Retirement Savings Plans Research Articles

How Federal Government Policy Helped Create Retirement Insecurity

Financial security in retirement is crucial. Without it, people fall into poverty, work until they die, and die younger than they should. In the 21st century, Americans fund their retirement from Social Security, traditional pension plans, defined contributions plans and private retirement savings plans. Of these four, only Social Security is exclusively the creature of government. Nevertheless, federal law regulates the other three to such an extent that it is fair to say that all four reflect government retirement policy. Since 1974, the federal government has spent billions of dollars supporting the private retirement system. In turn, the private retire-ment system has often failed its participants, sometimes leaving them impoverished. In contrast, Social Security has consistent success in reducing poverty and providing a financially strong old age. The last 50 years demonstrate that the private sector is an unre-liable provider of retirement benefits. Private employers deny their workers retirement benefits, siphon off pension monies for corporate use and declare bankruptcy as a means of leaving their losses to the fed-eral government to make right. In turn, the federal government must spend even more money regulating the private sector and protecting pri-vate workers and their retirement monies. Whatever the theories, we have decades of proof that if the federal government wants to ensure financial security for the elderly, then it should stop providing tax ben-efits and direct payments to private sector retirement plans and instead focus on expanding and strengthening Social Security.

Does a requirement to offer retirement plans help low‐income workers save for retirement? Early evidence from the OregonSaves program

AbstractThis study examines the first implementation of the state‐run retirement savings program in Oregon, known as OregonSaves, in 2017. It offers early insights into the substantial impact of this mandated program on retirement savings among previously uncovered private workers. Results from difference‐in‐difference models using SIPP data indicate a 12 percent increase in Individual Retirement Account (IRA) ownership among Oregon workers after the program's roll‐out. Notably, the study discerns significant gains for lower‐income, single, and older workers, as well as workers of small‐size firms who previously lacked retirement savings plan coverage. Findings also suggest additional savings resulting from the mandate.

Retirement Savings Plan through Tax Incentives: Insights View of Wealth Advisors

Retirement Savings Plan through Tax Incentives: Insights View of Wealth Advisors

What are we worried about? Midlife married couples' financial concerns about their retirement

AbstractObjectiveThis study explored how marital financial collaboration and approval along with financial constructs predicted midlife couples' reports of retirement financial concerns.BackgroundRetirement is an expected time of life that many couples plan for in advance. Despite knowing that years of life without regular income are anticipated, many people experience financial strain in retirement, which can impact their marital happiness.MethodData for this study came from a sample of 324 midlife (Mage = 44 years) couples that participated in the Flourishing Families study. We examined predictors of financial worries for retirement using dyadic probit regression models.ResultsResults suggested that both husbands and wives worried about having insufficient income and heavy debt in retirement, and that husbands had particular concerns about excess spending. Findings from predictive models suggested that husbands and wives both reported that better financial collaboration, husbands' approval of partners' financial behaviors, better physical health, and to some degree higher income, higher education, and having retirement savings, were protective against financial worries for retirement. In contrast, wives' reports of having retirement benefits and working more hours per week were risk factors.ConclusionMarital financial collaboration and approval of partner financial responsibility by both members of dyads may have lifelong benefits, including as couples prepare for retirement.ImplicationsEfforts to provide greater access to retirement savings plans may also support couples from various social and economic backgrounds. Findings suggest that marital happiness in retirement could be increased as spouses work together in financial aspects of their lives.

Leveraging FinTech Compliance to Mitigate Cryptocurrency Volatility for Secure US Employee Retirement Benefits: Bitcoin ETF Case Study

