creator: Munnell, Alicia H.
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The Labor Supply of Older Americans
description- – This paper summarizes what is known about the labor supply of older men, defined as those 55 and over. The topic is of great interest because older individuals will comprise a much greater portion of the population, so their labor supply will have a significant impact on national output, tax revenues, and the cost of means-tested programs. Most importantly, a greater proportion of older individuals will need to work than do at present, because retirement income systems are contracting and working longer is the only way for most to ensure financial security in their old age. The focus is on men, because women's work patterns reflect the increasing participation of cohorts over time as well as the factors that affect retirement behavior. Section I of this paper describes the changes to the retirement income system that will require people to work longer. Section II summarizes the long-term decline in labor force activity among older individuals and the factors that contributed to that trend. Section III describes the recent turnaround in the labor force activity of older people and the changes in Social Security and pensions that likely led to that reversal. In an attempt to determine whether the labor supply of older workers will continue to increase, Section IV describes changes in work patterns that have emerged in the last 20 years, leading to more mobility and less tenure among older workers and the implications of such changes on labor supply. Section V addresses the issue of health to ascertain the extent to which older people can be expected to continue in the labor force, noting that for 15 to 20 percent of the work force continued employment will be impossible. Section VI discusses the remaining incentives to retire - namely, the availability of Social Security at 62 and the lack of flexible employment arrangements. Section VII concludes.
- – wp_2007_12
- – 2007-06-01
- – application/pdf
The Outlook for Pension Contributions and Profits in the U.S.
description- – This paper addresses the relationship between defined benefit pension plans and corporate profits and examines the outlook for defined benefit plans in the wake of the bear market. Due to a soaring stock market during the extended bull market of 1982-2000, together with federal regulations and legislation that shifted funding requirements forward, pension contributions virtually disappeared as a corporate expense for much of the previous two decades. Our analysis suggests that in the absence of the stock market boom and the regulatory and legislative changes that reduced funding, the average firm's contribution to its pension plan would have been 50 percent higher during the 1982-2001 period - 9.9 percent of payroll instead of 6.6 percent of payroll. The downturn in contributions had a significant impact on corporate profits. Lower pension contributions, all else equal, will produce a dollar-for-dollar increase in before-tax profits. Our analysis implies that corporate profits were roughly 5 percent higher than they would have been otherwise. Higher profits produce a feedback effect as they lead to further capital gains and further reductions in contributions. Given the current bear market and an aging workforce, the feedback now goes in the opposite direction. Now that the stock market bubble has burst, our analysis suggests that contributions relative to wages would return to their pre-1982 levels of about 10 percent. This implies that - on a permanent basis - contributions would double from their current level of $40 billion to $80 billion. Assuming that investors view the increase as permanent, the feedback effect would lower the value of equities held by pension funds by $20 billion. In short, as the economy emerges from recession and the bear market draws to a close, firms and investors must be prepared to contend with a strong headwind from pension funding obligations that could slow the recovery.
- – 2003-06-01
- – application/pdf
How Much Is the Working-Age Population Saving?
description- – This paper addresses how much individuals are saving for retirement. The standard measure, the personal saving rate reported in the official U.S. National Income and Product Accounts (NIPA), has fallen dramatically and in 2004 stood at a dismal 1.8 percent of disposable personal income. But is this indicator an accurate measure of saving behavior? NIPA combines the saving of the working-age population with the dissaving of retirees. This study attempts to separate the saving of these two groups.Three conclusions emerge from the analysis. First, adjusting the NIPA personal saving rate shows that personal saving by the working-age population is significantly higher than the reported national rate. Moreover, allocating a portion of business saving to workingage households further raises their saving rate. Second, commentators should be careful not to double count saving through employer-sponsored plans by referring to pension saving and personal saving as if they were different components. In fact, for most of the time between 1980 and 2003, pension saving accounted for all of personal saving. Finally, the analysis (inadvertently) helps explain the puzzle surrounding the collapse of the total NIPA personal saving rate beginning in the early 1980s. While capital gains were part of the story in the 1990s, most of the downward trend can be explained by changes in the saving rate of those 65 and over.
