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SOCIAL SCIENCE RESEARCH NETWORK
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. 7, No. 38: December 22, 2006
Editor: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
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Topic of This Issue:
Retirement Issues
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T A B L E O F C O N T E N T S
"Postponing Retirement: The Political Push of Aging"
VINCENZO GALASSO
University of Bocconi - Innocenzo Gasparini Institute
for Economic Research (IGIER), Centre for Economic
Policy Research (CEPR)
"The Retirement Expectations of Middle-Aged Individuals"
DEBORAH COBB-CLARK
Australian National University - National Centre for
Development Studies (NCDS), Institute for the Study of
Labor (IZA)
STEVEN STILLMAN
Motu Economic and Public Policy Research Trust,
Institute for the Study of Labor (IZA)
"Americans' Dependency on Social Security"
LAURENCE J. KOTLIKOFF
Boston University - Department of Economics, National
Bureau of Economic Research (NBER), CESifo (Center for
Economic Studies and Ifo Institute for Economic
Research)
BEN MARX
Affiliation Unknown
PIETRO RIZZA
Affiliation Unknown
"Debt of the Elderly and Near Elderly, 1992-2004"
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
"Right Before the End: Asset Decumulation at the End of Life"
ERIC FRENCH
Federal Reserve Bank of Chicago
MARIACRISTINA DE NARDI
Federal Reserve Bank of Chicago, National Bureau of
Economic Research (NBER) - Public Economics
JOHN B. JONES
State University of New York
OLEYSA BAKER
Federal Reserve Bank of Chicago
PHIL DOCTOR
Federal Reserve Bank of Chicago
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"Postponing Retirement: The Political Push of Aging"
CEPR Discussion Paper No. 5777
Contact: VINCENZO GALASSO
University of Bocconi - Innocenzo Gasparini
Institute for Economic Research (IGIER), Centre for
Economic Policy Research (CEPR)
Email: vincenzo.galasso@uni-bocconi.it
Auth-Page: http://ssrn.com/author=232842
Full Text: http://ssrn.com/abstract=933099
ABSTRACT: Conventional economic wisdom suggests because of the
aging process, social security systems will have to be
retrenched. In particular, retirement age will have to be largely
increased. Yet, is this policy measure feasible in OECD
countries? Since the answer belongs mainly to the realm of
politics, I evaluate the political feasibility of postponing
retirement under aging in France, Italy, the UK, and the US.
Simulations for the year 2050 steady state demographic, economic
and political scenario suggest that retirement age will be
postponed in all countries, while the social security
contribution rate will rise in all countries, but Italy. The
political support for increasing the retirement age stems mainly
from the negative income effect induced by aging, which reduces
the profitability of the existing social security system, and
thus the individuals net social security wealth.
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"The Retirement Expectations of Middle-Aged Individuals"
IZA Discussion Paper No. 2449
Contact: DEBORAH COBB-CLARK
Australian National University - National Centre
for Development Studies (NCDS), Institute for the
Study of Labor (IZA)
Email: Deborah.Cobb-Clark@anu.edu.au
Auth-Page: http://ssrn.com/author=144632
Co-Author: STEVEN STILLMAN
Motu Economic and Public Policy Research Trust,
Institute for the Study of Labor (IZA)
Email: stillman@motu.org.nz
Auth-Page: http://ssrn.com/author=265781
Full Text: http://ssrn.com/abstract=944934
ABSTRACT: We use the first three waves of the Household Income
and Labour Dynamics in Australia (HILDA) Survey to examine the
retirement plans of middle-aged workers (aged 45?55). Our results
indicate that approximately two-thirds of men and more than half
of women appear to be making standard retirement plans. At the
same time, more than one in five individuals seem to have delayed
their retirement planning and approximately one in ten either do
not know when they expect to retire or expect to never retire.
Retirement plans are closely related to current labor market
position. Specifically, forming expectations about the age at
which one will leave the labor market appears to be easier for
workers in jobs with well-defined pension benefits and standard
retirement ages. Moreover, those who report that they do not know
when they expect to retire do in fact appear to face greater
uncertainty in their retirement planning. Those who anticipate
working forever seem to do so out of concerns about the adequacy
of their retirement incomes rather than out of increased job
satisfaction or a heightened desire to remain employed. Finally,
men alter their retirement plans in response to labor market
shocks, while women are more sensitive to their own and their
partners' health changes.
