RetireSecure Blog

December 18, 2015

To Be Relevant, Annuity Market Must Change

Filed under: Planning for Retirement,Retirement Research — The Pension Research Council @ 2:25 pm

To Be Relevant, Annuity Market Must Change

Matt Carey, co-founder of the online annuity marketplace Abaris and former policy advisor at the US Department of Treasury, discusses the reasons why annuities have failed to fill the gaps between an aging population and the declining portion of Americans with pension plans.

Click here to read the full article.

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December 7, 2015

Fixing The Weakest Link: Strengthening Retirement Security By Default

Filed under: Personal Finance,Planning for Retirement — The Pension Research Council @ 11:11 am

Fixing The Weakest Link: Strengthening Retirement Security By Default

By: Richard Fullmer – Richard Fullmer is an asset allocation portfolio strategist at T. Rowe Price, where he focuses on research and development of retirement investment strategies, spending strategies, and ways to mitigate longevity risk.

One drawback of defined contribution (DC) retirement plans is that they place the burden of making financial decisions on participants who are often ill equipped for the task. This has contributed to widespread concerns about retirement security. Will people have enough savings when they leave the workforce to afford a comfortable retirement? Will they then draw on their nest eggs efficiently while in retirement, enabling them to avoid financial ruin over an uncertain lifetime?

Click here to read the full article.

November 20, 2015

The Potential Effect of Offering Lump Sums in the Social Security Program

Filed under: Planning for Retirement — The Pension Research Council @ 11:01 am

Political debate has focused on the question of whether Social Security solvency should be achieved by larger benefit cuts or higher taxes, which in effect asks which people—current or future generations—should bear the greater burden of fixing the system.

But new research reframes this debate, offering a budget-neutral, actuarially fair lump sum payment, instead of the current delayed retirement credit, as a way to encourage people to delay claiming their Social Security benefits and work longer.

Under one of the lump sum alternatives presented here, survey participants indicated a willingness to delay claiming Social Security by up to eight months, on average, compared to the status quo, and to continue working for four of them.

Delayed claiming would mean additional months or years of Social Security payroll tax contributions, which could modestly improve the program’s solvency. Other benefits are possible as well: improved physical and mental health among the elderly from extended labor force participation, which could reduce the strain on health care programs like Medicare and Medicaid and help offset the macroeconomic costs of an aging population.

Click here to read the full article.

July 7, 2015

Borrowing from Your Retirement?

Filed under: Financial Literacy,Planning for Retirement,Retirement Research — The Pension Research Council @ 2:20 pm

Two-fifths of workers allowed to borrow from their plans have done so within the past five years, according to a recent Pension Research Council study, “Borrowing from the Future: 401(k) Plan Loans and Loan Defaults .”

Co-authors Timothy Lu Jun, Olivia S. Mitchell, Steve Utkus, and Jean Young also show that younger and lower-paid employees are most likely to take out 401(k) loans. Those who borrow against their retirement and leave their jobs are most likely to default on the loans – meaning that they own income tax on what they’ve borrowed plus a 10 percent tax penalty.

Money taken from a retirement plan but not returned becomes part of retirement plan “leakage.” To learn more about this, click here to read the full article on Benefitspro.com.

July 1, 2015

What Do the Experts Say About Long-Term-Care Insurance?

Filed under: Personal Finance,Planning for Retirement,PRC in the News — The Pension Research Council @ 8:53 am

The median price of a private room in a nursing home in 2014 was $240 per day ($87,600 per year). Despite the staggering cost of long term care, very few insurers sell policies covering it. A recent study by Wharton Professor Daniel Gottlieb and Wharton Professor of Insurance/Risk Management & Applied Economics/Policy, and Director of the Pension Research Council, Olivia Mitchell explains why.

“People hate buying insurance, thinking they could die the next day,” Mitchell said. “They feel they won’t get value for their money.”

Erin E. Arvedlund of the Philadelphia Inquirer asked a panel of financial advisers what kind of long-term care insurances they buy for themselves.

To read their answers click here.

June 5, 2015

Burnishing Our Golden Years

Filed under: Personal Finance,Planning for Retirement,PRC in the News — The Pension Research Council @ 11:22 am

Robert Powell recently interviewed Olivia S. Mitchell, Wharton Professor of Insurance/Risk Management & Applied Economics/Policy, and Director of the Pension Research Council, to discuss solutions for America’s retirement system problems.

Dr. Mitchell and a few of the country’s other leading retirement experts outlined several ways to help Americans preserve their living standards through retirement, including:

  • Workers must save more;
  • People can claim their Social Security benefits later;
  • Retirees can buy insurance products to hedge longevity risk;
  • Homeowners can access their home equity via reverse mortgages;
  • Policymakers can reform Social Security by pegging benefit growth to price rather than wage inflation;
  • Plan sponsors can boost access to retirement saving plans;

As Americans live longer into retirement, following these recommendations will help maintain our standards of living and ensure the promise of our golden years.

Read more about this story 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.

March 23, 2015

The Lump of Labor: Is it Still a Fallacy?

Filed under: Planning for Retirement,PRC Partners — The Pension Research Council @ 10:14 am

by Mike Orszag, TowersWatson

Some of the key questions people must ask themselves when planning for retirement include how long they can continue to work, how much they can earn, and whether they can count on their job still being around. In this day and age, these worries are compounded by a concern that older individuals could be ‘forced out’ by the younger generation. That is, even if someone is not ready to retire, he or she might feel pressured to leave “to give the young folks a chance.”

This perspective arises from a belief that there are only so many jobs than can be filled in the economy – the so-called “Lump of Labor” view. In fact few arguments irritate mainstream economists more, as history has shown that there’s not a fixed demand for a set lump of labor. Instead, over our history, when labor supply has changed, wages adjusted and the economy grew.

A related argument is that people’s skills become obsolete over time, so technological change dooms us to ever-higher un- and under-employment. Certainly technological change has forced re-invention of the workplace time and again, so it’s critical to invest in one’s knowledge to avoid job loss. But the productivity improvements flowing from new technology do not lead to aggregate job loss; rather they produce job evolution. Of course the adjustments can take a long time and may be painful for some, but a more productive economy will float many boats.

Nevertheless, there’s good reason to worry that the lump of labor ‘fallacy’ may now be more right than wrong, due to the changing nature of skill revolution. In the old days, there were always some jobs that unskilled workers could take, but this may not be true in the future. For instance, during the industrial revolution, machines took the place of many simple and repetitive tasks. Yet there were plenty of other jobs where people were more productive than machines. Additionally, new jobs appeared that had not been anticipated previously, as a result of the new technologies.

What seems different today is that machines are now growing smarter than people. What this implies is that the range of alternative jobs which people can do better will shrink. This could make labor market adjustment more painful and longer for the individuals involved.

The reality that our human capital is increasingly risky is rarely acknowledged by financial advisers and pension sponsors. Yet most people are unable to accurately estimate how likely it is that their own skills will be relevant a decade or two hence. Nevertheless, the nature of technological change should make human capital risk more important for those looking ahead and planning for retirement. Not only is obsolescence a bigger risk, but mitigation steps are far less clear.

Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania

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.

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