nep-age New Economics Papers
on Economics of Ageing
Issue of 2007‒05‒26
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Using Stated Preferences Data to Analyze Preferences for Full and Partial Retirement By Arthur van Soest; Arie Kapteyn; Julie Zissimopoulos
  2. The Role of Immigration in Sustaining the Social Security System: A Political Economy Approach By Razin, Assaf; Sand, Edith
  3. Removing the Disincentives in Social Security for Long Careers By Gopi Shah Goda; John B. Shoven; Sita Nataraj Slavov
  4. Optimal retirement asset decumulation strategies: the impact of housing wealth By Wei Sun; Robert K. Triest; Anthony Webb
  5. Population ageing, household portfolios and financial asset returns: A survey of the literature By Marianna Brunetti
  6. Inequality across cohorts of households: evidence from Italy By Gabriella Berloffa; Paola Villa
  7. The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Bequest and Precautionary Motives By John Ameriks; Andrew Caplin; Steven Laufer; Stijn Van Nieuwerburgh
  8. What’s happened over the past 10 years to the selection of retired CEOs as board members? By Changmin Lee

  1. By: Arthur van Soest (RAND, Tilburg University and IZA); Arie Kapteyn (RAND and IZA); Julie Zissimopoulos (RAND)
    Abstract: Structural models explaining retirement decisions of individuals or households in an intertemporal setting are typically hard to estimate using data on actual retirement decisions, since choice sets are for a large part unobserved by the researcher. This paper describes an experiment in which both perceived retirement opportunities and preferences for retirement are measured. For the latter, respondents evaluate how attractive they find a number of hypothetical, simplified, retirement trajectories involving early retirement, late retirement, and gradual retirement, each with its own corresponding income path. The questions were fielded in the Dutch CentERpanel. The answers are used to estimate a stylized structural life-cycle model of retirement preferences. The results suggest that, for example, many respondents could be convinced to work part-time after age 65 before retiring completely at age 70 for a reasonable financial compensation. Simulations combining the information on perceived opportunities with estimated preferences illustrate the importance of employer imposed restrictions on retirement and the scope for increasing labor force participation of the elderly by creating opportunities for gradual retirement.
    Keywords: replacement rates, ratings, gradual retirement
    JEL: C81 J26
    Date: 2007–05
  2. By: Razin, Assaf; Sand, Edith
    Abstract: In the political debate people express the idea that immigrants are good because they can help pay for the old. The paper explores this idea in a dynamic political-economy setup. We characterize sub-game perfect Markov equilibria where immigration policy and pay-as-you-go (PAYG) social security system are jointly determined through a majority voting process. The main feature of the model is that immigrants are desirable for the sustainability of the social security system, because the political system is able to manipulate the ratio of old to young and thereby the coalition which supports future high social security benefits. We demonstrate that the older is the native born population the more likely is that the immigration policy is liberalized; which in turn has a positive effect on the sustainability of the social security system.
    Keywords: demographic stretegic voting; overlapping generations; social security sustainability
    JEL: E1 H3 P1
    Date: 2007–05
  3. By: Gopi Shah Goda; John B. Shoven; Sita Nataraj Slavov
    Abstract: Implicit taxes in Social Security, which measure Social Security contributions net of benefits accrued as a percentage of earnings, tend to increase over the life cycle. In this paper, we examine the effects of three potential policy changes on implicit Social Security tax rates: extending the number of years used in the Social Security formula from 35 to 40; allowing individuals who have worked more than 40 years to be exempt from payroll taxes; and distinguishing between lifetime low-income earners and high-income earners who work short careers. These three changes can be achieved in a benefit- and revenue-neutral manner, and create a pattern of implicit tax rates that are much less distortionary over the life cycle, eliminating the high implicit tax rates faced by many elderly workers. The effects of these policies on progressivity and women are also examined.
