gra brief economic policy institute

8/14/2019 GRA Brief Economic Policy Institute

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EPi briEfing PaPEr # 2 0 4 novEmbE r 2 0 , 2 0 0 7 PagE 2

overall savings (Chernozhukov and Hansen 2004; Engen

and Gale 2000)thus the paradox that taxpayers are

giving up more and more revenue to promote retirement

savings while retirement security declines.

In act, the Urban-Brookings ax Policy Center

ound that income tax expenditures or retirementplans were actually larger than personal savings in

2003, including contributions to retirement plans (Bell,

Carasso, and Steuerle 2004). Tis occurred despite a

conuence o actors that should have boosted savings

growth, including a sharp increase in the amount o

money people could shelter rom tax in accounts that are

intended or retirement savings, an older and more edu-

cated workorce, and an economy in which the wealthy,

who tend to save more, have received the lions share o

recent income increases.

Tis paper proposes a rescue plan or the American

retirement income security system, based on a mixed

system composed o Social Security, employer dened-

benet pension plans, and a new type o personal retire-

ment savings account called a Guaranteed Retirement

Account (GRA). Tis rescue plan will not work without

a strong dened-benet pension system and a strong

Social Security system. ax breaks or 401(k)-style plans

and IRAs will be converted into at tax credits to oset

the cost o these new accounts, so the plan will improve

the retirement security o most Americans without

costing taxpayers more than the current system.

Te plan calls or all workers not enrolled in an equiv-

alent or better dened-benet pension to enroll in a GRA,

a plan that borrows the best eatures o dened-benet

and dened-contribution plans, including guaranteed

retirement benets that last a lietime, low administra-

tive costs, and steady contributions. With GRAs, workers

will accumulate savings in investment unds that earn

a rate o return guaranteed by the ederal government.

Tese unds will be converted to lie annuities upon retire-ment. Along with Social Security benets, these will replace

approximately 70% o pre-retirement earnings or the

typical retiree.

Guaranteed Retirement Accounts eliminate the regu-

latory and tax law avoritism that not only gives 401(k)-

type plans wide discretion and little scrutiny, but does so

at the expense o the deined-beneit system. Most

dened-benet plans yield a much higher benet than

even Guaranteed Retirement Accounts, though they typi-

cally also require average contributions o over 6% o pay-

roll or sustainability.

Te Guaranteed Retirement Account plan will help

reverse the slide in employer-provided dened-benetplans. Employers who are now considering converting

their dened-benet plans to 401(k)s to save money will

nd that option much less attractive without tax benets,

and will thereore be more likely to retain their dened-

benet plans. Meanwhile, employers currently oering

401(k)s as a recruitment and retention tool may switch

to deined-beneit plans, since particular employers

cannot distinguish themselves by oering Guaranteed

Retirement Accounts (as with Social Security).

Te rst section o this paper describes GRAs. Te

second and third sections provide an overview o the

current system and describe how it increasingly ails to

meet 10 standards o a good retirement security system.

Te ourth section explains how the Guaranteed Retire-

ment Account plan would address these ailures, and the

th answers questions about the plan. Te nal section

compares the plan to other reorm ideas, such as auto

401(k) enrollment and raising the retirement age.

Hw G r

a wkStructure. Guaranteed Retirement Accounts are like uni-

versal 401(k) plans except that the government, as bets

a large and enduring institution, will invest and manage

the pooled savings.

Participation. Participation in the program is mandatory

except or workers participating in equivalent or better

employer dened-benet plans where contributions are

at least 5% o earnings and benets take the orm o lie

annuities.

Contributions. Contributions equal to 5% o earningsare deducted along with payroll taxes and credited to

individual accounts administered by the Social Security

Administration. Te cost o contributions is split equally

between employer and employee. Mandatory contribu-

tions are deducted only on earnings up to the Social

Security earnings cap,2 and workers and employers have

the option o making additional contributions with


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post-tax dollars. Te contributions o husbands and wives

are combined and divided equally between their individual

accounts.

Reundable tax credit. Employee contributions are o-

set through a $600 reundable tax credit, which takes the

place o tax breaks or 401(k)s and similar individualaccounts and is indexed to wage ination. Eligibility or

the tax credit is extended to part-time workers, caregivers

o children under age six, and those collecting unemploy-

ment benets. I an individuals annual contributions

amount to less than $600, some or all o the tax credit is

deposited directly into the account in order to ensure a

minimum annual deposit o $600 or all participants.

Fund management. Te accounts are administered by

the Social Security Administration and unds are managed

by the Trit Savings Plan or similar body. Tough unds

are pooled, workers are able to track the dollar value

o their accumulations, as with 401(k)s and other

individual accounts.

Investment earnings. Te pooled unds are conservatively

invested in nancial markets. However, participants earn a

xed 3% rate o return adjusted or ination, guaranteed

by the ederal government. I the trustees determine that

actual investment returns have been consistently higher

than 3% over a number o years, the surplus will be

distributed to participants, though a balancing und will

be maintained to ride out periods o low returns.

Retirement age. Participants begin collecting retirement

benets at the same time as Social Security, and thereore

no earlier than the Social Security Early Retirement Age.

Funds cannot be accessed beore retirement or any

reason other than death or disability.

Retirement benets. Account balances are converted toination-indexed annuities upon retirement to ensure

that workers do not outlive their savings. However,

individuals can opt to take a partial lump sum equal to

10% o their account balance or $10,000 (whichever is

higher), or to opt or survivor benets in exchange or

a lower monthly check. A ull-time worker who works

40 years and retires at age 65 can expect a benet equal

to roughly 25% o pre-retirement income, adjusted or

ination, assuming a 3% real rate o return (see Table 1).

Since Social Security provides the average such worker

with an ination-adjusted benet equal to roughly 45%

o pre-retirement income, the total replacement rate or

this prototypical worker will be approximately 70%.

Death benets. Participants who die beore retiring can

bequeath hal their account balances to heirs; those who

die ater retiring can bequeath hal their inal account

balance minus benets received.

ovvw h ySocial Security, pensions and personal savings are oten

reerred to as the three pillars o the U.S. retirement system.

