New papers from the Social Science Research Network

"What's Happening with Retirement Saving and Retirement Incomes? Better Data Tell a Better Story"

ANDREW G. BIGGS, American Enterprise Institute
Email: andrew.biggs@aei.org

Both households and policymakers are concerned about retirement security, amidst widespread perceptions that households are not saving adequately for retirement. But many of the commonly-cited data understate retirement plan availability and participation as well as the income that retirees derive from IRA and 401(k) plans. Moreover, many observers contrast these unduly pessimistic data with a prior "Golden Age" of traditional pensions, when data show that most U.S. workers never participated in such plans and onerous vesting requirements prevented many from receiving substantial benefits. A perception that most Americans are falling far short of their retirement saving goals may cause policymakers to overlook targeted polices to assist the smaller number of households who truly are at risk of an inadequate income in retirement.

"Do Savings Increase in Response to Salient Information About Retirement and Expected Pensions?"
ZEW - Centre for European Economic Research Discussion Paper No. 16-059

MATHIAS DOLLS, Centre for European Economic Research (ZEW), Institute for the Study of Labor (IZA)
Email: dolls@zew.de
PHILIPP DOERRENBERG, Centre for European Economic Research (ZEW), Institute for the Study of Labor (IZA), CESifo Institute
Email: doerrenberg@zew.de
ANDREAS PEICHL, Centre for European Economic Research (ZEW), University of Mannheim - School of Economics (VWL), Institute for the Study of Labor (IZA), University of Essex - Institute for Social and Economic Research (ISER)
Email: peichl@zew.de
HOLGER STICHNOTH, Centre for European Economic Research (ZEW)
Email: stichnoth@zew.de

How can retirement savings be increased? We explore a unique policy change in the context of the German pension system to study this question. As of 2004, the German pension authority started to send out annual letters providing detailed and comprehensible information about the pension system and individual expected pension payments. This reform did not change the level of pensions, but only manipulated the knowledge about and salience of expected pension payments. Using German tax return data, we exploit two discontinuities in the age cutoffs of receiving such a letter to study their effects on private retirement savings. Our results show that the letters increase private retirement savings. The effects are fairly sizable and persistent over several years. We further show that the letter increases labor earnings, and that the increase in savings partly crowds out charitable donations. Moreover, we present evidence suggesting that both information and salience drive the savings effect. Our paper adds to a recent literature showing that policies that go beyond the traditional neoclassical reasoning can be powerful to increase savings rates.

"How Does Student Debt Affect Early-Career Retirement Saving?"
CRR WP 2016-9

MATTHEW S. RUTLEDGE, Boston College, Center for Retirement Research
Email: rutledma@umich.edu
GEOFFREY SANZENBACHER, Boston College Economics Department
Email: geoffrey.sanzenbacher.1@bc.edu
FRANCIS M. VITAGLIANO, Boston College - Center for Retirement Research
Email: vitaglif@bc.edu

This paper examines the relationship between student loans and retirement saving behavior by 30-year-old workers. Total outstanding student loan debt in the United States has quintupled since 2004. Rising student debt levels mean that young workers must reduce either their consumption or their saving. To what extent do these workers cut back on retirement saving? Existing studies have lacked adequate data or controls for studying this issue: conventional financial datasets include too few younger households; the study samples used include older households whose student debt may be from their children’s education instead of their own; and many studies lack important controls to capture differences between attendees with more or less student debt. This study uses the National Longitudinal Survey of Youth 1997 Cohort, a larger sample of workers turning 30, and includes detailed controls including school quality, parental background, and the underlying ability of the college attendee. The analysis focuses on participation in an employer-sponsored retirement plan and retirement assets as of age 30.
This paper found that:
- The estimated relationship between student debt and participating in a retirement plan – whether or not their employer offers one – is small and statistically insignificant, and we can rule out any large negative correlation.
- Contrary to expectations, individuals with a large loan balance who were offered a plan are more likely to accept it, though the estimated relationship is small.
- Some evidence indicates that bachelor’s degree-holders who have student loans have lower retirement assets at age 30, though the estimates are statistically insignificant, and retirement assets levels are unrelated to the size of their student loan balances.
The policy implications of this paper are:
- Though young workers’ balance sheets are clearly hurt by student debt, the preliminary results indicate that they do not substantially reduce retirement saving to compensate.
- This lack of a relationship between student loans and retirement plan saving suggests that the detrimental effect of student debt manifests itself either through reduced consumption or other reductions in net worth, such as credit card debt.
- Despite these findings, it will be worth watching future cohorts to determine whether a stronger relationship between student debt and retirement savings will emerge in the future, as those who built up even more debt move toward financial and economic maturity.

