Posts Tagged "benefits"

Retirement blocks

Change to Social Security Impacts Decisions

In 1983, Congress introduced gradual increases in the eligibility age for full Social Security benefits from 65 to 67. The increases, starting in 2000 and continuing today, have meant larger reductions in the monthly checks for people who sign up for their benefits early.

This was a major cut to Social Security benefits, and it has had an impact. Retirement rates have declined among workers in their early 60s as they delayed retirement to make up for the larger penalties for claiming their benefits early, a new study found.

Estimating the effect of this change on retirements is challenging, so the researchers compared actual retirement rates after the reform with their estimates of what the rates would’ve been if Congress had not increased the full retirement age. They also calculated the retirement rates a few different ways. Their main estimate, based on three decades of U.S. Census data, was notable, because it showed a substantial decline in retirements at age 62, which is the first time workers can collect Social Security – and the age that exacts the biggest penalty in the form of a smaller monthly check.

At ages 63 to 65, the penalties for claiming early shrink – and the effect of the reform was less noticeable.

But the main estimate of retirement rates – the incidence rate – showed that the 1983 increase in retirement penalties had a significant impact on 62-year-olds. The incidence rate is the number of people in a given year who retire at 62 as a percentage of everyone in their birth cohort.

The results showed that 10 percent of the men – all workers born after 1937 – left the labor force when they were 62. That’s about 5 percentage points less than the rate would’ve been without the reform.

For women, the incidence rate at 62 was 8.4 percent, which is about 2 points less than if there had been no reform. Their response may have been more muted because women retire for different reasons than men. …Learn More

A stack of newspapers

Headlines Sway Perception of Social Security

Each new reminder in the annual Trustees’ Report that Social Security’s trust fund will be depleted sometime in the 2030s causes a new round of angst. Some 40 percent of the workers in one poll expect to receive nothing from Social Security when they retire.

The media often play into this sense of unease with sensational headlines like “Social Security and Medicare Funds Face Insolvency” (The New York Times) or “Trust Fund to Run Dry in 2035” (Fox Business).

While these headlines do their job of attracting readers’ attention, they don’t reflect the fact that the payroll taxes paid by employers and employees will keep rolling in. If policymakers take no steps to prevent the depletion, the tax revenues will still cover about three-fourths of future retirees’ benefits, according to the 2021 Trustee’s Report released in August.

But a new study by the Center for Retirement Research shows that headlines focused on the trust fund’s potential depletion can fuel misperceptions about Social Security’s viability. In reaction to news stories with alarming headlines, some workers in an online experiment said they would alter their retirement plans.

The experiment was conducted during the June lull in the pandemic when COVID was less of a distraction. Everyone in the experiment saw the same article – except for the headline and the first sentence, which essentially repeated the headline.

The workers who read articles with headlines emphasizing the trust fund’s depletion predicted they would start their benefits about a year earlier – presumably hoping to protect them somehow by locking them in early – than those who saw the staid headline – “Social Security Faces a Long-Term Financing Shortfall.”

Two headlines in the experiment sent a more blunt message: “Social Security Fund Headed Toward Insolvency in 2034, Trustees Find” and “The Social Security Trust Fund Will Deplete its Reserves in 2034.” The people who saw a final headline, which alluded to the trust fund’s depletion – “Revenues Projected to Cover Only 75 Percent of Scheduled Social Security Benefits after 2034” – said that they, too, were more likely to start their benefits earlier.

Headlines also influenced how much workers in the experiment expect to get from Social Security when they retire. …Learn More

Women of Color Go into Construction Trades

women for color in construction figureThe annual pay for a plumber in Omaha, Nebraska, with three years of experience is around $55,000 a year, while a certified nursing assistant there earns $30,000. Or compare an electrician in the Phoenix area making $62,000 to $39,000 for a dental assistant.

Recognizing that many of the occupations dominated by women don’t pay well, young women of color are increasingly moving into the construction trades. Black, Latina, and Asian women and women of mixed race account for 45 percent of the 308,000 women working in the trades. This exceeds their 38 percent share of the women’s labor force overall, according to an analysis of 2016-2018 data by Ariane Hegewisch of the Institute for Women’s Policy Research. The largest group is Latina women.

Women of color are gravitating to construction jobs – carpenter, electrician, laborer, plumber, mason, painter, and metal worker – because they offer paid apprenticeships, good pay, and benefits to workers who don’t have a college degree. The International Union of Painters and Allied Trades even has maternity leave.

woman cutting woodBeing a sheet metal worker has “given me the financial ability to take care of my family,” Monica Yamada, a member of Local 104 in San Francisco, said in a recent webinar hosted by the policy institute and Chicago Women in Trades.

But working in a man’s world is challenging. Women say they often feel marginalized or harassed, or they receive fewer opportunities for career-advancing training or assignments at the construction site. “Women must fight to advance and to learn new aspects of the trade that men automatically get to do,” said the institute’s study director, Chandra Childers. …Learn More

Thift Savings Plan logo

Modifying a Retirement Plan is Tricky

Employers beware: changing your retirement plan’s design can have unfortunate, unintended consequences for your employees.

That’s what happened to the Thrift Savings Plan (TSP) for federal workers, says a new study by a team of researchers for the NBER Retirement and Disability Research Center.

Like many private-sector savings plans, the $500 billion TSP – one of the nation’s largest retirement plans – has automatic enrollment. Federal employees can make their own decision about how much they want to save and, in a separate decision, how to invest their money. But if they don’t do anything, their employer will automatically do it for them.