G r a (Gra) (2006$)

* ae wke wk 40 e d ee 65. i-djed ed 5% e, 3% e e e, 3.5% -, 3.5% e, d expeed e he rP2000 m te rep.

souRcE: Jh W. Ehhd d sze t, e m,Analysis of Guaranteed Retirement Accounts (2007).

t a b l e 1

Hgh avg lw

Earnings at Retirement $60,000 $40,000 $20,000

GRA accumulation at retirement 228,143 152,095 76,048

Annuity rom the above GRA* 15,500 10,366 5,183

GRA annuity as a percent o pre-retirement earnings 26% 26% 26%Social Security benefts as a percent o pre-retirement earnings 35% 45% 63%

Total replacement ratio with GRA and Social Security 61% 71% 89%


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1

Social Security. Social Security is the bedrock o retire-

ment income support or most Americans, replacing

about 45% o pre-retirement income or the average steady

worker (more or low earners and less or high earners).

However, the U.S. Social Security system was never

designed to provide all the income that retirees need,and is less generous than those in most other advanced

industrial countries (OECD 2007). And while it remains

by ar the largest source o retirement income or most

Americans, replacement rates are alling as the Social

Security ull benet age is pushed up, at the same time

that Medicare premiums are rising (Munnell 2003).

Pensions. Until the mid-1990s, the most prevalent

employer-provided retirement plan was a traditional

dened-benet pension that ensured a secure retirement

ater a lietime o work. Tough these pensions are still

common in the public sector and at large corporations

with white-collar or unionized workorces, employers

have increasingly replaced them with less secure 401(k)

plans. As a result, the share o amily income the median

67-year-old receives rom traditional dened-benet

pension plans is expected to all rom 20% or current

retirees to only 9% or the late baby boom generation.

Dened-contribution plans will not ll the gap, since the

share o income rom retirement accounts is expected to

rise only rom 3% to 7% o income (Butrica et al. 2003).

Because dened-contribution plans are substituting

or dened-benet pensions, overall coverage, rather than

expanding, has stayed at or contracted, leaving hal o

all ull-time workers (and most part-time workers) with

no workplace retirement plan at all, a situation that has

remained essentially unchanged or at least a quarter

century.3

Voluntary savings. Household savings rates are at their

lowest levels ever measured, hovering near zero in 2006

rom a high o 10% in the late 1970s and early 1980s

(Bosworth and Bell 2005; Munnell, Golub-Sass, andVarani 2005). But the decline in retirement security or

post-baby-boomer generations has little to do with how

much households have set aside in bank accounts or

mutual unds, since savings as commonly understood

have never played a signicant role in unding retirement

or most Americans. And while the savings rate has allen,

wealth-to-income ratios have remained stable in recent

years, in part due to rising stock and housing prices

(Bosworth and Bell 2005; Delorme, Munnell, and Webb

2006). Te problem is that wealth measureswhich

usually include assets in 401(k) accounts and IRAs but

not pension und accumulationsshould be rising to

make up or the decline in dened-benet pensions andcuts in Social Security.

sgh wk h yPension and savings systems are key components o the

social wage and represent a substantial taxpayer commit-

ment. Tus, they should be eective, efcient, air, and

based on mutual responsibility and shared risk. Americans

should ask the ollowing 10 questions about their retire-

ment system.

Does the U.S. retirement system provide

adequate retirement income?

A retirement system should prevent a sharp drop in

living standards ater retirement and should reduce

poverty among the elderly.

For most o the 20th century, the share o elderly Americans

living in poverty steadily declined and each succeeding

generation was better able to aord retirement than the

previous one. Tese improvements were largely due to

expanding Social Security benets, as well as the spread o

employer-provided dened-benet pensions.

However, i current trends continue, the early baby

boomers will be the last generation with more retirement

security than their parents (Butrica et al. 2003). Social

Security benets have been trimmed back, health care and

long-term care costs are rising, and 401(k) plans are dis-

placing more secure dened-benet pensions. As a result,

many older Americans are working longer or taking part-

time jobs, with nearly one in our people between the ageso 65 and 74 (23.2%) participating in the labor orce in

2006, up rom 19.6% in 2000,4 a trend that is expected to

continue (Butrica et al. 2003).

Workers, rather than employers, increasingly bear the

responsibility or unding retirement. Workers must gen-

erally elect to participate in a 401(k) plan, whereas workers

are automatically enrolled in traditional dened-benet


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3

plans (which in the private sector are entirely employer-

unded). Firms have an incentive to persuade workers to

avor 401(k) plans over dened-benet pensions because

workers typically bear more than hal o the cost o 401(k)

plans. In addition, employers save money when workers

do not participate.

Is the system air?

A retirement system should not exacerbate income

and wealth inequality.

Certain groups are especially ill-served by the current

system, including part-time workers, divorced and

widowed women, individuals with long-term care needs

and medical expenses, and racial and ethnic minorities.

Over 60% o unmarried women and more than 56%

o Arican Americans and Hispanics approaching retire-

ment age have expected retirement incomes below twice

the poverty level (Weller and Wol 2005). Tough these

groups are also more likely to have lower-than-average

incomes in their working years, the retirement system

exacerbates this inequality.

Policy makers oer tax advantages to retirement plans

i they include rank-and-le workers, but this incentive

has become less potent and more tilted toward employers

with a high-income workorce as marginal tax rates have

allen. And while tax subsidies or dened-benet pen-

sions also tend to avor workers with good jobs, these are

less regressive than those or dened-contribution plans

because participation in these plans is automatic and

benets are distributed more equally.

ax breaks or 401(k)s and other voluntary retirement

accounts are skewed to the wealthy because it is easier or

them to save, and because they receive bigger tax breaks

when they do so. Te value o these tax breaks is equal tothe investment earnings on the deerred taxes, which in

turn depends on the marginal tax rate paid by a house-

hold. A wealthy amily in a 35% tax bracket gets a tax

break three-and-a-hal times more valuable than a amily

in a 10% tax bracket, even i each amily contributes the

same dollar amount to a 401(k). As a result, economists

at the Urban-Brookings ax Policy Center have ound

that 70% o tax subsidies or dened-contribution plans

and IRAs go to those in the top 20% o the income dis-

tribution and almost hal go to the top 10% (Burman et

al. 2004).

All in all, only 29% o households received a tax break

or contributing to dened-contribution plans or IRAs in2004 (Burman et al. 2004). So while the average tax break

per household was worth around $530, this gure is mis-

leading because it includes households who received no

tax break at all. For the lucky ew who did, the average

value was over $1,800.5

Another problem with dened-contribution plans

and IRAs is that they exacerbate the retirement income

gap between men and women. Tough 401(k) and IRA

unds are considered marital property, no spousal con-

sent is required or und distributions and unds can

be hidden or depleted beore divorce (Matsui 2005).

In contrast, dened-benet pension benets automati-

cally include a survivor annuity unless the spouse signs a

waiver, and Social Security automatically provides benets

or spouses who were married at least 10 years.

