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on Economics of Ageing |
| By: | Philip Armour; Angela Hung |
| 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: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:wr-1165&r=age |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Blomquist, Sören (Department of Economics, Uppsala University) |
| 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; work hours pension policy |
| JEL: | D61 D80 H21 H55 |
| Date: | 2018–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0957&r=age |
| By: | Joan Costa-i-Font; Richard G. Frank; Katherine Swartz |
| Abstract: | Home equity is the primary self-funding mechanism for long term services and supports (LTSS). Using data from the relevant waves of the Health and Retirement Study (1996-2010), we exploit the exogenous variation in the form of wealth shocks resulting from the value of housing assets, to examine the effect of wealth on use of home health, unpaid help and nursing home care by older adults. We find a significant increase in the use of paid home health care and unpaid informal care but no effect on nursing home care access. We conduct a placebo test on individuals who do not own property; their use of LTSS was not affected by the housing wealth changes. The findings suggest that a wealth shock exerts a positive and significant effect on the uptake of home health and some effect on unpaid care but no significant effect on nursing home care. |
| Keywords: | long term care, housing equity, housing bubble, informal care, home health care, nursing home care |
| JEL: | I18 J14 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6823&r=age |
| By: | Blaufus, Kay; Milde, Michael |
| Abstract: | Using a series of laboratory experiments, this paper studies the effect of tax misperceptions on retirement savings and examines whether informational tax nudges and changing the form of the tax subsidy promote tax-efficient savings behavior. We find that deferred pension taxation results in after-tax pensions that are approximately 25% lower compared to an economically equivalent immediate pension tax system. This indicates substantial tax misperceptions. For subjects with low tax and financial knowledge, these misperceptions remain stable even if they have gained experience. Only if we provide subjects with recurrent numerical informational nudges on tax refunds, together with numerical informational nudges on future pension taxes, do tax distortions disappear for all subjects. Regarding the form of the tax subsidy, we demonstrate that replacing the tax deductibility of retirement savings with matching contributions increases tax-efficiency without the need to provide informational tax nudges. |
| Keywords: | Pension Taxation,Tax Misperception,Learning Behavior,Informational Tax Nudges,Matching Contribution |
| JEL: | D91 H20 H30 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:225&r=age |
| By: | Serena Trucchi (Department of Economics, University Of Venice Cà Foscari); Elsa Fornero (University of Turin, CeRP-Collegio Carlo Alberto); Mariacristina Rossi (University of Turin, CeRP-Collegio Carlo Alberto; Netspar) |
| Abstract: | Our paper analyses the observed and desired labour supply of older workers and (recent) retirees in a country (Italy) with limited opportunities for exible work schedules. For this purpose, we use a unique dataset drawn from the Bank of Italy's Survey on Household Income and Wealth (SHIW) providing information on both desired and actual working hours. Our empirical analysis documents the gap between older individuals' desired and observed labour supply at both the extensive and the intensive margins and traces it back to gender, education and family composition. The paper provides useful insights into the potential effectiveness of policies such as gradual retirement and part-time work in increasing older workers' employment. |
| Keywords: | Retirement, desired labour supply, exible retirement |
| JEL: | J26 J14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2018:05&r=age |
| By: | Nicole Maestas; Kathleen J. Mullen; David Powell |
| Abstract: | Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980–2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging. |
| Keywords: | population aging, GDP growth, demographic transitions |
| JEL: | J11 J14 J23 J26 O47 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:wr-1063-1&r=age |
| By: | Bovenberg, Lans (Tilburg University, School of Economics and Management); Nijman, Theo (Tilburg University, School of Economics and Management) |
| Abstract: | To improve the design of the pay-out phase of DC plans, this paper proposes a new approach to structure pension products: the Personal Pension with Risk sharing (PPR). By unbundling and valuing the investment, (dis)saving, insurance and risk-sharing functions of pensions, PPRs allow risk management and (dis)saving to be customized to the specific features of heterogeneous individuals. Unlike variable annuities, PPRs allow investment risks to be combined with longevity insurance without giving rise to high year-on-year volatility in consumption streams or opaque and rigid valuation and smoothing rules. The synthesis of a PPR structure provides new opportunities for product innovation and for the comparison of retirement products. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:227bdfce-9f38-4e8a-8665-f18e1943a5de&r=age |
