Holding nontraditional jobs—which provide neither health insurance nor retirement benefits—might be helpful to those looking to extend their careers for financial reasons. This study uses the Health and Retirement Study to determine the extent to which workers in traditional jobs, with less retirement security when they reach the cusp of retirement, are more likely to move to nontraditional jobs in their mid- to late-60s than those who are more secure. It then examines whether nontraditional jobs improve retirement security by ages 67–68. The results indicate that workers in traditional jobs who reach age 62 with less projected retirement income, relative to their pre-retirement standard of living, are no more likely to engage in nontraditional work after age 62 than those who are better prepared. Among those workers who are at risk of not maintaining their pre-retirement income level in retirement, however, nontraditional work appears to move them closer to retirement security.
{"title":"Is Nontraditional Work at Older Ages Associated with Better Retirement Security?","authors":"Gal Wettstein, Matthew S. Rutledge","doi":"10.3905/jor.2023.1.130","DOIUrl":"https://doi.org/10.3905/jor.2023.1.130","url":null,"abstract":"Holding nontraditional jobs—which provide neither health insurance nor retirement benefits—might be helpful to those looking to extend their careers for financial reasons. This study uses the Health and Retirement Study to determine the extent to which workers in traditional jobs, with less retirement security when they reach the cusp of retirement, are more likely to move to nontraditional jobs in their mid- to late-60s than those who are more secure. It then examines whether nontraditional jobs improve retirement security by ages 67–68. The results indicate that workers in traditional jobs who reach age 62 with less projected retirement income, relative to their pre-retirement standard of living, are no more likely to engage in nontraditional work after age 62 than those who are better prepared. Among those workers who are at risk of not maintaining their pre-retirement income level in retirement, however, nontraditional work appears to move them closer to retirement security.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"10 1","pages":"49 - 68"},"PeriodicalIF":0.0,"publicationDate":"2023-03-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44796565","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Lack of Retirement Saving Accounts: Empirical Evidence in Mexico","authors":"J. González-Núñez, Fernando J. Mariné-Osorio","doi":"10.3905/jor.2023.1.129","DOIUrl":"https://doi.org/10.3905/jor.2023.1.129","url":null,"abstract":"","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-03-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43174721","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-01-31DOI: 10.3905/jor.2023.10.3.071
Ankul Daga, Timothy B. Smart, D. Pakula
Investors have multiple goals throughout their lifetime, each requiring complex interconnected decisions about saving, consumption, and asset allocation. Economists have developed a theoretical solution to solve for lifetime retirement income using stochastic dynamic programming. However, practitioner adoption of this approach has been limited. We theorize that this is due to the inability of stochastic dynamic programming to address multiple investor goals due to the inherent computational complexity in the approach. We put forward a life-cycle model incorporating multiple goals that are relevant for retirement investors in the presence of uncertain future asset returns and longevity. Our objective is to maximize investors’ expected utility over their lifetime. We use a goal fulfillment gap as a metric to quantify the value added by an optimized strategy, and to illustrate the optimal consumption and asset-allocation decisions recommended by the model.
