RetireSecure Blog

January 20, 2016

Special Issue of the Journal of Pension Economics and Finance

Filed under: New Research — The Pension Research Council @ 4:05 pm

In this special issue of the Journal of Pension Economics and Finance, @pensionsjournal offers several studies on key issues in household finance, including debt, pension, bequest, and life insurance behavior. Other articles explore financial literacy, consumers’ income and pension expectations, hyperbolic preferences, and taxes. Free down loads till July 2016!

Authors include:
Annamaria Lusardi and Peter Tufano
Tullio Jappelli and Mario Padula
James Banks, Rowena Crawford, and Gemma Tetlow
Luc Bissonnette and Arthur Van Soest
Richard Disney, John Gathergood, and Jorg Weber
David Love and Gregory Phelan
Nicholas Sauter, Jan Walliser, and Joachim Winter

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October 6, 2015

Impact on Pension Fund Investments in Infrastructure under Global Financial Regulation

Filed under: New Research — The Pension Research Council @ 2:15 pm

Impact on Pension Fund Investments in Infrastructure under Global Financial Regulation

Authors: Javier Alonso, Alfonso Arellano, and David Tuesta

Abstract — One common denominator observed in global financial regulation is the tendency to allow pension funds to invest more in infrastructure. Considering this, our study analyzes what regulatory changes are currently taking place from a global perspective and what are the relevant factors that impact on pension funds’ decisions to invest in infrastructure. Our results show that although financial restrictions on pension funds to invest in infrastructure could be important, there are other more significant factors such as the institutional framework and other variables related to the depth and strength of the financial markets. Geographical considerations have also been revealed to be important.

Click here to watch the video on YouTube.

July 21, 2015

Public Pension Changes Can Be Costly

Filed under: New Research,PRC in the News,Retirement Research — The Pension Research Council @ 3:16 pm

A recent study, “Lessons for Public Pensions from Utah’s Move to Pension Choice,” showed that many public sector workers offered less generous pensions did not boost their supplemental saving to make up for it. Robert L. Clark (Poole College of Management at North Carolina State University); Olivia S. Mitchell (Wharton Professor of Insurance/Risk Management & Applied Economics/Policy  and Director of the Pension Research Council); and Emma Hanson (North Carolina Department of State Treasurer Retirement Systems Division) coauthored the study.

The team followed pension reforms in Utah implemented in 2011 that closed the state’s defined benefit plan to new employees and established a less-generous two-option replacement. To make up the shortfall, new hires could contribute to a state supplemental plan, but many people did not.

The authors report that nearly three of five new hires failed to elect between the two-option plan, so they were defaulted to the hybrid pension. And defaulters also saved less, on average, than did the active choosers. Moreover, turnover rates rose by one-third among the new hires. The researchers conclude that plan administrators should be aware of possible side effects of changing plan generosity.

To read more on this story click here.

April 21, 2015

Borrowing from the Future: 401(k) Plan Loans and Loan Defaults

Filed under: New Research,Planning for Retirement — The Pension Research Council @ 8:34 am

Timothy (Jun) Lu, Olivia S. Mitchell, Stephen P. Utkus, and Jean A. Young

Abstract — Tax-qualified retirement plans seek to promote saving for retirement, yet most employers permit pre-retirement access by letting 401(k) participants borrow plan assets. This paper examines who borrows and why, and who defaults on their loans. Our administrative dataset tracks several hundred plans over 5 years, showing that 20% borrow at any given time, and almost 40% do at some point over five years. Employer policies influence borrowing behavior, in that workers are more likely to borrow and borrow more in aggregate, when a plan permits multiple loans. We estimate loan default “leakage” at $6 billion annually, more than prior studies.

April 17, 2015

Lessons for Public Pensions from Utah’s Move to Pension Choice

Filed under: New Research,Planning for Retirement — The Pension Research Council @ 1:51 pm

Robert L. Clark, Emma Hanson, and Olivia S. Mitchell

Abstract — This paper explores what happened when the state of Utah moved away from its traditional defined benefit pension. Instead, it offered new hires a choice between a conventional defined contribution plan, versus a hybrid plan option having both a guaranteed benefit component and a defined contribution plan shifting investment risk to employees. We show that some 60 percent of new hires failed to make any active choice and, as a result, they were automatically defaulted into the hybrid plan. Slightly more than half of those who made an active choice elected the hybrid plan. Slightly more than half of those who made an active choice elected the hybrid plan. Interestingly, post-reform, employees who failed to actively elect a primary retirement plan were also far less likely to enroll in a supplemental retirement plan, compared to new hires who made an active plan choice. We also find that employees hired following the reforms were more likely to leave public employment, resulting in higher turnover rates than previously. This could reflect a reduction in the desirability of public employment under the new pension design. Our results imply that public pension reformers must consider employee responses, in addition to potential cost savings, when developing and enacting major pension plan changes.

