Financing Retirement

___________________________________

SOCIAL SCIENCE RESEARCH NETWORK

EMPLOYEE BENEFITS, COMPENSATION & PENSION LAW ABSTRACTS
Sponsored by Pension Governance, LLC
Vol. 8, No. 37: October 25, 2007

Editor: PAMELA J. PERUN
Policy Director, Aspen Institute - Initiative on
Financial Security
PAMELA@PLANETNOW.COM
_________________________________________________________________

BROWSE all abstracts in this subject:
http://www.ssrn.com/link/benefits-compensation-pension-law.html

SEARCH entire eLibrary at: http://ssrn.com/search

If this document is misaligned, please set type face to a
non-proportional font such as Courier 10.
_________________________________________________________________

Pension Governance, LLC is an independent information and
business consulting services and research/analysis company for
the pension community. News, interviews, white papers, surveys,
training and industry events provide pension decision-makers,
their attorneys, actuaries, auditors, consultants, money managers
and third party administrators with information that is
straightforward and created with investment fiduciary best
practices in mind. To learn more, please visit
http://www.pensiongovernance.com,
http://www.pensionriskmatters.com (blog) and
http://www.pensionlitigationdata.com.

Topic of This Issue:
Financing Retirement
_________________________________________________________________

T A B L E O F C O N T E N T S

"Changing Progressivity as a Means of Risk Protection in
Investment-Based Social Security"
ANDREW A. SAMWICK
Dartmouth College - Department of Economics, National
Bureau of Economic Research (NBER)

"Removing the Disincentives in Social Security for Long Careers"
GOPI SHAH GODA
Stanford University
SITA N. SLAVOV
Occidental College - Department of Economics
JOHN B. SHOVEN
Stanford University - Department of Economics, National
Bureau of Economic Research (NBER)

"Retirement and Consumption in a Life Cycle Model"
DAVID M. BLAU
University of North Carolina at Chapel Hill - Department
of Economics, Institute for the Study of Labor (IZA)

"Effects of After-Tax Pension and Social Security Benefits on
Household Wealth: Evidence from a Sample of Retirees"
WILLIAM G. GALE
Brookings Institution
MICHAEL DWORSKY
Brookings Institution
JOHN W.R. PHILLIPS
National Institutes on Aging - Health Scientist
Administrator
LESLIE MULLER
Social Security Administration

"Risk, Institutions, and the Erosion of Old-Age Income Security"
JOHN C. SCOTT
Cornell University

"Efficient Retirement Financial Strategies"
WILLIAM F. SHARPE
Stanford University - Graduate School of Business,
National Bureau of Economic Research (NBER)
JASON S. SCOTT
Financial Engines, Inc.
JOHN G. WATSON
Financial Engines, Inc.

"Social Security Benefits as a Retirement Resource for U.S.
Near-Retirees"
ENJAMIN RIDGES
Affiliation Unknown
HARMILA HOUDHURY
Affiliation Unknown
_________________________________________________________________

"Changing Progressivity as a Means of Risk Protection in
Investment-Based Social Security"
NBER Working Paper No. W13059

Contact: ANDREW A. SAMWICK
Dartmouth College - Department of Economics,
National Bureau of Economic Research (NBER)
Email: ANDREW.SAMWICK@DARTMOUTH.EDU
Auth-Page: http://ssrn.com/author=42281

Full Text: http://ssrn.com/abstract=986909

ABSTRACT: This paper analyzes changes in the progressivity of the
Social Security benefit formula as a means of lessening the risk
inherent in investment-based Social Security reform. Focusing on
a single cohort of workers, it simulates the distribution of
benefits subject to both earnings and financial risks in a
reformed system in which solvency has been restored and
traditional benefits have been augmented by personal retirement
accounts (PRAs). The simulations show that some investment in
equities is desirable in all cases. However, switching from the
current benefit formula to the maximally progressive formula -- a
flat benefit independent of earnings -- improves the welfare of
the the bottom 30 percent of the earnings distribution even if
they reduce their PRA investments in equity to zero. An
additional 30 percent of earners can lessen their equity
investments without loss of welfare under the maximally
progressive formula. Intermediate approaches in which traditional
benefit replacement rates for lower earnings are reduced by less
than those for higher earnings allow about half of the equity
risk to be eliminated for the lowest earnings decile. Sensitivity
tests show that these patterns are robust to different
assumptions about risk aversion, the equity premium, and the size
of the personal retirement accounts established by the reform.
______________________________

