nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒04‒09
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. “Catch-Up Contributions” An Equitable and Affordable Solution to the Retirement Savings Crisis By Armon Rezai; Lance Taylor; Duncan Foley
  2. Uncertain Length of Life, Retirement Age, and Optimal Pension Design By Thomas Aronsson; Sören Blomquist
  3. Age Milestones and Low Interest Rates, an Analytic Approach By Manuel, Lancastre
  4. Modeling Longevity Risk using Consistent Dynamics Affine Mortality Models By Rihab Bedoui; Islem Kedidi
  5. Defined Contribution Wealth Inequality: Role of Earnings Shocks, Portfolio Choice, and Employer Contributions By Joelle Saad-Lessler; Teresa Ghilarducci; Gayle Reznik
  6. An explanation of negative swap spreads: demand for duration from underfunded pension plans By Sven Klingler; Suresh Sundaresan
  7. Lapses in Long-Term Care Insurance By Leora Friedberg; Wenliang Hou; Wei Sun; Anthony Webb
  8. Calculating the net benefi t of admitting immigrants under the de fined-return-ratio pay-as-you-go pension system By Jinno, Masatoshi
  9. Earnings Volatility and 401(k) Contributions By Teresa Ghilarducci; Joelle Saad-Lessler; Gayle Reznik

  1. By: Armon Rezai; Lance Taylor; Duncan Foley (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: This research was performed pursuant to a grant from the AARP Innovation Challenge. To address the needs of two overlapping groups – low and moderate wage workers and workers in their 50s with no or inadequate retirement wealth – we propose a program of cost-neutral voluntary (at least initially) Social Security catch-up contributions, into which all workers would be defaulted, starting at age 40 or 50. The program would use the progressivity of the Social Security benefit formula to target low-wage workers and to prevent adverse selection.
    Keywords: Social Security, retirement savings, retirement wealth inequality
    JEL: H55 J26
    Date: 2017–05
  2. By: Thomas Aronsson; Sören Blomquist
    Abstract: In this paper, we consider how the hours of work and retirement age ought to respond to a change in the uncertainty of the length of life. In a first best framework, where a benevolent government exercises perfect control over the individuals’ labor supply and retirement-decisions, the results show that a decrease in the standard deviation of life-length leads to an increase in the optimal retirement age and a decrease in the hours of work per period spent working. This result is robust, and is also derived in models of decentralized decision-making where individuals decide on their own consumption, labor supply, and retirement age, and where the government attempts to affect their behavior and welfare through redistribution and pension policy.
    Keywords: uncertain lifetime, retirement age, work hours, pension policy
    JEL: D61 D80 H21 H55
    Date: 2018
  3. By: Manuel, Lancastre
    Abstract: Major age milestones like the age of first job, retirement age, or life expectancy, bounding relevant economic periods in a persons' life, have been changing substantially during the last decades. In parallel real interest rates have been significantly declining in relevant world economies, reaching stable negative levels in some cases. We propose an analytic approach to relate those two phenomena by using an overlapping multi-generations model to find expressions for real interest rate elasticities to age parameters. The model formalizes the mechanisms supporting the relation between interest rates and age, sheds light on the relative importance of each age milestone in explaining changes of real interest rates, and how other factors like elasticity of inter-temporal substitution, population and productivity growth, inter-generational altruism, as well as a social security system, may mitigate or amplify those changes.
