We examine retirement saving for young adults in a life cycle model. We find that optimal retirement saving is zero for liquidity‐constrained young adults who anticipate significant earnings growth. ...With a plausible age‐earnings profile for college‐educated workers, retirement saving does not begin until the late 30s or early 40s. Workers facing a flat earnings profile begin saving much sooner. Participating may be optimal for younger workers facing steep earnings profiles if they anticipate switching jobs and cashing out after 1–2 years. Our results suggest that automatically enrolling workers, regardless of age, is not consistent with a life cycle model.
•Many people in their early-to-mid 60 s report both Social Security and annuity income.•This phenomenon often represents a foregone arbitrage opportunity.•Arbitrage is possible by deferring Social ...Security and not annuitizing income.•Arbitrage involves selling a high-priced annuity and buying a low-priced one.
Even though delaying Social Security is equivalent to purchasing a very favorably priced annuity, almost everyone takes Social Security at or before their full retirement age. Many who take Social Security early simultaneously report additional annuity income. This combination can create an arbitrage opportunity where an individual could explicitly or implicitly sell their relatively high priced annuity, use the proceeds to delay Social Security and secure higher income for life. Several hundred thousand, perhaps millions, of households fail to take advantage of this arbitrage opportunity, with a resulting loss that ranges up to $250,000.
We examine changes in subjective probabilities regarding retirement between the 2006 and 2008 waves of the Health and Retirement Study. Using a first-difference approach to eliminate individual ...heterogeneity, we find that the steep drop in asset prices in 2008 increased the reported probability of working at age 62 during the Great Recession. Increasing unemployment at least partly attenuated this effect, but subjective probabilities of working did not respond to changes in housing markets. Older workers' probabilities of working were more sensitive to fluctuations in the stock market, but less responsive to changes in labor market conditions. PUBLICATION ABSTRACT
•We study the role of retiree health insurance in early retirement in the public sector.•Such coverage raises the probability of stopping full time work at ages 55–64.•Retiree health insurance ...facilitates transitions to part-time work at ages 55–59.•Retiree health insurance increases the probability of stopping work entirely at ages 60–64.
Most government employees have access to retiree health coverage, which provides them with group health coverage even if they retire before Medicare eligibility. We study the impact of retiree health coverage on the labor supply of public sector workers between the ages of 55 and 64. We find that retiree health coverage raises the probability of stopping full time work by 4.3 percentage points (around 38 percent) over two years among public sector workers aged 55–59, and by 6.7 percentage points (around 26 percent) over two years among public sector workers aged 60–64. In the younger age group, retiree health insurance mostly seems to facilitate transitions to part-time work rather than full retirement. However, in the older age group, it increases the probability of stopping work entirely by 4.3 percentage points (around 22 percent).
Pathways to retirement through self-employment Ramnath, Shanthi; Shoven, John B.; Slavov, Sita Nataraj
Journal of pension economics & finance,
04/2021, Letnik:
20, Številka:
2
Journal Article
Recenzirano
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We examine the role of self-employment in retirement transitions using a panel of administrative tax data. We find that the hazard of self-employment increases at popular retirement ages associated ...with Social Security eligibility, particularly for those with greater retirement wealth. Late-career transitions to self-employment are associated with a larger drop in income than similar mid-career transitions. Data from the Health and Retirement Study suggest that hours worked also fall upon switching to self-employment. These results suggest that self-employment at older ages may serve as a ‘bridge job,’ allowing workers to gradually reduce hours and earnings along the pathway to retirement.
This article presents a thorough evaluation of target date funds (TDFs) for the period 2010–2020. TDFs have grown enormously in assets, reaching $1.4 trillion at the end of 2019, and account for ...approximately 24% of all assets in 401(k) accounts. We report on the results of a style analysis evaluation of TDFs that determines their effective asset allocation. It examines both the constant in the style analysis regressions and resulting Sharpe ratios, which reflect the over- or under-performance of the funds relative to a passive benchmark with the same asset allocation. Lower cost TDFs tend to match the benchmark returns, while higher cost TDFs deviate from them considerably. We examine how TDFs performed in the stock market crash between February 19 and March 23, 2020, during which five-week period broad market averages fell by about one-third. We find that the value of long-dated TDFs (those with a target date of 2045 and beyond) fell by between 30% and 35%, while the 2025 funds, designed for people roughly 60 years old, lost between 20% and 25% of their value. We find that past performance only weakly influences future expected performance. As with equity funds in general in this period, TDFs with actively managed ingredient funds, on average, trailed the performance of their cheaper passively managed counterparts. TOPICS: Pension funds, portfolio theory, risk management, performance measurement Key Findings ▪ Even near term target date funds (TDFs) have considerable equity exposure. For instance, 2025 TDFs lost between 20 and 25% of their value in the five weeks between February 19 and March 23, 2020. Many longer horizon TDFs did no better than pure equity funds in this period. ▪ 75% of actively managed TDFs failed to do as well as the best fitting set of reference ETFs. ▪ Past performance is only a weak predictor of future performance for TDFs. An extra 1% per year return in 2010–14 period only increases the expected return in 2015–19 by 9 basis points per year.
