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October 2022

The Effect of Removing Early Retirement on Mortality

By Cristina Bellés-Obrero, Sergi Jimenez-Martin & Han Ye This paper sheds new light on the mortality effect of delaying retirement by investigating the impacts of the 1967 Spanish pension reform. This reform exogenously changed the early retirement age, depending on the date individuals started contributing to the Social Security system. Those contributing before 1 January 1967 maintained the right to voluntarily retire early (at age 60), while individuals who started contributing after that date could not voluntarily claim a pension...

September 2022

The Safe Withdrawal Rate: Evidence from a Broad Sample of Developed Markets

By Aizhan Anarkulova, Scott Cederburg, Michael S. O'Doherty & Richard W. Sias We use a comprehensive new dataset of asset-class returns in 38 developed countries to examine a popular class of retirement spending rules that prescribe annual withdrawals as a constant percentage of the retirement account balance. A 65-year-old couple willing to bear a 5% chance of financial ruin can withdraw just 2.26% per year, a rate materially lower than conventional advice (e.g., the 4% rule). Our estimates of failure...

Informality and the Challenge of Pension Adequacy: Outlook and Reform Options for Peru

By Christoph Freudenberg, Frederik G Toscani Past reforms have put the Peruvian pension system on a largely fiscally sustainable path, but the system faces important challenges in providing adequate pension levels for a large share of the population. Using administrative microdata at the affiliate level, we project replacement rates in the defined benefit (DB) and defined contribution (DC) pillars over the next 30 years and simulate the impact of various reform scenarios on the average level and distribution of pensions....

August 2022

Mercer’s Asia Retirement Survey Report

By Mercer Conducted over 2019 to 2021, this series leverages our client base across Asia, and aims to bring together common issues in retirement security that Asia business leaders, HR and Finance partners can take action on. In combination, we have surveyed views from more than 700 employers from all industries, with responsibility for the well-being of over 120,000 employees. Get the report here

Labor Supply Flexibility and Portfolio Selection with Early Retirement Option

By Junkee Jeon & Jehan Oh In this paper, we study an optimal consumption and investment problem of an economic agent who can choose flexible labor supply and an option to early retire in the existence of mandatory retirement date. We model the agent's preference as the Cobb-Douglas utility, which is a function of consumption and leisure, and consider the agent's unit wage rate as a stochastic process. The optimization problem has a feature of combining both stochastic control and...

On the Impact of Low Interest Rates on Common Withdrawal Rules in Old Age

By An Chen, Stefan Schelling & Nils Sørensen Ensuring a desired standard of living in retirement has been strongly challenged by increasing life expectancy, and simultaneously by the current and possibly long-lasting low interest environment. In contrast to literature in this field which claims annuitization of wealth being a vital part of retirement planning, many people manage their retirement savings and withdrawal policy during the retirement period independently. To this end, several easily applicable self-managed withdrawal rules are commonly recommended...

The Misery of Spending Down the Nest Egg: The Effect of Annuitization on Consumption and Wellbeing

By Yu Gao, George Loewenstein & Xianghong Wang We study the effects of annuitization compared to spending down a lump-sum on consumption and subjective wellbeing. Analyzing longitudinal data on UK retirees before and after the pension reform that provided greater freedom to draw down savings, we find that annuitization increased retirees’ consumption and life satisfaction. To further examine the behavioral channel of these effects, we conducted a field experiment with college students, giving them a flow or lump-sum payment. As...

July 2022

Wait Your Turn: Pension Incentives, Workplace Rules and Labor Supply Among Philadelphia Municipal Workers

By David McCarthy & Po Lin Wang Little academic work has examined the labor supply response to pension incentives at the intensive margin. We explore this issue using individual-level administrative and pension data for Philadelphia city employees, where workers have some choice about whether or not to perform overtime, which is pensionable. We document large variation across workers in the incentives to do overtime provided by pension rules. Although standard regressions show that worker overtime is positively associated with own...

New Evidence on the Demand for Advice within Retirement Plans

By Jonathan Reuter & David P. Richardson. We study demand for advice within defined contribution retirement plans offered by 23 institutions where TIAA is sole recordkeeper. Advice seeking increases with age, account balance, annual contribution level, web access, and changes in marital status. More provocatively, participants who invest solely through target date funds—the dominant default investment option—are significantly less likely to seek any form of advice throughout the age distribution, raising the possibility that reliance upon defaults crowds out advice...

June 2022

A Multi-State Model for Sick Leave and Its Impact on Partial Early Retirement Incentives: The Case of the Netherlands

By Sophie de Mol van Otterloo & Jennifer Alonso-García We investigate the effect of part time and full time work on health using a Markov framework and generalized linear models to smooth the resulting crude rates. The Chapman-Kolmogorov equations are used for a general solution. We apply this model to assess a partial early retirement incentive in the Netherlands, known as "the generation pact''. The smoothed rates imply that working part time does not necessarily mean a better health for...