Category Archives: Retirement

How Much Should People Save?

Source: Alicia H. Munnell, Anthony Webb and Wenliang Hou, Issue Brief, Center for Retirement Research at Boston College, IB#14-11, July 2014

The brief’s key findings are:
∙ The National Retirement Risk Index framework is used to address how much working-age households need to save for retirement.
∙ A typical household should get a third of its retirement income from a savings plan, with the low income needing one quarter and the high income one half.
∙ A typical household needs to save about 15 percent of earnings, with the low income requiring less and the high income more.
∙ For those with a savings shortfall, the necessary savings hike is much more feasible for younger households than for older households.
∙ Starting to save early and retiring late dramatically reduce a household’s required saving rate.

Improving Retirement Readiness for State and Local Government Employees

Source: Kevin S. Seibert, Betty Meredith, International Foundation for Retirement Education, April 2014

From the abstract:
There is convincing evidence that millions of Americans are not prepared for, or even aware of, what is needed for a successful retirement. Baby boomers in particular are approaching this time in their life much differently than previous generations. Issues such as increased longevity, health care costs, solvency of the Social Security system, inflation and uncertain long-term care costs make assessing future retirement needs more challenging than ever before. Without dramatic changes in behavior, a large percentage of 78 million baby boomers and those who follow them will not be able to retire in the same way as their predecessors and many may ultimately need to rely on federal, state and local governmental assistance programs to help them make ends meet. At the same time, due to increasing costs and the economic climate over the past decade, state and local governments (public sector employers) are now struggling to meet their current and future pension obligations in the same way the private sector has been experiencing for years. According to a March 2012 report by the National Conference of State Legislatures, from 2009 through 2011, 43 states enacted major changes in state retirement plans to address long-term funding issues. These changes were designed to reduce pension fund obligations by increasing employee contributions or age and service requirements for retirement, or both, and adjusting benefit provisions in various other ways to reduce costs. Although many states have been unwilling to abandon the traditional defined benefit plan structure, several states now have private sector-like optional defined contribution plans or hybrid plans with a defined benefit and defined contribution component. As millions more state and local government employees (public sector employees) begin to share the retirement savings and investment risks with their employers, it’s time to learn from the early failures and eventual successes of the private sector plan model. …

– 57 percent of workers report the total value of their household’s savings and investments, excluding the value of their primary homes and any defined benefit plans, is less than $25,000.
– Only 13 percent of workers say they are “very confident” they will have enough money to live comfortably after retirement.
– About 46 percent of unmarried elderly persons rely on Social Security for 90 percent or more of their income.
– More than 75 percent of plan sponsors say most of their participants will have to work during their retirement.

“Crisis” Management: Uncertainty and the Workplace

Source: EBRI-ERF Policy Forum, Policy Forum #74, May 2014

PANEL 1: Never Let a (Retirement) Crisis Go to Waste: What’s Broken, What’s Not, and What to Do About It (or Not)
PANEL 2: Be Careful What You Wish For: The Impact of the ACA on Employment‐Based Health Benefits
PANEL 3: Healthy, Wealthy, and Why – In the Midst of Uncertainty, Can Financial Wellness Work?

Watch the presentation here.

Panel 1: Jack VanDerhei Powerpoint
Panel 1: Peggy Collins Powerpoint
Panel 1: Doug Fisher Powerpoint
Panel 1: Sarah Holden Powerpoint
Panel 1: Diane Oakley Powerpoint
Panel 2: Paul Fronstin Powerpoint
Panel 3: Suzanna de Baca Powerpoint

2014 Symposium: Reimagining Pensions: The Next 40 Years

Source: Pension Research Council, May 2014

Forty years after the passage of the US Employee Retirement Income Security Act (ERISA) of 1974, confidence in retirement systems is shakier than ever. This event will examine opportunities and challenges for the future of retirement security, with speakers discussing the adequacy, efficiency, equity, and stability of our current retirement model. Participants will also propose options for policy reform and examine new pension provision models including in the international sphere. Conference attendees include academics, actuaries, plan sponsors, benefits specialists, policymakers, and others concerned about pension provision for the future.

