_________________________________________________________________
E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 5, No. 1: January 15, 2004
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
Social Science Electronic Publishing, Inc. (SSEP)
and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
Mailto:pamela@planetnow.com
Copyright: SSEP, Inc. 2004. All rights reserved.
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Topic of This Issue:
Saving for Retirement
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T A B L E of C O N T E N T S
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NEW and FORTHCOMING ARTICLES
"Income of the Elderly Population: 2002"
EBRI Notes, Vol. 24, No. 11, November 2003
KENNETH J. MCDONNELL
Employee Benefit Research Institute (EBRI)
"Can America Afford Tomorrow's Retirees: Results from the
EBRI-ERF Retirement Security Projection Model"
EBRI Issue Brief, No. 263, November 2003
JACK VANDERHEI
Temple University
Risk Management & Insurance & Actuarial Science
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
WORKING PAPERS
"Sex Differences, Financial Education, and Retirement Goals"
ROBERT L. CLARK
North Carolina State University
College of Management
"Motivating Retirement Planning: Problems and Solutions"
GARY M. SELNOW
University of Pennsylvania
The Wharton School
"Saving and the Effectiveness of Financial Education"
ANNAMARIA LUSARDI
Dartmouth College
Department of Economics
"Retirement Security in a DC World: Using Behavioral Finance to
Bridge the Expertise Gap"
GREGORY M. STEIN
University of Tennessee, Knoxville
College of Law
JASON SCOTT
Independent
"What You Don't Know Can't Help You: Pension Knowledge and
Retirement Decision Making"
SEWIN CHAN
New York University
Robert F. Wagner Graduate School of Public Service
ANN HUFF STEVENS
University of California, Davis
Department of Economics
National Bureau of Economic Research (NBER)
"Grasshoppers, Ants, and Pre-Retirement Wealth: A Test of
Permanent Income"
ERIK HURST
University of Chicago
Graduate School of Business
National Bureau of Economic Research (NBER)
"Lessons from Behavioral Finance for Retirement Plan Design"
OLIVIA S. MITCHELL
Wharton School
National Bureau of Economic Research (NBER)
STEPHEN P. UTKUS
Vanguard Center for Retirement Research
S S R N I N F O R M A T I O N
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Income of the Elderly Population: 2002"
EBRI Notes, Vol. 24, No. 11, November 2003
BY: KENNETH J. MCDONNELL
Employee Benefit Research Institute (EBRI)
Contact: KENNETH J. MCDONNELL
Email: Mailto:MCDONNELL@EBRI.ORG
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: (202) 775-6342
Fax: (202) 775-6312
Paper Requests:
Contact Alicia Willis at Mailto:publications@ebri.org, or 2121 K
St., NW, Suite 600, Washington, DC 20037-1896.
Phone:(202)572-7422, Fax:(202)775-6312. Full-Text downloads are
available from SSRN Online for $7.50.
ABSTRACT:
This article reviews data on the older population's income and
how it has changed over time, as well as how the elderly's
reliance on these sources varies across income levels. In 2002,
the median income of the elderly was $13,994, down from $14,105
in 1998. Social Security accounted for 42.5 percent of their
income, on average; pension and retirement plan income, 20.2
percent; income from assets, 14.0 percent; and earnings, 21.1
percent.
The PDF for the above title, published in the November 2003
issue of EBRI Notes, also contains the fulltext of another
November 2003 EBRI Notes article abstracted on SSRN: "Uninsured
Rose in 2002 as Number of Americans With Employment Based Health
Benefits Declined."
JEL Classification: D31, J14
______________________________
"Can America Afford Tomorrow's Retirees: Results from the
EBRI-ERF Retirement Security Projection Model"
EBRI Issue Brief, No. 263, November 2003
BY: JACK VANDERHEI
Temple University
Risk Management & Insurance & Actuarial Science
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=476541
Contact: JACK VANDERHEI
Email: Mailto:temple@vanderhei.com
Postal: Temple University
Risk Management & Insurance & Actuarial Science
489 Ritter Annex
Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122 UNITED STATES
Phone: 610-525-6139
Fax: 435-603-1422
Co-Auth: CRAIG COPELAND
Email: Mailto:copeland@ebri.org
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Paper Requests:
Contact Alicia Willis at Mailto:publications@ebri.org, or 2121 K
St., NW, Suite 600, Washington, DC 20037-1896.
Phone:(202)572-7422, Fax:(202)775-6312. Full-Text downloads are
available from SSRN Online for $7.50.
