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  • Dec 17 / 2015
  • 0
(clark.wa.gov)
Banks, Budget, Congress, Jobs, Personal Finance, Workers

Is the Social Security Administration offering erroneous projections?

Social Security is the U.S. government’s largest program, accounting for almost a quarter of its spending. Many retired workers, disabled workers and their families rely on social security as a key source of their monthly income. In fiscal 2015, about 60 million people will receive benefits totaling $877 billion. The nearly 40 million retirees enrolled in the program get an average of $1,335 per month.

The Social Security program, established in 1935, is funded partly by payroll taxes and income taxes on benefits. Tax revenues are credited to the program’s two trust funds along with interest payments on securities that are held by those funds, according to the Congressional Budget Office (CBO). The funds, in turn, pay for benefits and administrative costs. Lawmakers, government officials and others have expressed increasing concern about the Social Security program because its viability depends on the solvency of the two trust funds. As more members of the baby-boom generation retire, the gap has widened between the amount of tax revenue going into the trust funds and the amount of money being spent from them. The CBO projected in December 2014 that one of the trust funds — the Disability Insurance Trust Fund — will be depleted in fiscal year 2017 and the other — the Old-Age and Survivors Insurance trust fund – will be exhausted in 2032. Meanwhile, the Social Security Board of Trustees has released different projections. In July 2015, the board reported that the Disability Insurance Trust Fund will be depleted in 2016 and that the combined asset reserves of both funds will be depleted in 2034.

Critics, including some scholars, have questioned the accuracy of Social Security Administration (SSA) projections, which legislators depend on when making decisions related to policy and spending. A 2015 study published in Political Analysis, “Explaining Systematic Bias and Nontransparency in U.S. Social Security Administration Forecasts,” examines the SSA’s forecasts to gauge whether they make the two trust funds appear healthier than they are. The three authors — Konstantin Kashin and Gary King of Harvard University and Samir Soneji of Dartmouth College – also analyzed the possible reasons for forecasting errors. To gather information, the authors conducted “a large number” of personal interviews with individuals who are involved with or connected to the federal agency. This study builds on an earlier, related 2015 study published in The Journal of Economic Perspectives.

This study’s findings include:

  • Before 2000, there was no observable bias in SSA forecasts. After 2000, forecasting errors emerged, making Social Security trust funds look healthier than they are.
  • The SSA does not meet best practices in scientific evaluation procedures that are common in other government agencies as well as industry and academia. One failing is that the SSA has not published systematic or comprehensive evaluations of its forecasts.
  • Errors in forecasting likely occurred because of a lack of transparency in SSA’s forecasting methods and a lack of formal statistical models used to create forecasts. The SSA frequently makes qualitative decisions and manual adjustments in its forecasts without providing sufficient information for outside groups to replicate or evaluate the quality of forecasts.
  • The SSA has generated problematic forecasts for financial metrics, including one known as the cost rate, which is equal to the ratio of the cost of SSA programs to the taxable payroll for a given year. From 1978 to 1999, the difference between the forecast five years out and the actual observed value was 0.1 percentage points on average. After 2000, the magnitude of the error increased more than tenfold on average. “Similar results of approximate unbiased forecasts before 2000 and very substantially biased forecasts after 2000 exist for other SSA financial forecasts we studied,” the authors note.
  • Forecasting errors did not occur because of any deliberate effort to fudge numbers. Actually, SSA actuaries “hunkered down” to prevent political pressures from affecting their forecasts. However, in addition to shielding themselves from political pressures, they inadvertently also shielded their forecasts from necessary modifications that would help with accuracy.

The researchers offer suggestions for how the SSA can avoid projection errors. They note that while the SSA Office of the Chief Actuary (OCACT) may aim to be unbiased, it needs to follow well-developed, best practices designed to avoid bias. “The self-conscious public stance of OCACT is as an island of fairness and objectivity amidst a storm of partisans, and so far as we can tell this is precisely what they attempt to do,” the authors state. “Having public servants who try for this level of fairness is certainly ideal but, as indicated above, trying harder to be free from bias is an ineffective way to further reduce bias unless they begin to use the well-tested advice from the scholarly literature.”

Related research: A 2015 annual report of the Board of Trustees of the federal Old-Age, Survivors and Disability Insurance program offers details on the actuarial status and financial operations of trust funds for the Old-Age and Survivors Insurance program and the Disability Insurance program. A 2014 research paper for the Michigan Retirement Research Center looks at the effect of life-expectancy trends on the social-security program. A 2012 study from the Congressional Budget Office and the Social Security Administration examines retirement trends, economic circumstances and the effects of rule changes on beneficiaries.

