|
on Economics of Ageing |
| By: | Samson Alva; Norma B. Coe; Anthony Webb |
| Abstract: | This paper investigates the impact of a Deferred Retirement Option Plan (DROP) on the age of retirement of employees covered by defined benefit pension plans provided by the City of Philadelphia. We show that the program results in significant and substantial increases in the age of retirement: 1.25 years on average for municipal employees. Employees make use of the program in ways that maximize the expected present value of their pension benefits, with municipal employees entering the program an average 2.1 years before the age at which they would otherwise have retired. Consequently, the program results in a substantial increase in pension cost. We estimate that the program has cost the city around $258 million over the period to 31 December 2009. We construct an indicator of employee quality and find that some classes of high-quality employees are disproportionately likely to delay retirement as a result of the program. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-10&r=age |
| By: | Michael D. Hurd (RAND, NETSPAR, NBER and MEA); Susann Rohwedder (RAND and NETSPAR) |
| Abstract: | We study the effects of the 2007-2009 recession on the population age 55 and older. Households in and near retirement have suffered sizeable losses in assets as a result of the economic crisis. There are a number of ways in which households might respond: reduce spending and with that increase saving, work longer, and/or bequeath less. Using longitudinal data from the Health and Retirement Study and its supplemental surveys, we find that all of these adjustments have been important. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp231&r=age |
| By: | Norma B. Coe; Kelly Haverstick |
| Abstract: | The stock market crash eliminated more than $2 trillion in wealth held in defined contribution retirement accounts, about one-third of the pre-crash total. Unless offset by a later retirement age and/or increased retirement saving, this wealth shock will significantly reduce the retirement incomes of workers now approaching retirement – cohorts who will depend primarily on 401(k) balances once they stop working. To measure the response of older workers to this downturn, the Center for Retirement Research at Boston College (CRR) fielded the 2009 Retirement Survey in July-August 2009. This brief is the second of four based on this nationally-representative survey of workers aged 45-59 who had substantial retirement assets prior to the downturn.1 The first brief described the Survey and highlighted the inclusion of numerous financial, employment, and behavioral factors that are omitted from other surveys.2 This brief explores the relationship between these factors and worker responses to the downturn. The first section provides a brief overview of the responses – work longer, save more, or both – and the remaining sections describe the empirical analysis conducted for each response. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2010-18&r=age |
| By: | Poterba, James M. (NBER); Venti, Steven F. (Dartmouth College); Wise, David A. (Harvard Kennedy School) |
| Abstract: | How households draw down the balances that they accumulate in retirement saving accounts such as 401(k) plans and Individual Retirement Accounts can have an important effect on the contribution of these accounts to retirement income security. This paper presents evidence on the pattern of withdrawals at different ages. We find a relatively modest rate of withdrawals prior to the age at which households are required to take minimum required distributions. Only seven percent of PRA-owning households between the ages of 60 and 69 take annual distributions of more than ten percent of their PRA balance, and only 18 percent of PRA households in this age group make any withdrawals in a typical year. The rate of distributions rises sharply after age 70 1/2, when minimum distributions are required. The proportion of PRA-owning households making a withdrawal jumps to over 60 percent by age 71, and crosses 70 percent a few years later. On average, households age 60 to 69 with PRA accounts withdraw only about two percent of their account balances each year, considerably less than the rate of return on account balances during our sample period. Even at older ages--after the required minimum distribution age--the percentage of balances withdrawn remains at about five percent. |
| JEL: | D14 E21 H30 J14 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp11-006&r=age |
| By: | Jan Ondrich |
| Abstract: | To determine how asset values of older workers affect their future retirement decisions, it is important to take into account how asset values change over asset cycles. This study uses HRS data from waves 1992 through 2008 together with restricted SSA data on geographic location to estimate a model of the age at first self-reported retirement for the subsample of married males. The model covariates include demographic variables, workplace variables, non-housing financial wealth, housing equity and size of mortgage. The proportional hazard estimates are, for the most part, significant and of the correct sign. The estimated models replicate the decisions of the sample members for the period from 2000 to 2007. The models do not replicate the sharp drop in the aggregate retirement rate in the year 2008, the final year of the sample, which is also the first sample year in which non-housing financial wealth and housing equity both declined throughout the United States. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-12&r=age |
| By: | Charles Brown (University of Michigan) |
