Category Archives: Retirement

Importance of Individual Account Retirement Plans and Home Equity in Family Total Wealth

Source: Craig Copeland, Employee Benefit Research Institute, EBRI Notes, Vol. 38, No. 7, May 16, 2017

Home equity and retirement accounts—401(k)-type plans and IRAs—account for nearly all the assets that many families have to depend on in retirement outside of Social Security and traditional pension plans, according to new research from EBRI.
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Workers Need a Bill of Rights

Source: Andrew Strom, OnLabor blog, May 24, 2017

Except for about a month in the summer of 2009 when the Democrats had 60 votes in the Senate, for the entire twenty-first century any proposal to substantially increase workers’ rights at the national level has had to be prefaced by the comment that, “of course, this is not politically feasible now.” But rather than just spending the next four years fending off misguided Republican legislation, I think it’s time to step back and focus on principles that should guide workplace legislation. Toward that end, here are some thoughts on a potential workplace bill of rights.

There might be some other rights that should be included in this list, and maybe folks have ideas about better ways to phrase the various rights. But, I think it would be helpful for the labor movement, worker advocates, and the Democratic party to start talking about this bill of rights in order to refocus our discussion about jobs. The measure of a good job, whether it is in manufacturing or the service sector, should be whether it provides these rights to workers. In addition, we should be thinking about what changes we need to see in our laws to ensure that all workers enjoy these basic rights on the job. Some of these issues can be addressed at the state level, although of course, that would mean that these rights would exist in only a handful of states. Here’s my proposed worker bill of rights – let the debate begin…..

Retiree Health Care Benefits for State Employees in Fiscal Year 2015

Source: Alex Brown, National Association of State Retirement Administrators, NASRA Issue Brief, May 2017

From the overview:
Other Postemployment Benefits (OPEB) is an umbrella term that characterizes retirement benefits, other than pensions, that are offered to employees of state agencies and participating political subdivisions who meet designated age and/or service related eligibility criteria. The most significant costs associated with OPEB benefits are for employer-subsidized health care for retired employees.
The brief discusses how different plan designs, coverage levels, and financing arrangements are associated with varying costs for sponsoring state governments.

Among the findings:
– Most states provide retiree health benefits to retired state employees, and benefits vary in design and delivery;
– More than three-fourths of the cumulative $585 billion in unfunded state OPEB liabilities are held by ten states;
– State spending on retiree health benefits was equal to 1.4 percent of total FY 15 state fund expenditures.

As state and local governments seek to reduce their liabilities, many public employers continue to accumulate assets to prefund future retiree health benefits and to reduce OPEB through program and policy changes.

Retirement Risk Innovation: State Shared-Risk Pensions

Source: Keith Brainard, Olivia Mitchell, Forbes, May 1, 2017

Concerns are growing about how to best manage risk in retirement. Traditional defined benefit plans can impart considerable risk to employers, while 401(k)-type plans place all or most risk on employees.
Shared-risk retirement plans are garnering attention and excitement around the globe. Outside the U.S., developments include “defined ambition” plans of the Netherlands and New Brunswick, Canada. There are also several striking examples of shared-risk plans right here at home. In fact, most U.S. state and local government retirement systems today embed risk-sharing features, and many new models have been developed in recent years. These retirement plan models provide ideas and inspiration for other retirement plans.

The Future of Retirement: Shifting sands

Source: HSBC, Future of Retirement series, 2017

From the press release:
HSBC calls for Millennials to wake up to living and working longer, as research finds only 1 in 10 expects to work past 65 Most Millennials have an unrealistic view of their retirement prospects according to a new report from HSBC. The latest report in The Future of Retirement series, Shifting sands, finds that on average Millennials expect to retire younger than other working age generations. Millennials expect to retire at 59, two years younger than the working age average of 61. The survey of over 18,000 people in 16 countries finds that only 10% of Millennials expect to continue working after 65 – even as their generation faces unprecedented financial pressures and state retirement ages continue to rise around the world. This is despite 59% of Millennials agreeing they will live much longer and will need to support themselves for longer than previous generations.

Who Contributes to Individual Retirement Accounts?