 

Keywords: Social Security, forecasting, bias, accuracy, budget, federal government, retirement, retirees, elderly, senior citizens, SSA, Old-Age, Survivors and Disability Insurance

    • Sep 18 / 2012
    • 1
    Social Security card (iStock)
    Budget, Health Care, Taxes

    Who says they have ever used a government social program? The role of policy visibility

    Through ways both subtle and obvious, government touches the lives of most Americans. There are both indirect social programs, such as the Home Mortgage Interest Deduction and the Earned Income Tax Credit — which are in a sense “hidden” in the tax code — as well as direct and highly visible programs such as Social Security and Temporary Assistance to Needy Families. But as scholars at Cornell University point out in a 2012 paper, “We know remarkably little about how people experience public policies and whether they are even aware of or credit government‘s role in providing them.”

    Of course, government social programs in general have become politically radioactive in the past few decades. That has not always been the case. The Cornell scholars point to a 1994 study on the genealogy of the word “dependency” in American culture; the study establishes that language around the American welfare state was once more benign but has become increasingly fraught with negative meaning. The 2012 Cornell paper, “Who Says They Have Ever Used a Government Social Program? The Role of Policy Visibility,” analyzes survey data from the 2008 Social and Governmental Issues and Participation Study. It asked a random national sample of 1,000 Americans about their views on government programs and compared it to their actual use of specific programs over their lifetimes.

    The findings include:

    • Among the 21 federal social programs asked about, respondents on average had taken advantage of 4.47 programs. Seventy-three percent had accessed at least one direct program, and 87% had used an indirect program. Only 4% said they had not utilized at least one program, either direct or indirect.
    • As for indirect programs — what the scholars refer to as “submerged policies,” which have lower visibility among the citizenry — respondents used an average of 2.53 programs. These included the Home Mortgage Interest Deduction; the HOPE and Lifetime Learning Tax Credits; Child and Dependent Care Tax Credits; 529 (Qualified Tuition Program) or Coverdell Education Savings Account (education IRAs); the Earned Income Tax Credit; and “usage of student loans and employer subsidized health and retirement benefits.”
    • When asked whether they had “ever used a government social program,” however, the majority responded that they had not. Among those who said “no,” the average number of government programs they had actually used was 3.8. Only 5% of that group, it turned out, actually did not use a government program of any kind. For those who acknowledged accessing programs, the average used was 5.3.
    • Even with highly visible programs, many respondents did not acknowledge their use: “In the case of Social Security Retirement and Survivors‘ benefits and Medicare, for example, 45 and 41 percent of beneficiaries, respectively, replied in the negative to the general-government social programs usage question.” Though it may seem that citizens are distinguishing between so-called “earned right” programs and perceived “handouts,” the data suggest that this is not true, and that Medicare and Social Security recipients are actually more likely to acknowledge using a government program than users of other programs.
    • Overall, the “number of direct social benefits one receives over the course of life is related to race, age, and income. Specifically, African Americans, those with lower incomes, and older individuals are more likely to have received more of these benefits.”
    • The data also indicate that “racial and ethnic minorities are more likely to benefit from direct benefits and less likely to benefit from submerged benefits indicates another set of cleavages in citizens‘ experiences of social policies. These findings illuminate a stratification of social citizenship in the United States that has not been recognized previously: between those whose social benefits emanate mostly from the submerged state and those whose flow mostly from visible governance.”
    • In sum, the “likelihood of responding that one has used a government social program increases especially when individuals receive more direct social benefits, when they have a greater comprehension of how government works, and when they identify as liberals. Conversely, the likelihood of responding in the negative increases especially when one receives more submerged benefits, has limited political knowledge, or is a conservative.”

    The authors conclude, “Over the past thirty years, not only does American political discourse contain a more persistent anti-government message, but also, increasingly, many citizens benefit from expensive government social policies that obscure government‘s role in subsidizing and regulating them. As a result of both trends, many people fail to recognize government‘s role in providing for their economic security, health care, and educational opportunities.”

    Tags: campaign issue, Social Security

      • Feb 08 / 2012
      • 0
      Budget, Personal Finance, Race

      What can we learn from historical data on Social Security entitlements?

