The Center's work on 'Financial Status' Issues


Social Security Administration Confirms 1.5 Percent COLA

October 30, 2013 at 12:15 pm

The Social Security Administration (SSA) announced today that the 2014 cost-of-living adjustment (COLA) will be 1.5 percent, smack in the middle of the range that we estimated yesterday.

The taxable maximum — that is, the maximum earnings on which workers and their employers will pay Social Security taxes — will be $117,000 in 2014.  The taxable maximum is indexed to growth in average wages, which is computed based on over 150 million W-2 reports.  Next year’s $117,000 ceiling is slightly higher than we expected and indicates that growth in average wages in 2012 was a bit greater than the SSA actuaries and the Congressional Budget Office estimated earlier this year.

Many features of Social Security are automatically linked to prices or wages and will rise in 2014.  For a complete update, see the table here.

What to Expect From Wednesday’s 2014 COLA Announcement

October 29, 2013 at 3:12 pm

The Labor Department will announce the Consumer Price Index (CPI) for September 2013 tomorrow — the last missing piece that’ll determine the January 2014 cost-of-living adjustment (COLA) in Social Security.  The department would normally have announced the CPI on October 16, but — like many other economic indicators — it fell victim to the government shutdown.

The COLA for Social Security and several other programs — including Supplemental Security Income, federal civil-service and military retirement, and payments to disabled veterans — is pegged to the CPI in the July-September quarter.  Based on what we know, we expect the upcoming COLA to be between 1.4 percent and 1.6 percent.  (See table.)  That’d be just a hair smaller than last January’s COLA.

Social Security COLAs have a long history:  Congress voted overwhelmingly in 1972 to pay them beginning in 1975, pegged to the CPI for Urban Wage and Clerical Workers (the CPI-W), which tracks inflation for an average consumer.  Automatic COLAs were paid in every year from 1975 through 2009.  In 2010 and 2011, there were no COLAs because prices had dropped from their peak in summer 2008.  (Fortunately for recipients, their benefits didn’t go down even when prices fell.)  Once prices surpassed their summer 2008 level, COLAs resumed.

For an average beneficiary, we expect the COLA to mean an extra $18 per month.  In added good news, the government has announced that premiums for Medicare Part B — which covers doctor and outpatient services — will remain flat in 2014.  Because most elderly or disabled Social Security beneficiaries enroll in Medicare Part B and have the premium deducted from their monthly check, that means the entire COLA will go toward boosting their monthly check.

In 2013, workers and their employers pay Social Security tax on earnings up to $113,700.  That taxable maximum will also rise in 2014.  Because of rising inequality, that ceiling now encompasses about 83 percent of covered earnings, well below the 90-percent target that policymakers envisioned in the 1977 Social Security amendments.

Social Security benefits are modest, both in dollar terms (the average retired worker gets about $1,270 a month, and only 9 percent receive more than $2,000 a month) and by international standards.  They’re the foundation of retirement income — and they also provide essential protection for workers who become disabled and to families of workers who die young.

For most Americans, Social Security will be the only source of retirement income that’s guaranteed to last as long as they live and to keep pace with inflation.  It’s vital for policymakers to keep those protections as they work to ensure this popular program’s long-run solvency.

Policymakers Should Sift Facts on Disability Insurance Carefully

October 1, 2013 at 3:59 pm

Critics continue to offer potentially misleading claims about the Disability Insurance (DI) program — a vital part of Social Security that pays modest benefits to people who can no longer do substantial work due to a severe medical impairment — and a recent Washington Post editorial gave some of them wider attention.

The critics whom the Post cites give short shrift to the role of demographic factors in growing the DI rolls. As we’ve noted, three big demographic factors — the aging of the baby boomers into their 50s and 60s (the peak ages for DI receipt), the rise in women’s labor force participation (which means more women now qualify for DI benefits), and the rise in Social Security’s full retirement age (which delays DI beneficiaries’ reclassification as retired workers) explain most of the growth.

While the number of disabled workers tripled between 1980 and 2012, the Social Security Administration’s (SSA) actuaries show that — when properly adjusted for age and sex — they represented 3.1 percent of the insured population (people who have worked long enough to qualify for DI in the event of a severe medical impairment) in 1980 and they represent 4.6 percent today.  (See graph.)  That’s not “explosive growth,” as the Post claims.  Several of the academic researchers in question express DI receipt as a share of the entire population aged 20 to 64, a different measure that — especially over certain time periods — tends to downplay the impacts of demographic change.  In particular, a recent study by the Federal Reserve Bank of San Francisco, which the Post cites, may leave the mistaken impression that 44 percent of today’s cases can’t be explained.  That would mark a misreading of the study (as we’ll examine in a forthcoming paper).

