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on Economics of Ageing |
| By: | Peter Haan; Victoria Prowse |
| Abstract: | How can public pension systems be reformed to ensure fiscal stability in the face of increasing life expectancy? To address this pressing open question in public finance, we estimate a life-cycle model in which the optimal employment, retirement and consumption decisions of forward-looking individuals depend, inter alia, on life expectancy and the design of the public pension system. We calculate that, in the case of Germany, the fiscal consequences of the 6.4 year increase in age 65 life expectancy anticipated to occur over the 40 years that separate the 1942 and 1982 birth cohorts can be offset by either an increase of 4.34 years in the full pensionable age or a cut of 37.7% in the per-year value of public pension benefits. Of these two distinct policy approaches to coping with the fiscal consequences of improving longevity, increasing the full pensionable age generates the largest responses in labor supply and retirement behavior. |
| Keywords: | Life expectancy, public pension reform, retirement, employment, life-cycle models, consumption, tax and transfer system |
| JEL: | D91 J11 J22 J26 J64 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp396&r=age |
| By: | Syam Prasad (Indira Gandhi Institute of Development Research) |
| Abstract: | Changing age structure is one of structural change that witnessed in the last century. Population ageing is one of its consequences, which emerges as a global phenomenon in the present day. It is generally expressed as older individuals forming large share of the total population. This process is considered to be an end product of demographic transition or demographic achievements with a decline in both birth and mortality rates and consequent increase in the life expectancy at birth and older ages. The Indian aged population is currently the second largest in the world to that of china with 100 million of the aged. The absolute number of the over 60 population in India will increase from 77 million in 2001 to 137 million by 2021. Population Ageing is profound, having major consequences and implications for all facets of human life. In the economic area, population ageing will have an impact on economic growth, savings investment and consumption, labor markets, pensions, taxation and inter generational transfers. In the social sphere, population ageing affects health and healthcare, family composition and living arrangements, housing and migration. In this paper we try to document different aspects of human deprivation in the old age other than the measurement of income poverty. We mainly take up on aspects of economic, health and social aspects of deprivation and how it vary across space(sector and state) and gender and try to map how much it vary in relative terms. It further looks up on correlates and determines of old age deprivation in India. |
| Keywords: | ageing, old age deprivation, vulnerability |
| JEL: | I30 I31 I32 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2011-013&r=age |
| By: | Doblhammer, Gabriele (University of Rostock); van den Berg, Gerard J. (University of Mannheim); Fritze, Thomas (Rostock Center for the Study of Demographic Change) |
| Abstract: | With ageing populations and a stronger reliance on individual financial decision-making concerning asset portfolios, retirement schemes, pensions and insurances, it becomes increasingly important to understand the determinants of cognitive ability among the elderly. Macro-economic recession and boom periods provide a unique opportunity to study the effect of changes in the early life economic environment on late life cognition. In European countries, about three to four economic recession and boom periods can be identified between 1900 and 1945. The timing of these periods differs between the countries, which makes a cross-country study design particularly powerful, as it is insensitive to country-specific confounding factors. We use data from the Survey of Health, Aging and Retirement in Europe (SHARE) among elderly individuals. This survey is homogeneous across countries. We use almost 20,000 respondents from 11 countries. We examine several domains of cognitive functioning at ages 60+ and link them to the macro-economic deviations in the year of birth, controlling for current demographic, socioeconomic and health status. We find that being born during a recession or boom period significantly influences cognitive functioning late in life in various domains. The effects are particularly pronounced among the less educated. Boom periods positively influence numeracy and verbal fluency as well as the score on the omnibus cognitive indicator. The results are robust; controlling for current characteristics does not change effect sizes and significance. We conclude that cognitive functioning late in life is influenced by economic conditions in the year of birth, and we discuss possible causal pathways. |
| Keywords: | dementia, long-run effects, health, developmental origins, economic business cycle, cognition, numeracy, memory, decision-making |
| JEL: | I12 I18 J14 N14 N34 J26 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5940&r=age |
| By: | Maarten van Rooij; Annamaria Lusardi; Rob Alessie |
| Abstract: | There is ample empirical evidence documenting widespread financial illiteracy and limited pension knowledge. At the same time, the distribution of wealth is widely dispersed and many workers arrive on the verge of retirement with few or no personal assets. In this paper, we investigate the relationship between financial literacy and household net worth, relying on comprehensive measures of financial knowledge designed for a special module of the DNB (De Nederlandsche Bank) Household Survey. Our findings provide evidence of a strong positive association between financial literacy and net worth, even after controlling for many determinants of wealth. Moreover, we discuss two channels through which financial literacy might facilitate wealth accumulation. First, financial knowledge increases the likelihood of investing in the stock market, allowing individuals to benefit from the equity premium. Second, financial literacy is positively related to retirement planning, and the development of a savings plan has been shown to boost wealth. Overall, financial literacy, both directly and indirectly, is found to have a strong link to household wealth. |
