Olivia S. Mitchell

• James Li, Olivia S. Mitchell, Christina Zhu (Forthcoming), Suboptimal Investment and Information-Processing Frictions: Evidence from 529 College Savings Plans, Journal of Financial Literacy and Wellbeing. Abstract

  We use the 529 college savings plan setting to investigate whether and why households make suboptimal choices to invest in local assets. We estimate that 67% of open accounts between 2010 and 2020 were located suboptimally, due to the plans’ tax inefficiencies and high expenses. Over the accounts’ projected lifetimes, such investments yielded expected losses of 8% on average, or $15.6 billion in 2020 alone. We then investigate why suboptimal investment is so prevalent. Consistent with households’ lack of understanding of state-level tax benefits, we find that a meaningful proportion of households does not account for the potential tax benefits and costs of local versus nonlocal 529 investment. Household financial literacy and plan disclosure complexity appear to explain suboptimal investment patterns, which further supports the role of information-processing frictions. Our study presents novel evidence on individuals’ preferences for local assets and how information-processing frictions shape their investment decisions, reducing their financial well-being.

  Related
  Links

  NBER Working Paper 30848
• Stephen Dimmock, Roy Kouwenberg, Olivia S. Mitchell, Kim Peijnenberg (Forthcoming), Household Portfolio Underdiversification and Probability Weighting: Evidence from the Field.
• Abigail Hurwitz, Olivia S. Mitchell, Orly Sade (2021), Longevity Perceptions and Saving Decisions during the COVID-19 Outbreak: An Experimental Investigation, AEAP&P.
• Robert Clark, Annamaria Lusardi, Olivia S. Mitchell (2021), Financial Fragility during the COVID-19 Pandemic, AEAP&P.
• Raimond Maurer, Olivia S. Mitchell, Ralph Rogalla, Tatjana Schimetschek (2021), Optimal Social Security Claiming Behavior under Lump Sum Incentives: Theory and Evidence, Journal of Risk and Insurance, 88 (), pp. 5-27.
• Justine Hastings and Olivia S. Mitchell (2020), How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors, Journal of Pension Economics and Finance, 19 (1), pp. 1-20.
• Vanya Horneff, Raimond Maurer, Olivia S. Mitchell (2020), Putting the Pension Back in 401(k) Plans: Optimal Retirement Plan Design with Longevity Income Annuities, Journal of Banking and Finance.
• Raimond Maurer and Olivia S. Mitchell (2020), Older Peoples’ Willingness to Delay Social Security Claiming, Journal of Pension Economics and Finance.
• Daniel Gottlieb and Olivia S. Mitchell (2019), Narrow Framing and Long-Term Care Insurance, Journal of Risk and Insurance, 87 (4), pp. 861-893.
• Annamaria Lusardi, Olivia S. Mitchell, Noemi Oggero (2019), Debt and Financial Vulnerability on the Verge of Retirement, Journal of Money, Credit, and Banking, 52 (5), pp. 1005-1034.
• All Research from Olivia S. Mitchell »

Fall 2012: BEPP 250, Intermediate Microeconomics

Current Courses

• BEPP2020 - Consumer Financial Decision Making

  Research shows that many individuals are profoundly underinformed about important financial facts and financial products, which frequently lead them to make mistakes and lose money. Moreover, consumer finance comprises an enormous sector of the economy, including products like credit cards, student loans, mortgages, retail banking, insurance, and a wide variety of retirement savings vehicles and investment alternatives. Additionally, recent breakthroughs in the FinTech arena are integrating innovative approaches to help consumers. Though virtually all people use these products, many find financial decisions to be confusing and complex, rendering them susceptible to fraud and deception. As a result, government regulation plays a major role in these markets. This course intended for Penn undergraduates considers economic models of household decisions and examines evidence on how consumers are managing (and mismanaging) their finances. Although academic research has historically placed more attention on corporate finance, household finance is receiving a brighter spotlight now-- partly due to its role in the recent financial crisis. Thus the course is geared toward those seeking to take charge of their own financial futures, anyone interested in policy debates over consumer financial decision making, and future FinTech entrepreneurs.

  BEPP2020401 ( Syllabus )

  BEPP2020402 ( Syllabus )

• FNCE2020 - Consumer Financial Decision Making

  Research shows that many individuals are profoundly underinformed about important financial facts and financial products, which frequently lead them to make mistakes and lose money. Moreover, consumer finance comprises an enormous sector of the economy, including products like credit cards, student loans, mortgages, retail banking, insurance, and a wide variety of retirement savings vehicles and investment alternatives. Additionally, recent breakthroughs in the FinTech arena are integrating innovative approaches to help consumers. Though virtually all people use these products, many find financial decisions to be confusing and complex, rendering them susceptible to fraud and deception. As a result, government regulation plays a major role in these markets. This course intended for Penn undergraduates considers economic models of household decisions and examines evidence on how consumers are managing (and mismanaging) their finances. Although academic research has historically placed more attention on corporate finance, household finance is receiving a brighter spotlight now-- partly due to its role in the recent financial crisis. Thus the course is geared toward those seeking to take charge of their own financial futures, anyone interested in policy debates over consumer financial decision making, and future FinTech entrepreneurs.

  FNCE2020401 ( Syllabus )

  FNCE2020402 ( Syllabus )

Past Courses

• BEPP2020 - Con Fin Decision Making

  Research shows that many individuals are profoundly underinformed about important financial facts and financial products, which frequently lead them to make mistakes and lose money. Moreover, consumer finance comprises an enormous sector of the economy, including products like credit cards, student loans, mortgages, retail banking, insurance, and a wide variety of retirement savings vehicles and investment alternatives. Additionally, recent breakthroughs in the FinTech arena are integrating innovative approaches to help consumers. Though virtually all people use these products, many find financial decisions to be confusing and complex, rendering them susceptible to fraud and deception. As a result, government regulation plays a major role in these markets. This course intended for Penn undergraduates considers economic models of household decisions and examines evidence on how consumers are managing (and mismanaging) their finances. Although academic research has historically placed more attention on corporate finance, household finance is receiving a brighter spotlight now-- partly due to its role in the recent financial crisis. Thus the course is geared toward those seeking to take charge of their own financial futures, anyone interested in policy debates over consumer financial decision making, and future FinTech entrepreneurs.

• BEPP2990 - Independent Study

• BEPP3050 - Risk Management

  The last financial crisis and subsequent recession provide ample evidence that failure to properly manage risk can result in disaster. Individuals and firms confront risk in nearly all decisions they make. People face uncertainty in their choice of careers, spending and saving decisions, family choices and many other facets of life. Similarly, the value that firms create by designing and marketing good products is at risk from a variety of sources. The bankruptcy of a key supplier, sharp rise in cost of financing, destruction of an important asset, impact of global warming, or a liability suit can quickly squander the value created by firms. In extreme cases, risky outcomes can bankrupt a firm, as has happened recently to manufacturers of automobile parts and a variety of financial service firms. The events since the Global Financial Crisis also offer stark reminders that risk can impose significant6 costs on individuals, firms, governments, and society as a whole. This course explores how individuals and firms assess and evaluate risk, examines the tolls available to successfuly mange risk and discusses real-world phenomena that limit the desired amount of risk-sharing. Our focus is primarily on explaining the products and institutions that will serve you better when making decisions in your future careers and lives.

• BEPP3220 - Bus Insr & Est Plng

  This course presents an analysis of overall private wealth management. This includes planning for disposition of closely-held business interests; the impact of income taxes and other transfer costs on business interests and other assets; integration of life insurance, disability insurance, medical benefits, and long-term care insurance in the financial plan; planning for concentrated asset (e.g. common stock) positions, diversification techniques, and asset allocation strategies; distribution of retirement assets; lifetime giving and estate planning; and analysis of current developments in the creation, conservation, and distribution of estates. Attention also is given to various executive compensation techniques (including restricted stock and stock options) and planning for various employee benefits. The course also covers sophisticated charitable giving techniques and methods for financing educaton expenses. Reading consist of textbooks, case studies, and bulk pack articles.

• BEPP8050 - Risk Management

  The last financial crisis and subsequent recession provide ample evidence that failure to properly manage risk can result in disaster. Individuals and firms confront risk in nearly all decisions they make. People face uncertainty in their choice of careers, spending and saving decisions, family choices, and many other facets of life. Similarly, the value that firms create by designing and marketing good products is at risk from a variety of sources. The bankruptcy of a key supplier, sharp rise in cost of financing, destruction of an important asset, impact of global warming, or a liability suit can quickly squander the value created by firms. In extreme cases, risky outcomes can bankrupt a firm, as has happened recently to manufacturers of automobile parts and a variety of financial service firms. The events since the Global Financial Crisis also offer stark reminders that risk can impose significant costs on individuals, firms, governments, and societ6y as a whole. This course explores how individuals and firms assess and evaluate risk, examines the tools available to successfully manage risk, and discusses real-world phenomena that limit the desired amount of risk-sharing. Our focus is primarily on explaining the products and institutions that will serve you better when making decisisions in your future careers and lives.

• DEMG9999 - Independent Study

  Primarily for advanced students who work with individual instructors upon permission. Intended to go beyond existing graduate courses in the study of specific problems or theories or to provide work opportunities in areas not covered by existing courses.

• FNCE2020 - Con Fin Decision Making

  Research shows that many individuals are profoundly underinformed about important financial facts and financial products, which frequently lead them to make mistakes and lose money. Moreover, consumer finance comprises an enormous sector of the economy, including products like credit cards, student loans, mortgages, retail banking, insurance, and a wide variety of retirement savings vehicles and investment alternatives. Additionally, recent breakthroughs in the FinTech arena are integrating innovative approaches to help consumers. Though virtually all people use these products, many find financial decisions to be confusing and complex, rendering them susceptible to fraud and deception. As a result, government regulation plays a major role in these markets. This course intended for Penn undergraduates considers economic models of household decisions and examines evidence on how consumers are managing (and mismanaging) their finances. Although academic research has historically placed more attention on corporate finance, household finance is receiving a brighter spotlight now-- partly due to its role in the recent financial crisis. Thus the course is geared toward those seeking to take charge of their own financial futures, anyone interested in policy debates over consumer financial decision making, and future FinTech entrepreneurs.

Honors and Awards:

2024    CIO’s 2024 Lifetime Achievement Award – Chief Investment Officer

2023    Distinguished Fellow, American Economic Association

2023    Best Paper Award, Cherry Blossom Financial Literacy Conference, George Washington Univ., for “Household Investment in 529 College Savings Plans and Information Processing Frictions.”

2022    American Risk and Insurance Association Kulp-Wright Book Award for best 2022 book in risk management and insurance, Remaking Retirement: Debt in an Aging Economy.

2021    Top Women Economists, International Monetary Fund

2021    Robert C. Witt Best Paper Award in the Journal of Risk and Insurance, American Risk and Insurance Association, for “Narrow Framing and Long-Term Care Insurance.”

2019    FINRA Investor Education Foundation 2019 Ketchum Prize

2017     ICA Best Paper Award on Behavioral Aspects of Insurance.

2017    Robert C Witt Best Paper Award in the Journal of Risk and Insurance, American Risk and Insurance Association

2017    EBRI Lillywhite Award

2017, 2008       Roger F. Murray First Prize – Institute for Quantitative Research in Finance

2015      Top 10 Women Economists, World Economic Forum

2010    Retirement Income Industry Association Award for Achievement in Applied Retirement Research

2008    Carolyn Shaw Bell Award of the Committee on the Status of Women in the Economics Profession

2007    Fidelity Pyramid Research Institute Award

• The Ketchum Prize, 2019
• “Top 16 Powerhouse Female Economist”, 2019
• ICA Best Paper Award on Behavioral Aspects of Insurance Mathematics: Maurer, Raymond, Olivia S. Mitchell, Ralph Rogalla, and Tatjana Schimetschek. For their paper entitled “Optimal Social Security Claiming Behavior under Lump Sum Incentives: Theory and Evidence”, 2017
• Roger F. Murray First Prize - Institute for Quantitative Research in Finance, 2017
• EBRI Lillywhite Award, 2017
• Olivia Mitchell Named 2016 EBRI Lillywhite Award Winner, 2016
• CRAIN Top 100 Innovators, Disruptors, and Change-Makers in Business, 2016
• Top 10 Women Economists, World Economic Forum, 2015
• Investment Advisor Magazine “25 Most Influential People in 2011” and “50 Top Women in Wealth”, 2011
• Retirement Income Industry Association Award for Achievement in Applied Retirement Research, 2010
• Top 50 Women in Wealth, Wealth Management, 2010
• Roger F. Murray First Prize - Institute for Quantitative Research in Finance, 2008
• Roger F. Murray First Prize - Institute for Quantitative Research in Finance, 2008
• Carolyn Shaw Bell Award of the Committee on the Status of Women in the Economics Profession, 2008
• Fidelity Pyramid Research Institute Award, 2007
• Alexander von Humboldt-Stiftung Trans-Coop Program Research Award grant, 2005
• Premio Internazionale Dell'Istituto Nazionale Delle Assicurazioni, INA, Accademia Nazionale dei Lincei, Rome, Italy, 2003
• Paul A. Samuelson Award for Scholarly Writing on Lifelong Financial Security, TIAA-CREF, 1999
• 2022 American Risk and Insurance Association Kulp-Wright Book Award for best 2022 book in risk management and insurance, Remaking Retirement: Debt in an Aging Economy., 1970
• 2021 The Robert C. Witt Best Paper Award in the Journal of Risk and Insurance, American Risk and Insurance Association, 1970

• Olivia Mitchell to Receive CIO’s 2024 Lifetime Achievement Award, Chief Investment Officer - 11/13/2024 Description

  As part of the 2024 Industry Innovation Awards, CIO will celebrate Olivia Mitchell, professor of business economics and public policy, as well as insurance and risk management, at the Wharton School of the University of Pennsylvania, with a Lifetime Achievement Award in recognition of her contributions to the industry. Mitchell, whose titles also include International Foundation of Employee Benefit Plans professor, has spent more than 31 years at Penn and also serves as executive director of the Pension Research Council and as director of the Boettner Center on Pensions and Retirement Research there. In 2023, she was elected a distinguished fellow of the American Economic Association. The award will be presented on December 10 at CIO’s Industry Innovation Awards Dinner in New York City.

  The child of economists who attended high school in Lima, Peru, and Santiago, Chile, her college studies focused on development economics. However, in an early job, teaching at Cornell University, she was asked to teach a course on pensions and health insurers. Some time later, she was hired at Wharton to continue her focus on pensions and retirement security. She has stayed on that path. She has also developed a focus on financial literacy, the subject of many of her recent articles, and she launched an undergraduate course at Penn called “Consumer Financial Decision Making” to help students learn to navigate the financial issues of adulthood.

  Her research and experience make her a resource for policymakers seeking insights, ideas or recommendations. Her contribution to the national dialogue about retirement included her role as a member of President George W. Bush’s Commission to Strengthen Social Security more than 20 years ago. That bipartisan group advocated ways to reduce the growth rate of benefits, without cutting benefits. It also recommended allowing Social Security participants to set aside some part of the Social Security tax contribution into a personal account, an idea that seemingly would have some support today, and one she says would have been “a wash” for the system’s solvency. In her own words, “due to political opposition and also the fact that that year had 9/11, the plan was dead in the water.” More than 20 years later, Social Security is estimated to have to start reducing benefits payments in 2034, and Mitchell predicts a political compromise on reforming the system will not come until the country is “within a couple of months of cutting benefits.”

  Regarding pensions and longevity globally, Mitchell says the “workplace, workforce and employers are different today,” and new models are developing globally. However, she acknowledges that in an aging world, people likely are going to have to “work longer, save more and expect less.”

  CIO has presented the Lifetime Achievement Award since 2011 to individuals, including asset allocators, asset managers and now an academic, whose work in the pension and institutional investing business has protected and benefitted the investment resources of pension funds, endowments and foundations around the world. Past honorees received the recognition for different efforts and varied careers, but the one thing they share are the contributions each has made to the community of investors and to institutional asset ownership. As we will tonight, this award has always recognized people who helped train the up-and-coming talent in the industry, who have given time and attention to solving complex problems independently, providing service to the industry, and advancing important ideas. Previous winners have included (among others) Christopher Ailman, then CIO of the California State Teachers’ Retirement System; Walter Kress, CIO of EY; Robin Diamonte, then CIO of UTC, Thomas “Britt” Harris, then the CIO of the Teacher Retirement System of Texas; Mark Schmid, then the CIO of the University of Chicago; Ash Williams, the then-CIO and executive director of the Florida State Board of Administration; and Mansco Perry, the then CIO of the Minnesota State Board of Investment. We have honored people for their innovations—in investing and in operations—their determination and their contributions to the community of the world’s investors and those concerned about retirement policy. When reviewing the names that came up in our conversations this year, Mitchell was the choice.

  After more than 45 years of research and teaching about pensions, investor behavior and financial literacy, and amid her ongoing work as an educator and policy adviser, she makes time to highlight the work of others in the field and to work with global groups to promote healthy aging and continue studying the work of pension and benefits world.

• Boeing Workers Want the Pension Plan Restarted, Barrons - 10/24/2024 Description

  The striking machinists at Boeing have a big ask: They want the aerospace company to restart the defined-benefit pension plan that it froze a decade ago.

  Workers like pension plans because, unlike 401(k)s, employees typically aren’t expected to chip in their regular pay to fund them. But companies have been phasing out pensions ever since the 1980s. “Not too many new employees get defined-benefit pensions these days,” says David Zion, research analyst at Zion Research. That is because they are just too expensive.

  First begun in 1875 by the American Express Company, private-sector pension plans are more common in unionized jobs where people are more likely to stay with the same company for their entire career. They were structured to encourage staying put by offering significantly higher retirement benefits for those who did.

  But there was one big problem “Companies initially set these up and really didn’t have a good sense of how expensive they would become,” says Olivia Mitchell, a professor at the Wharton School of the University of Pennsylvania. “They didn’t contribute enough to make those plans viable for the long run.”