| Abstract: | Few private defined benefit pension plans commit to indexing benefits after a worker begins receiving them. Previous (now dated) research found that most plans did, nonetheless, make "voluntary" adjustments, which compensated for roughly 40 percent of the price increases experienced since retirement. In analyzing changes in pension benefits reported by HRS respondents between 1994 and 2008, I find annual increases that are about one third of the increase in the CPI. The increases are concentrated among respondents who report that their benefits are adjusted for inflation. They are larger for workers in public administration than in other industries; perhaps surprisingly, they are not larger in jobs covered by union contracts than those in the non-union sector. The HRS data also show that benefits paid out of defined contribution plans increased, again by roughly one third of the increase in consumer prices. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp242&r=age |
| By: | Barry P. Bosworth; Gary Burtless |
| Abstract: | Recessions affect the timing of retirement through two channels, a weaker job market and losses in household wealth. The two phenomena have opposite effects. A weaker economy causes employers to increase permanent job separations and reduce new hires, accelerating retirements that would otherwise have occurred later. Falling household wealth reduces the resources available to pay for retirement, discouraging older workers from leaving the workforce. We use aggregate and micro-census data on old-age labor supply as well as time series data on unemployment, stock and bond returns, and house appreciation to estimate business cycle effects on Social Security benefit acceptance and labor force exit. Trailing real stock and bond returns and house price appreciation have statistically significant but very small effects on old-age labor force participation. High prime-age unemployment has only a small impact on benefit acceptance and labor force participation among older women, but the effects on older men are greater. We estimate that the 4.6 percentage-point increase in prime-age unemployment between 2007 and 2009 reduced the participation rate of 60-74 year-old men by between 0.8 and 1.7 percentage points. This effect has offset the impact of declining household wealth on old-age labor force participation. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-21&r=age |
| By: | John Bound (University of Michigan and National Bureau of Economic Research); Timothy Waidmann (The Urban Institute) |
| Abstract: | In this paper we used the Health and Retirement Study to examine the health and economic status of those who collect Social Security retirement benefits prior to the full retirement age. We used a propensity score reweighting method to estimate the fraction of early retirees who use early retirement benefits as a safety net against deteriorating health and who might be induced to apply for disability benefits (SSDI) or retire without income replacement if the generosity or availability of early retirement benefits were reduced. We find that while the majority of early retirees would likely not qualify for disability benefits, approximately one in five have health characteristics similar to SSDI beneficiaries, and thus might not be able to replace losses in benefit income with labor income. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp240&r=age |
| By: | Norma B. Coe; Zhenya Karamcheva; Anthony Webb |
| Abstract: | With the virtual disappearance of traditional pensions, declining Social Security replacement rates, and longer life spans, the retirement landscape is shifting dramatically. Today, responsibility for a comfortable retirement rests mostly on the individual. This change has led to widespread concern about the adequacy of households’ retirement savings. Experts disagree on whether Americans are adequately prepared for retirement. A Center for Retirement Research (CRR) study conducted before the financial crisis estimated that 43 percent of households are ‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement.1 In contrast, another well-publicized study that compares optimal savings with that reported in the Health and Retirement Study (HRS) concluded that less than 4 percent of Americans are behind in their retirement saving.2 The difference in the estimated number of individuals under-saving for retirement depends crucially on the assumption of what parents do with the money that is freed up when their children leave home. The CRR study assumes that households maintain relatively constant consumption over time, which implies that parents increase their consumption when their children become financially independent. In contrast, the optimal savings literature assumes that parents save the additional amount. Parents benefit from this strategy in two ways. First, they are able to quickly build up retirement savings. Second, they keep their per-person consumption low and thus need less money to fund consumption in retirement. The question remains: which assumption matches what parents actually do? This brief presents the findings of a new study that investigates how, in fact, households behave. It shows that parents maintain household-level and increase per-capita consumption when their children leave home. These findings challenge the idea that parents will automatically save more for retirement when their children are independent, indicating that more households are at risk of an unsatisfactory retirement. This brief is organized as follows. The first section explains a prominent theoretical model of household savings behavior. The second section describes the data and methodology, while the third section reports the findings. The final section concludes that many households are at risk of falling short of maintaining even the consumption level they had while raising their children, let alone the higher level they have enjoyed since their children flew the coop. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2010-17&r=age |
