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The Boston College Center for Retirement Research always has wonderful posts on their blog. It’s great for someone like me, who’s working on a dissertation that focuses on retirement. I can get a quick synopsis of the current research coming out of the CRR. They always make their information useful for the general public too, and I want to share with you a recent post  that highlighted a new tool for people planning for retirement. How do you know if you’re doing enough? Ask the calculator!

You can play around with the calculator here. I really liked the tool, and found it easy to use and visually appealing. I liked how the graphics instantly updated based on my changes. The calculator also took into account important information like what age I plan on retiring and what I expect to get from Social Security or my employer pension. The calculation gave me a good estimate of my monthly income in retirement because all my resources were accounted for. It also told me I’m not doing enough if I want to maintain my standard of living in retirement!

The best part was Step 3: Make a Plan. Unlike many of the other retirement income estimators I’ve seen online (which are often on the website of an investment company) this calculator helped me reach my retirement goals and come out with a plan for free! Nothing to sign up for or invest in. The site offered simple steps to increase my retirement income like asking me to consider spending less each month or retiring at 65 instead of 62. And the tool showed me exactly what will happen to my income if I take one or both of these steps. I came up with a plan that suited me and the site offered to help me develop an action plan for moving forward.

I encourage anyone who’s planning for retirement to give it a shot: Target Your Retirement

The Gerontology Institute at my university has been collaborating with Wider Opportunities for Women on the Elder Economic Security Standard Index (EESSI) for quite some time. I was a part of this project during my assistantship back in 2011. The project focuses on each state in the nation, breaking it down to the county level, to determine how much elders actually need to maintain their independence and meet their costs of daily living. It was very important to bring this kind of assessment down to the state and county level, which is not how the poverty threshold used by our government works. For one thing, the costs of housing, child care, health care, and transportation vary greatly based on where you live.

Though the EESSI measured poverty on these levels, it came to a startling conclusion about the nation as a whole.  Even though costs vary based on where you live, in every state and every county the poverty threshold for an individual ($10,890/yr) or the average Social Security benefit ($14,105/yr) is NOT enough to maintain independence, and these elders needed housing and health care supports to cover their basic expenses.

The purpose of this tool is to have “a measure of income adequacy that respects the autonomy goals of older adults, rather than a measure of what we all struggle to avoid – poverty.” Some of the Gerontology Institute’s other findings include: (1) Housing costs are the greatest expense for most elder households, and elders can spend up to half of their income on housing. (2) A major life change, such as the death of a spouse or a major health shock, can create a situation where someone who was once meeting their expenses can no longer do so.

Check out the full report here to learn more: http://scholarworks.umb.edu/gerontologyinstitute_pubs/75/

If you want to learn more about adequate income for your state and county, look at WOW’s website: http://www.wowonline.org/ourprograms/eesi/

A brief history of Social Security benefit claiming goes like this: In the beginning, benefits were available only at age 65. In 1956, reduced benefits were made available to women as early as age 62. In 1961, this treatment extended to men. Over time the age people claimed benefits steadily decreased and the average age for retirement stuck at 62 years old. In 1983, when facing an imminent shortage of funds, the age for full benefits increased from 65 to 67. While this reform did not change the earliest age you could claim Social Security, it reduced benefits further for early claimers. Currently, claiming benefits at age 62 instead of age 67 results in 25 percent less in every monthly check. So, $938 per month rather than $1,250 per month. Get it? Good!

In the past decade, the age of claiming Social Security benefits steadily increased as people began to comprehend how much money they lose by retiring early. That is, until the recent economic recession. A brief from the Center for Retirement Research at Boston College shows a large increase in early benefit claims from 2007 to 2009. More than 5 percent of the eligible population were enticed to claim Social Security at age 62, which was not part of their plan before the crisis. These individuals will now receive a reduced benefit for the rest of their lives.

Simulations by the authors suggest that compared to experiencing no recession, people claimed benefits about 10 months earlier than they planned, which reduced their monthly benefit by 8 percent. This many not seem like much now but every little bit helps when living on a fixed income. Ask an 82-year-old and she may tell you her Social Security check was plenty of income 20 years ago. Now she finds herself struggling to stay out of poverty.

