Monday, September 28, 2015

New paper from the NBER: “The Cost of Uncertainty about the Timing of Social Security Reform”

The Cost of Uncertainty about the Timing of Social Security Reform by Frank N. Caliendo, Aspen Gorry, Sita Slavov - #21585 (AG PE)


We develop a model to study optimal decision making in the face of uncertainty about the timing and structure of a future event. The model is used to study optimal decision making and welfare when individuals face uncertainty about when and how Social Security will be reformed. When individuals save optimally for retirement, the welfare cost of uncertainty about the timing and structure of reform is just a few basis points of total lifetime consumption. In contrast, the cost of reform uncertainty can be greater than 1% of total lifetime consumption for individuals who do not save.

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Friday, September 25, 2015

New paper: “How Has Shift to Defined Contribution Plans Affected Saving?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Has Shift to Defined Contribution Plans Affected Saving?”

by Alicia H. Munnell, Jean-Pierre Aubry, and Caroline V. Crawford

The brief’s key findings are:

  • Many believe that people are saving less for retirement due to the shift from defined benefit (DB) to defined contribution (DC) plans.
  • The analysis uses National Income and Product Accounts data, with adjustments, to compare DB benefit accruals with DC contributions from 1984-2012.
  • The results show that the percentage of total salaries going to retirement saving has declined slightly during this period.
  • But if returns on asset accumulations are included, the annual change in pension wealth is relatively steady, so the shift to DC plans has not led to less total saving.
  • What has changed is that individuals, rather than plan sponsors, now bear all of the risk.

This brief is available here



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2015 Technical Panel Report Released

The 2015 Technical Panel on Assumptions and Methods, which was appointed by the Social Security Advisory Board, has released its report. The report covers a range of issues, both in terms of assumptions and methods and how the results of the Trustees and SSA actuaries’ calculations should be presented to the public. However, the table below summarizes the results of the main assumption changes the panel recommended to the Social Security Trustees. If all were adopted, Social Security’s long-term funding shortfall would rise from 2.68% of taxable payroll to 3.42%.


Click here to access the report.

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Tuesday, September 15, 2015

New paper: “Social Security Disability Insurance Program Is Financially Unsustainable”

Social Security Disability Insurance Program Is Financially Unsustainable

Veronique de Rugy | Sep 02, 2015

“The 2015 annual report from the Social Security Board of Trustees shows that the program’s disability component is in immediate trouble. Data from the latest report show that the disability fund will be depleted as soon as next year and unable to pay full benefits to beneficiaries.”

Click here to read the whole paper.

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New paper: “The Financial Feasibility of Delaying Social Security: Evidence from Administrative Tax Data”

The Financial Feasibility of Delaying Social Security: Evidence from Administrative Tax Data

Gopi Shah Goda, Shanthi Ramnath, John B. Shoven, Sita Nataraj Slavov

NBER Working Paper No. 21544
Issued in September 2015
NBER Program(s):   AG PE

Despite the large and growing returns to deferring Social Security benefits, most individuals claim Social Security before the full retirement age, currently age 66. In this paper, we use a panel of administrative tax data on likely primary earners to explore some potential hypotheses of why individuals fail to delay claiming Social Security, including liquidity constraints and private information regarding one’s expected future lifetime.

We find that approximately 31-34% of beneficiaries who claim prior to the full retirement age have assets in Individual Retirement Accounts (IRAs) that would fund at least 2 additional years of Social Security benefits, and 24-26% could fund at least 4 years of Social Security deferral with IRA assets alone. Our analysis suggests that these percentages would be considerably higher if other assets were taken into account. We find evidence that those who claim prior to the full retirement age have higher subjective and actual mortality rates than those who claim later, suggesting that private information about expected future lifetimes may influence claiming behavior.