The integration of cryptocurrencies, particularly Bitcoin, into retirement savings plans has recently garnered significant attention. This interest has been amplified by the U.S. Securities and Exchange Commission's approval of Bitcoin Exchange-Traded Funds (ETFs) in January 2024 and Fidelity Investments' decision to include Bitcoin in their 401(k) plans. These landmark developments represent a paradigm shift in retirement investment strategies, merging traditional financial planning with the dynamic and volatile world of cryptocurrencies. The entry of Bitcoin introduces novel challenges, including increased volatility and regulatory uncertainty, necessitating a comprehensive examination of its impacts on retirement savings. The study sought to explore the role of Financial Technology (FinTech) in managing these risks and assess the adequacy of current regulatory frameworks. Employing a quantitative research approach, the study collected data from 386 participants, including FinTech practitioners and investment portfolio managers through a survey that combining closed-ended and open-ended questions. Multiple regression was used to analyze the relationships between variables such as FinTech integration, regulatory compliance, and the risk associated with cryptocurrency-inclusive retirement portfolios. The study revealed that the inclusion of Bitcoin significantly increases portfolio volatility. It also found that advanced FinTech data management techniques significantly enhance risk mitigation, while current regulatory frameworks are inadequate for governing the inclusion of cryptocurrencies in retirement plans. A comprehensive framework combining FinTech and regulatory compliance was shown to effectively reduce investment risks. The study recommends cautious consideration of cryptocurrencies in retirement portfolios, with an emphasis on assessing the risk appetite of participants. It advocates for dynamic regulatory frameworks and enhanced use of FinTech for real-time risk management. The study suggests that retirement plan providers should adopt an integrated approach, combining technological innovations with regulatory oversight, to navigate the complexities of cryptocurrency investments effectively.

How Government-Backed Registered Retirement Savings Plans Impact Canadians’ Tax-Free Savings Account:

Personal savings can help cushion financial difficulties and reduce the need to apply for government assistance. This study examined who benefits the most and the least from the government-supported Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). The compound theory of social equity was used to analyze data from the 2019 Canadian Survey of Financial Security. The results suggest that there are disparities in contributions to TFSA and RRSP based on the level of education and gender of single parents. Our analysis using correlation, OLS, and quantile regressions found that there are statistically significant but relatively small differences in contributions for less educated individuals and single-parent families led by women. These findings suggest that governments could focus on financial education, improve financial inclusion policies, and review rules on TFSA and RRSP contribution limits, which could pose a cognitive administrative burden for vulnerable households.

Why Do Employers Establish Retirement Savings Plans? Evidence from State “Auto-Ira” Policies

Why Do Employers Establish Retirement Savings Plans? Evidence from State “Auto-Ira” Policies

Automatic enrollment with a 12 percent default contribution rate

Abstract We study a retirement savings plan with a default contribution rate of 12 percent of income, which is much higher than previously studied defaults. Twenty-five percent of employees had not opted out of this default 12 months after hire; a literature review finds that the corresponding fraction in plans with lower defaults is approximately one-half. Because only contributions above 12 percent were matched by the employer, 12 percent was likely to be a suboptimal contribution rate for employees. Employees who remained at the 12 percent default contribution rate had average income that was approximately one-third lower than would be predicted from the relationship between salaries and contribution rates among employees who were not at 12 percent. Defaults may influence low-income employees more strongly in part because these employees face higher psychological barriers to active decision making.

Planification fiscale personnelle : Les paramètres du nouveau compte d'épargne libre d'impôt pour l'achat d'une première propriété (CÉLIAPP)

In effect since April 1, 2023, the tax-free first home savings account (FHSA), introduced by the federal government, aims to promote the accumulation of savings for the purchase of a first home. Considering the legislative provisions, the authors of this article detail the parameters of the FHSA and highlight its particularities in comparison with the parameters of other existing savings vehicles, including the tax-free savings account and the registered retirement savings plan.

Numeracy, gist, literal thinking and the value of nothing in decision making.

The onus on the average person is greater than ever before to make sense of large amounts of readily accessible quantitative information, but the ability and confidence to do so are frequently lacking. Many people lack practical mathematical skills that are essential for evaluating risks, probabilities and numerical outcomes such as survival rates for medical treatments, income from retirement savings plans or monetary damages in civil trials. In this Review, we integrate research on objective and subjective numeracy, focusing on cognitive and metacognitive factors that distort human perceptions and foment systematic biases in judgement and decision making. Paradoxically, an important implication of this research is that a literal focus on objective numbers and mechanical number crunching is misguided. Numbers can be a matter of life and death but a person who uses rote strategies (verbatim representations) cannot take advantage of the information contained in the numbers because 'rote' strategies are, by definition, processing without meaning. Verbatim representations (verbatim is only surface form, not meaning) treat numbers as data as opposed to information. We highlight a contrasting approach of gist extraction: organizing numbers meaningfully, interpreting them qualitatively and making meaningful inferences about them. Efforts to improve numerical cognition and its practical applications can benefit from emphasizing the qualitative meaning of numbers in context - the gist - building on the strengths of humans as intuitive mathematicians. Thus, we conclude by reviewing evidence that gist training facilitates transfer to new contexts and, because it is more durable, longer-lasting improvements in decision making.

