scholarly journals Is Defined Contribution a Panacea for Defined Benefit Social Security Funding Problems? Lessons from Two Countries

2009 ◽  
Vol 13 (2) ◽  
pp. 186-201 ◽  
Author(s):  
Doug Andrews ◽  
Robert L. Brown
Keyword(s):  
Social Security ◽  
Defined Benefit ◽  
Defined Contribution

scholarly journals Addressing Longevity Risk: How Best to Annuitize Defined Contribution Assets?

2020 ◽  
Vol 4 (Supplement_1) ◽  
pp. 686-686
Author(s):  
Alicia Munnell ◽  
Gal Wettstein ◽  
Wenliang Hou
Keyword(s):  
Social Security ◽  
Longevity Risk ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Economics Of Aging ◽  
Distribution Rules ◽  
Lifetime Income ◽  
The Social ◽  
Defined Benefit Pensions ◽  
Deferred Annuity

Abstract Unlike defined benefit pensions, 401(k) plans provide little guidance on how to turn accumulated assets into income. The key risk that retirees face is outliving their assets. Insurance against such risk is available through several routes, including immediate annuities, deferred annuities, and additional Social Security through delayed claiming. Under this Social Security bridge option, participants would tap their 401(k) for payments equal to their Social Security to delay claiming. This paper compares these three options in simulations against a baseline in which no assets are used to obtain lifetime income. In each option, assets not allocated to purchasing lifetime income are consumed following the Required Minimum Distribution rules. The analysis finds that, when market and health shocks are included alongside longevity uncertainty, the Social Security bridge option is generally the best for households with median wealth. Wealthier households can benefit from combining the bridge option with a deferred annuity. Part of a symposium sponsored by the Economics of Aging Interest Group.

Why are US men retiring later?

2018 ◽  
Vol 19 (3) ◽  
pp. 442-457
Author(s):  
Wenliang Hou ◽  
Alicia Munnell ◽  
Geoffrey Todd Sanzenbacher ◽  
Yinji Li
Keyword(s):  
Social Security ◽  
Structural Model ◽  
Retirement Age ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Retirement Plans ◽  
Original Cohort ◽  
The Past ◽  
Retirement Timing ◽  
Retirement Study

AbstractOver the past two decades, the share of individuals claiming Social Security at the Early Eligibility Age has dropped and the average retirement age has increased. At the same time, Social Security rules have changed substantially, employer-sponsored retirement plans have shifted from defined benefit (DB) to defined contribution (DC), health has improved, and mortality has decreased. In theory, all of these changes could lead to a trend toward later claiming. Disentangling the effect of any one change is difficult because they have been occurring simultaneously. This paper uses the Gustman and Steinmeier structural model of retirement timing to investigate which of these changes matter most by simulating their effects on the original cohort (1931–1941) of the Health and Retirement Study (HRS). The predicted behavior is then compared with the actual retirements of the Early Boomer cohort (1948–1953) to see how much of the later cohort's delayed claiming and retirement can be explained by these changes. The Early Boomer cohort was less likely to be fully retired than the HRS cohort at both age 62 (36.7% vs. 44.0%) and age 64 (49.5% vs. 53.9%). The model suggests that the shift from DB toward DC plans was the biggest contributor to these declines, followed by better health. Social Security rules and improvements in mortality played smaller roles.

scholarly journals Mismeasurement of pensions before and after retirement: the mystery of the disappearing pensions with implications for the importance of Social Security as a source of retirement support

2013 ◽  
Vol 13 (1) ◽  
pp. 1-26 ◽  
Author(s):  
ALAN L. GUSTMAN ◽  
THOMAS L. STEINMEIER ◽  
NAHID TABATABAI
Keyword(s):  
Social Security ◽  
Pension Plans ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Bottom Line ◽  
Pension Income ◽  
Before And After ◽  
Social Security Wealth ◽  
Pension Benefits ◽  
Pension Wealth

AbstractA review of the literature suggests that when pension values are measured by the wealth equivalent of promised defined benefit pension benefits and defined contribution balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study for respondents in their early fifties suggest that pension wealth is about 82% as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65–69, pension incomes are about 58% as valuable as incomes from Social Security. Our empirical analysis uses data from the HRS to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data. Key factors accounting for these differences include: a difference in methodology between surveys affecting what is included in pension income; some pension wealth ‘disappears’ at retirement because respondents change their pension into other forms that are not counted as pension income; and the form of annuitization may influence the measure of pension income. A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.

scholarly journals Stochastic Actuarial Modelling of a Defined-Benefit Social Security Pension Scheme: An Analytical Approach