| By: | Pia Rattenhuber; Maria Jouste |
| Abstract: | We use four novel, cross-country comparable tax-benefit microsimulation models for Ecuador, Ghana, Tanzania, and South Africa to evaluate ex ante the expansion of a universal oldage pension in a static setting. Universal pensions would significantly reduce poverty and inequality in settings in which no means-tested old-age pensions exist (such as Ghana and Tanzania). If means-tested old-age pensions exist and shall be maintained, universal pensions as a top-up scheme only make a difference for the income distribution if the existing schemes do not reach the entire vulnerable population, such as in Ecuador. Costs for the proposed schemes are substantial. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2018-23&r=age |
| By: | Katherine Grace Carman; Angela Hung |
| 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: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:wr-1166&r=age |
| By: | Fausto Brito (CEDEPLAR/UFMG) |
| Abstract: | This article intends to analyze the demographic transition in Brazil, especially, its most debated consequence in the current moment: the aging of the population. Around it, normative, theoretical and ideological arguments have been constructed, with the aim of regulating its consequences. In other words, population or, more specifically, its aging, has been incorporated into the political scene and has become the object of the confrontation of divergent political conceptions and interests. The debates in the political scene, independent of the academic construction of the arguments, do not escape the political and ideological dimension. The association of the debate on aging with social security brings together positions, not only on what would be a society with a more aged population, but also on the parameters that should be considered in the formulation of broader social security policies. |
| Keywords: | Demographic Transition, Population Aging and Social Inequalities |
| JEL: | J10 J11 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td572&r=age |
| By: | Schünemann, Johannes; Strulik, Holger; Trimborn, Timo |
| Abstract: | Married people live longer than singles but how much of the longevity gap is causal and what the particular mechanisms are is not fully understood. In this paper we propose a new approach, based on counterfactual computational experiments, in order to asses how much of the marriage gap can be explained by income pooling and public-goods sharing as well as collective bargaining of partners with different preferences and biology. For that purpose we integrate cooperative decision making of a couple into a biologically founded life-cycle model of health deficit accumulation and endogenous longevity. We calibrate the model with U.S. data and perform the counterfactual experiment of preventing the partnership. We elaborate four economic channels and find that, as singles, men live 8.5 months shorter and women 6 months longer. We conclude that about 25% of the marriage gain in longevity of men can be motivated by economic calculus while the marriage gain for women observed in the data is attributed to selection or other (non-standard economic) motives. |
| Keywords: | health,aging,longevity,marriage-gap,gender-specific preferences,unhealthy behavior |
| JEL: | D91 J17 J26 I12 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:339&r=age |
| By: | Shusaku Sasaki; Hirofumi Kurokawa; Fumio Ohtake |
| Abstract: | It is widely believed that a rise in social status extends longevity. A handful number of studies examine datasets of candidates for prestigious prizes to exploit the causality. However, while some studies report positive relationships between receiving awards and recipients’ longevity, others report negative relationships. In this study, we show evidence that receiving a prize has both positive and negative causal effects on recipients’ longevity, by using a dataset covering Japan’s most prestigious and traditional literary recognitions, the Akutagawa and Naoki Prizes. The results reveal that the recipients of the Akutagawa Prize for new or emerging novelists exhibit lower mortality than their fellow nominees. The increase in longevity is estimated at 1.4 years. By contrast, the recipients of the Naoki Prize mainly for established novelists report higher mortality than their fellow nominees, and the decreased longevity is estimated at 5.2 years. We discuss with additional empirical analyses that we are likely to find a life-prolonging effect from receiving a prize when candidates belong to a lower social stratum. In so doing, our findings provide narrative explanations for why earlier studies show conflicting relationships between receiving awards and recipients’ longevity. |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0968rr&r=age |