Retirement Wealth Inequality
Saturday, Jan. 6, 2018 2:30 PM - 4:30 PM
- Chair: Teresa Ghilarducci, New School
Using a Life Cycle Model to Evaluate Financial Literacy Program Effectiveness
AbstractPrior studies disagree regarding the effectiveness of financial literacy programs, especially those offered in the workplace. To explain such measurement differences in evaluation and outcomes, we employ a stochastic life cycle model with endogenous financial knowledge accumulation to investigate how financial education programs optimally shape key economic outcomes. This approach permits us to measure how such programs shape wealth accumulation, financial knowledge, and participation in sophisticated assets (e.g. stocks) across heterogeneous consumers. We then apply conventional program evaluation econometric techniques to simulated data, distinguishing selection and treatment effects. We show that the more effective programs provide follow-up in order to sustain the knowledge acquired by employees via the program; in such an instance, financial education delivered to employees around the age of 40 can raise savings at retirement by close to 10%. By contrast, one-time education programs do produce short-term but few long-term effects. We also measure how accounting for selection affects estimates of program effectiveness on those who participate. Comparisons of participants and non-participants can be misleading, even using a difference-in-difference strategy. Random program assignment is needed to evaluate program effects on those who participate.
Inequality in Retirement Wealth
AbstractOver the past 20 years, defined contribution (DC) retirement plans have largely displaced defined benefit (DB) plans, while the average retirement age has increased, partly as a result of this displacement. Using data from the Health and Retirement Study (HRS), this paper answers to what extent has the displacement of DB by DC plans contributed to an increase in retirement income inequality; have the increases in retirement income inequality been masked by disproportionately large increases in retirement ages among those least well prepared for retirement.
Delayed Retirement and the Growth in Economic Inequality by Work Ability
AbstractWork at older ages has increased sharply over the past two decades. Between 1995 and 2016,
labor force participation rates at ages 62 to 64 increased 12 percentage points for men and 13
percentage points for women. Longer careers improve retirement security by enabling workers to
accumulate more Social Security credits, devote part of their increased earnings to retirement
savings, and shorten the period over which those savings would be spread. However, health
problems prevent some workers from extending their careers, especially those with limited
education. In 2014, 25 percent of adults ages 62 to 64 reported fair or poor health, including 40
percent of those with no more than a high school diploma. As financial security in old age
increasingly depends on delaying retirement, older adults with health problems will fall further
behind their healthier counterparts.
Using data from the Health and Retirement Study (HRS), this study compares income and wealth
by health status for adults in their early 60s and finds that the health-related gap in economic
status has grown sharply over the past two decades. Between 1996 and 2014, median real income
at ages 62 to 64 increased 37 percent for adults in excellent or very good health but only 0.2
percent for those in fair or poor health. In 2014, median income at ages 62 to 64 was only 39
percent as high for adults in fair or poor health as for adults in excellent or very good health. In
1996, the ratio was 53 percent.
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- J3 - Wages, Compensation, and Labor Costs