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Public Sector Workers and Job Security
Public Sector Workers and Job Security
Source: Center for Retirement Research at Boston College
The brief’s key findings are:
- State and local government employment dropped sharply during the Great Recession, unlike in previous recessions, and continues to decline even today.
- But this decline in public sector employment was less severe than that experienced by the private sector.
- Being a state/local worker reduced the probability of job loss by 2 percentage points, after controlling for education and other characteristics.
- While this relative job security is an attractive aspect of state/local employment, it is not enough to tip the balance of total compensation in favor of public workers.
Sticky Ages: Why Is Age 65 Still a Retirement Peak?
Sticky Ages: Why Is Age 65 Still a Retirement Peak?
Source: Center for Retirement Research at Boston College
When Social Security’s Full Retirement Age (FRA) increased to age 66 for recent retirees, the peak retirement age increased with it. However, a large share of people continue to claim their Social Security benefits at age 65. This paper explores two potential explanations for the “stickiness” of age 65 as a claiming age: Medicare eligibility and workers’ lack of knowledge about their future Social Security benefits. First, we analyze the impact of Medicare eligibility by comparing two groups – one has an FRA of exactly 65; the other, between age 65 and 2 months and age 66. We find that the group with later FRAs who do not have access to retiree health benefits through their employer are more likely to claim Social Security at age 65. We interpret this finding as evidence that Medicare eligibility persuades more people to retire, because they can begin receiving federal health coverage. Individuals without access to retiree health insurance at work are 7.5 percentage points more likely to retire soon after their 65th birthdays and are 5.8 percentage points less likely to delay retirement until the FRA than those with that insurance. This result fits into extensive research showing that access to health insurance is an important component of the retirement decision. On the question of whether misinformation about Social Security benefits may drive individuals to claim at age 65, we find that some individuals are unable to accurately forecast their retirement benefits. However, our analysis suggests that there is no relationship between this confusion and the age 65 peak for claiming Social Security.
Does Access to Health Insurance Influence Work Effort Among Disability Cash Benefit Recipients?
Does Access to Health Insurance Influence Work Effort Among Disability Cash Benefit Recipients?
Source: Center for Retirement Research at Boston College
There is considerable policy concern about “DI lock” – that tying public health insurance coverage to cash disability benefit receipt contributes to the low exit rates due to work. This concern led Congress to institute continued health insurance eligibility after disability beneficiaries leave the cash-benefit rolls for work-related reasons. However, unlike the long literature on “job lock,” the importance of the DI lock hypothesis – either before or after these extensions – has remained unquantified.
This paper tests whether “perceived DI lock” remains among disability beneficiaries, and whether state health insurance policies help alleviate the problem and encourage work among beneficiaries. The analysis includes both DI and SSI beneficiaries and tests if there are differential patterns between the two programs. We exploit state variation in the access and cost of health insurance caused by regulation of the non-group market, the existence of Medicaid buy-in programs, and Medicaid generosity, as well as detailed disability and health insurance program interactions. While we find little evidence overall of persistent DI-lock, heterogeneity is very important in this context. Our estimates suggest that increasing health insurance access does increase the likelihood of positive earnings among a subset of disability beneficiaries. We find evidence of SSI lock among beneficiaries with some Medicaid expenditures and find that both non-group health insurance regulation and generous Medicaid eligibility help alleviate the problem. We find evidence of remaining DI lock among individuals who do not have access to supplemental health insurance outside of Medicare. Medicaid buy-in programs alleviate the remaining DI lock.
Subsidies vs. Nudges: Which Policies Increase Saving the Most?
Subsidies vs. Nudges: Which Policies Increase Saving the Most?
Source: Center for Retirement Research at Boston College
The brief’s key findings are:
- To encourage retirement saving, policymakers use two types of tools: tax subsidies and automatic contributions.
- Both tools are effective at increasing retirement saving, but such increases could simply be offset by a reduction in a household’s non-retirement saving.
- A recent study, using Danish data, addresses this issue:
- A revision in the Danish tax subsidy led to a change in retirement saving, but it was almost fully offset by a change in non-retirement saving.