2008 ◽  
Vol 3 (1-2) ◽  
pp. 127-185 ◽  
Author(s):  
Subramaniam Iyer
Keyword(s):  
Social Security ◽  
Social Insurance ◽  
Stochastic Methods ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Stochastic Variation ◽  
Simplified Approach ◽  
Pension Schemes ◽  
Social Security Reforms

ABSTRACTAmong the systems in place in different countries for the protection of the population against the long-term contingencies of old-age (or retirement), disability and death (or survivorship), defined-benefit social security pension schemes, i.e. social insurance pension schemes, by far predominate, despite the recent trend towards defined-contribution arrangements in social security reforms. Actuarial valuations of these schemes, unlike other branches of insurance, continue to be carried out almost exclusively on traditional, deterministic lines. Stochastic applications in this area, which have been restricted mainly to occasional special studies, have relied on the simulation technique. This paper develops an analytical model for the stochastic actuarial valuation of a social insurance pension scheme. Formulae are developed for the expected values, variances and covariances of and among the benefit expenditure and salary bill projections and their discounted values, allowing for stochastic variation in three key input factors, i.e., mortality, new entrant intake, and interest (net of salary escalation). Each deterministic output of the valuation is thus supplemented with a confidence interval, that is, a range with an attached probability. The treatment covers the premiums under the different possible financial systems for these schemes, which differ from the funding methods of private pensions, as well as the testing of the level of the Fund ratio when the future contributions schedule is pre-determined. Although it is based on a relatively simplified approach and refers only to retirement pensions, with full adjustment in line with salary escalation, the paper brings out the stochastic features of pension scheme projections and illustrates a comprehensive stochastic valuation. It is hoped that the paper will stimulate interest in further research, both of a theoretical and a practical nature, and lead to progressively increasing recourse to stochastic methods in social insurance pension scheme valuations.

How much do respondents in the health and retirement study know about their contributions to tax-deferred contribution plans? A cross-cohort comparison

2014 ◽  
Vol 14 (3) ◽  
pp. 203-239 ◽  
Author(s):  
IRENA DUSHI ◽  
MARJORIE HONIG
Keyword(s):  
Social Security ◽  
Pension Plans ◽  
Absolute Difference ◽  
Health And Retirement Study ◽  
Defined Benefit ◽  
Defined Contribution ◽  
The Mean ◽  
Wage Earners ◽  
Survey Responses ◽  
Retirement Study

AbstractWe use information from Social Security earnings records to examine the accuracy of survey responses regarding participation in tax-deferred pension plans. As employer-provided defined benefit pensions are replaced by voluntary contribution plans, employees’ understanding of the link between their annual contributions and their post-retirement wealth is becoming increasingly important. We examine the extent to which wage-earners in the Health and Retirement Study (HRS) correctly report their inclusion in tax-deferred contribution plans and, conditional on inclusion, their annual contributions. We use three samples representing different cohorts in three different periods: the original HRS cohort interviewed in 1992 at ages 51–56, the War Babies cohort interviewed in 1998 at ages 51–56, and the Early Baby Boomer cohort interviewed in 2004 at the same ages. Our findings indicate that while respondents interviewed in 1998 and 2004 were more likely to correctly report whether they were included in defined contribution plans, they were no more accurate when reporting whether they had contributed to their plans than respondents interviewed in 1992. Contributors in the three cohorts, moreover, overstated their annual contributions and thus would be likely to realize lower than expected account balances at retirement. The magnitude of this error is not negligible. In all three cohorts, the mean reporting error (the absolute difference between respondent-reported and Social Security earnings record contributions) was approximately 1.5 times larger than the mean contribution in the W-2 earnings record.

The Retirement Puzzle

2017 ◽  
Author(s):  
Michael A. McCarthy
Keyword(s):  
World War Ii ◽  
Social Security ◽  
Stock Market ◽  
Pension System ◽  
Historical Analysis ◽  
Occupational Pension ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Defined Contribution Plans ◽  
Occupational Plans

This chapter provides an overview of the book's main themes. This book analyzes the three paths followed by the development of old-age income security over the half century since the New Deal: occupational plans were adopted as a supplement to Social Security; their assets were invested by employers into the stock market; and, most recently, they were turned into 401(k) plans. In particular, it addresses three historical questions: Why was the collectively-bargained occupational pension system established after World War II in the place of real increases in Social Security benefits? Once these private systems were established, what explains the subsequent employer consolidation of pension fund control and the shift of their investment into the stock market, mimicking the investment trends in corporate finance? Why, within the system of employer-provided pensions, was there a subsequent shift toward much riskier defined-contribution plans, such as 401(k)s, away from the traditional defined-benefit plan in the late 1970s and 1980s. The book offer answers to each of these questions and provides a more general explanation of pension marketization through the use of comparative historical analysis.

Sign in / Sign up

Export Citation Format

Share Document