nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒11‒24
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Notional defined contribution pension schemes and income patterns By Nisticò, Sergio; Bevilacqua, Mirko
  2. The National Retirement Risk Index: An Update By Alicia H. Munnell; Anthony Webb; Francesca Golub-Sass
  3. Unretirement in England: An empirical perspective By Ricky Kanabar
  4. Longevity and Schooling: The Case of Retirement By Nina Boberg-Fazlic
  5. Can Retirees Base Wealth Withdrawals on the IRS’ Required Minimum Distributions? By Wei Sun; Anthony Webb
  6. Macroeconomic Impact of Population Aging in Japan: A Perspective from an Overlapping Generations Model By Muto, Ichiro; Oda, Takemasa; Sudo, Nao
  7. Specific measures for older employees and late career employment By Boockmann, Bernhard; Fries, Jan; Göbel, Christian
  8. Social Spending and Income Redistribution in Argentina During the 2000s: the Rising Role of Noncontributory Pensions By Nora Lustig; Carola Pessino
  9. Assessing Inequalities in Preventive Care Use in Europe By Vincenzo Carrieri; Ansgar Wübker

  1. By: Nisticò, Sergio; Bevilacqua, Mirko
    Abstract: During the 1990s, some important European countries such as Italy and Sweden radically transformed their public pension systems by adopting defined-contribution rules while retaining a pay-as-you-go financial architecture. The paper inquires into the theoretical properties of such notional defined contribution pension schemes in order to identify the determinants of the replacement rates awarded to individuals with different income patterns. Three typical career patterns are taken into consideration, according to whether the individual's wage growth is equal to, higher than, or lower than average wage growth. The impact of, and the possible remedies to, a possible discontinuity in replacement rates is assessed by means of a sensitivity analysis of replacement rates with respect to career length (for a given retirement age), the retirement age, and the rate of return credited to individual accounts. --
    Keywords: Notional Defined Contribution (NDC),replacement rates,income patterns
    JEL: H55
    Date: 2012
  2. By: Alicia H. Munnell; Anthony Webb; Francesca Golub-Sass
    Abstract: The release of the Federal Reserve’s 2010 Survey of Consumer Finances is a great opportunity to reassess Americans’ retirement preparedness as measured by the National Retirement Risk Index (NRRI). The NRRI shows the share of working households who are “at risk” of being unable to maintain their pre-retirement standard of living in retirement. The Index compares projected replacement rates – retirement income as a percentage of pre-retirement income – for today’s working households with target rates that would allow them to maintain their living standard and calculates the percentage at risk of falling short. The NRRI was originally constructed using the Federal Reserve’s 2004 Survey of Consumer Finances (SCF). The SCF is a triennial survey of a nationally representative sample of U.S. households, which collects detailed information on households’ assets, liabilities, and demographic characteristics. The 2007 SCF did not allow for a meaningful update, because stock market and housing prices plummeted right after the survey interviews were completed. Thus, the 2010 survey is the first opportunity to see how the financial crisis and ensuing recession have affected Americans’ readiness for retirement. The discussion proceeds as follows. The first section describes the nuts and bolts of constructing the NRRI and how the new SCF data were incorporated. The second section updates the NRRI using the 2010 SCF, showing that the percentage of households at risk increased by nine percentage points between the 2007 and 2010 surveys – 44 percent to 53 percent. The third section identifies the impact of various factors on the change. The final section concludes that the NRRI confirms what we already know: today’s workers face a major retirement income challenge. Even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, more than half are at risk of being unable to maintain their standard of living in retirement.
    Date: 2012–11
  3. By: Ricky Kanabar
    Abstract: Ageing populations place an increasing financial burden on governments. Retired older workers are a source of untapped economic capacity. Maestas (2010) finds 26% of Health and Retirement Study (HRS) sample respondent's `unretire'. We estimate an unretirement rate of 5.11% and 2.70% for women using The English Longitudinal Study of Ageing (ELSA). Earlier studies using US longitudinal data include Rust (1980), Gustman and Steinmeier (1984) and Hardy (1990) estimate similar rates. Results suggest: age, education, financial planning, unanticipated increases in debt, spouse and time effects play an important role in the decision for a male to unretire.
    Keywords: ELSA, Labour supply, Labour demand, Unretirement
    JEL: J26
    Date: 2012–11
  4. By: Nina Boberg-Fazlic (University of Copenhagen, Department of Economics)
    Abstract: It is often conjectured that higher life expectancy leads to longer schooling. The reasoning behind this notion is that a longer lifespan increases the recovery period of human capital investment and thus, makes it more profitable to invest in education. This notion goes back to Ben-Porath (1967) and is therefore often termed the Ben-Porath mechanism. However, the original Ben-Porath mechanism concerns the length of economic life and not the length of life per se. This distinction is important in the presence of retirement and especially so as earlier retirement ages are observed in many western countries. This paper presents an overlapping generations model including both an educational and a retirement decision, thereby being able to test the Ben-Porath mechanism using the correct denition of length of working life. It is found that an increase in life expectancy does not necessarily increase the expected length of economic life as also early retirement can occur. Schooling still increases, however not due to the increase in the recovery horizon but due to an increase in the probability of surviving the recovery period.
