The Daily Caller

The Daily Caller
Social Security imagery. Photo: William Thomas Cain/Getty Images Social Security imagery. Photo: William Thomas Cain/Getty Images  

How Obamacare’s work incentives could impact future Social Security payouts

Photo of Joanne Butler
Joanne Butler
Senior Economics Fellow, Caesar Rodney Institute of Delaware

Although the recent Congressional Budget Office report on long-term unemployment has gotten a lot of play in the media, I wonder if anyone has actually read it. You can read it here. It’s not long, only 15 pages (the impact of Obamacare on the labor market is on page 14), but you might need a Xanax to get through it – it’s that depressing  If you don’t feel up to reading the report, then look at the graphs – they’re just as depressing as the text.

A significant thing the CBO left out in its report is the impact on future Social Security benefits due to continued high unemployment and people choosing to work less to take advantage of Obamacare’s subsidies.

TheDC’s Mickey Kaus has described Social Security benefits as ‘work-tested’ (not means-tested). Thus, the amount of Social Security benefits a worker receives at retirement are directly tied to what the person earned in their lifetime.

Let’s say Sam (age 40, high school grad) was earning $50,000 a year, but lost his job when his company downsized, and was unemployed for the entire 2012 year. In Social Security terms, it means his earnings for 2012 are zero. In 2013 Sam gets a job, but it pays $40,000.

Looking ahead, Sam manages to hang on to that $40k job for 10 years, but his pay increases are minimal, perhaps rising to $45k. Then he’s laid off again (and posting zero earnings to Social Security), but now he’s in his fifties, and finds it very hard to get another job. When he does, it’s at a big-box store, and his pay shrinks further. He hangs on until age 62, when he applies for early retirement at Social Security – and is shocked at the small amount he’ll receive.

A Social Security employee prints out Sam’s earnings statement and explains how his earnings decreased after age 40, with significant periods of zero earnings.

Policy wonks (in their comfy ergonomic chairs) might say that Sam should just work until he’s 65 — or even 70. But his knees and back are killing him, and he just can’t keep up with his twentysomething co-workers. It’s the last chapter in a story of how long-term unemployment can have an impact that goes on for decades.

Now let’s look at Eric and Tiffany (married, late 30s). They both have stable jobs, but they’re not making a lot of money. They also have children. Tiffany pores over the Obamacare information and decides that if she cuts back on her hours, they’ll qualify for a subsidy – and she continues to do this for the rest of her working life.

At age 62, Tiffany applies for Social Security early retirement, and is shocked to learn that her earnings are so low, that it would be better to apply for a spouse’s benefit (based on her husband’s earnings). But at age 62, that’s equal to about one-third of what her husband would receive in benefits. If she waits until age 67 (her full retirement age), it would be half of her husband’s benefit.