- In contrast, automatic contributions boosted retirement saving with only a small impact on non-retirement saving.
Compensation Matters: The Case of Teachers
Compensation Matters: The Case of Teachers
Source: Center for Retirement Research at Boston College
The brief’s key findings are:
- Many public sector pension plans have recently cut pension benefits for new hires, thereby reducing compensation.
- The analysis looks at how such cutbacks could affect the quality of teachers.
- One proxy for teacher quality is the average SAT score at a teacher’s undergraduate institution.
- The analysis finds that school districts with higher wages and/or higher pensions are able to hire teachers from institutions with higher SAT scores.
- These results suggest that cutting compensation for new teachers is not costless, as it will likely reduce applicant quality.
Changing Sources Of Income Among The Aged Population
Changing Sources Of Income Among The Aged Population (PDF)
Source: Center for Retirement Research at Boston College
This paper focuses on an explanation for the large shift over the past two decades in the composition of the income of the aged (65+), increasing the role of earned income and reducing the importance of income from their own assets. We find that the pattern of change is consistently reported in all of the major household surveys. The increase in the importance of labor income can be attributed to delayed exit from the labor force by workers at older ages. We attribute the increase in work time to a rise in the proportion of more educated workers who choose to continue working, changes within the pension system that previously encouraged early retirement, and a decline in the availability of retiree health insurance. The increase in work time is concentrated among the highest income groups and those with the most education, suggesting that it is largely voluntary. The fall in asset income can be traced to lower interest rates and a reduced propensity for the aged to convert their wealth to annuities. It does not reflect reduced wealth at older ages. A measure of the annuity equivalent of their wealth holdings suggests that there has been no decline for aged units. We also find only a weak relationship between changes in asset income and the decision to remain in the workforce.
The National Retirement Risk Index: An Update
The National Retirement Risk Index: An Update
Source: Center for Retirement Research at Boston College
The brief’s key findings are:
The National Retirement Risk Index (NRRI), based on newly released Survey of Consumer Finances data, shows that over half of households may be unable to maintain their standard of living in retirement. Between 2007 and 2010, the NRRI jumped by 9 percentage points due to:
- the bursting of the housing bubble (4.5 percentage points);falling interest rates (2.2 percentage points);
- the ongoing rise in Social Security’s Full Retirement Age (1.6 percentage points);
- and continued low stock prices (0.8 percentage points).
The hardest hit households were those nearing retirement and those with high incomes.
The Pension Coverage Problem in the Private Sector
The Pension Coverage Problem in the Private Sector
Source: Center for Retirement Research at Boston College
The brief’s key findings are:
- Only 42 percent of private sector workers age 25-64 have any type of pension coverage in their current job.
- This coverage gap creates two types of problems:
- More than a third of households end up at retirement with only Social Security.
- Workers who move in and out of coverage accumulate only modest amounts in their 401(k)s.
- Simplifying pension plans has not solved the coverage problem.
- Recently, both federal and state policymakers have put forth proposals to cover the uncovered.
- But given the low level of Social Security benefits and modest 401(k) balances, any new tier should be universal.
Should You Buy an Annuity From Social Security
The brief’s key findings are:
- Households now retiring need to transform their 401(k) and IRA savings into retirement income.
- One way is to delay claiming Social Security to increase their monthly benefit, using savings to pay current expenses while they wait.
- In effect, they are buying an annuity from Social Security: The savings used is the “price” and the increase in their monthly benefit the annuity income it “buys.
- ”Buying an annuity from Social Security is generally the best deal in town, especially in today’s low interest-rate environment.
Social Security — Great Recession-Induced Early Claimers: Who Are They? How Much Do They Lose?