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"Americans' Dependency on Social Security"
NBER Working Paper No. W12696
Contact: LAURENCE J. KOTLIKOFF
Boston University - Department of Economics,
National Bureau of Economic Research (NBER), CESifo
(Center for Economic Studies and Ifo Institute for
Economic Research)
Email: kotlikof@bu.edu
Auth-Page: http://ssrn.com/author=44751
Co-Author: BEN MARX
Affiliation Unknown
Auth-Page: http://ssrn.com/author=708634
Co-Author: PIETRO RIZZA
Affiliation Unknown
Auth-Page: http://ssrn.com/author=708635
Full Text: http://ssrn.com/abstract=944184
ABSTRACT: This paper determines the standard of living reductions
that young, middle aged, and older households would experience
were the U.S. government to cut Social Security benefits (but not
taxes) to deal with its well documented (see Gokhale and
Smetters, 2005) long-term fiscal crisis. To determine pre- and
post-retirement living standards in the absence and presence of
Social Security benefit cuts the paper relies on ESPlanner, a
financial planning software program. ESPlanner calculates a
household's highest sustainable living standard taking into
account the household's economic resources including its claims
to future Social Security benefits. The program also incorporates
borrowing/liquidity constraints that limit households' abilities
to smooth their living standards over their life cycles. The
analysis considers both stylized single and married households of
different ages and resource levels as well as actual households
sampled from the 2004 Federal Reserve Survey of Consumer Finances
(SCF). The extent of current and future living standard
reductions in response to announcements of future Social Security
benefit cuts depends critically on the age of the household, when
the cuts are announced, the size of the cuts, the income of the
household, and the degree to which the household is liquidity
constrained. For our stylized households on the brink of
retirement the complete elimination of Social Security benefits
would entail retirement living standards reductions ranging from
roughly one third to one hundred percent depending on the
household's income. Our SCF findings also point to a strong
dependency on Social Security. Indeed, 41 percent of older SCF
couples and 33 percent of SCF singles would experience a living
standard reduction of 90 percent or more were Social Security
benefits eliminated. A surprising finding is the major dependency
of very high-income households on Social Security. Take the
highest earning couple in our stylized sample. This couple earns
$500,000 per year from age 30 through age 64 when it retires. It
enters retirement with over $2.3 million in assets. But given the
length of its potential retirement, the modest real return it can
safely earn on its assets, its off-the-top housing expenses, and
its tax payments, this household is highly dependent on Social
Security benefits, notwithstanding their taxable status. Indeed,
were this household denied all its Social Security benefits on
the eve of its retirement, it would suffer a 35.6 percent
reduction in its living standard throughout retirement.
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"Debt of the Elderly and Near Elderly, 1992-2004"
EBRI Notes, Vol. 27, No. 9, September 2006
Contact: CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
Email: COPELAND@EBRI.ORG
Auth-Page: http://ssrn.com/author=255137
Full Text: http://ssrn.com/abstract=931424
ABSTRACT: When predicting the future income security of retirees,
researchers typically focus on measures concerned with retirees'
accumulated financial assets, particularly within tax-qualified
retirement plans (e.g., 401(k) plans and individual retirement
accounts (IRAs)), and coverage by supplemental health insurance
to Medicare provided through a former employer. However, any debt
that a near-elderly or elderly family has accrued going into
retirement or during retirement is likely to offset its asset
accumulations, resulting in a lower level of retirement income
security. This paper focuses on the trends in the levels of debt
among those ages 55 or older, those who are approaching
retirement or are in retirement, as financial liabilities are a
vital but often ignored component of retirement income security.
The Federal Reserve's Survey of Consumer Finances (SCF) is used
to determine the level of debt in this paper. Debt is examined in
two ways: 1) debt payments relative to income, and 2) debt
relative to assets. Each measure provides some insight into the
ability of these families to cover this debt before or during
retirement. For example, higher debt-to-income ratios may be
acceptable for younger families with long working careers ahead
of them, since their incomes are likely to rise and their debt
(related to housing or children) is likely to fall in the future.
A higher debt-to-income ratio may be more serious for older
families, as they could be forced to reduce their accumulated
assets to service the debt when their earning years are ending.
However, if these high debt-to-income older families have low
debt-to-asset ratios, the effect of paying off the debts may not
be as financially difficult as it would be for those with high
debt-to-income and debt-to-asset ratios.
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"Right Before the End: Asset Decumulation at the End of Life"
Economic Perspectives, pp. 2-13, Third Quarter 2006
Contact: ERIC FRENCH
Federal Reserve Bank of Chicago
Email: eric.french@frbchi.org
Auth-Page: http://ssrn.com/author=247122
Co-Author: MARIACRISTINA DE NARDI
Federal Reserve Bank of Chicago, National Bureau of
Economic Research (NBER) - Public Economics
Email: mariacristina.denardi@chi.frb.org
Auth-Page: http://ssrn.com/author=105084
Co-Author: JOHN B. JONES
State University of New York
Email: jbjones@albany.edu
Auth-Page: http://ssrn.com/author=338599
Co-Author: OLEYSA BAKER
Federal Reserve Bank of Chicago
Email: oleysa.baker@chi.frb.org
Auth-Page: http://ssrn.com/author=662320
Co-Author: PHIL DOCTOR
Federal Reserve Bank of Chicago
Email: phil.doctor@chi.frb.org
Auth-Page: http://ssrn.com/author=662322
Full Text: http://ssrn.com/abstract=925275
ABSTRACT: Using data from the Asset and Health Dynamics of the
Oldest Old survey, the authors find that the assets of people who
die decline much faster than the assets of people who survive,
even after controlling for age, sex, and initial asset levels.
Out-of-pocket medical expenses right before death can deplete the
assets of many elderly households and constitute an important
reason to keep assets in old age.
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