{"title":"The Multi-Goal Framework: Why Practitioners Have Not Adopted the Lifecycle Model—Yet","authors":"Ankul Daga, Timothy B. Smart, D. Pakula","doi":"10.3905/jor.2023.10.3.071","DOIUrl":"https://doi.org/10.3905/jor.2023.10.3.071","url":null,"abstract":"Investors have multiple goals throughout their lifetime, each requiring complex interconnected decisions about saving, consumption, and asset allocation. Economists have developed a theoretical solution to solve for lifetime retirement income using stochastic dynamic programming. However, practitioner adoption of this approach has been limited. We theorize that this is due to the inability of stochastic dynamic programming to address multiple investor goals due to the inherent computational complexity in the approach. We put forward a life-cycle model incorporating multiple goals that are relevant for retirement investors in the presence of uncertain future asset returns and longevity. Our objective is to maximize investors’ expected utility over their lifetime. We use a goal fulfillment gap as a metric to quantify the value added by an optimized strategy, and to illustrate the optimal consumption and asset-allocation decisions recommended by the model.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"10 1","pages":"71 - 94"},"PeriodicalIF":0.0,"publicationDate":"2023-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48900485","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Whether households prefer a constant, increasing, or decreasing path of consumption in retirement has important implications for our understanding of retirement adequacy. Financial planners and researchers often have assumed that retirees would like to maintain their pre-retirement standard of living. However, several studies suggest that retired households decrease their consumption over time. This project builds on the existing literature by: 1) examining retirement consumption over longer periods; 2) using wealth to separate constrained and unconstrained households in order to analyze whether declines in consumption are driven by necessity or preferences; and 3) exploring whether, within unconstrained households, those with steeper mortality profiles are more likely to front-load consumption.
{"title":"Do Retirees Want Constant, Increasing, or Decreasing Consumption?","authors":"Anqi Chen, Alicia H. Munnell","doi":"10.3905/jor.2023.1.128","DOIUrl":"https://doi.org/10.3905/jor.2023.1.128","url":null,"abstract":"Whether households prefer a constant, increasing, or decreasing path of consumption in retirement has important implications for our understanding of retirement adequacy. Financial planners and researchers often have assumed that retirees would like to maintain their pre-retirement standard of living. However, several studies suggest that retired households decrease their consumption over time. This project builds on the existing literature by: 1) examining retirement consumption over longer periods; 2) using wealth to separate constrained and unconstrained households in order to analyze whether declines in consumption are driven by necessity or preferences; and 3) exploring whether, within unconstrained households, those with steeper mortality profiles are more likely to front-load consumption.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"85 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-01-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135275592","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The objective of this article is to investigate the effect of retirement on household food consumption expenditure in Cameroon. We use a fuzzy regression-discontinuity method to identify the effect of retirement on household food consumption expenditure. We estimate the retirement equation and instrumental equation with food consumption expenditure equations in a two-stage least squares framework. Our data come from the Fourth Household Survey (ECAM4) organized in Cameroon by the National Institute of Statistics in 2014. The results confirm the existence of the retirement-consumption puzzle in the case of food expenditure and restaurant and hotel expenditure. Food expenditure falls in retirement by 55.6 percentage points and spending on restaurants and hotels falls by 65 percentage points, reflecting the precariousness of the pension system in Cameroon. In the case of beverage expenditure, on the contrary, we observe an increase in alcohol expenditure in retirement.
{"title":"Does Retirement Reduce Household Food Consumption Expenditure in Cameroon?","authors":"Saturnin Bertrand Nguenda Anya, Fabrice Nzepang","doi":"10.3905/jor.2022.1.127","DOIUrl":"https://doi.org/10.3905/jor.2022.1.127","url":null,"abstract":"The objective of this article is to investigate the effect of retirement on household food consumption expenditure in Cameroon. We use a fuzzy regression-discontinuity method to identify the effect of retirement on household food consumption expenditure. We estimate the retirement equation and instrumental equation with food consumption expenditure equations in a two-stage least squares framework. Our data come from the Fourth Household Survey (ECAM4) organized in Cameroon by the National Institute of Statistics in 2014. The results confirm the existence of the retirement-consumption puzzle in the case of food expenditure and restaurant and hotel expenditure. Food expenditure falls in retirement by 55.6 percentage points and spending on restaurants and hotels falls by 65 percentage points, reflecting the precariousness of the pension system in Cameroon. In the case of beverage expenditure, on the contrary, we observe an increase in alcohol expenditure in retirement.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"10 1","pages":"100 - 111"},"PeriodicalIF":0.0,"publicationDate":"2022-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42994160","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article presents a pension plan model aimed at maintaining the resilience of a nation’s social security infrastructure and ensuring retirees’ welfare. The aging population, labor market shifts, legislative changes, and unexpected economic crises (including the COVID-19 pandemic) have created distortions between annuity expenditures and national income. Many countries are experiencing rising life expectancy and in turn increasing public pressure to ensure a dignified existence for the growing elder population. This is challenging decision-makers and government-supervised pension funds to strengthen the financial soundness and solvency, stability, and distributive equity of public and supervised private annuity systems. We present a three-tier pension model that is unique because it is implemented in a small OECD country, and its implementation is flexible and changes according to the country’s demographic and financial changes. The presented model can be used as an example by other countries facing similar problems in their pension systems.