      As the baby boomer generation reaches retirement age, U.S. policymakers are struggling to ensure the long-term viability of Social Security. In 1990 there were roughly five people of working age for every retiree; by 2035, that ratio is expected to diminish to three to one, according to the 2011 Social Security Board of Trustees report.

      A 2011 report from the Congressional Budget Office and the Social Security Administration, “What Can We Learn From Analyzing Historical Data on Social Security Entitlements?” examines the age at which individuals first apply for retirement or disability insurance benefits by birth year (“age at entitlement”) to determine retirement trends, related economic circumstances and the effects of program rule changes on benefits.

      Key study findings include:

      • “More than 54 million Americans received Social Security benefits at the end of December 2010. Over 37 million beneficiaries were retired workers and their dependents, more than 6 million were survivors of entitled workers, and over 10 million were disabled workers and their dependents.”
      • In 1999, more than 58% of Social Security applicants were 62 years old, and 16% were 65 years old; by 2008, 51% of applicants were 62 years old and nearly 26% were 65 years old. This came about because of the upward adjustment of the age necessary to receive full retirement benefits and the larger benefit reduction for those retiring at age 62.
      • According to 2008 data, more women (54%) retired at 62 than men (49%). While fewer women than men (21% vs. 29%) retired at age 65 that year, more than three times as many women (2.7%) than men (0.8%) retired later in life, at age 70 or older.
      • The American public’s decisions on retirement have conformed to new minimum-age requirements by the Social Security Administration. “Examining numbers of new entitlements by month of age for more recent cohorts reveals that age-at-entitlement patterns have paralleled [full retirement age policy] changes.” For instance, the typical retirement age in the 1940s rose parallel with incremental increases in the retirement age.
      • Claims for disability insurance typically peak at ages 50 and 55, when screening guidelines change and expectations are lowered for finding alternative forms of work. Additionally, initial disability insurance entitlements “generally rise during times of economic recession, as in 1974-1975, 1991-1992, and 2001-2002.”

      The authors conclude, “As the United States faces the challenges of entitlement growth going forward, better understanding of why people seek Social Security benefits at different ages will help guide program changes.”

      Tags: retirement, Social Security, aging

        • Nov 28 / 2011
        • 1
        grabbing the ladder
        Gender, Inequality, Personal Finance, Race, Workers

        Earnings inequality and mobility: Evidence from Social Security Data since 1937

        Studies have shown that inequality in the U.S. has been on the rise for decades, with the top earners enjoying astronomical gains and average Americans coping with stagnating incomes. These studies typically rely on annual income data, however, which may overstate inequality: low earners in one year may be high earners the next.

        A 2010 study from Columbia University, University of California, Berkeley, and the Social Security Administration published in the Quarterly Journal of Economics, Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937,” uses Social Security Administration longitudinal data to capture earnings information on a random subset of individuals from 1937 to 2004 to chart both short-term (five-year) mobility and longer-term mobility. The dataset was limited to individuals aged 25 to 60 working in the commerce and industry sectors and earning a minimum of 25% of the average full-time wage in a given year.

        Key findings of the study include:

        • Overall annual earnings inequality declined from 1937 until 1953 — the postwar era economic boom often referred to as “the Great Compression” — but has steadily risen ever since, with the rate of inequality significantly increasing between 1980 and 2004.
        • While inequality and mobility among men has gotten worse since the 1950s, women have made substantial gains that “almost exactly compensate for the increase in inequality for males.” The chance that a working woman will experience upward mobility increased from less than 1% in the 1950s to more than 7% in the 1980s.
        • Short-term mobility gains have not compensated for dramatic increases in overall inequality; in fact, short-term mobility was actually slightly lower in 2004 than it was in the early 1970s.
        • The dramatic surge in income for the top 1% of earners (primarily through performance-based packages of bonuses and stock options) has not been accompanied by a similar degree of mobility into or out of this income bracket.

        The researchers conclude that the entry of women to the labor force, as well as increases in women’s compensation, have had a significant impact on overall inequality and mobility in the United States. The overall numbers mask a bleak trend line for the male population, where inequality is on the rise and mobility is on the decline in both the short and long terms.

        A related 2010 paper, “Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006,” corroborates many of these findings through different data sources.

