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2010 University of Michigan Retirement Research Center Conference Papers

'Retirement, Planning, and Social Security in Interesting Times.

Research Project: The Effect of Out-of-Pocket Spending for Health Care on Economic Preparation for Retirement

Excerpt: In research previously funded by the Social Security Administration through MRRC, we estimated the fraction of households aged 65-69 who were adequately prepared for retirement by finding whether their economic resources could sustain an empirically estimated life-cycle consumption path. The only source of uncertainty in the model was longevity. The level of spending by each household was affected by average spending on health care but not by health spending shocks. In the proposed research, we will explicitly take into account the risk of out-of-pocket spending on health care to find, via simulation, the fraction of households financially prepared for retirement. [UM10-18]

Research Project: The Social Security Early Retirement Benefit as Safety Net (PDF)

Excerpt: This project will use the Health and Retirement Study to examine the health and economic status of those who collect Social Security early retirement benefits and will predict their behavioral reaction to an increase in the Early Entitlement Age or a change in the Full Retirement Age that reduces the value of the early retirement benefit. We would use a propensity score reweighting method to estimate who uses early retirement benefits as a safety net against deteriorating health and who might be induced to apply for disability benefits or retire without income replacement if the generosity or availability of early retirement benefits were reduced. [UM10-02]

Research Project: The Effects of the Economic Crisis on Retirement and Spending

Excerpt: The United States is experiencing the greatest economic crisis since the Great Depression. Housing prices have declined, leaving many with negative equity; falling stock values have substantially reduced household net worth; high and increasing rates of job loss jeopardize the economic foundations of many families. Little is known about how these different effects are distributed in the population, and even less is known about how households and individuals adjust in the domains of actual and anticipated retirement and spending. We propose to assess, quantitatively, the effects of the economic crisis, both gross and net of household behavioral responses. [UM10-06]

Research Project: Post-Retirement Adjustments in Defined Benefit Pensions

Excerpt: Few private defined benefit pension plans index benefits after a worker begins receiving them. Previous (now dated) research finds that most plans do, nonetheless, make 'voluntary' adjustments, which compensate for roughly 40% of the price increases after retirement. This project will measure actual adjustments experienced by HRS respondents, and relate them to inflation, institutional factors suggested by past research (collective bargaining, government sector), and changes in the financial conditions of the industries providing the benefits. We will examine the implication of these findings for our understanding of the adequacy of pension benefits as individuals age and for between-group differences in pension wealth. [UM10-17]

Research Brief: Changes in Consumption and Activities in Retirement (PDF)

2 pages. Excerpt: Economists have used the term retirement-consumption puzzle to refer to the finding that individuals seem to reach retirement not adequately prepared and appear to reduce spending in response. Following workers over time, this study shows that fewer than half of those who retire recollect a spending decline at retirement. Actual spending change also does not decline at retirement.

Research Brief: Why Not Retire? The Time and Timing Costs of Market Work (PDF)

2 pages. Excerpt: Overall, the results suggest that market work imposes significant constraints on those who choose it, constraints that increase the incentives for complete retirement rather than a gradual reduction in market hours as people become eligible for public and/or private pensions.

Research Brief: Simulating the Effect of Changes to the OASDI and Medicare Programs (PDF)

2 pages. Excerpt: In this paper, [the authors] report estimates of a dynamic programming model that addresses the interplay among health, financial resources, and the labor market behavior of men nearing retirement age.

Research Project: Should You Borrow from Yourself? The Determinants and Effects of 401(k) Loans

Excerpt: This project proposes to evaluate the economic rationale for 401(k) plan loans and the empirical determinants of loan patterns. We will show how plan design and participant characteristics contribute to borrowing from one's pension, as well as default and repayment behavior. This research will be useful to employers in developing plan design, and also to employees seeking to enhance their retirement preparedness. [UM10-10]

Research Project: The Joint Decision Making of Married Couples and the Social Security Pension System

Excerpt: The current OASI program redistributes resources from high-wage workers to low-wage workers, and from two-earner couples to one-earner couples. However, previous dynamic general equilibrium analyses of Social Security mostly assume 'unisex' individuals, to alleviate complexities in modeling, and they do not consider the redistribution between one-earner and two-earner households. In this project, we extend a standard general equilibrium OLG model with heterogeneous agents, quantitatively analyze the effect of spousal and survivor benefits on the labor supply of married couples, and examine whether the government can improve economic efficiency and social welfare. [UM10-23]