Does the system allow exibility in retire-

ment age?

Working longer is not an option or many workers,

but all workers, regardless o age, deserve meaning-

ul work and air pay.

American workers enjoy better protection against age dis-

crimination than their counterparts in other developed

nations, though it is still rampant. Moreover, many

workers with arduous jobs, and those who did not go

to college and started work as older teenagers do what

only the rich could once doretire while still healthy

enough to enjoy retirement. Early retirement provisions

in dened-benet plans,6 disability insurance, and Social

Securitys early retirement option have until now allowedretirement time to be one o the most equally distributed

sources o well-being in the U.S. economy.7

Unions and employers also tailor pension design to

reconcile the reality that people start work at dierent

ages and have very dierent liespans. Some blue-collar

workers have worked or 50 years at age 67, while many

proessionals have worked or under 40. Meanwhile,


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6

5

considerations. In practice, 401(k) accumulations are

much lower than what most workers will need to avoid a

sharp drop in income ater retirement, calling into ques-

tion whether 401(k)s will really enable workers to choose

their retirement age in any meaningul sense.

Does the system insure workers against risk?

Governments, and to a lesser extent employers, are

better suited to bear longevity, nancial, deault,

and ination risks than individual workers.

Te shit rom dened-benet to dened-contribution

plans has orced workers to shoulder more risk. Workers

already bear the risk o being too old to work, being laid

o, or being disabled. Ination, longevity, nancial, and

employment risks once pooled by larger entities are now

borne by the individual. Tese risks include payout risk

the risk that an individual will not manage a lump sum

at retirement to protect against ination and the risk o

outliving ones savings. Running out o income is a main

reason older retirees are poorer than younger retirees, and

annuitization (price-indexed in the case o Social Security)

is one o the major advantages o dened-benet pensions

and Social Security.

Pooling allows employers or the government to insure

workers against most nancial and longevity risks while

taking advantage o economies o scale. Tough it is theo-

retically possible or individuals to insure against longevity

and nancial risks by purchasing annuities, theselike

health insurance policiesare costly to purchase in the

individual market. Tus, the shit rom traditional pen-

sions to individual accounts has saddled workers with risk

that would be easy to insure against in a group plan.

Is the system ecient?

A retirement system should be cost-efective, trans-parent, and accountable; it should take advantage

o economies o scale and not waste money on

marketing, retail ees and other unnecessary costs.

Te Social Security Administration has a proven track

record o efcient management. Likewise, dened-benet

pension unds are pooled and proessionally managed,

4

low-income workers have physically harder jobs and also

shorter lie-spans on average. It is reasonable and, or now,

a reality that people who start work early and die relatively

young should be able to retire at a younger age and enjoy

retirement time.

Tough retirement age exibility is one o thestrengths o our current system, some experts are calling

or changes that would orce workers to postpone their

retirement.

Does the system reward work eort?

Retirement benets should be based on the number

o years worked as well as retirement age.

Workers who begin working at a younger age should be

able to retire at a younger age with credit or all years

worked. On the other hand, younger retirees also have

longer expected retirements, so annual benets may need

to be reduced in order to equalize lietime benets.

Social Security and employer-provided dened-benet

pensions base benets on a combination o years worked

and retirement age. For example, a typical dened-benet

plan may provide a pension equal to the number o years

worked multiplied by 1.5% o an employees nal average

salary, with the benet reduced by 5% per year or those

retiring beore the designated normal retirement age.

Such a kinked benet structure encourages workers to

retire at or beore the normal retirement ageirst,

because the early retirement adjustment actor is typi-

cally less than the amount required to equalize lietime

benets, and second, because workers who retire ater

the normal retirement age are not compensated or their

shorter expected retirements.

Tough Social Security benets are gradually adjusted

according to age o retirement so as to equalize lietimebenets or workers who retire up to age 70, the Social

Security benet structure can also encourage earlier retire-

ment because workers stop accruing additional credits

ater 35 years o work.

In theory, dened-contribution plans neither encour-

age nor discourage early retirement, allowing workers to

base retirement decisions purely on income and leisure


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10

amount o time companies in most industries have to

close unding gaps.

Bankruptcies also have a public cost. High-prole

bankruptcies in steel, airlines, auto parts, and other mature

industries with signicant ununded pension liabilities

created a $23 billion decit at the Pension BenetGuaranty Corporation (PBGC), the ederal agency

that insures corporate pension unds. While the Pen-

sion Protection Act was intended to reduce the PBGCs

exposure, it also increased the volatility o employer

contributions and may spur more employers to reeze

their pensions.

Multi-employer pension unds and ederal pension

insurance are partial solutions to the problem that

retirees may outlive their ormer employers. Te act

remains, however, that 401(k) plans are currently the most

realistic option or small businesses that want to provide

a retirement plan but do not operate on a long-term time

horizon and are unable take ull advantage o risk pooling

and scale economies.

Does the system have a positive impact on the

economy?

A retirement system should not distort economic

activity or destabilize the economy.

Social Security and traditional pensions have a stabilizing

eect on the economy because they allow workers to retire

when jobs are scarce and shore up consumer demand

during recessions. In contrast, 401(k)s have a destabilizing

eect on the economy. Bear markets oten coincide with

recessions, so workers whose 401(k) balances have shrunk

may postpone retirement when the economy provides

ewer jobs, exacerbating unemployment.

Hw h Gra p h h yGuaranteed Retirement Accounts incorporate the best ea-

tures o dened-benet and dened-contribution plans.

Like traditional dened-benet pension plans, GRAs are

efciently managed and benets are guaranteed or lie.

Investments are diversied and proessionally managed,

and accumulations can be accessed only to und retire-

ment or disability.

Like 401(k)s and other dened-contribution plans,

Guaranteed Retirement Accounts are ully portable and

employer obligations are discharged immediately. Tey

are easy to understand and their value is transparent. Teyare also immune rom company deault due to bankruptcy,

maleasance, or corruption. However, GRAs correct three

o the worst eatures o dened-contribution plans: vari-

able and unknown rates o return, leakages into high ees

and pre-retirement spending, and lump-sum benets that

do not provide a guaranteed income or lie.

Te GRA plan splits the dierence between dened-

benet and dened-contribution plans when it comes to

bequests, ensuring that at least hal o a participants nal

account balance is paid to the participant or his or her

heirs in the orm o benets or bequests.

Guaranteed Retirement Accounts eectively increase re-

tirement savings.