  General Motors infamously learned that the hard way in 2008, when its pension was underfunded by $13.6 billion. The high costs of pensions, as well as healthcare costs for retirees, were key factors contributing to its bankruptcy filing in 2009. “What you saw at GM was that a lot of these pension plans that were underfunded became unsustainable,” says Jane Jacobs, a partner in Tarter Krinsky & Drogin’s labor and employment practice.

  Boeing is facing a similar problem, with its pension plan underfunded by $5.4 billion in 2023. (Even though it stopped enrolling new workers in 2014, employees previously enrolled retained their accrued benefits.) Coupled with the increased wage demands from striking workers—who on Wednesday voted against a tentative deal to raise pay by 35% over four years —it’s a tough sell to bring it back. The aerospace company is also losing money, to the tune of about $8 billion for the first nine months of 2024, including a one-time charge of $5 billion in the third quarter. The company’s stock is down 40% this year, and the continuing strike isn’t helping its finances since it can’t build planes without workers.

  “Given the state of affairs in the company’s balance sheet, the ask for a defined benefit program restart would seem to be a non-starter on a number of levels,” Wolfe Research analyst Myles Walton wrote in a Wednesday note. Just 15% of private sector workers participated in defined-benefit pensions in 2023, down from 32% in 1992. The change started with a federal law in 1974 that set minimum standards for pension plans, from funding to vesting. 401(k)s started in the late 1970s, followed by new standards in the 1980s that required clear accounting of pension assets and liabilities on company balance sheets. Coupled with the trend of workers switching jobs more frequently, the stricter rules and higher costs associated with pensions led many companies to freeze their plans by preventing new employees from enrolling and limiting accruals from existing workers. Today, “employers are going to do everything they can never to get stuck in a defined benefit pension plan again,” notes Jacobs.

• You Might Not Need to Skip Retirement Savings to Pay Student Loans, Investopedia - 08/31/2024 Description

  Key Takeaways

  Employees can receive matching 401(k) contributions for making payments towards their student loan debt beginning this year.
  Employers and employees have to opt into this benefit, and it’s uncertain how many employers plan to offer it.
  In addition to helping workers with student debt save for retirement, the rule could free up money for other expenses.
  You may no longer have to choose between paying off student loans and saving for retirement.

  A provision in Secure 2.0, a retirement law that went into effect this year, allows workers to receive a retirement account match from their employer for making payments towards their student debt. The rule could help roughly a third of the about 42 million student loan borrowers who currently have retirement accounts. It is yet to be implemented widely, however, and it’s unclear how commonly offered it will be — though some experts say it could be attractive to employers looking to attract and and retain talent.

  How the 401(k) Match For Student Loan Payments Works

  Secure 2.0 “permits an employer to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to ‘qualified student loan payments.’”This is intended to help employees who had to choose between repaying student loans and making retirement contributions to their workplace plans, potentially missing out on matching contributions from their employer. Under the new rule, an employee may be eligible to receive the matching contribution stated in their retirement benefits even if they’re unable to meet their employer-sponsored plans’ matching requirements. Research from JPMorgan found that once student loan payments kicked in, one-quarter of borrowers reduced their average retirement contributions by a median of 2.7%. Among people making $55,000 or more, JPMorgan said, 401(k) balances were “significantly” higher for those who weren’t making student loan payments. Employer matches that offset loan repayments will likely help employees accumulate the same amount in retirement savings as they would’ve without the debt, researchers found.

  The ability to claim a match without making the required contributions could free up money that could be spent on other expenses, according to Olivia Mitchell, a professor at the University of Pennsylvania who has studied the benefit, while still building a cushion for retirement.

  Unlikely to Be Widely Offered — But Potentially Beneficial

  The offering could be attractive to potential employees, according to Mitchell. “Offering this benefit will cost employers more than they paid pre-reform, but the new benefit is likely to contribute to better employee attraction and retention, which of course helps save costs,” she said.

  Still, many believe it won’t be adopted quickly. In a 2024 survey from Alight, a retirement record-keeper, only 10% of 87 organizations said that they were likely to add this benefit. Nearly 40% reported that they were unsure if they’d ever offer it. “As to what the prevalence of this is going to be, that’s hard to say because the employer has to opt into this and then the employees have to as well,” said Mark Kantrowitz, financial aid expert and author of “How to Appeal for More College Financial Aid.” The IRS recently released guidance for employers on how the new provision works, detailing information on how employees can certify their student loan payments and what types of student loans and retirement plans qualify. Employees who want to receive the matching retirement plan contributions must certify certain information with their employer, such the loan payment amounts and dates of the payments, according to Kantrowitz. Katie Brewer, a CFP and founder of Your Richest Life, thinks it could be a few years before employers start offering the benefit. “We may see it popping up, but I don’t think it’s going to be immediate,” Brewer said.

• Retirees Grapple With 401(k) Choices, Wall Street Journal - 08/21/2024 Description

  It’s one of the major financial decisions confronting older workers:
  What should I do with my 401(k) plan once I retire? People typically have two options: They can roll over their retirement savings into an individual retirement account. Or, they can leave the money in their former employer’s plan. (Of course, they can
  always cash out, but this often is the least attractive path for people
  seeking to delay paying taxes and avoid potential penalties.) The decision needs to be considered carefully, given that there are
  important, but little appreciated, consequences that flow from each choice. A recent study I conducted with John Turner and Catherine Reilly covered some of the key considerations driving this decision. Here is a look at the advantages of each option…

• What I’ve Learned: Olivia S. Mitchell, Knowledge at Wharton - 08/06/2024 Description

  The die was cast early for Wharton professor of business economics and public policy Olivia S. Mitchell to become an economist. Both her parents were economists, and her father’s career as a diplomat brought her to several developing countries including Peru and Chile. Subliminal reinforcement came from the clock on the kitchen table with the words “Time is money.” That has guided her work over a career spanning more than four-and-a-half decades, especially in her role as executive director of Wharton’s Pension Research Council. In a conversation with Wharton Dean Erika James, Mitchell discusses her career path, her research, and how we can make better decisions about retirement, among other topics.

  This talk is part of the series “What I’ve Learned,” which puts the spotlight on Wharton faculty who have made a lasting impact on their fields. Watch the video for the full conversation or read an edited version of the transcript below.

• ERISA Advisory Council Explores Annuity Default Options in DC Plans, PLANSPONSOR - 07/08/2024 Description

  Experts at an ERISA Advisory Council hearing recommended that annuities should be part of a defined contribution plan’s default investments as a hedge against longevity risk.

  The council is a 15-member body that gives advice to the Department of Labor as needed. On Monday, the first of a three-day meeting, the council explored the possibility of making lifetime income options more prevalent as qualified default investment alternatives. In May, the council decided to host the meeting to further research QDIAs in DC plans and health insurance appeals processes. The council is chaired by Mayoung Nham, a principal at Slevin & Hart PC.

  Olivia Mitchell, a professor of insurance risk management and the executive director of the Pension Research Council at the Wharton School of the University of Pennsylvania, testified in favor of a specific default annuity structure in DC plans. She recommended that participants be defaulted into a product in which approximately 10% of their plan balance at age 65 is used to purchase a deferred annuity that does not begin to pay until they are about 80 or 85 years of age.

  Mitchell argued that a “default annuity, not for your entire nest egg, just 10% of your money,” balances several concerns. Since it would not begin to pay until the participant is older, it is more targeted to addressing longevity risk—the risk of outliving all savings. It would also address the fact that “financial decisionmaking and financial literacy often decline later in life,” because participants would need to do less to manage decumulation of their plan assets as they get older.

  She acknowledged to the council that this is a one-size-fits-all approach, but she said defaults should be simpler and will often take that form. A more tailored approach would be more expensive and complicated, and “employers might not have the time and money to do that much analysis,” but “if people want extra bells and whistles, that can be offered as well.”

  Michael Finke, a professor of wealth management at the American College of Financial Services, spoke more generally to the benefits of annuities as default options in DC plans. He explained that DC plans are very good at accumulating assets, but “not very good at getting the money out,” meaning it can be difficult for participants to budget from a pot of money. An annuity, however, provides them with regular income that is more easily budgeted.

  When retirees have a reliable income for life, Finke said that research shows they tend to spend more because there is “less need to be cautious,” since they cannot run out of savings. This effect can be dramatic, because retirees spend income more liberally than they spend savings.

  Adding to Mitchell’s point, Finke noted cognitive decline in old age, which can further aggravate the difficulty of budgeting from a pile of assets as opposed to monthly checks.

  Lastly, Finke acknowledged that annuities can be complicated, and “people don’t really understand what they are.” He briefly recommended that the council explore additional disclosures that could help explain annuities to participants using them and added that putting the contracts in plans could protect participants from buying lower-quality annuities in retail markets out of ignorance, since plan fiduciaries are better situated to choose safer products.

  Federal legislation pending since June 2023, the Lifetime Income for Employees Act, would make it easier to use annuities as a default option as long as no more than 50% of participant contributions were invested into one. Annuities are not banned, per se, as defaults, but DOL regulations require QDIAs to be available for withdrawal every three months, a requirement that most annuities cannot satisfy. The bill would remove this requirement for annuities, provided they comply with the 50% limit.

  The council will host additional experts on Tuesday and Wednesday to further discuss QDIAs and health insurance appeals.

• Paying off a student loan? Your company could match that money in your 401(k), Yahoo Finance - 06/15/2024 Description

  Student loan borrowers stressed over choosing between paring down student loan debt and saving for retirement just got some relief. If you work for an employer that offers a 401(k), 403(b), or similar workplace plan, there’s a new option rolling out this year that can help you save for retirement and pay off student loans in one fell swoop. Employers can now consider student loan payments as qualifying contributions toward retirement plan matching programs thanks to the Secure 2.0 Act, which included a package of retirement-related provisions aimed at ratcheting up savings. “The student debt retirement provision is particularly exciting as it directly addresses retirement savings — which is one of the top areas we see so many borrowers are forced to cut back on due to their student debt,” Jesse Moore, head of student debt at Fidelity Investments, told Yahoo Finance. It means that workers no longer need to choose — they can do both things at once.

• Secure 2.0 may help student borrowers more with loans than with retirement, study predicts, Financial Planning - 05/29/2024 Description

  Those two goals are often in conflict. Eighty-four percent of student borrowers say their loans have
  hurt their ability to save for retirement, researchers at Fidelity have found. And according to a study
  by Achieve, 30% of Americans with student debt have not saved for retirement at all.

  “Finding an appropriate balance between debt repayment and retirement savings … has proven to be
  quite the task,” said Priscilla Birt, lead financial planner at Donaldson Capital Management in Atlanta.
  “The struggle to figure out the most efficient approach has been paralyzing for a lot of young clients.”

  Secure 2.0 attempted to solve this problem with a novel solution: As workers pay off their student
  loans, their employers could match those payments with contributions to their retirement accounts.

  That measure took effect at the start of this year. At participating companies, student borrowers who
  are too cash-strapped to put money in their 401(k)s are receiving matching funds anyway. The
  intended benefit is twofold: Workers have a chance to pay off their debts, while also getting a head
  start on their retirement savings.

  Will it work? A new study provides an answer: Yes and no.

• When Tested, Most Students Lack Financial Literacy, New Study Finds, Forbes - 05/27/2024 Description

  College has changed over the past few decades. That’s something that should be clear, even to casual observer. Yet the majority of students still don’t have a grasp on basic financial matters, according to a recent research paper. The paper, titled Financial Literacy and Student Debt: Survey of College Students, found that overall the students surveyed did pretty badly in a six-question financial literacy test. The paper was authored by Hipolito Davila, and Jitka Hilliard, both from the department of finance at Auburn University, Alabama. The results of testing the students were disappointing, to say the least. Fewer than three-out-of-20 (14.5%) got all six questions correct. And less than half (46.2%) scored four correct answers, the research shows.

  The data comes from a survey of 31,000 students, primarily undergraduates, studying full time at a major public university in the South East U.S. What is perhaps even worse. Is that those most in need of financial savvy did even worse than those who had taken out zero student debt. Those with no student loans got an average of 3.1 questions correct. Those with loans got 2.6 question right, on average, the paper shows. Perhaps worse still is the lack of know-how from business studies students. They got an average of 3.0 questions correct, i.e half of the questions were right. Non business studies students did worse, getting 2.2 questions correct. The results showed.

• Why match student loan payments with 401(k) contributions?, Marketplace - 05/22/2024 Description

  Lately, employers have been using some tricks to sweeten the pot for their employees without actually increasing their paychecks. They’re doing things like offering flexible work arrangements, tweaking company cultures and, of course, attractive benefits. In that last category, some companies have been rolling out programs that let workers reduce their student loan debt burden today while saving for retirement tomorrow. Back in 2018, the medical device maker Abbott found many of its younger employees were facing a financial quandary. “Sometimes they have to make a choice: Pay school debt or save for retirement,” said Diego Martinez, Abbott’s vice president of benefits. He said student debt was preventing workers from paying into their 401(k) plans, which meant they were giving up on the company’s matching contribution. Abbott decided to make the contributions anyway, provided the employees were paying their loans. “The program that we created was the first of its kind, so we really had to pave our way,” Martinez said.
  Back then, that meant getting a special letter of permission from the IRS. But a new law taking effect this year allows any employer to offer retirement matching of student loan payments. “There’s certainly a lot of Americans with a lot of student loan debt who might be excited about this,” said Olivia Mitchell at the Wharton School. She co-authored new research on how this policy could play out for workers in the long run. Short answer: pretty well. “This policy would allow workers to consume more, actually to spend more out of their earnings by about 3% more prior to retirement,” she said. Still, a growing number of companies are starting to offer the match.
  “We’d been looking at student loan debt for a long time now,” said Marco Diaz, global head of benefits for News Corp. The firm rolled out loan matching this year. Diaz said it wasn’t just fresh-from-college new employees who took advantage. “We’re also getting parents of children who have taken on student loan as a parent, maybe for the second time in their life,” he said. Diaz said the program has convinced candidates to accept New Corp’s offers over competitors’.

• Annuities Let You Retire Early and Delay Social Security, News Max - 05/03/2024 Description

  All good financial professionals believe in the value of what they’re selling, whether it’s financial planning, mutual funds or managed accounts. Having sold annuities via my firm’s website for 25 years, I firmly believe well-chosen annuities are a superb tool for saving for retirement and generating guaranteed retirement income. But belief alone doesn’t mean much unless it is based on facts and analysis. Over the years, several in-depth studies by academics have made strong cases for the value of annuities.

  The latest is a 2023 paper, “Fixed and Variable Longevity Annuities in Defined Contribution Plans: Optimal Retirement Portfolios Taking Social Security into Account,” written by Wharton School professor of business economics and public policy Olivia S. Mitchell and Goethe University finance professors Vanya Horneff and Raimond Maurer.

  Delay claiming Social Security until 70: Wharton professor: “For most Americans, it is financially sensible to delay claiming Social Security until age 70, as this maximizes the retirement payments that they receive for the rest of their lives,” Mitchell writes. “Nonetheless, most people do not do this.”

  The paper is chock full of equations you’d need advanced math skills to grasp. Fortunately, she has written a reader-friendly summary. The case for delaying Social Security payments is compelling. If you start taking benefits at 62, you’ll get only 70% of the full monthly amount you’d receive at 66 or 67, depending on whether you were born before 1960 or not. At 70, you’ll get 124% of the full benefit. Most people would be better off if they had an annuity in their 401(k) account to produce the income that would allow them to defer Social Security payments, the professors write.

  Most employees, however, don’t have an annuity option in their 401(k). And many Americans don’t even have a 401(k). If you don’t have that choice, what can you do if you want to generate income that will let you bridge the gap and retire early without endangering your retirement by taking Social Security benefits prematurely?

  Here are three options, which aren’t mutually exclusive. One or more might work for you.
  • Use nonqualified savings to buy an immediate annuity. Income replacement doesn’t necessarily have to come from tapping a retirement plan if you have substantial savings elsewhere. A single premium immediate annuity is bought with a lump sum. Most buyers choose the lifetime income option, but you can instead choose a period certain income annuity that pays out for a certain number of years.

  For example, John Doe, age 62, retires and places $200,000 of nonqualified savings in an eight-year period certain immediate annuity and lists his wife as joint annuitant so that she will be protected and continue to receive any remaining payments if he dies before the eight years are up. He will know exactly how much guaranteed income he’ll get. And he’ll be protected against future declines in interest rates. If he were instead to use a money market fund, he’d get a decent income now but probably much less in the future when rates are likely to be lower. Based on current rates, as of late April 2024, Joe will receive $2,496.40 per month, including $2,083.33 in nontaxable return of principal and $413.07 of taxable interest. The two will total $239,654.40 over eight years. At 70, the annuity will be exhausted, but then he’ll start collecting Social Security and won’t need the annuity income.

  • Tapping an IRA to bridge the gap
  You may not have enough nonqualified savings to produce enough income to put off taking Social Security benefits. Or may not want to use those savings. You would then need to tap your qualified plan, such as a 401(k), IRA, Roth IRA or self-employed plan for the funds. Annuities work well as both traditional and Roth IRAs. At retirement, you can normally transfer funds tax-free from a 401(k) plan to an annuity IRA—a type of traditional IRA funded with an annuity. You can choose, for instance, an immediate annuity, either the period certain type described above, or a lifetime annuity. The former would provide more income over a set period; the latter would guarantee lifetime income. The advantage is that you can produce ample income but the disadvantage is that, with a traditional IRA annuity, all the distributions you’d receive are 100% taxable. Nevertheless, for some people, the ability to get much bigger Social Security benefits later on might be worth the tax hit now.

  Another good option for an IRA is a “CD-type annuity.” That’s not its official name, but it fits. It’s the insurance industry’s rough equivalent of a bank certificate of deposit because it pays a set interest rate for anywhere from two to ten years. This product, officially the fixed-rate deferred annuity or multi-year guaranteed annuity (MYGA) pays a robust rate. Depending on how long you’re willing to commit your money, you can now (as of March 2024) guarantee anywhere from 5.15% to 5.96% annually. Nearly all MYGAs let you withdraw interest without penalty and many let you take out 10% of the balance each year without penalty. You can use the withdrawals to provide income for an early retirement.

