May 18, 2021
Nearly Half on Disability Want to Work
An unfortunate misperception about people on federal disability is that they’re not interested in working. In fact, nearly half of them want to work or expect to go back to work, and that share has been rising.
But getting or keeping a job has proved difficult, and the employment rate is very low for people who get Social Security disability benefits – or cash assistance from a companion program, Supplemental Security Income (SSI). Yet the vast majority of beneficiaries have past work experience that should help them in the job market.
Researchers at Mathematica mined a survey of people on disability for clues about how to help them find a job or promotion or learn a new skill.
Many of these work-oriented individuals are under extreme financial pressures and are also younger and healthier, despite their disabilities, than the people on disability who didn’t express a desire to work.
Yet only a third of the 2.6 million beneficiaries in the new study who say they want to work are either working now, were recently employed, or are looking for a job.
So, if they are willing to work and feel able to work, why are so few of them in the labor force?
The researchers landed on two big reasons. First, the work-oriented individuals, despite their desire to work, said they can’t find a job. This is a common experience because employers are either reluctant to hire people with disabilities or the available jobs don’t accommodate them. Others are hesitant to try the job market again because they feel discouraged by past employment experiences.
April 6, 2021
Minimum Wage and Disability Applications
Do applications for federal disability benefits rise, fall, or remain unchanged when the minimum wage increases?
Understanding whether the minimum wage affects disability applications is an important issue as Congress debates an increase in the federal minimum and the states have been very active: 14 states began last year with a higher minimum wage after passing new legislation or ballot initiatives. Another seven states had previously enacted automatic yearly increases in their minimums.
One possibility considered in a new study is that applications to the U.S. Social Security Administration for disability benefits could decline if wages increase enough to make a steady paycheck that much more appealing than a modest monthly disability check. But Syracuse University economist Gary Engelhardt finds that hiking the minimum wage did not reduce applications from 2002 through 2017.
Since applications didn’t go down, could a higher minimum wage increase applications instead? Some economists argue that employers, when faced with a higher mandatory wage, may lay off some of their less-skilled hourly employees or cut back their hours. This might – indirectly – be a motivation to apply for disability.
Engelhardt tested this idea in a second analysis, recognizing that it takes time for employers to make staffing changes in response to a higher wage. Once again, he found no impact on disability applications.
“Changes in the minimum wage are not moving individuals on and off” of disability, the researcher concluded.
April 1, 2021
What the Research Can Tell us about Retiring
It’s difficult to envision what life will look like on the other side of the consequential decision to retire.
But research can help demystify what lies ahead – about the decision itself, the financial challenges, and even the taxes. Readers understand this, as evidenced by the most popular blog posts in the first three months of the year.
Here are the highlights:
The retirement decision. The article, “Retirement Ages Geared to Life Expectancy,” attracted the most reader traffic. Myriad considerations go into a decision to retire. But a sense of whether one might live a long time – because of good health or simply seeing that parents or neighbors are living unusually long – is a compelling reason to postpone retirement either to remain active or to build up one’s finances to fund a longer retirement.
A recent study found that as men’s life spans have increased, they have responded by remaining in the labor force longer, especially in areas of the country with strong job markets and more opportunity. This is also true, though to a lesser extent, for working women.
The planning. The second most popular blog was, “Big Picture Helps with Retirement Finances.” It described the success researchers have had with an online tool they designed, which shows older workers the impact on their retirement income of various decisions. When participants in the experiment selected when to start Social Security or how to withdraw 401(k) funds, the tool estimated their total retirement income. If they changed their minds, the income estimate would change.
The tool isn’t sold commercially. But it’s encouraging that researchers are looking for real-world solutions to the financial planning problem, since the insights from experiments like these often make their way into the online tools that are available to everyone.
The taxes. It’s common for a worker’s income to drop after retiring. So the good news shouldn’t be surprising in a study highlighted in a recent blog, “How Much Will Your Retirement Taxes Be?” Four out of five retired households pay little or no federal and state income taxes, the researchers found. But taxes are an important consideration for retirees who have saved substantial sums. …Learn More
March 23, 2021
UK Pension Reforms Show Some Promise
Unlike the United States, the United Kingdom has implemented bold reforms to its retirement system over the past decade.
Two of the biggest changes were gradual increases in the minimum age for collecting a pension under the national social security program and requiring private employers to automatically enroll their workers in an employee savings plan.
The goals of the reforms were to keep government spending in check and encourage individuals – who are living longer – to work longer, while helping them build up more private savings through employer-based plans. On balance, the notion is that workers will end up better prepared financially when they retire. Time will tell how successful these reforms will ultimately be.
But, so far, the results have been somewhat promising, concludes an Institute of Fiscal Studies report on workers’ changing expectations and attitudes about their retirement prospects.
In a major reform to private-sector plans, lawmakers started expanding coverage in 2012 by requiring that employers – the largest ones were first – automatically enroll workers earning more than £10,000 (about $14,000) in a retirement savings plan. The total contributions to the plans must now be at least 8 percent of each worker’s earnings, with employers providing at least 3 percent.
