SOCIAL SECURITY, PENSIONS & RETIREMENT INCOME eJOURNAL
Measuring retirement security -- or retirement income adequacy -- is an extremely important topic. EBRI launched a major project to provide this type of measurement in the late 1990s for several states concerned whether their residents would have sufficient income when they reached retirement age. After conducting studies for Oregon, Kansas, and Massachusetts, a national model -- the EBRI Retirement Security Projection Model® (RSPM) -- was developed in 2003, and in 2010 it was updated to incorporate several significant changes, including the impacts of defined benefit plan freezes, automatic enrollment provisions for 401(k) plans, and the recent crises in the financial and housing markets. EBRI has recently updated RSPM for changes in financial and real estate market conditions as well as underlying demographic changes and changes in 401(k) participant behavior since January 1, 2010 (based on a database of 23 million 401(k) participants). This paper provides updates for the previously published EBRI Retirement Readiness Ratings™ as well as the Retirement Savings Shortfalls. EBRI’s updated 2012 Retirement Security Projection Model® finds that for Early Baby Boomers (individuals born between 1948-1954), Late Baby Boomers (born between 1955-1964) and Generation Xers (born between 1965-1974), roughly 44 percent of the simulated lifepaths were projected to lack adequate retirement income for basic retirement expenses plus uninsured health care costs. These “at-risk” levels are some 5-8 percentage points LOWER than what was found in 2003, largely due to the growing adoption of automatic enrollment by 401(k) plan sponsors. Eligibility for a workplace defined contribution retirement plan has a significant positive impact on “at-risk” levels. The aggregate retirement income deficit number, taking into account current Social Security retirement benefits and the assumption that net housing equity is utilized “as needed,” is currently estimated to be $4.3 trillion for all Baby Boomers and Gen Xers.
The PDF for the above title, published in the May 2012 issue of EBRI Notes, also contains the fulltext of another May 2012 EBRI Notes article abstracted on SSRN: “Trends in Employment-Based Coverage Among Workers, and Access to Coverage Among Uninsured Workers, 1995-2011.”
This is a review of the paper by Anton, Hernandez and Levy (2012), which is motivated by the analysis by Santiago Levy (2008) on the impact on the labor market of subsidized programs that deviate demand from funded social insurance programs. The paper deals with the evaluation of a fiscal reform and proposes an hypothesis on the determinants of the evolution of social policy. The first issue is amenable to empirical verification, while on the second, the arguments presented are not consistent with history or with a view based on the competition of ideas.
HUA CHEN, Temple University - Department of Risk, Insurance and Healthcare Management
WENYEN HSU, Feng Chia University - Department of Risk Management and Insurance
MARY A. WEISS, Temple University - Risk Management & Insurance & Actuarial Science
Starting in 2009, the Labor Insurance (LI) program in Taiwan has allowed workers to choose between pension old-age benefits and one-time old-age benefits. The introduction of the pension option not only mitigates longevity risk for workers but also provides a higher expected present value of old-age benefits to workers than the one-time benefit option (on average). Based on a lifecycle model with uncertain lifespan, we expect that workers will increase current consumption and reduce savings in response to this policy intervention. We use data from the Survey of Family Income and Expenditure (SFIE) in Taiwan to empirically test this prediction. In order to isolate other systematic structural changes or economic shocks from the true impact of the pension option on savings and consumption, we adopt a difference-in-differences (DID) approach in this study. Our results demonstrate that the implementation of pension benefits in LI lowers households’ savings by 9.25% (NT$ 50,798) and raises consumption by 5.27% (NT$ 42,663) for LI workers. In addition, younger households tend to be more responsive to this policy in terms of increasing consumption, while some older households experience a significant decrease in savings.