  • Roth IRA offers tax-free income
  The same annuity options are also good choices for a Roth IRA if you have one. Here, there’s a huge advantage: all withdrawals are completely tax-free! You just have to meet two rules: you must wait until age 59½ before taking money out and wait until you’ve owned the Roth account for at least five years. While a Roth IRA annuity can produce ample tax-free income, there is a downside. Most people prefer to let their Roth IRA money grow for as long as possible because it’s tax-free forever. But, for some people, it may be worth tapping into a Roth so that you can delay your benefits. Remember, the higher benefits will last for your lifetime.

  While delaying Social Security payments is the best choice for most, it isn’t the right choice for everyone. For instance, if you’re in poor health and don’t expect to live to an advanced age, normally it’s wise to start taking benefits as soon as possible.

  Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. He’s a nationally recognized annuity expert and prolific author. A free rate comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.

  _______________

  Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. He’s a nationally recognized annuity expert and prolific writer on retirement income. A free rate comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com -or by calling (800) 239-0356.

• Can you answer these 3 questions about your finances? The majority of US adults cannot, World Economic Forum - 04/24/2024 Description

  In the US, financial literacy is hovering at around 50%, according to an annual survey, with the EU also under-performing. The World Economic Forum’s Future of Global Fintech Research Initiative is exploring lessons learned from public-private efforts to advance financial literacy.. April is Financial Literacy Month in the US, so here’s the latest on why our understanding of money needs to improve – and how. Money is deeply influential in all our lives. It affects where we live, our education, our health, our careers, our romances, our families and our retirement – plus myriad other junctures along the way. Yet, while the world of finance is always growing and changing, it appears our grasp of it is not. Surveys reveal that significant numbers of US and EU adults are financially illiterate. One in-depth barometer of personal finance knowledge is 28 questions given annually to US adults, known as the P-Fin Index. The index explores eight functional areas across finance, such as earnings, savings, insuring and comprehending risk. Data from the 2024 index reveals how financial literacy in the US has hovered around 50% for eight consecutive years, with a 2% drop in the past two years. The results also show that Americans appear most comfortable with financial knowledge on borrowing, saving and consuming, and the least confident around comprehending financial risk.

  To better understand Americans’ financial literacy, Professor Annamaria Lusardi and Professor Olivia Mitchell designed three multiple-choice questions, known as the Big Three. You can test yourself on these, below, and find out the answers here:

  1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?

  2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, with the money in this account, would you be able to buy…

  3. Do you think the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund.

  In 2021, just under 30% of Americans answered all of them correctly. Even more concerning, points out Professor Lusardi in a Cambridge University paper, was the fact that this knowledge gap was compounded by a false sense of financial knowledge by survey respondents, who gave themselves an average rating of 5.1 out of 7. “These findings raise concerns that the gap between perception and reality can cause overconfidence when it comes to critical financial decision-making,” she said.

  The US is not alone in having a significant financial knowledge gap. In the European Union (EU) a quarter of respondents scored low for knowledge in the 2023 Eurobarometer survey on financial literacy, with 18% at a low level of financial literacy. “This first ever EU survey on financial literacy is a wake-up call for us and Member States,” said Mairead McGuinness, Commissioner for Financial Stability, Financial Services and the Capital Markets Union. “Together we need to do more to improve levels of financial literacy in the EU. Equipping people with the confidence and skills to make informed decisions about their money is in everyone’s interest.”

  Comprehension of financial risk is particularly low
  The world of money is changing significantly, so knowing how to benefit from financial markets while avoiding risk is very important. Yet, results from the P-Fin Index show that people’s comprehension of risk in the US has fallen further behind, sliding by 4% since 2017, to just 35% this year. This is a far-reaching problem, as not being alert to financial risk appears to span generations, as the chart below shows. Being able to navigate risk is crucial, especially as we live through one of the most dynamic chapters in the history of finance. Around 1 billion people could be using cryptocurrencies by 2028, Statista data shows, and revenues in the fintech industry could grow almost three times faster between now and 2028 than those in the traditional banking sector, according to McKinsey.

  The state of retirement fluency
  The global economy is also struggling, which directly impacts inflation levels and therefore risk for the general population. This year is expected to be “another tough year” with “sluggish global growth”, says António Guterres, the Secretary-General of the United Nations, in the latest World Economic Situation and Prospects 2024 report. And people are living longer than ever, which means the traditional retirement plan for nearly 2 billion people may need adjusting. By 2050, the proportion of the world’s population over 60 years will reach 22%, according to the World Health Organization (WHO). For this reason, the P-Fin Index included five questions specifically aimed at retirement fluency in the US for the first time this year.

  Retirement fluency
  Like any learning, understanding the ins and outs of mortgages, investments, risk profiles and other financial options takes time. But there are ways for people to develop their own financial toolkits.

  The P-Fin Index recommends financial education in primary and secondary schools. Denmark already has mandatory financial education for students ages 13-15, covering budgeting, saving, banking, consumer rights and more, while the UK has incorporated it into its national curriculum. These efforts are paying off: Denmark and the UK rank first and sixth, respectively, in financial literacy worldwide, according to Standard & Poor’s Ratings Services Global Survey.

  Organizations can also step forward to orchestrate learning platforms, such as the work done by partners in the World Economic Forum’s Future of Global Fintech Research Initiative. They conducted a series of multi-stakeholder regional roundtables to explore lessons learned from ongoing and recent public-private efforts to advance literacy.

  Financial literacy is a journey with no end; as the world changes, so too must our knowledge. But embracing the ‘ABCs’ of money management today can help billions of people worldwide enhance their bank accounts – and in turn, their lives.

  World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

  The views expressed in this article are those of the author alone and not the World Economic Forum.

• Wharton experts on financial literacy, Penn Today - 04/24/2024 Description

  Wharton experts on financial literacy
  National Financial Literacy Awareness month is observed in April, and Wharton faculty have taken the opportunity to showcase their research in financial literacy, its importance, and current initiatives for innovation. “Ripple Effect,” the Wharton School’s faculty research podcast, features four installments that cover topics from high schoolers’ financial literacy and household debt to AI’s role in finance. In “How a Philly financial literacy course is helping underserved high school students,” Wharton’s David Musto, Ronald O. Perelman Professor in Finance and director of the Stevens Center for Innovation in Finance, discusses center programs that teach high school students about financial literacy, a process he says should start when people are young. “The course that I’m talking about is Essentials of Personal Finance. … It covers the whole range of financial issues that are relevant in their lives right now, like if you are working a check-out at a store, what is coming out of your paycheck and why? What does that get you? Where’s that going? And then student loans, which are coming up for a lot of these students right away. How do those work?” Musto asks. “It also covers some topics that are about being an educated voter. If people say the Social Security Trust Fund is running out, well, what is that? … When different candidates say different things about that, well, what do you like? What does that mean for you?”

  Musto and his class also address at the issue of financial literacy from the perspective of other cultures. “This is something that was inspired by a financial services provider who contacted the center saying, ‘I see you have English-language material, but I have potential clients who come from countries where they speak Spanish. They are adults. They do not know very much about our financial system because they just got here, and a lot of them have had negative experiences with the financial systems in the countries where they came from,” Musto explains. “So, material is aimed at that community, helping them plug into our financial system as soon as possible and not get ripped off, and to be able to send money back to their own countries.”

  In “Understanding how financial literacy affects household debt and bankruptcy,” Sasha Indarte, an assistant professor of finance, discusses her research into the effect of social safety net programs on household debt and creditworthiness, and bias in the bankruptcy process. “I have some ongoing research that tries to both document and understand the reason behind racial disparities and the access to the debt relief that bankruptcy provides,” Indarte says. “It’s really difficult to get at this, so we have to use a clever bit of econometrics in order to try to say something about bias. Now, the reason that it’s challenging is when you see a disparity, this could be due to unobserved variables that we’re not controlling for. For example, if Black filers have a greater risk of losing their jobs in the future, that could make it hard for them to complete some of the requirements in Chapter 13, and that might explain some of the disparities,” explains Indarte. “The crux of our approach to overcome this is we look at differences in the Black/white dismissal gap among Black decision-makers versus white decision-makers in the bankruptcy process. … The idea is when we do this differencing in comparing, we can net out these omitted factors, and what we’re left with is how these two groups make decisions differently.”

  In “How AI in finance impacts financial literacy,” Michael Roberts, the William H. Lawrence Professor of Finance, discusses whether generative AI can help improve financial literacy. It can, he argues, but the current models aren’t sophisticated enough to serve as standalone advisers. “AI is financially literate by any measure in practice. From that perspective, it’s impressive. But when you ask it questions such as just broad, open-ended questions like, ‘How should I save for retirement?’ ‘What should I invest in?’—and I’m sure there are regulations or restrictions on AI from becoming an unlicensed RIA (registered investment adviser)—it really doesn’t know where to begin,” says Roberts. “What’s critical is that I don’t see AI as just a panacea. I view it as a complement and an accelerant on our path towards financial literacy, whatever that may be, or financial proficiency. In other words, I think it’s going to be critical that people recognize that knowledge of finance and financial principles are not going to go away. They are going to be paramount in order to engage successfully with AI, wherever it may be in the future.”

  And in “Why is Financial Literacy Important?,” Professor Olivia Mitchell argues that it should be a lifelong education because economic factors change over time, including the amount needed for retirement. “We see financial literacy much like other kinds of education. It takes time to learn financial concepts and to apply them, and sometimes it takes money so that you can hire someone or take a course or what have you. These are the two components that are involved in investing in that college. Moreover, that knowledge can depreciate if you don’t use it over time. There are always new financial products on the market, adjustable-rate mortgages, and so forth, so that the knowledge base needs to be continually built throughout life,” Mitchell says. “It is definitely an educational process. Many employers are now offering financial literacy training at the workplace. Why? Because they understand that their workers are suffering financial stress due to debt.”

• Why Is Financial Literacy Important?, Knowledge at Wharton - 04/23/2024 Description

  Financial literacy should be a lifelong education because economic factors change over time, including the amount needed for retirement, says Wharton’s Olivia S. Mitchell. This episode is part of a series on “Financial Literacy.”
  What Is Financial Literacy and Where Is It Now?
  Dan Loney: Olivia Mitchell is professor of business economics and public policy as well as insurance and risk management here at the Wharton School. She’s also director of the Pension Research Council.

  Olivia, you and I have talked about financial literacy for many years now, and the concept is one that a lot of people maybe don’t truly understand. From your perspective, what encompasses financial literacy?

  Olivia S. Mitchell: Financial literacy is really a broad concept. But in particular, what we’ve been focused on is people’s ability to process economic information and to make informed decisions about things like saving, investment, and spending during retirement.

  Loney: There has been a gap in financial literacy for many years now. With all the attention now that is starting to come forward, with the research that you and others have done, is it getting better?

  Mitchell: I wish we could say things are getting better, and they may be a little bit at the margin. But we’ve been doing a number of studies of financial literacy across not only the U.S., but around the world, and there are still grave shortcomings in what people know and what people are able to do. I think there’s still much work to be done, as much as I hate to say it.

  Loney: How important is research as a driver to open more doors around financial literacy?

  Mitchell: I think the place to start is actually going back 20 years when a colleague of mine, Annamaria Lusardi, and I decided on a whim over dinner to discuss the possibility of surveying older people — people in their 50s and 60s — to find out how financially literate they were, and what impact that might have had on their saving, on their investment, and their retirement outcomes. To our shock and dismay, we found that people were sorely under informed. That one thing led to another, and now we’ve been doing financial literacy studies in over 80 countries, focusing on the young, the middle aged, retirees. There’s definitely much more that needs to be done for each of those groups.

  Early Education in Financial Literacy
  Loney: One of the areas we need to focus on is children and being able to incorporate financial literacy in their lives so that they are best prepared when they get through high school or college and get out to work. That seems to be one of the biggest challenges, although there are some states trying to do that right now.

  Mitchell: In fact, around 21 states, and Pennsylvania is the most recent, have mandated that high schools provide financial education as a mandatory course. I think that’s very much to the good. Of course there’s still details, and the devil’s always in those details, about who’s teaching the class. Is that person capable and understanding of the subject? What kinds of topics will the high school kids be interested in? Because while they might not be interested right away in retirement planning, they probably need to know about credit cards, student loans, and all the other topics that they’re going to confront right away on leaving high school.

  Loney: Many years ago, it used to be understanding a checking account and writing a check. Now, in this age of digital, we have so much at our fingertips through our smartphones and various apps.

  Mitchell: And a lot of young folks make many bad mistakes. There was a case recently of one app, which had gamified investment in the stock market, and it also made it possible for people to borrow on margin. These are kids. A young man had accumulated $100,000 in debt and committed suicide as a result. You cannot only make big financial mistakes, you can make big personal, lifetime mistakes unless you’re better informed these days than we were back in our youth.

  Loney: What are the greatest benefits to having that type of a framework in place when you think about individuals longer term?

  Mitchell: The key issue with financial literacy is that it’s an ongoing process. I myself started the so-called Bank of Mom when my children were little. The Bank of Mom was nothing more than a spreadsheet, and they would get 25 cents allowance. If they wanted more money, they would have to do chores. We’d add up the positive side, and we’d add up how much they had to spend, and if they didn’t have enough, they couldn’t spend it.

  This was a way to start edifying kids from a younger age about budgets. Later on, when it comes to high school, as I said, credit cards become paramount. My younger daughter, when she came to Wharton, was sent 20 credit cards in the first month and immediately got into financial trouble. We had to have a little session, cutting up the cards, and explaining interest, and so on. She’s done better since then, I’m happy to add.

  Subsequently, when people get into the workforce, they’re making a number of choices like, what should I put into my 401(k), what should I invest the money in? Again, there’s multiple teachable moments.

  Loney: The potential positive impact can be over a lifetime.

  Mitchell: Absolutely right. The reality is that we see the young people that have been educated in financial literacy, they incur less debt, they save more, they plan more for retirement, they understand better what the options are for investment. Now what we’re seeing is people, when they hit retirement age, are doing a better job making sure they don’t run out of money in old age.

  Loney: In your research, you’ve talked about financial literacy being an investment in human capital. Explain that a little bit.

  Mitchell: We see financial literacy much like other kinds of education. It takes time to learn financial concepts and to apply them, and sometimes it takes money so that you can hire someone or take a course or what have you. These are the two components that are involved in investing in that college. Moreover, that knowledge can depreciate if you don’t use it over time. There are always new financial products on the market, adjustable-rate mortgages, and so forth, so that the knowledge base needs to be continually built throughout life.

  It is definitely an educational process. Many employers are now offering financial literacy training at the workplace. Why? Because they understand that their workers are suffering financial stress due to debt. The debt folks are calling them up at work and hassling them for not paying their credit cards or what have you. This is something that really is in everybody’s best interest, to have a more productive and better-informed workforce.

  Loney: There are probably many instances of missed opportunities. You were mentioning before about retirement savings, but maybe some people don’t have a secure retirement because they don’t have the understanding.

  Mitchell: Indeed, most employers that have 401(k) plans or their equivalent in the nonprofit sector will pick what they call a default savings rate. That is, if the worker has no clue what to do, then the company will say, “All right, we’re going to have a default savings rate of 5% of your income.” The reality in this day and age is 5% is probably not enough. It probably ought to be at least three times that.

  It’s nice to have some guided advice from the employer, but if that savings target is too low, then the employee needs to have additional information to be able to say, “I might want to save a little more if I can, when I can. I might want to save enough to get the full match rate from the employer.” When I negotiated with my kids. I told them they had to save 25% of their paychecks when they started working, and we settled on 18%, which I felt was a huge success.

  Loney: When you’re talking about kids, what they can potentially save in their early time out in the workforce, when they don’t have a husband or a wife or a significant other, when they don’t have children — that’s the time to really get things started so that you can have that great base as you move forward.

  Mitchell: It’s particularly a challenge now that 50 million Americans have student loans. Many of them, in fact, are continuing to have to repay those loans through retirement. A total of 6% of Social Security recipients are still having their Social Security checks garnished for student loans. If you can set people’s feet on the right path early on, don’t get them involved in pay day loans, or only paying the minimum on the credit card, or buy now, pay later is a very popular phenomenon. All those things reflect a misunderstanding of financial literacy, about the consequence of not saving enough and living within your means.

  Long-term Benefits of Financial Literacy and Why It’s Important
  Loney: You’ve also done some research looking at the difference that having financial literacy education can have long term.

  Mitchell: Absolutely. For example, if you don’t understand interest rates, and heaven knows that’s been in the news a lot lately, they won’t refinance their loans when interest rates go down, or they pay too much for borrowing, or they fail to insure themselves against living a very long time. If you’re going to retire at 60 and live to 100, and mark my words, a lot of us will, that’s a whole long time to try to live on your savings if you haven’t concentrated on it properly early in life.

  Loney: Is this something that plays out in many countries around the world as well?

  Mitchell: Absolutely. To date, about 80 countries have now set up national programs around financial literacy. Finland is interesting. Finland has launched a new national strategy for becoming the country with the highest financial literacy in the world by 2030. I wish we in this country would follow that shining example. But we are seeing progress, especially at the state level, and many employers are doing their part now to help people do a better job saving for retirement, investing, and by the way, not taking out their entire nest egg when they hit retirement, but rather helping retirees eke out their money over their lifetimes.

  Loney: What do you think are the most important components that either young adults or parents trying to help their children need to think about with financial literacy?

  Mitchell: I don’t know how it was in your family. In my family, finances were not discussed publicly. People’s incomes were always very private, and folks didn’t really talk about things like how much the rent was. I think there’s more we can do to be more transparent. For example, helping kids set budgets so that they understand how much something costs and how much work it takes to save, to be able to pay those costs.