The power of working longer Bronshtein, Gila; Scott, Jason; Shoven, John B. ...
Journal of pension economics & finance,
10/2019, Letnik:
18, Številka:
4
Journal Article
Recenzirano
This paper compares the relative strengths of working longer vs. saving more in terms of increasing a household's affordable, sustainable standard of living in retirement. Both stylized households ...and actual households from the Health and Retirement Study are examined. We assume that workers commence Social Security benefits when they retire. The basic result is that delaying retirement by 3–6 months has the same impact on the retirement standard of living as saving an additional one-percentage point of labor earnings for 30 years. The relative power of saving more is even lower if the decision to increase saving is made later in the work life. For instance, increasing retirement saving by one percentage point 10 years before retirement has the same impact on the sustainable retirement standard of living as working between 1 and 2 months longer. The calculations of the relative power of working longer and saving more are done for a wide range of realized rates of returns on saving, for households with different income levels, and for singles as well as married couples. The results are quite invariant to these circumstances.
Demographics is a vital field of study for understanding social and economic change and it has attracted attention in recent years as concerns have grown over the aging populations of developed ...nations. Demographic studies help make sense of key aspects of the economy, offering insight into trends in fertility, mortality, immigration, and labor force participation, as well as age, gender, and race specific trends in health and disability. Demography and the Economy explores the connections between demography and economics, paying special attention to what demographic trends can reveal about the sustainability of traditional social security programs and the larger implications for economic growth. The volume brings together some of the leading scholars working at the border between the two disciplines, and it provides an eclectic overview of both fields. Contributors also offer deeper analysis of a variety of issues such as the impact of greater wealth on choices about marriage and childbearing and the effects of aging populations on housing prices, Social Security, and Medicare.
Despite the large and growing returns to deferring Social Security benefits, most individuals claim Social Security before the full retirement age. In this paper, we use a panel of administrative tax ...data on individuals likely to financially benefit from delaying Social Security claiming to explore the relationship between Social Security claiming and distributions from tax-advantaged retirement savings accounts. We find that the majority of our sample claim Social Security prior to taking distributions from Individual Retirement Accounts (IRAs). We also find that a third of our sample have IRA balances equivalent to at least two additional years of Social Security benefits, and a quarter have IRA balances equivalent to at least 4 years of Social Security benefits. We complement our analysis with data from the Health and Retirement Study and find that these percentages are considerably higher when other financial assets are taken into account.
Does it pay to delay social security? SHOVEN, JOHN B.; SLAVOV, SITA NATARAJ
Journal of pension economics & finance,
04/2014, Letnik:
13, Številka:
2
Journal Article
Recenzirano
Social Security benefits may be commenced at any time between ages 62 and 70. As individuals who claim later can, on average, expect to receive benefits for a shorter period, an actuarial adjustment ...is made to the monthly benefit to reflect the age at which benefits are claimed. We investigate the actuarial fairness of that adjustment in light of recent improvements in mortality and historically low interest rates. We show that delaying is actuarially advantageous for a large number of people, even for individuals with mortality rates that are twice the average. At real interest rates closer to their historical average, singles with mortality that is substantially greater than average do not benefit from delay, although primary earners with high mortality can still improve the present value of the household's benefits through delay. We also investigate the extent to which the actuarial advantage of delay has grown since the early 1960s, when the choice of when to claim first became available, and we decompose this growth into three effects: (1) the effect of changes in Social Security's rules, (2) the effect of changes in the real interest rate, and (3) the effect of changes in life expectancy. Finally, we quantify the extent to which the gains from delay can be expected to increase in the future as a result of mortality improvements.
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