To read this paper CLICK HERE.

April 8, 2015

Narrow Framing and Long-Term Care Insurance

Filed under: New Research,Retirement Research — The Pension Research Council @ 9:45 am

Daniel Gottlieb and Olivia S. Mitchell

Abstract — We propose a model of narrow framing in insurance and test it using data from a new module we designed and fielded in the Health and Retirement Study. We show that respondents subject to narrow framing are substantially less likely to buy long-term care insurance than average. This effect is distinct from, and much larger than, the effects of risk aversion or adverse selection, and it offers a new explanation for why people underinsure their later-life care needs.

To Read this Paper CLICK HERE.

January 22, 2015

Lump Sums Could Mean Longer Worklives

Filed under: New Research,Planning for Retirement,PRC Partners — The Pension Research Council @ 4:14 pm

Eligible individuals can start receiving Social Security benefits as young as 62 but if they waited until age 70, monthly benefits would rise 76%.  Yet most Americans retire before the age of 65.

In their new paper “Will They Take the Money and Work? An Empirical Analysis of People’s Willingness to Delay Claiming Social Security Benefits for a Lump Sum” Raimond Maurer, Ralph Rogalla, Tatjana Schimetschek, and Olivia S. Mitchell, Wharton Professor of Insurance/Risk Management & Applied Economics/Policy, and Director of the Pension Research Council, found that people would claim Social Security benefits later by about half a year if they could get a lump sum equal in actuarial value to their future benefit increases. This would rise to two-thirds of a year if they could only get a lump sum after age 67, their Full Retirement Age. Moreover, those who currently claim at the youngest age would also delay the most.

One pundit predicted that the US could expect an increase in GDP due to increased labor force participation as a result of lump sum incentives.

To read more about this story click here.

November 26, 2014

Delaying Social Security Benefits for a Lump Sum

Filed under: New Research,Planning for Retirement — The Pension Research Council @ 10:55 am

Olivia S. Mitchell, Wharton Professor of Insurance/Risk Management & Applied Economics/Policy, and Director of the Pension Research Council, has a new study on how to get people to claim Social Security later. Her coauthors are Raimond Maurer, Ralph Rogalla, and Tatjana Schimetschek of the Goethe University in Frankfurt.

The authors show that people would voluntarily claim about half a year later if they received a lump sum for claiming after their Early Retirement Age, and about two-thirds of a year later if the lump sum were paid only for those claiming after their Full Retirement Age (as defined by Social Security). Overall, people would work more by one-third to half of the extra months.  While the government would not necessarily save a great deal of money, the labor force participation rate would be higher and the tax base would be larger while these individuals remain employed.

A news item about the paper can be found here, and the paper is available for download here.

October 29, 2014

Time to Change the Conversation on Social Security

Filed under: New Research,Planning for Retirement — The Pension Research Council @ 12:59 pm

Many people thinking about Social Security benefits focus only on how soon they can file. But in a new research study, Olivia S. Mitchell, Wharton Professor of Insurance/Risk Management & Applied Economics/Policy and Director of the Pension Research Council, along with colleagues Jingjing Chai, Raimond Maurer, and Ralph Rogalla of Goethe University, have come up with a plan to change the conversation.

“By permitting people to delay their retirement dates with a lump sum option, workers would continue to pay Social Security payroll taxes for more years, which could help return the system to solvency via additional payroll tax collections,” the scholars write. See an article about their study here.

July 29, 2014

Don’t Bother Discussing Interest Rates and Bond Prices

Filed under: Financial Literacy,New Research,Personal Finance,PRC in the News — The Pension Research Council @ 12:40 pm

Olivia S. Mitchell, Wharton Professor of Insurance/Risk Management and Applied Economics/Policy and Director of the Pension Research Council, and her coauthor Annamaria Lusardi of George Washington University, designed a simple financial literacy survey, which they fielded on older Americans. Shocked at the poor results, they then launched an international study to determine how our population compares to other countries.

The Germans and Swiss were relatively savvy, where a small majority (53% and 50%, respectively) got all three questions right. Only 30% did so in the U.S and 27% in Japan. Russians fared worst of the nations examined.

Click here to read about the results on BloombergView.com

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