Te challenge with all policies designed to promote

savings is that low-income households and even many

middle-income households have little money to spare,

whereas high-income households can shit existing savings

to take advantage o nancial incentives without in-

creasing overall savings. Tis would be true even i thesavings incentives or rich and poor amilies were equal,

but is exacerbated by the act that tax deerrals provide a

much larger carrot to wealthy amilies than to middle-

class amiliesand none whatsoever or amilies too poor

to owe taxes.

By converting tax deerrals into reundable tax

credits, GRAs will instantly boost the retirement savings

o low-income households who currently save little or

nothing or retirement outside o Social Security. A $600

tax credit covers the entire 2.5% contribution or workersearning $24,000 or less, and greatly reduces the eec-

tive contribution rate or other lower-paid workers.

Meanwhile, mandatory payroll deductions, partly oset

through the tax credits, will eectively increase retirement

savings or most middle-class amilies. Te tax credits and

mandatory contributions on earnings up to the Social

Security cap are unlikely to have much impact one way or


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another on the savings o high-income households, who

will, however, lose signicant tax breaks.

ogether, Guaranteed Retirement Accounts and

Social Security will replace approximately 70% o pre-

retirement income or the average 40-year worker,

which is generally considered the minimum necessaryto avoid a signicant drop in living standards upon retire-

ment. Tough the plan guarantees a 3% rate o return, ac-

tual investment returns may be higher. I so, even workers

with shorter work histories will achieve a 70% or higher

replacement ratio.

Guaranteed Retirement Accounts are air.

Employers, workers, and the government share respon-

sibility, because contributions are split between employers

and employees and subsidized through a tax credit. Tis is

similar to how Social Security and Medicare are unded,

and lies somewhere between traditional dened-benet

pensions in the private sector (where the employer, with

taxpayer support, bears the cost) and 401(k) plans (where

workers typically make more than hal the contributions).For those who believe workers eventually pay or

benets in the orm o lower wages, the issue o who

makes the contributions may be immaterial. However,

splitting the cost between employers, employees, and the

government may dampen business opposition to the plan

as well as reduce the potential or job loss when the pro-

gram is introduced. It also agrees with popular opinion.11

Te plan will not increase the ederal decit or require

a tax increase. Rather, a retirement subsidy in the orm o a

ip f gp pg h y wh $600 x G r a, 2008*

* ae ira d deed- p e dded xe e d xpe wh we e eee $600ede x ed, exep we-e ed j xp , whh eee $1,200 x ed. the x ed dexed . the eee d d ee p e ded he de, e he epee h e he ppe he wke.

** tx wh ee h e e exded he we e e ded he . f dep h e,ee hhp://www.xpee./txmde/e.

*** ide h d - exde he h e depede he x .

**** ae-x e h e e: dd e x e ede ed; pe e x; p xe (s se dmede); d ee x.

souRcE:ah he mh ce Pp se, 2001-07.

t a b l e 2

i (2006$)** P x ***

avg hg

-x ($2006)

avg p hg

-x ****

Less than $10,000 12.0% $309 5.6%

$10-20,000 16.8 363 2.4

$20-30,000 13.5 415 1.8

$30-40,000 10.2 408 1.3

$40-50,000 8.2 355 0.9

$50-75,000 14.3 233 0.5

$75-100,000 8.9 -142 -0.2

$100-200,000 11.6 -1,486 -1.4

$200-500,000 3.2 -4,173 -1.9

$500-1,000,000 0.5 -5,097 -1.0

More than $1,000,000 0.3 -6,785 -0.3


10/20


11/20


services, minimizing marketing costs, and negotiating terms

with the rm hired to manage the und. All o these

cost savings would also accrue to GRAs, which have

the additional advantage o eliminating trading costs

stemming rom participants changing asset allocations.

Guaranteed Retirement Accounts would also mini-mize administrative costs by piggy-backing on Social

Security reporting and recordkeeping. However, some

additional inormation is required, and the individual

account structure is less tolerant o recordkeeping errors.12

Generally, costs will be higher during the start-up phase

and then gradually drop, because average account size

and thereore participant incomeis a major cost actor.

Tough GRA participants will have lower incomes, on

average, than workers participating in the Trit Savings

Plan or other voluntary dened-contribution plans, the

automatic 5% annual contribution and the act that unds

cannot be accessed beore retirement means the average

account size will eventually be comparable or larger.

Te system is unded through steady employer and em-

ployee contributions.

Te most common practice among employers oering

401(k) plans is a 50-cent match or every dollar contributed

by a participating employee, up to 6% o earnings. In other

words, the typical 401(k) sponsor contributes only 0-3%o salary, leading to meager and sporadic contributions to

worker retirement accounts. Te opposite problem exists

with dened-benet plans. In the private sector,13 employers

are required to pay the ull projected cost o their workers

retirement in advance, but these costs are variable and

unpredictable as unding shortalls and surpluses emerge

due to market uctuations and other actors.14

With Guaranteed Retirement Accounts, savings accrue

steadily and costs are predictable. Advance unding means

there are no signicant transition costs, though workers who

begin participating late in their careers will receive reduced

benets commensurate with their lower contributions.

Another advantage o advance unding is that it mini-

mizes the problem o generational booms and busts, since

savings automatically grow or contract as more or ewer

workers approach retirement. In contrast, a pay-as-you-go

system must grapple with the problem o baby boomer

retirement, when ewer workers will be supporting a larger

number o retirees.

Te plan will not increase the ederal decit or require

a tax increase.

Rather, a retirement subsidy in the orm o a uniormreundable tax credit will replace subsidies structured as

tax deerrals. Te total amount will remain unchanged

but will be more equitably distributed.

Guaranteed Retirement Accounts contribute to the

growth and stability o our economy.

Guaranteed Retirement Accounts, like Social Security and

dened-benet pensions are automatic stabilizersthey

provide household income and boost aggregate demand when

people withdraw rom the labor market during a slump.

Q Gr a

Will Guaranteed Retirement Accounts provide

enough retirement income or all workers?

No. Te system is designed to provide a basic retirement

income or workers with steady, ull-time jobs. However,even low-wage and part-time workers, those who take

time to care or young children, and those who experience

unemployment spells will accumulate a minimum account

balance at 65 o over $50,000 because at least $600 will

have been deposited in their accounts each year. Workers

who have the means and simply want to enjoy a more

comortable retirement can make supplemental contribu-

tions or increase other orms o saving.

Is annuitization unair to retirees who die

younger?

Annuitization serves an important insurance unction,

preventing retirees rom outliving their retirement

benets. However, benets are tied to longevity, which

is in turn tied to income. Tis may seem unair to low-

income workers and other groups with shorter liespans.