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Friday, September 11, 2015

New papers from the Social Science Research Network

"Defaulting Retirement Distributions Out of Defined-Contribution Plans: A Role for Managed-Payout Target-Date Portfolios"


Default features in defined-contribution plans are designed to improve the retirement security of plan participants. To date, these have focused on the challenge of saving, ignoring the more complex challenge of dissaving. Automatic default provisions for drawing down participant account balances after retirement could be beneficial. Conceptually, the objective is to reframe the Zeitgeist of defined-contribution plans from that of savings plans closer to that of income continuation plans with pension-like features. This could be accommodated though a managed payout feature designed into the plan’s default investment strategy.

"Employee Financial Literacy and Retirement Plan Behavior: A Case Study"

ROBERT L. CLARK, North Carolina State University - Poole College of Management
ANNAMARIA LUSARDI, George Washington University - Department of Accountancy, National Bureau of Economic Research (NBER)
OLIVIA S. MITCHELL, University of Pennsylvania - The Wharton School, National Bureau of Economic Research (NBER)

This paper uses administrative data on all active employees of the Federal Reserve System to examine participation in and contributions to the Thrift Saving Plan, the system’s defined contribution (DC) plan. We have appended to the administrative records a unique employee survey of economic/demographic factors including a set of financial literacy questions. Not surprisingly, Federal Reserve employees are more financially literate than the general population; furthermore, the most financially savvy are also most likely to participate in and contribute the most to their plan. Sophisticated workers contribute three percentage points more of their earnings to the DC plan than do the less knowledgeable, and they hold more equity in their pension accounts. Finally, we examine changes in employee plan behavior a year after the financial literacy survey and compare it to the baseline. We find that employees who completed an educational module were more likely to start contributing and less likely to have stopped contributing to the DC plan post-survey.

"The Intergenerational Welfare State and the Rise and Fall of Pay-as-You-Go Pensions"

TORBEN M. ANDERSEN, University of Aarhus - Department of Economics, CESifo (Center for Economic Studies and Ifo Institute), Centre for Economic Policy Research (CEPR), Institute for the Study of Labor (IZA)
JOYDEEP BHATTACHARYA, Iowa State University - Department of Economics

This paper develops a theory of the two-armed intergenerational welfare state, consistent with key features of modern welfare arrangements, and uses it to rationalise the rise and fall in generosity of pay-as-you-go pensions solely on efficiency grounds. By using the education arm, a dynamically-efficient welfare state is shown to improve upon long-run laissez faire even when market failures are absent. To release these downstream welfare gains without hurting any transitional generation, help from the pension arm is needed. In the presence of an intergenerational education externality, pensions initially rise in generosity but can be replaced by fully funded pensions eventually.

"Does Financial Sophistication Matter in Retirement Preparedness?"
Journal of Personal Finance, 14 (2), 9-20, 2015

KYOUNGTAE KIM, University of Alabama - Department of Consumer Sciences
SHERMAN D. HANNA, Ohio State University (OSU)

Lack of financial sophistication has been suggested as a cause of retirement plan failure. We extend previous studies of retirement adequacy by testing the effect of financial sophistication proxies on projected retirement adequacy, using the 2010 Survey of Consumer Finances (SCF) dataset. We found that only 44% of households with a fulltime head aged 35 to 60 are adequately prepared for retirement in 2010, compared to 58% in 2007. Our multivariate analysis shows that college educated households are more likely to have an adequate retirement than those with less than a high school degree. Households using a financial planner are more likely to have an adequate retirement than those that do not use one.

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Thursday, September 10, 2015

New working papers from the Center for Retirement Research

The Center for Retirement Research at Boston College has recently released nine working papers:

Evidence of Increasing Differential Mortality: A Comparison of the HRS and SIPP
Barry P. Bosworth and Kan Zhang
The Relationship Between Automatic Enrollment and DC Plan Contributions: Evidence from a National Survey of Older Workers