  I worked through high school. I worked in college. Increasingly, the work experience is something that a lot of kids don’t have. And parents understandably protect their kids from working too much, or not getting their schoolwork done. But I find that just living in the work world early on is a really good way to start explaining and understanding how costly it is to live, how careful one has to be, and ultimately, the value of saving.

• US. Why Staying in Your 401(k) After Retirement Makes Sense, Pension Policy International - 04/16/2024 Description

  Many Americans heading into retirement confront a weighty question that doesn’t have an easy answer: Should they retain their savings in their 401(k) plans, move them to an Individual Retirement Account (IRA), or cash out and pay taxes (and perhaps penalties) on the assets withdrawn?A new research paper titled “The Pros and Cons of Remaining in a 401(k) Plan After Retirement” addresses this question, especially for “the vast majority of Americans who enter retirement with low or moderate levels of financial literacy.” The paper’s authors are Wharton professor of business economics and public policy Olivia S. Mitchell, who is also executive director of Wharton’s Pension Research Council; Catherine Reilly, a non-resident scholar at Georgetown University’s Center for Retirement Initiatives and Pension Research Council advisory board member, and John A. Turner, director of the Pension Policy Center in Washington, D.C.

  According to the authors, many retirees are better off keeping their savings in 401(k) plans instead of moving them to IRAs, especially lower-income people with limited financial literacy. Although IRAs can offer retirees more advice and distribution options compared to most 401(k)s, there are ways that 401(k) plans can bridge that gap.

  Rolling over to IRAs, however, “could be a sensible financial decision” for people whose employer plans charge high fees, the paper notes. Those tend to be small employer plans and thus they include relatively few people. Yet most people with low or moderate levels of financial literacy will do better financially by remaining in their employer 401(k) plans, the authors point out. One important reason is that 401(k) plans are more likely to provide retirees lower cost investment options, compared to IRA accounts, they explain.

  Mitchell believes that the paper’s findings are important at the present time: “Over 11,200 Americans are turning age 65 per day between 2024 and 2027, meaning that those who have not yet retired are likely contemplating retirement in the next few years,” she says. “And many of these have accumulated retirement assets in their 401(k) accounts, which they can either roll over into an IRA that they then must manage, or else retain the funds in their employer-based plan.”

  But choosing between 401(k) plans and IRAs isn’t the simplest of tasks. “This is a potentially costly moment, since few understand the costs and benefits of such rollovers,” Mitchell points out. “Our study examines who might be better off keeping their nest eggs in their employer-managed plans, so as to save money and benefit from the legal protections afforded by plan sponsors under the law.”

  After Retirement: 401(k)s or IRAs?
  The stakes in that challenge are large: Nearly two-thirds (64%) of private-sector employees (excluding agricultural workers, household workers, and the self-employed) have access to defined contribution (DC) plans, according to 2021 data from the Bureau of Labor Statistics. Employer-sponsored DC plans can use their institutional bargaining power to provide their plan participants with better investment and decumulation options than those available from many IRAs, the paper states, citing a report from the Institutional Retirement Income Council.

  “Our study examines who might be better off keeping their nest eggs in their employer-managed plan, so as to save money and benefit from the legal protections afforded by plan sponsors under the law.”— Olivia S. Mitchell

  Moreover, the key decisionmaker in selecting retirement plan investment and payout options is the employer offering the 401(k) plan, Mitchell notes. Typically the firm is advised by consultants who help in plan design, and sometimes employees have input through an investment or employee benefits committee, she adds. The analysis explores several key factors that retirees should consider when deciding where to park their savings. These include investment management and administrative fees, and how plan size impacts those fees. The plan participant’s level of financial literacy is also important, and whether they need financial advice when choosing between 401(k) plans and IRAs. The paper also delves into the major pros and cons of both IRAs and 401(k) plans. Finally, it explains how legislation and technology tools could help participants refine their choice technology.

  The authors conclude that, compared to 401(k) plans, IRAs can offer better access to advice, easier account consolidation, and greater flexibility of withdrawals. This is especially true when some employers do not encourage retirees to remain in the 401(k) plan after retirement, while IRA providers actively market their services. Even though most 401(k) plans are likely to charge retirees lower fees than IRAs, many people do roll their assets over to IRAs. In fact, Mitchell notes that just over half (54%) of retirees currently leave their retirement accounts with their former employers, with the remainder moving their money to IRAs, according to a 2021 survey.

  Participants in both IRAs and 401(k) plans must pay investment management, administrative, and advisory fees. The investment fees are typically lower for 401(k) investors than for IRA investors. One explanation for this is that large 401(k) plans can often access low-cost institutional share classes or commingled investment trusts (CITs) which are not available to retail investors.

  Relatively less information is available on 401(k) plan administrative fees, the paper notes; those fees cover asset custody, record keeping, and third-party administration. Many IRA providers do not charge administrative fees, preferring to earn their income from annual fees on the assets they manage. Low-cost robo-advisors are also available via online platforms. The majority of 401(k) participants are in large plans, which can benefit from economies of scale and so charge lower fees than small plans.

  Plan participants’ account balances and their degree of financial literacy should also influence their rollover decisions. The more financially literate can construct low-cost portfolios for themselves in IRAs, while the less financially literate will need IRA advice. In most cases, financially unsophisticated participants and those with low account balances are likely to be better off staying put in their employer plans instead of rolling over to IRAs. Moreover, under U.S. pension law, employers providing retirement plans have a fiduciary duty to provide investment options in participants’ best interests.

  Some plan sponsors may prefer that retirees remain in their employer-sponsored plans, to increase the size of the pool of investable funds, which may allow them to negotiate lower fees from retirement plan service providers.

  Legislative Support for 401(k)s
  Recent policy developments have made it easier for retirees to remain in their 401(k) plans, including safe harbors for offering annuities and regulatory guidance requiring that advisors and brokers act in clients’ best interest when considering a rollover from an employer’s plans to an IRA. Beginning in 2025, the Secure 2.0 Act will require companies with new 401(k) and 403(b) plans to automatically enroll their employees into these plans.

  Asset managers and others in the retirement planning value chain are also partnering with technology providers to help retirees retain their savings in their 401(k) plans. Those efforts, however, are a work in progress. The authors note that “both 401(k) plans and IRAs must evolve if they are to provide better options for participants in the decumulation phase of life.” They also recommended that defined contribution (DC) plans could incorporate longevity risk pooling to help retirees manage their payouts. This, they add, could enable many DC plans to adopt an attractive feature of defined benefit (DB) plans, while avoiding employer liability as well as funding and portability problems.

  Large investment managers like BlackRock are alive to the challenges retirees face. BlackRock chairman Larry Fink said in his recent 2024 letter to investors that “providing people what my parents built over time — a secure, well-earned retirement — is a much harder proposition than it was 30 years ago. And it’ll be a much harder proposition 30 years from now. People are living longer lives. They’ll need more money.”

  All considered, the study’s authors believe that, in the long run, “retaining assets in employer plans after retirement could usher in a new era of collectively managed investment solutions for retirees.” This approach would help plan sponsors “put the pension back” into DC plans, they add. “Ultimately, and most importantly, this could yield better outcomes, more retirement confidence, and greater security for retirees.”

• Olivia S. Mitchell on reducing longevity risk in retirement, BusinessThink - 04/14/2024 Description

  Rising life expectancy creates challenges for retirement planning, and Professor Olivia S. Mitchell says financial literacy needs to improve to help reduce longevity risks

  With population aging on the rise, important challenges must be addressed to help people avoid outliving their savings and other assets in retirement, according to one of the world’s foremost pension economists.

  A key obstacle to helping people prepare financially for retirement is their lack of financial literacy, as only one in three adults worldwide is financially literate, said Olivia S. Mitchell, IFEBP Professor of Insurance/Risk Management and Business Economics/Policy at The Wharton School of the University of Pennsylvania.

• Olivia S. Mitchell on reducing longevity risk in retirement, UNSW- BusinessThink - 04/14/2024 Description

  Rising life expectancy creates challenges for retirement planning, and Professor Olivia S. Mitchell says financial literacy needs to improve to help reduce longevity risks

  With population aging on the rise, important challenges must be addressed to help people avoid outliving their savings and other assets in retirement, according to one of the world’s foremost pension economists.

  A key obstacle to helping people prepare financially for retirement is their lack of financial literacy, as only one in three adults worldwide is financially literate, said Olivia S. Mitchell, IFEBP Professor of Insurance/Risk Management and Business Economics/Policy at The Wharton School of the University of Pennsylvania.

• 5 Biggest Regrets of Retirees (Hint: Claiming Social Security Too Early Is One of Them), The Globe and Mail - 03/30/2024 Description

  Wisdom is often built on the foundation of regret. People learn from their mistakes. Just as important, though, you can learn from other people’s mistakes. Abigail Hurwitz with the Hebrew University of Jerusalem and Olivia S. Mitchell with the University of Pennsylvania’s Wharton School sought to learn the financial regrets of older Americans. They interviewed 1,612 people, with the average age of the respondents being 71.4.

  Here are the five biggest regrets of retirees based on Hurwitz’s and Mitchell’s research.

  1. Not saving more
  The biggest regret by far for older Americans was not saving more. Over half (52%) of Hurwitz’s and Mitchell’s survey respondents expressed this regret. Why didn’t these older Americans save more earlier in their lives? The most common reason given (by 29% of respondents) was that they were living from day to day. Nearly as many (27%) said that they simply didn’t plan ahead.

  2. Not working longer
  Hurwitz and Mitchell asked older Americans, “If you could do it all over again, do you think you would have worked longer, stopped at about the same age, or stopped working sooner?” A total of 34% answered that they regretted not working longer. While this was a financial regret, there could be more to it than just money. A 2015 Bankers Life study found that 6 out of 10 retirees who continue working do so for non-financial reasons including staying mentally sharp and having a sense of purpose.

  3. Not buying long-term care insurance
  One-third of the survey respondents said that if they could do it all over again, they would buy long-term care (LTC) insurance, which helps cover the cost of long-term care and is less expensive the earlier it’s purchased. It probably shouldn’t be surprising that this was a top regret of seniors. The U.S. Department of Health and Human Services estimated that 49% of men and 64% of women turning 65 in 2022 would need significant long-term care.

  4. Not purchasing more lifetime income
  The survey found 26% of respondents regretted not purchasing more lifetime income through a retirement annuity. This number included those who had not bought annuities, and those who had but wished they had paid more in premiums to increase their lifetime payments. Women were more likely to regret not buying an annuity (64%, compared to 54% for men). As you might expect, wealthier individuals were less likely to regret not purchasing more lifetime income through an annuity.

  5. Claiming Social Security benefits too early
  Nearly one in five respondents (19%) regretted claiming Social Security retirement benefits too early. The older the respondents were, the more likely they were to express this regret. The Social Security Administration reduces benefits for those who collect before their full retirement age. Claiming benefits at the earliest age possible (62) can lower a monthly benefit by 30%. On the other hand, holding off until age 70 to claim can boost the monthly benefit received by 24%.

  What’s the best age to claim Social Security from a financial perspective? A 2022 study published by the National Bureau of Economic Research found that 90% of Americans would receive higher lifetime Social Security benefits by waiting until age 70 to collect.

  The $22,924 Social Security bonus most retirees completely overlook
  If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

• 4 Innovative Ways Women Can Supplement Their Paychecks and Grow Wealth in 2024, GoBankingRates - 03/25/2024 Description

  Women who wonder when they’ll finally reach parity with men in financial matters have seen progress in recent years, but it’s slow going. During the 2023 fourth quarter, the median weekly earnings for women amounted to 83.8% of the median earnings for men, according to the U.S. Bureau of Labor Statistics. That represented a slight improvement from 82.9% the previous year.

  Pay inequities don’t stop in retirement. The average Social Security check for women is more than $350 less per month than for men. Women also have much less saved up in 401(k)s and other retirement plans, according to research from T. Rowe Price.

• More high schools are requiring financial-literacy classes. The pandemic may have played a key role., MarketWatch - 03/09/2024 Description

  The number of high-school students required to receive personal-finance instruction before they graduate is about to increase substantially — and bleak early-pandemic memories could be one factor driving the surge, some financial-literacy experts say.

  “The pandemic really pulled the cover off the fact that so many Americans really had no financial resilience, and that really opened people’s eyes,” said Nan Morrison, the president and CEO of the Council for Economic Education.

  “The pandemic certainly hit harder financially in some communities than others,” she added. “And when you pass requirements, you get access for every child.”

  There are now 35 states — including new additions Florida and Pennsylvania — with current or forthcoming rules to make some personal-finance coursework part of high-school graduation requirements, according to a report by Morrison’s organization published last week.

  That marked a 12-state increase from 2022, when the organization’s biennial report counted 23 states with such mandates in place or slated to take effect. Between 2020 and 2022, just two states adopted requirements for personal-finance education.

  Twenty states currently require or are poised to require one semester of personal-finance instruction, the most recent report showed, up from nine states in 2022.

• More high schools are requiring financial-literacy classes. The pandemic may have played a key role., Market Watch - 03/09/2024 Description

  There are now 35 states — including new additions Florida and Pennsylvania — with current or forthcoming rules to make some personal-finance coursework part of high-school graduation requirements. The number of high-school students required to receive personal-finance instruction before they graduate is about to increase substantially — and bleak early-pandemic memories could be one factor driving the surge, some financial-literacy experts say. “The pandemic really pulled the cover off the fact that so many Americans really had no financial resilience, and that really opened people’s eyes,” said Nan Morrison, the president and CEO of the Council for Economic Education. “The pandemic certainly hit harder financially in some communities than others,” she added. “And when you pass requirements, you get access for every child.” There are now 35 states — including new additions Florida and Pennsylvania — with current or forthcoming rules to make some personal-finance coursework part of high-school graduation requirements, according to a report by Morrison’s organization published last week.

  That marked a 12-state increase from 2022, when the organization’s biennial report counted 23 states with such mandates in place or slated to take effect. Between 2020 and 2022, just two states adopted requirements for personal-finance education. Twenty states currently require or are poised to require one semester of personal-finance instruction, the most recent report showed, up from nine states in 2022. The policy push for personal-finance education continues to expand. In Washington, a bill that would require high schoolers to complete half a credit of financial education recently passed the state’s House of Representatives. In California, an organization is collecting signatures for a November ballot vote that would mandate that Golden State high schoolers take a one-semester personal-finance class. “It feels like the boulder has started to roll down the hill very quickly,” said Christopher Caltabiano, the Council for Economic Education’s chief program officer. To him, the main driver is the growing evidence that classroom instruction on finances helps students’ financial lives. As state lawmakers learn about new requirements, he added, there’s also a follow-the-leader element.

  But the pandemic’s impact played a role, even if a secondary one, Caltabiano said. Millions of people found themselves jobless in 2020 after stay-at-home orders ground many businesses to a halt, and the federal government churned out trillions in relief for families and businesses suddenly unable to pay bills. The government response included three rounds of stimulus checks, enhanced unemployment benefits and a lengthy pause on student-loan payments. “Everywhere we need this. COVID made it very clear around the world how unprepared people are to face shock,” said Annamaria Lusardi, a senior fellow at the Stanford Institute for Economic Policy Research who also teaches a financial-literacy class at Stanford. Lusardi’s research traces the line between financial literacy and financial “fragility” during times of sharp economic distress. After reviewing survey data from April 2020 and May 2020, Lusardi and her co-authors determined that people who scored higher on three questions about interest rates, inflation and stock diversification were more likely to say they could come up with $2,000 within the next month for an emergency. The pandemic didn’t create the need for more financial literacy, she said — rather, it made clear “the cost of financial illiteracy.” That’s not a knock on people who lack financial knowledge, Lusardi emphasized. “It’s because we don’t have it in the schools.” The need for more financial know-how predated the pandemic. Financial literacy was slipping for all demographics, but particularly for 18- to 34-year-olds, according to a 2019 study by the FINRA Investor Education Foundation, the educational arm of the government-authorized nonprofit that regulates the brokerage industry. When Pennsylvania state Sen. Chris Gebhard, a Republican, sponsored the bill to require a personal-finance course for high schoolers in the state, he wasn’t reacting to the pandemic’s economic strain, he said. He’s attempting to break the long-running pattern of too many people learning about money “by making the wrong financial decisions and learning by failing.” “I think there’s a better way to do that,” he said. Still, the pandemic underscored the public’s “perilous” financial conditions, he said, and that backdrop may have contributed to support for the bill. Gebhard’s proposal came to fruition as part of an omnibus education-policy bill passed in December. Starting in the 2026-2027 school year, the teens who are ninth graders in all Pennsylvania schools, not just public schools, will need one course in personal finance. The specifics will vary as school districts decide the curriculum, but Gebhard said the bill points to guidelines that discuss personal-finance fundamentals like budgeting, credit cards, investing and insurance. Students are entering a complex economy where it’s easy to make quick spending and investing decisions by tapping a smartphone, Gebhard said. “We wanted to give them the financial foundation on which they are going build their financial decisions.”

  As many other products did during the pandemic, financial-literacy classes may face supply-chain challenges. There aren’t enough educators who are sufficiently trained to teach personal finance, according to John Pelletier, the director of Champlain College’s Center for Financial Literacy. The center offers a class that instructs teachers on how to teach the topic. It’s common for teachers instructing on financial literacy to have certifications in other topics, including social studies, family and consumer science, business and math, he said. “If we have this mandated, we have got to make sure these educators get trained. That’s where I worry,” he said. “My fear is people might see this as a failure without training.” Indeed, “financial education is most effective when there is a rigorous curriculum, a specific course devoted to personal finance (rather than embedding these concepts into other classes), and trained teachers,” Lusardi and Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School, wrote in a journal article last fall. It’s also important to provide financial education after high school, including in college and workplaces, “because acquiring financial knowledge is a lifelong process and the crucial financial challenges vary by age,” they added. Last year, 1.7 million students went to high schools in states with a dedicated one-semester personal-finance course. That number is expected to climb to 6.4 million by 2028, according to projections in a December report authored by Pelletier.

