Current round of Social Security discussion

[bdschobel]

Originally Posted by campbell

So the skewing of wage distribution with a long right tail, esp. if deferred compensation is included [how are DB plans tied to this? For true equity, they would have to be included, right?], this really gooses the wage index.

Yes, you have the right idea. Deferred-compensation plans are included in the mean to the extent that the amounts deferred are subject to FICA taxation. That's most deferred comp today but not in the distant past. The note that you quoted basically refers to the development of a smooth transition for the average wage from 1990 to 1991. By the way, note that the average wage index is truly based on wage-earners. The self-employed are not in the calculation at all (except to the extent that they have wages, too, as some do).

Bruce

[campbell]

Originally Posted by bdschobel

By the way, note that the average wage index is truly based on wage-earners. The self-employed are not in the calculation at all (except to the extent that they have wages, too, as some do).

Bruce

If they're paying FICA, that would get reported, right?

Anyway, I haven't thought about the full calculations in a few years, and I didn't think through about how the wage distribution would impact the calculations, and what components of wages would be included.

[bdschobel]

Yes.

Bruce

[JMO]

OK, just to clarify what I said above, I answered the wrong question. My comment was about notification at Normal retirement age. Neither of us was notified at 62 that we were eligible for early retirement benefts under SS. And, since we held no birthday parties, nobody asked us if we had applied for SS.

Next question, about the age 62 people starting benefits who have "already been retired . . ." Are these folks comparatively wealthy who can afford to retire so early? Or are they really low paid, who retired because they were no longer able physically to do their work? I can see the wealthy ones getting professional advice that lets them know how soon they can apply, while some of the minimum benefit folks may have already tried (and failed to qualify) for disability benefits, and were told by the local caseworkers to wait until 62. In either case, the next step would be word of mouth.

[campbell]

Originally Posted by JMO

Next question, about the age 62 people starting benefits who have "already been retired . . ." Are these folks comparatively wealthy who can afford to retire so early? Or are they really low paid, who retired because they were no longer able physically to do their work? I can see the wealthy ones getting professional advice that lets them know how soon they can apply, while some of the minimum benefit folks may have already tried (and failed to qualify) for disability benefits, and were told by the local caseworkers to wait until 62. In either case, the next step would be word of mouth.

From my direct experience in my extended family, one issue is that many people don't think of retiring at 60 as retiring early. They remember parents/other relatives dying around that age and don't realize how long retirement may really last with today's medical treatments. Some of them have gone back to work, part-time, actually. But they did start the Social Security payments at 62.

There may be a connection to the recently released report:
http://soa.org/files/pdf/news-pub-2009-difference.pdf

Just pulling out some observations from the report [page 10]

-In 2008, nearly three in 10 retirees had not estimated how many years their assets and investments might last in retirement and an additional one in 10 retirees had never thought about it. Today, a slightly larger proportion of retirees are reporting that they have not estimated this figure—34 percent have not estimated how long their assets and investments might last and 11 percent have not thought about it. The slight increase may be the result of retirees not wanting to face reality in light of the economic downturn.

-When asked how many additional years retirees assume their retirement funds need to last, the 2009 results indicate shorter timeframes than the 2008 results. This may be indicative of retirees wanting to deal with a shorter time horizon after a crisis. It is also consistent with the views of the retired participants of a series of focus groups that preceded the 2008 survey.2

-In 2009, fewer retirees acknowledge that assets and investments need to last at least 20
additional years than in 2008 (48 percent versus 65 percent). There is also a decrease in the proportion of retirees who have been retired less than five years who say their funds must last at least 25 years (36 percent in 2009 versus nearly half in 2008). Other research shows that many people underestimate this number. Personal health and family history are the most common factors used to estimate how long retirement resources need to last.

Maybe in this one instance the actuaries can be the doomsayers of a different sort: "You're not going to die as early as you think you are! [on average] You really need to keep working!"

Man, we never have any good news to tell anybody, do we?

[Fuzzy]

Originally Posted by campbell

Back to the ill-written WSJ article: there's wage indexing and there's COLAs, which apply at different times. I think the wage indexing is based on median annual salary/wage, not some sort of mean. I would have to look that up. The wage indexing is used to calculate the base benefit.

The COLA is based off of CPI-U I think, and that applies after one is taking the benefit.

The Taxable Wage Base adjustment is dependent on the change in National Average Earnings. Based on the SSA web page http://www.ssa.gov/OACT/COLA/central.html, it would appear that the adjustment has been greater than what it would have been if it were based on the median (instead of the mean (average)). Maybe it could be argued that the initial taxable wage base was set too low and that adjusting it by increases in average earnings is insufficient to keep up with the cost of the program, but the TWB is more than 2.6 times the average as it is (2008 TWB / 2007 indexing series). Eliminating a cap on taxable earnings should bring in more revenue, but the impact of that change on benefits must be considered too (do you include higher earnings in the benefit calculation procedure? do you change the formula to add another bend point? etc.)

