October 2023
06Oct

Replacement Rates and the Retirement Crisis

By Andrew G. Biggs  In 2014, the annual Social Security Trustees Report removed measures of Social Security replacement rates, which represent Social Security retirement benefits as a percentage of pre-retirement earnings. The Trustees expressed concerns that the Social Security Administration’s (SSA) actuaries’ methodology produced results that differed meaningfully from other common approaches. In 2023, the Social Security Trustees returned replacement rates to the report, without changes to the SSA methodology or discussion of their decision. The SSA replacement rate methodology produces...

October 6, 2023
Adequacy, Articles, , , ,
Read more...

September 2023
29Sep

Motivated Saving: The Impact of Projections on Retirement Contributions

By George Smyrnis, Hazel Bateman, Loretti Dobrescu, Ben R. Newell & Susan Throp Projections of future benefits can assist pension plan participants prepare for retirement. Here we measure the effects of projections of retirement incomes and lump sum balances on voluntary contributions and plan interactions of retirement savers. Data from a two-year field trial in a large Australian pension plan show that the frequency and average amount of participants’ voluntary contributions and interactions with the plan rose significantly in the...

September 29, 2023
Articles, Savings, , ,
Read more...
29Sep

Best Practices for Defined Contribution Plans

By Nicole M. Boyson This paper provides operational and investment recommendations for ERISA 403(b) plans. Based on a review of academic literature and an empirical analysis, I recommend that plan investment menus include mostly passive index funds covering key investment categories, a full suite of index-based target date funds as the auto-enroll qualified default investment alternative, and a self-directed brokerage option. I also recommend that plan sponsors adhere to and regularly review the plan’s Investment Policy Statement, that the Retirement...

September 29, 2023
Articles, System Characterization, , , ,
Read more...
29Sep

Does a Requirement to Offer Retirement Plans Help Low-Income Workers Save for Retirement? Early Evidence from the OregonSaves Program

By Ngoc Dao  This study examines the first implementation of the state-run retirement savings program in Oregon, known as OregonSaves, in 2017. It offers early insights into the substantial impact of this mandated program on retirement savings among previously uncovered private workers. Results from difference-in-difference models using SIPP data indicate a 12 percent increase in Individual Retirement Account (IRA) ownership among Oregon workers after the program’s roll-out. Notably, the study discerns significant gains for lower-income, single, and older workers, as...

September 29, 2023
Articles, Regulation, , ,
Read more...
22Sep

Population Aging and Economic Growth: From Demographic Dividend to Demographic Drag?

By Rainer Kotschy & David E. Bloom  This paper examines the extent to which changes in working-age shares associated with population aging might slow economic growth in upcoming years. We first analyze the economic effects of changing working-age shares in a standard empirical growth model using country panel data from 1950–2015. We then juxtapose the estimates with predicted shifts in population age structure to project economic growth in 2020–2050. Our results indicate that population aging will slow economic growth throughout...

September 22, 2023
Aging, Articles, , ,
Read more...
22Sep

Eggs and Baskets: Lifecycle Portfolio Dynamics

By Loretti Dobrescu, Akshay Shanker, Hazel Bateman, Ben Rhodri Newell & Susan Thorp  Housing and pension wealth are two major contributors to the quality of old-age provision. Here we study the interplay between these two asset classes using the impact of changes in saving incentives on wealth accumulation across the lifetime. To do so, we build and estimate a dynamic lifecycle model of saving and portfolio choice featuring risky earnings, lumpy housing with collateralized borrowing, and financial assets inside and...

September 22, 2023
Articles, Savings, , ,
Read more...
22Sep

Motivated Saving: The Impact of Projections on Retirement Contributions

By George Smyrnis, Hazel Bateman, Loretti Dobrescu, Ben R. Newell & Susan Thorp Projections of future benefits can assist pension plan participants prepare for retirement. Here we measure the effects of projections of retirement incomes and lump sum balances on voluntary contributions and plan interactions of retirement savers. Data from a two-year field trial in a large Australian pension plan show that the frequency and average amount of participants’ voluntary contributions and interactions with the plan rose significantly in the...

September 22, 2023
Articles, Savings, ,
Read more...
15Sep

Welfare Analysis of Housing in the Presence of Interest Rate Risk

By Servaas van Bilsen, Theo Nijman & Emiliana van Erk  We model the welfare losses of (i) the presence of a mortgage with required repayments, (ii) a minimum pension savings constraint, and (iii) imposing a suboptimal investment strategy. We develop a life-cycle model which considers housing and interest rate risk. For a reasonable set of parameter values, we find welfare losses of up to 2.41% (5.02%) if a homeowner with a 30-year fixed-rate (adjustable-rate) mortgage faces a minimum savings constraint of...

September 15, 2023
Articles, Pension design, , ,
Read more...
15Sep

Risk Aversion and Savings Behavior

By Antoine Bommier, Francois Le Grand & Lionel Wilner This paper investigates the relationship between lifetime savings and risk aversion. First, we take a theoretical approach in a two-period framework with a very general non-parametric model. We show that risk aversion reduces savings in the presence of mortality risk. We then verify the negative impact of risk aversion on savings in a numerical exercise, with a multi-period setting where mortality risk is calibrated on actual demographic life-tables. Finally, we check...

September 15, 2023
Articles, Savings, , ,
Read more...
15Sep

Solving the Puzzle within the Annuity Puzzle: Incorporating Irrevocability Aversion into Annuity Choice

By Spencer Look, Tao Guo & Yuanshan Cheng  Researchers have found that annuities provide substantial benefits to retirement investors. Income annuities, which require the purchaser to irrevocably exchange an insurance premium for future income, are typically considered the most efficient vehicle to generate lifetime income. However, the Life Insurance Marketing and Research Association (“LIMRA”) estimated that the actual sales of income annuities only accounted for 12% of income-focused annuity sales (LIMRA, 2022a). Most of the sales are attributable to deferred...

September 15, 2023
Articles, Pension design, , ,
Read more...