The Barriers that Low-skilled Workers Might Face to Canada Lifelong Learning Plan Participation

The rapid development of society under today's Canadian neoliberal control. From a cultural to an economic standpoint, human labor has become a critical component in the operation of this nation. However, Canada is facing a serious aging population problem that will make it impossible to meet society's labor resource needs. The federal government issued a policy called the Lifelong Learning Plan (LLP) in 1999 to support citizens' lifelong learning and training, which may extend their working period after they retire. Nonetheless, given the lower wealth accumulation and working skills of low-skilled employees, there may be some barriers to access LLP after retirement and returning to the workplace. This paper investigates the barriers that low-skilled workers may face in accessing LLP, finishing their post-secondary education, and returning to the workplace in Canada using a qualitative method of analyzing official government policies and academic literacy. The paper discovers that there are several limitations that low-skilled employees may face in order to participate successfully and optimally, including: low wealth accumulation to support the high tuition fee; social conflict social roles of being full-time students in LLP and full-time employees from workplace; regular long training period from LLP; and other chosen investment options that are more important than LLP from Registered Retirement Saving Plans (RRSPs)

"Tax-Free": The Effect of a Heuristic Cue on the Choice Between a TFSA and an RRSP

The authors investigate whether and, if so, the extent to which a heuristic cue, the term "tax-free," contained in the name of one of the two primary tax-sheltered savings plans in Canada—the tax-free savings account (TFSA)—biases individuals' saving preferences relative to the registered retirement savings plan. On the basis of the heuristic-systematic model of information processing, the authors predict that the term "tax-free" is a favourable heuristic cue that will suppress systematic processing and bias individuals toward selecting a savings plan with this term in its name. They conduct three experiments to test this proposition. Overall, the results suggest that individuals have a clear preference for a tax-sheltered savings plan with "tax-free" in its name—regardless of the content of accompanying explanatory information. The preference for savings plans with "tax-free" in the name may suggest the need for more education and financial advice to reduce the use of heuristics.

Self‐nudging contracts and the positive effects of autonomy—Analyzing the prospect of behavioral self‐management

Nudging interventions typically presume some asymmetry of sophistication and power between the choice architect and the nudged. But the nudged need not be relegated to a passive role. We present evidence that individuals have a capacity to counter their biases, and even to use them to their advantage. This capacity for behavioral self‐management (“BSM”) can allow them to act as the choice architects of their future‐self. In our study, we provide participants with the autonomy to choose among a variety of loss‐ and gain‐framed contracts that govern the terms under which they perform a real effort task. The results show that subjects strategically harness their own loss aversion to counter their present bias and significantly improve their performance. The loss‐framed contracts give individuals a tool they can use to self‐nudge. This possibility of self‐nudging should widen our perspective on biases. Biases can cause cognitive error and dampen motivation, but they can also be a valuable tool for individual decision making. And giving subjects the autonomy to choose their favored contract adds to the effectiveness of their BSM strategy. We show that subjects' experience self‐determination utility separate from performance benefits driven by a better adjustment of work tasks to subjects' production functions. To demonstrate the policy relevance of our results, we expand on an application of BSM strategies to retirement savings plans, which we suggest may lift participation and savings rates at no additional cost.

Nudges and Networks: How to Use Behavioural Economics to Improve the Life Cycle Savings-Consumption Balance

Many people find it difficult to start and maintain a retirement savings plan. We show how nudges can be used both to encourage people to save enough to provide an acceptable standard of living in retirement and to draw down their accumulated pension fund to maximize retirement spending, without the risk of either running out of money or leaving unintended bequests. Networks can help too, particularly employer-based networks. However, the nudges and networks are more likely to be effective if they have legislative backing and support.

Wealth Management and Retirement.

The purpose of this publication is to introduce basic financial planning concepts and highlight their use in creating a retirement savings plan. These tools may help young surgeons set their financial targets and create a plan to meet them, whereas surgeons later in their careers may reflect on their choices and implement adjustments, or be inspired to pass on the lessons they learned to the next generation. This publication is limited by design and should be thought of as a primer, not a comprehensive treatise. The topic of personal financial management is as vague as it is broad, and there are many concepts and situations that are outside the scope of this publication. Unique goals, income and expense streams, and risk tolerances necessitate individualized solutions, but there are fundamental concepts listed below that are more universally applicable. The discussion is tailored to the high income stream that plastic surgeons can expect, albeit one that starts relatively late in their careers compared to nonphysician colleagues. There are three foundational principles the reader should take away: having a plan is crucial in achieving any financial goal; starting any savings/investment endeavors as early as possible is as or more important than the amount of capital committed to them; and lastly, individual investors (professional and amateur) have consistently demonstrated an inability to consistently do better than the market over the long run.

