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The U.K.’s Ambitious New Retirement Savings Initiative

April 15, 2014 Comments off

The U.K.’s Ambitious New Retirement Savings Initiative
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • The United Kingdom is rolling out a low-cost retirement system for workers who lack pension coverage.
  • The new system has three core elements:
    • Employers auto-enroll their workers at a 4-percent contribution rate, matched by the employer and government combined.
    • A new non-profit provides the infrastructure to keep costs low.
    • The plans’ target date funds start young workers with low-risk investments to avoid losses that could discourage saving.
  • The U.S.’s new “myRA” program includes two similar design features – low-risk investments and government infrastructure – but it lacks auto-enrollment.
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Lower-Income Individuals Without Pensions: Who Misses Out and Why?

April 9, 2014 Comments off

Lower-Income Individuals Without Pensions: Who Misses Out and Why?
Source: Center for Retirement Research at Boston College

In 2010, only 19 percent of individuals ages 50-58 whose household incomes were less than 300 percent of the poverty line participated in a pension of any kind at their current jobs, compared to 56 percent of those above 300 percent of poverty. This paper investigates this pension gap. In particular, we decompose the pension participation rate into its four elements in order to compare coverage between higher- and lower-income individuals: 1) the fraction of people who are currently working (the employment rate); 2) the fraction of workers who are in firms that offer pension benefits to at least some workers (the offer rate); 3) the fraction of workers who are eligible for pension benefits, conditional on being in a firm where it is offered (the eligibility rate); and 4) the fraction of workers who enroll in a pension plan when they are eligible (the take-up rate). We find that the substantial pension gap between higher- and lower-income individuals is driven primarily by the lower-income group’s lower employment rate and the smaller probability of working for an employer that offers pensions; when lower-income workers do have a pension plan at work, their eligibility and take-up rates are nearly equivalent to higher-income workers. We also find that the factors associated with a higher value for each element of pension participation are very consistent: higher education and income, previous pension history, and job characteristics including firm size, occupation, job tenure, and union status. Together, these findings suggest that policies such as automatic enrollment that focus on pension eligibility or take-up are unlikely to close the pension coverage gap between older, lower-income individuals and their higher-income contemporaries; instead, greater pension participation requires more jobs and, in particular, more “good jobs.”

Is Pension Coverage a Problem in the Private Sector?

April 3, 2014 Comments off

Is Pension Coverage a Problem in the Private Sector?
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • Commentators question whether pension coverage is a serious problem, indicating that 80 percent have access to a plan.
  • But this number refers to access – not participation – and to full-time workers in both the public and private sectors.
  • A review of four household surveys and one employer survey finds that only about half of all private workers (age 25-64) are participating in a plan.
  • So, yes, coverage remains a serious problem.

The Impact of Aging Baby Boomers on Labor Force Participation

March 7, 2014 Comments off

The Impact of Aging Baby Boomers on Labor Force Participation
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • Older people have lower labor force participation rates than younger adults, so aging baby boomers are pushing down overall participation.
  • This aging effect accounts for more than 40 percent of the decline since the onset of the Great Recession.
  • An aging population also lowers unemployment slightly because older individuals who remain in the labor force are more likely to have a job.
  • The aging trend will continue for the rest of the decade and will show up in monthly labor force statistics.

How Long Do Unemployed Older Workers Search for a Job?

February 5, 2014 Comments off

How Long Do Unemployed Older Workers Search for a Job?
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • The Great Recession threw many older individuals out of work, so it is important to understand their job search activity.
  • The results show little tolerance for a lengthy search; the vast majority either find a job or exit the labor force within a year.
  • Those with financial resources, such as Social Security, leave even sooner.
  • Interestingly, the strength of the local labor market does not seem to have much impact on the duration of job search.

How Will More Obesity and Less Smoking Affect Life Expectancy?

January 22, 2014 Comments off

How Will More Obesity and Less Smoking Affect Life Expectancy?
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • Obesity is on the rise and smoking is on the decline, so a key issue is the net effect of these two trends on future life expectancy.
  • The analysis examines how each behavior currently affects mortality and applies the results to an estimate of the future prevalence of each behavior.
  • The results show that, in 2040, the benefits of reduced smoking trump the damage from rising obesity.

However, the story differs by gender, with a solid gain for men and only a small improvement for women, who see less of a decline in smoking during the period.