  It’s no coincidence that the financial-literacy push intensified in the pandemic’s wake, the report noted. The good news is that teachers increasingly want to learn about financial literacy for their students and themselves, said Tim Ranzetta, a co-founder of Next Gen Personal Finance. The nonprofit’s services include teacher workshops and curricula at no cost to schools. In the last four years, more than 17,000 teachers have amassed over 430,000 hours of training and instruction through Next Gen’s certification courses, online modules and in-person workshops, he said. Teachers and students are a key part of the push for more financial literacy, he said. “Once you’ve learned this yourself, you become a believer,” he said.

• Wage Gap Statistics: The Numbers Behind Pay Disparity, Market Watch - 03/06/2024 Description

  Workplace norms in the 21st century have evolved significantly in the past few decades, from a greater emphasis on work-life balance to the rise of remote and hybrid work. Yet as much as the daily grind has progressed, the disparity between men’s and women’s wages persists, with women still earning 82% of what men earn, according to the U.S. Census Bureau. Women continue to make less than their male counterparts, despite varying sustained attempts to achieve wage parity. The research team at MarketWatch Guides analyzed various wage gap statistics across time, geographical locations, occupations, and education levels to explore the differences in how much men and women earn. A closer look at the parity between men’s and women’s pay reveals several key factors, many as subtle as they are complex. Read on to find out more about the continued pay disparity between women and men.

  Compare Wage Gap And Tax Differences. Equal Pay
  Key Findings
  • Utah has the largest wage gap of any state in the U.S., with women earning 73.1% of what men earn on average.
  • Women in Puerto Rico actually earn more, on average, than men. This is the only state or territory in the U.S. where this is true.
  • The gender wage gap shrank 38% between 1960 and 2022, but on average, women still earn 82% of what men earn.
  • The gender pay gap is most pronounced among people with less than a high school education compared to other levels of education.
  • Legal occupations have the largest wage gap of any job category. Community and social service jobs have the smallest wage gap.
  • Experts advise women to enhance their financial literacy by learning about tools such as high-yield savings accounts and CDs in order to move forward.
  • The Wage Gap Varies from State to State
  • The gender pay gap varies nationwide and among U.S. territories. Puerto Rico is the only state or territory where women make more than men. Conversely, women earn less than 75% of what men make in Utah.

  States With the Largest Pay Gap
  State Percentage Point Difference Between Mens and Women’s Pay
  Utah 36.75%
  Louisiana 33.78%
  Alabama 33.40%
  New Hampshire 32.82%
  Idaho 32.21%
  Kansas 30.13%
  Indiana 29.70%
  Mississippi 29.64%
  North Dakota 29.34%
  West Virginia 29.16%
  States With the Smallest Pay Gap
  State Percentage Point Difference Between Mens and Women’s Pay
  Puerto Rico -2.47%
  Vermont 11.97%
  California 13.34%
  New York 14.23%
  Nevada 15.46%
  Arizona 15.72%
  Oregon 16.51%
  New Mexico 16.90%
  Maryland 17.56%
  Connecticut 17.90%
  The Wage Gap Is Improving, But Inequality Persists
  Historically, men have long earned more, on average, than women. While the median wage for men has recently neared $65,000, women only achieved a $50,000 median wage for the first time in 2019. However, the wage gap has closed by 38 percentage points since 1960. Pinpointing the factors that influence the gender wage gap reveals several key potential sources. Entering the workforce, the wage parity between genders remains narrow, yet, as women age, the gap increases. Through the lenses of education, parenthood, occupation, economic conditions, race and ethnicity, and gender stereotypes, we can begin to understand the circumstances surrounding wage inequality. Despite a larger population of female college graduates, the wage gap between men and women of the same educational background endures. Parenthood can have a significant impact on wages for mothers and fathers. However, fathers tend to be more present in the workforce and earn more than women with or without children at home. Men and women often pursue varying careers based on personal and family needs. Women have certainly increased their presence among male-centric occupations (i.e., STEM, legal, and business). However, this doesn’t correlate to a corresponding retreat of women in positions where they tend to be overrepresented. Women were also slower to recover from recent recessions.

  In the face of prevailing gender stereotypes, women of various races and ethnicities fall along a wide spectrum of wage parity. Women who identified as white earned 83% of their white male counterparts in 2022, according to a Pew Research study, while black women earned 70% and Hispanic women made 65%. However, Asian women made 93% of the average white male’s salary, per the Pew study.

  Determining what weight to award each of these factors presents a monumental challenge. Men and women alike hold varying reasons for their career changes, professional pursuits, and individual reactions to the path life presents. As is historically evident, achieving wage parity between the sexes remains an ideal goal that continues to require a multi-faceted approach.

  The Wage Gap Also Varies by Education Level, Occupation
  Generally speaking, a higher level of education can translate to increased qualifications for higher-paying jobs. In addition, certain occupations tend to have a higher earnings potential than others. Let’s explore the wage gap between men and women of varying educational levels and occupations.

  Gender Wage Gap by Education Level

  The largest gender pay gap exists between men and women with less than a high school diploma. However, pursuing additional education after graduation only narrows the pay gap by less than 10%. Even between men and women with a graduate or professional degree, the wage gap spans over 40%.

  Gender Wage Gap by Occupation

  Among specific occupations, women are more likely to achieve wage parity in fields such as community and social services, liberal arts and media, healthcare, and social sciences. In professions traditionally held by men — such as legal, sales, transportation, management, and production — a strong gender wage disparity persists.

  Experts Discuss the Gender Pay Gap
  Participating in the workforce represents a single facet of how women contribute to their professional success and the well-being of others. Women often take on a caregiving role, whether through parenthood or by caring for an elderly relative. “In doing so, that means there are years in which we do not have personal income and are not building personal wealth,” said Helen Moser, senior lecturer infinance at the University of Minnesota. These trends can also impact women’s ability to save and invest. “Lower wages means less money for investment,” said Dr. Jenny Olson of Indiana University’s Kelley School of Business. A lack of financial literacy is another potential area of difficulty, but one that’s solvable, said Dr. Olivia Mitchell, professor of insurance/risk management and business economics/policy at the Wharton School of the University of Pennsylvania. “A goal would be for employers to offer more access and, when possible, encouragement to learn and implement important financial lessons during the worklife,” Mitchell said.
  Learning about the value of the best high-yield savings accounts and other financial tools can certainly propel women forward. However, Dr. Ting Levy, senior instructor of economics and a Division of Research associate in the College of Business at Florida Atlantic University, promotes a more direct approach. “Negotiate salaries and look for career advancement,” she urged. “Actively seek fair compensation and career growth opportunities.” Finding a mentor and building a strong network can also contribute to a narrower gender pay gap, she said.

  Moving Beyond Gendered Wages in the 21st Century
  As much as the gender pay gap has narrowed in the last 60 years, more work to achieve wage parity has yet to be done. Many modern employers actively encourage women to apply for higher-paying jobs. Yet raising awareness of the earnings disparity between men and women can engender efforts to continue to bring about changes, big and small. It is achievable for expertise and fitment to trump gender in qualifying and compensating candidates for any position.

• The obstacles making it harder for women to build wealth — and tips to succeed in spite of them, Market Watch - 03/05/2024 Description

  Women who feel like you’re behind in building wealth: You’re not alone. A 2022 report by WTW and the World Economic Forum found that upon retirement, women across the world are expected to have on average only 74% of the wealth that men have. Building wealth is often painted as a matter of personal choices. But while individual actions matter, putting the responsibility solely on the individual while ignoring the systemic inequalities that make it harder for women to build wealth is neither fair nor helpful. Does it really matter how you pinch the pennies in your checking account if the gender wage gap, credit gap, motherhood penalty and other big-picture issues cost you hundreds of thousands of dollars in your lifetime? The research team at MarketWatch Guides analyzed the differences in average earnings of men and women using data from the U.S. Census Bureau to explore the gender wage gap. We also looked at primary and secondary research surrounding other factors, such as credit score differences and the motherhood penalty, that make it more difficult for women to build wealth. Here’s what we found—and what you can do about it.

  Key findings
  On average, women earn 82% of what men earn in the U.S. Other studies have shown that the wage gap is even larger for women of color.
  The motherhood penalty and a tendency to have lower credit scores on average also make it more difficult for women to build wealth.
  Women live 5.8 years longer on average than men in the U.S., so they need to save more for retirement.

  Obstacles women face to building wealth
  While it’s certainly possible for women to build wealth — and indeed, many women who have successfully done so — there are several societal factors that make it harder for them. “Women are often at a disadvantage in the financial sector,” says Dr. Olivia S. Mitchell, professor of insurance/risk management and business economics/policy at the University of Pennsylvania. “Around the world, they tend to earn less, take time away from work to raise children and are found in occupations and industries which are less likely to offer access to retirement savings plans.”

  Here are some of the unique obstacles women face when it comes to building wealth:

  The Wage Gap
  One of the biggest barriers women face in building wealth is the gender wage gap. In 2022, the median wage of all female full-time, year-round workers was 82% of the median wage of all male full-time, year-round workers. In other words, the average woman earned only 82 cents for every dollar the average man did. Moreover, the wage gap was more pronounced in certain high-earning industries, such as the legal industry — where the median female wage was only 53.5% of the median male wage.

  Education also affected the gap. The median earnings of women with less than a high school degree was 66% of the earnings of a male at the same education level, while a woman who was a high school graduate or equivalent made 70.1% of what her male counterparts did.
  “This gap is often rooted in systemic issues like occupational segregation, gender bias in the workplace, and the undervaluing of roles traditionally held by women,” says Ting Levy, Ph.D., senior instructor of economics and a Division of Research associate in the College of Business at Florida Atlantic University. “Over a lifetime, this gap can lead to significantly less income, affecting savings, investments, and retirement funds.”

  Although the MarketWatch Guides analysis did not look at racial differences in the wage gap, a 2021 study by the Center for American Progress found that the wage gap was more pronounced for some women of color. For every dollar the average White, non-Hispanic man earned in 2020, a white, non-Hispanic woman earned 79 cents, a Black woman earned 64 cents and a Hispanic woman earned 57 cents.

  The U.S. has made significant progress in closing the wage gap since 1960, when the median female wage was only 60.7% of the median male wage. But it’s not enough, when lower wages impact almost every aspect of a woman’s finances — giving her less money to invest, less ability to pay back debts and lower Social Security benefits in retirement.

  The Motherhood Penalty
  Multiple studies show that for women, wages tend to fall sharply after giving birth and remain lower for long after that — the so-called “motherhood penalty.” This holds true even if the woman earned more than her partner prior to childbirth, a 2023 study shows. The study found that after childbirth, women were more likely to drop out of the labor force and less likely to switch to — or perhaps, have less success finding — a higher-paying job compared to their male counterparts.

  “Culturally, women are more likely to experience work disruptions for caregiving purposes,” says Dr. Jenny Olson, assistant professor of marketing at Indiana University’s Kelley School of Business.

  These disruptions can erode a woman’s wages, which in turn hinders her ability to save, invest or build wealth for the future. That lack of income continuity can be a major financial hurdle, says Dr. Melissa Williams, associate professor of organization & management at Emory University. “Women on average are more likely to experience breaks in their paid careers, sometimes because they’ve provided care for children and elders, or even because they’ve moved geographically to follow a partner’s career,” says Williams. “This can make it harder for women to grow a nest egg through savings, and even to max out Social Security benefits on retirement.”

  Lower Credit Scores
  A 2018 study by the Federal Reserve found that single women on average had lower credit scores and more negative factors in their credit history compared to single men. These findings were consistent even after controlling for age, education, race and income. (The study did not consider married men or women.) That’s not to say women necessarily use credit less responsibly than men. The study posits that external factors like economic circumstances, labor market experiences and different treatment by institutions may contribute to the gender gap in addition to personal factors like financial literacy levels or attitudes towards borrowing. Having lower credit scores could give women more difficulty being approved for loans or higher interest rates for loans they are approved for. For example, a 2016 study by the Urban Institute found that single women on average pay more for mortgages — a traditional path to building wealth in America — compared to single men or couples. They’re also more likely to be denied a loan.

  A Longer Retirement
  Although women face more obstacles in building wealth compared to men, they need to save more money for retirement. The average life expectancy for females is 5.8 years longer than the average male life expectancy, according to the Centers for Disease Control and Prevention. Women have a longer retirement and are “potentially more exposed to outliving their savings and becoming impoverished in later life,” says Mitchell. This is especially true if they outlive any caretakers whom they expected to care for them, or have difficulty finding reliable caretakers, says Dr. Ginnie Gardiner, clinical associate professor of finance at the University of Massachusetts Amherst.

  4 Steps Women Can Take To Build Wealth
  Although systemic inequalities can’t be fixed overnight or by one person, you can still build wealth in spite of them. We asked the experts we interviewed to provide some fundamental steps and strategies women can take to achieve greater financial health.

  1. Assess and regularly revisit your financial goals
  “The first step [to building wealth] is to assess your values and long-term goals,” says Olson. If you’re in a relationship, you should also communicate with your partner and make sure your goals and decisions are aligned. Once you know your goals, you can plot out how to achieve them. “Do you want to enjoy luxurious vacations in retirement? Do you want to help finance your children’s and grandchildren’s education? Do you want to donate a substantial amount to prosocial causes?” says Olson. Each of these goals will mean different priorities for the present and different paths for building wealth. It’s important to regularly revisit your goals, says Olson, as your life circumstances change. Checking in on your goals can also motivate you with a sense of progress or tell you if anything needs adjusting.

  2. Gain confidence through education
  Mitchell says her research shows a gap in financial literacy between women and men. For example, a smaller percentage of women aged 50+ were able to correctly answer basic questions about interest, risk diversification and inflation, compared to men. “This lack of financial literacy then translates into greater financial regret among older women,” Mitchell says. Other studies have found similar gender-based financial literacy gaps. However, a 2021 study found that one-third of the financial literacy gap can be explained by a lack of confidence, rather than objective knowledge. In other words, women may know less than men, but they also know more than they think they know. This takeaway was reflected in the 2024 MarketWatch Guides Joint Banking Survey. Among respondents, a far lower percentage of married women (18.2%) said they were the more financially savvy partner in their relationship than men (43.5%). However, a far higher percentage of married women (36.4%) in the survey said that they were the more disciplined partner in the relationship, although still a slightly lower percentage than married men (41.4%) who took the survey. There’s one thing that can fix the financial literacy gap: more financial education. Both Mitchell and Gardiner recommend increasing financial education among young people. But regardless of your age, shoring up on your financial knowledge will help you make more informed decisions and act with more confidence. If you’re reading this, you’re already on the right track.

  “It is easier today than ever to find information on building wealth,” says Helen Moser, senior lecturer in finance at the University of Minnesota. “There are free financial help books available, and there are so many vehicles for saving that are easier to access than in the past.”

  Natalya Bikmetova, assistant professor of finance at Hofstra University, says that women can learn valuable financial information from others, in addition to books, courses and educational resources. “As a professor, I found networking and mentorship to be particularly useful to build confidence and empower [women],” she says. “It is vital to seek advice and mentorship and to share your expertise with fellow females as well to create a productive environment and grow your network.”

  3. Invest more frequently and more confidently
  The stock market is one of the best pathways to building long-term wealth, but women are missing out. A 2021 report by Fidelity Investments found that only 67% of women were investing outside of retirement in 2021 and only 33% said they felt confident in their ability to make investment decisions. Furthermore, only 47% of the women surveyed said that, if given $25,000 to invest in the stock market, they would know what steps to take and do so. Despite this confidence gap that keeps more women from investing, Fidelity found that women investors actually outperformed their male counterparts by 0.4%. “Women tend to report lower financial confidence (on average) than men, which may prevent them from taking informed action,” says Olson. “While being cautious can be a good thing, so is taking calculated risk to maximize returns.” What does that mean for you? Invest early and invest whatever you can. High-yield savings accounts and CDs are good low-risk ways to grow your money, but don’t skip the stock market. And, while research is important, don’t feel like you need to wait until you’re a stock market expert before doing anything. Fidelity found that 69% of women surveyed wished they had started investing their extra savings earlier. Even if you start with a few dollars each month invested into an ETF or a robo-advisor account, getting into the habit of investing your extra savings will help you gain confidence and build wealth over the long term.

  4. Prepare for old age now
  More women should be aware of longevity risk, or the risk of living longer than expected in retirement, says Mitchell. “People have a general notion of the average life expectancy for someone like themselves, but they woefully underestimate the chance they could live long enough to run out of money in old age,” Mitchell explains. This is especially true for women, who live longer on average than men. Women who are financially dependent on another person, whether by choice or by circumstance, are at especially high risk of financial difficulty if their provider leaves them in death or divorce, says Gardiner. She recommends that women who enter into a relationship where money is commingled should take steps to ensure they have sufficient financial independence. “This could mean a separate bank account, prenup, safe deposit, box, life insurance, [or] joint ownership of assets,” she says. As for outliving one’s own savings, Mitchell says a good way to prevent this scenario is to start planning for it early. “Given the fact that longer-lived women are quite likely to experience health problems — including dementia — at older ages, making provision for one’s old age early in life is critically important,” she says. This could mean choosing to invest more money in your retirement accounts or exploring options like long-term care insurance or longevity insurance.

  Final Thoughts
  While many of the systemic obstacles women face in the financial sphere can’t be fixed overnight, there are still things you personally can do right now to improve your financial health and build wealth. Keep learning about the intricacies of personal finance, start investing if you haven’t already and get strategic about your financial goals are how you plan to achieve them. Remember: Research has shown that you likely know more than you think you do. And if there’s anything you don’t know, well — that’s what we’re here for.

  Methodology
  In order to provide an accurate picture of the state of gender and wages in the U.S. and effective advice to women for building wealth, we at the MarketWatch Guides team conducted a comprehensive study. This study included research into U.S. Census data and conversations with experts in the fields of finance and sociological studies.
  The data we used include:

  U.S. Census Bureau, Current Population Survey, 1961 to 2022 Annual Social and Economic Supplements (CPS ASEC)
  2022 American Community Survey, U.S. Census, Median Earnings in the Past 12 Months (in 2022 Inflation-Adjusted Dollars) of Workers by Sex

• What Companies Owe Retirees, The Atlantic - 02/20/2024 Description

  IBM’s new pension program may not change the game for workers. But it raises big questions about what companies owe their employees, and how existing retirement structures could better serve them.

