TY - RPRT T1 - What Matters for Annuity Demand: Objective Life Expectancy or Subjective Survival Pessimism? Y1 - 2023 A1 - Arapakis, Karolos A1 - Gal Wettstein KW - Annuity KW - Life Expectancy KW - Survival expectation AB - Objective life expectancy and subjective survival pessimism (defined as the difference between objective and subjective life expectancy) may both affect the demand for annuities. The question this project answers is: how do these two explanations contribute to annuitization decisions in practice? To explore this question, the analysis estimates regression models that include objective life expectancy, subjective survival pessimism, and other characteristics that are linked to annuitization decisions. The results show that, as one would expect, individuals with higher objective life expectancy are more likely to buy an annuity. Similarly, less pessimistic individuals are also more likely to buy an annuity. A one-year rise in objective life expectancy increases the probability of buying an annuity product by 0.20 percentage points, which is nearly nine times larger than a one-year decline in pessimism. JF - Working Papers PB - Center for Retirement Research at Boston College UR - https://crr.bc.edu/working-papers/what-matters-for-annuity-demand-objective-life-expectancy-or-subjective-survival-pessimism/ ER - TY - RPRT T1 - Wills, Wealth, and Race Y1 - 2023 A1 - Aubry, Jean-Pierre A1 - Alicia H. Munnell A1 - Gal Wettstein KW - inheritances KW - Racial Disparities KW - Retirement AB - The brief’s key findings are: The analysis explores how receiving an inheritance, having a will, and planning and realizing a bequest are interrelated and vary by race. Black and Hispanic individuals are less likely to get an inheritance, have a will, and plan to leave a bequest. Among those who do plan to leave a bequest, Black and Hispanic individuals are less likely to realize their bequest target. However, having a will increases the chances of achieving one’s bequest target, offering a potential way to improve the situation. JF - Issue in Brief PB - Center for Retirement Research at Boston College CY - Chestnut Hill, MA UR - https://crr.bc.edu/wills-wealth-and-race/ ER - TY - RPRT T1 - Can We Predict Boomers’ Drawdown Behavior from Earlier Cohorts? Y1 - 2022 A1 - Gal Wettstein A1 - Siliciano, Robert L. KW - defined pension plans KW - drawdown behavior KW - Retirees AB - The brief’s key findings are: Studies show that retirees have tended to draw down their financial wealth very slowly. But these retirees generally had defined benefit (DB) pension plans, which pay benefits for life. Hence, this slow drawdown pattern may not hold for new retirees, who rely on 401(k)s. Indeed, the analysis finds that households with a DB plan retain more of their wealth – that is, they draw it down more slowly than those with a 401(k).For example, a household retiring with $200,000 in savings and a DB plan would retain $28,000 more wealth at age 70 than a similar household with no DB plan. The analysis suggests that many new retirees could deplete their 401(k) assets by age 85, meaning that they face a greater risk of outliving their savings. JF - Briefs PB - Center for Retirement Research at Boston College CY - Chestnut Hill, MA UR - https://crr.bc.edu/briefs/can-we-predict-boomers-drawdown-behavior-from-earlier-cohorts/ ER - TY - RPRT T1 - How Does Local Cost-of-Living Affect Retirement for Low and Moderate Earners? Y1 - 2022 A1 - Quinby, Laura D. A1 - Gal Wettstein KW - cost-of-living KW - Low income KW - moderate income KW - Retirement AB - This paper uses the Health and Retirement Study to explore how local cost-of-living affects Social Security replacement rates and household behavior. In theory, labor markets with high cost-of-living also offer more compensation. If this compensating differential is paid in wages, rather than benefits, it reduces the share of earnings replaced by Social Security due to the progressive benefit structure. This paper examines how important the cost-of-living penalty is, in practice, and whether it impacts households’ saving or labor supply. JF - Working Papers PB - Center for Retirement Research at Boston College UR - https://crr.bc.edu/working-papers/how-does-local-cost-of-living-affect-retirement-for-low-and-moderate-earners/ ER - TY - RPRT T1 - Will Survivors of the First Year of the COVID-19 Pandemic Have Lower Mortality? Y1 - 2022 A1 - Gal Wettstein A1 - Gok, Nilufer A1 - Anqi Chen A1 - Alicia H. Munnell KW - COVID-19 KW - Mortality AB - The mortality burden of the COVID-19 pandemic was particularly heavy among older adults, racial and ethnic minorities, and those with underlying health conditions. These groups are known to have higher mortality rates than others even in the absence of COVID. Using data from the 2019 American Community Survey, the 2018 Health and Retirement Study, and the 2020 National Vital Statistics System, this paper estimates how much lower the overall mortality rate will be for those who lived through the acute phase of the early pandemic after accounting for this selection effect of those who died from COVID. Such selection may have implications