Session I: Today’s Retirement System: Adequacy, Equity, Efficiency, and Stability
∙ “Are Retirees Falling Short? Reconciling the Conflicting Evidence” – Alicia Munnell, Matthew S. Rutledge, and Anthony Webb, Boston College
∙ “Retirement Plans and Prospects for Retirement Income Adequacy” – Jack VanDerhei, EBRI
∙ “The Changing Concept of Retirement” – Julia Coronado and Laura Rosner, BNP Paribas
Discussant: Cynthia Mallett, MetLife

Session II: New Thinking about Retirement Risk Sharing
∙ “Risk Sharing Alternatives for Pension Plan Design” – Anna Rappaport, Anna Rappaport Consulting, and Andrew Peterson, Society of Actuaries
∙ “United States Pension Benefit Plan Design Innovation: Labor Unions as Agents of Change” David Blitzstein, Blitzstein Consulting
∙ “The Promise of Defined Ambition Plans: Lessons for the United States” – A. Lans Bovenberg and Theo E. Nijman, Tilburg University

Session III: Implications of the Regulatory and Fiscal Environment for the Future of Pensions
∙ “Cultivating Pension Plans” – John Vine, Covington & Burling LLP
∙ “Entitlement Reform and the Future of Pensions” – Gene Steuerle, Urban Institute; Pamela Perun, Independent Consultant; and Ben Harris, Brookings Institution

Session IV: Practicalities of New Plan Design
∙ “Retirement Shares Plan: A New Model for Risk Sharing” – Don Fuerst, American Academy of Actuaries
∙ “Back to the Future: Hybrid Co-op Pensions and the TIAA-CREF System” – David Richardson and Benjamin Goodman, TIAA-CREF
∙ “Portfolio Pension Plans” – Richard Shea, Covington & Burling LLP
Discussant: John (Jamie) Kalamarides, Prudential Financial

Session V: International Perspectives on Pension Reform
∙ “Australian and United States Retirement Income Systems: Comparisons and Lessons” -John Piggott and Rafal Chomik, University of New South Wales
∙ “Singapore’s Social Security Savings System: Review and Reforms” – Benedict S. K. Koh, Singapore Management University
∙ “Insights from Switzerland’s Pension System” – Monika Buetler, Universitaet St. Gallen

‘Short’ Falls: Who’s Most Likely to Come up Short in Retirement, and When?

Source: Jack VanDerhei, Employee Benefit Research Institute (EBRI), EBRI Notes, Vol. 35, No. 6, June 2014

From the abstract:
This paper provides new results showing how many years into retirement Baby Boomer and Gen Xer households are simulated to run short of money, by preretirement income quartile. It begins with a brief introduction of the various methods of quantifying retirement income adequacy, along with a description of EBRI’s Retirement Security Projection Model® (RSPM). This is followed by a series of results from the RSPM focusing on the percentage of Baby-Boomer and Gen-Xer households simulated to run short of money in retirement, as well as an estimate of how soon after retirement this is expected to take place. In that there are different perspectives on the flexibility of individuals in retirement to adjust lifestyle and/or spending, results are presented under three separate thresholds of deterministic expense (80, 90 and 100 percent of average expenses), as well as with and without nursing home and home health-care expenses. Under a variety of simulated post-retirement expense scenarios, the lowest preretirement income quartile is the cohort where the vast majority of the retirement readiness shortfall occurs, and the soonest. When nursing home and home health-care expenses are factored in, the number of households in the lowest-income quartile that is projected to run short of money within 20 years of retirement is considerably larger than those in the other three income quartiles combined. Extending the results to a maximum of 35 years in retirement (age 100, assuming retirement at age 65), 83 percent of the lowest-income quartile households would run short of money and almost half (47 percent) of those in the second-income quartile would face a similar situation. Only 28 percent of those in the third-income quartile and 13 percent of those in the highest income quartile are simulated to run short of money eventually. In presenting these results, EBRI does not favor or oppose any specific modification to the current retirement system. Rather, EBRI’s mission remains to provide objective analysis that can inform decision making by others. As the various design and program modification alternatives are debated (both reforms and status quo), it is instructive to keep in mind who’s most likely to come up short in retirement, when, and why.