This same index is used to adjust individual covered wages for benefit calculation purposes as well as the formula bend points. The CPI is then used to adjust benefits post-retirement for cost of living changes.

[Loner]

Originally Posted by campbell

From my direct experience in my extended family, one issue is that many people don't think of retiring at 60 as retiring early. They remember parents/other relatives dying around that age and don't realize how long retirement may really last with today's medical treatments. Some of them have gone back to work, part-time, actually. But they did start the Social Security payments at 62.

There may be a connection to the recently released report:
http://soa.org/files/pdf/news-pub-2009-difference.pdf

Just pulling out some observations from the report [page 10]



Maybe in this one instance the actuaries can be the doomsayers of a different sort: "You're not going to die as early as you think you are! [on average] You really need to keep working!"

Man, we never have any good news to tell anybody, do we?

Frankly, I'm shocked that the number of people who say they haven't estimated how long their assets will last is that low. I'm betting a lot of the people who say they have, haven't actually done it, just looked at the number on their statement and "thought about it." Or throw up their hands and say, "I have nothing" regardless of what they have.

[bdschobel]

Originally Posted by campbell

The COLA is based off of CPI-U I think, and that applies after one is taking the benefit.

Sorry. The COLA is based on CPI-W, and it applies starting with the year of eligibility, regardless of when one starts receiving benefits.

The average retirement age in the U.S. is approximately 61. Most people claim Social Security benefits at age 62 because they are already retired!!! All this talk about making choices and waiting to age 70, etc., is for high-income, white-collar folks. I'm not suggesting that people like us shouldn't think about such things, just that for most people such discussions are purely academic.

Bruce

[campbell]

Originally Posted by bdschobel

Sorry. The COLA is based on CPI-W, and it applies starting with the year of eligibility, regardless of when one starts receiving benefits.

Okay, I didn't look too closely into that part. I was looking for info on the AWI, but my point was that the wage-indexing going into the PIA and the COLAs that occur after that are based on different indices.

The average retirement age in the U.S. is approximately 61. Most people claim Social Security benefits at age 62 because they are already retired!!! All this talk about making choices and waiting to age 70, etc., is for high-income, white-collar folks. I'm not suggesting that people like us shouldn't think about such things, just that for most people such discussions are purely academic.

Bruce

I do have a question about this part. Several questions, in fact.

1. Is the info on retirement age coming from Social Security info [that is, last age FICA was collected from someone]? Just wondering how this was determined.

2. What does this retirement age distribution look like? Where can I find this data?

3. Has the distribution changed much over the past 40 years? I assume there will be a change due to more workforce participation by women [so is there a breakout by sex, which would take care of this part]? I'm wondering about long-term trends vs. short-term economic cycle effects, too.

I've got more questions than that, but they're more a matter of interpretation of data, and just wondering where I can look at the data. I know the SSA has a lot of data/tables [I've looked at their stuff on mortality improvement, for example], but don't want to go digging if someone else can tell me directly where I can find the info.

[campbell]

Of course, the retirement patterns could be changing a bit in the short term:

http://www.chicagotribune.com/busine...,7513700.story

Facing retirement: '70 is the new 65'

By Diane Stafford | McClatchy/Tribune News
July 26, 2009

The recession is keeping some older workers on the job beyond the time they intended to retire.

In some industries, such as nursing, that's seen as a good thing -- it's helping to ease worker shortages.

In other workplaces, the lack of turnover makes it difficult for younger workers to land jobs, experts say.

Whatever the cause or effect, two-thirds of Americans 55 to 64 are in the workforce -- the highest participation rate among that age group since the Bureau of Labor Statistics began keeping track in 1948.
....


Ten years ago, 59 percent of the 55-to-64 age group was in the workforce. In May, that jumped to 65.6 percent, with 1.6 percentage points of the growth occurring since May 2008.

Among workers 65 and older, the labor force participation rate has grown even more precipitously. In May 1999, the participation rate was 12.5 percent; in May 2008, 16.6 percent; and in May 2009, 17.2 percent.

The dramatic statistical changes in the last 12 months point fingers at the recession as a cause.
....

But choosing to remain on the job has not been an option for thousands of older workers who have been laid off.

Those who were jettisoned from the workforce have fueled an estimated 25 percent increase in new claims for Social Security early-retirement benefits, said the agency's chief actuary, Stephen Goss.

Mercer, a national benefits administration company, offered a reason why many older workers were at least trying to stay put. It analyzed its defined-contribution retirement account data and found that since the end of 2007 until May, participants 55 and older had an average account balance loss of 16 percent.

"Near-retirees face a huge challenge in accumulating adequate savings for retirement in the midst of recent economic volatility," the Mercer report said.