ABSTRACT:
American retirees will have at least $45 billion less in
retirement income in 2030 than what they will need to cover
basic expenditures and any expense associated with an episode of
care in a nursing home or from a home health care provider. The
aggregate deficit in retiree income during the decade ending
2030 will be at least $400 billion. These findings are from an
analysis by the Employee Benefit Research Institute (EBRI) in
collaboration with the Milbank Memorial Fund, known as the
EBRI-ERF Retirement Security Projection Model.
JEL Classification: D31, D91, J14
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W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Sex Differences, Financial Education, and Retirement Goals"
BY: ROBERT L. CLARK
North Carolina State University
College of Management
Paper ID: PRC Working Paper No. 2003-15
Date: 2003
Contact: ROBERT L. CLARK
Email: Mailto:ROBERT_CLARK@NCSU.EDU
Postal: North Carolina State University
College of Management
Raleigh, NC 27695-8614 UNITED STATES
Phone: 919-515-5560
Fax: 919-515-5564
ABSTRACT:
This chapter examines the impact of participation in financial
education seminars on the desired retirement age of individuals
and on their expected levels of retirement income. Individuals
were found to change their retirement goals after attendance in
such a seminar. In addition, participants also reported that
they planned to change their retirement saving behavior based on
knowledge gained at the seminar. Women were much more likely to
alter their retirement goals and saving behavior. Using
information on seminars conducted by TIAA-CREF, and survey data
on the participants, the authors estimate the determinants of
changes in retirement goals and saving behavior.
______________________________
"Motivating Retirement Planning: Problems and Solutions"
BY: GARY M. SELNOW
University of Pennsylvania
The Wharton School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=472384
Paper ID: PRC Working Paper No. 2003-7
Date: 2003
Contact: GARY M. SELNOW
Email: Mailto:prc@wharton.upenn.edu
Postal: University of Pennsylvania
The Wharton School
3641 Locust Walk
Philadelphia, PA 19104-6365 UNITED STATES
ABSTRACT:
People often find it difficult to make the right decision about
retirement savings. The payoffs are in the distant future, and
the promise of pleasure tomorrow can mean pain today. The wrong
decision yields an instant gain, the outcome is uncertain, the
decision can be postponed without immediate penalty. In the end,
the pressures of immediate gratification, delayed benefit, the
unknown, the uncertain, the uncomfortable, ally against wise
decisions. Yet, while many people yield to these influences,
many others make the right choice. That drives us to ask why.
Recent research has examined various approaches to promoting
retirement investment. One promising strategy, automatic
enrollment, taps into an old theory about the functional order
of behavior and attitudes. This chapter examines the theory to
understand why automatic enrollment has a good chance of
overcoming the natural impediments to wise decisions about
retirement investments.
______________________________
"Saving and the Effectiveness of Financial Education"
BY: ANNAMARIA LUSARDI
Dartmouth College
Department of Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=476022
Paper ID: PRC Working Paper No. 2003-14
Date: 2003
Contact: ANNAMARIA LUSARDI
Email: Mailto:ANNAMARIA.LUSARDI@DARTMOUTH.EDU
Postal: Dartmouth College
Department of Economics
6106 Rockefeller Hall
Room 328
Hanover, NH 03755 UNITED STATES
Phone: 603-646-2099
Fax: 603-646-2122
ABSTRACT:
In this paper, I examine the financial situation of older
households. In addition, I examine whether employers'
initiatives to reduce planning costs via retirement seminars
have an effect on workers' saving. Using data from the Health
and Retirement Study, I first show that many families arrive
close to retirement with little or no wealth. Portfolios are
also rather simple, and many families, particularly those with
low education, hold little or no high-return assets. I further
show that seminars foster saving. This is particularly the case
for those with low education and those who save little. By
offering financial education, both financial and total net worth
increase sharply, particularly for families at the bottom of the
wealth distribution and those with low education. Retirement
seminars also increase total wealth (inclusive of pension and
Social Security) for both high and low education families. Taken
together, this evidence suggests that retirement seminars can
foster wealth accumulation and bolster financial security in
retirement.
