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April 2021

What Explains Low Old-Age Income? Evidence from the Health and Retirement Study

By Olivia S. Mitchell, Robert L. Clark, Annamaria Lusardi We examine respondents in the Health and Retirement Study (HRS) to observe how their financial situations unfolded as they aged. We focus on low income older adults and follow them over time to identify the factors associated with having low income at baseline and thereafter. We find that (a) real income remained relatively stable as individuals approach and enter retirement, and progress through their retirement years, and (b) labor force participation...

Do Required Minimum Distribution 401(K) Rules Matter, and for Whom? Insights from a Lifecycle Model

By Vanya Horneff, Raimond Maurer, Olivia S. Mitchell Tax-qualified vehicles helped U.S. private-sector workers accumulate $25Tr in retirement assets. An often-overlooked important institutional feature shaping decumulations from these retirement plans is the “Required Minimum Distribution” (RMD) regulation, requiring retirees to withdraw a minimum fraction from their retirement accounts or pay excise taxes on withdrawal shortfalls. Our calibrated lifecycle model measures the impact of RMD rules on financial behavior of heterogeneous households during their worklives and retirement. We show that proposed...

March 2021

The Welfare and Labor Market Effects of Mandatory Pension Savings: Evidence from the Israeli Case

By Adi Brender Many studies show that workers make poor decisions about pension savings. Policy responses to these failures include social security retirement arrangements, tax benefits for pension savings and, in some countries, also mandatory private savings towards retirement. This study examines the response of Israeli employees to the introduction of mandatory pension contributions, and the medium-term labor market effects of the arrangement, using a randomly selected panel of 300,000 employees. The first year of the arrangement, when enforcement was...

Towards Improved Retirement Savings Outcomes for Women

By OECD Labour market inequalities are well-known to be the main drivers of the gender pension gap. This publication focuses on helping governments find solutions for retirement savings arrangements that do not further exacerbate these inequalities. This study first analyses why the gender pension gap exists and sheds light on some of the behavioural and cultural factors that contribute to these inequalities. Country case studies assess how demographics, labour markets and other factors may affect gaps in pension coverage, assets...

What Are the Main Socio-Economic and Behavioral Characteristics That Determine Voluntary Pension Contributions for Self-Employed Workers in Chile?

By Valentina Ciriotto, Camila Cuevas, Francisco Aravena This study contributes to the literature by examining how socio-economic and behavioral characteristics such as neighborhood income inequality and peer effects determine voluntary pension contributions for self-employed workers in Chile. We use a survey representative of the Chilean household sector and we run five different probit regressions to elucidate voluntary contributions to the pension system for self-employed workers. Additionally, we run probit models with a heteroscedastic structure (hetprobit models). The results show that...

February 2021

Income and Saving Responses to Tax Incentives for Private Retirement Savings

By Marc K. Chan, Todd Morris, Cain Polidano, Ha Vu Many governments offer tax concessions for retirement contributions to boost retirement savings and alleviate the fiscal pressures of population aging. In this paper, we show that income responses are crucial for understanding these impacts. Using tax-register data, we study large changes in caps on tax-favored contributions to individual retirement accounts in Australia. We find that higher caps increase retirement contributions considerably, with around two-thirds of this response financed by increases...

Millennials’ Adoption of Personal Financial Management (PFM) Technology and Financial Behavior

By Brian Walsh, HanNa Lim This paper uses the Technology Acceptance Model to analyze the factors associated with personal financial management technology (PFM) adoption among millennials and extends the analysis to understand how PFM adoption is associated with financial behavior. Data from the 2018 National Financial Capability Study was used for this analysis. Evidence suggests that millennials engaging in digital side hustles, such as Uber or Lyft, are significantly more likely to adopt PFM technology. Individuals experiencing higher financial pressure...

Income and Saving Responses to Tax Incentives for Private Retirement Savings

By Marc K. Chan, Todd Morris, Cain Polidano, Ha Vu Many governments offer tax concessions for retirement contributions to boost retirement savings and alleviate the fiscal pressures of population aging. In this paper, we show that income responses are crucial for understanding these impacts. Using tax-register data, we study large changes in caps on tax-favored contributions to individual retirement accounts in Australia. We find that higher caps increase retirement contributions considerably, with around two-thirds of this response financed by increases...

January 2021

Maximizing Utility of Withdrawals in Retirement and the Efficiency of Required Minimum Distributions

By Chester Chambers We focus on a simplified problem for a risk-averse retiree seeking to maximize utility associated with annual spending and a remaining value at the end of the problem horizon when the funds are extracted from a portfolio that includes a risk-free and a risky asset. To organize discussions about this setting we utilize a novel metric which we label “Efficiency”. This measurement compares the utility derived from annual withdrawals and the final value with a benchmark...

How Poor Bangladeshi Households Behave Regarding Access to Commitment Savings Products

By Carolina Laureti, Mélanie Volral Access to commitment savings products is known to increase poor households’ savings. In this paper we analyze the process through which households change their savings behavior, by exploiting a unique dataset released by SafeSave, a Bangladeshi microfinance institution that launched the Long Term Savings commitment product in 2009. First, we find that households increase their savings a few months before they open the commitment product. Then, distinguishing early takers (who take up the commitment...