- – 2005-10-01
- – application/pdf
What Replacement Rates Do Households Actually Experience in Retirement?
description- – This paper estimates how much people actually receive in retirement relative to earnings before retirement when all sources of income, including income generated by homeownership, are combined. Previous studies find that middle class people need between 70 and 75 percent of their pre-retirement earnings to maintain their life style once they stop working. The objective of this study is to determine what people are actually receiving in retirement.Regardless of how retirement income and pre-retirement income are defined, households with pensions appear to meet the threshold of adequacy. Those without pensions do not fare as well, and some must be really struggling. Taking into account a comprehensive measure of income both before and after retirement - including housing - produces replacement rates for those with pensions of 79 percent for couples and 89 percent for single person households. Those without pensions have replacement rates of 62 percent for couples and 63 percent for singles. These replacement rates drop about 15 percentage points, however, when recent earnings (the highest five years of the last ten) are used as the benchmark. The overall the picture is good.But today is in some sense the"golden age"of retirement income. Today's retirees are claiming Social Security benefits before the extension in the retirement age to 66 and then 67, which is equivalent to an across-the-board cut in benefits. Today's retirees also do not face the huge deductions in their Social Security check to cover Medicare premiums for Part B and Part D that tomorrow's retirees will. And today, the average retiree does not pay personal income tax on his Social Security benefits, whereas future retirees will increasingly see a portion of their benefits subject to taxation. Finally, most of today's retirees are covered primarily by a defined benefit plan and do not face the uncertainty associated with the inadequate lump-sum payments from 401(k) plans. The comfortable circumstances of today's retirees make it very hard to call attention to the challenges that future retirees will face.
- – WP #2005-10
- – 2005-08-01
- – application/pdf
Has the Displacement of Older Workers Increased?
description- – The employment of older workers into their mid-60s will be critical to their ability to ensure a secure retirement. One of the risks threatening the ability to work to older ages is being "displaced," with displacement defined as the elimination of the worker's job due to a shift in the demand for labor. Displacement can easily throw 50-year-old workers off course, disrupt their retirement saving plans, and lead to premature retirement. This paper explores the relationship between job loss and age over the period 1984-2004 using the biennial Displaced Worker Supplement to the Current Population Survey. It finds that no major trends in the displacement of older workers have occurred over the 11 Displaced Worker Surveys conducted during the period. Re-employment rates for older workers appear to have improved. And the earnings loss associated with the displacement of older workers has not changed significantly. Two other significant findings relate to tenure and education. First, the historical protection that older workers appeared to have against displacement was due to tenure not to age per se. Controlling for tenure, the probability of displacement increases with age. Second, college education is no longer a source of significant protection in the world of displacement, and its importance has declined sharply for re-employment.
- – 2006-09-01
- – application/pdf
What Moves the National Retirement Risk Index? A Look Back and an Update
description- – In June 2006, the Center for Retirement Research released the National Retirement Risk Index (NRRI). The results showed that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 43 percent will be at risk of being unable to maintain their standard of living in retirement. Households are more likely to be 'at risk' if they are young, have low incomes, or lack pension coverage. This brief looks at the three major factors that have caused the Index to increase since the early 1980s. These factors are: 1) a decline in Social Security replacement rates due to the decline in one-earner couples and the increase in Social Security's Normal Retirement Age; 2) lower pension replacement rates as a result of the shift from defined benefit to defined contribution plans; and 3) lower annuity payments due to the dramatic decline in real interest rates. These negative factors have been only partially offset by a modest increase in financial assets, and an increase in the retirement income that homeowners could potentially obtain through reverse mortgages. Having identified the key movers, this brief also updates the Index from 2004 to 2006. During this period, the run-up in housing prices was cancelled out by a corresponding surge in mortgage debt, which resulted in no change in the 'at risk' status of any of the Index's age cohorts. However, compared to the 2004 Index, the 2006 Index has more Generation Xers and fewer Baby Boomers. Since Generation Xers are more likely to be 'at risk,' this change increased the Index slightly to 44 percent.
- – 2007-01-01
- – application/pdf
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