Procrastinators Are Not Big Savers

The Greek poet Hesiod, circa 700 B.C.

Saving for retirement is a modern-day imperative, but even the ancient Greek poet Hesiod – quoted in a new study – advised us not to tarry:

Do not put off till tomorrow and the day after; for a sluggish worker does not fill his barn.

So what about procrastinators, who place more importance on today’s enjoyment than on preparing for the future?  The new study asked whether people with this personality trait make different decisions about retirement saving than non-procrastinators and found that they do.

Up to one in five people were procrastinators in the study’s data base of more than 155,000 workers at numerous employers.  The researchers identified procrastinators in the sample as the people who waited until the final day of open enrollment to choose their health plan from among their employer options.  (To separate them from employees who intentionally delayed so they could collect enough information, the researchers looked at how often people used various online employee benefit tools – these strategic delayers were very active; procrastinators were not.) …Learn More

Immigrant Flows Impact Social Security

Manuel Carvallo immigrated from Mexico at age 40 and became a U.S. citizen at 51.  The Georgia pension consultant just reached another milestone, accumulating the 10 years of U.S. work experience required to receive a small Social Security pension when he retires.

Chart: Changing Tide of Mexican Immigrants

Millions of immigrants from around the world who work here illegally could get the same opportunity as Carvallo under President Obama’s executive actions on immigration, which propose to give many of them temporary legal work papers and Social Security numbers.  Great uncertainty remains about where U.S. immigration policy is heading as Congress actively seeks to reverse the president’s administrative actions

What is clear is that when undocumented immigrants – farm workers, hotel workers, and household and restaurant staff lacking green cards or other legal status – do pay into Social Security, they often have little prospect of ever receiving benefits.  In 2010, some 3 million such workers with fake or expired Social Security numbers added a $12 billion bonus to the Social Security Trust Fund, the U.S. Social Security Administration estimated. …Learn More

The Impact of Taxing Health Premiums

Excluding the health insurance premiums paid by employers and employees from workers’ taxable earnings is the federal government’s largest single tax expenditure, amounting to some $250 billion a year in lost revenue.

Eliminating the exclusions – as some in Washington have proposed – would sharply increase how much is taken out of workers’ paychecks for payroll taxes and for income taxes. But any such proposal would also put more money in their pockets when they retire by increasing the earnings base on which their Social Security benefits are calculated.

Urban Institute researchers Karen Smith and Eric Toder recently estimated the policy’s impact on workers’ taxes and benefits and found that it varied widely for different income groups and among people born in five different decades, the 1950s through the 1990s.

Their analysis took into account the myriad idiosyncrasies of the U.S. tax code, including a regressive payroll tax, a progressive income tax, Earned Income Tax Credits paid to the lowest-wage workers, and the cap on payroll taxes for the highest earners.  To evaluate the proposals’ impact, the researchers added the premium amounts paid by both the employer and employee to workers’ taxable incomes – just as the deficit reduction proposals would do.

The resulting tax bite would be largest for the middle class.  That’s because middle-income workers are more likely to have employer-provided health insurance than lower-income workers, and their insurance premiums are a larger share of their income than they are for higher-income groups.  Under the proposal, middle-income workers’ federal income and payroll taxes would rise by an amount equal to 3.5 percent of their lifetime earnings. …Learn More

Woman in nursing home

Fewer Need Long-term Care Insurance

Years of confinement to a nursing home is everyone’s worst fear for old age.

With a semi-private room now costing about $81,000 annually, the prospect of a lengthy stay is also a popular reason for buying a long-term care insurance policy to cover it.

Undercutting this rationale is a new study led by senior economist Anthony Webb of the Center for Retirement Research, which sponsors this blog. He finds that U.S. nursing home stays are relatively short: 11 months for the typical single man and 17 months for a single woman.  There’s some unpleasant news in the study, too, because the risk that an older person may one day need nursing home care is 44 percent for men and 58 percent for women.

The significance is that nursing home stays are higher-probability, lower-cost events than previously thought, which reduces the appeal of purchasing long-term care insurance.  This finding helps to explain why so few older Americans – 13 percent – buy the coverage to protect their financial assets from potentially being drained by nursing home bills. …Learn More

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Income and Disparate Death Rates

The differences in Americans’ longevity, depending on one’s income level, are striking.

The annual death rates for 50- to 74-year-old men and women with the lowest earnings are more than double what they are for high earners.

This gap in life spans, which is well-documented in the research literature, has been growing with each new generation.  A recent study digs deeper to uncover specific ailments, such as heart disease, that may be driving the growing disparity.

Brookings Institution researchers Barry Bosworth, Gary Burtless, and Kan Zhang used data from a nationally representative sample of almost 32,000 older Americans that included the causes of individual deaths occurring between 1992 and 2010.  The survey contains detailed information about the cause and timing of the deaths, as well as interviews with family of the survey participants after they die.

The researchers compared the mortality rates linked to specific diseases for high- and low income people, defined as those whose earnings in their prime working years fell either above or below the median, or middle, income. They found that the risk of dying from the nation’s leading causes of death – cancer and heart conditions – has declined significantly for high-income Americans, both men and women. No such improvements were evident, however, for low-income men and women. …Learn More

Photo of teacher in front of classroom

Pension Cuts Could Hurt Worker Quality

Cuts in public pensions taking place around the country could reduce the ability of state and local governments to recruit and retain top-quality workers, according to new findings by the Center for Retirement Research, which sponsors this blog.

Economists have long argued that pensions and worker quality are related.  Pensions, like paychecks, are a form of compensation, one that particularly appeals to workers with the foresight to value financial security in a retirement still decades away.  And these are often better, more productive workers.

To examine the effect of pension generosity on worker quality, the Center’s researchers first had to find good measures of each.  For worker quality, they used U.S. Census Bureau survey data on workers who have moved between the public and private sectors.  The data show that private-sector wages paid to those leaving government were consistently higher than the private-sector wages of people leaving the private sector to work in government – about 7 percent higher, on average, between 1980 and 2012.  This wage difference represents the “quality gap” among workers. …Learn More

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Taxes and Social Security Progressivity

Social Security’s old-age pensions were designed to replace more of the earnings of retired low-wage workers than of higher-wage workers.

But how is this progressivity affected by the federal income taxes paid by all workers and retirees?  A study by economists at the Center for Retirement Research, which sponsors this blog, analyzed this complex issue and found that income taxes have not had any real impact on the overall progressivity of the Social Security program.

To reach this conclusion, the researchers used the actual experiences of older American households contained in survey data linked to their lifetime earnings.  There were several different tax effects to consider.

First, the payroll tax that funds Social Security is shared by workers and employers, with differing effects.  Although the workers’ payroll tax is deducted from their paychecks, workers must still pay income taxes on that amount.

The payroll tax paid by employers, on the other hand, is transferred directly to the federal government, and no income tax is paid.  Although the amount transferred is effectively part of workers’ compensation, they do not have to pay income tax on this portion of their compensation.  This reduces the taxable income of all workers, but it is more valuable to higher income workers who pay higher tax rates: a one dollar employer contribution costs a taxpayer in the 35-percent bracket just 65 cents, compared with 90 cents for a lower-paid worker in the 10-percent bracket.

Many low-wage workers pay no income taxes or even receive an Earned Income Tax Credit.  But a negative tax rate – in the form of a credit for the lowest-wage workers – means they can’t benefit from the tax exemption implicit in employers’ contributions to Social Security on their behalf. …Learn More

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