CHART H. 1980 PROJECTIONS OF PUBLIC AND PRIVATE PENSIONS

SOURCE: "The Economic Status of the Retired Aged
in 1980: Simulation Projections," by James H.
Schulz, Research Report No. 24, Office of Research
and Statistics, Social Security Administration, U.S.
Department of Health, Education, and Welfare,
January 1968, table 9, page 64.

TECHNICAL NOTE: This study uses a high-speed com-
puter and the simulation technique to make pro-
jections of income from pensions (both public and
private) in 1980. Beginning with a large sample of
the U.S. population in 1960, the study identifies all
married couples where the husband is 45 through 60
years of age and all unmarried individuals 45
through 60 years of age. These individuals are then
"aged" 20 years through a "life process" model
which simulates the activities that have an im-
portant influence on pensions (labor force exit and
entry, job change. pension coverage, vesting, and
unemployment), as well as the probability of death
in each particular year, for each individual.

This simulation technique makes possible the
combination of a large number of characteristics,
each with specified probabilities of occurrence, for a
large number of individual cases. The probability of
the accuracy of the projection can thus be increased.

At the same time, the differential effect of alterna-
tive assumptions and alternative program changes
can be tested.

The assumptions made to project retirement
benefits payable under the Social Security system
are quite liberal. For example, the simulation as-
sumes a rise in social security benefits (based on
average creditable wages) of 4 percent annually-a
much higher rate of increase than has been voted by
the Congress in the past.

Private pensions are assumed to increase at an
average annual rate of 3 percent.

The study also adjusts for the general rise in
earnings in the economy and individual worker
wage changes due to seniority, skill, and age factors.
THE FINDINGS: Given the existing institutional pen-
sion structure and certain minimum assumptions with
regard to these institutional arrangements in the
next decade and a half, a majority of the aged in
1980 will have pension income below any reasonable
level of adequacy. Pension income will be below
$3,000 for about half the couples, and below $2,000
for more than half the single individuals. (See
discussion and table 11, p. 27.)

FOR MOST RETIREES, PENSION INCOME WILL BE

LESS THAN HALF OF PAST EARNINGS

Projected Ratio at Retirement of Public and Private Pensions to Preretirement Earnings

Percentage Distribution of Nonagricultural Units

UNMARRIED FEMALES

50 60 70 80 90 100

Chart I

Ratios exclude the supplementary social security benefit for the wife

Source US Joint Economic Committee Compendium, Part B, 254

CHART I. FOR MOST RETIREES, PENSION INCOME WILL BE LESS THAN HALF OF PAST EARNINGS

SOURCE: "Aged Retirement Income Adequacy-
Simulation Projections of Pension-Earnings Ra-
tios," by James H. Schulz, U.S. Joint Economic
Committee Compendium, part II, table 5, page 254.
TECHNICAL NOTE: The projection is made through
the simulation model described under Chart H.
During the simulation, earnings histories are kept
for each individual. Using an average of earnings
during the 5 years prior to retirement, P/E ratios
(the ratio of public and private pensions to pre-
retirement earnings) have been projected for
workers retiring between 1960 and 1980.

The ratios charted for married males exclude the
supplementary social security benefit for the wife.
Inclusion of the wife's benefit-equal to one-half
the husband's benefit-raises the P/E ratios. In-
clusion of any preretirement earnings of the wife
in total preretirement average earnings lowers the
P/E ratios. The net result is an improvement in the
P/E ratios for couples. (See table 12(c) on p. 29
for the ratio, by preretirement earnings group,

when the wife's benefit and earnings are included.)

The fact that some workers have P/E ratios close
to or greater than 1 is explained, for the most part,
by the minimum benefit provisions for low-wage
workers in most public and private pension systems.
(The effect of these minimum benefit provisions is
shown in table 12 where P/E ratios are tabulated by
the preretirement earnings group of the pension
recipient.)

That the ratios are somewhat higher for women
than for men reflects their lower earnings: the mini-
mum benefit provisions are more likely to have an
effect and the provisions relating to maximum
creditable earnings, less likely.

THE FINDINGS: Of workers retiring before 1980, ap-
proximately three-fourths of the males and one-half
of the unmarried females have projected P/E ratios
that are less than 0.50. Nearly one-quarter of the
married males have a projected P/E ratio of less
than 0.20. (See discussion and tables, pp. 28-29.)

EFFECT OF EARLY RETIREMENT

Projected Ratio of Public and Private Pension Income to Preretirement Earnings

Percentage Distribution of Nonagricultural Males

65 & OVER

0 10 20

Source Joint Economic Committee Compendium, Part I, p.167

CHART J. EFFECT OF EARLY RETIREMENT

SOURCE: "Early Retirement' Trends and Pension
Eligibility Under Social Security," by James H.
Schulz, U.S. Joint Economic Committee Compen-
dium, part III, table 8, page 167.

TECHNICAL NOTE: Projections were made through a
modification of the simulation model described
under Chart H.

As part of a broad study of pension income adequacy in the future, preliminary findings are available to assess the effect of early retirement on the amount of wage replacement provided by pensions. Again, the P/E ratio is the ratio of the total of public and private pension income to average annual earnings during the 5 years prior to retirement. The data relate to married males who were age 45 to 60 in 1960.

The projection introduces a moderate upward
trend in the male retirement rates between 1960
and 1980. This trend is based on BLS projections
of participation rates for older males. Social security
retirement benefit eligibility at age 62 is assumed
available for men after 1962.

THE FINDINGS: The replacement ratios for men
retiring before age 60 are much lower than for
those retiring at the "normal" retirement age of
65 or more. Only about 3 percent of those retiring
before age 60 are projected to have a replacement
of 50 percent or more of their average annual
earnings from pension income. In contrast, almost
one-third of those retiring at age 65 or after are
projected to have a replacement above 50 percent.
(See table 14 and discussion, p. 32.)