Discussion of “Addressing Social Secur

Solvency While Sustaining High Lab

Force Participation” 

20th Annual Joint Meeting of the Retireme

Research Consortium

Discussion by Steve Goss, Chief Actuary, SSA

of Paper by John Laitner, University of Michig

August 3, 2018
Research Question

 OASI Trust Fund is underfinanced in current law Need to reduce benefits and/or increase revenue What are implications on individual behavior of so

that would eliminate the financial shortfall?

– Effect on work after retirement eligibility (age 62) and

– Effect on benefit start (claiming) age

 Premises:

– Maximize lifetime utility; consumption and leisure– Change in work is full time only– 5% real discount rate (2% alternative)
Policy Alternatives Considered (1

 Results for raising OASI payroll tax by 2.5 percen

from 10.6 to 13.1 percent– Average retirement 1.5 months earlier– Per capita consumption 2% lower

 However:

– The higher payroll tax would allow higher benefits, no

here: 27% higher in 2034

– What would this do to retirement age? Lower?– What effect on per capita consumption? Raise
Policy Alternatives Considered (2

 Results for cutting OASI benefits by 18%

– Average retirement 3 weeks later– Per capita consumption 1% lower

 However:

– No need to reduce benefits until 2034

»Could cut 21% in 2034 and 26% by 2092» So compared to “payable benefits,” this alternative 

lower benefits until 2034 and slightly higher benefit

– What are the effects on retirement age and consumptio
Policy Alternatives Considered (1) & 

 Can we associate these? If we compare (1) higher tax relative to (2) lower 

baseline:

– Retirement age is lower by a little over 2 months– Per capita consumption is lower by about 1%

 But if we compare based on 2% real discount rate

– Retirement age is lower by a little under 4 months– Per capita consumption does not change
Policy Alternatives Considered (3

 Results for eliminating AIME indexing under 60

– Average retirement 15 months later!– No change in per capita consumption

 However—is this a plausible approach?

– Massive reduction in benefit credit for taxes at young 

already credited at less than PV

– What are the effects on earnings (reported) for young 

»Labor force participation is already low for young, 

– Less effect if older workers work part time
Some of Our Assumed Behavioral Eff

 Increase in payroll tax is offset 3-4% by shift in earnings to 

compensation

 Increase in NRA by 3 years (close to 18% cut) increases av

retirement age by about 1 year

 Eliminating retirement earnings test increases earnings and 

revenue for those with partial or no benefit offset, but decrand revenue for those completely offset due to effect of incfrom receipt of benefit

 ACA Cadillac tax (and other similar changes to tax treatme

compensation in the form of employer-sponsored group he

and raises taxable earnings
Suggestions for Expanding Model

Allow for part time work at older ages

– A complication, but more realistic—encore careers, e

Note that policy alternatives are compared to pres

“scheduled” benefits and tax rates

– This is not really a possible counterfactual per curren– Consider comparing each policy alternative to payab

some mix of lower benefits and higher taxes

– Allow later claiming without additional work, and vic– Consider more policy options!