Unions Boost Women’s Earnings, Benefits, and Workplace Flexibility

Source: Janelle Jones, John Schmitt, and Nicole Woo, Center for Economic and Policy Research, June 2014

From the press release:
Over the past four decades, women have played increasingly important roles as breadwinners in their families. At the same time, women’s share of unpaid care work and housework has remained high. A new report from the Center for Economic and Policy Research (CEPR), “Women, Working Families, and Unions,” explores the role unions play in addressing the challenges facing working women and families in balancing their work and family responsibilities. The paper looks at trends in unionization for women; the impact of unions on wages, benefits and access to family and medical leave; and the role of unions in addressing work-life balance issues. … The report finds that unions increase access to benefits that help working families succeed in this economy. Women in unions are 36 percent more likely to receive health insurance benefits through their jobs and 53 percent more likely to participate in an employer-sponsored retirement plan….

2013 Nurses Retirement Study: Executive Summary

Source: Fidelity Brokerage Services LLC, 2014

A third annual Nurses Retirement Study recently released from Fidelity Investments provides new insights into nurses’ overall financial confidence and outlook toward retirement. The study shows that nurses’ retirement savings are up; one-quarter (26%) of nurses with a workplace retirement savings plan have accumulated assets of more than $100,000, up from 18% in 2011. Yet, many are still not confident they will have enough to retire.

Nurses and Retirement

State Fiscal Constitutions and the Law and Politics of Public Pensions

Source: Amy Monahan, University of Minnesota – Twin Cities – School of Law, Minnesota Legal Studies Research Paper No. 14-24,May 13, 2014

from the abstract:
Pension plans for state and local employees are, as a whole, significantly underfunded. This underfunding creates intense fiscal pressure on governments and often either crowds out other desired governmental spending or results in employees and retirees losing earned benefits. Political theorists often explain that underfunded public pension plans are all but inevitable given the political realities that affect funding decisions. Politicians who desire to be reelected should rationally prefer to spend money on current constituents, rather than commit scarce funds to a pension plan to pay benefits due to workers decades in the future. These dynamics are exacerbated by existing state fiscal constitutions that require balanced budgets and often restrict the ability to raise taxes. Paying a pension plan less than the amount due provides an easy way to free up money in the state budget by creating a form of debt that is not reflected on the state’s balance sheet. This article presents original analysis of the effect that state fiscal constitutions – even those that contain explicit requirements to fund public pension plans – impact public pension funding dynamics. It finds that even where explicit constitutional funding requirements are in place, plans often continue to be underfunded both because of political and financial pressures, and also because of the distinct lack of an enforcement mechanism. The article concludes by suggesting that these weakness in pension funding requirements can be addressed through the creation of clear and objective funding standards and, most importantly, through the creation of enforcement mechanisms that can, where appropriate, override legislative decisions to underfund public pension plans.

Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement – Introduction and Summary

Source: Courtney Coile, Kevin Milligan, David A. Wise, National Bureau of Economic Research (NBER), NBER Working Paper No. w20120, May 2014
(subscription required)

From the abstract:
This is the introduction and summary to the sixth phase of an ongoing project on Social Security Programs and Retirement Around the World. The first phase described the retirement incentives inherent in plan provisions and documented the strong relationship across countries between social security incentives to retire and the proportion of older persons out of the labor force. The second phase documented the large effects that changing plan provisions would have on the labor force participation of older workers. The third phase demonstrated the consequent fiscal implications that extending labor force participation would have on net program costs – reducing government social security benefit payments and increasing government tax revenues. The fourth phase presented analyses of the relationship between the labor force participation of older persons and the labor force participation of younger persons in twelve countries. We found no evidence that increasing the employment of older persons will reduce the employment opportunities of youth and no evidence that increasing the employment of older persons will increase the unemployment of youth. The fifth phase on “Historical Trends in Mortality and Health, Employment, and Disability Insurance Participation and Reforms” was intended to set the stage for this current phase.This sixth phase of the ongoing ISS project is particularly related to the fifth phase (Wise, 2012) and the second phase (Gruber and Wise, 2004) of the project. This volume continues the focus of the previous volume on DI programs while extending the methodology to study retirement behavior used in the second phase to focus in particular on the effects of the DI programs. The key question this volume seeks to address is: given health status, to what extent are differences in labor force participation across countries determined by the provisions of disability insurance programs?