Barbara A. Butrica and Nadia S. Karamcheva
The Role of Occupations in Differentiating Health Trajectories in Later Life
Michal Engelman and Heide Jackson
Will the Average Retirement Age Continue to Increase?
Matthew S. Rutledge, Christopher M. Gillis, and Anthony Webb
The Transition from Defined Benefit to Defined Contribution Pensions: Does It Influence Elderly Poverty?
Natalia S. Orlova, Matthew S. Rutledge, and April Yanyuan Wu
The Challenge of Pension Reform in Georgia: Non-Contributory Pensions and Elderly Poverty
Tamila Nutsubidze and Khatuna Nutsubidze
How Much Longer Do People Need to Work?
Alicia H. Munnell, Anthony Webb, and Anqi Chen
How Does Occupational Access for Older Workers Differ by Education?
Matthew S. Rutledge, Steven A. Sass, and Jorge D. Ramos-Mercado

Calculating Neutral Increases in Retirement Age by Socioeconomic Status
Geoffrey T. Sanzenbacher, Anthony Webb, Candace M. Cosgrove, and Natalia S. Orlova

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Wednesday, September 9, 2015

Bipartisan Policy Center Recommendations for Disability Reform

The Bipartisan Policy Center convened the Disability Insurance Working Group in 2014. The group includes individuals from across the ideological spectrum with a variety of backgrounds and viewpoints, including academics, policy researchers, advocates for people with disabilities, representatives of the labor and business communities, and former congressional and agency staff. Working group members share an urgent concern to address the impending exhaustion of the Disability Insurance Trust Fund and to improve the Social Security Disability Insurance (SSDI) program to better meet the needs of Americans with disabilities. There is shared recognition that a bipartisan approach will be necessary and that there are ways in which the program could be improved. While many members of the group would not endorse every provision herein on a stand-alone basis, they have agreed to support the complete package.

Click here to read the Center’s report and recommendations.

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CRFB: New York Times’ Tritch “Misses the Mark” on Social Security Disability

The Committee for a Responsible Federal Budget has a blog post taking on a recent New York Times column from Teresa Tritch on how to address the funding problems of the Social Security Disability Insurance program. 

You can read Tritch’s original piece here, then CRFB’s response here. Have at it.

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Tuesday, September 8, 2015

New paper: “How Do Inheritances Affect the National Retirement Risk Index?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Do Inheritances Affect the National Retirement Risk Index?”

by Alicia H. Munnell, Wenliang Hou, and Anthony Webb

The brief’s key findings are:

  • Taking away inheritances from households that have them reduces the NRRI by less than one percentage point.
  • Inheritances could become more prevalent in the future due to unspent 401(k) balances, but increasing future inheritances has only a minimal effect.
  • The reasons for the modest impact are:
    • the majority of households do not get an inheritance under either scenario;
    • for those who receive an inheritance, the amounts are relatively small; and
    • many with inheritances in the two scenarios are already well prepared, so either taking away or adding an inheritance does not put them “at risk.”
  • If the analysis is limited only to households with inheritances, the impact on the percentage at risk is more substantial.
This brief is available here. Read more!

Friday, September 4, 2015

Presentations from Retirement Research Consortium Conference

17th Annual RRC Conference

National Press Club, Washington, DC 20045
August 6-7, 2015


Dayanand Manoli, University of Texas at Austin, and Andrea Weber, University of Mannheim
The Effects of Increasing the Early Retirement Age on Employment of Older Workers
Summary   Slides

Alicia H. Munnell, Geoffrey Sanzenbacher, and Matthew Rutledge, Boston College
What Causes Workers to Retire Before They Plan?
Analyzing the Relative Importance of Health, Financial,Familial, and Employment Shocks
Summary Slides

Theodore Figinski, Department of the Treasury, and David Neumark, University of California, Irvine
Does Eliminating the Earnings Test Increase Old-Age Poverty of Women?
Summary    Slides
Discussant: Howard Iams, Social Security Administration   Slides


James Poterba, MIT; Steven Venti, Dartmouth College; and David Wise, Harvard University
What Determines End-of-Life Assets? A Retrospective View
Summary Slides
Discussant: John Sabelhaus, Federal Reserve Board   Slides

