Title: Saving and Spending Retirement Wealth. (Research Summaries)
Abstract: I am keenly interested in the mechanisms by which people accumulate and decumulate retirement wealth, as well as the factors that shape this process. The subject is of considerable international concern in light of looming Social Security shortfalls in most developed nations, and the global shift from defined benefit to defined contribution pension systems. Future retirees clearly must bear a larger responsibility for ensuring their well being in retirement, yet there is reason to believe that existing retirement institutions do not always function efficiently and equitably. Accordingly, much of my work examines the form and function of public and private institutions that support saving for retirement and wealth decumulation after retirement. I also examine the regulatory environment for public and private pension institutions. Building Retirement Wealth My research on retirement wealth exploits a variety of detailed microeconomic datasets to examine accruals of pension wealth. For example, the Health and Retirement Study is an invaluable survey that links respondent answers to administrative data on life-time earnings, Social Security benefits, and company-provided pensions. (1) Using these data, I show that the median U.S. household on the verge of retirement anticipates total retirement assets of around $475,000, with Social Security benefits representing one-third of this sum, private pensions dose to $125,000, and housing and other financial wealth amounting to about $87,000 each (in 2001 dollars). (2) Households headed by unmarried persons are substantially worse off than their married counterparts: retirement wealth among the poorest quintile of married couples is equal to the wealth held by unmarried people in the middle of the wealth distribution. I also find that these sums are inadequate to smooth consumption in retirement if people retire at age 6 2, implying saving shortfalls of 15 percent of annual income. Delaying retirement helps, since the shortfall is cut in half for retirement at age 65. (3) Detailed analyses of the interactions between pension rules and employee characteristics show that accruals of pension wealth tend to be extremely discontinuous, particularly in defined benefit plans. Moreover, the peaks and valleys in pension wealth profiles successfully predict retirement flows. (4) Pension rules also produce benefit accruals that are markedly different for women than for men, mainly because of how different lifetime earnings and labor market histories translate into old age benefits. (5) Thus, while three-quarters of older women near retirement today have worked enough to be entitled to Social Security old-age benefits based on their own accounts, it would take substantial extra employment to boost the remaining quarter over the eligibility threshold. Furthermore, one-third of older wives can expect no additional retirement benefit from contributing to Social Security late in life, since their net benefits are negative after taking into account Social Security contributions while employed. I have also linked administrative records and worker reports of corporate pension provisions to evaluate the real-world environment in which employees make pension saving and retirement decisions. Here I show that workers are often misinformed about their company-sponsored pensions; this myopia is troubling, since workers may save or consume suboptimally, change jobs, and retire earlier than they would have if they were equipped with better pension information. (6) Related research evaluates the factors driving company pension accruals and how, in turn, these spikes in retirement wealth patterns influence corporate outcomes, including a tendency to influence worker turnover and to buy Out older, more expensive workers. (7) Annuities and Dissaving in Retirement Even if people accumulate adequate retirement wealth, there remains the problem of how to draw it down sensibly over the retirement period. …
Publication Year: 2002
Publication Date: 2002-03-22
Language: en
Type: article
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot