nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒05‒30
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Disability, Pension Reform and Early Retirement in Germany By Axel H. Boersch-Supan; Hendrik Juerges
  2. Financial Literacy and Planning: Implications for Retirement Wellbeing By Annamaria Lusardi; Olivia S. Mitchell
  3. Optimal decisions on pension plans in the presence of financial literacy costs and income inequalities By Corsini, Lorenzo; Spataro, Luca
  4. When the State Mirrors the Family: The Design of Pension Systems By Vincenzo Galasso; Paola Profeta
  5. Safe withdrawal rates from retirement savings for residents of emerging market countries By Meng, Channarith; Pfau, Wade Donald
  6. Framing Effects and Expected Social Security Claiming Behavior By Jeffrey R. Brown; Arie Kapteyn; Olivia S. Mitchell
  7. Income and Longevity Revisited: Do High-earning Women Live Longer? By Friedrich Breyer; Jan Marcus
  8. Gender Differences Among Elderly Japanese: Importance of family and social relations for life satisfaction By OSHIO Takashi
  9. Demographic Trends and International Capital Flows in an Integrated World By Luca Marchiori

  1. By: Axel H. Boersch-Supan; Hendrik Juerges
    Abstract: The aim of this paper is to describe for (West) Germany the historical relationship between health and disability on the one hand and old-age labor force participation or early retirement on the other hand. We explore how both are linked with various pension reforms. To put the historical developments into context, the paper first describes the most salient features and reforms of the pension system since the 1960s. Then we show how mortality, health and labor force participation of the elderly have changed since the 1970. While mortality (as our main measure of health) has continuously decreased and population health improved, labor force participation has also decreased, which is counterintuitive. We then look at a number of specific pension reforms in the 1970s and 1980s and show that increasing or decreasing the generosity of the pension system has had the expected large effects on old-age labor force participation. Finally, we explore the possible link between early childhood environment and early retirement by analyzing the retirement behavior of cohorts born during World War I, a period of harsh living conditions among the civilian population in Germany. Our data show higher early retirement rates among those cohorts, presumably because those cohorts still suffer from worse health on average many decades after their birth.
    JEL: H55 J14
    Date: 2011–05
  2. By: Annamaria Lusardi; Olivia S. Mitchell
    Abstract: Relatively little is known about why people fail to plan for retirement and whether planning and information costs might affect retirement saving patterns. This paper reports on a purpose-built survey module on planning and financial literacy for the Health and Retirement Study which measures how people make financial plans, collect the information needed to make these plans, and implement the plans. We show that financial illiteracy is widespread among older Americans, particularly women, minorities, and the least educated. We also find that the financially savvy are more likely to plan and to succeed in their planning, and they rely on formal methods such as retirement calculators, retirement seminars, and financial experts, instead of family/relatives or co-workers. These results have implications for targeted financial education efforts.
    JEL: D91
    Date: 2011–05
  3. By: Corsini, Lorenzo; Spataro, Luca
    Abstract: Pension reforms are on the political agenda of many countries. Such reforms imply an increasing responsibility on individuals’ side in building an efficient portfolio for retirement. In this paper we provide a model describing workers’ choices on the allocation of retirement savings in presence of a) mandatory contribution; b) portfolio decision; c) financial literacy costs. In particular, we characterise the results both from a positive and normative standpoint, by highlighting the determinants of the individual’s choice, with special focus on financial literacy costs and wage level inequalities and by characterizing the optimal contribution rate to mandatory complementary pension schemes.
    Keywords: Financial literacy; Choice on pension Plans; Optimal portfolio composition; Income inequality.
    JEL: G11 H55 G23 D91
    Date: 2011
  4. By: Vincenzo Galasso; Paola Profeta
    Abstract: The family is a primal institution, whose internal organization can be transferred to collective institutions, which come to substitute the family in one of its economic roles. We study how the family structure affected the initial design of pension systems. Our theoretical framework predicts that, when pensions systems are introduced in society with weak family ties, they act as a safety net, while in societies with strong ties pensions they replicate the tight link between generations and tend to provide generous benefits. Using Todd (1983) historical classification of family ties, we show that in societies dominated by absolute nuclear families, i.e. weak family ties (f.i. Anglo-Saxon countries), pension systems emerged as a safety net; and viceversa in societies dominated by strong families. Yet, historical family types are not correlated with the size of the pension systems, which have largely changed over time. These results are robust to controlling for alternative explanations, such as legal origin, religion, urbanization and democratization, electoral rules and forms of government. Moreover, evidence on individual data confirm the cross-country results: individuals whose ancestors came to the US from countries featuring communitarian or egalitarian nuclear families prefer to rely on the government as a provider of old age security through generous retirement benefits.
    Date: 2011
  5. By: Meng, Channarith; Pfau, Wade Donald
    Abstract: Researchers have mostly focused on U.S. historical data to develop the 4 percent withdrawal rate rule. This rule suggests that retirees can safely sustain retirement withdrawals without outliving their wealth for at least 30 years, if they initially withdraw 4 percent of their savings and adjust this amount for inflation in subsequent years. But, the time period covered in these studies represents a particularly favorable one for U.S. asset returns that is unlikely to be broadly experienced. This poses a concern about whether safe withdrawal rate guidance from the U.S. can be applied to the situation in other countries. Particularly for emerging economies, defined-contribution pension plans have been introduced along with under-developed or non-existing annuity markets, making retirement withdrawal strategies an important concern. We study sustainable withdrawal rates for a sample of 25 emerging countries and find that the sustainability of a 4 percent withdrawal rate differs widely and can likely not be treated as safe. The results suggest, as well, high stock allocations in the portfolio mix are not the optimal choice for retirees in emerging market countries.
    Keywords: Sustainable withdrawal rates; bootstrapping; optimal asset allocation; emerging market economies; retirement planning; defined-contribution pensions
    JEL: G11 J26
    Date: 2011–05–18
  6. By: Jeffrey R. Brown; Arie Kapteyn; Olivia S. Mitchell
    Abstract: Eligible participants in the U.S. Social Security system may claim benefits anytime from age 62-70, with benefit levels actuarially adjusted based on the claiming age. This paper shows that individual intentions with regard to Social Security claiming ages are sensitive to how the early versus late claiming decision is framed. Using an experimental design, the authors find that the use of a "break-even analysis" has the very strong effect of encouraging individuals to claim early. They also show that individuals are more likely to report they will delay claiming when later claiming is framed as a gain, and when the information provides an anchoring point at older, rather than younger, ages. Moreover, females, individuals with credit card debt, and workers with lower expected benefits are more strongly influenced by framing. They conclude that some individuals may not make fully rational optimizing choices when it comes to choosing a claiming date.
    Date: 2011–04
  7. By: Friedrich Breyer (Department of Economics, University of Konstanz, Germany); Jan Marcus (DIW Berlin, Germany)
    Abstract: The empirical relationship between income and longevity has been addressed by a large number of studies, but most were confined to men. For the first time we analyze a large data set from the German public pension scheme on women who died between 1994 and 2005, employing both non-parametric and parametric methods. We find that the relationship between earnings and life expectancy is similar for women and men: Among women who contributed at least for 25 years, women at the 90th percentile of the income distribution can expect to live 3 years longer than women at the 10th percentile.
    Keywords: Life expectancy and income, women, public pensions, Germany
    JEL: I12 H55
    Date: 2011–05–16
  8. By: OSHIO Takashi
    Abstract: The purpose of this study is to investigate how family and social relations affect the life satisfaction levels of elderly men and women in Japan. We used micro-data from 3,063 Japanese elderly adults (1,565 men and 1,498 women) collected from a sample in the first-wave of the Japanese Study of Aging and Retirement (JSTAR), a survey compatible with HRS in the United States and SHARE in Europe. This study found that life satisfaction is more closely associated with family and social relations for women than for men, after controlling for socioeconomic, health, and other factors. Women are more sensitive than men to coresidence and contact with family members, especially parents-in-law, as well as to social relations with others in the community, while men become much more depressed than women following a divorce or widowhood.<br />Observed associations between each factor and life satisfaction are largely consistent with those separately reported by preceding studies. However, this analysis compared the relative importance of each factor and its gender difference, contributing to a more comprehensive and subjective understanding of the well-being of elderly people.
    Date: 2011–05
  9. By: Luca Marchiori (CREA, University of Luxembourg)
    Abstract: This paper examines the impact of projected demographic trends on international capital flows. The analysis builds upon a ten-region overlapping generations’model of the world economy where capital is mobile across regions. Results show that, over the first half of the century, emerging regions will finance the demand of capital coming from the developed world where population aging is relatively advanced. In particular, the findings suggest that in the coming decades China will be the world’s main creditor region. However, in the second half of the century, India will take over this leading position because of the predicted decline in the Chinese labor force. An additional analysis demonstrates that the economic consequences of demographic changes depend on the degree of capital market integration between regions.
    Keywords: Demographic trends; capital flows; overlapping generations; general equilibrium; multi-regional model
    JEL: J11 F21 D91 C68
    Date: 2011

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