  A One-Off?
  In the heyday of the private-sector pension, CDs were just starting to appear on shelves, Prince Charles was courting Lady Diana Spencer, and perms were ubiquitous. Defined-benefit pension plans—with those regular payment checks that Americans typically think of when they think pensions—were widespread across a range of corporations in the 1980s. Now only a very small slice of nongovernment employees retires with such a pension. So when I read that IBM was offering a version of a defined-benefit pension for its employees, I wondered: After decades of retreat, were pensions back in a big way? Not so fast, experts told me. “The news about IBM is more or less a one-off,” Olivia Mitchell, a professor at the Wharton School of the University of Pennsylvania and the executive director of its Pension Research Council, explained. That’s because IBM’s latest move may be more of a cost-saving tactic than it is a marker of the company’s changing philosophy on retirement savings.

  IBM is in a specific boat—the company has a tranche of money saved from its old pension fund that can be spent only on retirement benefits, Jean-Pierre Aubry, the associate director of state and local research at the Center for Retirement Research at Boston College, told me. “This is really just a financial maneuver to get a pot of money that they can’t access in any other way than to provide benefits,” he explained; very few other companies have such bloated trusts lying around. The new approach unlocked billions in funds, and IBM’s shareholders are expected to benefit, given that the firm probably won’t be spending on 401(k) contributions for at least several years. (Aubry said he wouldn’t be shocked to see the company return to such a plan when the pension fund runs out.) Pensions can make a big difference for workers who otherwise aren’t saving for retirement, ensuring that even those who didn’t actively stash away money in a 401(k) or similar fund will receive some money after they stop working. But over the decades, as the workforce has become more mobile—and as employers balked more and more at the high cost of paying out monthly checks to retired workers—defined-contribution plans such as 401(k)s became the norm. Such plans shift the responsibility of saving for retirement from the company to the employee—if an employee doesn’t contribute to their 401(k), then a company generally won’t contribute to their savings in turn.

  But at IBM in particular, it’s unclear whether a return to pension plans will be a game changer for employees: 97 percent of its workers apparently already had a 401(k) plan set up, and the company automatically enrolled workers unless they opted out. “It’s closer to a wash,” Mitchell explained, noting that some workers might actually save less for retirement under this new system. As Jeff Sommer wrote in The New York Times earlier this month, “What [IBM] is doing now is no simple return to the classic cradle-to-grave benefits system. In fact, IBM’s new pension plan isn’t nearly as generous to long-tenured employees compared with its predecessor.” A spokesperson for IBM wrote in an email that its new retirement benefit account “adds a stable and predictable benefit that diversifies a retirement portfolio and provides employees greater flexibility and options,” adding that employees can opt to keep contributing to 401(k) accounts if they want to.

  Defined-benefit pension plans have long been idealized, and understandably so. Though pricey for companies, pensions offer an enticing upside for employees: Workers can expect to receive regular checks during their retirement, no contributions required, and they don’t have to shoulder the financial risk of investing. Reviving pension plans was a key demand in UAW strikes over the summer (one that did not end up in its contracts with carmakers), and the promise of a pension is a major appeal of public-sector jobs, most of which still offer the benefit. But in many ways, experts told me, pensions are not a perfect fit for today’s workforce: 401(k) plans are “much more egalitarian,” Mitchell argued. “If you contribute, you get something.” With pensions, by contrast, if you leave the workforce during your working years, you may not get much from a pension plan. Many workers are also just not that interested in pensions, Mitchell said, some of which required them to spend their entire career at a single company to reap the benefits. And a company may not want to pressure workers to stay at the firm when they want to move on.

  Aubry told me that IBM’s new plan has further opened up conversations in his field around how American workers are saving for retirement, and how the 401(k) system can be improved to include some of the pros of the pension system. Could more companies automatically opt in workers, for example, ensuring that everyone is stashing something away? As things stand now, he said, the people who tend to invest money in 401(k) plans are those who are already relatively wealthy, and there are gender and racial gaps in who saves for retirement. Only about half of private-sector workers are participating in any sort of retirement plan at all. Mitchell and other experts are also interested in what actually happens to people’s money once they retire. Receiving a lump sum of retirement funds after decades of saving can be overwhelming to those who might stress about spending it too fast, and tempting to those who want to make big purchases. She has advocated for the annuitization of 401(k) plans, so that people get checks in the mail each month, rather than a chunk of cash at the end of their career. Even if 401(k) plans are not there yet, Mitchell said, they “can become the best of both worlds.”

• How Annuities Can Enhance Retirement, Nasdaq.com - 02/15/2024 Description

  Having a steady source of income during retirement is a universal goal. According to a new research paper from Wharton, investors should consider a deferred income annuity product in their retirement accounts as this has shown to improve welfare for all groups when accounting for sex and education level. Optimally, Americans would wait until they turn 70 before starting to receive Social Security payments, as it would lead to the biggest monthly check. Yet, most don’t for various reasons including a need for additional income, not wanting to work till this advanced age, and failure to plan properly. One potential solution is a deferred income annuity which would allow prospective retirees to bridge the gap and create extra income in their 60s. This would increase the chances that they would be able to not claim benefits till age 70 and maximize income from Social Security.

  These findings are especially relevant following the passage of the SECURE 2.0 Act in December 2022 which was created so employers would offer some sort of lifetime income payment option in 401(k) plans. The paper adds that options should also include a variable deferred income annuity with equity exposure in addition to fixed annuities.

  Finsum: Ideally, retirees would be able to put off receiving Social Security payments until they are 70. One way to increase the odds of this are to include annuities in retirement plans to create income during interim years.

• A rude awakening: Lack of financial literacy hurts the young. What about older people?, MSN.com - 01/15/2024 Description

  A rude awakening: Lack of financial literacy hurts the young. What about older people?
  We often hear how teens and young adults lack financial literacy. They may not understand investment concepts such as the power of compounding or the importance of diversification. With age comes wisdom, right? Not necessarily. Many older people — from mid-career professionals to retirees — grasp the basics of spending, saving and investing. But just because you’re 50 or 70 doesn’t mean you’re financially literate. “We need financial literacy throughout our lives,” said Genevieve Waterman, director of corporate partnerships and engagement at the National Council on Aging in Arlington, Va.

  Pre-retirees face myriad challenges in managing their money. Retirement planning requires a deep dive into taxes (when and how much income to defer), Social Security (when to apply) and Medicare (what it covers — and doesn’t cover). Medicare enrollees might assume it will cover almost all their healthcare for life, Waterman said. But Medicare doesn’t include long-term care, most dental care and other common needs. Selecting an annuity also tests your financial savvy. Insurers keep rolling out new annuity products with a complex web of fees, policy provisions and surrender charges. It’s tough for even a diligent, intelligent shopper to sift through all the permutations.

  How to spot and protect yourself against common financial scams
  To address knowledge gaps among today’s teens, there’s talk of expanding financial literacy courses in high schools and colleges. But it’s trickier to design and deliver educational programs for older people. “Financial education targets young people as if once you get it, you’re set for life,” said Cindy Cox-Roman, president and chief executive of HelpAge USA, a Washington, D.C.-based nonprofit group. “In fact, people have a need for lifelong learning. Behaviors, circumstances and needs change over time.” Older folks may benefit from courses that teach them how to spot scams, fund their retirement and pay down debt. In terms of managing debt, for example, they can learn how to leverage home equity to cover future healthcare and other expenses.

  Speaking of debt, many parents (and grandparents) agree to co-sign for a family member’s student loan. Yet they may not realize the long-term consequences of backstopping a child’s tuition. For the youngest baby boomers, born in the late 1950s and early 1960s, financial literacy is paramount. They’re the first generation for which a traditional pension wasn’t the norm. Instead, many self-fund their retirement through a 401(k) or other deferred-contribution plan.“A rude awakening people have is they put money into a 401(k) and now they have to pay taxes on that money when they take it out in retirement,” Cox-Roman said. As you approach retirement, here are two ways to burnish your financial knowledge:
  1. Read and take notes: When you read articles or books about personal finance, take notes. Highlight key points so that you’re more likely to remember them. Whether you enter relevant tips into a designated file on your computer or keep a handwritten, numbered list in a folder on your desk, the trick is creating a well-organized system to help you retain important action items that you can access easily when the need arises.
  2. Seek expertise: You can improve your financial literacy on your own. Even better, involve others in your quest for knowledge. Many financial advisers offer a free consultation to potential clients. Whether you hire them or not, you can use this conversation to extract useful information.

  Another option: Enroll in an in-person or online self-study module — and enlist friends to sign up. You’re more apt to retain what you learn in a financial education class if one or more peers participate as well, Cox-Roman said. That way, you can help each other reinforce important learning points over time. Inviting cohorts to join you in your effort to strengthen your financial literacy builds confidence all around. Just knowing that you’re not alone — and that you’re not the only one who finds certain topics confusing — can bring comfort. This becomes more critical for aging retirees. Those age 80 and over have the highest median loss — $1,500 — from online-shopping scams. “People who feel lonely or depressed are far more likely to be victimized by fraud,” said Olivia S. Mitchell, a professor at the Wharton School of the University of Pennsylvania. “And many older people don’t understand their susceptibility to financial fraud.”

• 4 Innovative Ways Women Can Supplement Their Paychecks and Grow Wealth in 2024, Yahoo - 01/01/2024 Description

  Women who wonder when they’ll finally reach parity with men in financial matters have seen progress in recent years, but it’s slow going. During the 2023 fourth quarter, the median weekly earnings for women amounted to 83.8% of the median earnings for men, according to the U.S. Bureau of Labor Statistics. That represented a slight improvement from 82.9% the previous year. Pay inequities don’t stop in retirement. The average Social Security check for women is more than $350 less per month than for men. Women also have much less saved up in 401(k)s and other retirement plans, according to research from T. Rowe Price.

   

  There are many barriers women still face when it comes to building financial security. In addition to the gender pay gap, these include the “motherhood penalty.” According to a new report from MarketWatch Guides, this penalty refers to a decline in wages after giving birth and taking time off to care for children. Another barrier is that single women tend to have lower credit scores and more negative factors in their credit history compared to single men. For women who want to overcome these barriers, here are four steps to take to build more wealth in 2024, according to MarketWatch.

   

  Plot Out Your Financial Goals

  This step begins with assessing your values and long-term goals, according to Dr. Jenny Olson, an assistant professor of marketing at Indiana University’s Kelley School of Business. If you’re in a relationship, you should also talk with your partner to ensure your goals are aligned. In terms of plotting out goals, the process should include determining how to achieve them and then regularly revisiting them. As Olsen told MarketWatch, goals might include enjoying luxurious vacations in retirement, financing a grandchild’s education or donating to important causes. If you need more income to achieve your goals, consider taking a part-time job or side gig to supplement your paycheck and build more retirement savings.

   

  Take Financial Education Courses

  Research conducted by Dr. Olivia S. Mitchell, a professor of insurance/risk management and business economics/policy at the Wharton School of the University of Pennsylvania, found significant gaps between women and men in terms of financial literacy. “This lack of financial literacy then translates into greater financial regret among older women,” Mitchell told MarketWatch.

  The best way to overcome this challenge is to further your financial education by taking courses, reading books, networking with others and consulting with professional financial advisors.

   

  Get in the Habit of Investing

  According to a survey from Fidelity Investments cited by MarketWatch, only two-thirds (67%) of women were investing outside of retirement as of 2021, while only one-third felt confident in their investment decisions. Less than half (47%) would know what steps to take if they had $25,000 to invest in the stock market. Experts recommend getting into the habit of investing by beginning with low-risk assets such as high-yield savings accounts or certificates of deposit. After that, you can take the next step by putting small amounts of money into mutual funds or exchange-traded funds until you build enough confidence to start buying individual stocks.

   

  Consider How Long You’ll Live

  Women face “longevity risk,” which is the risk of outliving their money, and that’s especially concerning for women who are financially dependent on another individual, Mitchell said. Women in this position should ensure that they have access to money in the event they find themselves alone and without support. “This could mean a separate bank account, prenup, safe deposit, box, life insurance [or] joint ownership of assets,” Mitchell said.

   

• When you retire, should you keep your money with your employer's 401(k) plan?, Star Tribune - 12/09/2023 Description

  Should I stay or should I go? When does it make sense for retirees to keep their savings in their employer’s plan and when is it better to transfer the money into an IRA? I’ve long thought putting the savings into an individual retirement account, or IRA, at retirement was the more savvy choice. It wasn’t a mistake to leave savings in an employer’s 401(k). But making a tax-sheltered transfer of the 401(k) money into an IRA meant that you were in control, and you got to choose the best investment options for your circumstances. I’m revisiting the topic because recent studies offer good reasons for sticking with an employer’s plan. Pew Charitable Trust reports that shifting money from a lower-fee employer plan (taking advantage of institutional rates) into similar investments in an IRA (and higher charges for retail customers) can “translate into significantly higher costs for retail investors, costs that can eat into their long-term savings significantly.”

  Another research paper by economists Olivia Mitchell, John Turner and Catherine Reilly makes a strong case for the typical worker to stay with their 401(k)s. The plan sponsors of the 401(k)s are fiduciaries, meaning they have a legal obligation to act in participants’ best interests. Large company plans come with lower fees than the typical IRA. A growing number of plans offer participants the option of turning their savings into a stream of income during retirement.

  There are circumstances when it pays to shift money into an IRA, they add. If your employer’s plan comes with high fees, for one. Another reason is if you’ve accumulated several 401(k)s at previous employers and you’d like to consolidate them. An IRA works better for those needing sophisticated financial options.

  “IRAs offer many valuable features, particularly for participants with sophisticated advice and investment needs,” writes Reilly in a blog post summary. “Unless retirees are in very high-cost small plans, those with low/moderate levels of financial literacy are likely to benefit from remaining in their 401(k)s plan even after leaving their jobs.”

  By the way, don’t be insulted by being labeled with low-to-moderate levels of financial literacy. That’s most of us! The case for sticking with your employer’s plan is better than I thought. That said, it’s troubling that coming up with a good answer puts additional research demands on savers. There isn’t an easy rule of thumb to follow.

• 401(k) plans leading the way toward retirement security, but room for growth, experts say, Pensions & Investments - 10/23/2023 Description

  Since they first appeared 40 years ago, 401(k) plans have come a long way, but many policy experts say there is still a lot more to be done to secure a reasonable retirement for all Americans. On the positive side, 401(k) plans and other defined contribution retirement plans today have dramatically lower fees, allowing workers to keep more of their savings. In 2000, for example, 401(k) participants incurred an average expense ratio of 0.77% for investing in equity mutual funds, or 77 cents for every $100 they put in. Today, they’re paying 0.33%, less than half of that, according to the Investment Company Institute.

  Auto enrollment and other automatic savings features have also worked wonders in boosting plan participation. In 2004, for example, when automatic enrollment was not widely used, the average plan participation rate was 74%, far below today’s average participation of 85%, according to Vanguard’s latest edition of its “How America Saves” report. The emergence of target-date funds and their use as the default investment option have also helped millions of retirement savers who might not have been able to decide where to hold their assets. “It seems sensible to make sure that people are not putting themselves into some fixed-income type of investment,” said Alicia Munnell, 25-year director and founder of the Center for Retirement Research at Boston College, adding that default investment options and other automatic features have been important in improving the effectiveness of DC plans. Yet for all the advances in design, defined contribution plans may have reached a limit in terms of what they can accomplish, according to industry experts. “Everything that can be done to make these plans work better has been done,” Munnell said, bemoaning the fact that despite the industry’s hard work and innovation, defined contribution plans are still not widely available to workers. “If you take a snapshot of the private-sector workforce at any moment of time, you’ll see only half the working population is covered,” she said.

  The lack of coverage disproportionately impacts low- and middle-income Americans who typically work for employers that do not offer workplace retirement plans, Munnell and other experts said. The defined contribution system has worked well for the top third of wage earners who “built up big piles” because they’re in the system all the time, unlike those who haven’t been in the system in a steady way or have never had access to it, Munnell said. Munnell explained that the industry initially produced Excel spreadsheets showing people that if they saved continuously at a set rate of return, they’d “have this much money,” but the calculation from the “synthetic” rather than the actual work history fell short because people move in and out of jobs that don’t always offer workplace plans. “It’s only worked well for a subset of the population, and now I think the challenge is to figure out something that will work well for the rest of the population,” she said.

  Teresa Ghilarducci, a professor of economics and policy analysis at the New School for Social Research, was more critical, denouncing the system as an outright failure. If she were to give the system a report card on its outcomes for an entire generation of workers over the past 40 years, she would give it an “F,” she said. Ghilarducci noted that only 54% of people between the ages of 55 and 64 have any kind of retirement savings, with the median amount saved a modest $134,000. “I am shuddering when I look at these numbers,” she said. “I don’t know how people are going to do it.”

  Experts agree that the coverage issue shouldn’t fall squarely on employers, noting that they shouldn’t have to shoulder the burden of offering plans if they don’t have the money or resources to offer them, as is often the case with small employers. “This isn’t to throw employers under the bus,” said John Scott, project director of retirement savings at The Pew Charitable Trusts. “Sometimes they don’t have the administrative capacity or bandwidth to take on the sponsorship of a retirement plan.” Experts are skeptical that provisions in the SECURE 2.0 Act to spur employers to offer workplace plans, including more generous tax credits, will make much of a difference. “A tax credit for small employers might seem generous, but if the employer has to pay an upfront fee for starting a plan but cannot get the tax credit for several months due to the time it takes to file the tax return and then processing the return, the credit might be less appealing,” Scott said, adding that he’s in the “wait-and-see” camp.

