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 1.00 0.86

Source: Smith (2014).

Sources of Income, Individuals 65+, 2013

So-cial Se-cu-rity85%

Welfare

7%

Earnings2% Pensions

3%

Assets 3%

Bottom Quartile So-cial Se-cu-rity18%

Earn-ings44%

Pensions22%

As-sets14%

Other3%

Top Quartile

Mean Income = $6756 Mean Income = $78180Source: Poterba (2014).

Household Balance Sheets, 65-69, in 2008

Percentile SS Wealth

DB Wealth

Non-Retirement Financial Assets

IRAs & DC Plans

HomeEquity

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).

Labor Force Participation Rate, 65-69 Year Olds, 1963-2011

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

2011

10

15

20

25

30

35

40

45

Men

Women

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

Company A Company B Company C0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

38% 40%

50%

96%

85%

97%

Source: Choi, Laibson, Madrian, and Metrick (2004)

Before

After

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.