Today, after listening to the President speak, I started thinking about the economy’s impact on older Americans. I found an interesting report from The National Academies Press titled:  Assessing the Impact of Severe Economic Recession on the Elderly. You can read the document here, which summarizes a workshop called by The National Institute on Aging. The report’s main goal is to reflect on what we already know and what we need to learn about the current recession’s effect on older adults. Unfortunately, what we already know is quite bleak.

How People are Coping: All age groups are being affected by the recession but older workers are often unable to completely recover from these kinds of financial shocks. The most common ways people are coping with income loss are to reduce spending, reduce saving, utilize unemployment benefits, withdraw money from savings, get financial assistance from friends or family, and borrow money (i.e. credit cards, loans). Some older workers are also choosing to delay retirement as an additional coping method.

Our Health and Well-Being: Our health is being negatively effected by the economic recession. GDP is strongly, inversely related to mortality over the long term, and older workers who lose their jobs are at greater risk for certain health conditions than those who remain employed. Still the Gallup Well-Being Index found that people’s well-being significantly declined in the fall of 2008 but went back up substantially by May 2009. I am nervous, now that we lost our AAA rating and the current stock market is in turmoil, if people’s well-being will again decline.

Unemployment or Retirement: Unfortunately, older adults who lose their job are less likely to get hired back into the labor force compared to younger workers. Those who do find work are often making significantly less than they made at their previous job. Researchers find that age discrimination in the workplace continues to exist, particularly for older women. It is therefore not surprising that many older adults who lost their jobs are deciding to retire. This early retirement, however, could hurt future finances. Increases in Social Security’s full retirement age, less time to invest in your retirement accounts, fewer vested years with your employer, or simply having less in wages over your lifetime can all have negative effects on your finances in old age.

What Can You Do: The report summarizes a depressing situation and then has limited suggestions (and most of them seem pretty intuitive to me). I don’t know if it will tell you anything new but here they are along with my own comments:

  • Buy low, sell high – Experts suggest raising your contribution rates (if you can) to your stocks, bonds and pension accounts while the market is doing poorly. If the markets bounce back before you retire you may gain substantially (the younger you are the more you are likely to gain). If you are retired and have spare cash, consider moving it into low-risk funds so that you too may gain from the markets being low (Please consult a financial adviser who will learn about your personal situation. Do not take this as professional advice).
  • Reduce your spending – A no-brainer but often hard to do. Consider what you really need now and what can wait. Did you know that “I don’t need it” is the most common reason eligible individuals refuse welfare? Figure out what you really need, what you can live without, and what is most important to you.
  • Stay in your home – Selling now is not a great idea, so consider modifications if your home is currently not a safe place to grow old.
  • Keep your job – If possible, consider waiting to retire. If you have been laid off, consider looking for new employment and working a few more years before you retire. Collecting your Social Security benefits early will mean a lower monthly paycheck for the rest of your life.
  • Utilize family – Your family may be able to provide some insurance against financial shocks. It’s important to have someone you can call on for help, even if you don’t use them.
The report highlights a ton of questions we need to research before we can understand what is going on. Unfortunately all that means is the recession’s impact on older workers will be understood after it’s all over, providing them little support in the meantime.

Social Security was projected to be in the red 6 years from now, yet it’s happening this year. Due to the current economic downturn and waves of individuals retiring earlier than expected because of unemployment, both the CBO and the Social Security Administration were taken by surprise.

But lets get one thing straight, you won’t notice. This above all else worries me. Because of the trust fund, the system will be able to pay all its checks on time. And since people will be receiving their checks, thoughts of increasing taxes, reducing benefits, or modifying the system in any way will continue to be met with opposition.

You won’t notice, but that doesn’t mean it doesn’t matter. For the first time Social Security will start to add to the deficit rather than subtracting from it. As the SSA states in their 2009 report, “Projected long run program costs are not sustainable under current program parameters” and after 2016 taxes will only be able to support 76% of scheduled benefits. In 2037 the combined OASDI Trust Fund is projected to be exhausted.  This is a big deal.

Talking with people, it seems some are confused about the trust fund, assuming it is similar to their 401(k) or savings account. It isn’t a pile of money in a bank vault. It’s actually a stack of IOUs from Uncle Sam. But don’t be too worried, we know how to fix it! The reform options are relatively well understood and have been for decades. The choices, however, are difficult and politically charged. Some combination of tax increases and benefit cuts will have to be put in place and the longer we wait the more painful both will be.