| By: | Luc Behaghel (Paris School of Economics-INRA); David M. Blau (Ohio State University) |
| Abstract: | We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms. JEL: J26 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp243&r=age |
| By: | Steven A. Sass; Anthony Webb |
| Abstract: | Using data from the Health and Retirement Study (HRS), we analyze trends in voluntary, pressured, and forced quits and risk factors associated with each type of quit. We show that leaving one's age-50 job between ages 50 and 56 in any of the above circumstances more than doubles the likelihood that an individual will be working part-time at age 60, relative to a base case of working full-time. Pressured and forced quits also substantially increase the likelihood that the individual will not be working for pay at that age. Statistical tests confirm that pressured quits represent a separate and distinct category with its own risk factors and that they cannot be regarded as a subset of either voluntary or forced quits. We further show that job loss between ages 50 and 56, regardless of the circumstances, is associated with "messy" post-displacement employment histories that are not fully captured by analyses that focus solely on the first post-displacement job. The effects of job displacement are long-lasting. Displaced workers are more likely to job-hop, to suffer further involuntary job losses, and to experience subsequent unemployment than those who were still working for their age-50 employer at age 56. Accumulating sufficient resources to provide an adequate income in retirement requires most individuals to work well into their 60s, preferably in well-paid, pensioned employment. Individuals who separate from their age-50 employer for whatever reason are at risk of missing out on their peak savings years and failing to prepare adequately for retirement. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-19&r=age |
| By: | Alan L. Gustman (Dartmouth College and NBER); Thomas L. Steinmeier (Texas Tech University); Nahid Tabatabai (Dartmouth College) |
| Abstract: | This paper investigates how increases in the level of maximum earnings subject to the Social Security payroll tax have affected Social Security benefits and taxes. The analysis uses data from the Health and Retirement Study to ask how different the present value of own benefits and taxes would be for the cohort born from 1948 to 1953 (ages 51 to 56 in 2004) if they faced the lower cap on the payroll tax that faced those born 12 and 24 years earlier, but otherwise had the same earnings stream and faced the same benefit formula. We find that for those in the Early Boomer cohort of the Health and Retirement Study, ages 51 to 56 in 2004, that after adjusting for nominal wage growth, benefits were increased by 1.5 percent by the increase in the payroll tax ceiling compared to the cohort 12 years older, and by 3.7 percent over the benefits under the payroll tax ceiling for the cohort 24 years older. Tax receipts were increased by 5.3 and 10.6 percent over tax receipts that would have been collected under the tax ceilings that applied to the cohorts 12 and 24 years older respectively. About 22 percent of the additional tax revenues created by the increase in the payroll tax cap between the Early Boomer cohort and those 12 years older led to increased benefits. Similarly, about 27 percent of the additional tax revenues created by the increase in the payroll tax cap between the Early Boomer cohort and those 24 years older led to increase benefits. Results are also presented separately for men and women, for those in the top quartile of earners, and for those at the tax ceiling throughout their work lives. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp227&r=age |
| By: | Norma B. Coe; Kelly Haverstick |
| Abstract: | Many workers nearing retirement experienced a dramatic decrease in their retirement assets due to the stock market downturn. In order to maintain their expected standard of living in retirement, workers will need to work longer, save more, or do both. To measure the response of older workers to this downturn, the Center for Retirement Research at Boston College (CRR) fielded the CRR 2009 Retirement Survey on a nationally representative sample of 45-59-year-old labor force participants with relatively high pre-downturn assets.1 This brief is the third of four based on the CRR 2009 Retirement Survey. The first brief described the Survey and highlighted its unique financial, employment, and behavioral factors.2 The second brief explored the relationship between these factors and worker responses to the downturn.3 This brief examines how providing simple information about the trade-offs involved in responding to the downturn impacts the responses. This brief is organized as follows. The first section provides a brief overview of the initial responses – work more, save more, both, or neither. The second section describes how these responses changed once the trade-off between working longer, saving more, and consuming less in retirement was made explicit. The third section then explains the relationship between the initial responses and the more informed responses. The fourth section identifies the characteristics associated with respondents who changed their response. The final section concludes that providing simple information on trade-offs appears to have a surprisingly large impact on changing responses. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2010-20&r=age |