Matthew Rutledge and Francis Vitagliano, Boston College, and April Yanyuan Wu, Mathematica Policy Research
Do Tax Incentives Increase 401(k) Retirement Saving? Evidence from the Adoption of Catch-Up Contributions
Summary Slides
Discussant: Patrick Purcell, Social Security Administration   Slides

Eric French, University College London; Hans-Martin von Gaudecker, University of Bonn; and John Bailey Jones, State University of New York at Albany
The Effect of the Affordable Care Act on the Labor Supply, Savings, and Social Security of Older Americans
Summary Slides

Panel 3: HEALTH

Raj Chetty, Shelby Lin, and Augustin Bergeron, Harvard University; Sarah Abraham and Michael Stepner, MIT; and Nicholas Turner, Department of the Treasury
Mortality-Income Gradients in the United States: New Evidence from Tax Records
Summary    Slides

Lauren Schmitz, The New School
Do Working Conditions at Older Ages Shape the Health Gradient?
Summary Slides
Discussant: Barbara Bovbjerg, Government Accountability Office   Slides

Padmaja Ayyagari and David Frisvold, University of Iowa
The Impact of Social Security Income on Cognitive Function at Older Ages
Summary Slides


George Borjas, Harvard University
The Labor Supply of Undocumented Immigrants: Towards an Assessment of the Impact of Status Regularization
Summary Slides
Discussant: Stephen Goss, Social Security Administration   Slides

David Love and Lucie Schmidt, Williams College
The Comprehensive Wealth of Immigrants and Natives
Summary Slides
Discussant: Maria E. Enchautegui, Urban Institute   Slides

Emma Aguila, University of Southern California, and Alma Vega, University of Pennsylvania
Social Security Contributions and Return Migration Among Older Mexican Immigrants
Summary Slides


Marco Angrisani, Arie Kapteyn, and Erik Meijer, University of Southern California
Non-Monetary Job Characteristics and Employment Transitions at Older Ages
Summary Slides
Discussant: David Weir, University of Michigan   Slides

Richard W. Johnson and Karen Smith, Urban Institute
The Great Recession, the Social Safety Net, and Economic Security for 50+ Americans
Summary Slides
Discussant: Paul S. Davies, Social Security Administration   Slides

Brooke Helppie McFall, Amanda Sonnega, and Robert Willis, University of Michigan
Changing Work Demands and Compositional Changes in Occupations: Effects on Expected Retirement
Summary    Slides
Discussant: Josh Mitchell, Bureau of the Census   Slides


Melissa Favreault, Urban Institute
How Would Social Security Changes Affect Medicare Costs and Seniors' Out-of-Pocket Spending?
Summary    Slides

Anek Belbase and Geoffrey Sanzenbacher, Boston College
Does Age-Related Decline in Ability Correspond with Retirement Age?
Summary Slides

Helen Levy, Thomas C. Buchmueller, and Sayeh Nikpay, University of Michigan
The Effect of Health Reform on Retirement
Summary Slides
Discussant: Kevin Whitman, Pew Trusts   Slides


Gopi Shah Goda, Stanford University; Matthew Levy, London School of Economics; Colleen Manchester and Aaron Sojourner, University of Minnesota; and Joshua Tasoff, Claremont Graduate University
The Role of Time Preferences and Exponential-Growth Bias in Retirement Savings
Summary Slides
Discussant: Melissa Knoll, Consumer Financial Protection Bureau   Slides

Irena Dushi, Social Security Administration, and Alicia H. Munnell, Geoffrey Sanzenbacher, and Anthony Webb, Boston College
Do Households Increase Their Savings When the Kids Leave Home?
Summary Slides
Discussant: William Gale, Brookings Institution   Slides

John Beshears, David Laibson, and Brigitte Madrian, Harvard University; James Choi, Yale University; and Sean Wang, NBER
Who is Easier to Nudge?
Summary Slides
Discussant: Jack Van Derhei, Employee Benefit Research Institute   Slides

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