for life insurance and annuity premiums, as well as assessments of the financial standing of Social Security – if the selection is large enough to substantially alter projected survivor mortality. The paper found that: 10-year mortality rates, absent direct COVID deaths and long COVID, will likely be lower in 2021 than anticipated in 2019.However, these differences are small, ranging from a decline of 0.4 percentage points for people in their 60s to 1 percentage point for those in their 90s.The small difference is in spite of the fact that COVID mortality was, indeed, very selective, with mortality declines exceeding half the maximum possible declines, holding total COVID deaths constant, for every age group. The policy implications of the findings are: That declines in mortality due to COVID selection likely will not impact overall population mortality substantially enough to affect Social Security cost projections.Any impact of selection effects on Social Security costs will likely be swamped by ongoing mortality increases directly attributable to acute and long COVID. JF - Working Papers PB - Center for Retirement Research at Boston College CY - Newton, MA UR - https://crr.bc.edu/working-papers/will-survivors-of-the-first-year-of-the-covid-19-pandemic-have-lower-mortality/ ER - TY - RPRT T1 - Can the Drawdown Patterns of Earlier Cohorts Help Predict Boomers’ Behavior? Y1 - 2021 A1 - Siliciano, Robert L. A1 - Gal Wettstein KW - defined benefit plan KW - defined contribution plan KW - Retirement AB - Past generations drew down their wealth slowly in retirement, leaving much of their savings untouched. However, this pattern may not hold as the Baby Boomer generation retires, because they are less likely to have a defined benefit (DB) plan and will need to tap the assets in their defined contribution (DC) plans to support their consumption. This paper uses data from the Health and Retirement Study to estimate the relationship between access to DB plans and the speed at which past generations drew down their wealth. JF - Working Paper PB - Center for Retirement Research at Boston College CY - Newton, MA UR - https://crr.bc.edu/working-papers/can-the-drawdown-patterns-of-earlier-cohorts-help-predict-boomers-behavior/ ER - TY - RPRT T1 - Does Late-Career Nontraditional Work Improve Retirement Security? Y1 - 2020 A1 - Matthew S. Rutledge A1 - Gal Wettstein KW - nontraditional jobs KW - retirement security AB - Policymakers and the media have expressed concern that nontraditional jobs lack stability and financial security. Indeed, having a nontraditional job – defined here as a job without employer health and retirement benefits – during the prime saving years of ages 50-61 is associated with less retirement security.1 But nontraditional jobs need not be “bad jobs” for all workers. Compared to traditional work, they may be a better fit for those in their 60s looking to prolong their careers by offering less stress and more flexibility.2 This brief, based on a recent study, examines how workers use nontraditional jobs after age 62, relying on data from the Health and Retirement Study linked to administrative earnings.3 It explores two questions. First, are workers in their early 60s who are underprepared for retirement more likely to use nontraditional jobs? Second, are such jobs a useful alternative to traditional work for those seeking to enhance their retirement security? The discussion proceeds as follows. The first section introduces the data and the sample. The second section describes the analytic approach, which follows three groups of workers with different employment patterns in their 60s. The third section compares the retirement security of these three groups at ages 61-62 and examines the changes they experience in retirement security by ages 67-68. The final section concludes that the workers who start out less prepared for retirement are not more likely to switch to nontraditional work in their mid-60s. But underprepared workers who do switch improve their retirement security as much as those who stay in traditional work. These results suggest that extended careers are financially beneficial, even in jobs without health and retirement benefits.4 JF - Center for Retirement Research at Boston College Briefs PB - Center for Retirement Research at Boston College CY - Boston UR - https://crr.bc.edu/briefs/does-late-career-nontraditional-work-improve-retirement-security/ ER - TY - RPRT T1 - Is nontraditional work at older ages associated with better retirement security? Y1 - 2020 A1 - Matthew S. Rutledge A1 - Gal Wettstein KW - nontraditional jobs KW - Older workers KW - retirement security AB - Holding nontraditional jobs – those that provide neither health insurance nor retirement benefits – at younger ages likely hurts retirement security relative to traditional jobs. But nontraditional work 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, all else equal. It then examines whether working in nontraditional jobs at older ages helps to improve their 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 preretirement standard of living, are no more likely to engage in nontraditional work after age 62 than those who are better prepared. In fact, some evidence suggests that those who transition to nontraditional work have greater retirement wealth, especially business income, than those who stay in traditional work or who opt not to keep working. 