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Canadian Pension Reform: the Long View

Policymakers often worry that increasing government pension benefits won’t necessarily help retirees, if the reforms cause workers to change their behavior in ways that counteract them.  For example, some workers might save less if they know pension benefits are rising, offsetting the income boost they’ll get from a larger pension.

However, researchers examining Canada’s pension reform over five decades confirm that they have materially improved the financial well-being of retirees there.

To reach this conclusion, Kevin Milligan of the Vancouver School of Economics and David Wise of Harvard University tracked the financial status of older Canadians from 1960 through 2010.  They analyzed some 100,000 families between 55 and 80 years old using Canada’s Survey of Consumer Finances, the Survey of Labor and Income Dynamics, and the Family Expenditure Survey.

They conducted simulations to estimate what benefits would have been if no policy changes had been made since the 1960s.  This simulation showed that the poverty rate, based on the incomes of Canadians from ages 70 through 79, would have been 34 percent.  But today, in the aftermath of reforms, only 4 percent of older Canadian families are poor.  [The researchers did a second simulation based on an alternative poverty measure: how much older Canadians spend on shelter, food, clothing and other goods. This also showed a decline in the poverty rate, albeit smaller.] …Learn More

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Life Spans Not Falling for Less Educated

A September 2012 article on page one of The New York Times reported “disturbingly sharp drops” in life expectancy between 1990 and 2008 for Americans who do not complete high school – five years less for white women and three years less for white men.

This flatly contradicted past studies documenting rising longevity throughout the developed world. Much was also at stake in this dramatic new finding for U.S. retirement experts concerned about the growing financial pressures on retirees from what they’d assumed were virtually uninterrupted gains in longevity

Everyone wants to live longer, but it’s expensive. So who’s right?

In reaction to the 2012 study, a new group of researchers, funded by the U.S. Social Security Administration, took another run at calculating life spans and found that life expectancy is not on the decline for Americans with the least education.

The researchers, from the University of Michigan and Urban Institute, used the same data as in the 2012 study – U.S. Census data and National Vital Statistics.  But they refined the statistical technique. One criticism of the prior paper had been its blunt measure of Americans with the least education, defined simply as those who had not graduated high school.

Yet the segment of the U.S. population that doesn’t graduate high school has shrunk dramatically, becoming an increasingly selective – and disadvantaged – group.  That’s a change from the experience of people born a century ago for whom leaving high school to begin working or marry was the norm. …Learn More

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Retirement Research Sessions: Aug. 7, 8

Which idiosyncrasies affect the decision to retire? What’s driving the widening longevity gap between high- and low-income Americans? Are workers’ retirement savings really falling short, and is working longer good for your well-being?

These are among the research topics that will be presented two weeks from today at the 16th annual meeting in Washington D.C. of the Retirement Research Consortium, which receives support from the U.S. Social Security Administration. The agenda and details about the Aug. 7 and 8 meeting can be found here. Register to attend in person – it’s free – or view the meeting online in real time.

The consortium’s members are the Center for Retirement Research at Boston College (which supports this blog), the University of Michigan Retirement Research Center, and the NBER Retirement Research Center.

In coming weeks, the Squared Away Blog will cover some of the studies presented at the meeting. …Learn More

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Summer Reading: Retirement

For those who want to use these lazy summer days to catch up on their reading about retirement, Squared Away has compiled some of the blog’s most popular articles this year.

The articles, which are listed below, were among readers’ top 20 from January through June, based on an analysis of Squared Away’s Internet traffic.  Many of the articles were about research sponsored by the Retirement Research Consortium, which includes the Center for Retirement Research at Boston College, a sponsor of this blog.

A link to each article is provided at the end of the following headlines:

Learn More

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Depression Up After Pension Benefits Cut

Sudden changes in older workers’ financial expectations for retirement can cause depression, according to a 2011 study.

The study, which came out of the Netherlands, suggests that cuts in Dutch pensions, announced on very short notice, produced feelings of differential treatment and a loss of control that increased the incidence of depression among the workers who were adversely affected.

Workers were tested for depression two years after a 2006 pension reform reduced the share of their salaries replaced by the government-mandated defined benefit pension plans provided by employers.

Workers born in 1950 and after suddenly learned their “replacement rate” – the percent of pay the pension replaces – would drop to 64 percent, from the 70 percent initially promised.  Everyone born before 1950 was unaffected.  To replace the lost benefits, workers facing the cut would either have to save substantially more or work an additional 13 months. …Learn More

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Social Security at 62 but Fairly Healthy

Are people who claim their Social Security retirement benefits when they’re 62 too sick or impaired to work?

Fast forward three years, to when these early claimers turn 65.  They’re about as healthy as those who decided to wait until age 65 to start receiving their Social Security retirement benefits, according to preliminary findings from a study using Medicare spending data as a proxy for health.  The early claimers are also far healthier than people who left the labor force early to go on federal disability.

Some 8,500 older Americans were in the study’s sample, and they fell into four different groups: those who claimed a reduced Social Security pension soon after turning 62; those who claimed a larger pension at 65; those who were awarded a Social Security disability benefit before turning 62; and those who applied for disability but were denied and then claimed their retirement benefit after age 62. …Learn More

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Low Income: Why Only 12% Save to Retire

A new study estimating that just 12 percent of low-income older Americans save in a 401(k) or similar employer retirement plan also suggests that many more would save – if only they could.

The researchers – April Yanyuan Wu, Matt Rutledge, and Jacob Penglase of the Center for Retirement Research – focused on individuals between ages 50 and 58 with household incomes below three times the poverty line. That was less than $36,357 in 2010 for a one-person household, for example, and less than $46,800 for two people. The period studied spans 1992 through 2010.

Retirement saving primarily takes place in workplace plans. But to participate in a plan, workers must clear four hurdles. First, they need a job. Next, their employer must offer a retirement savings plan. If there is a plan, they must be eligible to participate. And if eligible, they must sign up and contribute.

A failure to sign up can’t be blamed for the dismal savings rate of this low-income group. Instead, the problem is that many never get the chance. …Learn More

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