This paper assesses the status of American families’ accumulations in individual account (IA) retirement plans, both through the incidence of ownership and the amounts accumulated, using the Federal Reserve Board’s triennial Survey of Consumer Finances (SCF). Building on previous research by the Employee Benefit Research Institute (EBRI) using prior SCF surveys, this paper investigates the percentage of families who own various types of retirement plans, including IRAs. Next, it provides both median and average estimates of the value of the assets in these accounts, as well as the proportion of total financial assets represented and their relative percentages within the IA retirement plan universe. It then focuses on the value of IRA rollovers as part of the total IRA market, in order to glean a sense of the full contribution that the employment-based, retirement-plan system makes to total retirement assets. The percentage of all families with an employment-based retirement plan from a current employer decreased from 38.8 percent in 1992 to 36.2 percent in 2013. While retirement plan ownership from a current employer among families declined from 2010-2013, the percentage of family heads who were eligible for defined contribution (DC) plans and chose to participate held essentially stable at 78.2 percent in 2010 to 78.7 percent in 2013. The percentage of families owning individual retirement accounts (IRAs) or Keoghs was also unchanged from 2010 (28.0 percent) to 2013 (28.1 percent). Furthermore, the percentage of families with an individual account retirement plan from a current employer or a previous employer or an IRA/Keogh declined from 50.4 percent in 2010 to 48.2 percent in 2013. However, when including defined benefit (pension) retirement plans, the percentage with any retirement plan was unchanged from 63.8 percent in 2010 to 63.5 percent in 2013. While ownership of employment-based plans and IRAs was unchanged to declining in 2013, the median (mid-point) account balance of those families owning an individual account retirement plan increased in 2013: The value was $22,992 in 1992, reached $38,608 in 2001, and increased to $59,000 in 2013. Individual account retirement plan assets were a clear majority of families’ total financial assets (among those owning such plans): 70.3 percent in 2013 at the median, unchanged from 2010. Across all demographic groups in 2013, these assets’ share at the median of total financial assets was at least 49.2 percent (when these accounts were owned). By IRA type, regular IRAs accounted for the largest percentage of IRA ownership, but rollover IRAs had a slightly larger share of assets than regular IRAs in 2013.
This EBRI paper compares the expected and actual retirement for the same group of workers. It finds a majority (55.2 percent) of these workers retired within three years (before or after) of their expected retirement. Specifically, the longitudinal findings show that 38.0 percent retired before they expected, 48.0 percent retired after they expected, and 14.0 percent retired the year they expected to retire. It also shows that more people (35.9 percent) actually retired after 65 than expected (18.9 percent), and among those who expected to retire after 65, 56.6 percent did so. The study also shows that these longitudinal findings (comparing one cohort at different times) differ from cross-sectional findings (comparing different cohorts at the same time), which are reported more frequently. It shows that in 2012, the expected probability of working full-time after age 65 was 48.7 percent and 46.0 percent, respectively, among men and women working full-time. But only 12.7 percent of men and 6.0 percent of women worked full-time after age 65 in 2012. EBRI also found that people who have a retirement plan tend to retire closer to when they expected, compared with those without a plan. It also found that the gap between expected and actual retirement among those with defined benefit plans and defined contribution plans is generally very small. A large difference exists in later-than-expected retirement between pre- and post-September 2008, when the markets crashed. Pre-September 2008, 83.9 percent retired either earlier or no later than three years after their expected retirement, but only 59.3 percent did so post-September 2008. Clearly, the economic recession delayed the retirement of many people. The EBRI study uses data from the University of Michigan’s Health and Retirement Study (HRS), which is sponsored by the National Institute on Aging, and is the most comprehensive national survey of older Americans.
The PDF for the above title, published in the November 2014 issue of EBRI Notes, also contains the fulltext of another November 2014 EBRI Notes article abstracted on SSRN: “Views on the Value of Voluntary Workplace Benefits: Findings from the 2014 Health and Voluntary Workplace Benefits Survey.”
This chapter takes Switzerland's much praised three-pillar system to illustrate some of the challenges pension system reforms face in an aging society. It shows that policymakers are confronted by some individuals with behavioral anomalies, and by others who strategically exploit the system. The trade-off between providing incentives and adequate retirement income limits policy options, especially if reformers do not want to impose too many restrictions on individual choice and avoid excessive burdens for the young generation. Pension reforms can also be seriously challenged by political constraints, in particular, when voters have a direct say on proposed changes.
We use Health and Retirement Study data linked to the Department of Labor’s O*Net classification system to examine the relationship between lifetime exposure to occupational demands and retirement behavior. We consistently found that both non-routine cognitive analytic and non-routine physical demands were associated with worse health, earlier labor force exit, and increased use of Social Security Disability Insurance. The growing share of workers in jobs with high levels of cognitive demand may contribute to growth in DI use.
ALICIA H. MUNNELL, Boston College - Carroll School of Management
MATTHEW S. RUTLEDGE, Boston College
ANTHONY WEBB, Boston College - Center for Retirement Research
This paper examines conflicting assessments of whether people will have adequate retirement income to maintain their pre-retirement standard of living. The studies that it examines use data from the Survey of Consumer Finances (SCF), the Health and Retirement Study (HRS), and the HRS supplement Consumption and Activities Mail Survey (CAMS). Critical components of the analysis are behavioral assumptions about household consumption patterns when children leave home and when households retire. A key limitation is that the behavioral assumptions in the different studies are based on incomplete knowledge of actual household behavior.
The paper found that:
*A simple – assumption-free – calculation of wealth to income by age clearly indicates that households retiring in the future will be less prepared than those in the past.
*Studies showing that households are saving optimally hinge crucially on assumptions that people are willing to accept declining consumption as they age and that they sharply reduce their consumption when the children leave home.
*While other studies have found consumption does not decline early in retirement, new analysis suggests that many will be unable to maintain this pace over their full retirement.
The policy implications of the findings are:
*Households are more likely than not to be falling short in their retirement preparedness.
*Such shortfalls should be taken into consideration as policymakers discuss options for reforming Social Security.
*To bolster retirement preparedness, policymakers may want to consider ways to encourage more private saving, such as requiring 401(k)s to adopt auto-enrollment and auto-escalation policies and to apply these policies to current workers as well as new hires.
ESTEBAN CALVO, Universidad Diego Portales - Facultad de Economía y Empresa - Instituto de Políticas Públicas, Boston College - Sociology Department - Center for Retirement Research
NATALIA SARKISIAN, Boston College, Department of Sociology
CHRISTOPHER R. TAMBORINI, U.S. Social Security Administration
Objective: This article explores the effects of the timing of retirement on subjective physical and emotional health. Using panel data from the Health and Retirement Study (HRS), we test four theory-based hypotheses about these effects — that retirements maximize health when they happen earlier, later, anytime, or on time.
Methods: We employ fixed and random effects regression models with instrumental variables to estimate the short- and long-term causal effects of retirement timing on self-reported health and depressive symptoms.
Results: Early retirements — those occurring prior to traditional and legal retirement age — dampen health.
Discussion: Workers who begin their retirement transition before cultural and institutional timetables experience the worst health outcomes; this finding offers partial support to the psychosocial-materialist approach that emphasizes the benefits of retiring later. Continued employment after traditionally expected retirement age, however, offers no health benefits. In combination, these findings offer some support for the cultural-institutional approach, but suggest that we need to modify our understanding of how cultural-institutional forces operate: Retiring too early can be problematic, but no disadvantages are associated with late retirements. Raising the retirement age, therefore, could potentially reduce subjective health of retirees by expanding the group of those whose retirements would be considered early.