During the Great Recession, more older workers have claimed Social Security benefits early. This paper addresses two important policy questions: Who are these early claimers? How much retirement income have they lost as a result of claiming early? Using the Health and Retirement Study (HRS) we estimate a discrete-time hazard model that makes claiming Social Security benefits a function of age, personal characteristics, and the national unemployment rate. We project that high unemployment rates during the Great Recession led to a 5-percentage-point increase in the probability of claiming early relative to a less severe recession such as the 2001-2003 downturn, and this increase was nearly uniform across socioeconomic groups. Our estimates also suggest that while the Great Recession did impact the claiming decision, it did not cause a dramatic change in benefits. “Great Recession Claimers” – those whom we simulate were likely to claim early during the Great Recession but would not have in a milder downturn – filed for Social Security only 6 months earlier, on average, than they would have in a minor recession. This modest change in timing reduced their monthly Social Security benefit checks by $56, or 4.6 percent of average monthly benefits, and the Social Security replacement rate fell by 1.7 percentage points relative to a more typical recession. The benefit reduction resulted from the combined effect of the actuarial reduction for early claiming and the foregone opportunity to continue working and increase the wage base used for calculating benefits.
+ Full Paper (PDF)
The Rise of Financial Fraud
The brief’s key findings are:
- Financial fraud complaints by consumers have surged over the past decade, fueled by the rise of Internet-based scams.
- This trend will likely continue as scammers target aging baby boomers, who have substantial assets and face cognitive decline.
- Consumers can help protect themselves by recognizing standard fraud strategies and the disguises used by scammers.
Why Do More People Die During Economic Expansions?
The brief’s key findings are:
- When economic times are good, deaths in the United States increase.
- Previous research suggests that a likely culprit is poorer health habits tied to greater job demands.
- However, the increase in mortality is largely driven by deaths among elderly women in nursing homes.
- These nursing home deaths may reflect increased shortages of caregivers during economic expansions.
+ Full Document (PDF)
How Important Is Asset Allocation To Financial Security In Retirement?
Financial advice tends to focus on financial assets, but other levers may be more important for most households. This paper proceeds in three stages. The first section reports a simple Excel spreadsheet exercise that provides a stylized example of the tradeoff between returns and time spent in the labor force. The second section uses data from the Health and Retirement Study (HRS) on pre-retirees aged 51-64 to see how the gap between retirement needs and retirement resources is affected by working longer, taking out a reverse mortgage, controlling spending, and shifting all assets to equities with no risk. The third section uses a simple dynamic programming model to calculate a risk-adjusted measure of the value for the average household of moving from a typical conservative portfolio to an optimal portfolio. The answer from all three exercises is the same: the focus on asset allocation is misplaced.
How Can Employers Encourage Young Workers to Save for Retirement?
- One reason young workers don’t save for retirement is that the event is so far off.
- An experiment to boost their saving tested different ads:
- abstract or concrete wording (“why you should save more now” vs. “how you can save more now”);
- and a short- or long-term savings goal (“how much to save from each paycheck” vs. “how much to save over your lifetime”).
- The most effective ads paired abstract wording with a long-term goal and concrete wording with a short-term goal.
- Therefore, communications designed to spur saving by young workers should match the framing of the message to the time horizon of the savings milestone.
The Rise of Financial Fraud
The Rise of Financial Fraud
Source: Center for Retirement Research at Boston College
Individuals save for decades to ensure that they will have financial security in retirement. That security can be threatened or eliminated virtually overnight if an individual who is in or near retirement becomes the victim of a financial fraud, such as a Ponzi scheme or sham investment in high-yield securities.
Fueled by the Internet, the incidence of financial fraud is on the rise. Law enforcement officials and fraud experts expect the trend to continue or accelerate as aging baby boomers increasingly become targets. According to the Federal Trade Commission (FTC), Americans in 2010 submitted more than 1 million complaints about financial and other fraud – up 35 percent in just three years. But these data do not fully represent fraud’s pervasiveness, because researchers say that it often goes unreported to the authorities…
+ Full Document (PDF)
Related study: The Rise of Financial Fraud: Scams Never Change but Disguises Do (Financial Security Project at Boston College)
Do Income Taxes Affect the Progressivity of Social Security?
Do Income Taxes Affect the Progressivity of Social Security?
