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on Economics of Ageing |
| By: | Anqi Chen; Wenliang Hou; Alicia H. Munnell |
| Abstract: | Over the last 40 years, the retirement system has shifted from defined benefit plans to defined contribution plans, primarily 401(k)s and Individual Retirement Accounts (IRAs). This shift has been accompanied by a decline in Social Security benefits relative to pre-retirement earnings as the program’s Full Retirement Age has moved from 65 to 67. Thus, the expected pattern when examining retirement wealth across cohorts is relatively less wealth from defined benefit plans and Social Security and much more from 401(k)s and IRAs. However, the numbers for the most recent cohort in the Health and Retirement Study – the Late Boomers – show not only the predicted declines in defined benefit plans and Social Security but also an unexpected drop in 401(k)/IRA assets. This drop is alarming given that Late Boomers, who were ages 51-56 in 2016, would have spent the majority of their careers in a defined contribution world. This brief is a first pass at trying to explain why this younger cohort has less in 401(k)/IRA assets than older cohorts had at the same age and what that means for the future of retirement security. The discussion proceeds as follows. The first section identifies the cohorts that are examined and the calculation of retirement wealth. The second section identifies a turn in the fortunes of Late Boomers during the Great Recession, when a significant share stopped working. But lack of employment does not explain the whole problem, so the third section follows working households and finds that after the Great Recession they had lower earnings, less 401(k) participation, and flat 401(k) balances, ending up well below earlier cohorts. A look at more recent cohorts offers a mixed picture for the future. The final section concludes that the Late Boomers’ low 401(k)/IRA wealth can be explained by particularly high levels of unemployment during the Great Recession and more reliance on lower-paid jobs when they re-entered the labor market. Why they were so hard hit, why they were unable to recover, and the fate of future cohorts remain open questions. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2020-4&r=all |
| By: | Jason S. Scott; John B. Shoven; Sita N. Slavov; John G. Watson |
| Abstract: | Simple presentations of the life cycle model often suggest a constant level of real consumption in retirement. Similarly, financial planners commonly suggest that people save for retirement in such a way as to enable them to maintain a level retirement standard of living equal to their standard of living while working. However, constant consumption with age is only optimal under the precise and unlikely condition that the subjective rate of time preference is equal to the real interest rate. Most people exhibit a positive rate of pure time preference and additionally discount the future by both mortality and morbidity risks. In comparison, the real interest rate is roughly zero percent and the term structure of interest rates suggests that this condition is likely to persist. These considerations suggest that optimal consumption in the life cycle model declines with age. This finding has major implications for optimal retirement saving. For instance, we find that for many, perhaps most, people in the bottom half of the lifetime earnings distribution, it is optimal to spend out their retirement wealth well before death and to live on Social Security alone after that. Very low earners may find it optimal to not engage in retirement saving at all. |
| JEL: | D14 H55 J26 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26784&r=all |
| By: | Hippolyte d'Albis (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Carole Bonnet (INED - Institut national d'études démographiques); Xavier Chojnicki (EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - Université de Lille, Droit et Santé - PRES Université Lille Nord de France - Université de Lille, Sciences Humaines et Sociales - Université de Lille, Sciences et Technologies); Najat El Mekkaoui; Angela Greulich (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); Jérôme Hubert (LEM - Lille économie management - LEM - UMR 9221 - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique); Julien Navaux (uOttawa - University of Ottawa [Ottawa]) |
| Abstract: | A better understanding of the resource allocation across ages is fundamentalto put in place welfare reforms in the context of population ageing.In times of major demographic change, the redistribution of resourcesbetween age groups and the funding of the economically inactive aged remainsa recurring topic of public debate and a major public policy concern inOECD countries. Governments search for a policy mix that will improve thequality of life of the elderly, while at the same time investing in the futureof the young and reducing the fiscal burden on the working population.Life expectancy and education requirements are increasing while budgetconstraints are tightening. This potentially creates tension in the allocationof resources between age groups (Preston 1984; Lee and Mason 2011a).By applying the methodology of National Transfer Accounts (NTA),this article analyzes for France (1) how the funding of consumption (publicand private) is secured at each age; (2) how the funding of consumptionhas changed over recent decades; and (3) how the consumption is financedcompared to that of other countries (China, Germany, Japan, Sweden,United Kingdom, and United States). We consider three sources for financingconsumption: the State (net transfers and in-kind services), individualsthemselves (income and assets), and families (inter vivos transfers, excludingbequests, following the NTA methodology) (United Nations 2013b). |
| Keywords: | Private and Public Consumption,Inter-Generational Equity,Generational Economy,National Transfer Accounts |
| Date: | 2018–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-02076546&r=all |
| By: | Jean-Pierre Aubry; Kevin Wandrei |