In 2015, the TSP changed its automatic, or default, investment from a government securities fund to a lifecycle fund invested in a mix of stocks and bonds with the potential for higher returns than the government fund. However, the employer did not change the plan’s default savings rate for workers – 3 percent of their gross pay. (The government matches this contribution with a 3 percent contribution to employees’ accounts.)

After the TSP switched to the lifecycle fund, the new employees at one federal agency – the Office of Personnel Management – started saving less, the researchers said.

This probably occurred because, in passively accepting the TSP’s new lifecycle fund – a more appealing option than the old government securities fund – they were also passively accepting the relatively low default 3 percent contribution.

Employees seem to “make asset and contribution decisions jointly, rather than separately,” the researchers concluded. …Learn More

Logos of various gig companies

Self-employed Lose Some Social Security

Self-employed and gig workers who fail to report all of their earnings to the federal government will pay a price: a smaller monthly Social Security check when they retire.

Gauging the magnitude of this problem is tricky since the IRS doesn’t know how much is not being reported by a group of workers not easily identified in the available data. As a first step, new research derived estimates of the unpaid self-employment taxes that result from the under-reporting, using a combination of U.S. Census data on the workers’ incomes and past studies on the prevalence of the problem.

Specifically, the researchers found that more than 3 million self-employed people – construction contractors, small business owners, and other independent contractors – did not disclose some or all of their earnings to the IRS in 2014. This under-reporting translated to unpaid self-employment taxes of $3.9 billion to Social Security and another $900 million to Medicare.

An additional 2.3 million Americans sell goods and services on platforms like Airbnb, Lyft, and Etsy every month. A large share of these gig workers are not reporting all of their income either. Their under-reporting resulted in an estimated non-payment of $2 billion to Social Security and $500 million to Medicare in 2014.

In fact, the estimates are conservative, and the true level of the missing payroll taxes is probably larger, said the study’s authors, a tax expert at American University and a private policy consultant.

Independent contractors are most likely to be baby boomers over 55, while Generation Xers are more common on the online platforms. Self-employed people fail to disclose earnings for a couple of reasons: they are confused about the tax law or they want to increase their disposable income. But responsibility also falls on the platform companies that process payments for their workers and sellers, the researchers said, because the companies are not required to file 1099 earnings forms with the IRS for a majority of their workers.

Whatever the reasons for the underreporting, self-employed workers will one day get less from Social Security. This study raises an obvious question for future research: how much less? …Learn More

Couple on a couch

Social Security Benefits Stump Workers

A majority of workers do not know a crucial piece of information about their retirement: how much married couples can expect to receive from Social Security.

The program will one day be the most important source of income for millions of Americans. But they showed their lack of understanding of how benefits work in a recent survey by researchers at RAND.

A previous blog covering the same survey reported on workers’ poor knowledge of the survivor benefit for widows. This blog focuses on the other benefit for couples: the spousal benefit.

Social Security works a little differently for a married couple than for a single worker, whose future benefit check will simply be determined by his or her earnings history.

For the highest-earning spouse in a working couple – usually the husband – the size of his monthly check is also based on his past earnings. But his wife’s benefit is complicated. If she didn’t work, the rules entitle her to a spousal benefit equal to half of her retired husband’s benefit. If she did work, her benefit is based on her work history – with an exception. If her benefit is less than half of her husband’s, Social Security increases her monthly check to half of his check.

Only one in three of the people surveyed understood how this works, probably partly because of the complexity.

Most workers also had misconceptions about other aspects of the program. For example, only about one in four knew that a couple must be married for more than a year for the lower-paid person to receive the spousal benefit. If a couple has divorced, the lower-earning ex-spouse gets the spousal benefit only if the marriage lasted more than 10 years. Again, just one in four workers knew this important rule.

Couples of all ages should know the rules about a program they will rely on – no retirement plan is complete without this information. …Learn More

Vintage Social Security poster

Know the Social Security Survivor Benefit

My divorced aunt did not work while she was raising eight children. After her former husband died, she was pleasantly surprised to learn she could start collecting his Social Security.

She has a lot of company. Nearly two out of three men and women in a new survey by RAND were unaware of this rule: a divorced person who was married for at least 10 years is entitled to the deceased spouses’s survivor benefit. In fact, she would even get the benefit if he remarried.

In the case of couples who were still married when the spouse died, the marriage had to last only nine months for the survivor to get the benefit. Fewer than half of the people surveyed by the RAND researchers were aware of this rule.

The responses were no more impressive for some of the other questions about Social Security’s survivor benefit. This benefit is based on the higher-earning spouse’s work record – typically the husband. Even a wife who used to work and is collecting Social Security based on her work record is eligible to switch to her husband’s benefit after he dies – if his check is larger than hers.

To make the switch in this particular case, the widow must file with the Social Security Administration either online or at a local office. (However, if the wife never worked and is at retirement age, she will automatically start receiving her late-husband’s check.)

Unmarried partners sometimes operate under a misconception too: three out of four think, incorrectly, either that unmarried people can get the survivor benefit, or they don’t know.

One thing to note about this study is that Americans of all ages were surveyed, and it is not surprising that young adults would have little knowledge of program benefits intended for widows.  But age doesn’t seem to bring wisdom: the results were equally dismal in a similar earlier survey of individuals who were at least 50 years old.

April is National Social Security Month. Couples should celebrate by learning more about how Social Security works – it’s critical to a widow’s standard of living. …Learn More