Category Archives: Retirement

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.

The Hidden Resources of Women Working Longer: Evidence from Linked Survey-Administrative Data

Source: C. Adam Bee, Joshua Mitchell, National Bureau of Economic Research, NBER Working Paper No. 22970, December 2016
(subscription required)

From the abstract:
Despite women’s increased labor force attachment over the lifecycle, household surveys such as the Current Population Survey Annual Social and Economic Supplement (CPS ASEC) do not show increases in retirement income (pensions, 401(k)s, IRAs) for women at older ages. We use linked survey-administrative data to demonstrate that retirement incomes are considerably underreported in the CPS ASEC and that women’s economic progress at older ages has been substantially understated over the last quarter century. Specifically, the CPS ASEC shows median household income for women age 65-69 rose 21 percent since the late 1980s, while the administrative records show an increase of 58 percent. Survey biases in women’s own incomes appear largest for women with the longest work histories. We also exploit the panel dimension of our data to follow a cohort of women and their spouses (if present) as they transition into retirement in recent years. In contrast to previous work, we find that most women do not experience noticeable drops in income up to five years after claiming social security, with retirement income playing an important role in maintaining their overall standard of living. Our results pose a challenge to the literature on the “retirement consumption puzzle” and suggest total income replacement rates are high for recent retirees.

Retirement Security: Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets

Source: U.S. Government Accountability Office (GAO), GAO-17-102: Published: December 8, 2016

From the fast facts:
People who invest their retirement accounts in unconventional assets—such as real estate or virtual currency—may be placing their savings at risk.

Retirement accounts allowing such unconventional investments increase owners’ responsibilities in ways they may not understand—and mistakes can trigger taxes and penalties. Moreover, account custodians may prematurely close an account or let valueless assets and fraud go undetected because they did not accurately determine the value of unconventional assets.

We recommended that IRS improve guidance for account owners with unconventional retirement assets and clarify how to annually value such assets. ….

Individual Retirement Account (IRA) Owner Investing in a Rental Home May Unknowingly Jeopardize IRA Tax Status

SPOTLIGHT: Aging States

Source: Capitol Ideas, November/December 2016

Articles include:
FUNDING LONG-TERM CARE
Facing a wave of aging baby boomers, many states are trying to make it easier for seniors to stay in their homes—as many prefer—instead of moving into more costly nursing homes. With high stakes for state budgets, many states are undertaking long-term planning to pay for long-term care.

TOP STATES FOR RETIREMENT
What is the best state for retirement? It’s a popular question among baby boomers, who increasingly seek more livable communities that will allow them to age in place. How are states responding? Drawing from an AARP scorecard on state long-term services and supports, here’s a look at top states for retirement and aging.

IMPROVING SENIOR MOBILITY
For many seniors, staying active in their golden years depends on staying mobile. But in many states and communities, transportation systems haven’t been developed with seniors or individuals with disabilities in mind. That’s changing as states are taking steps to improve transportation mobility for older adults.

ENDING ELDER ABUSE
Elder financial abuse costs older Americans $2.9 billion per year, but the harm to seniors caused by fraud often extends far beyond the checkbook. Oregon Attorney General Ellen Rosenblum shares key steps her state has taken to strengthen elder abuse prevention and response.

TAXING RETIREES
When state leaders discuss the fiscal challenges of an aging population, the focus is often on costs for senior services. However, as CSG Senior Fellows Katherine Barrett and Richard Greene point out, declining tax revenues are also a concern.

OECD Pensions Outlook 2016

Source: Organisation for Economic Co-operation and Development (OECD), December 2016

From the abstract:
The OECD Pensions Outlook 2016 assesses policy issues regarding strengthening pension systems and, in particular, funded pension plans. It covers defined benefits and defined contribution pension plans; fiscal incentives to save for retirement; policy measures to improve the financial advice for retirement; annuity products and their guarantees; pension design and financial education; and the pension arrangements for public-sector workers, including a comparison with those for private sector workers.

2016 Retirement Confidence Survey of the State and Local Government Workforce

Source: Paul J. Yakoboski, Joshua M. Franzel, Center for State and Local Government Excellence, December 2016

From the summary:
This report examines the employment and retirement planning and saving experiences of state and local government workers, as well as confidence in their retirement income prospects.

Key findings:
The findings include:
• One-third of public sector employees have been with their current employer for less than 10 years, and one-third for 20 years or longer. Approximately two-thirds do not expect to leave their current employer anytime soon.
• Health insurance, retirement benefits, job security and salary are the most important job elements they would consider in deciding whether to switch employers.
• The vast majority are covered by a primary defined benefit pension plan; almost 20 percent of these workers reported changes to these benefits over the past two years.
• Two-thirds expect to receive retiree healthcare benefits from an employer when they retire; among these, one-quarter reported changes to their benefits over the past two years.
• The typical state and local employee would like to retire at age 62, but expects to retire at 65.
• Most public servants do not know how much they need to save for a comfortable retirement, nor have they planned and saved specifically for medical expenses in retirement.
• Forty-four percent are very confident that they will receive all of the retirement plan benefits they have earned and 44% are somewhat confident. The analogous figures for retiree healthcare benefits are 30% and 54%, respectively. Their confidence in future Social Security and Medicare benefits is lower.
• About 20 percent are very confident that they are saving and investing appropriately for retirement, with approximately 55 percent somewhat confident in their savings and investing.

The Declining Fortunes of American Workers: Six Dimensions and an Agenda for Reform

Source: Stephen F. Befort, University of Minnesota Law School, Minnesota Legal Studies Research Paper No. 16-28, September 27, 2016

From the abstract:
At the turn of the century, I undertook an assessment of the then current state of workplace rights and obligations. I concluded that the balance of power between employers and workers was “badly skewed” in favor of employers. This article revisits that topic for the purpose of assessing twenty-first century trends through the lens of six workplace dimensions. They are: workforce attachment, union-management relations, employment security, income inequality, balancing work and family, and retirement security. An examination of these dimensions reveal that the status of U.S. workers has significantly declined during the first sixteen years of the twenty-first century. This article then sets out a proposed agenda for reform designed to recalibrate the current imbalance in the respective fortunes of employees and employers.