| By: | Courtney Monk; John A. Turner; Natalia A. Zhivan |
| Abstract: | Achieving long-run Social Security solvency requires addressing rising life expectancy. Increasing the Full Retirement Age (FRA), while holding the Early Entitlement Age (EEA) fixed, could be effective but eventually will result in replacement rates that are viewed by many as too low. A possible policy to prop up replacement rates is to raise the EEA, which has been age 62 for more than 40 years. However, an increase in the EEA introduces unfairness because the variation in life expectancy across socioeconomic groups is positively correlated with lifetime income. Using data from the Health and Retirement Study to investigate how earnings relate to mortality risk and health limitations, this project explores the possibility of constructing a flexible FRA that could preserve or even enhance the progressivity of Social Security benefits. If life expectancy were correlated with lifetime income, Social Security policy could use the AIME (Average Indexed Monthly Earnings) to target policies that are more equitable for people with both lower lifetime income and lower life expectancy. Unfortunately, we find that while life expectancy is strongly correlated with AIME for men, it is only weakly correlated for women, and when pooling the genders the correlation disappears. We then investigate whether targeting could be done by the max AIME, which is the AIME for single persons and the maximum of the husband‘s or wife‘s AIME for married couples. We find that the max AIME, which is a household measure of lifetime income, could be used for constructing a flexible FRA because it is negatively correlated with mortality risk and also negatively correlated with other measures of economic vulnerability or inability to work at older ages. With a flexible FRA, individuals in households with a low max AIME would have a lower FRA than other individuals. |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-8&r=age |
| By: | Michael D. Hurd (RAND and NBER); Susann Rohwedder (RAND) |
| Abstract: | After retirement, the primary sources of uncertainty with respect to an individual’s economic status are longevity, investment outcomes and out-of-pocket spending on health care. In previous work, we estimated economic preparation for retirement, taking into account the risk of living to an advanced old age and the concomitant risk of running out of resources. But while we accounted for the average level out-of-pocket spending for health care, we did not account for the risk of out-of-pocket spending. In this paper we augment our model for this omission. We find that the risk of out-of-pocket health care spending reduces economic preparation for retirement from about 72% of persons in the age range 65-69 to about 63%. However, this relatively modest reduction is quite unequally distributed: about 57% of single persons are adequately prepared when health care spending is not stochastic, but just 44% when it is. Among single women who are not high school graduates the percentage adequately prepared declines from 33% to 15%. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp232&r=age |
| By: | Norma B. Coe; Kelly Haverstick |
| Abstract: | The increase in the full retirement age in the Social Security program provides exogenous variation in the generosity in the Social Security Disability Insurance (SSDI) program, based only on birth year. We exploit this variation to estimate how responsive SSDI applications are to the financial incentive to apply. We find that a 1-percentage-point decrease in the retirement-to-disability benefit ratio leads to a 0.25-percentage-point increase in the SSDI application rate for the sample, which represents an 8-percent increase in applications per two years. When weighted to account for sampling design, we estimate that this change in the financial incentive accounted for about 5 percent of the SSDI applications in 2009. However, we do not find a corresponding increase in SSDI receipt based on the financial incentives. In addition, we find little difference in the covariates for individuals who eventually receive SSDI, suggesting that the increase in applications may increase the administrative costs of the SSDI program, but should not have a dramatic impact on the long-term financial solvency of the program. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-20&r=age |
| By: | Jody Schimmel (Mathematica); David C. Stapleton (Mathematica) |
| Abstract: | Many proposals designed to reduce federal budget deficits include retirement policy reforms that would delay workers’ access to retirement benefits or reduce the value of benefits to those who retire early. Such reforms would have adverse consequences for the economic well-being of older workers with health-related work limitations. In this paper, we explore a set of policy options that take a "work-support" approach-an earned income tax credit (EITC), an employment services allowance, and a health insurance subsidydesigned to encourage and help workers continue to work if they can. To arrive at a population that might be eligible for such benefits, we first develop a straightforward model to predict the likelihood that a worker reporting a health-related work limitation would experience economic hardship as a result. The model bounds the target population by excluding those who are not expected to experience