How Do Subjective Longevity Expectations Influence Retirement Plans?

January 17, 2014 Comments off

How Do Subjective Longevity Expectations Influence Retirement Plans?
Source: Center for Retirement Research at Boston College

Increasing life expectancy has made working longer both more necessary and more possible, but the relationship between an individual’s survival expectations and his planned retirement age is unclear in the existing literature. This study uses the Health and Retirement Study and an instrumental variables (IV) approach to examine how subjective life expectancy influences planned retirement ages and expectations of working at older ages, and how individuals update those expectations when they receive new information. The estimates in this paper suggest a large and statistically significant relationship between subjective life expectancy and retirement expectations: a one-standard-deviation increase in optimism about living to ages 75 or 85 is associated with an 8-percent to 24-percent increase over the mean probability of working at these ages. Actual retirement behavior also increases with subjective life expectancy, but the relationship is somewhat weaker. Our IV estimates using parents’ longevity as instruments are largely consistent with our reduced form estimates, strengthening the conclusion that subjective life expectancy impacts both retirement planning and actual retirement behaviors. Finally, we find that increases over time in subjective life expectancy are associated with increases in the probability of planning to work at ages 62 and 65. The results further our understanding of how survival and retirement expectations are “anchored” to the previous generation’s experience and suggest how targeted efforts at increasing knowledge about rising life expectancy may increase the proportion of younger cohorts who decide to work longer.

Does Household Debt Influence the Labor Supply and Benefit Claiming Decisions of Older Americans?

January 7, 2014 Comments off

Does Household Debt Influence the Labor Supply and Benefit Claiming Decisions of Older Americans?
Source: Center for Retirement Research at Boston College

Americans’ indebtedness has increased dramatically since the 1980s – a trend likely to have important implications for retirement security. This study finds that older adults with debt are 8 percentage points more likely to work and 2 percentage points less likely to receive Social Security benefits than those without debt. Not only does the presence of debt influence older adults’ behavior, but so do the amount and type of debt – particularly outstanding mortgages. Increasingly, retirement security will depend on having enough income and assets to pay for basic living expenses and to service debt.

Point of No Return: How Do Financial Resources Affect the Timing of Retirement After a Job Separation?

December 13, 2013 Comments off

Point of No Return: How Do Financial Resources Affect the Timing of Retirement After a Job Separation?
Source: Center for Retirement Research at Boston College

This project uses the Survey of Income and Program Participation to examine the decision to retire after job separation among the increasing number of older individuals who leave a job between 55 and 70, and how this decision varies by labor market conditions and the resources available to the unemployed. Among individuals whose jobless spells end in retirement, most do so within a year after separation. The availability of resources like Social Security retirement benefits, high net worth, and defined benefit pensions appear to encourage more rapid labor force exit and retirement, rather than supporting job seekers during a long search. Surprisingly, retirement is only modestly more likely when the unemployment rate is high, and a greater duration of unemployment insurance benefits has little effect on retirement timing. Poor health and work-limiting disabilities are also associated with more rapid labor force exit and retirement. These results suggest little tolerance for long job searches – regardless of labor market prospects – and indicate that those who can afford to retire will do so rather quickly.

Social Security’s Real Retirement Age Is 70

October 25, 2013 Comments off

Social Security’s Real Retirement Age Is 70
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • Due to increases in Social Security’s Delayed Retirement Credit, the effective retirement age is now 70, with monthly benefits reduced for earlier claiming.
  • Benefit levels at 70 appear appropriate given that rising deductions for Medicare and greater benefit taxation have reduced Social Security’s net replacement rates.
  • The shift to 70 should be feasible for many workers given increases in lifespans, health, and education.
  • But vulnerable workers forced to claim early will have low benefits and will be particularly harmed by any further cuts.
  • Policymakers need to inform those who can work that 70 is the new retirement age and devise ways to protect those who cannot work.

Why Did Disability Allowance Rates Rise in the Great Recession?

August 13, 2013 Comments off

Why Did Disability Allowance Rates Rise in the Great Recession?
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • In most recessions, Disability Insurance (DI) application rates go up and allowance rates ­go down.
  • The hypothesis for a decline in allowance rates is that individuals with a borderline health problem are more likely to apply when times are bad.
  • In the Great Recession, DI application rates went up and allowance rates also rose.
  • This outcome is puzzling because the analysis confirmed that applicants were healthier than during the previous expansion.
  • Perhaps the answer is that the severity of the Great Recession changed award standards or made it easier for applicants to prove their job prospects were poor.