    Keywords: Demographics; low interest rates; OLG; age-milestones
    JEL: E40 E43 J10 J11
    Date: 2016–10–10
  4. By: Rihab Bedoui (IHEC Sousse - IHEC); Islem Kedidi (LAREMFIQ - Laboratory Research for Economy, Management and Quantitative Finance - Institut des Hautes Etudes Commerciales (Université de Sousse))
    Abstract: Longevity Risk becomes an important challenge in the recent Year because of the decreases in the mortality rates and the rising in the life expectancy through the decades. In this article, we propose a consistent multi-factor dynamics affine mortality model to the longevity risk model-ing, we show that this model is an appropriate model to fit the historical mortality rates.To our Knowledge this is the first work that uses a consistent Mortality models to model USA Longevity risk.Indeed the multiple risk factors permitting applications not only to the hedge and price of the longevity risk but also in mortality derivatives and the general problems in the risk management .A state space presentation is used to estimate the model parameters through the kalman filter .To capture the effect of the size of the population sample we include a measurement error variance for each age. We evaluate 2-and 3-factor implementation of the model through the use of the USA mortality data, we employ Bootstrapping method to derive parameter estimated and the Consistent models prove the performance and the stability of the model. We show that the 3-factor independent model is the best model that can provide a better fit to our survivals curves and especially for the elderly persons
    Keywords: consistent,multi-factor,Mortality model,Longevity Risk,Affine,Kalman filter
    Date: 2018–01–08
  5. By: Joelle Saad-Lessler; Teresa Ghilarducci; Gayle Reznik (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Defined contribution retirement wealth for workers in the bottom 90 percent of the earnings distribution is affected more by earnings shocks, portfolio choice, and employer contributions than that of the top 10 percent. The asymmetry of impact and exposure by position in the earnings distribution may contribute to retirement wealth inequality
    Keywords: Defined contribution pensions, retirement wealth inequality
    JEL: D14 J26 J32
    Date: 2017–06
  6. By: Sven Klingler; Suresh Sundaresan
    Abstract: The 30-year U.S. swap spreads have been negative since September 2008. We offer a novel explanation for this persistent anomaly. Through an illustrative model, we show that underfunded pension plans optimally use swaps for duration hedging. Combined with dealer banks' balance sheet constraints, this demand can drive swap spreads to become negative. Empirically, we construct a measure of the aggregate funding status of Defined Benefit pension plans and show that this measure is a significant explanatory variable of 30-year swap spreads. We find a similar link between pension funds' underfunding and swap spreads for two other regions.
    Keywords: duration, swap spreads, balance sheetconstraints, funding status of pension plans, defined benefits, repo, LIBOR
    JEL: D40 G10 G12 G13 G15 G22 G23
    Date: 2018–02
  7. By: Leora Friedberg; Wenliang Hou; Wei Sun; Anthony Webb (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: About a quarter of people with long-term care insurance let their policies lapse before they die. This study shows that policyholders who enter nursing homes are more likely to let their insurance lapse due to cognitive impairment. For these individuals, long-term care insurance is worse than useless. They not only lose their premiums, but also spend down their wealth too rapidly, erroneously believing that their insurance policy will cover long-term care costs at older ages.
    Keywords: long-term care insurance, insurance lapsing, insurance companies
    JEL: G22 D14
    Date: 2017–06
  8. By: Jinno, Masatoshi
    Abstract: This paper calculates the net benefit of admitting immigrants under the defined-return-ratio pay-as-you-go pension system, considering the assimilation costs the next generation whose parents are from abroad must pay as additional costs. As a result, no matter how many immigrants come, the host country can get the positive net benefits through the defined-return-ratio pension system. This result is quietly different from those in Jinno (2011, 2013).
    Keywords: Immigrants, the defined-return-ratio pension system, the net benefits.
    JEL: H55 J15 J61
    Date: 2018–03–04
  9. By: Teresa Ghilarducci; Joelle Saad-Lessler; Gayle Reznik (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: This paper finds that negative economic shocks cause 401(k) contribution behavior to react in ways consistent with reactions to fear and past trauma. If employees participating in 401(k) plans did not experience real earnings declines or unemployment spells between 2009 and 2012, then their contribution rates would have been 5% higher and each person would have contributed US $193 more toward their defined contribution plan accounts.
    Keywords: private pensions, non-wage compensation, 401(k) plans, retirement savings
    JEL: D14 J26 J32
    Date: 2017–05

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