This project models how an "optimal" early retirement age might be determined. The initial phase of the project focused on theoretical underpinnings and model development. The current phase will incorporate data on health and productivity into the models, identify a socially optimal early retirement age for Social Security, and show how the socially optimal age changes over time, as health status improves.[back]
The increase in saving in 401(k) plans and other individual retirement accounts is an important complement to Social Security in providing for the financial needs of retirees at older ages. There is likely to be a strong relationship between lifetime earnings - and the accumulation of Social Security wealth - and 401(k) assets. The "optimal" Social Security replacement rate and the way in which that rate should vary with lifetime incomie may depend on expectations about future private retirement assets. Thus understanding trends in private retirement savings is important in evaluating potential Social Security reforms.
The goal of this project is to analyze the decumulation of assets after retirement, considering the order in which assets are used and whether some assets are conserved for a "rainy day." Particular emphasis is directed to the effects of household-level shocks that may precipitate the draw-down of assets. We focus on non-annuitized assets that are drawn down at the discretion of the household, including 401(k) and other personal retirement savings, housing equity, and non-retirement financial assets.
The optimal social security replacement rate is likely to depend both on the resources of future elderly and on the future demands on those resources. The most important future demand Hill likely be health care costs which are expected to continue to rise. This project will examine the likely rise in medical spending of the future elderly and the uncertainty of those projections.
While current out-of-pocket health care costs are an important financial risk, the projections of what to expect in the future are even more worrisome. This project analyzes how rising health care costs and individual choices about health care use fit into the braoder issue of financial security in retirement, and the need for financial resources in retirement.[back]
Enrollment in Social Security's Disability Insurance program (SSDI) is increasing rapidly, resulting in dramatic growth in overall Medicare costs, from 13 percent of old-age spending in 1990 to 20 percent in 2005. At the same time, per-enrollee Medicare costs for the disabled grew in real 2005 dollars from $4,232 in 1990 to $7,406 in 2005. We don't know why costs have grown so rapidly. In the elderly population, surgical treatments for cardiac illnesses are a large component of rapid cost growth, but one might expect a much smaller role for cardiac disease in the under-65 population, particularly given the rising share of SSDI enrollees with musculoskeletal diseases and mental illness. This project will explore the increasing health care costs of SSDI enrollees, using geographic variation in expenditures as a mechanism for identifying factors leading to cost growth.[back]