______________________________
"Retirement Security in a DC World: Using Behavioral Finance to
Bridge the Expertise Gap"
BY: GREGORY M. STEIN
University of Tennessee, Knoxville
College of Law
JASON SCOTT
Independent
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=476024
Paper ID: PRC Working Paper No. 2003-16
Date: 2003
Contact: GREGORY M. STEIN
Email: Mailto:gstein@utk.edu
Postal: University of Tennessee, Knoxville
College of Law
1505 West Cumberland Avenue
Knoxville, TN 37996 UNITED STATES
Co-Auth: JASON SCOTT
Email: not available
Postal: Independent
No Address Available,
ABSTRACT:
This chapter evaluates models of participant choice in
retirement plans, in the context of advisory services offered by
their employers. We find that small barriers to accessing online
advisory services seem to have significant impact on the
likelihood of their use. We also find that by reducing the
number of choices offered to participants from five to two
greatly changes behavior. Depending on the decision, curtailing
the number of choices changed participant investment choices by
40 to 100 percent.
______________________________
"What You Don't Know Can't Help You: Pension Knowledge and
Retirement Decision Making"
BY: SEWIN CHAN
New York University
Robert F. Wagner Graduate School of Public Service
ANN HUFF STEVENS
University of California, Davis
Department of Economics
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=481456
Paper ID: NBER Working Paper No. W10185
Date: December 2003
Contact: ANN HUFF STEVENS
Email: Mailto:annstevens@ucdavis.edu
Postal: University of California, Davis
Department of Economics
One Shields Drive
Davis, CA 95616-8578 UNITED STATES
Co-Auth: SEWIN CHAN
Email: Mailto:SEWIN.CHAN@NYU.EDU
Postal: New York University
Robert F. Wagner Graduate School of Public
Service
4 Washington Square North
New York, NY 10003 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
This paper provides an answer to an important empirical puzzle
in the retirement literature: while most people know little
about their own pension plans, retirement behavior is strongly
affected by pension incentives. We combine administrative and
self-reported pension data to measure the retirement response to
actual and perceived financial incentives. We find that
well-informed individuals are five times more responsive to
pension incentives than the average individual when knowledge is
ignored. We further find that the ill-informed individuals do
respond to their own misperception of the incentives, rather
than being unresponsive to any incentives.
JEL Classification: J2
______________________________
"Grasshoppers, Ants, and Pre-Retirement Wealth: A Test of
Permanent Income"
BY: ERIK HURST
University of Chicago
Graduate School of Business
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=468785
Paper ID: NBER Working Paper No. W10098
Date: November 2003
Contact: ERIK HURST
Email: Mailto:erik.hurst@gsb.uchicago.edu
Postal: University of Chicago
Graduate School of Business
1101 East 58th Street
Chicago, IL 60637 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
This paper shows that households who enter retirement with low
wealth consistently followed non-permanent income consumption
rules during their working years. Using the Panel Study of
Income Dynamics (PSID), household wealth in 1989 is predicted
for a sample of 50-65 year olds using both current and past
income, occupation, demographic, employment, and health
characteristics. Using the residuals from this first stage
regression, the sample of pre-retired households is subsetted
into households who save 'lower' than predicted and all other
households. The panel component of the PSID is then used to
analyze the consumption behavior of these households early in
their lifecycle. It is shown that these low pre-retirement
wealth households had consumption growth that responded to
predictable changes in income during their early working years.
No such behavior was found among the other pre-retired
households. Moreover, the low wealth residual households
responded both to predictable income increases as well as
predictable income declines, a result that is inconsistent with
a liquidity constraints explanation. After ruling out other
theories of consumption to explain these facts, it is concluded
that households who entered retirement with lower than predicted
wealth consistently followed near sighted consumption plans
during their working lives.
JEL Classification: E2, J2
______________________________
"Lessons from Behavioral Finance for Retirement Plan Design"
BY: OLIVIA S. MITCHELL
Wharton School
National Bureau of Economic Research (NBER)
STEPHEN P. UTKUS
Vanguard Center for Retirement Research
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=464640
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Paper ID: PRC Working Paper No. 2003-6
Date: October 2003
Contact: STEPHEN P. UTKUS
Email: Mailto:steve_utkus@vanguard.com
Postal: Vanguard Center for Retirement Research
100 Vanguard Boulevard, J24
Malvern, PA 19355 UNITED STATES
Phone: 610-669-6308
Co-Auth: OLIVIA S. MITCHELL
Email: Mailto:mitchelo@wharton.upenn.edu
Postal: Wharton School
Philadelphia, PA 19104-6365 UNITED STATES
ABSTRACT:
This paper evaluates some of the key lessons of behavioral
economics and finance research over the last decade for pension
plan design. We divide the discussion into the natural phases of
the retirement saving life cycle: accumulation, investment, and
decumulation. After reviewing the lessons of behavioral finance,
we conclude by outlining plan design alternatives that would be
of use to plan sponsors and policymakers seeking to design more
cost-effective and efficient retirement plans for the future.