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on Economics of Ageing |
| By: | Armour, Philip; Hung, Angela A. |
| Abstract: | Individual financial planning for retirement in the US is increasingly important, given the trend away from employer-provided defined benefit (DB) plans, the rising Social Security (SS) Full Retirement Age (FRA), and retiring baby boomers. A key financial decision that Americans make is how to draw on their retirement wealth across various sources, including both privately saved retirement funds and SS benefits. For SS retirement benefits, the main decision is at what age to claim, with claiming before the FRA resulting in lower monthly benefits, and claiming later leading to higher benefits. The terms of this tradeoff have changed in recent years: since 2003, the FRA has risen from 65 and will gradually increase to 67 by 2027, representing a drop in the present value of SS benefits. Meanwhile, defined contribution (DC) plans have gained in popularity, presenting retirees with more control over their private retirement wealth. The changing dynamics of both SS wealth and the private retirement decision space underscore the need for examining how individuals make decisions across their entire portfolio of retirement wealth. We use HRS survey data matched to SS administrative data to study how households integrate SS benefits into their general retirement income plans. We find starkly different non-SS retirement asset decumulation patterns across individuals who claim at different ages, with those claiming before the FRA drawing down pension and IRA wealth faster than those who claim at or after the FRA. However, the earliest claimants, those who claim SS retirement benefits exactly at age 62, are a highly heterogeneous group, consisting of both low-income, high expected mortality individuals as well as individuals with high pension holdings. We further find that this earliest claimant group is more likely to have retired and begun decumulating non-SS retirement assets even before age 62; however, this group's median and average assets are not substantially lower than later claimants. An analysis of claiming behavior by non-SS retirement wealth holdings shows that individuals with more retirement savings were overwhelmingly likely to claim between the ages of 62 and the FRA. On the other hand, those with the least retirement savings are more likely to either claim SS benefits as early as possible, either in the form of disability benefits or retirement benefits, or they would delay claiming SS retirement benefits until after the FRA. Moreover, birth cohorts facing higher FRAs tend to delay claiming SS retirement benefits on average; however, those most affected by this reduction in SS wealth -- those with few other retirement assets -- are the least reactive. Finally, households that do delay claiming as the FRA rises also tend to delay retirement and drawing down their non-SS retirement assets, indicating complementarity between SS and non-SS decumulation decisions and strong spillovers from changes in both SS and private retirement policy. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:1165&r=age |
| By: | Concepció Patxot; Meritxell Solé; Guadalupe Souto |
| Abstract: | Concerns about the consequences of demographic ageing on the sustainability of the pension system has led to the adoption of reforms reducing pension expenditure. However, the impact of these reforms on pension adequacy is now coming under increasing scrutiny. Taking recent Spanish reforms as an example, this paper analyses the extent to which fostering pension sustainability threatens pension adequacy, with a particular focus on inter- and intragenerational equity. Using an extension of the DyPeS microsimulation model, results show that the introduction of mechanisms linking retirement pensions to the evolution of the social security budget balance has strong and negative effects on adequacy and on income redistribution. Unexpected effects of the Bismarckian reforms on income redistribution are also observed. The outcomes reported for the Spanish pension system highlight the need to reconsider the convenience of using the pension system as an income redistribution device. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2017-02&r=age |
| By: | Grossmann, Volker; Strulik, Holger |
| Abstract: | This paper integrates into public economics a biologically founded, stochastic process of individual ageing. The novel approach enables us to quantitatively characterize the optimal joint design of health and retirement policy behind the veil of ignorance for today and in response to future medical progress. Calibrating our model to Germany, we find that future progress in medical technology calls for a potentially drastic increase in health spending that typically should be accompanied by a lower pension savings rate and a higher retirement age. Interestingly, medical progress and higher health spending are in conflict with the goal to reduce health inequality. |
| Keywords: | ageing,health expenditure,health inequality,social security system,retirement age |
| JEL: | H50 I10 C60 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:302&r=age |
| By: | Garloff, Alfred; Wapler, Rüdiger |
| Abstract: | Two stylised facts of the German labour market are that first, the demand for highskilled labour has been growing rapidly for a number of years and second, the Country is facing a particularly strong demographic change with the expected size of the Population decreasing rapidly and the average age of the labour force increasing sharply. This has led to a widely discussed fear of “labour shortages”. One of the reasons often stated in the public debate is that within a given time period many more old individuals are retiring than young individuals are entering the labour market. Although there is a certain logic in this argument, it is only prima facie convincing because firstly, a Change in labour demand could counteract this effect and secondly, it is unclear whether – given labour demand for the occupations people retire from – people retiring from the labour market are normally “replaced” by young cohorts entering the labour market. Thirdly, even