New research from the Urban Institute's Retirement Policy Project
says lifetime benefits for all groups would be lower, but less so for those
with lower lifetime earnings and less education. The policy change would not
disproportionately hit lower-income groups because the Social Security disability
program provides some protection. High school dropouts, African Americans, and
workers in the lowest fifth of earners are more likely to get disability payments
than are college graduates, whites, and workers in the top fifth. Changes in
the retirement age do not affect when disabled workers can apply for benefits
or the amounts they can receive.
In "Would Raising the Social Security Retirement Age Harm
Low-Income Groups?" Gordon B. T. Mermin and C. Eugene Steuerle look at
what happens if the normal retirement age is increased to 69 years and 8 months
(it is currently 66 years and scheduled to go to 67 for workers who reach age
62 by 2022). Lifetime benefits for today's young workers, they found, would
decline to 90 percent of the levels scheduled under current rules. High school
dropouts would experience an 8 percent drop, compared with 11 percent for college
graduates. Workers in the bottom fifth of earners would see a 6 percent drop,
compared with 13 percent for those in the top fifth.
While boosting the retirement age would not hit lower-income
groups harder than others, it would push more retirees into poverty. Raising
the age would increase the share of retirees with incomes below the wage-indexed
poverty level in 2050 from 14.4 percent under the current system to 16.2 percent,
an increase of 1.5 million people.
Adding a floor to Social Security could mitigate the impact
on vulnerable groups of an older retirement age. Under one scenario Mermin and
Steuerle examined, a minimum benefit in conjunction with a higher age would
minimize the new policy's effect on poverty compared with current law, raising
lifetime benefits for workers in the bottom fifth of earners by 6 percent. The
cost of the minimum could be paid for by raising the normal retirement age by
another six months (to 70 years and 2 months).
"These findings demonstrate the importance of evaluating
policies as part of larger packages rather than in isolation," said Mermin.
"A policy that, in one form, achieves certain desirable goals yet harms
at-risk groups can be made more acceptable and effective when combined with
other reforms."
Minimum Retirement Benefits
The Mermin-Steuerle report is one of five research briefs released
today that assess the impact of raising the retirement age, ways to ameliorate
its fallout for vulnerable populations, and boomers' plans to work beyond age
65.
"Minimum Benefits in Social Security: Design Details Matter,"
by Melissa M. Favreault, Gordon Mermin, and Eugene Steuerle, analyzes five minimum-benefit
designs and shows how they could help reduce elderly poverty. They found
* Many minimum-benefit arrangements would lose value if not
tied to wage growth.
* Approaches that best alleviate poverty tend to reward work less.
* Designs that do not take into account the truncated work histories of disabled
workers will have less success at reducing poverty.
* Different approaches to cutting Social Security benefits—such as across-the-board
reductions versus changes to cost-of-living adjustments—have distinct
implications, both on their own and when combined with a minimum.
Almost 8 percent of Social Security beneficiaries 65 and older
had incomes below the poverty line in 2004, according to the Social Security
Administration. That figure jumps to 17 percent among unmarried older women,
24 percent for African Americans, and 19 percent for Hispanics.
"Minimum Benefits in Social Security Could Reduce Aged
Poverty," by Melissa Favreault, Gordon Mermin, Eugene Steuerle, and Dan
Murphy, looks at two scenarios involving minimum benefits funded with across-the-board
benefit cuts to address Social Security's long-term financing problem. A generous
minimum that increases over time with average wages would see poverty among
elderly African Americans in 2050 decline to 2.9 percent, compared with 6.2
percent under current-law scheduled benefits. Such a minimum would cut poverty
rates nearly in half for older Hispanics and unmarried women.
Retirement Plans
The solvency of the U.S. retirement system partially hinges
on how long baby boomers stay in the workforce. If they retire as early as their
parents, the number of workers per retiree will soon plummet, reducing the tax
base and squeezing budgets for Social Security and all other government programs.
But "How Long Do Boomers Plan to Work?" by Gordon
Mermin, Richard W. Johnson, and Dan Murphy, offers some encouraging signs. Using
data from the Health and Retirement Study, a national survey of older Americans
funded by the National Institute on Aging, the researchers found that as boomers
approach retirement, they intend to work longer than people born a dozen years
earlier did, a shift that will help promote economic growth and partly offset
the economic pressures created by an aging population.
Among workers ages 51 to 56 in 2004, 51 percent said they expect
to work past age 62, up from 47 percent among comparable workers in 1992. The
probability of working full-time past age 65 increased faster, growing from
27 to 33 percent. The declining availability of retiree health benefits, increasing
levels of educational attainment, and falling traditional pension coverage accounted
for most of the increase in work expectations.
Although 50-something African Americans plan to work longer than they did a
decade ago, they lag behind other racial and ethnic groups, Dan Murphy, Richard
Johnson, and Gordon Mermin indicate in "Racial Differences in Baby Boomers'
Retirement Expectations." Twenty-eight percent of African-American boomers
said they expect to work full-time past age 65, as opposed to 33 percent for
all other racial groups.
While education, health status, wages, and wealth generally
affect retirement plans—less-educated racial groups, for example, are
more likely to be in physically demanding jobs that become difficult for older
workers—racial differences in these factors do not explain African Americans'
early retirement plans. Labor market discrimination, family care responsibilities,
and cultural differences may play a more important role in their later-life
work decisions.
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