Using data for couples to project the distributional effects of changes in Social Security policy

Area of Science:

• Social Sciences
• Economics
• Demography

Background:

• Social Security benefits are crucial for aged individuals, including retired workers and their spouses, divorced spouses, or widow(er)s.
• Current methods for estimating Social Security benefits often rely on individual earnings data, which can underestimate actual benefits, particularly for women.
• A lack of comprehensive data linking marital and earnings histories hinders accurate benefit estimations for couples.

Purpose of the Study:

• To highlight the importance of using couple-level data for accurate Social Security benefit estimation.
• To compare the impact of policy changes on retirement benefits using individual versus couple data, focusing on married women.
• To demonstrate how the Modeling Income in the Near Term (MINT) model addresses data limitations by incorporating joint marital and earnings histories.

Main Methods:

• Utilized the Modeling Income in the Near Term (MINT) model, which integrates Survey of Income and Program Participation (SIPP) data with Social Security Administration records.
• Analyzed the effect of a policy change (40 years of earnings vs. 35 years) on Social Security benefits.
• Compared benefit estimations for married women using both individual and couple-level data.

Main Results:

• Estimating benefits using individual data overestimates the projected reduction in retirement income due to policy changes, making effects appear more severe for women.
• The bias from using individual data is significantly larger for older birth cohorts compared to younger ones, as older cohorts are more likely to receive auxiliary benefits.
• Couple-level data provides a more accurate assessment of Social Security benefits, crucial for understanding policy impacts on women, divorced, and widowed individuals.

Conclusions:

• Emphasizes the critical need for couple-level data in Social Security benefit estimations to avoid underestimation and accurately reflect policy impacts.
• Individual data misrepresents the severity of policy changes on women's retirement income, particularly for older cohorts reliant on spousal benefits.
• Accurate benefit calculations require integrated marital and earnings histories for individuals, their current spouses, ex-spouses, or deceased spouses.