April 30, 2015
TDFs Appeal to the Most Inexperienced
New research finds that the people most likely to benefit from target date funds are also the people inclined to invest their 401(k)s in them – unsophisticated investors.
Retirement and financial literacy researchers long ago established the pitfalls of our nation’s do-it-yourself system of retirement saving (i.e., people don’t save at all or don’t save enough, and investing is too complex for most people). Target date funds (TDFs) have become an increasingly popular solution to the investment piece of the problem in the wake of the Pension Protection Act of 2006, which allowed employers to use them as the default investment option in defined contribution savings plans.
TDFs place a 401(k) participant’s accumulated savings into a broadly diversified portfolio of stocks and bonds that shifts the asset mix as they age. When employees are young and retirement is a distant concept, TDFs invest heavily – as much as 90 percent – in stocks. As employees age, a growing share goes into more conservative bonds.
TDFs are now the primary default investment among employers that automatically enroll new employees into their savings plans. TDFs are a good option not only for inexperienced investors but also for more experienced investors who prefer to delegate the task of portfolio rebalancing to their fund manager. However, employees typically have the option of transferring out of the TDF and selecting other investments offered in their plan. …Learn More
April 28, 2015
Around 50, U.S. Workers’ Earnings Fall
Here’s a sobering thought: by the time most workers get into their 50s, their earnings are declining.
Although older workers don’t necessarily see smaller paychecks, their earnings are effectively shrinking, because they no longer keep up with inflation, according to a study charting the inflation-adjusted, or “real,” earnings of some 5 million U.S. workers over their lifetimes.
The first decade in the labor force, between ages 25 to 35, is crucial – that’s where the wage gains are concentrated, the researchers find. Real earnings plateau sometime between 35 and 45, and this plateau occurs earlier than previous research had indicated. By the time most people move into the oldest age group in the sample – 45 to 55 – their earnings are falling.
The chart below shows the percentage changes during three discrete decades in the labor force for people whose earnings are in the middle of all U.S. workers’ earnings. For the 45-55 age group, other data in the study pinpoint the earnings decline as actually beginning around 50.
Economists have been refining their analyses of lifetime earnings patterns for decades. The researchers’ methodology improves on past techniques and then applies it to an extremely robust data set: the Social Security Administration’s earnings records for U.S. workers from the 1970s through 2011.
When they looked at all workers, they found that earnings, adjusted for inflation, rise by 38 percent over a typical person’s lifetime. But these lifetime patterns vary dramatically by a worker’s income bracket. …Learn More
April 23, 2015
Late-Career Job Changes Reduce Stress
Great news for older workers considering a career change – those who’ve done it are happier and less stressed.
People who attempted a career change sometime after turning 45 were surveyed last year by the American Institute for Economic Research (AIER) in Massachusetts. Whatever the reason for making a change – voluntary or forced – the majority of those who did so felt their results were successful.
These late-career changers need to be put in a larger perspective. Older workers are much more likely to stay put in a job than are younger people moving up the ladder, and older people also have a tougher time recovering and finding a new full-time job after becoming unemployed.
But when older workers can change their employment, the outcomes are positive.
“I feel like a new person” – 72 percent of job changers agreed with this statement, while 65 percent said their stress levels fell, according to the AIER. There are also downsides to late-career transitions: a hefty minority of those surveyed advised others taking this path to be open-minded about their working hours and lower compensation, though half of those surveyed said their pay eventually increased in their new jobs.
“If you feel you need a change, then do it,” one survey respondent commented.
This survey provides a fresh take on a comprehensive 2009 AARP-Urban Institute study that reached similar conclusions. The AARP-Urban study found that many older workers tend to move into less prestigious jobs when they make a change. For example, managers often take non-management positions, which could partly explain why the share of people who said they felt stressed about their work dropped by almost half after a late-career change, from 65 percent to 36 percent. …Learn More
April 21, 2015
Employer Bias Against Aging Boomers?
The job market is improving, but more than half of baby boomers surveyed felt age discrimination “prevented them from working as much as they would like.” Squared Away interviewed Joanna Lahey, associate professor at Texas A&M University’s Bush School of Government and Public Service, who says age discrimination is extremely difficult to “prove.”
Many older workers have legitimate complaints about being discriminated against. But what does the research tell us about how pervasive it is?
