James Poterba
MIT and NBER
Adjusting Institutions for an Aging Society
Heterogeneity in Male @ 65 Life Expectancy
Birth
Cohort
Place in Earnings Distribution
Bottom Half
Top Half
1912
14.8 years
15.5 years
1922
15.3
17.5
1932
15.7
19.6
1941
16.1
21.5
Source: Waldron (2007). Sample: men w/positive earnings, ages 45-55.
Relative Incidence of Disease by Education Status
Disease
Ratio of Disease Incidence,
(< HS Education)/(College or Beyond)
Ages 55-69
Ages 70-84
Heart Attack
2.02
1.64
Stroke
1.52
1.24
Lung Disease 2.58
1.42
Cancer
0.86
1.00
Source: Smith (2014).
Sources of Income, Individuals 65+, 2013
Bottom Quartile
Assets
Earnings
2% Pensions 3%
3%
Welfare
7%
Other
3%
Top Quartile
Assets
14%
Pensions
22%
Social
Security
85%
Mean Income = $6756
Mean Income = $78180
Source: Poterba (2014).
Social
Security
18%
Earnings
44%
Household Balance Sheets, 65-69, in 2008
Percentile
SS
DB
NonWealth Wealth Retirement
Financial
Assets
IRAs &
Home
DC Plans Equity
Net
Worth
10
$0
$0
$0
$0
$0
$127K
30
127K
0
2K
0
42K
289
50
187
0
15
5
120
548
70
228
83
70
75
230
912
90
384
330
358
347
585
1826
Source: Poterba, Venti, & Wise (2013).
35
25
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Labor Force Participation Rate,
65-69 Year Olds, 1963-2011
45
40
Men
30
Women
20
15
10
Expected Years of Work and “Leisure” @ 65
Year When
Turned 65
Remaining Years of
Work
Remaining Years of
Non-Work
1975 (MEN)
2.9
11.5
1985
2.3
13.1
1995
2.5
13.8
2005
3.1
14.0
2015 (projected)
3.8
14.0
Source: Ghilarducci (2008) with updates.
Expected Years of Work and “Leisure” @ 65
Year When
Turned 65
Remaining Years of
Work
Remaining Years of
Non-Work
1975 (WOMEN)
1.3
17.5
1985
1.2
17.8
1995
1.5
17.7
2005
2.1
17.6
2015 (projected)
2.6
17.7
Source: Ghilarducci (2008) with updates.
“Risk Points” in Retirement Saving
•
•
•
•
•
Employer Decision to Offer Retirement Plan
Employee Decision to Participate and Amount to Contribute
Early Withdrawal Risk: Loans and Lump-Sums Plan Risks
Drawdown Pattern: Annuitize or Not?
Financial Literacy is a Challenge for Many
Financial Literacy
• If $100 earns 2% per year for five years, how much will you
have in the account? (< $102, $102, < $102) 67% correct
• If the interest rate on your saving account is 1% per year, and
inflation is 2% per year, in a year, can you buy more, the
same, or less? 75% correct
• True or False: Buying a single company stock usually
provides a safer return than a share of a mutual fund. 52%
correct
• All three correct: 34%
• Source: Lusardi and Mitchell (2014).
401(k) Participation Before & After Automatic
Enrollment Enroll
After
96%
100%
97%
90%
85%
80%
70%
60%
50%
50%
40%
38%
40%
30%
20%
Before
10%
0%
Company A
Company B
Company C
Source: Choi, Laibson, Madrian, and Metrick (2004)
References
• D. Choi, D. Laibson, B. Madrian, and A. Metrick, “For Better or For Worse:
Default Effects and 401(k) Savings Behavior,” NBER WP #8651.
• T. Ghilarducci, When I’m Sixty-Four. 2008.
• A. Lusardi and O. Mitchell, “Economic Importance of Financial Literacy,”
Journal of Economic Literature 2014.
• J. Poterba, “Retirement Security in an Aging Population,” American
Economic Review 2014.
• J. Poterba, S. Venti, D. Wise, “Drawdown of Personal Retirement Assets,”
Journal of Economic Perspectives 2013.
• J. Smith, “Using International Country Data to Learn About Health,”
Presentation at National Institute of Aging Conference, 2014.
• H. Waldron, “Trends in Mortality Differentials and Life Expectancy…,”
Social Security Bulletin 2007.