12/20


But when contributions, benets, and taxes are con-

sidered together, the system (like Social Security) is very

progressive, since most low-income workers, even i they

die younger, will receive more in benets than they con-

tributed directly and indirectly through taxes.

Will the plan appeal to workers?

A system o individual accounts with a guaranteed but

modest rate o return might not have had much political

appeal in the pre-Enron heyday o the 1990s bull market.

But as the hype around 401(k)s has aded in the wake

o corporate scandals and poor perormance, most

Americans should welcome a well-designed, efcient,

air, and transparent plan to provide a guaranteed retire-

ment income to supplement Social Security, especially i

mandatory contributions or lower income workers are

heavily subsidized. Studies show that workers want pen-

sions, are willing to pay or them, and appreciate a modest,

steady, and secure annuity. Retirees report higher levels o

well-being i their income is guaranteed and, i oered

the choice, would preer a dened-benet pension over

a dened-contribution plan with equal or slightly higher

value (Panis 2003; Bender and Jivan 2005). Further,

an HSBC bank survey ound that, o all the ways to

reorm pension systems, U.S. workers preerred their

government imposing a compulsory saving plan rather

than reducing benets, raising taxes, or working longer

(HSBC 2007).

Is the plan politically easible?

From able 2, we see that taxpayers making over

$75,000 would, on average, see a reduction in their

ater-tax income under the Guaranteed Retirement

Account plan. Could a proposal that costs wealthy

people a valuable tax break have legs? Perhaps. Te key isknowing that even among higher-income households

those in the top 40%nearly hal (48%) received no

tax benet rom contributing to dened-contribution

plans or IRAs in 2004and some who did would still

have been better o under the Guaranteed Retirement

Account system. Meanwhile, only 13% o households

in the bottom 60% received a tax benet.15 In other

words, the majority o Americans, across the income

spectrum, would benet rom a airer and more eec-

tive retirement savings plan. However, the plan will also

ace resistance rom some employers (especially those

who currently contribute little or nothing toward their

workers retirement) and rom the nancial servicesindustry, which makes more money managing 401(k)

plans than dened-benet plans.

Why not simply expand Social Security?

I subsidies or 401(k)-style plans and IRAs can be real-

located to Guaranteed Retirement Accounts, why not use

this money to shore up and expand Social Security?

Tis is certainly an option. Social Security is the cor-

nerstone o our retirement system, and will continue to

be the most important source o retirement income or

the majority o retired Americans. Moreover, estimates by

the Social Security trustees and the Congressional Budget

Ofce predict that the Social Security trust und will

be solvent until 2040 (trustees) or 2052 (CBO), even i

Congress does nothing.

Tese estimates are based on pessimistic assump-

tions, including economic growth projections below

current and historical levels. Nevertheless, or political

and practical reasons, we cannot ignore the possibility

that a relatively modest shortall will eventually emerge

that will need to be dealt with. Meanwhile, the orecast

or Medicare is genuinely bleak in the absence o major

health care reorm.

In contrast, the appeal o GRAs is that they are

ully pre-unded and annuities are adjusted to take into

account changing lie-spans. Tis means the system will

never need to be bailed out because o demographic

actors, though the government does incur some nan-

cial risk.

Admittedly, the benet structure is not as progressiveas that o Social Security, which provides more generous

disability benets as well as a higher replacement ratio or

low-income workers (the progressivity o the Guaranteed

Retirement Account plan comes, rather, rom the unding

side). However, they are a realistic, aordable supplement

to Social Security that will provide an adequate and secure

retirement or most workers.


13/20


benet up to $180,000 will remain tax exempt, while

employers will no longer have the option o oering a

tax-avored 401(k) plan.

Why not preserve tax breaks or 401(k)s and

IRAs?

It would be extremely expensive to subsidize both 401(k)s

and Guaranteed Retirement Accounts, and the latter are a

much more eective and equitable way to increase retire-

ment savings.

Some proposed 401(k) reorms, such as automatic

enrollment, a cap on ees, mandatory annuitization,

and converting tax exemptions to tax credits, would

greatly improve 401(k)s but would still leave the in-

dividual worker exposed to substantial inancial risk.Moreover, none o these proposals would ensure an

adequate level o contributions, or any contribution

at all.

Tese plans will not be abolished, but under the

Guaranteed Retirement Account plan additional con-

tributions will no longer be tax exempt. We expect that

many 401(k) plans will survive because high-income

employees appreciate the automatic savings eature and

the possibility o an employer match. Accumulations

in 401(k) plans and other retirement plans that exist

beore the bill goes into eect will be treated under the

old tax rules.

One alternative to eliminating 401(k) and IRA

tax breaks altogether is to cap pre-tax contributions

at $5,000the current IRA limit. Assuming that the

median contribution to a 401(k) is about 9% o pay, a

$5,000 contribution limit would have no eect on most

employees who make $55,000 or less, or more than 80%

o working Americans. However, the ax Policy Center

has estimated that capping contributions at $5,000 would

reduce the unds available or Guaranteed Retirement

Account tax credits by more than hal.

Who manages the investment?

Te accounts will be managed by a unit o the Trit Savings

Plan with its own trustees, who in turn will hire commer-

cial money managers. Te trustees will be independently

Which retirement plans qualiy?

Recognizing the valuable productivity-enhancing eatures

o dened-benet pensions, these will be allowed to

substitute or a contribution into a workers GRA. A

qualied dened-benet pension is one in which the plansponsor contributes 5% o payroll per year, so sponsors

who make sporadic and uneven contributions will not

qualiy. Hybrid plans like cash-balance plans (which tech-

nically are classied as dened-benet plans) are also ex-

empt as long as contributions are at least 5% per year and

retirement income is guaranteed or lie (not paid out in

a lump sum).

Te arguments in avor o allowing well-unded

dened-benet pensions to opt out are compelling.

First, or the majority o participants, dened benetswork well, especially in public and private sector multi-

employer arrangements. Employers can tailor the rules

on vesting, benet dispersal, etc., to meet the needs o

particular workorces. Multi-employer planslike those

in the public sector or in trucking, mining, services,

and building tradesare especially exible in allowing

workers to accumulate pension credits across jobs, giving

workers an added incentive to invest in non-employer-

specic job training.

Furthermore, there is evidence that deined-beneit

pensions help employers enhance workers productivity

by lowering turnover rates and encouraging training

and loyalty, which beneits both irms and workers.

Employee retention is expected to pose a growing chal-

lenge as the workorce ages. Last but not least, pen-

sion unds help other investors and the economy by

monitoring corporate management and promoting

corporate reorms, especially in the wake o the Enron

meltdown.

