Monday, August 14, 2017

New paper: "Debt and Financial Vulnerability on the Verge of Retirement"

Debt and Financial Vulnerability on the Verge of Retirement
by Annamaria Lusardi, Olivia S. Mitchell, Noemi Oggero  -  #23664 (AG)

Abstract:

We analyze older individuals' debt and financial vulnerability using
data from the Health and Retirement Study (HRS) and the National
Financial Capability Study (NFCS).  Specifically, in the HRS we
examine three different cohorts (individuals age 56-61) in 1992,
2004, and 2010 to evaluate cross-cohort changes in debt over time. 
We also use two waves of the NFCS (2012 and 2015) to gain additional
insights into debt management and older individuals' capacity to
shield themselves against shocks.  We show that recent cohorts have
taken on more debt and face more financial insecurity, mostly due to
having purchased more expensive homes with smaller down payments.

http://papers.nber.org/papers/w23664?utm_campaign=ntw&utm_medium=email&utm_source=ntw Read more!

Monday, July 24, 2017

New working paper: “The Relative Effects of Economic and Non-Economic Factors on Taxpayers’ Preferences Between Front-Loaded and Back-Loaded Retirement Savings Plans”

The Center for Retirement Research at Boston College has published a new working paper, “The Relative Effects of Economic and Non-Economic Factors on Taxpayers’ Preferences Between Front-Loaded and Back-Loaded Retirement Savings Plans,” by Andrew D. Cuccia, Marcus M. Doxey and Shane R. Stinson

Abstract

To understand the potential impact of tax incentives on individual retirement saving, we must understand how individuals make decisions about saving. We examine individual taxpayers’ choices between front-loaded (e.g., traditional) and back-loaded (e.g., Roth) defined contribution retirement savings plans, as well as their saving levels and investment style choices within a plan. To do so, we conduct a series of experiments that allow us to consider individual-specific expectations regarding the economic factors that normatively drive retirement saving decisions, as well as non-economic attitudes and preferences that may also impact these decisions. Overall, we find that participants generally prefer back-loaded retirement plans to front-loaded plans. We find mixed evidence regarding whether individuals appropriately weight expected tax rate changes in their plan choices, despite the fact that these tax rate changes are the primary factor driving the relative after-tax returns of front- and back-loaded plans. Conversely, we find evidence that plan attributes related to individuals’ non-economic attitudes and preferences consistently influence plan choice. Saving levels, while idiosyncratic and difficult to predict, are negatively associated with preference for back-loaded plans and may be influenced by tax-related contextual variables as well. Investment risk is also negatively associated with preferences for back-loaded plans.

The paper found that:

  • Taxpayers prefer back-loaded plans over front-loaded plans.
  • Individuals may not systematically rely on their beliefs regarding their relative tax rates when making plan choices. At least part of that failure is due to a lack of awareness and/or understanding.
  • Individual saving levels and investment selections, while largely idiosyncratic and difficult to predict, are negatively associated with a preference for back-loaded plans and may be influenced by tax-related contextual variables as well.
Read more!

Social Security’s Financial Outlook: The 2017 Update in Perspective

The Center for Retirement Research at Boston College has published a new issue brief, “Social Security’s Financial Outlook: The 2017 Update in Perspective,” by Alicia H. Munnell

The brief’s key findings are:
  • The 2017 Trustees Report shows very little change:
    • Social Security’s 75-year deficit rose slightly from 2.66 percent to 2.83 percent of payroll.
    • The deficit as a percentage of GDP remains at 0.9 percent.
    • Trust fund exhaustion is still 2034, after which payroll taxes still cover about three quarters of promised benefits.
  • The shortfall is manageable, but action should be taken soon to equitably share the burden among cohorts, restore public confidence, and give people time to adjust.
  • Proposed solutions range from “all benefit cuts” to “all tax increases.” For action to occur, policymakers need guidance from the public on the desired mix.
Read more!

Smith: “Social Security Needs More Independent Oversight”

Writing at FedSmith.com, Brenton Smith argues that the vacant positions for Social Security’s two public trustees undermines confidence in the program.

The Public Trustee is supposed to be independent of the forces of politics. Each of these trustees enjoys a term that is defined by law rather than by job title. Thus, these individuals cannot be dismissed by the President, nor terminated by the politics of Congress.

As such, these individuals insert visible independent oversight of the numbers which govern the discussion of this critical program. If we have any hope of finding a middle ground in developing reforms, it will come from data on which all sides can agree on the size and scope of any financial challenges.

Click here to read the whole article.

Read more!

Event video: “What’s in store for Social Security? Experts discuss the 2017 Social Security Trustees Report”

Over at AEI’s website you can watch video from the July 19 event, “What’s in store for Social Security? Experts discuss the 2017 Social Security Trustees Report,” which featured Stephen C. Goss, Chief Actuary of the Social Security program; Paul Van de Water, a former Social Security Administration official now at the Center on Budget and Policy Priorities; and Andrew G. Biggs, also formerly of Social Security and now a Resident Scholar at the American Enterprise Institute.

You can watch the full event here.

Read more!

Another Year, Another Decline in Social Security's Financial Health

Over at Forbes, I look at the results of the 2017 Social Security Trustees Report:

Yesterday, Social Security’s Trustees released their annual report on the program’s finances. There were no breathtaking changes, just a continuation of the slow and steady decline in the financial health of the federal government's largest spending program and the largest source of income for most retirees. With Social Security, no news usually equals bad news. The response from progressives is mostly to downplay the need for reform, stressing that there are another 17 years until Social Security’s trust funds become insolvent. The response from conservatives is mostly silence, since – after the failure of President George W. Bush’s reform efforts in 2005 – the right doesn’t have a clear idea of what they want to do about Social Security. Neither response should be encouraging for the public.

Check out the whole article here.

Read more!

Monday, July 10, 2017

Upcoming event: “Hearing on Social Security’s Solvency Challenge: Status of the Social Security Trust Funds”

Chairman Johnson Announces Hearing on Social Security’s Solvency
Challenge: Status of the Social Security Trust Funds House Ways and Means

Social Security Subcommittee Chairman Sam Johnson (R-TX) announced today that the Subcommittee will hold a hearing entitled “Social Security’s Solvency Challenge: Status of the Social Security Trust Funds.” The hearing will focus on the status of the Federal Old-Age and Survivors Insurance (OASI) and Federal Disability Insurance (DI) Trust Funds and the effects of delaying action to address Social Security’s future insolvency.

The hearing will take place on Friday, July 14, 2017 in 2020 Rayburn House Office Building, beginning at 9:00 AM.

Click here for more details.

Read more!