How Do the Changing Labor Supply Behavior and Marriage Patterns of Women Affect Social Security Replacement Rates?

July 17, 2013 Comments off

How Do the Changing Labor Supply Behavior and Marriage Patterns of Women Affect Social Security Replacement Rates?
Source: Center for Retirement Research at Boston College

This paper seeks to determine the impact of the changing lives of women – increased labor force participation/earnings and reduced marriage rates – on Social Security replacement rates. First, our estimates, based on the Health and Retirement Study and Modeling Income in the Near Term, show that Social Security replacement rates have dropped sharply at both the household- and individual-level, and the decline will continue for future retirees. Our second finding is that this aggregate change masks a complex relationship between replacement rates and the marital status and income levels of individuals. The decline in replacement rates over time is largest for married couples with husbands whose earnings are in the top tercile. Decomposing the reasons for the overall decline shows that increases in the labor supply and earnings of women explain more than one-third of the change. In contrast, the impact of changing marital patterns is relatively small. Much of the remaining explanation rests with the increased Full Retirement Age and changing claiming behaviors.

How Does Women Working Affect Social Security Replacement Rates?

July 17, 2013 Comments off

How Does Women Working Affect Social Security Replacement Rates?
Source: Center for Retirement Research at Boston College

The brief’s key findings are:
+ For married households, the amount of pre-retirement income replaced by Social Security depends on the labor force activity of both spouses.

  • At the high end, couples with a non-working spouse get the replacement rate from the worker’s benefit and from a spousal benefit.
  • At the low end, couples with two working spouses and identical earnings get the same replacement rate as an individual worker.
  • In the middle, couples see their replacement rate fall as the lower earner’s wages rise.

+ As women go to work, replacement rates decline.

  • They have dropped from 47 percent for those born early in the Depression to 42 percent for Early Boomers.
  • By the time that Generation Xers retire, replacement rates are projected to fall by an additional 5 percentage points.

+ In addition to women working, Social Security’s rising Full Retirement Age has also contributed to falling replacement rates.

How Do the Disabled Cope While Waiting for SSDI?

June 13, 2013 Comments off

How Do the Disabled Cope While Waiting for SSDI?
Source: Center for Retirement Research at Boston College

The wait time for a Social Security Disability Insurance (SSDI) award varies from a few months to several years. Little is known about how applicants fund their consumption during this period. Using the Survey of Income and Program Participation (SIPP) linked to the Social Security Administration’s 831 file, this study examines the use of seven different coping strategies on which applicants may rely for resources, including government transfers, intra-family resources, other financial resources, and locational changes. Our results suggest that applicants use some coping strategies more frequently with longer application duration, especially spousal employment, the Supplemental Nutrition Assistance Program (SNAP) and the Supplemental Security Income (SSI) program for the disabled and children. They are also less likely to report receiving Unemployment Insurance benefits, changing their address, and owning a home. Together, these results suggests that some of the studied coping strategies are an important part of funding consumption during the application process, either by sustaining ongoing applications or by making it easier to file an appeal of an initially denied application.

Social Security’s Financial Outlook: The 2013 Update in Perspective

June 4, 2013 Comments off

Social Security’s Financial Outlook: The 2013 Update in Perspective

Source: Center for Retirement Research at Boston College

The brief’s key findings are:

The 2013 Trustees Report shows virtually no change from last year:

  • Social Security’s deficit still about 2.7 percent of payroll.
  • Deficit as a percent of GDP still less than 1 percent.
  • Trust fund exhaustion still 2033, after which payroll taxes still cover about three quarters of promised benefits.

While the shortfall is manageable, it should be eliminated soon to:

  • Restore confidence in the program.
  • Avoid larger tax/benefit changes that would result from delay.
  • More fairly distribute the burden across generations.

And the disability insurance program needs immediate attention, as its trust fund is expected to be exhausted in 2016.

Public Sector Workers and Job Security

May 14, 2013 Comments off

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?

May 2, 2013 Comments off

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?

April 17, 2013 Comments off

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?

April 2, 2013 Comments off

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

January 22, 2013 Comments off

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.
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