Many workers are concerned that their single em-

ployer dened-benet pensions may ail. But the require-

ment or continuous 5% contributions is even more

stringent than the unding rules in the recent Pension

Protection Act. Despite the strict unding requirement,

employers will be encouraged to keep their dened-

benet pension or start new ones because dened-benet

pensions will have tax advantages over Guaranteed Retire-

ment Accounts, since contributions to und an annual


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Why cant workers bequeath the ull amount o

their account balances?

A popular eature o most dened-contribution plans is

that participants who die bequeath their remaining account

balances to heirs i they have not already depleted their re-

tirement savings. In contrast, dened-benet pension and

Social Security benets stop ater beneciaries die, even i

they have not lived long enough to receive any payments.

Te Guaranteed Retirement Account solution is a

compromise. Workers can bequeath hal their account

balancesthat is, the workers own contributions, plus

interest, but not the employer contributionsminus

any benets received. Tis is similar to the cash reund

eature o annuities purchased through the ederal Trit

Savings Plan, an optional eature that normally reducesthe value o an annuity. However, in this case the cash

reund eature is paid or by redistributing hal o the

account balances o workers who die beore retiring, rath-

er than by reducing the annuity.17

How much risk is the government incurring?

Based on current bond yields and a conservative estimate

o uture stock returns, a portolio divided equally between

long-term reasuries, investment-grade corporate bonds,and stocks should earn a real rate o return o around 3.5%,

enough to provide a cushion above the guaranteed rate.18 In

the event o a protracted slump, the government retains the

option o lowering the guaranteed return and allowing par-

ticipants to access their unds. In other words, the ederal

government only guarantees that participants will not be

locked into a lower rate, not that participants will earn a 3%

real return in perpetuity. As or longevity risk, monthly retire-

ment benets are adjusted to reect changing liespans, and

the government can syndicate longevity risk by purchasingannuities at group rates rom insurance providers.

Are there any successul models or the Guar-

anteed Retirement Account plan?

Guaranteed Retirement Accounts are similar to retirement

accounts or university employees, cash balance-type plans

appointed, hal by the president (subject to Senate con-

rmation) and hal by Congress. Tey will have terms

structured in a similar ashion to the Federal Reserve

Board o Governors.

Does the plan increase compliance and adminis-

trative costs?

Te plan is designed to be simple and to work within

existing structures in order to minimize compliance

and administrative costs. However, some additional

reporting will be required. State and local governments

will need to notiy the Social Security Administration

o marriages and divorces so that contributions can be

apportioned between spouses individual accounts. Like-

wise, states will need to report unemployment insurance

benets. Public sector workers in some states and others

not currently eligible or Social Security will need to en-

roll in the plan. Finally, caregivers who do not currently

have to le tax returns will need to do so in order to be

eligible or the tax credit.

Where does the $600 gure come rom?

Using its micro-simulation model, the Urban-Brookings

ax Policy Center has calculated that adding all dened-

contribution plan and IRA contributions to taxableincome would be more than sufcient to und a $600

tax credit or all taxpayers with earned income in 2008

(married ling jointly taxpayers receive $1,200). Tus,

$600 is a rough estimate o what would be a revenue-

neutral tax credit in 2008.16

However, the cost o tax breaks or dened-contri-

bution plans and IRAs is projected to grow, both because

the 401(k) contribution limit is scheduled to keep rising

and because tax rates will rise i recent tax cuts are al-

lowed to expire. Tus, the ax Policy Center estimatesthat, over the next decade, these tax subsidies could be

converted to Guaranteed Retirement Account tax cred-

its worth $800 per taxpayer with no negative impact

on ederal revenues. However, i the Bush tax cuts are

made permanent and Alternative Minimum ax relie is

extended, a $600 tax credit would be closer to revenue

neutral over this period.


15/20


(including some public employee plans in Indiana and exas),

and what are known as non-nancial dened-contribution

accounts in our European countries (Italy, Latvia, Poland,

and Sweden). Te eachers Insurance Annuity and College

Retirement Equities Fund (IAA-CREF), the pension und

or university proessors, is the largest pension und in the

United States. Te IAA portion guarantees a 3% nominal

return, and the trustees have added a supplement every year

since 1948. 19

Hw G ap wh h ?Despite their well-documented problems, Congress ex-

panded the tax breaks or dened-contribution plans in

the Pension Protection Act o 2006, allowing individuals

to shelter up to $20,500 rom tax in a retirementaccount in 2007.20 While expanding tax breaks or dened-

contribution plans, Congress imposed additional burdens

on dened-benet pensions, with new unding rules that

make employer contributions more unpredictable. Mean-

while, participants have never been allowed to contribute

a single dollar to dened-benet pensions, let alone an

extra $20,000.

Tere is widespread concern among retirement

experts about many o the problems identied in this

paper, including the low savings and employer pension

coverage rates or moderate- and low-income workers,

alling Social Security replacement rates, and lopsided

tax incentives avoring highly compensated employees.

Likewise, the idea o a supplement to Social Security has

been around or a long time, including a Clinton admin-

istration initiative calling or the government to deposit

unds into Universal Savings Accounts (USAs) or low-

and moderate-income workers.

Te Guaranteed Retirement Accounts plan is similar

in some ways to proposals or mandatory workplace retire-

ment plans designed to ll gaps in the so-called second tier

above basic government plans like Social Security. Daniel

Halperin, economists Christian Weller, Dean Baker, and

Alicia Munnell, and the pension economists at the World

Bank have all made similar proposals.

Te GRA plan goes one step beyond many o these

proposals because it seeks to eliminate the ineective and re-

gressive tax expenditures or 401(k)-style plans and use these

unds to increase the retirement income o all workers. Te

plan covers all workers, not just those in low- and moderate-

income amilies, and includes mandatory employer and em-

ployee contributions, not just a government subsidy. While

ar reaching, the plan is also aordable, since it does not

worsen the ederal decit or require a tax increase.Te Guaranteed Retirement Account plan is also

more equitable and eective than proposals to raise the

retirement age or to close gaps in 401(k)s through auto-

matic enrollment and other measures.

Raising the retirement age

Advocates or postponing retirement are spread across the

political spectrumrom Barbara Butrica, Kevin Smith,

and Eugene Steuerle o the Urban Institute (Butrica et al.