financial hardship from earnings loss due to a health-related work limitation. It also demonstrates an approach to eligibility determination that would discourage gaming and support rapid eligibility determination-critical for a program designed to extend employment and prevent financial hardship. Using conservative assumptions about program costs, our most expensive program would have a per capita cost of $14,600, or $11,300 if the health insurance subsidy is viewed as an ACA cost. This can be compared to estimated mean annual benefits of $14,855 in 2009 for Social Security Disability Insurance (SSDI) beneficiaries age 50 and older, plus $11,000 per year for Medicare after the 24-month waiting period. Because of its more favorable work incentives, a work-support program is likely to reduce hardship more than a program that preserves existing benefits for the same workers at comparable cost and is likely to be no more difficult to administer. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp244&r=age |
| By: | Alicia H. Munnell; Anthony Webb; Francesca Golub-Sass |
| Abstract: | The National Retirement Risk Index (NRRI) measures the share of American households ‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement. The calculations are based on the assumption that taxes remain at current levels. But federal government spending as a percentage of GDP is projected to increase rapidly in coming decades. To help bridge the gap between revenue and spending, policymakers could decide to substantially increase the personal income tax, raise Social Security payroll taxes, and establish additional revenue sources such as a value-added tax. This brief explores how such tax increases could affect the percentage of households ‘at risk.’ This brief is structured as follows. The first section recaps the NRRI. The second describes how much taxes could increase. The third section describes the channel through which higher taxes may affect retirement preparedness. The fourth section presents the impact of plausible tax increases on the percentage of households ‘at risk.’ The final section concludes that higher taxes will have a relatively modest effect on the NRRI for most groups – the exception being high-income households on the cusp of retirement. It also cautions that the effect could be substantially greater if people reduce their saving in response to an unprecedented increase in taxes, and that the increase in the NRRI tells only half the story because economic well-being as measured by consumption will be lower both before and after retirement. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2010-19&r=age |
| By: | Jens Høj |
| Abstract: | The Dutch occupational pension system has been successful in securing high asset accumulation to fund generous pension promises. However, for the second time in this decade the pension system has been affected by a financial crisis and many pension funds’ assets fell below levels needed to meet regulatory requirements. Insufficient funding raises solvency issues, which could eventually lead to large fiscal costs in case of bail-outs. In response to the crisis, most funds were required by the regulator to draw up recovery plans to restore their funding over five years. This has raised concerns that the adjustment required by the regulator is unnecessarily sharp, with possibly adverse macroeconomic implications. On the other hand, OECD simulations indicate that under current policies, it is unlikely that funding rates will be secured that enable the funds over the long term to fulfil their promises of a replacement rate of up to 80% of average wages. This raises the challenge of implementing parametric changes that secure pension benefits without large detrimental effects on intergenerational equity and growth. Occupational pensions are transferable, which enhances labour market mobility. But it is often very difficult for workers to assess how one pension scheme compares to another, posing practical barriers to mobility that should be eased. This Working Paper relates to the 2010 OECD Economic Survey of the Netherlands (www.oecd.org/eco/surveys/ netherlands).<P>Rendre le système de retraite néerlandais moins vulnérable aux crises financières<BR>Le système de retraite professionnel néerlandais a permis d'assurer une forte accumulation d'actifs destinés à financer de généreuses promesses de pension. Néanmoins, pour la seconde fois au cours de cette décennie, le système de retraite a subi le contrecoup d'une crise financière, et le niveau des actifs de nombreux organismes de retraite est tombé en deçà du seuil prévu par la réglementation. Cette capitalisation insuffisante soulève des problèmes de solvabilité, qui pourraient déboucher à terme sur d'amples coûts budgétaires en cas de renflouement. À la suite de la crise, l'autorité de régulation a imposé à la plupart des organismes de retraite d'élaborer des plans de redressement afin de ramener leur capitalisation à un niveau satisfaisant dans un délai de cinq ans. Or, certains craignent que l'ajustement exigé par l'autorité de régulation ne soit trop brusque, et qu'il ne puisse avoir des conséquences préjudiciables sur le plan macroéconomique. Cela dit, les simulations de l'OCDE indiquent que les politiques actuelles ne déboucheront pas à long terme sur un coefficient de capitalisation permettant aux organismes de retraite de tenir leurs engagements d'assurer des taux de remplacement pouvant aller jusqu'à 80 % du salaire moyen. Cela soulève la question de l'application de changements de paramètres permettant de garantir les prestations de retraite sans nuire fortement à l'équité intergénérationnelle et à la croissance. Les retraites professionnelles sont transférables, ce qui favorise la mobilité des travailleurs. Néanmoins, il leur est souvent très difficile de comparer les différents régimes de retraite, ce qui représente en pratique un obstacle à la mobilité, qu'il conviendrait de réduire. Ce document de travail se rapporte à l’Étude économique des Pays-Bas de 2010 (www.oecd.org/eco/etudes/Pays-Bas). |
