Monday, March 19, 2018

Brenton Smith on the “Second-Litter Subsidy”

Over at FedSmith, Brenton Smith writes on the Social Security benefits paid to the children of retirement-age fathers, known as the “second-litter subsidy.” If a person of retirement age has a child, they are allowed to receive a child benefit in addition to their own retirement benefits, regardless of their income.

But as Smith points out, there’s more going on than simply a facet of the benefit formula, including politics and intergenerational fairness. Read on.

Read more!

Elizabeth Bauer, a New Resource on Retirement Policy

Elizabeth Bauer, an actuary who Tweets as Jane the Actuary, has begun writing longer-form piece for Forbes, with an emphasis on retirement policy. You can access here Forbes articles here, and here are direct link to her first batch. Well worth reading.

No, Andrew McCabe Isn't 'Losing His Pension'

(How) Should We Make Social Security Fairer For Moms?

Social Security Isn't Fair - And That's Actually The Point

News Flash: The U.K. Adopts My Social Security Reform Proposal

Take Cover - It's Another Retirement Reform Proposal

Elegy For The Pension Plan

Read more!

New paper: “The Retirement-Consumption Puzzle: New Evidence from Personal Finances”

The Retirement-Consumption Puzzle: New Evidence from Personal Finances
by Arna Olafsson, Michaela Pagel  -  #24405 (AG AP LS)


This paper uses a detailed panel of individual spending, income,
account balances, and credit limits from a personal finance
management software provider to investigate how expenditures,
liquid savings, and consumer debt change around retirement.  The
longitudinal nature of our data allows us to estimate individual
fixed-effects regressions and thereby control for all selection
on time-invariant (un)observables.  We provide new evidence on
the retirement-consumption puzzle and on whether individuals save
adequately for retirement. We find that, upon retirement,
individuals reduce their spending in both work-related and
leisure categories.  However, we feel that it is difficult to
tell conclusively whether expenses are work related or not, even
with the best data. We thus look at household finances and find
that individuals delever upon retirement by reducing consumer
debt and increasing liquid savings.  We argue that these findings
are difficult to rationalize via, for example, work-related
expenses.  A rational agent would save before retirement because
of the expected fall in income, and dissave after retirement,
rather than the exact opposite

Read more!

Monday, March 5, 2018

New paper: "The Reintroduction of the Social Security Statement and Its Effect on Social Security Expectations, Retirement Savings, and Labor Supply Across the Age Distribution”

The Reintroduction of the Social Security Statement and Its Effect on Social Security Expectations, Retirement Savings, and Labor Supply Across the Age Distribution

Philip Armour Cornell University

Michigan Retirement Research Center Research Paper No. 2017-373


This paper examines how the 2014 reintroduction of the Social Security statement, staggered by every fifth birth year, affected American Life Panel respondents’ Social Security expectations, savings behavior, and labor supply. The rich panel design of the ALP allows for controls for prior Social Security knowledge and behavior, and a specialized module fielded to ALP respondents elicited recall of the Statement and use of alternate information. The majority of individuals who were sent a Statement recall receiving one, with high rates of nonrecall concentrated among younger respondents. Statement recipients and my Social Security account holders highly value the information therein for retirement planning. Recipients measurably increased their likelihood of expecting future benefits, especially disability benefits, and were less pessimistic about future cuts to the program. Recipients were more likely to work after receipt, especially younger workers, although those already working more than 40 hours per week decreased their hours worked on the intensive margin. There were no statistically significant effects on retirement savings, although additional research is required for estimating heterogeneous effects.

View on SSRN

Read more!

Monday, February 12, 2018

New paper: "How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior"

How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior

by Vanya Horneff, Raimond Maurer, Olivia S. Mitchell

This paper explores how an environment of persistent low returns 
influences saving, investing, and retirement behaviors, as compared to what in the past had been thought of as more "normal" financial conditions.  Our calibrated lifecycle dynamic model with realistic tax, minimum distribution, and Social Security benefit rules produces results that agree with observed saving, work, and claiming age behavior of U.S. households. In particular, our model generates a large peak at the earliest claiming age at 62, as in the data.  Also in line with the evidence, our baseline results show a smaller second peak at the (system-defined) Full Retirement Age of 66. In the context of a zero return environment, we show that workers will optimally devote more of their savings to non-retirement accounts and less to 401(k) accounts, since the relative appeal of investing in taxable versus tax-qualified retirement accounts is lower in a low return setting. Finally, we show that people claim Social Security benefits later in a low interest rate environment. Read more!

New paper: "Intergenerational Spillovers in Disability Insurance"

Intergenerational Spillovers in Disability Insurance

by Gordon B. Dahl, Anne C. Gielen  -  #24296 (CH LS PE)

Does participation in a social assistance program by parents have
spillovers on their children's own participation, future labor
market attachment, and human capital investments? While
intergenerational concerns have figured prominently in policy
debates for decades, causal evidence is scarce due to nonrandom
participation and data limitations.  In this paper we exploit a
1993 policy reform in the Netherlands which tightened disability
insurance (DI) criteria for existing claimants, and use rich
panel data to link parents to children's long-run outcomes.  The
key to our regression discontinuity design is that the reform
applied to younger cohorts, while older cohorts were exempted
from the new rules.  We find that children of parents who were
pushed out of DI or had their benefits reduced are 11% less
likely to participate in DI themselves, do not alter their use of
other government safety net programs, and earn 2% more in the
labor market as adults.  The combination of reduced government
transfers and increased tax revenue results in a fiscal gain of
5,900 euros per treated parent due to child spillovers by 2014. 
Moreover, children of treated parents complete an extra 0.12
years of schooling on average, an investment consistent with an
anticipated future with less reliance on DI.  Our findings have
important implications for the evaluation of this and other
policy reforms:  ignoring parent-to-child spillovers understates
the long-run cost savings of the Dutch reform by between 21 and
40% in present discounted value terms. Read more!