Wednesday, October 29, 2014
Summary from the NCPA Policy Digest:
In 2013, the Social Security Disability Insurance (SSDI) program spent $143 billion while taking in just $111 billion. That shortfall, explains Jagadeesh Gokhale, economist for the Cato Institute, will only continue, and the SSDI Trust Fund is projected to run out of money entirely in 2016.
In addition to being insolvent, Gokhale explains that the SSDI program -- intended to provide a safety net for individuals unable to work -- is full of work disincentives. Many individuals enrolled in the program are actually able to work, at least to some degree, but they choose not to for fear of losing SSDI benefits.
Gokhale explains that some individuals move into the SSDI program after exhausting unemployment benefits. Indeed, various research indicates that there are a number of SSDI enrollees with work capabilities:
- A study comparing identical SSDI applicants -- some of whom were admitted to the program while the rest were rejected from the program -- found that many rejected applicants returned to the work force, indicating that over 25 percent of current SSDI beneficiaries actually have work capacity.
- Another study found the likelihood of a rejected SSDI applicant returning to work to be 35 percent.
If a substantial number of SSDI enrollees actually have work capabilities, shouldn't they be encouraged to exercise those capabilities and reenter the work force? Gokhale suggests a new benefit structure in order to induce enrollees to work rather than remain in SSDI, outside of the labor force, for fear of losing benefits. His plan would:
- Use a "benefit offset" that would reduce an enrollee's SSDI benefits if he enters the workforce but would provide an additional subsidy -- from a non-SSDI source -- based on his earnings.
- That subsidy would increase as his earnings increase, in order to encourage, rather than discourage, additional work.
In short, Gokhale describes his plan as one that would pay capable individuals to work rather than pay them to remain idle. While there are many SSDI enrollees who appear to have some level of work capability, they choose not to enter the labor force. By creating an incentive structure that only improves with work activity, Gokhale suggests more SSDI beneficiaries would return to work and seek employment.
Source: Jagadeesh Gokhale, "SSDI Reform: Promoting Gainful Employment while Preserving Economic Security," Cato Institute, October 22, 2014.Read more!
Monday, October 27, 2014
Will They Take the Money and Work? An Empirical Analysis of People's Willingness to Delay Claiming Social Security Benefits for a Lump Sum
by Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla, Tatjana Schimetschek - #20614 (AG LS PE)
This paper investigates whether exchanging the Social Security delayed retirement credit (currently paid as an increase in lifetime annuity benefits) for a lump sum would induce later claiming and additional work. We show that people would voluntarily claim about half a year later if the lump sum were paid for claiming any time after the Early Retirement Age, and about two-thirds of a year later if the lump sum were paid only for those claiming after their Full Retirement Age. Overall, people will work one-third to one-half of the additional months, compared to the status quo. Those who would currently claim at the youngest ages are likely to be most responsive to the offer of a lump sum benefit.Read more!
Friday, October 24, 2014
The Committee for a Responsible Federal Budget blogs that the tax of fixing Social Security solvency is getting tougher:
A hypothetical solution that would have closed the shortfall last year now only closes about 95 percent of the shortfall. Previously, a 2.9 percentage point tax increase (raising the combined payroll tax from 12.4% to 15.3%) would be enough to solve the shortfall. Now, that increase would need to be 3.1 percent. Similarly, a 17.5 percent reduction in all benefits would have addressed the shortfall last year, but it would need to be 18.4 percent this year. Furthermore, these options assume the changes are made immediately. Waiting 20 years requires changes to be 50 percent larger.
Check out their full blog here.Read more!
JESSE M. CUNHA, Naval Postgraduate School, Naval Postgraduate School
AMILCAR ARMANDO MENICHINI, Naval Postgraduate School
ADAM CROCKETT, University of New South Wales (UNSW) - Australian Defence Force Academy
We study the retention effects of the Australian military’s decision to remove a 20-year cliff-vesting requirement from their retirement system in 1991. We follow to the present individuals who self-selected into and out of the 20-year cliff-vesting plan, as well as those who were forced out of the plan. Eliminating the high years of service cliff-vesting provision leads to consistently higher attrition over time.
JIM BEEN, Leiden University - Department of Economics, Netspar
OLAF VAN VLIET, Leiden University - Leiden Law School, Leiden University - Department of Economics
In many European countries, the labor market participation of older workers is considerably lower than the labor market participation of prime-age workers. This study analyzes the variation in labor market withdrawal of older workers across 13 European countries over the period 1995-2008. We seek to contribute to existing macro-econometric studies by taking non-standard employment into account, by relating the empirical model more explicitly to optional value model theory on retirement decisions and by using a two-step IV-GMM estimator to deal with endogeneity issues. The analysis leads to the conclusion that part-time employment is negatively related to labor market withdrawal of older men. This relationship is less strong among women. Additionally, we find that part-time employment at older ages does not decrease the average actual hours worked. Furthermore, the results show a positive relationship between unemployment among older workers and early retirement similar to previous studies.Read more!
Wednesday, October 22, 2014
Monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 64 million Americans will increase 1.7 percent in 2015, the Social Security Administration announced today.
The 1.7 percent cost-of-living adjustment (COLA) will begin with benefits that more than 58 million Social Security beneficiaries receive in January 2015. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2014. The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.
Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $118,500 from $117,000. Of the estimated 168 million workers who will pay Social Security taxes in 2015, about 10 million will pay higher taxes because of the increase in the taxable maximum.
Information about Medicare changes for 2015 is available at www.Medicare.gov.
The Social Security Act provides for how the COLA is calculated. To read more, please visitwww.socialsecurity.gov/cola.Read more!