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on Economics of Ageing |
| By: | Anek Belbase; Geoffrey T. Sanzenbacher |
| Abstract: | Cognitive aging has received growing attention in recent years as many researchers have documented a significant age-related decline in the brain’s processing ability. This decline could potentially undermine retirement security in two ways: 1) by limiting the ability to work longer; and 2) by eroding the capacity to manage finances in retirement. This brief summarizes the explosion of recent research on cognitive aging by answering basic questions about what researchers are learning and why their findings matter to retirement experts and the public. This overview is the first brief in a series of three; the other two will focus on how cognitive aging affects the ability of individuals to work between ages 50-70 and to handle personal finances between ages 70-90. The discussion proceeds as follows. The first section introduces definitions and measures of cognitive ability. The second section discusses how researchers identify changes in cognitive ability with age, while the third summarizes their findings. The fourth section discusses how age-related changes in different cognitive capacities can affect real-world performance. The final section concludes that: 1) most older workers can maintain their productivity up to age 70, although they will generally need more time to learn new skills or concepts; and 2) many retirees can continue to manage their own financial affairs in their 70s and 80s, though about one quarter will likely develop a cognitive impairment that will pose a threat to their financial independence. |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2016-17&r=age |
| By: | Horneff, Vanya; Maurer, Raimond; Mitchell, Olivia S. |
| Abstract: | Most defined contribution pension plans pay benefits as lump sums, yet the US Treasury has recently encouraged firms to protect retirees from outliving their assets by converting a portion of their plan balances into longevity income annuities (LIA). These are deferred annuities which initiate payouts not later than age 85 and continue for life, and they provide an effective way to hedge systematic (individual) longevity risk for a relatively low price. Using a life cycle portfolio framework, we measure the welfare improvements from including LIAs in the menu of plan payout choices, accounting for mortality heterogeneity by education and sex. We find that introducing a longevity income annuity to the plan menu is attractive for most DC plan participants who optimally commit 8-15% of their plan balances at age 65 to a LIA that starts paying out at age 85. Optimal annuitization boosts welfare by 5-20% of average retirement plan accruals at age 66 (assuming average mortality rates), compared to not having access to the LIA. We also compare the optimal LIA allocation versus two default options that plan sponsors could implement. We conclude that an approach where a fixed fraction over a dollar threshold is invested in LIAs will be preferred by most to the status quo, while enhancing welfare for the majority of workers. |
| Keywords: | dynamic portfolio choice,longevity risk,variable annuity,retirement income |
| JEL: | G11 G22 D14 D91 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:150&r=age |
| By: | Heger, Dörte; Korfhage, Thorben |
| Abstract: | Growing long-term care (LTC) needs represent a major challenge for our ageing societies. Understanding how utilization patterns of different types of care are influenced by LTC policies or changes in the population composition such as age patterns or health can provide helpful insight on how to adequately prepare for this situation. To this aim, this paper explores how individuals choose between different forms of LTC. We exploit variation between countries as well as between individuals within countries using data from the Survey of Health, Ageing, and Retirement in Europe (SHARE). Using nonlinear decomposition techniques, we break down the difference in utilization rates between countries into differences based on observed sociodemographic and need related characteristics and differences in the impacts of these characteristics, which allows us to identify the drivers behind differences in the formal-informal care mix. Our results show that a substantial fraction of the observed country differences can be explained by the different features of the LTC systems. |
| Abstract: | Der zunehmende Bedarf an Langzeitpflege stellt eine große Herausforderung für unsere alternden Gesellschaften dar. Ein besseres Verständnis darüber, wie die Inanspruchnahme der verschiedenen Pflegearten durch das Pflegesystem oder Veränderungen der Bevölkerungsstruktur, wie z.B. der Altersstrukturen oder dem Gesundheitszustand, beeinflusst wird, ermöglicht es sich auf diese Situation besser vorzubereiten. Um diese Fragen zu beantworten, untersuchen wir wie Individuen zwischen den verschiedenen Formen von Langzeitpflege wählen. Wir analysieren Unterschiede zwischen den Ländern sowie zwischen Individuen innerhalb einzelner Länder anhand Daten des Survey of Health, Ageing, and Retirement (SHARE). Mit Hilfe nicht-linearer Dekompositionstechniken untergliedern wir die Unterschiede in Nutzungsraten zwischen den Ländern in Unterschiede aufgrund von beobachtbaren soziodemografischen und bedarfsbezogenen Charakteristiken und in Unterschiede in den Auswirkungen dieser Charakteristiken auf die Wahl der Pflegeart. Diese Methodik ermöglicht es die Treiber hinter den Differenzen in dem formellen-informellen Pflegemix zu identifizieren. Unsere Ergebnisse zeigen, dass ein wesentlicher Anteil der beobachteten Unterschiede in Pflegequoten durch die verschiedenen Eigenschaften der Pflegesysteme zu erklären ist. |
| Keywords: | Long-term care,informal care,international comparison,decomposition |
| JEL: | I11 J14 J18 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:649&r=age |
| By: | Alan J. Auerbach; Laurence J. Kotlikoff; Darryl R. Koehler; Manni Yu |