"Removing the Disincentives in Social Security for Long Careers"
NBER Working Paper No. W13110

Contact: GOPI SHAH GODA
Stanford University
Email: gopi@stanford.edu
Auth-Page: http://ssrn.com/author=845435

Co-Author: SITA N. SLAVOV
Occidental College - Department of Economics
Email: sslavov@oxy.edu
Auth-Page: http://ssrn.com/author=512659

Co-Author: JOHN B. SHOVEN
Stanford University - Department of Economics,
National Bureau of Economic Research (NBER)
Email: shoven@stanford.edu
Auth-Page: http://ssrn.com/author=15712

Full Text: http://ssrn.com/abstract=986960

ABSTRACT: Implicit taxes in Social Security, which measure Social
Security contributions net of benefits accrued as a percentage of
earnings, tend to increase over the life cycle. In this paper, we
examine the effects of three potential policy changes on implicit
Social Security tax rates: extending the number of years used in
the Social Security formula from 35 to 40; allowing individuals
who have worked more than 40 years to be exempt from payroll
taxes; and distinguishing between lifetime low-income earners and
high-income earners who work short careers. These three changes
can be achieved in a benefit- and revenue-neutral manner, and
create a pattern of implicit tax rates that are much less
distortionary over the life cycle, eliminating the high implicit
tax rates faced by many elderly workers. The effects of these
policies on progressivity and women are also examined.
______________________________

"Retirement and Consumption in a Life Cycle Model"
IZA Discussion Paper No. 2986

Contact: DAVID M. BLAU
University of North Carolina at Chapel Hill -
Department of Economics, Institute for the Study of
Labor (IZA)
Email: david_blau@unc.edu
Auth-Page: http://ssrn.com/author=48959

Full Text: http://ssrn.com/abstract=1012346

ABSTRACT: Consumption expenditure declines sharply at the time of
retirement for many households, but the majority maintain a
smooth consumption path. A simple life cycle model with
uncertainty about the time of retirement can account for this
pattern. A richer version of the model is calibrated to data from
the Health and Retirement Study. The median change in consumption
expenditure at retirement generated by the model is zero, while
the mean is negative, matching the HRS data. However, the
magnitude of the drop in consumption among households that
experience a decline is too small in the model compared to the
data.
______________________________

"Effects of After-Tax Pension and Social Security Benefits on
Household Wealth: Evidence from a Sample of Retirees"

Contact: WILLIAM G. GALE
Brookings Institution
Email: WGALE@BROOKINGS.EDU
Auth-Page: http://ssrn.com/author=51797

Co-Author: MICHAEL DWORSKY
Brookings Institution
Email: mdworsky@brookings.edu
Auth-Page: http://ssrn.com/author=693062

Co-Author: JOHN W.R. PHILLIPS
National Institutes on Aging - Health Scientist
Administrator
Email: PhillipJ@nia.nih.gov
Auth-Page: http://ssrn.com/author=381451

Co-Author: LESLIE MULLER
Social Security Administration
Email: leslie.muller@ssa.gov
Auth-Page: http://ssrn.com/author=830157

Full Text: http://ssrn.com/abstract=994920

ABSTRACT: We provide the first estimates of how after-tax defined
benefit plans and social security affect household wealth. The
analysis employs a sample of elderly households with detailed
information on lifetime earnings, and follows several recent
papers in adjusting pension wealth for the life-cycle. These
factors reduce data measurement problems relative to previous
research and provide an estimation framework that is consistent
with economic theory. Using data on married couples from the 1996
SIPP, we find that after-tax pension benefits have little effect
on other wealth among households where the husband did not attend
college, but almost completely crowd out other wealth
accumulation among households where the husband did attend
college.
______________________________