Source: Anqi Chenand, Alicia H. Munnell, Center for Retirement Research at Boston College, IB#17-8 April 2017

The brief’s key findings are:
– IRAs were intended to give those without an employer plan access to a tax-deferred savings vehicle.
– Today, IRAs hold nearly half of all private retirement assets, but most of these funds are rollovers from 401(k)s, rather than contributions.
– The 14 percent of households who do contribute to IRAs include:
– higher-income dual-earners who also save in a 401(k);
– moderate-income singles or one-earner couples, often with a 401(k); and
– higher-income entrepreneurs with no current 401(k).
– One way to turn IRAs back into an active savings vehicle – one used more for contributions – is to auto-enroll all workers without an employer plan in an IRA.

Target Date Funds: What’s Under the Hood?

Source: Edwin J. Elton, Martin J. Gruber, Andre de Souza and Christopher R. Blake, Center for Retirement Research at Boston College, IB#17-2, January 2017

The brief’s key findings are:
• While nearly 60 percent of new 401(k) participants have savings in target date funds (TDFs), little research has looked under the hood of this investment vehicle.
• This analysis uses a unique dataset with extensive information on the underlying mutual funds that TDFs hold.
• The results show that TDFs:
• often invest in specialized assets (e.g., emerging markets and real estate);
• charge fees that are only modestly higher than if an individual investor assembled a similar portfolio on his own; and
• earn returns that are broadly in line with other mutual funds.
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Do Americans Really Save Too Little and Should We Nudge Them to Save More? The Ethics of Nudging Retirement Savings

Source: Todd J. Zywicki, George Mason Law & Economics Research Paper No. 17-03, January 17, 2017

From the abstract:
The contention that consumers systematically “undersave” for retirement is a frequent example provided by adherents to behavioral economics and behavioral law and economics to purportedly illustrate their theories. Although frequently asserted, the claim that people systematically undersave is rarely assessed empirically.

This article, written for the Georgetown Institute for the Study of Markets and Ethics Symposium on “The Ethics of Nudging,” examines available data on how many people fail to save and the reasons why they do not. According to available evidence, the overwhelming number of households saves enough or more than they need for retirement; only a small minority does not seem to save enough. Those who do not save for retirement lack the money to do so or allocate available resources to paying down consumer and student loan debt. Behavioral economics theories explain little of the observed patterns of saving or non-saving behavior. Moreover, behavioral economics itself suggests that many people probably oversave for retirement and makes no effort to reconcile these offsetting biases.

More fundamental, once it is recognized that there is an opportunity cost to saving more — one must consume less today, borrow more, or work more — the theoretical validity of the claim that people undersave because of behavioral biases is suspect. Given the inherently subjective nature of opportunity cost, a central planner cannot be confident that he can make people better off by influencing their consumption expenditures across time than he could by shifting consumption expenditures across different goods and services today. It is concluded that there is little reason to believe that people would be made better off by nudging them to save more for retirement.

Baby boomers in the United States: Factors associated with working longer and delaying retirement

Source: Xiuwen Sue Dong, Xuanwen Wang, Knut Ringen and Rosemary Sokas, American Journal of Industrial Medicine, Volume 60, Issue 4, April 2017
(subscription required)

From the abstract:
Objectives: This study estimated the self-reported probability of working full-time past age 62 (P62) or age 65 (P65) among four cohorts of Americans born between 1931 and 1959.

Methods: Data from the Health and Retirement Study (HRS) were analyzed. Respondents in four age cohorts were selected for comparison. Multivariable linear regression models were used to assess cohort differences in P62 and P65 while adjusting for covariates.

Results: P62 and P65 increased among boomers despite worsened self-rated health compared to the two preceding cohorts, with 37% and 80% increases among mid-boomers in construction trades. Cohort differences in P62 and P65 remained after controlling for covariates. Changes in pensions, income inequity, and education were significantly associated with work expectations, but SSA policy was not.

Conclusions: Baby boomers expect to work longer than their predecessors. Efforts to improve work quality and availability for older workers are urgently needed, particularly in physically demanding occupations.