        Tags: employment, poverty, Social Security

          • Oct 04 / 2011
          • 0
          Senior man and woman (iStock)
          Budget, Health Care, Taxes

          2011 Medicare Trustees Report

          The political debate over how best to reduce the growing federal deficit has focused in large part on how entitlements such as Medicare should be reformed. The 2011 “Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds” addresses a number of pressing issues in terms of funding and solvency. (Reports for other years are available from the Centers for Medicare and Medicaid Services.)

          The report states at the outset that its estimates are based on the anticipated cost-saving effects of the Affordable Care Act (the major health care reform bill passed in 2010); moreover, it notes that “actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report,” and the estimates are based on certain favorable scenarios in terms of legislative action.

          The report defines Medicare’s two main components as follows: “Hospital Insurance (HI), or Medicare Part A, helps pay for hospital, home health, skilled nursing facility, and hospice care for the aged and disabled. Supplementary Medical Insurance (SMI) consists of Medicare Part B and Part D. Part B helps pay for physician, outpatient hospital, home health, and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees. Medicare also has a Part C, which serves as an alternative to traditional Part A and Part B coverage.”

          Key findings in the Trustees’ 2011 report include:

          • “In 2010, 47.5 million people were covered by Medicare: 39.6 million aged 65 and older, and 7.9 million disabled.… Total benefits paid in 2010 were $516 billion. Income was $486 billion, expenditures were $523 billion, and assets held in special issue U.S. Treasury securities were $344 billion.”
          • “The number of Medicare beneficiaries is currently increasing by about 3% per year, and this growth rate will continue as more of the post-World War II baby boom generation reaches eligibility age. As a result of the recent recession, the number of individuals with private health insurance is projected to decline through 2011 and increase only slowly in 2012-2013.”
          • “The financial status of the HI trust fund was substantially improved by the lower expenditures and additional tax revenues instituted by the Affordable Care Act. However, the HI trust fund is now estimated to be exhausted in 2024, five years earlier than was shown in last year’s report, and the fund is not adequately financed over the next 10 years.”
          • “As a percentage of GDP, expenditures are estimated to increase from 3.6% in 2010 to 6.2% by 2085…. If Congress continues to override the statutory decreases in physician fees, and if the reduced price increases for other health services under Medicare become unworkable and do not take effect in the long range, then Medicare spending would instead represent roughly 10.7% of GDP in 2085.”
          • “Medicare expenditures represented 0.7% of GDP in 1970 and had grown to 2.7% of GDP by 2005, reflecting rapid increases in the factors affecting health care cost growth. Starting in 2006, Medicare provided subsidized access to prescription drug coverage through Part D, which caused most of the increase in Medicare expenditures to 3.1% of GDP in the first year.”

          The following chart shows Medicare’s growth relative to GDP over time, and future projections:

          (For a look at the projections and parallel challenges for Social Security, see the Trustees 2011 report.)

          Tags: Congress, budget, deficit, campaign issue, Social Security, health care reform

            • Sep 30 / 2011
            • 1
            (iStock)
            Inequality, Jobs, Personal Finance

            Assessing the impact of the Great Recession on income and poverty across states

            In September 2011 the Census Bureau issued a report on household income, health insurance coverage and poverty levels in the United States. It showed the extent to which the Great Recession, despite having officially ended in 2009, continued to adversely impact Americans’ standards of living.

            A 2011 fact sheet published by Congress’ Joint Economic Committee, “Assessing the Impact of the Great Recession on Income and Poverty Across States,” examines information on household employment, income and poverty levels by state and by region. Data for this supplemental analysis was based on responses from more than 2 million 2010 American Community Surveys administered across the United States and Puerto Rico.

            Key study findings include:

            • The states with the highest percentage increases in median income from 2007 to 2010 were the District of Columbia (a 6.2% increase, from $57,347 to $60,903) and North Dakota (a 5.8% increase, from $46,000 to $48,670). The states with the highest percentage decreases in median income in the same period were Nevada (a 11.9% decrease, from $57,889 to $51,001) and Florida (a 11.7% decrease, from $50,293 to $44,409).
            • The median national income in 2010 decreased 6.2%, from $53,353 to $50,046; the state with the highest median income in 2010 was Maryland ($68,854), while Mississippi was the lowest ($36,851).
            • The South — defined as Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia and West Virginia — has a combined poverty rate of 16.9%, meaning that roughly 1 out of every 6 residents lives in poverty.
            • From 2007 to 2010, the number of residents living at or below the poverty line increased by 3.3 million in the South, 2.4 million in the West, 2.4 million in the Midwest and 912,000 in the Northeast. Poverty rates rose from 2007 to 2010 in all but four states: Alaska, Louisiana, Montana and North Dakota.
            • The percentage of children living at or below the poverty line increased in 42 states and the District of Columbia; the District recorded the largest percentage gain of children in poverty (7.7%) and had the highest percentage of children living at or below the poverty line (30.4%.) The District was also one of two places where household incomes rose from 2007 to 2010 (6.2%).
            • The percentage of residents 65 years and older living in poverty increased in two states, but declined in 21 states despite overall increases in poverty rates. “Social Security benefits kept 13.8 million Americans 65 years and older out of poverty in 2010.”

