working category. But only a quarter of those who declared themselves to be Not Retired or Partially Retired, and were Not Working, had experienced a layoff. Most of the jump in Not Retired or Partially Retired, Not Working appears to reflect a change in expectations about the potential or need for future work, a change that is not the result of an actual job loss.

A Structural Analysis of the Effects of the Great Recession on Retirement and Working Longer by Members of Two-Earner Households

The composition, wealth and employment of male veterans and nonveterans are analyzed for four cohorts from the Health and Retirement Study, ages 51 to 56 in 1992, 1998, 2004 and 2010. Half of the men in the two oldest cohorts served in the military. Only 16 percent of the men in the youngest cohort, the only cohort subject to the All-Volunteer Military, served. One fifth to one third of the members of each cohort who served saw combat, mainly in Viet Nam and in the First Gulf War. Among those 51 to 56 in 1992, veterans were better educated, healthier, wealthier, and more likely to be working than nonveterans. By the 2010 cohort, 51 to 56 year old veterans had lost their educational advantage over nonveterans, were less healthy, less wealthy and less likely to be working. After standardizing in multiple regressions for the influence of major observable characteristics, for the original 1992 HRS cohort the wealth of veterans is no longer higher than the wealth of nonveterans. In contrast, the wealth of veterans from the youngest cohort, those 51 to 56 in 2010, remains about 10 to 13 percent below the wealth of nonveterans from that cohort. There also is a decline from older to younger cohorts of veterans compared to nonveterans in the probability of being not retired, of working more than 35 hours per week, and in the likelihood of holding a job for more than 10 years. Comparisons are made within the group of veterans by years of service, officer rank and other covariates.

Declining Wealth and Work among Male Veterans in the Health and Retirement Study

This paper uses data from the Health and Retirement Study to estimate a structural model of household retirement and saving. It applies that model to analyze the effects of the Great Recession on the work and retirement of older couples who were both employed full-time at the beginning of the recession. We analyze the effects of job loss, changes in wealth and changes in expectations. The largest overall effects of the Great Recession are observed for 2009 and 2010. In 2009, an additional 2.5 percent of all 55 to 59 year old husbands were not working full-time as result of the Great Recession, amounting to a reduction of 3.2 percent in full-time work. In 2010, 2.8 percent of 55 to 59 year old husbands were not working full-time as a result of the Great Recession, amounting to a 3.8 percent reduction in full-time work. For wives the reductions in full-time work due to the Great Recession were 1.7 percent and 2.2 percent of those who initially held a job, or reductions of full-time work of 2.3 and 3.0 percent respectively. For those 60 to 64, the reductions were 1.2 percent of men and 0.9 percent of women. Having been laid off in the last three years reduces full-time work by 30 percent. There also are lingering effects of layoff on the probability of working longer. Having been laid off three or more years in the past reduces full-time employment in the current year by about 12 percent. This reflects the reduced work incentives for full-time work arising from lower earnings due to the loss of job tenure with a layoff as well as the additional earnings penalty from a layoff. The effect on own work of a spouse having been laid off is much smaller. The reason is that, as found in the estimation of our structural model, having one spouse not working increases the value of leisure for the other. In contrast, when one member of the household loses their job, the value of consumption increases relative to leisure. For recent layoffs, these effects are roughly offsetting. All told, the effects of the Great Recession on retirement seem relatively modest. These findings are consistent with our earlier descriptive analyses.

What the Stock Market Decline Means for the Financial Security and Retirement Choices of the Near-Retirement Population

The composition, wealth, and employment of male veterans and nonveterans are analyzed for four cohorts from the Health and Retirement Study (HRS), those aged 51–56 in 1992, 1998, 2004, and 2010. Half of the men in the two oldest cohorts served in the military. Only 16% of the men in the youngest cohort, the only cohort subject to the all-volunteer military, served. One-fifth to one-third of the members of each cohort who served saw combat, mainly in Vietnam and the First Gulf War. Among those aged 51–56 in 1992, veterans were better educated, healthier, wealthier, and more likely to be working than nonveterans. By the 2010 cohort, 51- to 56-year-old veterans lost their educational advantage over nonveterans and were less healthy, less wealthy, and less likely to be working. After standardizing in multiple regressions for the influence of major observable characteristics, for the original 1992 HRS cohort, the wealth of veterans is no longer higher than the wealth of nonveterans. In contrast, the wealth of veterans from the youngest cohort, those 51–56 in 2010, remains about 10%–13% lower than the wealth of nonveterans from that cohort. There also is a decline from older to younger cohorts of veterans compared to nonveterans in the probability of not being retired, working more than 35 hours per week, and holding a job for more than 10 years.