Retirement Savings System Research Articles

GUEST COMMENTARY: Equity and the Retirement Savings System

1. Warren Cormier 1. is executive director of the Defined Contribution Institutional Investment Association Retirement Research Center. (warren.cormier{at}dciia.org) 2. Pamela Hess 1. Is the vice president of research at the Defined Contribution Institutional Investment Association

Savings for retirement and the millennial generation in Mexico: perception about the importance of having a retirement fund

The aim of this study focused on knowing the existing relation between Savings, Financial Capability, Future forecast and Retirement funds in relation to gender, which allows to determine the Savings culture, while also proving if there is a relationship between Savings, Financial Capability, Future forecast and Retirement funds in relation to gender among the population known as Millennial generation. The study is non-experimental, approached from the hypothetic-deductive paradigm, it is descriptive and correlational, as well as transversally cut. The participants were 89 Millennials(73% women and 27% men), whoseagesranged between 18 to 35 years old. The sample was non-probabilistic by auto-determination, since the technique used was “snowball sampling”, which consisted on sharing the instrument through social networks. For the study, the survey designed by the Mexican National Commission of Retirement Savings System (2017) was used. For the data capture and analysis, the program SPSS Statistics v23 was used and the measurement technique was Pearson s Chi square with df and sig <0.05. The main results show how young millennials have not thought about retirement or at least, they are currently not taking action on this issue, hence, they have not decided to save money for the future at the moment.Regarding the parametricresults, it was determined that thereis no relationship between what millennials perceive about keeping a record of monthly income and expenses, what they would do in case they received an unexpected sum of money, receive a monthly pension, the retirement age, amount of the retirement pension and the knowledge of what a retirement fund is with the variable gender.

Endogenous Stock Market Participation and Wealth Accumulation: A Life-Cycle Model Perspective

We propose a life-cycle model, where individuals facing uninsurable labor income risks choose whether to participate the stock market and make decisions on home-ownership, in an environment with social safety net and the retirement savings system. The model is motivated by the empirical finding that active stock market participation is associated with higher level of education and employment experience in the finance sector. The model exhibits good fit on portfolio choice, home-ownership, consumption pattern in the cross- section and through life-cycle. We find that the lack of stock market access, proxied by a fixed entry cost and variable costs, plays a key role in generating heterogeneous outcome in agent’s wealth accumulation, and therefore, increases wealth inequality.

Study of an SB2 Beneficiary’s Pension Plan

The individual account pension system established by the Social Security Act 1997 shows that the contributions of beneficiaries invested in retirement fund managers have had negative returns and the investment instrument in which the contributions of the retirement savings system are invested are not known. The objective of this study is to analyze the contributions in AFORES of an SB2 classification beneficiary invested in SIEFORES and the performance they have generated that the statements reveal to quantify in a prospective study the value of the pension in its old age. It is hypothesized that the pension obtained by a beneficiary is insufficient to sustain a quality of life at this unproductive stage of life. It applies the hemerographic-legislative technique, and a quantitative study of time series. As a result of the study is concluded that the regime individual account system pensions contains uncertainty factors for the beneficiary and meets strict requirements for temporaryity and work activity, and pension income to be received in old age will not guarantee the quality of life of individual account holders.

How Much More Secure Does the SECURE Act Make American Workers: Evidence From EBRI’s Retirement Security Projection Model®

How Much More Secure Does the SECURE Act Make American Workers: Evidence From EBRI’s Retirement Security Projection Model®

EL MODELO DE HOTELLING APLICADO A LAS AFORES EN MÉXICO

El sistema de pensiones basado en AFORES es relativamente nuevo en México, por lo que existe un alto porcentaje de la población que no cuenta con este beneficio y/o carece de la información necesaria para maximizar el monto de su pensión al momento de su retiro. En la presente investigación se expone la aplicabilidad del modelo de Hotelling de teoría de juegos al sistema de ahorro para el retiro en México. Para ello, se expone la función de utilidad de un trabajador, la cual consiste en calcular el exceso del ren- dimiento neto por Administradora de Fondos para el Retiro (AFORE) con el rendimiento del índice de precios y cotizaciones de la Bolsa Mexicana de Valores (IPC). El estudio se realiza para el periodo de marzo de 2009 a diciembre de 2015 y para las 11 AFORES existentes en dicho periodo. Los resultados muestran qué AFORE elegiría un trabajador adverso al riesgo si busca una relación óptima entre riesgo y rendimiento. Por último, se mues- tra la demanda por AFORE para visualizar si la toma de decisiones están basadas en los componentes presentados en el presente estudio.