            The report concludes, “[This] assessment gives a stark reminder of the need for continued government support to help American households regain their economic footing.”

            Tags: economy, poverty, inequality, financial crisis, Social Security, aging

              • Sep 19 / 2011
              • 0
              (iStock)
              Personal Finance

              Who never receives Social Security benefits?

              In the United States, 85.6% of those 65 or older receive most of their income from Social Security. Certain groups of individuals, however, are significantly less likely to collect benefits. This poses a significant challenge for policymakers and others concerned with the well-being of the country’s aging population.

              A 2011 paper by the Office of Retirement Policy at the Social Security Administration, “Who Never Receives Social Security Benefits?” (PDF), analyzes demographic information for “never-beneficiaries” aged 62 to 84 in 2010. By utilizing the Modeling Income in the Near-Term (MINT) microsimulation model, the researchers could project whether the individuals in the study were likely to never receive Social Security benefits in the future.

              Key study findings include:

              • Nearly 4%, or 1,581,556, of the country’s older residents never collect Social Security benefits in their lifetimes. Of this group, 94.5% are not able to collect because they do not have the requisite 40 quarters of coverage (QC) or 10 years of recorded work history needed to qualify for the program. (The remaining 5.5% of never-beneficiaries pass away before they receive their benefits.)
              • 55.2% of never-beneficiaries were immigrants who arrived in the U.S. at age 50 or older, with nearly 83% of these older arrivals never qualifying for Social Security benefits (including  those granted U.S. citizenship.) Infrequent workers — those whose work history was frequent interrupted (often the result of unstable partnerships or dependence on a non-qualifying spouse) —  comprise 34.7% of never-beneficiaries. The balance, approximately 5% of workers, were typically municipal employees who did not pay into the Social Security system and are ineligible to receive benefits.
              • 43.2% of late-arriving immigrants and 57.2% of infrequent workers lived at or below the poverty line and relied primarily on income from assets, the federal Supplemental Security Income (SSI) program, or a coresident (a household member other than a spouse.) The median annual income for late-arriving immigrants in 2010 was $34,754; for infrequent workers, it was $11,553.

              The researchers note that “despite representing only a modest percentage of the aged population, never-beneficiaries are notable from a social welfare standpoint because of their high poverty rates…. Future research could better delineate the life experiences that lead to never receiving Social Security benefits as well as the resulting economic implications.”

              Tags: Social Security, aging, retirement

                • Jun 23 / 2011
                • 1
                iowa-caucus
                Elections, Primaries, Race

                Are state caucuses for candidates bad for democracy?

                In the absence of a constitutional mandate, the political parties in the United States have had to invent their own methods for selecting presidential candidates. States such as Iowa rely on caucuses — party-specific gatherings where participants publicly declare their candidate preference. Questions remain, however, about the fairness and representative nature of that particular electoral process.

                A 2010 Fordham University study published in Political Science Quarterly, “Are Caucuses Bad for Democracy?” examines whether or not the caucus voters adequately mirror the voting public at large. Drawing on nationwide data from the 2008 election, the study analyzes how caucus and primary participants compare to one another and to the U.S. voting population overall.

                The study’s findings include:

                • Consistent with previous election cycles, the 2008 caucuses attracted lower turnout than primaries did. However, caucuses did attract more young voters and Latinos in 2008 compared to primaries.
                • As judged through surveys of self-reported attitudes, the overall degree of ideological extremism among primary voters, caucus voters and the general public was roughly the same.
                • Caucus voters do sometimes hold stronger, more polarized views on specific issues than primary voters and the general population: in 2008 they were significantly more likely to believe the war in Iraq was a mistake, support affirmative action and mandatory health care, and show less support for privatizing Social Security.
                • Primary voters were significantly more conservative, on average, than caucus voters: 54.9% compared to 47.2%, respectively. However, primary voter views better resemble those of the general public.
                • Caucus participants were more male, more educated and less religious than primary voters.