{"title":"Toward a Sustainable Pension System","authors":"Ido Kallir, D. Y. Aharon, E. Sheshinski, R. Zaken","doi":"10.3905/jor.2022.1.126","DOIUrl":"https://doi.org/10.3905/jor.2022.1.126","url":null,"abstract":"This article presents a pension plan model aimed at maintaining the resilience of a nation’s social security infrastructure and ensuring retirees’ welfare. The aging population, labor market shifts, legislative changes, and unexpected economic crises (including the COVID-19 pandemic) have created distortions between annuity expenditures and national income. Many countries are experiencing rising life expectancy and in turn increasing public pressure to ensure a dignified existence for the growing elder population. This is challenging decision-makers and government-supervised pension funds to strengthen the financial soundness and solvency, stability, and distributive equity of public and supervised private annuity systems. We present a three-tier pension model that is unique because it is implemented in a small OECD country, and its implementation is flexible and changes according to the country’s demographic and financial changes. The presented model can be used as an example by other countries facing similar problems in their pension systems.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"10 1","pages":"26 - 48"},"PeriodicalIF":0.0,"publicationDate":"2022-11-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46665126","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-10-31DOI: 10.3905/jor.2022.10.2.070
Kevin Khang, D. Pakula, Andrew S. Clarke
As investors depend more on their investment portfolios to generate income in retirement, financial advisors have developed rules of thumb to estimate a portfolio’s sustainable withdrawal rate (SWR). The most famous heuristic is Bengen’s “4% rule.” The strength of these rules is their ease of implementation. Among their limitations is their insensitivity to long-term variation in return environments. We borrow a statistical technique from the macroeconomics literature—a Bayesian vector autoregression with time-varying parameters—to model the impact of changing return dynamics on SWRs. We first illustrate how changes in stock-bond correlation, return and inflation volatilities, and returns have affected historical SWRs. Building on the consensus forecast, we then use these insights to identify 2.8% to 3.3% to be a relevant SWR for those retiring in today’s evironment characterized by low prospective returns and inflationary uncertainties.
{"title":"Sustainable Withdrawal Rates by Return Environment: A Time-Varying Bayesian Analysis","authors":"Kevin Khang, D. Pakula, Andrew S. Clarke","doi":"10.3905/jor.2022.10.2.070","DOIUrl":"https://doi.org/10.3905/jor.2022.10.2.070","url":null,"abstract":"As investors depend more on their investment portfolios to generate income in retirement, financial advisors have developed rules of thumb to estimate a portfolio’s sustainable withdrawal rate (SWR). The most famous heuristic is Bengen’s “4% rule.” The strength of these rules is their ease of implementation. Among their limitations is their insensitivity to long-term variation in return environments. We borrow a statistical technique from the macroeconomics literature—a Bayesian vector autoregression with time-varying parameters—to model the impact of changing return dynamics on SWRs. We first illustrate how changes in stock-bond correlation, return and inflation volatilities, and returns have affected historical SWRs. Building on the consensus forecast, we then use these insights to identify 2.8% to 3.3% to be a relevant SWR for those retiring in today’s evironment characterized by low prospective returns and inflationary uncertainties.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"10 1","pages":"70 - 88"},"PeriodicalIF":0.0,"publicationDate":"2022-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45563061","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A typical household spends about $13,000 per year providing each child with food, clothing, shelter, and other essentials of life, with parental expenditures on children totaling 5% of gross domestic product. Several studies have shown that how children are assumed to interact with household expenditures and saving has first-order effects on judgments of the adequacy of retirement saving by US households, yet the effect of children on their parents’ ability and need to save for retirement is unresolved. This article uses data from the Panel Study of Income Dynamics (PSID) to track changes in household spending and saving as children transition to financial independence and parents’ transition from work into retirement. The PSID data accord with an interpretation of the life-cycle model in which parental households consume more and save less during the period children are being raised, but reduce consumption and increase saving as children become economically independent. These results point toward a more optimistic picture of the adequacy of US household retirement savings.