| Abstract: | Many, if not most, Baby Boomers appear at risk of suffering a major decline in their living standard in retirement. With federal and state government finances far too encumbered to significantly raise Social Security, Medicare, and Medicaid benefits, Boomers must look to their own devices to rescue their retirements, namely working harder and longer. However, the incentive of Boomers to earn more is significantly limited by a plethora of explicit federal and state taxes and implicit taxes arising from the loss of federal and state benefits as one earns more. Of particular concern is Medicaid and Social Security’s complex Earnings Test and clawback of disability benefits. This study measures the work disincentives confronting those age 50 to 79 from the entire array of explicit and implicit fiscal work disincentives. Specifically, the paper runs older respondents in the Federal Reserve’s 2013 Survey of Consumer Finances through The Fiscal Analyzer -- a software tool designed, in part, to calculate remaining lifetime marginal net tax rates. We find that working longer, say an extra five years, can raise older workers’ sustainable living standards. But the impact is far smaller than suggested in the literature in large part because of high net taxation of labor earnings. We also find that many Baby Boomers now face or will face high and, in very many cases, extremely high work disincentives arising from the hodgepodge design of our fiscal system. A third finding is that the marginal net tax rate associated with a significant increase in earnings, say $20,000 per year, arising from taking a full-time or part-time job (which could a second job), can, for many elderly, be dramatically higher than that associated with earning a relatively small, say $1,000 per year, extra amount of money. This is due to the various income thresholds in our fiscal system. We also examine the elimination of all transfer program asset and income testing. This dramatically lowers marginal net tax rates facing the poor. Another key finding is the enormous dispersion in effective marginal remaining lifetime net tax rates facing seeming identical households, i.e., households with the same age and resource level. Finally, we find that traditional, current-year (i.e., static) marginal tax calculations relating this year’s extra taxes to this year’s extra income are woefully off target when it comes to properly measuring the elderly’s disincentives to work. Our findings suggest that Uncle Sam is, indeed, inducing the elderly to retire. |
| JEL: | H31 H55 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22770&r=age |
| By: | Kali, Karen (National Community Reinvestment Coalition); Zdenek, Robert (National Community Reinvestment Coalition) |
| Abstract: | Older adults are indicating a desire to live and grow old in their own homes and communities. Yet there are often numerous barriers and threats to aging in community, as many communities lack a comprehensive community model. With a focus on financial institutions and utilizing the concept of Age-Friendly Banking, this paper explores the economic security of older adults and ways to improve older adults’ ability to live safely in their own homes and communities as long as possible. Investing in age-friendly communities can prove beneficial to both communities for all ages and financial institutions serving local customers. These mutual investments can include access to loans for home repairs, nearby location of health care facilities, improved safety features within the community, and more. Through Age-Friendly Banking practices and an understanding of the core elements of Aging in Community, financial institutions can play a large role in expanding successful Aging in Community efforts. |
| Date: | 2016–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfcw:2016-05&r=age |
| By: | M. A. Milevsky; T. S. Salisbury |
| Abstract: | There is growing interest in the design of pension annuities that insure against idiosyncratic longevity risk while pooling and sharing systematic risk. This is partially motivated by the desire to reduce capital and reserve requirements while retaining the value of mortality credits; see for example Piggott, Valdez and Detzel (2005) or Donnelly, Guillen and Nielsen (2014). In this paper we generalize the natural retirement income tontine introduced by Milevsky and Salisbury (2015) by combining heterogeneous cohorts into one pool. We engineer this scheme by allocating tontine shares at either a premium or a discount to par based on both the age of the investor and the amount they invest. For example, a 55 year-old allocating $\$10,000$ to the tontine might be told to pay $\$$200 per share and receive 50 shares, while a 75 year-old allocating $\$8,000$ might pay $\$$40 per share and receive 200 shares. They would all be mixed together into the same tontine pool and each tontine share would have equal income rights. The current paper addresses existence and uniqueness issues and discusses the conditions under which this scheme can be constructed equitably -- which is distinct from fairly -- even though it isn't optimal for any cohort. As such, this also gives us the opportunity to compare and contrast various pooling schemes that have been proposed in the literature and to differentiate between arrangements that are socially equitable, vs. actuarially fair vs. economically optimal. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1610.09384&r=age |
| By: | Nishimura, Yoshinori |