Policymakers have designed Social Security to be a progressive retirement program that replaces a larger share of monthly earnings for low- and middle-income workers than for high earners. However, previous research has found that, although the Disability Insurance (DI) component of Social Security is very progressive, the Old-Age and Survivors Insurance (OASI) component may be less progressive than intended. One reason is that high earners tend to live longer than low earners. Since Social Security pays an annuity that lasts throughout retirement, it benefits high earners with greater longevity…
+ Full Paper (PDF)
Do Low-Income Workers Benefit From 401(k) Plans?
401(k) plans – the main retirement savings vehicle for millions of workers – allow participants to save on a tax-deferred basis. This tax incentive is more valuable to workers in high-income families than workers in low-income families because they face higher marginal income tax rates. Not surprisingly, then, studies of the distributional effects of 401(k)s find that they mainly benefit high-income workers. However, these studies assume that employer contributions to 401(k)s do not affect the total compensation that each worker receives – that is, every worker “pays for” employer contributions in the form of lower wages. This brief challenges this assumption, testing whether employer contributions may actually increase total compensation for low-income workers, who may be more reluctant than high-income workers to accept wage reductions in exchange for retirement saving contributions…
How Would GASB Proposals Affect State and Local Pension Reporting?
How Would GASB Proposals Affect State and Local Pension Reporting?
Source: Center for Retirement Research at Boston College
States and localities account for pensions in their financial statements according to standards laid out by the Governmental Accounting Standards Board (GASB). Under these standards, state and local plans generally follow an actuarial model and discount their liabilities by the long-term yield on the assets held in the pension fund, roughly 8 percent. Most economists contend that the discount rate should reflect the risk associated with the liabilities and, given that benefits are guaranteed under most state laws, the appropriate discount factor is closer to the riskless rate. The point is not that liabilities should be larger or smaller, but rather that the discount rate should reflect the nature of the liabilities; the characteristics of the assets backing the liabilities are irrelevant…
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Disability Insurance: Does Extending Unemployment Benefits Help?
Disability Insurance: Does Extending Unemployment Benefits Help?
Source: Center for Retirement Research at Boston College
The Great Recession has resulted in the highest national unemployment rate in nearly 30 years, and those who find themselves unemployed remain jobless longer than ever before. In response, the federal government has extended unemployment insurance (UI) benefits for up to 99 weeks, almost a year and a half longer than normal durations. At the same time, applications for Social Security disability insurance (SSDI) benefits, which had been increasing for decades,1 reached an all-time high in 2009 and have continued to rise. An important question is how the availability of unemployment insurance, in general, and extended UI benefits, in particular, affect SSDI applications and the composition of the pool of applicants. This question is the topic of this brief…
+ Full Document (PDF)
Why Don’t Retirees Insure Against Long-Term Care Expenses? Evidence from Survey Responses
Why Don’t Retirees Insure Against Long-Term Care Expenses? Evidence from Survey Responses (PDF)
Source: Center for Retirement Research at Boston College
We conduct a detailed survey of those nearing and in retirement to help assess the relative support for numerous alternative hypotheses regarding the small size of the long-term care insurance market. We categorize these hypotheses into four broad categories: (i) Preferences and Beliefs, which includes factors such as time preference, risk aversion, bequests, statedependent utility, and beliefs about the need for care, (ii) Substitutes for Insurance, such as the ability to pay for care out of wealth, home equity, or family resources, a plan to rely on Medicaid, or mistaken beliefs that such care is covered by Medicare, (iii) Substitutes for Formal Care, most notably including the ability to receive care from family members rather than relying on formal market-based care, and (iv) Features of the Private Market, including concerns about cost, affordability, counter-party risk, and distrust of insurers. We find numerous significant differences in the likelihood of buying insurance based on differences in each of these dimensions. For example, we find that individuals are much more likely to purchase private long-term care insurance if they place a higher value on money when sick versus money when healthy (i.e., state-dependent preferences), if they report a stronger bequest motive, if they believe they are more likely to need care, if they place a stronger emphasis on the avoidance of burdening their families with care provision, prefer care to be given by professionals, and believe premiums are appropriately priced given the care they provide. Individuals are much less likely to purchase private insurance if they believe their family is likely to take care of them, if they are concerned about affordability of insurance, if they are more concerned about counter-party risk, or that they insurance company might deny legitimate claims or raise premiums in the future.