| Keywords: | financial crisis, Pension solvency, recovery plans, crise financière, Solvabilité du système de retraite, plans de redressement |
| JEL: | G23 H55 H75 J32 J62 |
| Date: | 2011–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:832-en&r=age |
| By: | Courtney Harold Van Houtven; Norma B. Coe; Meghan Skira |
| Abstract: | Cross-sectional evidence in the United States finds that informal caregivers have less attachment to the labor force, measured both by the number of hours worked and labor force participation. The causal mechanism is unclear: do children who work less become informal caregivers, or are children who become caregivers working less? Using longitudinal data from the Health and Retirement Study (HRS), this project identifies the relationship between informal care and labor force participation in the United States, both on the intensive and extensive margins, and whether there are wage penalties from informal care. We use our results to examine retirement wealth effects, in particular, changes in Social Security benefits. In our approach we carefully test for endogeneity; control for time invariant individual heterogeneity; and, lastly, explore the effects across key domains of behavior for men and women – stage and duration of care. We find that there are modest decreases – around 2 percentage points – in the likelihood of being in the labor force for caregivers. We find that female caregivers who have longer spells face significant but modest risks of not working, that the negative effect on work for male caregivers occurs right away, and that both male and female caregivers who have ended caregiving are not significantly more likely to work. In addition, wage penalties exist for female caregivers and wage premiums exist for male caregivers. There are minimal expected changes to caregivers’ future Social Security benefits. Finally, despite strong instruments, there is no evidence of endogeneity between informal care and work, suggesting that controlling for individual heterogeneity with fixed effects is a sufficient approach in longitudinal inquiries of informal care’s effect on work and wealth. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-22&r=age |
| By: | Suzanne Bianchi (University of California, Los Angeles); Kathleen McGarry (University of California, Los Angeles and NBER); Judith Seltzer (University of California, Los Angeles) |
| Abstract: | Perhaps the largest problem confronting our aging population is the rising cost of health care, particularly the costs borne by Medicare and Medicaid. A chief component of this expense is long-term care. Much of this care for an unmarried (mostly widowed) mother is currently provided by adult children. The provision of family care depends importantly on the geographic dispersion of family members. In this study we provide preliminary evidence on the geographic dispersion of adult children and their older unmarried mother. Coresidence is less likely for married adult children, those who are parents and the highly educated and more likely for those who are not working or only employed part time and for black and Hispanic adult children. Close proximity is more common for married children who are parents but less common for the highly educated. When we look at transitions between one wave of data collection and the next (a 2-year interval), about half of adult children live more than 10 miles away at both points, a little less than one quarter live within 10 miles at both points, and 8 percent are coresident at both points in time. Among the 17 percent who make a transition, about half of the changes result in greater distance between the adult child and mother and half bring them into closer proximity. The needs of both generations are likely reflected in these transitions. In fact, a mother’s health is not strongly related to most transitions and if anything, distance tends to be greater for older mothers relative to those mothers in their early 50s. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp234&r=age |
| By: | Angela Lee Duckworth (University of Pennsylvania); David R. Weir (University of Michigan) |
| Abstract: | Studies of adolescents and young adults have shown that schooling impacts economic outcomes beyond its impact on cognitive ability. Research has also shown that the personality trait of conscientiousness predicts health outcomes, academic outcomes, and divorce. Using the Big Five taxonomy of personality traits, this study examines whether non-cognitive traits are related to economic success over the life course. Examining Health and Retirement Study survey data linked to Social Security records on over 10,000 adults age 50 and over, we investigate the relationship of personality traits to economic outcomes. Controlling for cognitive ability and background variables, do more conscientious and emotionally stable adults have higher lifetime earnings, and is this due to higher annual earnings, longer work lives, or both? Do more conscientious adults save a higher proportion of their earnings for retirement, and does conscientiousness of each partner in a married couple matter? Do conscientiousness and emotional stability interact such that the effects of conscientiousness are greater among less emotionally stable adults? |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp235&r=age |