Employee Opinions about Partial Annuitization in a Retirement Plan

Prior research finds mixed evidence of annuity preference among workers. In a survey of participants in an employer-sponsored retirement savings plan, the authors found that nearly twice as many prefer a mix of annuitized income and investments to a system that offers only investments or only a pension. When given a choice to allocate savings among stocks, bonds, and an income annuity, respondents would place 33.5% of their total retirement savings in an income annuity, and higher annuity allocations are preferred by older and average-income respondents. The most important attribute of a retirement savings plan is the ability to understand how much a retiree can safely spend. Eighty-one percent of participants indicate that they are somewhat or highly likely to prefer a retirement plan that substitutes guaranteed income for bond investments. The peace of mind offered by a product that provides a guarantee of lifetime income, the reduced fear of outliving savings, and the ability to budget spending in retirement are the most frequently cited reasons for preferring an annuity.

Simulating How Large Policy Proposals Affect the Black-White Wealth Gap.

The wealth gap between African-American and White households has persisted for decades, prompting policymakers and experts to suggest several large-scale interventions. We evaluate the possible impact of five such proposals on the Black-White wealth gap. These interventions include debt-free college, baby bonds, civil rights enforcement in housing markets, credit market regulations enforcement, and a national retirement savings plan. Using simulations anchored in data and the existing literature, we conclude that baby bonds would have the single largest effect. But a large wealth gap would remain, even if all five proposals were promptly enacted. Only targeted cash or liquid asset transfers to African-Americans can overcome the persistent wealth difference with White households.

Impact of defaults on participation in state supplemental retirement savings plans

AbstractThis study examines the impact of the adoption of automatic enrollment provisions by the state of South Dakota for its supplemental retirement saving plan (SRP). In South Dakota, state and local government employees, including teachers, are covered by a defined benefit pension plan and by Social Security. Prior to the introduction of automatic enrollment, the proportion of newly hired employees who were contributing to the SRP was less than 5% in their first year of employment. After the introduction of automatic enrollment, over 90% of newly hired workers who were auto-enrolled were participating in the plan. Using a difference-in-difference approach we find that automatic enrollment changes differences in the participation rate by age, sex, and income. We also find that prior to the adoption of auto-enrollment, agencies that ultimately chose to implement this policy had higher participation rates compared to those that did not adopt auto-enrollment.

Occupational Credentials and Job Qualities of Direct Care Workers: Implications for Labor Shortages.

Occupational training and credentialing requirements for direct care workers were in place for consumers’ health and safety, but their effects on job qualities and labor shortages in the direct care industry have been controversial. Using a nationally representative sample of psychiatric, nursing, and home health aides, a series of Average Treatment Effect models were analyzed to examine the effects of occupational credentials on various measures of job qualities. The findings revealed that credential-holding was related to higher annual earnings and increased probability of working full-time, year-round, and having access to employer-provided health insurance and retirement savings plans. The positive effects, however, were modest in size and suggested that, given the current wage and benefit levels for direct care workers, training and credential requirements cannot be the key to resolving job quality and labor shortage issues in the direct care industry. Implications of these findings and alternative ways to address the issues were discussed.

The home bias and the local bias: A survey

The home bias like the disposition effect is a well-researched economic phenomenon in investor behaviour which has been examined in finance journal articles for decades. While there is little doubt about the existence of the bias, its magnitude varies across countries and investor groups. The home bias has to be regarded as a multifactorial phenomenon, a combination of numerous causes which all synergistically contribute. In contrast to other biases the home bias can at least partially be explained by reasons beyond irrational investor behaviour. While institutional restrictions play a minor role, informational asymmetries and superior information of domestic investors are important factors. Thus, the performance of investments may well benefit from a home bias, and the bias then no longer would be a puzzle but rather rational behaviour as a lower diversification level may lead to higher returns. The contemporary understanding of the home bias gains in relevance as the ongoing political debate in Germany has to clarify an institutional framework for long-run retirement savings plans of private households based on equity investments.