incentive

Do Incentives Create Lax Loan Standards?

The answer to the above question is definitely “yes,” according to new research by professors Sumit Agarwal at the National University of Singapore and Itzhak Ben-David at Ohio State.

They examined 30,000 small business loans made in 2004 and 2005 to compare the loans made by salaried bank officers with those made by officers working under a commission system.  The commissioned lenders were paid 80 percent of their former salary, plus commissions based on the number of loans they originated, their dollar amount, and how quickly they were approved.

Not surprisingly, the researchers found that commissioned officers, responding to these incentives, originated 31 percent more loans and the dollar amounts per loan were nearly 15 percent greater – they were also often larger than what their clients had requested. …Learn More

delay

Delay Retiring: A ‘Smart’ Decision

If postponing retirement can improve one’s financial security in old age, why do so many people rush to retire when they reach age 62?

Much research has explored the financial and health reasons that explain why so few people choose to retire later.  Taking a different tack, a new study found that individuals with higher cognition foresee a higher probability of working longer.

There were two steps to this research.

First, participants in an Internet survey were asked if they planned to continue working full-time after age 62 and, separately, if they expected to work past 65.  Participants were between the ages of 45 and 61.

Next, the researchers measured each survey participant’s “crystallized intelligence,” which is the wisdom acquired with age.  This type of intelligence helps to compensate for declining “fluid intelligence” – the ability to think quickly – which peaks in young adulthood.  To measure their crystallized intelligence, participants took a standard psychology test in which they are shown pictures – perhaps a goat, maracas, a sextant (an astronomical instrument) – and asked to name them. …Learn More

header with cartoon people

Why Some Retire, Others Persevere

When older workers are weighing whether to retire or carry on for a few more years, it’s unsurprising that the characteristics of their jobs are a big consideration:

  • Higher pay keeps workers in the labor force longer.
  • Workers who feel discriminated against are often the first to retire.

But personality also matters, says a team of researchers from the University of Southern California (USC) and the RAND Corporation who analyzed data from the Health and Retirement Study, an on-going survey of age 50-plus U.S. households.

Consider two types of personalities – highly active and engaged, and passive and reserved.  The researchers found that higher wages are effective in persuading more passive people to continue working.  But monetary rewards are, for highly active workers “a less important driving factor for the decision to remain in full-time employment,” said Marco Angrisani, one of the study’s co-authors from USC’s Center for Economic and Social Research.  Active workers will continue to work, simply because they like it or feel compelled to keep busy. …Learn More

How Divorce Affects Women’s Earnings

Chart: Divorce Rate Peaks Around 1980In the aftermath of the women’s movement of the 1960s and 1970s, the incidence of divorce climbed, peaking around 1980.

Millions of women were suddenly on their own at a time when women were still having to prove themselves to many employers.  But I remember being impressed by a college friend’s mother whose divorce wasn’t the disaster her family feared: she marched into a high-profile non-profit in Chicago and landed an impressive job.

It’s been well established in academic research that women often face financial struggles after divorce.  Married women are typically better off, since couples can live more cheaply and since two incomes are better than one.

But a new long-term study of women who divorced during the mid-1970s indicates there were “positive effects of marital dissolution:” higher earnings. …Learn More

debt climber

Retirement Delayed to Pay the Mortgage

Older Americans who are in debt are choosing to delay their retirement, researchers conclude in a new working paper.

In earlier findings released last summer, the researchers, Barbara Butrica and Nadia Karamcheva of the Urban Institute, documented the growing prevalence of borrowing since the late 1990s among adults ages 62 through 69. Median debt levels among those who owe also surged from $19,000 to $32,100, adjusted for inflation – and debts as a share of their assets increased.

Now comes the rest of the story. When the researchers controlled for health, financial assets, home values, and other forms of wealth, as well as spouses’ earnings and other factors that play into decisions about retiring, they found that individuals with debt, especially mortgages, behave differently than those who are debt-free.

Here are their main findings:

  • Nearly half of all people in their 60s with debts continue to work, compared with only one-third of those who have no debt. …

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Clocks in sand

Parents’ Longevity Sways Plans to Retire

Penny DeFraties, a teacher, shared her reaction to a 2012 article that appeared on this blog:

The day I hit my minimum retirement age, I’m gone. I look forward to traveling, gardening, spending time with my grandkids, and volunteering at church, the American Red Cross and USO. My first husband died of a heart attack at 49-years-old, and my current husband lost his first wife to MS at 50-years-old.

The notion that life is short is a valid reason to retire – to travel or enjoy the grandchildren before it’s too late. And the academic literature clearly shows that the age at which people exit the labor force is related to how long they expect to live.

Building on this research, a new study nails down how we arrive at our personal estimates of our life expectancy and provides new insight into the critical retirement decision.

Using data for individuals between the ages of 50 and 61, economists Matt Rutledge and April Yanyuan Wu with the Center for Retirement Research (CRR) and Boston College doctoral candidate Mashfiqur Khan confirmed that individuals estimate their own life expectancy based in part on how long their parents lived. (Full disclosure: the CRR supports this blog.)

They went on to link this “subjective life expectancy” with when older workers plan to retire, as well as when they actually do retire. …Learn More

Photo: Crossroad signs of work and retirement

Laid-off Boomers: Retirement as Default

The natural reaction to losing a job is to get a new one.  But when older people become unemployed, some view it as a dilemma: look for work or just retire?

The presence of a financial safety net significantly increases the likelihood that an older, unemployed person will retire.  And that decision often comes quickly after they lose their job, concluded a new study by Matt Rutledge, an economist for the Center for Retirement Research, which supports this blog.

“The brevity of [their] jobless spells suggests that older individuals have little tolerance for a job search” and will “make a quick exit” if they have financial resources backing them up, Rutledge wrote in a recent summary of his research.

His findings get to the heart of the difficult choices facing older workers when they are laid off, no more so than amid the Great Recession when the jobless rate among people over age 55 hit a record 7.3 percent.  Rutledge tracked individuals between 55 and 70 who lost their jobs between 1990 and 2012. …Learn More

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