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IN THE NEWS

The 2006 Trustees Report
On May 1, 2006, the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds released its annual report on the current status and projected condition of Social Security over the next 75 years. The report’s projections differ only slightly from previous years.

According to the report, in 2005, 48 million Americans received Social Security benefits, including 33 million retirees, 7 million survivors of deceased workers, and 8 million disabled workers and their dependents. Social Security benefit payments are projected to exceed tax revenues in the year 2017 at which time the trust fund will amount to $4.7 trillion in assets, just as projected in last year’s report. The 2006 report, however, projects Social Security will start redeeming trust fund bonds in 2026 in order to pay full benefits and that the trust funds will be exhausted in 2040, both predicted to occur one year earlier than in last year’s report. After 2040, revenues from Social Security taxes will be able to pay 74 percent of promised benefits under current law, gradually declining to 70 percent in 2080. The Social Security shortfall over the next 75 years is 2.02 percent of payroll taxes over that time.

Expert analysis of the Trustees report confirms, as in earlier years, that there is no short-term crisis for Social Security and that there are ways to remedy the projected Social Security shortfall. According to the Center for Retirement Research (CRR), increasing the combined payroll tax rate by about 1 percent for employees and 1 percent for employers would allow the government to pay retirees the current package of benefits in full through the year 2080. According to the Center on Budget and Policy Priorities (CBPP), the 2001 and 2003 tax cuts for the top 1 percent of Americans (those making $400,000 or more annually) are nearly as large as the estimated 75 year Social Security shortfall. In addition, the Trustees report lays out options for making Social Security solvent for the 75-year projection period. These options include, increasing the combined payroll tax rate equivalent to the 2.02 percent projected shortfall; an immediate and permanent reduction in benefits of 13.3 percent; a transfer of general revenues in an amount of $4.6 trillion during the 75-year period; or a combination of such measures. The CBPP points out that this is precisely the kind of action that was taken in 1983, when the U.S. Congress and then President Ronald Reagan strengthened Social Security’s financial status through benefit and revenue adjustments. Many advocacy groups are opposed to benefit reductions at this time and recommend revenue enhancements.

NEW RESEARCH

Perceptions and Expectations of Retirement Security
Mom’s Retirement Security, a new report by the American Association of University Women (AAUW) Educational Foundation, discusses results from its survey of adult children and how they perceive the financial security of their mothers. Most adult children surveyed reported knowing some or a lot about their mother’s financial situation. They rated their mothers’ financial security as above average (6 on a scale of 1 to 10). Forty percent of adult children with mothers 65 or older and 30 percent of those with mothers under 65 believe their mothers to be very financially secure. Only 14 percent of adult children with mothers 65 or older and 12 percent of those with mothers under 65 believe (or perceive) their mothers lack financial security. Among adult children whose mothers are 65 or older, one-third say Social Security is her largest source of income and over half say it is either her largest or second largest source of income. Among those whose mothers have not yet reached retirement age, however, the importance of Social Security is not fully appreciated: only 23 percent say Social Security will be the largest source of income for their mothers in retirement, while 26 percent say pensions and 401(k)s will be the largest source. The percentage of adult children who expect pensions and 401(k)s will be their own largest source of income in retirement (34 percent) is also higher than those who believe Social Security will be their primary source of income (15 percent).

In a new issue brief, “Will More of Us Be Working Forever? The 2006 Retirement Confidence Survey,” the Employee Benefit Research Institute (EBRI) explores Americans’ financial preparedness for retirement. Based on results from the Retirement Confidence Survey (a telephone survey of 1,252 randomly selected individuals 25 and older in the U.S.), EBRI finds that 70 percent of workers and/or their spouses have saved for retirement, though only 42 percent have actually calculated their financial needs for retirement. Individuals who have at least attempted to calculate their financial needs for retirement were more likely to have saved than those who had not. Similarly, workers participating in an employer-sponsored retirement plan were more likely to have saved than those who were not. For many, however, the amount saved was quite low. Among workers, 39 percent saved less than $10,000. Among retirees, 30 percent saved less than $10,000. Despite the low level of savings, those surveyed expected to live long into their retirement years. Half of men and half of women surveyed expected to live to age 85, and a quarter of men and women expected to live to age 90.

In The Impact of Misperceptions about Social Security on Saving and Well-being, the Michigan Retirement Research Center uses the Health and Retirement Study (HRS)--a nationally representative panel survey--to look at the difference between expected versus received Social Security benefits and its impact on the consumption patterns and well-being of retirees. The authors find that a quarter of those surveyed overestimated their benefits by 10 percent or more and a quarter underestimated their benefits by 12 percent or more. Retirees that experienced a drop in their consumption of 30 percent or more had overestimated their Social Security benefits by about 7 percent per year. Those who reported worrying “a lot” about whether their income was sufficient overestimated their benefits by about 12 percent (compared with an overestimation of 4 percent for those who worried “somewhat” or “a little”, and about 6 percent for those who “didn’t worry at all”). Respondents who said that their retirement years were “not as good” as their pre-retirement years, overestimated their Social Security benefits by nearly 15 percent (compared with an overestimation of a bit over 5 percent for those who said their retirement years were “better or about the same”). The study concludes that those who overestimate their Social Security benefits do not fare as well in retirement with regard to their consumption levels, their experience of retirement, and their level of worry.

OWL reports on Long-Term Care and Caregiving
In its annual Mother’s Day report, Women and Long-Term Care: Where Will I Live and Who Will Take Care of Me?, the Older Women’s League (OWL) compiles statements from five organizations that work on long-term care and personal stories of women’s experiences with long-term care. The report outlines a number of key problems with long-term care options in the United States as well as recommendations for improving policy around the care of older Americans.

According to the report, the primary source of caregiving in the U.S. is informal, provided by family and friends. Informal caregivers are more likely to be women and to live in poverty. Among older caregivers, most are caring for a spouse, most are women, most are over the age of 75, and their caregiving puts them at an increased risk of health problems. Among younger caregivers, negotiating work arrangements conducive to caregiving is a challenge, with 9 percent of young caregivers forced to leave their jobs entirely. This is of particular detriment to young women, who often have lower lifetime earnings due to their caregiving role and end up at greater risk of financial insecurity in their retirement years. Direct care through a home health agency is another avenue of long-term care that often complements informal caregiving. Direct care workers are also predominantly women, are often women of color, and earn on average $8.18 per hour ($10 per hour for certified nurse assistants) and have difficulty finding full-time work. Among older Americans who are in assisted living environments, about two-thirds are women. This kind of care arrangement is costly, with the average price at $2,905 per month. Nursing home care is also costly, at an average cost of $192 per day. Despite the costs of these settings, quality is still an issue. Nursing home workers are on average paid less than ten dollars per hour.

The report recommends adequate funding for the Older Americans Act programs and the Aging Network, which provide key in home and in community services to older Americans. It calls for recognition of and legislation around informal caregiving, such as paid family and medical leave benefits and tax and Social Security credits for caregiving work. The report also makes clear the need for well-paid, well-trained, and adequately numbered staff in long-term care settings in order to ensure the rights and well-being of older Americans.