Dare I bring up Medicare? As the SSA says, “Its cost growth can be contained without sacrificing quality of care only if health care cost growth more generally is contained.” The problems for Medicare are coming sooner and will be more severe than those approaching Social Security.  Obama has said that fixing Social Security is on his agenda for next year. While there is much debate over the health care bill, I believe that if he can actually reform health care in America, Social Security will be a walk in the park and we may have a bright future ahead.

The United States economy is in rough shape, has accumulated a lot of debt, and is projected to continue to accumulate debt for some years to come. However, this debt is minuscule compared to the debt that has the potential to develop from our lack of alterations to the entitlement programs: Social Security, Medicare, and Medicaid in particular. A report by the Government Accountability Office (2008) states that if policy actions are not taken to reduce the deficit, not only will the government face unsustainable growth in debt but this would unavoidably result in a declining GDP and living standards in the future.

The most recent report from the Social Security and Medicare trustees (2009) states that our waiting to take action, in combination with the current recession has reduced to the date of reckoning to 2037. At this time the Social Security system will have exhausted the trust fund and will only be able to pay out about three-fourth of expected benefits. To wait and reform the system at this point would require a drastic change. Moreover, the Trustees Report shows that Medicare is in the worse shape as we are currently using the trust fund to pay benefits and with the HI trust fund being depleted by 2017. The costs of health care are projected to increase much more drastically than the earnings per worker. Acting soon to phase in changes will allow reforms to be less severe and also will allow more time for those most impacted by changes to adjust.

While Social Security is an important element of the long-term fiscal outlook, the real driver is health care spending. The federal health programs are a much larger, rapidly growing, and immediate problem. The government’s obligations to the newly created Medicare Part D will alone exceed the unfunded obligations for Social Security (GAO, 2008). The rise in health care costs is not only a federal problem, but also a challenge for state and local governments. Medicaid along with health insurance for state and local government employees and retirees is the primary issue surrounding their long-term fiscal problems. In addition, problems surrounding health care for children continue as researchers call to attention investing in our children’s health as part of the fiscal solution. It could be stated that the future of our country, the country that will exist for our children and grandchildren will be worse if we do not take action now and make touch choices. President Obama has issued a call to the American people to partake in a Grand Bargain. Tough choices need to be made to reform our entitlement programs and shape up our economy. With a Grand Bargain, everyone needs to lose a little, rather than a certain demographic or cohort taking on the entire burden.

And it seems like the time for a Grand Bargain in upon us. Perhaps there is nothing quite as convincing, bring together party lines and prompting politicians to take action, like a financial crisis. Many state that this may be the biggest advantage for President Obama because we are at a point where everyone is forced to focus on the nation’s long-term fiscal problems (Scherer, 2009). This does not mean that the Obama Administration will have an easier task than those before them but it seems the difficulty has not discouraged them. Provisions of the stimulus bill show that his Administration has already started the move to a more cost-effective health-care system and this may shed some light on what may be in store for a larger revamping of the system. As he continues this difficult reform process echos of this “new era of responsibility” seem to pop up in his words and actions. Are we finally in a new era of American society and government?

I don’t see the problem with issuing gay couples the same Social Security rights as married couples so long as documentation proves they have been together 10 years or more, as is the requirement for married couples expecting a spousal benefit. If both members in the heterosexual couple work, the system would treat them like a two-earner couple, unless they can get more by taking the spouse benefit based on their partners PIA. Again, I do not see the problem with this right being given to homosexual couples. They are paying taxing just like heterosexual couples but their deductions and their benefits are not the same.

While this seems logical, and both conservative and liberal politicians have spoken in favor of it, no steps have been taken to give these couples the same Social Security rights as heterosexual couples. The Equal Access to Social Security Act was introduced to Congress in 2004, but was never addressed in the two year period so was cleared from the books. Then it was introduced again in 2006, but again cleared from the books. It has not been brought back for Congress to discuss.