2006) to David John o the Heritage Foundation (John2005). Meanwhile, most workers still retire beore the

current Social Security normal retirement age.21

Among the most inuential and liberal proponents o

this view are pension policy consultant John urner and

Alicia Munnell o Boston Colleges Center or Retirement

Research. Munnell believes that the government establishes

retirement age norms through Social Securitys Earliest

Eligibility Age and Normal Retirement Age, and that

these may also encourage age discrimination because rms

ear older workers will retire and are thereore less likely to

hire and train them.22 Both Munnell and urner believe

people tend to be shortsighted in planning or retirement

and thereore might benet i the government encouraged

them to retire later by, say, raising the Earliest Eligibility

Age (Munnell et al. 2004; Munnell 2006; urner 2007).

However, it is obvious that retirement-aged workers

value leisure time considerably, since they choose to orgo

huge monetary gains rom working longer. An Urban Insti-

tute study, or example, estimates that many workers would

increase their consumption in retirement by 25% i they

delayed retirement rom 62 to 67 (Butrica et al. 2004).

Tere is no convincing evidence most older people

can work longer just because they live longer. We do not

know i longevity is increasing because we are extending

the lives o rail adults or because we are healthier at older

ages, and we do not know how well matched older people

are to todays jobs. Since 1981, the share o older workers

reporting limitations in their ability to work has stayed


16/20


steady at about 15-18%. While the share o jobs demanding

physical eort is declining, especially or men, the share

requiring good eyesight or computer skills is increasing

(Johnson 2004).

Working longer is oten not a choice or workers who

develop health problems or are laid o late in their careers. According to a recent McKinsey & Company survey,

40% o workers are orced to retire earlier than they had

planned, with health, or the health o a amily member,

the reason cited or over hal o these early retirements.

Many others are orced to retire because o age discrimina-

tion, layos, and plant shutdowns (Rotenberg 2006).

Many older workers do not stay in their career jobs.

Instead o 60 being the new 50, it has become the

new 17, as older people re-enter the job market as retail

clerks or in other low-paid occupations. Elderly workers

over age 65 have jobs with less status than workers aged

55-64.23

Advocates o raising the retirement age, including

Alicia Munnell, are aware o the physical limitations older

blue-collar workers have, the changing nature o jobs,

and the existence o chronic age discrimination. Like us,

they want workers to get the jobs they want at all ages.

However, it is less likely that older workers will obtain

jobs on their own terms i their retirement income is

more insecure.

Guaranteed Retirement Accounts encourage healthy

and happy workers to postpone their retirement i they

want to, because participants earn retirement benets or

every hour they work. However, they also make it easier

or the majority o workers who need or want to retire

beore age 67 to do so by augmenting retirement incomes

without designating a ull benet age, and by allowing

workers to make supplemental contributions during their

working lives.

Auto 401(k) enrollmentWilliam Gale, Jonathan Gruber, and Peter Orszag o the

Hamilton Project (Gale et al. 2006) have proposed that

employers automatically enroll employees in individual

accounts, choose appropriate investments, roll unds over

when workers leave, and convert lump sums to annuities

upon retirementthough workers can opt out o any o

these deault choices.

Te authors also call or converting tax deductions

into reundable tax credits. Tis is the most important

but least discussed part o the proposal, probably because

it benets neither the nancial industry nor well-o

households.

Te Hamilton Project plan, i adopted in its entirety,would increase retirement savings and make the system

more equitable. But it retains many o the aws o our

current system: workers continue to bear the nancial

risk o dened-contribution plans and pay high ees to

private money managers; participation is not mandatory;

employers are not required to extend coverage or make

contributions; and workers can continue to access unds

or reasons other than retirement.

Tax credits targeting lower-incomeworkersMany experts, including Alicia Munnell and Daniel

Halperin, have given up on employers ever providing

meaningul pensions or lower paid workers. Munnell and

Halperin have called or the government to directly sub-

sidize the retirement o these workers and their spouses

by depositing $300 tax credits into USA-style accounts

(Munnell and Halperin 2005). Te tax credits would be

phased out or middle- and high-income workers, who

could instead take advantage o government matching

grants (also phased out with income) or existing tax

deductions or 401(k)-style accounts.

Munnell and Halperin do not require employers to

oer workplace retirement plans, though they propose

a patchwork o changes to the existing system intended

to expand coverage and make retirement income more

secure. Tis includes allowing pension plans to exclude

low-income workers who are eligible or the tax credits,

in the hopes that this would make it easier or employers

to provide retirement benets. Tus, the onus would be

on the government to und the retirement o lower paid

workers.

Te authors propose paying or the tax credits by

taxing pension und earnings. Existing tax expenditures

or commercial accounts remain untouched, despite the

problems with 401(k) planshigh ees, early withdrawals,

spotty contributions, and top-heavy benetsthat the

authors, among others, have documented.


17/20


18/20


eEmployment-based retirement plans are usually classied1.as dened-benet plans, dened-contribution plans, orhybrids (such as cash balance plans). Dened-benet pen-

sions provide retirees with a guaranteed income or as longas they live. Retirement benets are determined in advance,usually based on an employees years o service and theirinal average earnings in the years beore retirement.Private sector dened-benet pensions are guaranteed, upto a limit, by a ederal pension insurance program. Dened-contribution plans like 401(k)s are tax-advantaged savingsplans set up by employers. Tey were originally designedas add-ons to traditional dened-benet pensions, thoughnow they are oten the only retirement plan oered byemployers. Tese accounts are managed by participantsthemselves, who choose rom a number o investmentoptions, typically stock, bond, money market mutual

unds, or company stock. Instead o a monthly pensioncheck, participants typically get a lump sum when theyretire, the size o which depends on how much they setaside, how well their investments did, and whether theyborrowed or cashed out any o the money in their accounts.

Te Social Security earnings cap is currently $97,500 (in 2007).2.It changes annually to reect changes in average wages.

Data on pension coverage rates or American workers come3.rom dierent sources and no one source has consistentlymeasured coverage rates since the 1980s. One requentlycited source is the Employee Benets Research Institute(see, or example, Employee Benets Research Institute,

EBRI Data Book on Employee Benets, Washington, D.C.,1995; and Craig Copeland, EmploymentBased RetirementPlan Participation: Geographic Diferences and rends, 2005,EBRI Issue Brie, November 2006). For a discussion othe eect o dened contributions on coverage, see eresaGhilarducci, Te Changing Role o Employer Pensions: axExpenditures, Costs and Implications or Middle ClassElderly, presented to the Levy Economics Institute con-erence on Government Expenditures on the Elderly, April29-30, 2006; and Georey Sanzenbacher, Estimating Pen-sion Coverage Using Diferent Data Sets, Boston CollegeCenter or Retirement Research, August 2006.