"Risk, Institutions, and the Erosion of Old-Age Income Security"

Contact: JOHN C. SCOTT
Cornell University
Email: jcs86@cornell.edu
Auth-Page: http://ssrn.com/author=836520

Full Text: http://ssrn.com/abstract=998586

ABSTRACT: American workers are experiencing a long-term decline
in the quality and quantity of retirement income security despite
the enactment of dozens of tax laws supporting private pensions,
hundreds of tax rules, and billions in lost tax revenue for over
40 years. Why is pension security eroding, and why is retirement
income policy ineffective? I argue that the system of tax laws
and institutions governing private pensions both directs
political change as well as responses to such change in a way
that is shifting risk onto workers. This paper grounds its review
in the structure of pension law as found in the tax code. I first
review general trends regarding retirement and retirement plans
as well as the general pattern of tax legislation affecting
pensions. In particular, I note the rise of the 401(k) plan,
which has become the major type of private pension program in the
United States. The combination of a diffuse set of tax laws
governing pensions and the fragmented nature of key stakeholders
creates an game-like environment in which each group and subgroup
compete for changes in tax legislation at the expense of others.
The paper concludes with an attempt to bridge fiscal sociology
with the sociology of risk in the context of retirement policy.
______________________________

"Efficient Retirement Financial Strategies"
Pension Research Council Working Paper Series

Author: WILLIAM F. SHARPE
Stanford University - Graduate School of Business,
National Bureau of Economic Research (NBER)
Email: wfsharpe@stanford.edu
Auth-Page: http://ssrn.com/author=22782

Contact: JASON S. SCOTT
Financial Engines, Inc.
Email: jscott@financialengines.com
Auth-Page: http://ssrn.com/author=666589

Co-Author: JOHN G. WATSON
Financial Engines, Inc.
Email: jwatson@financialengines.com
Auth-Page: http://ssrn.com/author=681679

Full Text: http://ssrn.com/abstract=1005652

ABSTRACT: Today's retirees face the daunting task of determining
appropriate investment and spending strategies for their
accumulated savings. Financial economists have addressed their
problem using an expected utility framework. In contrast, many
financial advisors rely instead on rules of thumb. We show that
some of the popular rules are inconsistent with expected utility
maximization, since they subject retirees to avoidable,
non-market risk. We also highlight the importance of earmarking -
the existence of a one-to-one correspondence between investments
and future spending - and show that a natural way to implement
earmarking is to create a lockbox strategy.
______________________________

"Social Security Benefits as a Retirement Resource for U.S.
Near-Retirees"
Review of Income and Wealth, Vol. 53, Issue 3, pp. 538-567,
September 2007

Contact: ENJAMIN RIDGES
Affiliation Unknown
Auth-Page: http://ssrn.com/author=858787

Co-Author: HARMILA HOUDHURY
Affiliation Unknown
Auth-Page: http://ssrn.com/author=858788

Full Text: http://ssrn.com/abstract=1010785

ABSTRACT: This paper analyzes Social Security benefits as a
retirement resource (wealth and income) for U.S. near-retirees.
We look at how the average values of several measures of benefits
such as Social Security wealth and earnings replacement rates
have changed from earlier cohorts to today's near-retirement
cohort, examine differences among demographic and socioeconomic
groups within cohorts, and discuss reasons for these changes and
differences. We use improved data (actual earnings history data)
to produce more accurate measures of benefits. The paper also
uses some new benefit measures. Three key findings are: (1)
average real Social Security wealth increases markedly as we move
to later cohorts primarily because of increases in average real
lifetime earnings; (2) replacement rates fall as we move from the
cohorts of persons reaching 61 in 199397 to later cohorts
primarily because of the phase-in of increases in the age of
eligibility for full benefits and the increasing labor market
activity of women; and (3) median Social Security wealth is much
higher for women than for men because women live longer.