| Keywords: | Financial education; Savings and wealth accumulation; Retirement preparation; Knowledge of finance and economics; Overconfidence; Stock market participation |
| JEL: | D91 D12 J26 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:313&r=age |
| By: | Clemens Hetschko (Faculty of Economics and Business, FU Berlin); Andreas Knabe (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Ronnie Schöb (Faculty of Economics and Business, FU Berlin) |
| Abstract: | Using data from the German Socio-Economic Panel from 1984-2009, we follow persons from their working life into their retirement years and find that, on average, employed people maintain their life satisfaction upon retirement, while long-term unemployed people report a substantial increase in their life satisfaction when they retire. These results are robust to controlling for changes in other life circumstances and suggest that retiring is associated with a switch in the relevant social norms that causes an increase in identity utility for the formerly unemployed. This is supportive of the idea that, by including identity in the utility function, results from the empirical life satisfaction literature can be reconciled with the economic theory of individual utility. |
| Keywords: | life satisfaction, retirement, unemployment, identity, social norm |
| JEL: | I31 J26 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:110017&r=age |
| By: | Pfau, Wade Donald |
| Abstract: | Most retirement withdrawal rate studies are either based on historical data or use a particular assumption about portfolio returns unique to the study in question. But planners may have their own capital market expectations for future returns from stocks, bonds, and other assets they deem suitable for their clients’ portfolios. These uniquely personal expectations may or may not bear resemblance to those used for making retirement withdrawal rate guidelines. The objective here is to provide a general framework for thinking about how to estimate sustainable withdrawal rates and appropriate asset allocations for clients based on one’s capital market expectations, as well as other inputs about the client including the planning horizon, tolerance for exhausting wealth, and personal concerns about holding riskier assets. The study also tests the sensitivity of various assumptions for the recommended withdrawal rates and asset allocations, and finds that these assumptions are very important. Another common feature of existing studies is to focus on an optimal asset allocation, which is expected either to minimize the probability of failure for a given withdrawal rate, or to maximize the withdrawal rate for a given probability of failure. Retirement withdrawal rate studies are known in this regard for lending support to stock allocations in excess of 50 percent. This study shows that usually there are a wide range of asset allocations which can be expected to perform nearly as well as the optimal allocation, and that lower stock allocations are indeed justifiable in many cases. |
| Keywords: | retirement planning; safe withdrawal rates; asset allocation; capital market expectations |
| JEL: | G11 N22 C15 D14 |
| Date: | 2011–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32973&r=age |
| By: | Jacob A. Bikker; Thijs Knaap; Ward Romp |
| Abstract: | This paper models policy responses to changes in solvency by Dutch occupational pension funds using a unique panel dataset containing the balance sheets of all registered pension funds in the Netherlands over a period of 15 years (1993-2007). The model describes how nominal pension rights are expanded, by e.g. indexation or backservice, or, on the contrary, how the current pension accumulation is skimmed, e.g. by setting the pension premium over its actuarially fair price to build buffers. Policy responses are explained by the funding ratio and other pension fund characteristics such as pension funds' size and type, and participants' ages. We find that pension rights are expanded in line with the funding ratio, but that the pension funds' response function exhibits two sharp and significant behavioural breaks, close to the minimum funding ratio of 105% and the target ratio of around 125%. These levels also play a pivotal role in current supervisory regulation. We further find that large pension funds and grey funds are relatively generous to participants. |
| Keywords: | pension funds, pension rights, risk sharing instruments, indexation, funding ratio, solvability, regime shifts. |
| JEL: | G23 G28 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1115&r=age |
| By: | Stephan Humpert (Institute of Economics, Leuphana University Lueneburg, Germany); Christian Pfeifer (Institute of Economics, Leuphana University Lueneburg, Germany) |
| Abstract: | This paper takes a labor supply perspective (neoclassical labor supply, job search) to explain the lower employment rates of older workers and women. The basic rationale is that workers choose non-employed if their reservation wages are larger than the offered wages. Whereas the offered wages depend on workers' productivity and firms' decisions, reservation wages are largely determined by workers' endowments and preferences for leisure. To shed some empirical light on this issue, we use German survey data to analyze age and gender differences in reservation and entry wages, preferred and actual working hours, and satisfaction with leisure and work. |
| Keywords: | Age; Family gap; Gender; Job search; Labor supply; Reservation wages |
| JEL: | J14 J22 J64 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:214&r=age |