An article I found from USA Today reports on the risks same-sex couples enter once they are in their retirement years. Not only do they face a much greater risk of spending the end of their lives in poverty because they’re ineligible for a host of federal protections, ranging from Social Security survivor benefits to estate tax exemptions, but couples who have lived together for decades may be barred from sharing a room in a nursing home or an assisted living facility. They are also unable, in many hospitals, to have next-of-kin privileges during hospitalization which is terrible for anyone dealing with illness. While some states recognize gay marriage and give them the same rights as straight married couples, the federal government still does not recognize gay marriage. Being treated differently on provisions run by the federal government, like Social Security and estate taxes, could greatly affect them especially if they are already vulnerable to falling into poverty. The aging baby boomer population will be over 70 million seniors, and more people means higher numbers of all cultures, races, and sexual orientations. We have not had a large population of homosexual couples in retirement before and how our government treats them may have serious repercussions for our aging population.

The Normal Retirement Age (NRA) in the Social Security system is the age at which full benefits are received upon retirement. Retirement before the NRA results in a reduction of benefits, and you cannot retire before 62. Since the beginning of the program, age 65 as been the NRA. This was a fixed and constant number. Recently, in 1983, legislation was past that would gradually increase the retirement age to 67 by 2027. How it works is starting in 2003 the age for full benefits will be increased by 2 months. Each year after than an additional increase of 2 months will be added on. It results in those born in 1960 or later getting full retirement benefits at 67. The Early Retirement Age of 62 still remains the same.

There is a debate going on regarding this raise in the retirement age. Many disagree with raising the NRA at all, stating it is not fair to future retirees. The one truth people cannot deny is that life expectancy is dramatically different now than it was at Social Securities beginning. Since 1940, when the system was created, the life expectancy after retirement age 65 has increase by 4 years for men and 6 years for women and to top it off, we are healthier than ever before. In addition, a trend has emerged where people are deciding to retire earlier than 65. Thus, Social Security is paying out benefits over a longer period of time, while the payroll taxes are collected for a shorter period of time. People are essentially spending a fourth of their life in leisure. It is unreasonable to expect each of these additional years of longevity should be spent working, but is it not also unreasonable to expect these years should be spent in leisure?

The benefits of raising the NRA are numerous. It would add on years of solvency to the system, it would increase the number of workers in the system, and encourage older adults to continue working. To soften the impact of such a change, a gradual increase like the one implemented, is key. Therefore, people are retiring later little by little. Raising the NRA, however, could negatively affect low-income workers who, because of lower skills, poorer health, and physically laborious jobs cannot continue to work. Therefore, to help these individuals perhaps the disability definition can be altered to include these workers over age 62, or vocational jobs perhaps will be exempt from the NRA raise completely. In addition, raising the NRA is essentially cutting benefits. However, if individuals are working longer they have more time to save. Regardless of how you look at it, raising the NRA to help restore Social Security’s long-range solvency should at least be considered an option in our struggle to fix the system.

The Froma Harrop article The old folks are doing fine, has a lot in it to make someone confused about elders’ current situations in retirement. Before I go into the specific problems I had with the article’s content, I wanted to go over some basic facts about the significance of Social Security as income to older Americans, since the author seems to feel that Social Security does not matter and is not important enough to fix. I found a Social Security brief from the National Academy of Social Insurance titled Social Security and Retirement Income Adequacy which helped articulate these facts. About 9 in 10 older Americans receive Social Security and of the total dollars received in retirement, on average 4 out of 10 dollars are from Social Security. The paper broke up elders into 5 income groups. The two lowest income groups (elders with incomes below $16,350) received more then 80% of their total income from Social Security. The middle group ($16,360-$25,590) received nearly 60% of their total income, and the next highest group (up to $44,130) received nearly 50%. This proves that Social Security is by far the largest single source of retirement income for elders regardless of income levels. Older American need Social Security and in the Harrop article and a lot of the political and philosophical debates on reform, they seem to be missing this point. The consequences of any choice or solution, whether it be to reform the system or wait until it runs dry, will impact millions of retirees.

To the first point made in the article about how “40 years of solvency sounds pretty darn good these days,” I ask, compared to what, Medicare? Yes, perhaps Social Security is in a better place than Medicare (which is a discussion for another time) but this does not mean we should just forget about fixing it. As mentioned numerous times by professionals and scholars, we need to start thinking about and initiating solutions for maintaining Social Security sooner rather than later. The changes will not have to be as severe, nor the cuts as deep, if we handle it now when there is more time to deal with adjustments. Also, if we don’t “fix” Social Security and it is 2049 then what? All those individuals who paid into the system suddenly get a huge benefit cut and only receive what is coming in from the current workforce (Expected to be about 70% of what they are suppose to recieve). Or, the converse, we raise taxes significantly to cover the benefits promised. Both solutions are utterly ridiculous because acting NOW can prevent these options from being reality and acting NOW cushions any negative changes resulting from reform.