  One bright spot in fixing the coverage gap are state-run retirement savings programs, which have been popping up across the country as “auto IRAs.” These programs typically require employers to make the programs available to their workers if they don’t offer a workplace retirement savings program themselves. They also typically automatically enroll workers in a payroll-deduction individual retirement account unless they opt out. Munnell, a “big fan of auto IRAs,” is heartened by the fact that the programs are “moving in the right direction,” though she concedes that they’re “gaining employers and participants more slowly than most people would have anticipated.” To date, 19 states have established—or enacted legislation to establish—state-run retirement plans, 15 of which are structured as auto-IRA programs. As of Aug. 31, the three largest programs — those in Oregon, Illinois and California — along with more recent programs in Connecticut, Maryland and Colorado, had $991.2 million in assets, covered more than 752,000 savers and worked with more than 177,000 employers, according to the Georgetown University Center for Retirement Initiatives. While industry observers applaud the state programs, they’re rooting for a federal auto-IRA program that Congress has been considering since 2006 but hasn’t yet been able to pass. A federal program would achieve the broad national coverage that has long eluded the industry and drive greater administrative and cost efficiencies than the current state-run programs provide, sources said. “We’re letting a thousand flowers bloom, but all the flowers are tulips and all the tulips are red,” Munnell said of state auto-IRA programs. “All these plans look exactly the same, and it would seem like there’d be economies of scale and a lot of benefits by having a national program rather than state by state.”

  Nevertheless, for some industry experts, the current defined contribution system — despite its shortcomings — still beats the old defined benefit or traditional pension system that once dominated the workplace. Olivia S. Mitchell, a professor at the Wharton School at the University of Pennsylvania, notes that under the old system workers had to have a full career at a single employer to receive reasonable benefits, a model that simply doesn’t suit most workers in the labor market today. “In my view, the DC system is better for more people than the old DB system, since traditional DB plans only paid benefits to workers who never changed jobs and never quit,” she said. In addition, Mitchell points out that pension plans were — and still often are — underfunded, meaning that retiree benefits can be slashed in the event of a company bankruptcy. Yet, Mitchell still sees room for improvement in the world of defined contribution plans. “If I had one wish, it would be to integrate a deferred annuity into DC plans so that some of the benefits are paid as lifetime income,” she said, adding that SECURE 2.0 enhanced employers’ ability to do this.

  Boston College’s Munnell would also like to see annuities added to DC plans to help workers draw down their savings. Workers “clearly are not in the mood of going to an insurance company and buying annuities,” she said. “There has to be some mechanism that they can get annuitized income in some semiautomatic way.” Munnell is also a proponent of having employers adopt a Social Security “bridge” strategy within their 401(k) plans that would allow their retired workers to delay claiming Social Security benefits and thereby increase their monthly payment when they do eventually claim. Under the bridge proposal, employers would distribute payments to retirees from their 401(k) equal to the Social Security benefits those retirees would get if they claimed. This stream of payments would continue as long as the funds set aside for it lasted, or until age 70. The proposal envisions allocating 20% to 40% of a worker’s 401(k) assets to the bridge. “Social Security is the cheapest annuity around and also the best in the sense that it’s fully indexed for inflation,” Munnell said.

  The New School’s Ghilarducci would take the proposal one step further. She supports allowing people to roll over their retirement savings into the Social Security system so they can receive an equivalent benefit until they can claim for a higher benefit. Workers with the median savings of $134,000 may not know how to make the money last the additional years needed to bridge them over to a higher Social Security benefit, Ghilarducci said Let the Social Security system help people “manage the little bit of money that they have because $134,000 isn’t chopped liver,” she said.

  Ghilarducci points out that most people don’t have access to financial advisers who can tell them how best to manage the funds. “If Social Security is so efficient, why can’t I just put more money into it and get a higher benefit?” she asked.

• UAW wants pensions back. Automakers really don’t, InvestmentNews - 10/10/2023 Description

  The United Auto Workers want something that most Americans don’t have: traditional pension plans. It’s one of the union’s core demands that could help end the strikes at Ford, General Motors and Stellantis. But at a time when companies are trying to shed their financial liabilities for workers’ retirement security, some see it as a big ask. UAW talks with those companies have reportedly negotiated wage increases broadly, but none of the big three U.S. automakers has budged on reinstating pension coverage to pre-2007 levels, according to coverage today by Reuters. If UAW succeeded in getting pensions back, it would be a major victory, going entirely against a decades-long trend in U.S. retirement saving.

  Not only do most private-sector companies no longer offer defined-benefit plans for new workers, but the majority are tempted to get existing pensions off the books. A recent survey by MetLife found that 89% of employers with pensions are planning to offload those liabilities to insurance companies in the form of group annuities. Over the past year, the rate of companies doing just that has accelerated at record pace as the funded status of their pensions has improved amid higher interest rates, making them eligible for pension-risk transfers.

  “Overall, I seriously doubt that any modern firm would want to reinstitute DB plans, due to their high costs, including the high premiums that they would need to pay to the Pension Benefit Guaranty Corp (PBGC) for reinsurance. Moreover, DB plans skew their benefit payments toward long-term employees, penalizing anyone who leaves the firm early, needs to take time off for kids or other reasons, and who doesn’t work for the firm for a full career,” Olivia Mitchell, executive director of the Pension Research Council, said in an email. “This isn’t very appealing to many today, given the way the labor market has changed. Including deferred annuities in a 401(k) plan is, to my mind, a much more appealing way to provide secure retirement incomes for a modern workforce.”

  In response to the UAW strikes that started last month, the automakers have noted that they provide 401(k) contributions for workers. As part of its negotiations with UAW, Ford has agreed to increase contributions by an unspecified amount, according to a report Monday by Detroit Free Press. GM told the publication that it contributes an equivalent of 6.4% of pay for hourly employees, while Stellantis indicated that it provides an automatic contribution and subsequent matching contributions.

  It’s hardly news that defined-contribution plans like 401(k)s are the norm, as the burden of saving and investing for retirement is now almost entirely on the shoulders of workers, rather than the companies that employ them. As of March 2022, 15% of private-sector workers had access to traditional pensions, compared with 86% of state and local government employees, according to data from the Bureau of Labor Statistics. Meanwhile, 66% of private-sector workers have defined-contribution plans offered by their employers, and about half of them participate. Total money in defined-contribution plans reached $10.2 trillion as of the second quarter, up from about $6.5 trillion in 2015, according to figures from industry group the Investment Company Institute. Over that period, assets in private-sector defined-benefit plans increased from $2.9 trillion to $3.2 trillion.

  Whether workers, including those at UAW, would be better off with pensions or 401(k) plans depends on various factors, including income level, savings ability and, as Mitchell noted, whether they stay at one company for most of their careers. But for many — particularly lower- and middle-income workers — pensions offer a sense of security that 401(k)s have only recently started to try to replicate. Not only do people not have to worry about outliving their investments with a pension, but the employer is responsible for ensuring the plan is solvent.

  Annuities can address that uncertainty for those without pensions, but in most cases people must also research and purchase complex products and ensure during their working years that they directed enough income to a 401(k). While employers simply don’t want to have to worry about being responsible for workers’ retirement security, there’s some research showing that pension plans give them a better bang for the buck than 401(k)s. The data, from pension advocacy group the National Institute on Retirement Security, show cost savings ranging from 27% to 49% for employers that provide a pension rather than a 401(k), as a result of higher investment returns, more diversified portfolios and longevity risk pooling. “Pensions have economies of scale and risk pooling that just can’t be replicated by individual savings accounts,” NIRS executive director Dan Doonan said in a statement at the time the report was published. “At the same time, 401(k)s have made significant progress in recent years when it comes to reducing costs and making investing easier for individuals,” Doonan said. “But the post-retirement period remains difficult to navigate for those in a 401(k) account. Retirees are transitioning from saving to spending down their retirement income at the right rate, so they don’t outlive their savings.”

• U.S. lags globally on retirement due to health, quality of life issues, InvestmentNews - 09/13/2023 Description

  The U.S. lags 19 other countries on retirement security — putting it just behind Belgium and ahead of South Korea — despite recent initiatives designed to help expand plan access and encourage workers to save more. The country’s relatively low ranking among other wealthy nations is down two positions from last year, due in part to rising inflation and government debt and lower life expectancy, according to Natixis Investment Managers, which Wednesday issued its annual Global Retirement Index. Across the world, however, “the data presents reasons for renewed optimism about retirement security,” the report noted. “The pandemic is fading in the rearview mirror, inflation is easing in North America and Europe, central bank moves have boosted interest rates, unemployment in key markets is at or near historic lows,” and most countries saw higher scores on retirement. “The U.S. retirement system is built on shaky foundations — retirement accounts are voluntary, which means that most workers and firms don’t contribute, and the commercialized and individualized nature of the accounts means that it is administratively expensive and poorly allocated,” labor economist Teresa Ghilarducci, professor at The New School for Social Research and director of the Schwartz Center for Economic Policy Analysis, said in an email. The countries with the best grades for retirement security — Norway, Switzerland, Iceland and Ireland — retained the same ranks they saw in Natixis’ report last year. Themes in those countries were high marks for health, quality of life and material well-being. Those three categories, in addition to finances in retirement, are used to assess the overall retirement security for each country, according to Natixis, which built benchmarks for its ongoing index with the help of Core Data Research.

  It’s not a coincidence that a feature of the some of the top-ranked countries is that they have mandatory pensions for citizens, Ghilarducci said. That’s the case in Norway and Switzerland, and most employers in Denmark (10th) and the Netherlands (6th) must also provide pensions. Similarly, Australia (7th) is known for its Superannuation Guarantee, which began more than 30 years ago. Employer- and employee-funded pension systems are effective not only because they ensure coverage and funding, but also because they don’t impact public budgets, Ghilarducci said. Despite getting lower ranking than a year ago, the U.S. has improved on retirement security overall, with higher marks for material well-being. Behind that are declining unemployment rates and stabilizing levels of income inequality, according to Natixis. The country’s position globally in the index this year is the same as it was in 2013. The country’s highest ranking was for finances in retirement (13th), followed by material well-being (21st), quality of life (21st) and health (25th).

  Nearly half of U.S. investors with at least $100,000 in assets said that inflation “is killing their dreams for retirement,” Natixis stated in an announcement. Additionally, 87% of U.S. retirees said they were worried about inflation. The future solvency of the Social Security system was also a top concern, and more than half of people surveyed said they “expect to make tough choices and tradeoffs” in retirement, such as living frugally, working longer out of necessity and relocating to areas with lower costs of living. However, Social Security offers a lot that systems in other countries don’t, such as providing inflation-indexed lifetime income and strong benefits to spouses of workers (50% benefits) who paid into the system, Olivia Mitchell, professor at The Wharton School and executive director of the Pension Research Council, said in an email. “In the event of the death of the primary earner, the surviving spouse receives 100% of the decedent’s benefits. This is much more generous toward couples than most other developed nations,” Mitchell said. “The U.S. Social Security system also pays benefits that are higher than many perceive, in that a recent study found that the U.S. has the highest score of the elderly reporting they could maintain their standards of living in retirement.” Her top priority for improving retirement security would be restoring Social Security to solvency, she said.

  Ghilarducci pointed to the Guaranteed Retirement Account design she has championed for years — worker-funded accounts that are professionally managed and pay out in the form of an annuity upon retirement. A bill outlining such accounts was introduced in December, Ghilarducci noted. Other possible improvements include be a national long-term care insurance system, similar to Japan’s, as private coverage in the U.S. is expensive, Mitchell noted. The cost of medical care for retirees in the U.S. is also significantly higher than that for countries across Europe, where few people spend more than $2,000 a year on health care, compared with about 20% here, she said. Recent policy changes to help improve retirement saving could be slow to make much of a difference, she said. While Secure 2.0 will require new 401(k)s to use automatic enrollment, it does not apply to existing plans.

  “The 2027 implementation of the bill’s extended Saver’s Tax Credit will likely help the low-income save more in employer-based plans,” Mitchell said. “The opportunity for plan sponsors to match student loan borrowers with 401(k) contributions seems like a useful developments, although it has not yet been implemented.” Meanwhile, state initiatives, such as auto-IRAs, will certainly expand retirement plan coverage, “but workers can still opt out, and my research suggests many will.” Additionally, in many cases those accounts will have small balances and could end up being treated as rainy day funds, she said.

  In any case, saving for retirement tends to be a priority for those who can afford to do so — something out of reach for folks living paycheck to paycheck, said Jack Towarnicky, of counsel at Koehler Fitzgerald. “What is ‘best practices’ elsewhere isn’t likely to be ‘best practices’ in America. So, I believe the best solution is to meet workers where they are and morph the 401(k) into a lifetime financial wellness instrument — a plan that provides tax preferred liquidity without leakage along the way to and throughout retirement,” Towarnicky said in an email. Recent policy changes and state initiatives are barely scratching the surface, he noted. Minor changes to the current system that he favors include clearing up deemed IRA guidance to allow participants to continue to participate in former employers’ 401(k)s, allowing for the use of Roth 401(k)s “without the burden of pre-tax 401(k)” so that Roth accounts could accept contributions from workers and retirees, increasing plan loan limits to as much as $250,000, and allowing plans to prohibit in-service and hardship withdrawals to help keep assets in-plan. “To succeed at retirement preparation, it must be a priority for policy makers, industry professionals, plan sponsors, employers and participants,” Towarnicky said. “Retirement preparation isn’t a top priority for most employers — they are focused elsewhere, same for the majority of American workers.”

• Financial literacy: The importance of a new field, CEPR - 09/08/2023 Description

  Global inflation has once again taken centre stage for households and policymakers, stressing peoples’ finances, undermining their savings patterns, and threatening long-term financial security. This column examines how much financial literacy, including knowledge of inflation, drives people’s financial decision-making. Simple measures which have been used around the world confirm strikingly low levels of financial literacy, with consequences for how people manage their personal finances. It is becoming increasingly important to focus on the new field of financial literacy, not only for research by also for teaching and for policy.

• Research finds pensions struggle to determine metrics for ESG goals, Pension Policy International - 09/07/2023 Description

  There’s no one-size-fits-all approach for pension funds looking to use an environmental, social and governance lens in their investment approach, according to a new publication from the pension research council at the Wharton School of the University of Pennsylvania. Olivia Mitchell, a professor and executive director of the pension research council at the University of Pennsylvania’s Wharton Business School and one of the editors of the volume, says institutional investors are split over the long-term value of an ESG approach between pursuing values such as moral causes and value regarding protecting investment returns.

  “Private pensions, and some public plans as well, hew more closely to the latter. Accordingly, there is no one-size-fits-all regarding ESG and pensions in the U.S. It is an evolving field.” She adds very few U.S.-based defined contribution pension plans might include ESG funds. “In the U.S., at least, pension fiduciaries are moving only very cautiously in this arena.”

  The dialogue around the use of ESG has also increased as a result of a lack of clarity around the exact metrics with taking this approach. Mitchell notes other challenges such as potentially higher administrative fees for actively managed ESG funds, as well as the fact these funds don’t have long track records and, “to some extent — lack of demand on the part of investors.”

  The publication also identified the evolving state of risks that fund managers will have to keep a close eye on, including reputation, human capital management, litigation, regulations, corruption and climate. It noted defined benefit pension plans are particularly exposed to sharp asset value declines from downside risks.

• Research finds pensions struggle to determine metrics for ESG goals, Benefits Canada - 09/05/2023 Description

  There’s no one-size-fits-all approach for pension funds looking to use an environmental, social and governance lens in their investment approach, according to a new publication from the pension research council at the Wharton School of the University of Pennsylvania.

  Olivia Mitchell, a professor and executive director of the pension research council at the University of Pennsylvania’s Wharton Business School and one of the editors of the volume, says institutional investors are split over the long-term value of an ESG approach between pursuing values such as moral causes and value regarding protecting investment returns.“Private pensions, and some public plans as well, hew more closely to the latter. Accordingly, there is no one-size-fits-all regarding ESG and pensions in the U.S. It is an evolving field.” She adds very few U.S.-based defined contribution pension plans might include ESG funds. “In the U.S., at least, pension fiduciaries are moving only very cautiously in this arena.”

  The dialogue around the use of ESG has also increased as a result of a lack of clarity around the exact metrics with taking this approach. Mitchell notes other challenges such as potentially higher administrative fees for actively managed ESG funds, as well as the fact these funds don’t have long track records and, “to some extent — lack of demand on the part of investors.”

  The publication also identified the evolving state of risks that fund managers will have to keep a close eye on, including reputation, human capital management, litigation, regulations, corruption and climate. It noted defined benefit pension plans are particularly exposed to sharp asset value declines from downside risks.

• Customized Benefits, Financial Literacy Are Key to Closing the Racial Retirement Savings Gap, PLANSPONSER - 09/01/2023 Description

  As the wealth disparity between Black and Latino families and their white counterparts in the U.S. continues to grow, the retirement savings gap between low- and high-income employees is becoming wider, and the data is staggering. A recent report from the Government Accountability Office revealed that, in 2022, a larger percentage of white households held a retirement account balance than that of any other race, and those accounts held about double the median balance of households of other races. Income, job-related factors and race were cited as being “strongly related to disparities in older workers’ retirement account balances” in the GAO’s separate analysis of data from the University of Michigan’s 2018 Health and Retirement Study. Households with higher income, longer job tenure and a college education tended to have larger balances, and households of non-white families and households with children had about 28% and 20% percent smaller balances, respectively. By tweaking plan design, offering an equitable benefits package and providing financial literacy education, plan sponsors have an opportunity to help close the racial retirement gap and encourage participants to contribute to a retirement account.

  Slow Progress
  Olivia Mitchell, a professor at the Wharton School of the University of Pennsylvania and the executive director of the Pension Research Council, said via email that many plan sponsors are increasingly moving to auto-enrollment and auto-escalation, both of which can overcome inertia’s role in preventing retirement saving. Additionally, Mitchell said several states have adopted auto-IRA programs, in which employers with no retirement plans are required to enroll employees into state-organized Roth IRA plans. Mitchell added that research shows minorities tend to be more likely to hold debt, which in turn undermines their ability to save for retirement. For example, a report published by the Pension Research Council showed that 30% of older adults in communities of color held delinquent debt, as of August 2022, compared to 18% of those in majority-white communities.