if the size of a cohort differs between generations, it is by no means clear what the effects on labour supply are as, for example, the participation rates may also differ. We address these issues from a theoretical and empirical perspective. In the theoretical part we focus on the relationship between vacancies and unemployment (labour-market tightness) and show that it does not always increase with demographic change. In the empirical part, we analyse how employment is affected over time by different shares of different age cohorts. We find no evidence that a higher number of retirees in an occupation leads to a higher demand for younger workers. Instead, to a large extent, retirees seem to be “replaced”, if they are replaced at all, by middle-aged cohorts who change occupations. Thus, we conclude that the interaction between large retiring cohorts and small entering cohorts within occupations is less direct than is suggested in the public debate. |
| JEL: | J11 J21 J26 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145497&r=age |
| By: | Eric French (University College London); Hans-Martin von Gaudecker (Universität Bonn); John Bailey Jones (Federal Reserve Bank of Richmond and University at Albany, SUNY) |
| Abstract: | This paper assesses the effect of the Affordable Care Act (ACA) on the labor supply of Americans ages 50 and older. Using data from the Health and Retirement Study and the Medical Expenditure Panel Survey, we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Importantly, we model the two key channels by which health insurance rates are predicted to change: the Medicaid expansion and the subsidized private exchanges. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp354&r=age |
| By: | Carman, Katherine Grace; Hung, Angela A. |
| Abstract: | Retirement planning is often a joint household decision-making process, and therefore the household is often the more appropriate unit of analysis. However, retirement savings in tax advantaged accounts are held in the name of one individual. While spouses have rights to these assets in the case of divorce and in most cases of death, the separation of accounts in name may cause couples to treat their accounts as separate, with each spouse making decisions separately. In order to optimize retirement planning, couples should consider the entire household portfolio together, accounting for the characteristics of the retirement accounts, the age of the spouses, and income differences between spouses. With separate accounts, one spouse may not be aware of the contributions or assets accumulated in the other spouse's accounts. This may lead to sub-optimal decision-making, as individuals in a couple may not fully optimize across all available retirement accounts. Little is known about how households divide retirement contributions and assets between spouses. In this project, we investigate how households locate contributions across tax deferred savings accounts that are nominally held in one spouse's name and how these decisions may impact accumulated assets. In particular we first document who within a couple nominally holds retirement assets. Using data from the Health and Retirement Study and Survey of Consumer Finances, we find that household retirement assets and contributions are more likely to be located in accounts held in the husband's name or the primary earner's name. In our regression analysis, we find that the location of contributions is largely driven by the distribution of earnings within couples. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:1166&r=age |
| By: | Hersch Nicholas, Lauren (Johns Hopkins University); Maclean, J. Catherine (Temple University) |
| Abstract: | We study the effect of state medical marijuana laws on labor supply among older adults; the demographic group with the highest rates of many health conditions for which marijuana may be an effective treatment. We use the Health and Retirement Study to study this question and estimate differences-in-differences regression models. We find that passage of a state medical marijuana law leads to increases in labor supply among older adults. These effects should be considered as policymakers determine how best to regulate access to medical marijuana. |
| Keywords: | older adults, labor supply, medical marijuana, regulation, medication |
| JEL: | I10 I18 J20 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10489&r=age |
| By: | Ameriks, John (Vanguard Group, Inc); Briggs, Joseph (Federal Reserve Board); Caplin, Andrew (NYU); Shapiro, Matthew D. (University of MI); Tonetti, Christopher (University of Stanford) |
| Abstract: | Individuals face significant late-in-life risks, including needing long-term care (LTC). Yet, they hold little long-term care insurance (LTCI). Using both "strategic survey questions," which identify preferences, and stated demand questions, this paper investigates the degree to which a fundamental lack of interest and poor product features determine low LTCI holdings. It estimates a rich set of individual-level preferences and uses a life-cycle model to predict insurance demand, finding that better insurance would be far more widely held than are products in the market. Comparing stated and model-predicted demand shows that flaws in existing products provide a significant, but partial, explanation for this under-insurance puzzle. |
| JEL: | D14 D91 E21 G22 H31 I13 J14 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3485&r=age |
| By: | Congressional Budget Office |
| Abstract: | CBO projects that, under current law, the deficit in 2017 will total $559 billion (or 2.9 percent of GDP)—but over the next decade, budget deficits would eventually follow an upward trajectory, as growth in revenues would be outpaced by rising spending for retirement and health care programs that target older people and for interest on the federal debt. Economic growth over the next 10 years is projected to remain close to its modest rate since the end of the recession in 2009. CBO expects that reduced slack in the economy will put upward pressure on inflation and interest rates. |
| JEL: | H20 H60 H61 H62 H63 H68 |
| Date: | 2017–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:523702&r=age |