Democratic Underground Latest Greatest Lobby Journals Search Options Help Login

Surprising dependence of high-income retirees on Social Security

Printer-friendly format Printer-friendly format
Printer-friendly format Email this thread to a friend
Printer-friendly format Bookmark this thread
This topic is archived.
Home » Discuss » Archives » General Discussion (01/01/06 through 01/22/2007) Donate to DU
swag Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-18-06 04:31 PM
Original message
Surprising dependence of high-income retirees on Social Security
Edited on Sat Nov-18-06 04:33 PM by swag
Economist's View provides a glimpse into the new study from the National Bureau of Economic Research:

Take the highest earning couple in our stylized sample. This couple earns $500,000 per year from age 30 through age 64 when it retires. It enters retirement with over $2.3 million in assets. But given the length of its potential retirement, the modest real return it can safely earn on its assets, its off-the-top housing expenses, and its tax payments, this household is highly dependent on Social Security benefits, notwithstanding their taxable status. Indeed, were this household denied all its Social Security benefits on the eve of its retirement, it would suffer a 35.6 percent reduction in its living standard throughout retirement. ...

Conclusion: Understanding the living standard implications for working and retired households of cutting Social Security benefits requires more than simply considering the size of these benefits relative to other resources. One needs to understand how Social Security benefits and other resources stocks and flows combine to determine a households living standard time path in light of taxes and borrowing constraints. This study ... examines how the living standards of both stylized households and households surveyed in the 2004 Survey of Consumer Finances would respond to 30 percent and 100 percent benefit cuts.

The findings indicate that the vast majority of todays elderly, even those with very high levels of past earnings and large asset holdings, would experience very major living standard reductions from such cuts. Younger and middle aged households would be less affected in the short run by a 30 percent cut, since they are largely liquidity constrained. But such a cut would materially alter their living standard in retirement. The full elimination of Social Security benefits would, on the other hand, significantly reduce the current as well as the future living standards of todays young and middle-aged households as well as dramatically reduce the living standards of most current elderly.

. . .

The Importance of Advanced Warning Learning early that ones benefits are to be cut can make a big difference... This is evident once one compares ... the percentage reduction in age-specific living standards contingent on learning about the future benefit cuts at ages 35, 50, and 65, respectively. In the case of the $30,000-earning married couple facing a 30 percent benefit cut, the retirement living standard declines by 17.8 percent if the household first learns about the cut at age 35, 23.3 percent if the household first learns at age 50, and 32.2 percent if the household first learns at age 65. Note that the 32.2 percent retirement living standard decline is almost twice as large as the 17.8 percent decline. ... Clearly, in delaying notification of this household that its benefits are to be cut, the government is giving the household less time to adjust by altering its saving. The upshot is a distortion in the life-cycle pattern of consumption. ...

Printer Friendly | Permalink |  | Top

Home » Discuss » Archives » General Discussion (01/01/06 through 01/22/2007) Donate to DU

Powered by DCForum+ Version 1.1 Copyright 1997-2002
Software has been extensively modified by the DU administrators

Important Notices: By participating on this discussion board, visitors agree to abide by the rules outlined on our Rules page. Messages posted on the Democratic Underground Discussion Forums are the opinions of the individuals who post them, and do not necessarily represent the opinions of Democratic Underground, LLC.

Home  |  Discussion Forums  |  Journals |  Store  |  Donate

About DU  |  Contact Us  |  Privacy Policy

Got a message for Democratic Underground? Click here to send us a message.

© 2001 - 2011 Democratic Underground, LLC