{"title":"Children and Retirement Income Adequacy","authors":"Andrew G. Biggs","doi":"10.3905/jor.2022.1.122","DOIUrl":"https://doi.org/10.3905/jor.2022.1.122","url":null,"abstract":"A typical household spends about $13,000 per year providing each child with food, clothing, shelter, and other essentials of life, with parental expenditures on children totaling 5% of gross domestic product. Several studies have shown that how children are assumed to interact with household expenditures and saving has first-order effects on judgments of the adequacy of retirement saving by US households, yet the effect of children on their parents’ ability and need to save for retirement is unresolved. This article uses data from the Panel Study of Income Dynamics (PSID) to track changes in household spending and saving as children transition to financial independence and parents’ transition from work into retirement. The PSID data accord with an interpretation of the life-cycle model in which parental households consume more and save less during the period children are being raised, but reduce consumption and increase saving as children become economically independent. These results point toward a more optimistic picture of the adequacy of US household retirement savings.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"10 1","pages":"54 - 69"},"PeriodicalIF":0.0,"publicationDate":"2022-10-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44048133","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Defaults improve outcomes for passive savers but may also reduce the effectiveness of policies such as rainy-day emergency savings funds that require active choice. We investigate whether active and passive retirement savers responded to a policy change in the 2020 CARES Act that allowed workers to access retirement savings without penalty to meet COVID-19-related spending needs. Using a large database of 401(k) plan participants, we find that workers in occupations with high subsequent unemployment who actively invest were more likely to call about withdrawing funds from their account than workers in default investment options. Evidence that passive savers are less likely to respond to a policy change suggests a possible negative consequence of defaults that can limit the effectiveness of traditional policy solutions that require active choice. Some form of active choice may be needed to increase engagement in a range of employer-provided services such as financial wellness and participant education among passive savers.
{"title":"Defaults and Consumer Response to Rainy-Day Funds: Evidence from 401(k) Participants during the COVID-19 Pandemic","authors":"David Blanchett, Michael S. Finke, Zhikun Liu","doi":"10.3905/jor.2022.1.123","DOIUrl":"https://doi.org/10.3905/jor.2022.1.123","url":null,"abstract":"Defaults improve outcomes for passive savers but may also reduce the effectiveness of policies such as rainy-day emergency savings funds that require active choice. We investigate whether active and passive retirement savers responded to a policy change in the 2020 CARES Act that allowed workers to access retirement savings without penalty to meet COVID-19-related spending needs. Using a large database of 401(k) plan participants, we find that workers in occupations with high subsequent unemployment who actively invest were more likely to call about withdrawing funds from their account than workers in default investment options. Evidence that passive savers are less likely to respond to a policy change suggests a possible negative consequence of defaults that can limit the effectiveness of traditional policy solutions that require active choice. Some form of active choice may be needed to increase engagement in a range of employer-provided services such as financial wellness and participant education among passive savers.","PeriodicalId":36429,"journal":{"name":"Journal of Retirement","volume":"10 1","pages":"8 - 19"},"PeriodicalIF":0.0,"publicationDate":"2022-10-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47461864","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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