Strengthening the U.S. Retirement Savings System

The retirement savings system in the U.S. has proven to be highly successful, with participation and retirement assets both rising steadily over time. The introduction of new products, the increase in contribution limits, the improvement in financial literacy, and the introduction of automatic enrollment and automatic escalation features have all contributed to this success. These strong features of our retirement system must be reinforced to build the retirement savings base to ensure adequate replacement rates of income for retirees.

Reforming Canada's Retirement Savings System – Solutions for a Non-Existent Problem?

During the past five years in Canada, issues concerning the adequacy of the Canadian retirement system has been debated with increasing intensity amongst politicians, economists, academics, policy analysts, think tanks and unions. This paper contributes to this important theoretical and public policy debate by reviewing and analysing existing research and presenting and reviewing additional empirical evidence. The central issue in this debate is whether or not Canadians are saving and investing enough through government, employer and private savings to provide an adequate income in retirement. And if a retirement income adequacy problem does exist, is it a universal problem for most Canadians or does it only affect some income groups or age cohorts? The third major question concerns the appropriate policy response. The paper also reviews and questions whether the current and proposed policies properly address the challenge and provides some recommendations. The paper shows that the larger part of this debate actually hinges on assumptions surrounding savings and the definition of savings. Those who claim that Canada faces a national pension and savings crisis only consider government and private savings pension plans whose assets are approximately only one third of total household wealth in Canada. However, this narrow definition of savings exclude all savings and investments held outside of recognized pension plans and thus exclude investments in stocks, bonds etc. as well as private homes and secondary residences which can provide for an important source of retirement income. However, there are a small number of Canadians that are or will be below the poverty line and this calls for a targeted policy response rather than an across the board reform of the Canada Pension Plan or provincial programs such as the newly proposed Ontario Retirement Pension Plan (ORPP) which may actually be viewed as a payroll tax. Based on the evidence and analysis, the paper concludes that most Canadians do not face an inadequate income during retirement and no new government policy response is needed.

The Impact of Compulsory Retirement Savings Contributions on Lifetime Welfare

In private pre-funded retirement savings systems, workers can be compelled by regulation to make minimum contributions to retirement accounts. We examine the impact of compulsory contributions into retirement savings (superannuation) accounts on individuals' lifetime consumption and wealth using a continuous-time life-cycle model calibrated to the Household, Income and Labour Dynamic in Australia (HILDA) survey data. Simulations of optimal paths from the calibrated model show that the consumption of lower wealth individuals is severely constrained by compulsory savings, resulting in a sizeable welfare loss. In response, we propose a time varying contribution rate that mitigates the welfare loss while enhancing retirement wealth.

Liquidity in Retirement Savings Systems: An International Comparison

Liquidity in Retirement Savings Systems: An International Comparison

Liquidity in Retirement Savings Systems: An International Comparison.

We compare the liquidity that six developed countries have built into their employer-based defined contribution (DC) retirement schemes. In Germany, Singapore, and the UK, withdrawals are essentially banned no matter what kind of transitory income shock the household realizes. By contrast, in Canada and Australia, liquidity is state-contingent. For a middle-income household, DC accounts are completely illiquid unless annual income falls substantially, in which case DC assets become highly liquid. The US stands alone in the universally high liquidity of its DC system: whether or not income falls, the penalties for early withdrawal are low or non-existent.

A model for the pension system in Mexico: diagnosis and recommendations

AbstractThe reform of the pension system of the Mexican Social Security Institute (IMSS) in 1997, limited the growing fiscal cost of the previous pay-as-you-go scheme. Sixteen years on from its creation, the Retirement Savings System (SAR) has had favourable macroeconomic effects for Mexico, as it has significantly increased financial savings and encouraged the development of local financial markets.However, the employment and pension coverage has not developed as hoped, due to the high rate of informality in the labour market. In addition, the replacement rates (RR) forecast for old-age pensions from the defined-contribution scheme will be low, due to problems exogenous to the pension system, such as low contribution rates and low contribution densities. The main objective of this study is to develop a macroeconomic and actuarial projection model to simulate the expected coverage and RR for the period 2012–2050, within the framework of a demographic and economic forecast that will allow a detailed diagnosis of the current conditions of the pension system. The results reveal the unpromising scenario that the pension system has and will continue to have in the long term, with limited improvements in coverage rates. The possibility of obtaining adequate pensions will be restricted to those who have socioeconomic conditions with a long employment history, who can thus make contributions to their individual accounts.Taking into account this baseline projection scenario, we simulate the expected effects of applying a set of proposals with the aim of tackling the main problems, such as the low coverage, low RR, and low level of participation by young people in the system.

Australia's Retirement System Reform Agenda

This paper explores the background to the reforms to the Australian retirement savings system known as 'Stronger Super'.