"What are the Effects of Doubling Up on Retirement Income and Assets?"
CRR WP 2016-10

DEIRDRE PFEIFFER, Arizona State University (ASU) - School of Geographical Sciences and Urban Planning
Email: dap624@gmail.com
KATRIN B. ANACKER, George Mason University - School of Policy, Government, and International Affairs
Email: kanacker@gmu.edu
BROOKS LOUTON, Arizona State University (ASU) - School of Criminology & Criminal Justice
Email: Brooks.Louton@asu.edu

The Great Recession has amplified the increase in socioeconomic instability and inequality in the United States. While much work has been conducted on retirement income and assets, not much work has been undertaken on seniors moving in with their adult children and grandchildren, possibly to save on housing costs. Utilizing Survey of Income and Program Participation (SIPP) 1996, 2001, 2004, and 2008 data for seniors 65 and older, we conducted descriptive statistics and three types of models. First, we used discrete-time event history modeling to analyze the effect of changes in retirement income, assets, debt, and social welfare program participation between the current and previous interview on the propensity of moving into a multigenerational household, controlling for other factors. Then, we used logistic and linear regression to understand the effect of living in a multigenerational household on changes in seniors’ retirement income, assets, debt, and program participation, controlling for other factors. We also expanded our analyses to control for household type, i.e., a senior moving in with their adult children or grandchildren or vice versa, and for time, i.e., whether the recession impacts our results.
The paper found that:
- Experiencing economic distress increased the odds that a senior would move into a multigenerational household over the previous year or previous four months.
- Seniors living in multigenerational households were more economically disadvantaged than seniors not living in multigenerational households.
- Seniors living in multigenerational households were more likely to enroll in a social welfare program over the past four months than seniors not living in multigenerational households.
- The relationships between seniors’ multigenerational household formation and economic outcomes did not change much during the recession.
The policy implications of the findings are:
- Living in a multigenerational household may have a potentially destabilizing effect on seniors’ economic well-being.
- Policymakers may want to target financial education and counseling to seniors living in multigenerational households.

"Adequacy, Fairness and Sustainability of Pay-as-You-Go-Pension-Systems: Defined Benefit Versus Defined Contribution"

JENNIFER ALONSO-GARCÍA, University of New South Wales (UNSW) - ARC Centre of Excellence in Population Ageing Research (CEPAR)
Email: j.alonsogarcia@unsw.edu.au
MARÍA EL CARMEN BOADO-PENAS, University of Liverpool
Email: carmen.boado@liverpool.ac.uk
PIERRE DEVOLDER, Catholic University of Louvain
Email: devolder@fin.ucl.ac.be

There are three main challenges facing public pension systems. First, pension systems need to provide an adequate income for pensioners in the retirement phase. Second, participants wish a fair level of benefits in relation to the contributions paid. Last but no least, the pension system would need to be financially sustainable in the long run. In this paper, we analyse defined benefit versus defined contribution schemes in terms of adequacy, fairness and sustainability jointly. Also, risk sharing mechanisms, that involve changes in the key variables of the system, are designed to restore the financial sustainability at the same time that we study their consequences on the adequacy and fairness of the system.

"Initiate Deficits to Strengthen Public Finances: The Role of Private Pensions"

ALES S. BERK, University of Ljubljana - Faculty of Economics
Email: ales.berk@ef.uni-lj.si
DRAGAN JOVANOVIĆ, Independent
Email: d.jovanovic@t-2.net
JOZE SAMBT, University of Ljubljana - Faculty of Economics
Email: joze.sambt@ef.uni-lj.si

In this paper we use our comprehensive pension system model calibrated to the real demographic, employment and retirement data, measure transition costs of implementing mandatory private second-pillar into the pension landscape and consider fiscal sustainability of pension system. We report sensitivity to the most relevant parameters both within a second-pillar and a pay-as-you-go, and argue that fiscal sustainability and improved (higher) accrual rates are not incompatible policy goals if only pension reform is properly designed and implemented early enough. The introduction of a private pension pillar has to be implemented in times when public debt burden remains manageable and has to be accompanied by further parametric reform within the pay-as-you-go system that keeps the system fiscaly stable, as well as that further improves net accrual rates. We call for reconsideration of pension policy reversals that happened after 2008 in quite some coutries.