Includes people looking or work. (Source: U.S. Census4.Bureau News, New Census Bureau Data Reveal More OlderWorkers, Homeowners, Non-English Speakers, September 12, 2007.)

Authors calculation, based on Burman et al. 2004.5.

Dened-benet plans oer older workers an exit out o the6.labor orce instead o joining the ranks o the unemployed.Tis makes a signicant dierence in wide swathes o theMidwest where steel and auto industries have retrenched

and 57-year-old displaced men cannot nd work.

White-collar workers tend to start work at older ages than7.blue-collar workers and retire laterboth groups obtainabout the same amount o retirement leisure, even though

educated workers, with higher socio-economic status, livelonger. (eresa Ghilarducci and Kevin Neuman, Te Dis-tribution o Early Retirement Leisure: Evidence rom theHRS, submitted to Journal o Aging Studies, February,2005.)

Authors calculations based on a 7.9% return or dened-8.benet plans versus a 7.1% return or dened-contribu-tion plans (Source: Alicia H. Munnell and Annika Sundn,Coming Up Short: Te Challenge o 401(k) Plans, Washing-ton, D.C.: Brookings Institution Press, 2004).

Tis was not always the case: in 1988, 87% o U.S. em-9.ployers paid all 401(k) administrative costs, compared to

about 25% today, according to Hewitt Associates (as citedin Hamilton et al. 2006).

Te Pension Benet Guarantee Corporation guarantees10.pension benets up to $49,500 a year.

According to David Madlands dissertation research at11.Georgetown University, based on the results o a poll o

workers conducted by the Rutgers University HeldrichCenter, most think workers should not shoulder most othe cost o unding retirement, and instead see employers,the government, or all three groups bearing the responsi-bility (David Madland,A Wink and a Handshake: Why theCollapse o the U.S. Pension System has Provoked Little Pro-

test, Dissertation, Georgetown University, 2007).

Contributions that are not immediately credited to the12.right account are not as big a problem or dened-benetplans as or dened-contribution plans (as long as errors areeventually xed), since benets are based on earnings andyears o service rather than investment returns. GuaranteedRetirement Accounts would also leave room or error, sincethe government only guarantees a 3% rate o return whilemaintaining a balancing und that would unction, in part,like Social Securitys suspense und.

In the public sector, workers may contribute to their pensions.13.

From the workers perspective, higher-paid workers may14.lose any uninsured portion o their pensions i an employer

with an underunded pension plan declares bankruptcy;and pension benets accrue unevenly over the course o a

workers career because the benet structure is back-loaded(penalizing mobile workers, among other things). Never-theless, dened-benet pensions are still a much moreeective way to accumulate retirement savings than 401(k)plans or most workers.


19/20


Authors calculations, based on Burman et al. 2004.15.

Te Guaranteed Retirement Account plan extends eligi-16.bility or the ull tax credit to individuals receiving unem-ployment benets and to caregivers o children under age six.Te ax Policy Centers simulation implicitly does not extendthe credit to caregivers or to individuals collecting unemploy-

ment insurance i the amily had no earned income in 2008.On the other hand, the ax Policy Center does extend thecredit to stay-at-home or retired spouses with no children un-der six i the other spouse had earned income.

Authors calculations, based on 2002 period lie table rom17.the Social Security Administration (http://www.ssa.gov/OAC/SAS/table4c6.html).

Dean Baker, J. Bradord DeLong, and Paul Krugman esti-18.mate that real S&P 500 returns going orward will be 4.5%(2 percentage points less than the historical average), basedon current dividend yields, current net stock buybacks,and long-run dividend growth (see Asset Returns and

Economic Growth, March 24, 2005). Real interest rateson long-term reasuries have averaged just under 3% since1870 (James A. Girola, Te Long-erm Real Interest Rate orSocial Security, U.S. reasury Department Research PaperNo. 2005-02, March 30, 2005) and are currently around2.4% (ination indexed 20-year reasuries, September 6,2007). Te return on Moodys AAA-rated bonds is cur-rently around 9 basis points higher than reasuriesor3.3% in real terms (http://www.ederalreserve.gov/releases/h15/20070911/). As an additional point o comparison,Canadas chie actuary estimates that the Canada PensionPlan, which is conservatively invested to avoid a changein the contribution rate, will earn a real rate o return o

4.2% over a 75-year projection period (http://www.cppib.ca/aqs.html).

Most years, IAAs nominal 3% guaranteed return is sig-19.nicantly lower than GDP growth, which has averaged 7%in the postwar period in nominal terms. Tus, GuaranteedRetirement Accounts have a guaranteed rate o return thatis higher than the IAA guaranteed rate. However, theactual IAA return has been much higher than its guar-anteed rate6.6 % over the past 10 years (or about 3.9%in real termsauthor). (IAA-CREF Web site, accessedFebruary 2, 2007: http://www.tiaa-cre.org/perormance/retirement/proles/tiaa_traditional_annuity.html.)

Te $20,500 limit applies to individuals age 50 and over,20.and will be adjusted or ination in subsequent years. Forthose under 50, the 2007 limit is $15,500.

Te average retirement age is 63 or men and 62 or women.21.(Alicia H. Munnell, Anthony Webb, and Luke Delorme,

A New National Retirement Index, Center or RetirementResearch Issue in Brie #48, June 2006.)

John urner argues that older Americans are healthier at22.older ages by combining two sources o evidencethe

mixed evidence that older people are healthier than theywere in the past (people smoke less but they have greaterincidences o diabetes), the decline in reported disabilityclaims, and increased lie expectancy at 65as evidence ortodays older workers being healthier than previous genera-tions (urner 2007).

Tey are less likely to be in occupations classied as execu-23. tive, proessional, or technician and more likely to bein sales and service occupations. (Sara E. Rix,Aging andWork: A View rom the United States, AARP Public PolicyInstitute Research Report, February 2004).

rBell, Elizabeth, Adam Carasso, and C. Eugene Steuerle. 2004.

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Retirees Happy?Boston College Center or Retirement ResearchIssue Brie #28. Boston, Mass.: Boston College.

Bosworth, Barry, and Lisa Bell. 2005. Te Decline in Saving:What Can We Learn From Survey Data? Unpublished drat.

Washington, D.C.: Te Brookings Institution, August 11.

Burman, Leonard E., William G. Gale, Matthew Hall, and

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Butrica, Barbara A., Howard M. Iams, and Karen E. Smith.

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Butrica, Barbara, Richard W. Johnson, Karen E. Smith, and C.

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Butrica, Barbara, Karen E. Smith, and C. Eugene Steuerle.

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