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We compute the optimal dynamic asset allocation policy for a retiree with Epstein-Zin utility. The retiree can decide how much he consumes and how much he invests in stocks, bonds, and annuities. Pricing the annuities we account for asymmetric mortality beliefs and administration expenses. We show that the retiree does not purchase annuities only once but rather several times during retirement (gradual annuitization). We analyze the case in which the retiree is restricted to buy annuities only once and has to perform a (complete or partial) switching strategy. This restriction reduces both the utility and the demand for annuities.
A recent US Treasury regulation allowed deferred longevity income annuities to be included in pension plan menus as a default payout solution, yet little research has investigated whether more people should convert some of the $15 trillion they hold in employer-based defined contribution plans into lifelong income streams. We investigate this innovation using a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations. Our welfare analysis shows that defaulting a small portion of retirees’ 401(k) assets (over a threshold) is an attractive way to enhance retirement security, enhancing welfare by up to 20% of retiree plan accruals.
Change ahead—emerging life-course transitions as practical accomplishments of growing old(er)
(2019)
With the aging of the "Baby Boomer" cohort, more and more adults are transiting from work into retirement. In public discourse, this development is framed as one of the major challenges of today's welfare societies. To develop social innovations that consider the everyday lives of older people requires a deeper theoretical understanding of the retiring process. In age studies, retiring has been approached from various theoretical perspectives, most prominently disengagement perspectives (retirement as the withdrawal from social roles and responsibilities) and rational choice perspectives (retiring as a rational decision based on incentives and penalties). Whereas, the former have been accused of promoting a deficient image of aging, the latter are criticized for concealing the socially stratified constraints older people experience. This paper proposes a practice-theoretical perspective on retiring, understanding it as a processual, practical accomplishment that involves various social practices, sites, and human, as well as non-human, actors. To exemplify this approach, I draw upon data from the project "Doing Retiring" that follows 30 older adults in Germany from 1 year before to 3 years after retirement. Results depict retiring as a complex process of change, assembled by social practices that are scattered across time, space, and carriers. Practice sequences and constellations differ significantly between older adults who retire expectedly and unexpectedly, for example through sudden job loss or illness. However, even among those who envisaged retiring "on their own terms," the agency to retire was distributed across the network of employers, retirement schemes, colleagues, laws, families, workplaces, bodies and health, and the future retiree themselves. Results identified a distinct set of sequentially organized practices that were temporally and spatially configured. Many study participants expressed an idea about a "right time to retire" embedded in the imagination of a chrononormative life-course, and they often experienced spatio-temporal withdrawal from the workplace (e.g., reduction of working hours) which entailed affective disengagement from work as well. In conclusion, a practice-theoretical perspective supports social innovations that target more than just the retiring individual.
Do required minimum distribution 401(k) rules matter, and for whom? Insights from a lifecylce model
(2021)
Tax-qualified vehicles helped U.S. private-sector workers accumulate $25Tr in retirement assets. An often-overlooked important institutional feature shaping decumulations from these retirement plans is the “Required Minimum Distribution” (RMD) regulation, requiring retirees to withdraw a minimum fraction from their retirement accounts or pay excise taxes on withdrawal shortfalls. Our calibrated lifecycle model measures the impact of RMD rules on financial behavior of heterogeneous households during their worklives and retirement. We show that proposed reforms to delay or eliminate the RMD rules should have little effects on consumption profiles but more impact on withdrawals and tax payments for households with bequest motives.
In the process of life course transitions, relations between the self and the world transform, which can according to Hartmut Rosa be framed as resonance. This article focuses on the retirement transition and thus on the exit from gainful employment as one of the central spheres of our world relationship in late modernity. It raises the following questions: How do experiences of resonance change in the course of the retirement transition? Does the loss of gainful employment lead to disruptions or even the absence of resonance in terms of alienation? And which role do dimensions of social inequality, such as gender, income, education or mental health status play for resonance transformations in the transition to retirement? In terms of a reflexive mixed-methods design, this article combines quantitative panel data from the German Ageing Survey (2008–17) with a qualitative longitudinal study from the project “Doing Retiring” (2017–21). Our results show that the transition from work to retirement entails a specific “resonance choreography” that comprises a phase of disaffection (lack of resonance) at the end of one’s working life followed by a liminal phase in which people search for intensified experiences of resonance. We outline practices in which transitioning subjects seek out resonance, and the experiences they make within this process according to their social positions. We thereby find that the desire for resonance tends to be beyond intentional resonance management which manifests in products and services like coaching or wellness. In our conclusions, we discuss how resonance theory and retirement research/life course research can be fruitfully combined, but also highlight the methodological challenges the operationalization of resonance entails.
Many nations incentivize retirement saving by letting workers defer taxes on pension contributions, imposing them when retirees withdraw their funds. Using a dynamic life cycle model, we show how ‘Rothification’ – that is, taxing 401(k) contributions rather than payouts – alters saving, investment, consumption, and Social Security claiming patterns. We find that taxing pension contributions instead of withdrawals leads to delayed retirement, somewhat lower lifetime tax payments, and relatively small reductions in consumption. Indeed, the two tax regimes generate quite similar relative inequality metrics: the relative consumption inequality ratio under TEE is only four percent higher than in the EET case. Moreover, results indicate that the Gini measures are also strikingly similar under the EET and the TEE regimes for lifetime consumption, cash on hand, and 401(k) assets, differing by only 1-4 percent. While tax payments are higher early in life under the TEE regime, they are slightly lower in the long run. Moreover, higher EET tax payments are also accompanied by higher volatility. We therefore find few reasons for policymakers to favor either tax approach on egalitarian or revenue-enhancing grounds.