Social Security & Medicare Lifetime Benefits & Taxes: 2020
Abstract: This report presents updated figures in 2020 dollars for the lifetime benefits earned and the lifetime taxes paid by hypothetical workers participating in Social Security and Medicare. For a single male earning average wages every year and retiring in 2020 at age 65, lifetime Social Security and Medicare benefits would equal about $570,000 and, for a couple with average and low wages, about $1,113,000. Those amounts rise and fall for other hypothetical households as their incomes rise and fall relative to average wages. They also increase significantly for future retirees, as benefits rise with real wages in the case of Social Security, and with higher health care costs and new health services in the case of Medicare. Lifetime Social Security and Medicare taxes are still scheduled to be significantly lower than lifetime Social Security and Medicare benefits for most workers in future decades, partly because the low Medicare tax was designed to cover only hospital costs, but not doctor, outpatient, and other hospital services costs (and even those hospital costs remain well above the revenues required to fund them).
Given the near-term depletion of Social Security and Medicare Hospital Insurance trust funds, these data allow policymakers to visualize how reforms might adjust currently scheduled retirement and health benefits and taxes along several dimensions: on a lifetime, as well as annual, basis; among people with different earnings histories; and intergenerationally, or across different future cohorts.
Unretirement in the 2010s: Prevalence, Determinants, and Outcomes
Abstract: For several decades a sizable minority of older Americans have reentered the labor force after an initial retirement, or “unretired.” The percentage who have done so has remained remarkably stable over the years. While measures of unretirement differ across studies, by one measure between 10 to 20 percent of older career workers reenter the labor after leaving for two or more years. This paper explores whether unretirements have been increasing in recent years, most notably in the aftermath of the Great Recession and the slow but persistent economic recovery that followed. We use data on four cohorts of older career workers from the longitudinal Health and Retirement Study (HRS) from 1992 through 2016 and examine the prevalence of reentry over time among each one. We find that reentry continues to play an important role in the retirement process of older Americans, with rates more or less consistent across cohorts. Most notably, we do not find evidence of a shift in the prevalence of unretirements in recent years.
Does Late-Career Nontraditional Work Improve Retirement Security?
The brief’s key findings are:
- Nontraditional jobs lack health and retirement benefits, but could help older workers prolong their careers by offering more flexibility and less stress.
- The questions are whether workers in traditional jobs at 62 who are underprepared for retirement are more likely to switch to nontraditional work, and whether it helps.
- The results show no evidence that they are more likely to switch.
- But, those who do switch close much of the gap in their retirement security by age 68, suggesting nontraditional jobs are a viable option.
How Much Taxes Will Retirees Owe on Their Retirement Income?
Abstract: To evaluate their retirement resources, households approaching retirement will examine their Social Security statements, defined benefit pensions, defined contribution balances, and other financial assets. However, many households may forget that not all of these resources belong to them; they will need to pay some portion to federal and state government in taxes. It is unclear, however, just how large the tax burden is for the typical retired household and for households with different income levels. This project aims to shed light on the tax burdens that retirees face by estimating lifetime taxes for a group of recently retired households. The project uses data from the Health and Retirement Study (HRS) linked to administrative earnings to determine Social Security benefits and administrative records on state of residence to estimate state tax liabilities. Income is then projected over the expected retirement of each household. Federal and state taxes, are estimated with TAXSIM, for each household on its reported and projected income.
The paper found that:
- These estimates show that households in the aggregate will have to pay about 6 percent of their income in federal and state income taxes.
- But this liability rests primarily with the top quintile of the income distribution.
- For the lowest four quintiles, taxes are negligible – ranging from 0 percent to 1.9 percent.
- In contrast, the average liability is 3 percent for the top quintile, 16.4 percent for the top 5 percent, and 22.7 percent for the top 1 percent.
Financial Fragility during the COVID-19 Pandemic
Abstract: Early in the COVID-19 pandemic, much of the US economy was closed to limit the virus’ spread, and several emergency interventions were implemented. Our analysis of older (45-75) respondents fielded in April-May of 2020 indicates that about one in five respondents was financially fragile and would have difficulty facing a mid-size emergency expense. Some subgroups were at particular risk of facing financial difficulties, especially younger respondents, those with larger families, Hispanics, and the low income. Moreover, the more financially literate were better able to handle such shocks, indicating that knowledge can provide some additional protection during a pandemic.
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Annual Statistical Report on the Social Security Disability Insurance Program, 2019 www.ssa.gov/policy/docs/statcomps/di_asr/2019/index.html
Pension Markets in Focus 2020 www.oecd.org/pensions/pensionmarketsinfocus.htm
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Social Security & Medicare Lifetime Benefits & Taxes: 2020
Abstract: This report presents updated figures in 2020 dollars for the lifetime benefits earned and the lifetime taxes paid by hypothetical workers participating in Social Security and Medicare. For a single male earning average wages every year and retiring in 2020 at age 65, lifetime Social Security and Medicare benefits would equal about $570,000 and, for a couple with average and low wages, about $1,113,000. Those amounts rise and fall for other hypothetical households as their incomes rise and fall relative to average wages. They also increase significantly for future retirees, as benefits rise with real wages in the case of Social Security, and with higher health care costs and new health services in the case of Medicare. Lifetime Social Security and Medicare taxes are still scheduled to be significantly lower than lifetime Social Security and Medicare benefits for most workers in future decades, partly because the low Medicare tax was designed to cover only hospital costs, but not doctor, outpatient, and other hospital services costs (and even those hospital costs remain well above the revenues required to fund them). Subscribe for full article
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