November 2022
03Nov

Trends in State and Local Pension Funds

By Oliver Giesecke & Joshua D. Rauh Unfunded public pension obligations represent the largest liability for state and local governments in the United States. As of fiscal year 2021, the total reported unfunded liabilities of these plans is $1.076 trillion. In contrast, the market value of the unfunded liability is approximately $6.501 trillion. As a result, the reported funding ratio of 82.5% falls to 43.8% under a market-based valuation. The market values reflect the fact that accrued pension promises are...

November 3, 2022
Articles, Pension design, , ,
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October 2022
28Oct

Discounting and the Market Valuation of Defined Benefit Pensions

By luca larcher & Francis Breedon We investigate how defined benefit pension schemes of FTSE firms are valued by the equity market, focusing on how future liabilities are discounted (since UK data allows us to estimate the duration of pension liabilities fairly accurately). We find that equity market valuation is consistent with discounting without allowing for credit risk. This differs from the approach used in published accounts for which IAS 19 (and SFAS No. 158, its US equivalent) allows for...

October 28, 2022
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07Oct

Disconnected: Reality vs. Perception in Retirement Planning

By Martha Deevy & Steve Vernon This report examines potential interventions and messaging that can help pre-retirees and retirees plan ahead regarding important retirement decisions. The widespread lack of forward-looking planning has vexed retirement planners and researchers for many years. Many problems in later years could have been prevented with planning ahead. Too many people put off making important decisions, only to find themselves later in a serious crisis with limited options. Our research identified interventions and messaging that could be used by...

October 7, 2022
Books, Books, Pension design, Savings, , , ,
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06Oct

The Effect of Removing Early Retirement on Mortality

By Cristina Bellés-Obrero, Sergi Jimenez-Martin & Han Ye This paper sheds new light on the mortality effect of delaying retirement by investigating the impacts of the 1967 Spanish pension reform. This reform exogenously changed the early retirement age, depending on the date individuals started contributing to the Social Security system. Those contributing before 1 January 1967 maintained the right to voluntarily retire early (at age 60), while individuals who started contributing after that date could not voluntarily claim a pension...

October 6, 2022
Articles, Pension design, Retirement Age, , ,
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September 2022
30Sep

The Safe Withdrawal Rate: Evidence from a Broad Sample of Developed Markets

By Aizhan Anarkulova, Scott Cederburg, Michael S. O'Doherty & Richard W. Sias We use a comprehensive new dataset of asset-class returns in 38 developed countries to examine a popular class of retirement spending rules that prescribe annual withdrawals as a constant percentage of the retirement account balance. A 65-year-old couple willing to bear a 5% chance of financial ruin can withdraw just 2.26% per year, a rate materially lower than conventional advice (e.g., the 4% rule). Our estimates of failure...

September 30, 2022
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09Sep

Informality and the Challenge of Pension Adequacy: Outlook and Reform Options for Peru

By Christoph Freudenberg, Frederik G Toscani Past reforms have put the Peruvian pension system on a largely fiscally sustainable path, but the system faces important challenges in providing adequate pension levels for a large share of the population. Using administrative microdata at the affiliate level, we project replacement rates in the defined benefit (DB) and defined contribution (DC) pillars over the next 30 years and simulate the impact of various reform scenarios on the average level and distribution of pensions....

September 9, 2022
Adequacy, Books, Books, Pension design, , ,
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August 2022
26Aug

Mercer’s Asia Retirement Survey Report

By Mercer Conducted over 2019 to 2021, this series leverages our client base across Asia, and aims to bring together common issues in retirement security that Asia business leaders, HR and Finance partners can take action on. In combination, we have surveyed views from more than 700 employers from all industries, with responsibility for the well-being of over 120,000 employees. Get the report here

August 26, 2022
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11Aug

Labor Supply Flexibility and Portfolio Selection with Early Retirement Option

By Junkee Jeon & Jehan Oh In this paper, we study an optimal consumption and investment problem of an economic agent who can choose flexible labor supply and an option to early retire in the existence of mandatory retirement date. We model the agent's preference as the Cobb-Douglas utility, which is a function of consumption and leisure, and consider the agent's unit wage rate as a stochastic process. The optimization problem has a feature of combining both stochastic control and...

August 11, 2022
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05Aug

On the Impact of Low Interest Rates on Common Withdrawal Rules in Old Age

By An Chen, Stefan Schelling & Nils Sørensen Ensuring a desired standard of living in retirement has been strongly challenged by increasing life expectancy, and simultaneously by the current and possibly long-lasting low interest environment. In contrast to literature in this field which claims annuitization of wealth being a vital part of retirement planning, many people manage their retirement savings and withdrawal policy during the retirement period independently. To this end, several easily applicable self-managed withdrawal rules are commonly recommended...

August 5, 2022
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05Aug

The Misery of Spending Down the Nest Egg: The Effect of Annuitization on Consumption and Wellbeing

By Yu Gao, George Loewenstein & Xianghong Wang We study the effects of annuitization compared to spending down a lump-sum on consumption and subjective wellbeing. Analyzing longitudinal data on UK retirees before and after the pension reform that provided greater freedom to draw down savings, we find that annuitization increased retirees’ consumption and life satisfaction. To further examine the behavioral channel of these effects, we conducted a field experiment with college students, giving them a flow or lump-sum payment. As...

August 5, 2022
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