How to Foster Investments in Long-Term Assets such as Infrastructure

Mobilising private sector funding is essential in bridging the infrastructure funding gap. This can be done by appropriate regulation, targeted public financial support, and active involvement by institutional investors. Creating an appropriate policy framework and lifting regulatory constraints on long-term investments will foster financial stability of retirement savings systems and enable the development of strategic infrastructure projects that contribute to long-term growth. As capital markets and bank funding have dried up as sources of infrastructure financing after the global financial crisis, finding alternative long-term debt sources is critical. Private infrastructure financing can be promoted by targeted public measures and by building an infrastructure management culture amongst asset managers. Infrastructure investments also require long-term policy planning, with long-term strategic policy frameworks that exceed political cycles and are built on wide political consensus. Stable and accessible programmes of infrastructure projects and public-private partnerships (PPPs) are key in attracting private sector investors, complemented by adequate regulation.

Saving for a Bleaker Tomorrow: iOMe Challenge 2010

The Millennial generation in the U.S. faces greater expected retirement needs, yet it has come of age in a period of declining household savings. A combination of reduced defined benefit availability, threats to Social Security and Medicare, increasing public debt, rising taxes, reduced expectations of economic growth and asset yields, and increasing longevity suggest that Millennials need to save more than prior generations. Evidence from nationally representative surveys suggests that 20‐somethings are saving less now than in the recent past, and may have fallen even further behind during the Great Recession after loading up on housing debt. There is also ample evidence that individual investors in general do not have the knowledge or patience to make effective investment decisions within discretionary retirement accounts. Perhaps of even more concern is the widening disparity in saving among the Millennials due to greater individual responsibility for funding retirement income coupled with low financial literacy and an increasingly complex financial marketplace. To increase savings rates, we suggest an emphasis on improving financial knowledge and marketing that highlights the consequences of low retirement savings to help young people visualize the trade-off from the choices they make today. In addition to generating increased awareness of the benefits from saving, the entire system of retirement saving in the U.S. needs to be simplified in order to improve participation rates, tax efficiency and investor performance. We propose improved disclosure that allows investors to see how their savings translates into an annuity stream at retirement, simplified investment options that allow the average investor to make better choices and more realistic employer participation rates that will lead to a more progressive, portable retirement savings system that is more likely to provide an adequate retirement income for a greater proportion of today's young investors.

How to invest over the life cycle: Insights from theory

We analyse the state of the art in the field of life cycle portfolio choice, a recent strand of the literature on intertemporal portfolio selection. Life cycle models are designed to identify optimal savings and portfolio policies over the lifetime of investors. They can help to improve pension schemes by showing how these could be specifically tailored to the individual employee’s circumstances to overcome the ‘one-size-fits-all’ philosophy still prevailing in parts of the mandatory retirement savings system. To facilitate comparison, we first describe set-up, solution method and characteristic results for a basic model and then derive a general framework to classify existing contributions. We highlight the models’ strengths and weaknesses and assess their ability to resolve existing portfolio puzzles. Lessons from the literature are summarized and promising areas for further research identified.

How to Invest Over the Life Cycle: A Review

We analyse the state of the art in the field of life cycle portfolio choice, a recent strand of the literature on intertemporal portfolio selection. Life cycle models are designed to identify optimal savings and portfolio policies over the lifetime of investors. They can help to improve pension schemes by showing how these could be specifically tailored to the individual employee's circumstances to overcome the one-size-fits-all philosophy still prevailing in parts of the mandatory retirement savings system. To facilitate comparison, we first describe set-up, solution method and characteristic results for a basic model and then derive a general framework to classify existing contributions. We highlight the models' strengths and weaknesses and assess their ability to resolve existing portfolio puzzles. Lessons from the literature are summarized and promising areas for further research identified.

Improving the mechanisms of global governance? the ideational impact of the World Bank on the national reform agenda in Mexico

Improving the mechanisms of global governance? the ideational impact of the World Bank on the national reform agenda in Mexico

Investing Retirement Wealth: A Life-Cycle Model

If household portfolios are constrained by borrowing and short-sales restrictions asset markets, then alternative retirement savings systems may affect household welfare by relaxing these constraints. This paper uses a calibrated partial-equilibrium model of optimal life-cycle portfolio choice to explore the empirical relevance of these issues. In a benchmark case, we find ex-ante welfare gains equivalent to a 3.7% increase in consumption from the investment of half of retirement wealth in the equity market. The main channel through which these gains are realized is that the higher average return on equities permits a lower Social Security tax rate on younger households, which helps households smooth their consumption over the life cycle. There is a smaller welfare gain of 0.5% of consumption when Social Security tax rates are held constant. We also find that realistic heterogeneity of risk aversion and labor income risk can strongly affect optimal portfolio choice over the life cycle, which provides one argument for a privatized Social Security system with an element of personal portfolio choice.(This abstract was borrowed from another version of this item.)