    JEL: H5 J2
    Date: 2007–05
  4. By: Wei Sun; Robert K. Triest; Anthony Webb
    Abstract: A considerable literature examines the optimal decumulation of financial wealth in retirement. We extend this line of research to incorporate housing, which comprises the majority of most households’ non-pension wealth. ; We estimate the relationship between the returns on housing, stocks, and bonds, and simulate a variety of decumulation strategies incorporating reverse mortgages. We show that homeowner’s reversionary interest, the amount that can be borrowed through a reverse mortgage, is a surprisingly risky asset. Under our baseline assumptions we find that the average household would be as much as 24 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy: delaying tapping housing wealth until financial wealth is exhausted and then taking a line of credit. In addition, the results show that housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.
    Keywords: Retirement income
    Date: 2007
  5. By: Marianna Brunetti
    Abstract: Population ageing is a recognised phenomenon affecting many countries in the world including most EU ones, Japan and US. The financial implications of this phenomenon can be manifold and some recent literature has focused in particular on the possible consequences of ageing on household portfolios and on main financial asset returns ones. Overall, the extant literature on household portfolios reports a significant effect of age on asset allocation, thereby providing evidence in favour of the standard life-cycle hypothesis. On the other hand, empirical results on the link between demographics and financial asset prices/returns are less uniform. The aim of this paper is to systematize the extant literature on these issues and to provide an overview of the main results reported so far, trying to evaluate whether the different conclusions reached depend on the approach taken in the empirical exercises rather than on the actual differences, in terms of demographic dynamics, public pension systems and financial markets, of the realities considered.
    Keywords: population ageing; household portfolios; financial asset returns
    JEL: D14 D91 G11 J1
    Date: 2007–05
  6. By: Gabriella Berloffa; Paola Villa
    Abstract: In this paper we examine the evolution of household equivalent income for "cohorts of households" defined by the age of the household's head, using Italian data from the Survey of Household Income and Wealth (SHIW), for the period between 1989 and 2004. The descriptive and econometric analysis reveals a deterioration of the economic conditions and prospects of young cohorts of households in comparison with older cohorts. This phenomenon is due to the joint occurrence of various events, like the institutional changes of the labour market, the poor economic performance of the economy and its adverse effects on white and blue collars, the new rules introduced for the pension system, and an exceptional increase in house prices and rents. Decreasing returns to education, the reduction in household size and the increase in the number of income recipients - due to both rising female participation and children living longer with their parents - are also found to have significant effects on the differences between cohorts at the same age.
    Keywords: Household Income, Inequality, Cohort Analysis.
    JEL: D12 D30 J01 J10
    Date: 2007
  7. By: John Ameriks; Andrew Caplin; Steven Laufer; Stijn Van Nieuwerburgh
    Abstract: Strong bequest motives can explain low retirement spending, but so equally can strong precautionary motives. Given this identification problem, the recent tradition has been largely to ignore bequest motives. We develop a rich model of spending in retirement that allows for both motives, and introduce a "Medicaid aversion" parameter that plays a key role in determining precautionary savings. We implement a "strategic" survey to resolve the identification problem between bequest and precautionary motives. We find that strong bequest motives are too prevalent to be ignored. Moreover, Medicaid aversion is widespread, and helps explain the low spending of many middle class retirees.
    JEL: D1 D91 E21 I0 J14
    Date: 2007–05
  8. By: Changmin Lee (Indiana University Bloomington)
    Abstract: I analyze directorships held by CEOs who retired during 1989-1993 and during 1998-2002. My results suggest that retired CEOs became more popular on boards. Also, although pre-retirement accounting performance helps explain the number of outside directorships a retired CEO held in the 1989-1993 sample as Brickley, Linck, and Coles (1999) found, it does not in the 1998-2002 sample. Third, a company's stock performance during a CEO's tenure affects whether he became an inside director of that company after retirement. A 25% change in stock price performance increased the probability by 11% in the 1989-1993 sample, and 51% in the 1998-2002 sample. Finally, if a retired CEO worked in a regulated industry, his probability of serving at least one outside directorship fell by 34% in the 1989-1993 sample, and 24% in the 1998-2002 sample.
    Keywords: Corporate governance, Board of director, Deregulation
    JEL: G34 G38 L10 L51
    Date: 2007–05

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