I found that the tone of the article patronized older adults. Sentences like “burdened with debt because they foolishly treated their homes like ATM machines,” and “while the gray heads chowed down on the fish and chips,” were really unnerving. This author seems to have sampled a few high income snow birds (individuals who travel to a warmer location during winter months) currently living in Florida comfortably, rather than talking with the average older American. There is a big difference between the elders who are married, recent retirees, and under 75 versus those widowed 85 year olds living in cities. One can hope her views on Social Security would change if the author talked with these elders during this financial crisis. Or simply talk to the elders who cannot afford a winter home, cannot afford to go out for fish and chips, and do not own homes that they can “treat like ATMs.” They are completely forgotten in this paper.

I want to conclude with the fact that medical care is on the rise and Medicare has cut a lot of its benefits. Unlike those working-age individuals who on average do not have significant health issues, seniors get more health problems as they age…not very surprising. These health issue cost money, often lots of money, and often without long term care insurance individuals are spending everything they have and getting financial help from family to handle visiting nurse care, assisted living situations, or nursing homes. So, the article seems to belittle the Social Security system and implies we do not have to worry about it, “the old folks are doing fine.” But instead of sampling a few Floridians, if someone actually took a good look at America’s elder population you would see they are not all fine and that we cannot simply let Social Security go.

The retirement income system affects women differently and often negatively. The three-legged stool is often used to describe the sources of income one can expect to receive in retirement. The three aspects of the stool model, government benefits, employer-based pensions, and personal savings, make up this retirement system. Women, unfortunately, have a disadvantage in these three elements of retirement income.

When it comes to government benefits, Social Security was established when women were scarce in the workplace. Therefore, a woman did not receive her own benefits in old age. Instead, her income was based on her husbands, receiving 50 percent of his PIA if she is married to him or divorced, as long as the marriage lasted 10 years. If the woman worked, she must decide between receiving her own benefit or the 50 percent of her husbands, not both. Technically speaking, the spouse receives their own benefits and then if this is less than the benefit they would be receiving from the spousal benefit, the difference is awarded. If the widow is at full retirement age they will receive full benefits of the insured worker. The issue here is that before the death of the loved one, 150 percent of benefits were coming in daily. Now the widow is reduced to 100 percent which may or may not allow them to keep to the old budget. Also, the woman has a much greater risk of lost benefits following a divorce in a one-earner family. In addition, the average woman who does work, more often than the average man, will take time off to raise children. As we know from the way Social Security benefits are calculated, this will hurt the woman’s eventual benefit because of fewer years on the job, lower earnings, and more frequent job changes.

Additionally, the dual-entitlement rules of the system often impose a sort of penalty on wives and widows of a two-earner couple. Two-earner couples receive less in total benefits than the one-earner couple because each can only claim their own PIA or a spouse benefit based on their partner’s. The two-earner couple may pay the same in taxes as the single worker and the one-earner couple, but will receive more benefits than the single worker and less than the one-earner couple. And when a death occurs the disparity is greater for the widow. As mentioned before the one-earner couple received 150 percent while both are living, and the survivor receives 100 percent which is 2/3 of the benefit. In a two-earner couple, the survivor receives the benefit based on the higher PIA paid to the two workers, thus receiving only ½ of the benefit. Clearly this needs to be changed because the survivor is often a woman who is living off of only half the benefit received prior to the spouse’s death, since nowadays most couples are two-earner. Many women go into poverty in old age and some have pointed to this policy issue as part of the cause.

When looking at the other legs of our retirement stool, women on average have lower savings and fewer pensions. Some of the same reasons listed above that result in women having lower Social Security benefits also influence their pension benefits. Women, on average, have pensions that are much lower than men’s and this is probably due to fewer or scattered years on the job, too many job changes, and making less money. As one can surmise, these influence savings rates as well. Another difference for women is related to annuities. Private insurance annuities generally charge women as a class more money because historically women live longer than men. Holding all other factors constant, women can expect to receive more lifetime benefit than men. Therefore, even though this is a supposed gender-neutral system, it is not really fair because the average woman gets a net transfer at the expense of the average man. Policies must be created to try and erase the disparities women face in the three-legged retirement stool.

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