| Abstract: | This paper analyzes whether the government intervention on the firm’s employment policy has an effect on the employment of the elderly. The pensionable age has increased in Japan. As a result, this policy makes a difference between the mandatory retirement age and the pensionable age. The Japanese government has obliged firms to employ elderly workers until they arrive at the pensionable age. According to the literature, the labor force participation rate of the elderly male workers increases after the implementation of this policy. However, according to the result in this paper, after omitting the unobserved heterogeneity and controlling the worker’s demographics, there is no effect on the employment of the elderly workers. This paper discusses why the effect of the government intervention on the demand side of the elderly labor market has no effect on the employment of the elderly. According to this discussion, it is possible that the firms avoid the cost which they will burden from the employment of the elderly worker by using measures which are not illegal while they only follow the directions which the law directly requires. |
| Keywords: | government intervention, labor market, social security |
| JEL: | J2 J7 K2 |
| Date: | 2016–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73444&r=age |
| By: | Moshe A. Milevsky; Thomas S. Salisbury |
| Abstract: | Tontines were once a popular type of mortality-linked investment pool. They promised enormous rewards to the last survivors at the expense of those died early. And, while this design appealed to the gambling instinc}, it is a suboptimal way to generate retirement income. Indeed, actuarially-fair life annuities making constant payments -- where the insurance company is exposed to longevity risk -- induce greater lifetime utility. However, tontines do not have to be structured the historical way, i.e. with a constant cash flow shared amongst a shrinking group of survivors. Moreover, insurance companies do not sell actuarially-fair life annuities, in part due to aggregate longevity risk. We derive the tontine structure that maximizes lifetime utility. Technically speaking we solve the Euler-Lagrange equation and examine its sensitivity to (i.) the size of the tontine pool $n$, and (ii.) individual longevity risk aversion $\gamma$. We examine how the optimal tontine varies with $\gamma$ and $n$, and prove some qualitative theorems about the optimal payout. Interestingly, Lorenzo de Tonti's original structure is optimal in the limit as longevity risk aversion $\gamma \to \infty$. We define the natural tontine as the function for which the payout declines in exact proportion to the survival probabilities, which we show is near-optimal for all $\gamma$ and $n$. We conclude by comparing the utility of optimal tontines to the utility of loaded life annuities under reasonable demographic and economic conditions and find that the life annuity's advantage over the optimal tontine is minimal. In sum, this paper's contribution is to (i.) rekindle a discussion about a retirement income product that has been long neglected, and (ii.) leverage economic theory as well as tools from mathematical finance to design the next generation of tontine annuities. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1610.10078&r=age |
| By: | Hassan, Sherif |
| Abstract: | We contribute to the aid-development debate by investigating how official development assistance shapes the ability of developing countries to efficiently utilise their demographic capital. We measure the effect of aggregated and sectoral disaggregated foreign aid on the Human Development Index and other social indicators for 139 developing countries from 1995 to 2014. Our results provide robust evidence against the development effects of aid. The prior effects are robust regardless of the level of working age population in the recipient country and after removing the biases of aid aggregation. In light of these findings, we introduce a new setting for aid disbursements that aims to resolve common pitfalls and improve the efficacy of existing systems. |
| Keywords: | Official Development assistance, Demographic Change, Human Development Index |
| JEL: | F35 F63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74835&r=age |
| By: | John Karl Scholz (University of Wisconsin-Madison); Ananth Seshadri (University of Wisconsin-Madison) |
| Abstract: | We study the interaction between consumption and health in retirement. Our main contribution is the estimation of a consumption Euler equation taking health into consideration. The Euler equation is derived from a model of consumption in retirement with three important building blocks of health: health shocks, health as an investment and health as a provider of utility. We estimate the Euler equation using data from the Health and Retirement Study (HRS) and Consumption and Activities Mail Survey (CAMS). The estimates suggest that health is an important determinant of utility. We use the estimated model to study the empirical significance of the three building blocks of health. We find that health shocks play an important role in slowing down the decline of consumption with age in retirement. We also find that including health into the utility function could help explain the heterogeneous consumption-age profiles related to health. Finally, we find that health investments, such as physical exercise, have a significant effect on the evolutions of both health and consumption in retirement. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp344&r=age |
| By: | Michaud, Amanda M. (Indiana University); Nelson, Jaeger (Indiana University); Wiczer, David (Federal Reserve Bank of St. Louis) |
| Abstract: | Along with health, Social Security Disability Insurance (SSDI) evaluates work-limiting disability by considering vocational factors including age, education, and past work experience. As the number of SSDI applicants and awards has increased, these vocational criteria are increasingly important to acceptances and denials. A unique state-level dataset allows us to estimate how these factors relate to the SSDI award process. These estimates are used to asses how changes to the demographic and occupational composition have contributed to awards trends. In our results, the prevalence of workers in their 50s are especially important. Further, increasing educational attainment lowers applications and vocational awards. |
| Keywords: | Disability Insurance; Vocational Criteria; Demographic Decomposition |
| JEL: | E62 I13 |
| Date: | 2016–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2016-018&r=age |