Lahey: Before I answer that, let me clarify something. Older people who are working do well compared to younger workers. On average, they have more money and stability. It’s the older job seekers whose experiences worry policy makers and researchers.
The bottom line is we really don’t know how pervasive age discrimination is, and there’s a lot of room for more research on this. In one experiment I did, younger workers were 40 percent more likely to be called back for an interview than older workers – but that was only women, and they were applying only for entry-level positions.
Age and experience are correlated with each other, so it’s really hard for researchers to tell if someone’s being discriminated against because of their age or because of some sort of mismatch between older workers’ more extensive experience and the job requirements.
The U.S. unemployment rate was a low 5.5 percent in March. Doesn’t age discrimination fade when employers are hiring? …Learn More
April 16, 2015
Will Boomers Delay Social Security?
A 1983 reform to Social Security is now in full swing for baby boomers: they must wait at least until their 66th birthday to claim their full pension benefits.
But is the gradual increase in the program’s so-called full retirement age – it was 65 for prior generations – having any effect on when boomers retire?
Why people decide to retire when they do is complicated, and economists have tried for years to understand this. Americans are working slightly longer than they did in the mid-1990s, with the average retirement age rising from 62 to 64 for men and from 60 to 62 for women (though this trend may be stalling). Myriad possible explanations for retiring later include the decline of traditional pensions, greater longevity, healthier older workers, and a more educated labor force.
Another reason could be the 1983 reform delaying the age at which baby boomers in this country are allowed to claim their full Social Security pensions, a reason supported by a new study of similar reforms to Switzerland’s government pensions.
The researchers found that a one-year increase in Switzerland’s full retirement age, or FRA, for women is associated with a half-year delay in when women retire and when they claim their full government pensions. …Learn More
April 14, 2015
Even in Nursing, Men Earn More
The nursing profession is predominantly women, but it’s the male nurses who earn more – $5,148 more per year on average.
“Male RNs out-earned female RNs across settings, specialties, and positions with no narrowing of the pay gap over time,” according to a salary comparison from 1998 through 2013 in the Journal of the American Medical Association. Other research has revealed pay gaps in teaching, another women-dominated profession.
Today is Equal Pay Day, and the media is replete with reminders that American women earn 77 cents for every dollar that men earn. Nursing is the single largest profession in the growing health care sector, and the pay gap affects some 2.5 million women employed in a profession established in 19th century London by Florence Nightingale, who wrote “Notes on Nursing: What It Is, and What It Is Not.”
The importance of a woman’s earnings level goes beyond the obvious implications for her current standard of living. Earnings are also key to how much she can accumulate over a lifetime.
The largest pay disparity is for nurse anesthetists: men earn $17,290 more than their female counterparts. The only category in which women out-earn – by $1,732 – is university professors in the nursing field. The researchers isolate the role a nurse’s sex plays by controlling for demographic characteristics such as education level, work experience and other factors that also influence how much someone earns. Only about half of the gap between men and women was explained by these identifiable factors, leaving half unexplained.
The chart below shows pay gaps, by type of nurse specialty.
April 9, 2015
Retirement Coverage Expanded: UK vs US
President Obama signed a January memo officially launching his MyRA program to encourage saving by low-income and other Americans who lack a retirement plan through their employers.
The United Kingdom is also addressing pension shortfalls for uncovered workers in a much more ambitious way. The U.K. program, put in place in 2012, has two key provisions that MyRA lacks: it automatically enrolls workers so more will save in the first place, and it provides them with matching contributions.
The U.K. program has enrolled 1.8 million of the 4 million workers targeted, primarily at small employers. A 2014 study by the Center for Retirement Research, which supports this blog, described the program and compared it with MyRA.
The United Kingdom’s retirement income problems largely stem from the contraction of the government’s retirement system. A first stab at improving retirement income security came in 2001, when the government mandated that employers with five or more workers offer a low-cost retirement savings plan that workers could volunteer to join. That program gained little traction among workers or financial firms.
The 2012 reform was much bolder. In addition to mandating a 3 percent employer match (starting in 2017), the government matches 1 percent, with both matches contingent on the employee saving 4 percent of his earnings. To manage the program and offer a low-cost savings plan to employers, the National Employment Savings Trust, or NEST, was established. …Learn More