    Keywords: longevity, human capital, retirement, overlapping generations
    JEL: D91 I20 J10 J26
    Date: 2012–09–01
  5. By: Wei Sun; Anthony Webb
    Abstract: As 401(k) plans have largely replaced traditional pensions, baby boomers have become the first generation that must decide how much of their savings to spend each year in retirement. Boomers must find a strategy that best balances the risk of outliving their wealth against the cost of unnecessarily restricting their consumption. This brief, which is adapted from a recent paper, explores the possibility of basing withdrawals on the Internal Revenue Service’s rules for Required Minimum Distributions (RMD) for 401(k)s and IRAs. The analysis compares an RMD strategy with existing rules of thumb and with a pattern of optimal withdrawals. The discussion proceeds as follows. The first section details the rules of thumb, including the proposed RMD strategy. The second section defines an optimal strategy, which serves as a benchmark for comparing the rules of thumb. The third section provides the results of this comparison. The fourth section suggests a way to modify the RMD strategy to bring it closer to the optimal. The final section concludes that the RMD strategies offer retirees a reasonable trade-off of the benefits and risks inherent in spending down one’s retirement savings.
    Date: 2012–10
  6. By: Muto, Ichiro; Oda, Takemasa; Sudo, Nao
    Abstract: Due to a sharp decline in the fertility rate and a rapid increase in longevity, Japan's population aging is the furthest advanced in the world. In this study we explore the macroeconomic impact of population aging using a full-fledged overlapping generations model. Our model replicates well the time paths of Japan’s macroeconomic variables from the 1980s to the 2000s and yields future paths for these variables over a long horizon. We find that Japan’s population aging as a whole adversely affects GNP growth by dampening factor inputs. It also negatively impacts on GNP per capita, especially in the future, mainly due to the decline in the fraction of the population of working-age. For these findings, fertility rate decline plays a dominant role as it reduces both labor force and saver populations. The effects of increased longevity are expansionary, but relatively minor. Our simulations predict that the adverse effects will expand during the next few decades. In addition to closed economy simulations, we examine the consequences of population aging in a small open economy setting. In this case a decline in the domestic capital return encourages investment in foreign capital, mitigating the adverse effects of population aging on GNP.
    Keywords: Population Aging; Overlapping Generations Model; Capital Flow
    JEL: E20 J11
    Date: 2012–11
  7. By: Boockmann, Bernhard; Fries, Jan; Göbel, Christian
    Abstract: We analyse the effects of specific measures for older employees (SMOE) on employment duration of workers aged 40 and above. Using longitudinal employer-employee data for German establishments, we account for worker and establishment heterogeneity and correct for stock-sampling. We find a positive effect of mixed-aged team work on employment duration and a negative effect of a part-time scheme addressed at older workers. Employment duration does not appear to be related to other SMOE, such as training and specific equipment of workplaces. --
    Keywords: older workers,human resources policies,SMOE,employment duration,linked employer-employee data,age,tenure
    JEL: J14 J21 J26
    Date: 2012
  8. By: Nora Lustig; Carola Pessino
    Abstract: Between 2003 and 2009, Argentina’s social spending as a share of GDP increased by 7.6 percentage points. Marginal benefit incidence analysis for 2003, 2006, and 2009 suggests that the contribution of cash transfers to the reduction of disposable income inequality and poverty rose markedly between 2006 and 2009 primarily due to the launching of a noncontributory pension program – the pension moratorium – in 2004. Noncontributory pensions as a share of GDP rose by 2.2 percentage points between 2003 and 2009 and entailed a redistribution of income to the poor, and from the formal sector pensioners with above minimum pensions to the beneficiaries of the pension moratorium. The redistributive impact of the expansion of public spending on education and health was also sizeable and equalizing, but to a lesser degree. An assessment of fiscal funding sources puts the sustainability of the redistributive policies into question, unless nonsocial spending is significantly cut.
    Keywords: social spending, benefit incidence, inequality, poverty, Argentina
    JEL: D31 H22 I38
    Date: 2012–11
  9. By: Vincenzo Carrieri; Ansgar Wübker
    Abstract: This paper presents the first cross-country estimation of needs-adjusted income and education-related inequalities in the use of a whole set of preventive care treatments. Analysis is based on the first three waves of the Survey of Health, Ageing and Retirement (SHARE) for individuals aged 50 and over living in 13 European countries. We employ alternative concentration indices based on the CI-corrections for binary outcomes to compute inequalities in the use of breast cancer screening, of colorectal cancer screening, of influenza vaccination, and of routine prevention tests (blood pressure, cholesterol, and blood sugar tests). After controlling for needs, we find that in many European countries strong pro-rich and educational inequalities exist with respect to breast and colon cancer screening, blood tests and flu-vaccination. Furthermore, poor and less educated people are more likely than the better off to use preventive care late, e.g. when health shocks occurred or health problems already display symptoms. Finally, results suggest that access to treatments within a specialist setting is generally less equal than access to treatments provided within a GP setting.
    Keywords: Preventive care; socio-economic related inequalities; concentration indices
    JEL: I14 D63
    Date: 2012–10

This nep-age issue is ©2012 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.