The critics also suggest that eligibility standards are lax. In fact, most applications are denied.  That’s especially true in economic downturns, when applications soar.  The agency requires convincing medical evidence from qualified sources.  The disability criteria are so strict that most beneficiaries — despite significant work incentives — do not work to supplement their modest benefits, and even rejected applicants struggle in the labor market.  And SSA regularly reviews beneficiaries to weed out those who have recovered, though Congress has stymied this effort by starving the watchdogs.

While some benefit and eligibility rules merit review, the program does its job pretty well.  It pays modest, but vital, benefits to severely impaired workers, mostly in their 50s and 60s with limited education and high mortality rates.  Policymakers should therefore approach reform with caution, as an earlier Post editorial argued convincingly.  For example, proposals to turn DI into a block grant or require employers to pay more of the cost raise serious concerns about the resulting erosion of benefits and possible discrimination in hiring and retention.  And as a practical matter, such ideas should be carefully tested and analyzed in small-scale pilots.  That’s not feasible before the separate DI fund needs to be replenished in 2016, a date that comes as no surprise and poses no crisis.

As eight former Commissioners of Social Security from both parties recently wrote, “With the lives of so many vulnerable people at stake, it is vital that future reporting on the DI and SSI programs look at all parts of this important issue and take a balanced, careful look at how to preserve and strengthen these vital parts of our nation’s Social Security system.”  We agree.

Ways and Means Mum on Revenue Increases for Social Security in Bowles-Simpson, Domenici-Rivlin

August 7, 2013 at 2:03 pm

The House Ways and Means Committee has invited members of the public to comment on the Bowles-Simpson and Domenici-Rivlin plans to restore solvency to Social Security.

But there’s a glaring omission:  from reading the committee’s description of the two plans — and its draft bills — you’d never know that both Bowles-Simpson and Domenici-Rivlin urged significant increases in Social Security taxes.

Ways and Means focuses solely on the benefit reductions in the two packages.  Those savings would come from a proposal to use the chained CPI for computing cost-of-living adjustments; from scaling back benefits, especially for medium and higher earners; and from adjusting Social Security benefits for rising life expectancy (either by hiking the retirement age, as in Bowles-Simpson, or by further paring the benefit formula, as in Domenici-Rivlin).  Ways and Means also notes that both plans propose to improve benefits for certain long-term, low-paid workers.

But revenue increases made an important contribution to long-run solvency in both Bowles-Simpson and Domenici-Rivlin.  (See graph.)  Because the benefit cuts would be phased in gradually, the 75th year paints a truer picture of the long-run policy mix than does the average over 75 years.  We didn’t think revenue increases contributed enough in Bowles-Simpson — they made up only one-third of its savings over 75 years and just one-fifth in the 75th year — but they weren’t absent.

Social Security is a popular program, and poll respondents of all ages and incomes express a willingness to support it through higher taxes.

We think a balanced solvency package must include revenue increases, not just benefit cuts.  (The program’s benefits are already extremely modest, both in dollar terms — the average retired worker or widow receives less than $1,300 a month — and by international standards.)  And a well-crafted package would also make targeted improvements to the Supplemental Security Income program — which is distinct from Social Security but has important overlaps — and would replenish the Disability Insurance trust fund.

Neither Bowles-Simpson nor Domenici-Rivlin quite measures up by those criteria, and we urge policymakers to do better.  But failing to tell the public that both plans included significant revenue increases is disingenuous.

U.S. Seniors Are a Hard-Working Bunch

July 17, 2013 at 9:20 am

Financial pressures are leading many European Union (EU) countries to encourage older workers to remain in the labor force, the Social Security Administration (SSA) reports.  By way of comparison, U.S. seniors are more likely to be in the workforce than their peers in almost every other developed country.

Nearly 30 percent of Americans ages 65 through 69 were employed in 2012.  That’s about three times the European average, according to the Organisation for Economic Co-operation and Development (see chart).


Among large, highly developed countries worldwide, only a few had more than 20 percent of their 65- to 69-year-olds on the job, and only Japan and Korea topped the U.S. figure.

Elsewhere we’ve noted that our Social Security system pays pretty modest benefits compared with other advanced nations.  And Social Security already has a number of money-saving provisions that European nations are moving to emulate, such as an early-retirement age  that’s higher than many other countries’ (62), lower benefits for people who take early retirement, a high and rising age for full benefits (66, soon to be 67), and a bonus for people who delay retirement.

The moral?  Our seniors already work harder and get lower benefits than their counterparts in most other rich countries.  So imposing big benefit cuts on ordinary seniors would be the wrong way to restore Social Security solvency.