This reform seems to have enhanced workers’ sense of financial security. In 2017, 78 percent said in a survey that they expect to get some retirement income from an employer savings plan – up from 63 percent in 2013. And while workers are permitted to opt out of the plans, they are doing so at consistently low rates.
On the retirement front, the minimum age to collect benefits under the U.K. social security system, the National Insurance Scheme, has risen dramatically for women. A decade ago, they could collect a pension at 60, but that had increased to 66 by last year. They are now in line with men, whose minimum age was 65 for many years and also rose to 66 last year. In the future, the increases are expected to continue: a 50-year-old worker would not be able to collect his pension until he is 68. …Learn More
March 11, 2021
Retirement Ages Geared to Life Expectancy
For most of the 20th century, life expectancy was on the rise. Yet older Americans were retiring at younger and younger ages. That changed in the 1990s. Life expectancy continued to rise, but retirement ages started increasing too.
Many significant developments are behind the dramatic shift in retirement habits, including the decline of private-sector pensions, changing attitudes about working women, and bigger financial incentives from Social Security for people who remain in the labor force in order to get a larger monthly check when they finally retire.
Given all of these changes, Urban Institute researchers wondered whether the dramatic longevity gains experienced by the people who make it to their 50s and 60s could be counted as another reason for the delayed retirement trend.
Their evidence suggests that growing lifespans are keeping men over age 55 in the labor force longer and postponing their retirement, particularly in areas with strong job markets and more opportunity.
But women’s behavior was much more nuanced. Their labor force participation also increased, but only for women under 65 and to a much smaller extent than men. For the oldest women in the study – ages 65 to 74 – the results were puzzling to the researchers because labor force participation actually declined with life expectancy for those in the bottom half of the income distribution. …Learn More
March 2, 2021
Who Applies for Disability – and Who Gets it
Blue-collar workers who end up applying for federal disability benefits find themselves in that position for a variety of interrelated reasons.
A dangerous or physically demanding job can either cause an injury or exacerbate a medical condition that could lead to a disability. And people with limited resources in childhood often develop health problems earlier in life, and their circumstances can limit their access to job opportunities, making them more likely to end up in dangerous or physically demanding jobs.
A new NBER study untangles all these factors to clarify who applies for disability and which applicants ultimately receive benefits through Social Security’s rigorous approval process.
Researchers at Stanford and the University of Wisconsin linked a survey of Americans 50 and older to occupational data describing the level of environmental and physical hazards they’ve faced during decades of working. Next, socioeconomic measures of their upbringing – the adults’ descriptions of their childhood health, education, and parents’ financial resources – were layered into the analysis. Finally, the researchers repeated the process, replacing childhood health with genetic data on their predispositions to various disabling illnesses.
Blue-collar and service workers are known to apply for federal disability benefits at higher rates than white-collar workers. But the researchers showed that low socioeconomic status in childhood – by limiting the options for less strenuous jobs – played an even bigger role than workplace demands in whether the workers applied for the benefits.
However, when it comes to who is approved for benefits, physical and mental job requirements were key – and socioeconomic status plays no role. This makes sense because the heart of Social Security’s approval process is a determination that a disabled person is unable to do his previous job or another job appropriate to his age and experience.
An applicants’ health is, by definition, always central to whether he qualifies for disability. The final step in the researchers’ analysis used genetic data to get a picture of the applicants’ underlying health – as distinct from the health problems originating from a disadvantaged childhood. …Learn More
February 18, 2021
Big Picture Helps with Retirement Finances
The prospect of retiring opens a Pandora’s box of questions. But one big question dominates all the others: How will I manage my finances when I retire?
This is a vexing problem, and baby boomers could use some help thinking it through. To ease the process, a team at UCLA and Cornell University led by David Zimmerman, a UCLA doctoral student, created an online decision tool. In an experiment, they found that the tool might help future retirees understand how to smooth out their income over many years and make their savings last.
The results are preliminary, and the researchers are refining their analysis. But for the initial experiment, they recruited 400 people, ages 40 through 63. The participants were instructed to use the tool to make three big retirement decisions: starting Social Security, choosing a 401(k)-withdrawal strategy, and deciding whether to purchase an annuity. Their decisions would be on behalf of a 60-year-old who is single and plans to retire in two years. He earns $55,000 and has $250,000 in savings to work with.
The participants were split into two comparison groups. One group received immediate feedback on the impact of each separate decision. For example, when the participants picked a Social Security starting age for the hypothetical person, a chart showed a horizontal line tracking the fixed annual benefit locked in by that decision.
When they moved on to another page and selected a plan for 401(k) withdrawals, a chart showed the age when the savings would probably run out. The final decision was whether to buy a deferred annuity with some portion, or all, of the 401(k) assets. The chart on this page displayed the fixed income the annuity would generate every year for as long as the person lives.
The participants were encouraged to change their decisions as much as they liked to see how a change affected that particular source of income. But the researchers suspected that seeing each decision in isolation doesn’t help to clarify how various decisions work together to determine total retirement income over time.
So, the second group got to see the big picture. The chart in this case displayed the impact of any single decision on the annual income from all sources. …Learn More
Originally posted at https://squaredawayblog.bc.edu/tag/social-security/