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. These results suggest that nontraditional work may help underprepared workers in good health lengthen their careers and improve their retirement security. JF - Center for Retirement Research at Boston College Working Paper PB - Center for Retirement Research at Boston College CY - Boston UR - https://crr.bc.edu/wp-content/uploads/2020/07/wp_2020-13_.pdf ER - TY - RPRT T1 - How Best to Annuitize Defined Contribution Assets? Y1 - 2019 A1 - Alicia H. Munnell A1 - Gal Wettstein A1 - Wenliang Hou KW - Annuitization KW - contribution AB - Unlike defined benefit pensions that provide participants with steady benefits for as long as they live, 401(k) plans and Individual Retirement Accounts (IRAs) provide little guidance on how to turn accumulated assets into income. As a result, retirees have to decide how much to withdraw each year and face the risk of either spending too quickly and outliving their resources or spending too conservatively and consuming too little. Surveys of individuals’ plans and several recent studies suggest that people will not draw down their accumulations for fear that they will exhaust their money and be unable to cover end-of-life health care costs. They also must consider how to invest their savings after retirement. These are difficult decisions. Better strategies are possible that will ensure a higher level of lifetime income, reduce the likelihood that people will outlive their resources, and alleviate some of the anxiety associated with post-retirement investing. Workers could use a portion of their 401(k) and IRA assets to purchase an immediate annuity that pays a fixed amount throughout their lives, typically starting at age 65. Or they could purchase an advanced life deferred annuity (ALDA) that requires a smaller share of accumulated assets and begins payments at a later age like 85. Alternatively, they could use their assets to delay claiming Social Security – essentially purchasing an inflation-indexed annuity. Right now, none of these three options is commonly used. Very few workers choose to purchase immediate or deferred annuities (the first two options). And few retirees appear to be deferring claiming in order to receive the maximum annuity income from Social Security – most people simply retire earlier and claim immediately. Increasing annuitization in a meaningful way would require embedding annuities in 401(k) plans, with annuitization as the default. Recent proposed federal legislation, such as the SECURE Act (Setting Every Community Up for Retirement Enhancement), encourages plan sponsors to offer annuities in their plans by establishing a fiduciary safe harbor when specific statutory conditions are followed in selecting an insurance company. This legislation does not address, however, the question of defaults or the possibility of using 401(k) assets to purchase additional Social Security benefits. Moving forward on these fronts would require some consensus about the appropriate share of 401(k) assets to be annuitized and the best method for annuitizing them. To address these issues, this paper compares the level of lifetime utility generated by alternative annuitization approaches – immediate annuities, deferred annuities, and additional Social Security through delayed claiming. The analysis also tests different assumptions for the share of initial wealth that participants use to purchase these products. JF - Center for Retirement Research at Boston College Working Paper PB - Center for Retirement Research at Boston College CY - Newton, MA UR - https://crr.bc.edu/working-papers/how-best-to-annuitize-defined-contribution-assets/ ER - TY - RPRT T1 - Will Fewer Children Boost Demand for Formal Caregiving? Y1 - 2019 A1 - Gal Wettstein A1 - Alice Zulkarnain KW - Caregiving KW - children AB - Today, 25 percent of all caregivers of elderly are adult children. However, while the parents of the Baby Boom generation had three children per household on average, the Boomers themselves only have two. This project uses the Health and Retirement Study to assess how the number of children a person has affects the demand for formal long-term care, i.e. long-term services and supports (LTSS), using ordinary linear regression, a Cox proportional hazard model, and an instrumental variable approach. Results suggest that the lower fertility of the Baby Boom generation is likely to lead to greater demand for LTSS in the coming decades. For example, the instrumental variable estimates indicate that having one fewer child increases the probability of having spent a night in a nursing home in the last two years from 10.7 percent to 12.4 percent among those with two or more Activities of Daily Living limitations. PB - Center for Retirement Research at Boston College UR - https://crr.bc.edu/working-papers/will-fewer-children-boost-demand-for-formal-caregiving/ ER -