| By: | Shinichi Nishiyama (Georgia State University) |
| Abstract: | The current U.S. Social Security program redistributes resources from high wage workers to low wage workers and from two-earner couples to one-earner couples. The present paper extends a standard general-equilibrium overlapping-generations model with uninsurable wage shocks to analyze the effect of spousal and survivors benefits on the labor supply of married couples. The heterogeneous-agent model calibrated to the 2009 U.S. economy predicts that removing spousal and survivors benefits would increase female market work hours by 4.3-4.9% and total output by 1.1-1.5% in the long run, depending on the government financing assumption. If the increased tax revenue due to higher economic activity after the policy change was redistributed in a lumpsum manner, a phased-in cohort-by-cohort removal of these benefits would make all current and future age cohorts on average better off. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp229&r=age |
| By: | Mariacristina De Nardi (Federal Reserve Bank of Chicago and NBER); Eric French (Federal Reserve Bank of Chicago); John Bailey Jones (University at Albany, SUNY) |
| Abstract: | We study a model in which retired single people optimally choose consumption, medical spending and saving while facing uncertainty about their health, lifespan and medical needs. This uncertainty is partially offset by insurance provided by the government and private institutions. We first show how well the model matches important features of the data and we analyze the degree of insurance provided by current programs. We then analyze the effects of some reforms, meant to capture changes in Medicaid and Medicare, on savings and medical expenditures. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp236&r=age |
| By: | Andrew G. Biggs; Gayle L. Reznik; Nada O. Eissa |
| Abstract: | It is generally accepted that the Social Security program pays women a higher average ratio of lifetime benefits to lifetime taxes than it does men. Social Security’s progressive benefit structure and annuity payment combine with women’s lower average earnings and longer average life spans to provide women with more favorable treatment on a lifetime basis. This more favorable treatment does not necessarily imply that women are presented with stronger incentives to participate in the labor force and contribute to Social Security than are men. If anything, Social Security does the opposite. The auxiliary benefit provisions, including spousal and widow’s benefits, mean that many women do not receive higher benefits in return for their contributions than they would have received had they never worked or contributed to the program. In this paper, we calculate two measures of treatment by Social Security using the SSA’s Modeling Income in the Near Term (MINT) micro-simulation model: the net tax rate, which reflects the net value of Social Security taxes and benefits as a percentage of lifetime earnings; and the generated net tax rate, which represents the net value of benefits received in return for a participant’s taxes relative to lifetime earnings. While women pay low and even negative average net taxes to Social Security, their generated net tax rates are higher and often equal the full statutory tax rate. Men, by contrast, pay higher net tax rates but lower generated net tax rates, as their earnings may generate additional benefits for their spouse or survivor. The work incentives presented by Social Security may differ significantly from those implied by measures of overall treatment by the program. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2010-17&r=age |
| By: | Matthew D. Shapiro (University of Michigan and NBER) |
| Abstract: | This paper uses the Cognitive Economics Study (CogEcon) to assess the effect of the financial crisis on the well-being of older Americans. Financial wealth fell by about 15 percent for the median household. These financial losses were concentrated among households with high levels of wealth and high cognitive capacities, who tend to have higher exposure to the stock market. Nonetheless, households with little financial wealth suffered declines in well-being-measured by declines in consumption-as large on average as households with substantial exposure to the stock market. Tight credit market conditions and adverse labor market outcomes account for much of the effect of the financial crisis on the consumption of these low-wealth households. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp228&r=age |
| By: | Hanming Fang (University of Pennsylvania); Lauren Nicholas (University of Michigan); Daniel Silverman (University of Michigan) |
| Abstract: | Prior research indicates that retirees with less cognitive ability are at greater financial risk because they have lower incomes yet higher medical expenditures. Linking HRS data to administrative records, we evaluate two hypotheses about why this group spends more on health: (1) they are in worse health; (2) they receive more expensive or less effective care for the same conditions. We find that the bulk, but not all, of the cross-sectional relationship can be attributed to the poorer health of those with lower cognitive functioning. Much of this relationship appears to be driven by coincident declines in cognitive ability and health. While, in this respect, the data have important limitations, we find no evidence of substantial differences in care, conditional on observable health. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp230&r=age |