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James Poterba MIT and NBER Adjusting Institutions for an Aging Society.

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Presentation on theme: "James Poterba MIT and NBER Adjusting Institutions for an Aging Society."— Presentation transcript:

1 James Poterba MIT and NBER Adjusting Institutions for an Aging Society

2 Heterogeneity in 65 Life Expectancy Birth Cohort Place in Earnings Distribution Bottom HalfTop Half years15.5 years Source: Waldron (2007). Sample: men w/positive earnings, ages

3 Relative Incidence of Disease by Education Status DiseaseRatio of Disease Incidence, (< HS Education)/(College or Beyond) Ages 55-69Ages Heart Attack Stroke Lung Disease Cancer Source: Smith (2014).

4 Sources of Income, Individuals 65+, 2013 Mean Income = $6756 Mean Income = $78180 Source: Poterba (2014).

5 Household Balance Sheets, 65-69, in 2008 PercentileSS Wealth DB Wealth Non- Retirement Financial Assets IRAs & DC Plans Home Equity Net Worth 10$0 $127K 30127K02K042K Source: Poterba, Venti, & Wise (2013).

6 Labor Force Participation Rate, Year Olds, Men Women

7 Expected Years of Work and 65 Year When Turned 65 Remaining Years of Work Remaining Years of Non-Work 1975 (MEN) (projected) Source: Ghilarducci (2008) with updates.

8 Expected Years of Work and 65 Year When Turned 65 Remaining Years of Work Remaining Years of Non-Work 1975 (WOMEN) (projected) Source: Ghilarducci (2008) with updates.

9 “Risk Points” in Retirement Saving Employer Decision to Offer Retirement Plan Employee Decision to Participate and Amount to Contribute Early Withdrawal Risk: Loans and Lump-Sums Plan Risks Drawdown Pattern: Annuitize or Not? Financial Literacy is a Challenge for Many

10 Financial Literacy If $100 earns 2% per year for five years, how much will you have in the account? (< $102, $102, < $102) 67% correct If the interest rate on your saving account is 1% per year, and inflation is 2% per year, in a year, can you buy more, the same, or less? 75% correct True or False: Buying a single company stock usually provides a safer return than a share of a mutual fund. 52% correct All three correct: 34% Source: Lusardi and Mitchell (2014).

11 401(k) Participation Before & After Automatic Enrollment Enroll Source: Choi, Laibson, Madrian, and Metrick (2004) Before After

12 References D. Choi, D. Laibson, B. Madrian, and A. Metrick, “For Better or For Worse: Default Effects and 401(k) Savings Behavior,” NBER WP #8651. T. Ghilarducci, When I’m Sixty-Four A. Lusardi and O. Mitchell, “Economic Importance of Financial Literacy,” Journal of Economic Literature J. Poterba, “Retirement Security in an Aging Population,” American Economic Review J. Poterba, S. Venti, D. Wise, “Drawdown of Personal Retirement Assets,” Journal of Economic Perspectives J. Smith, “Using International Country Data to Learn About Health,” Presentation at National Institute of Aging Conference, H. Waldron, “Trends in Mortality Differentials and Life Expectancy…,” Social Security Bulletin 2007.


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