| Abstract: | Local governments employ nearly all police officers and firefighters and, thus, are mainly responsible for their personnel costs. Pension and retiree health benefits (retirement benefits) for these public safety employees are designed to meet the challenges of a career in a physically demanding occupation, including lower-than-average retirement ages and an increased likelihood of workplace disability. But, news stories often present examples of public safety employees retiring with large pensions at relatively young ages alongside statistics of local government fiscal strains. The prevalence of these stories suggests the need for a careful examination of the retirement benefits that public safety retirees receive and the fiscal stress these commitments put upon local governments. This brief proceeds as follows. The first section documents that both pension and retiree health benefits for public safety workers are more costly than for other government workers, mainly because public safety workers retire earlier. The second section reports that, perhaps surprisingly, these public safety retirement benefits make up only a small share of total local government spending. The third section summarizes evidence suggesting that public safety employees could work longer, which may have implications for the design of their retirement benefits. The final section concludes that some local governments may decide to align public safety retirement benefits with employees’ ability to work at later ages, but benefit reforms would have limited impact on government expenditures – particularly given that any cut to benefits might need to involve an increase in wages to ensure the recruitment and retention of quality workers. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:crr:slpbrf:slp69&r=all |
| By: | Dean, Andres (IECON, Universidad de la República); Fleitas, Sebastian (KU Leuven); Zerpa, Mariana (KU Leuven) |
| Abstract: | Many defined-benefit pension systems in developed and developing countries use a small set of final years of earnings to compute pension benefits. This provides dynamic incentives to report higher earnings in the final years of the career. In this paper, we document the responses of self-employed and employed workers to these incentives, using social security administrative records and household surveys from Uruguay. We implement event studies that leverage the use of a 10-year benefit-calculation window, combined with the discrete change in the probability of retirement at the minimum retirement age. We find that reported earnings of self-employed workers and employees of small firms start increasing sharply 10 years prior to minimum retirement age, reaching a 3% increase on average. This is not the case for employees of large firms, where earnings underreporting is less prevalent. These responses are not explained by changes in total earnings or hours of work, as reported in household surveys, suggesting a change in reporting behavior. Back of the envelope calculations for the self-employed bound the cost of these responses between 1.9% and 2.6% of the total cost of pensions for this group. |
| Keywords: | earnings replacement benefits, social security, tax compliance |
| JEL: | J26 H26 H55 O15 O17 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12982&r=all |
| By: | Rudolph,Heinz P. |
| Abstract: | Since the introduction of the KiwiSaver scheme in New Zealand in 2006, several countries have implemented, or are in the process of implementing, voluntary funded pension systems with automatic enrollment features. Since most of the literature has focused on countries with the common law tradition, including the United Kingdom and the United States, this note analyzes cases of countries with the civil code tradition, including Turkey, Poland, the Russian Federation, Chile, Brazil, and the Province of Quebec in Canada. This sample includes mostly emerging economies, with reforms at different stages, from those that have already been completed to those that are about to start discussions in their parliaments. Although they are not a substitute for necessary parametric reforms, automatic enrollment schemes offer the possibility of improvements in future retirement income for a significant part of the labor force. This note stresses that the paternalistic approach of automatic enrollment schemes imposes a great degree of responsibility on governments and requires careful consideration of the design of the system, including the industrial organization of the pension fund industry and default investment strategies. Sufficient time and resources for preparing communication and educational campaigns has played a key role in achieving high rates of participation. |
| Date: | 2019–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:8726&r=all |
| By: | Abeliansky, Ana (University of Göttingen); Algur, Eda (Harvard School of Public Health); Bloom, David E. (Harvard University); Prettner, Klaus (University of Hohenheim) |
| Abstract: | We explore future job creation needs under conditions of demographic, economic, and technological change. First, we estimate the implications for job creation in 2020–2030 of population growth, changes in labor force participation, and the achievement of plausible target unemployment rates, disaggregated by age and gender. Second, we analyze the job creation needs differentiated by country income group. Finally, we examine how accelerated automation could affect job creation needs over the coming decades. Overall, shifting demographics, changing labor force participation rates, reductions in unemployment to the target levels of 8 percent for youth and 4 percent for adults, and automation combine to require the creation of approximately 340 million jobs in 2020–2030. |
| Keywords: | demography, labor, unemployment |
| JEL: | J11 J21 J68 O30 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12962&r=all |
| By: | Hunter L. Clark (Research and Statistics Group); Thomas Klitgaard |
| Abstract: | China?s population is only growing at a 0.5 percent annual rate, its working-age cohort (ages 15 to 64) is shrinking, and the share of the population that is 65 and over is rising rapidly. Together, these trends will act as a significant restraint on the country?s economic growth. Nonetheless, there are reasons to conclude that growth will remain relatively strong going forward, most notably because the ongoing shift from rural to urban jobs will continue to boost labor productivity for some time to come. |
| Keywords: | China demographics growth dependency ratio working-age population |
| JEL: | E2 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87272&r=all |
| By: | J. Ignacio Conde-Ruiz |
| Abstract: | El sistema de pensiones español se encuentra en unproceso de adaptación a la nueva realidad demográfica. Aunque se trata de unreto común a todos los países desarrollados, las proyecciones de población deEspaña plantean que el progresivo envejecimiento de la población será mucho másintenso, llegando a ser el país europeo más longevo en 2050. El objetivo de este articulo es analizar enqué situación se encuentra nuestro sistema de pensiones y cómo deberíaadaptarse para seguir vigente y en plena salud financiera en el siglo XXI. En concreto, se analizan laslimitaciones de las últimas reformas emprendidas y se proponen los elementoscruciales de la que sería una reformafinanciera y políticamente sostenible para adaptar nuestro sistema de pensionesde una forma definitiva a la nueva realidad demográfica. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdapop:2020-01&r=all |