                The author concludes that “the evidence suggests that alarmist claims about the nature of caucuses, compared to primaries, are generally exaggerated.” However, he also notes that “replacing caucuses with primaries may result in some marginal improvements in terms of demographic and attitudinal representation.”

                Tags: Hispanic, Latino, Iowa, New Hampshire, Social Security

                  • Jun 09 / 2011
                  • 7
                  senior and cane
                  Budget, Congress, Taxes

                  2011 annual report by the Social Security Board of Trustees

                  Given the ongoing U.S. budget crisis, the structure and viability of entitlement programs are being closely scrutinized as reforms are contemplated.  The government retirement insurance program, popularly known as Social Security, is formally titled the Federal Old-Age and Survivors Insurance (OASI) and Federal Disability Insurance Trust Funds (DI). OASI funds are paid to retirees and family members of deceased workers; DI funds are paid to disabled workers. Each is funded through separate allocations of payroll taxes, and the program is overseen by a board of trustees.

                  The main findings of the organization’s 2011 annual report  include:

                  • In 2010, 54 million people were receiving Social Security benefits, while 157 million people were paying into the fund. Of those receiving benefits, 44 million were receiving retirement benefits and 10 million disability benefits. In 2011, there will be 56 million beneficiaries and 158 million workers paying in.
                  • In 2010, total income was $781.1 billion and expenditures were $712.5 billion, which meant a total net increase in assets of $68.6 billion. Assets in 2010 were $2.6 trillion, an amount that is expected to be adequate to cover the next 10 years.
                  • Disability funding will not to be able to meet costs beginning in 2013; it is expected to be exhausted by 2018 without legislative action. One approach to addressing this shortfall would be to reallocate the payroll tax.
                  • The costs of Social Security are expected to increase “more rapidly than non-interest income through 2035,” a consequence of the retirement of the baby-boom generation  increasing the number of beneficiaries faster than growth in the labor force.
                  • In 1990, the total U.S. population was 261 million, with 32 million over age 65. That meant there were roughly five working-age people (ages 20 to 64) for every person of retirement age. By 2035, the population is expected to be 381 million, with 77 million over age 65. That means that the ratio of potential retirees to workers will be 37% — there will be less than three potential income earners for every retiree in the population.
                  • In 2023, total income and interest earned on assets are projected to no longer cover expenditures for Social Security. The trust fund would then be exhausted by 2036 without legislative action.

                  Tags: aging, Congress, law, retirement, campaign issue, Social Security

                    • Apr 11 / 2011
                    • 1
                    retirement-planning2
                    Health Care, Personal Finance, Workers

                    Role of financial literacy in retirement plans

                    Retirement planning decisions are growing increasingly complex in America, and older workers are facing critical financial choices in the latter years of their professional lives. Making optimal choices, however, requires an increasing level of financial literacy and knowledge.

                    A 2010 North Carolina State University study for the National Bureau of Economic Research, “The Role of Financial Literacy in Determining Retirement Plans,” surveyed more than 1,500 older workers at three different U.S. corporations to evaluate the quality of individual decision-making. The study’s authors note that while the “snapshot” of the three companies surveyed is not nationally representative, it does provide insights into how retirement decisions are being approached.

                    The study’s findings include:

                    • Workers reported a great deal of uncertainty about their level of post-retirement income: 56% did not know how much income they would get from their company pension in relation to their final salary.
                    • 36% reported that they did not know if they could maintain their standard of living after retirement, and 37% of workers said they were uncertain if they would need to seek more work post-retirement.
                    • 63% of workers did not know the normal retirement age that would maximize Social Security benefits (66); this and related confusion over the age for Medicare eligibility (65) impact decisions on when workers plan to retire.
                    • Those who thought the normal retirement age for Social Security was younger than 66 planned to retire earlier.
                    • Workers who believed the eligibility age for the company pension plan was older than it actually was planned to retire 1.2 years later, compared with those who knew the correct eligibility age.

                    The study’s authors conclude that the survey suggests that many workers “are not well informed about company and national retirement plans and that incorrect knowledge affects retirement plans.” They suggest that educational programs to improve financial literacy could help older workers better achieve optimal retirement outcomes.

                    Tags: aging, consumer affairs, retirement, Social Security

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