  The Pension Research Council also argued that there is an employer and social business case for improving the financial health of workers and addressing racial disparities in wealth, as financially secure workers are more satisfied with their employer, more engaged, more present and more productive. Employee financial wellness programs that include benefits like health savings accounts, emergency savings accounts and student loan reduction or repayment assistance can all help build participants’ assets overall. But the PRC argued that these programs are not sufficient on their own to close the racial retirement gap, as they do not include mandated minimum benefits for salaried workers, and they often exclude independent, part-time and self-employed workers.

  Financial Literacy is Key
  Vidhi Sanders, the vice president and head of participant outcomes at Capital Group, is well aware of the racial retirement gap and found a severe lack of financial literacy, across all demographics, when it comes to saving for retirement and making smart financial decisions.

  In March 2022, Capital Group announced the launch of ICanRetire, an employee engagement program for plan sponsors, in response to the firm’s conclusion that people were not taking advantage or participating optimally in their retirement plans at work due to a lack of financial literacy. ICanRetire was originally piloted as a partnership with RWJBarnabas Health, an academic health care system and one of New Jersey’s largest private employers. Sanders said the program started with about 30,000 participants enrolled in the platform and has since grown to more than 400,000. “The program is essentially a much more inviting way to engage digitally with content, messaging and utility on a website that is completely white-labeled for the plan sponsor,” Sanders said. “We drive people to engage with the site through email, and we’re also testing SMS.” The program is available to certain plan sponsors through Capital Group/American Funds target-date funds, and it includes features like “one-click access” to an employee’s recordkeeper, “jargon-free” content, advice from personal finance thought leaders, a retirement personality quiz and other interactive tools.

  Capital Group also plans to announce new enhancements to the program in September and October that are geared specifically toward Hispanic participants—who lag significantly behind others in retirement savings. The program currently uses five different personas that represent different age groups, participation rates and other psychographic factors like financial knowledge and investing confidence. These personas are not visible to participants using the program but inform the way ICanRetire creates tailored content and user experiences. Three new Hispanic personas are planned for the platform as part of the upcoming enhancements.

  Sanders says it is important to recognize a population’s diverse cultural background and how that impacts the way its people think about money, in addition to translating all pages to make them available in a native tongue.

  Creating Benefits Equity in a Union Plan
  Joshua Luskin, the managing director of Secure Retirement Trust, a nonprofit retirement plan for home care workers, says he decided to take advantage of the ICanRetire program because he felt it aligned with his plan’s equity mission. Secure Retirement Trust provides benefits for the Service Employee International Union Benefits Group 775 in Seattle. Luskin says there are approximately 45,000 active caregivers represented by the union, about 85% of whom are women. The population is also disproportionately made up of Black, indigenous and non-white people and includes many with limited English proficiency, he says. Members of the plan speak at least seven different languages.

  The SEIU 775 plan only includes employer contributions, as the intent is to create a replacement income stream in retirement, Luskin explains. Participants cannot withdraw funds from the plan but will start receiving installments when they turn 65 years old. SEIU has a partnership with Washington state to give workers access to IRA providers. One of ICanRetire’s objectives for the union plan was to drive more people to create and contribute to an IRA to supplement what they receive from the union’s defined contribution plan. Luskin says Secure Retirement Trust already was already using Capital Group as its investment provider and felt the firm was well-equipped to help educate workers on retirement planning. “Investment knowledge is a major hurdle and a retirement hurdle that BIPOC and [limited-English-proficient-workers] get overexposure to, so that’s [why] we set up that relationship with ICanRetire: to get them comfortable and send [those participants] over to the Washington marketplace [to create an IRA],” Luskin says. Sanders says ICanRetire was able to engage about 55,000 of SEIU’s roughly 80,000 members since launching the program about six weeks ago. ICanRetire also helped SEIU motivate more employees to register an account with Milliman, the plan’s recordkeeper, which many had not done. Luskin says more than 1,000 registrations have occurred and that the plan saw an increase of three to five times in engagement and registration after collaborating with Capital Group.

  This is significant progress, as Luskin explains that the bottom two quintiles of SEIU’s population are struggling to save money in general. Many are single mothers with only one income stream. “I feel that the major hurdles are that we need more education [for participants],” Luskin says. “The Saver’s Credit is something that is good for low-income [employees], for example, but not many people take advantage of it. You need education about it or about delaying your Social Security payments.” The Saver’s Credit gives a special tax break to low- and moderate-income taxpayers who save for retirement through 401(k), 403(b), SIMPLE, SEP or governmental 457 plans or traditional and Roth IRAs.

  Responsibility to Provide Financial Literacy
  Kezia Charles, a senior director at WTW, says employees are increasingly looking to their employers to help with decisionmaking and retirement planning. “As employers think of different ways of decisionmaking, one tactic that has been used is employee resource groups or affinity groups to help with financial literacy and financial awareness,” Charles says. An affinity group or employee resource group is a collection of individuals who share a common identity characteristic, anything from gender or sexual orientation to race, nationality or religion. Charles says plan sponsors often partner with a financial planner or somebody within the human resources department to lead sessions on financial literacy for employee resource groups. She adds that employers often use these groups to educate people on their health benefits, as well. “We are seeing more and more employers looking at the diversity of financial planners to ensure that people are able to relate [to the planners], so they can have a more meaningful conversation,” Charles says.

  Another tactic WTW has seen is including families in the financial education offerings, because for many people, their retirement planning is not solely an individual decision, but one to provide resources for the family. “We acknowledge and understand that raising [financial] awareness is one approach, but it’s not the only thing organizations are doing,” Charles points out. “You have to look at design, you have to look at participation and look at metrics to understand who’s participating and who’s not participating. Black and Hispanic people generally have less access to retirement plans, and they also participate less even when they have access. So you have to look at ways to increase participation.”

• Are U.S. seniors among the developed world’s poorest? It depends on your point of view, cnbc.com - 08/05/2023 Description

  About 23% of Americans over age 65 live in poverty, according to the Organization for Economic Co-operation and Development. That’s one of the highest shares among developed nations U.S. Census data suggests a smaller share of the elderly are poor, and that old-age poverty nationwide has been falling Experts say tweaks to Social Security benefits would be the best way to address senior poverty. But it would be costly at a time when the program’s finances are already shaky.

  The U.S. retirement system is a sprawling complex, a so-called “three-legged stool” of Social Security payments, workplace savings plans and individual wealth. But is the system falling short in its primary goal of achieving a secure retirement for all Americans? Social Security won’t run out, but your check might not be what you’re expecting. But the answer has huge policy implications, ranging from the generosity of public benefits to the prevalence of employer-sponsored plans such as 401(k)s and pensions. “This is a fraught area,” said Olivia Mitchell, a professor of business economics and public policy at the University of Pennsylvania and executive director of the Pension Research Council. “There’s not a simple answer.”

  Is old-age income poverty too high?
  Consider this thought exercise: What is a tolerable poverty rate among American seniors? By one metric, the U.S. fares worse than most other developed nations in this category. About 23% of Americans over age 65 live in poverty, according to the Organization for Economic Co-operation and Development. This ranks the U.S. behind 30 other countries in the 38-member bloc, which collectively has an average poverty rate of 13.1%. According to OECD data, only Mexico ranks worse than the U.S. in terms of old-age “poverty depth,” which means that among those who are poor, their average income is low relative to the poverty line. And just three countries have worse income inequality among seniors.

  There are many contributing factors to these poverty dynamics, said Andrew Reilly, pension analyst in the OECD’s Directorate for Employment, Labour and Social Affairs. For one, the overall U.S. poverty rate is high relative to other developed nations — a dynamic that carries over into old age, Reilly said. The U.S. retirement system therefore “exacerbates” a poverty problem that already exists, he said. Further, the base U.S. Social Security benefit is lower than the minimum government benefit in most OECD member nations, Reilly said. There’s very little security relative to other countries. The U.S. is also the only developed country to not offer a mandatory work credit — an important factor in determining retirement benefit amount — to mothers during maternity leave, for example. Most other nations also give mandatory credits to parents who leave the workforce for a few years to take care of their young kids. “There’s very little security relative to other countries,” Reilly said of U.S public benefits.

  That said, the U.S. benefit formula is, in some ways, more generous than other nations. For example, nonworking spouses can collect partial Social Security benefits based on their spouse’s work history, which isn’t typical in other countries, Mitchell said.

  Old-age poverty seems to be improving
  Here’s where it gets a little trickier: Some researchers think the OECD statistics overstate the severity of old-age poverty, due to the way in which the OECD measures poverty compared with U.S. statisticians’ methods. For example, according to U.S. Census Bureau data, 10.3% of Americans age 65 and older live in poverty — a much lower rate than OECD data suggests. That old-age income poverty rate has declined by over two-thirds in the past five decades, according to the Congressional Research Service. Historically, poverty among elderly Americans was higher than it was for the young. However, that’s no longer true — seniors have had lower poverty rates than those ages 18-64 since the early 1990s, CRS found. “The story of poverty in the U.S. is not one of older folks getting worse off,” Mitchell said. “They’re improving.” Regardless of the baseline — OECD, Census Bureau or other data — there’s a question as to what poverty rate is, or should be, acceptable in a country like the U.S., experts said. “We are arguably the most developed country in the world,” said David Blanchett, managing director and head of retirement research at PGIM, the investment management arm of Prudential Financial. “The fact anyone lives in poverty, one can argue, isn’t necessarily how we should be doing it,” he added. Despite improvements, certain groups of the elderly population — such as widows, divorced women and never-married men and women — are “still vulnerable” to poverty, wrote Zhe Li and Joseph Dalaker, CRS social policy analysts.

  Two major problem areas persist
  At the very least, there are facets of the system that should be tweaked, experts said. Researchers seem to agree that a looming Social Security funding shortfall is perhaps the most pressing issue facing U.S. seniors. Longer lifespans and baby boomers hurtling into their retirement years are pressuring the solvency of the Old-Age and Survivors Insurance Trust Fund; it’s slated to run out of money in 2033. At that point, payroll taxes would fund an estimated 77% of promised retirement benefits, absent congressional action. “You could argue pending insolvency of Social Security is threatening older people’s financial wellbeing,” Mitchell said. “It is the whole foundation upon which the American retirement system is based.”

  About 40 years ago, half of workers were covered by an employer-sponsored plan. The same is true now. Raising Social Security payouts at the low end of the income spectrum would help combat old-age poverty but would also cost more money at a time when the program’s finances are shaky, experts said. “The easiest way to combat poverty in retirement is to have a safety-net benefit at a higher level,” Reilly said. It would be “extremely expensive,” especially in a country as large as the U.S., he added. Blanchett favors that approach. Such a tweak could be accompanied by a reduction in benefits for higher earners, making the system even more progressive than it is now, he said. Currently, for example, Social Security replaces about 75% of income for someone with “very low” earnings (about $15,000), and 27% for someone with “maximum” earnings (about $148,000), according to the Social Security Administration. Reducing benefits for some would put a greater onus on such households to fund retirement with personal savings.

  However, the relative lack of access to a savings plan at work — known as the “coverage gap” — is another obstacle to amassing more retirement wealth, experts said. Research shows that Americans are much more likely to save when their employer sponsors a retirement plan. But coverage hasn’t budged much in recent decades, even as employers have shifted from pensions to 401(k)-type plans. “About 40 years ago, half of workers were covered by an employer-sponsored plan,” Mitchell said. “The same is true now.” Of course, workplace plans aren’t a panacea. Contributing money is ultimately voluntary, unlike in other nations, such as the U.K. And it requires financial sacrifice, which may be difficult amid other household needs such as housing, food, child care and health care, experts said.

• Pension Funds and Sustainable Investment: Challenges and Opportunities, PlanSponser - 08/03/2023 Description

  Efforts to integrate environmental, social and governance criteria into institutional investing, including pension funds, have undergone significant shifts over the years. Our new Pension Research Council volume offers an invaluable resource for anyone interested in understanding the historical context, current practices and future prospects of ESG investing in the pension industry. Now available from Oxford University Press via Open Access, the book provides a variety of viewpoints from several countries on whether, how and when ESG criteria should, and should not, drive pension fund investments.

  Investors have diverse motivations for incorporating ESG criteria into their investment strategies. Some individuals, including those with religious or ethical beliefs, may prioritize holding companies that align with their values, providing a sense of alignment between financial objectives and personal convictions. ESG considerations may also offer the prospect of risk mitigation. By factoring in environmental, social and governance factors, investors seek to assess a company’s sustainability and long-term viability. Considering these factors may help investors identify potential risks and make more informed investment decisions.

  Nevertheless, divestment rarely changes company behavior, so screening and divestment may not bring about the changes that investors seek. Some argue that active ownership and engagement can be more effective in influencing corporate behavior. By actively engaging with companies, investors can advocate for positive change, encourage transparency and push for better ESG practices.
  Responding to Market Failures

  In economic terms, externalities refer to costs or benefits from economic activity that affect individuals or society at large, but which are not reflected in the market prices of goods or services. If firms impose costs on third parties without proper pricing, it creates a gap where the price paid by consumers does not fully account for the harm caused by the externality. For instance, if an oil refinery pollutes the environment and harms people or the surrounding area, the costs of the pollution are borne by neither the producer nor the consumers of the refined oil. This is an example of a negative externality, where the social costs exceed the private costs.

  Economics offers two general ways to address such problems. One is through government intervention to alter the costs and benefits associated with production, using regulation, taxes or subsidies that internalize the external costs or benefits and align them with market prices. Another is to change the fiduciary rules or responsibilities under which producers operate by incorporating environmental, social and governance factors into the firm’s investment decisionmaking. In the context of pension investments, there may be a tension between a fund’s desire to invest in profitable fossil fuel firms and the potential social losses imposed by such investments. This tension often drives the debate over the pros and cons of ESG investment.

  Indeed, the debate surrounding ESG investment often centers on the interpretation of fiduciary duty and the perceived trade-offs between financial returns and societal impact. For instance, some critics contend that pursuing ESG goals might compromise financial performance and, therefore, go against the primary responsibility of fiduciaries. Others argue that the influence of ESG considerations on company behavior is limited and that divestment or engagement efforts do not bring about significant changes. Instead, they suggest the primary focus should be on generating strong returns to fulfill pension obligations. By contrast, ESG supporters propose that considering environmental, social and governance factors can contribute to long-term sustainability and financial resilience, and neglecting ESG risks can lead to financial losses and increased volatility in investment portfolios. Additionally, adherents argue that ESG factors can serve as indicators of potential risks that may affect companies’ financial performance. Advocates also suggest that taking into account beneficiaries’ values and broader societal impact is in line with pension managers’ fiduciary duty, since beneficiaries, as ultimate stakeholders, may favor investments that align with their values.

  Clearly the debate is not binary, and there is a wide spectrum of opinions between these two positions. Many investment professionals and institutions recognize the potential benefits of integrating ESG considerations while seeking to balance financial returns and societal impact. While there is evidence suggesting a positive correlation between ESG performance and financial performance, there is also evidence indicating the opposite, so striking the right balance between financial returns and societal impact ultimately requires careful consideration of the specific circumstances and objectives of each investor.
  An Historical Perspective
  The volume also outlines the origins of ESG to the pre-modern era from the post-Industrial Revolution late 19th century to about 1970, during which time governance concerns were prominent. Not only did policymakers seek to limit monopolies and ownership of companies by banks and families, but they also pushed antitrust regulation, uniform accounting/reporting/disclosure rules and two-tiered board structures in which supervisory boards retained control while managers executed company strategies. Beginning around 1970, the modern ESG era began, in which the U.S. was ahead of others in tackling environmental challenges. At the time, the debate was over whether investors should design separate portfolios for E, S and G or to develop a single common portfolio for all three. Now there is evidence for “convergence,” meaning that thinking about environmental, social and governance concerns is increasingly seen as a joint endeavor. The ESG evolutionary process has also been driven by a wave of government mandates and governance attributes bringing an early focus on environmental and social issues and catalyzing actions by the United Nations.
  The long horizons governing pension fund and other institutional investors render them particularly vulnerable to many long-lived ESG risks, including reputational risk; human capital-related risks; litigation risk; corruption risk; and climate risk, including the risk of stranded assets, among others. Additionally, pension funds confront the trade-off between “values versus value,” because they have a fiduciary responsibility to protect the financial interests of their members, who depend on them to secure their retirement nest eggs. Therefore, all investment decisions must clear the test of financial prudence, including having a clear rationale for using environmental and social factors in guiding those decisions.
  Practical Challenges
  One major problem with deciding how to invest in the ESG space is how to measure the inputs and impacts of ESG. In fact, one prominent research team cautions that ESG raters’ scores differ widely, making it difficult to generate reliable portfolios, given current data. Another consideration is whether pension plan participants should have a voice in their pension plan’s investment choices. Noting the difference between the U.S. approach—leaning toward hard law and sometimes-conflicting DOL regulations—and the European approach—more driven by social norms—the volume suggests that the answer depends on a fund’s legal and societal contexts, benchmarking pressure and fund-specific factors such as the fund’s size and the board’s composition.
  In the future, ESG-related thinking and investment will continue to evolve, focusing on several new components. Among these are transition risk, or the degree to which companies have prepared for regulatory and market changes; physical risk, or assets’ exposure to climate change; disclosure risk, or how firms disclose risks to resources necessary to their function but not reflected on their balance sheets; liability risk, due to potential lawsuits; and risks of labor strife, reputation or supply chain disruptions. The continued evolution of ESG investing in the pension setting must be driven both by a recognition of the diverse risks and opportunities these factors present and by institutional investors taking ESG factors into account in a thoughtful and informed manner.
  Ultimately the question of whether and how pension systems should take ESG criteria into account is certain to transform into a broader set of considerations, namely, whether and how companies’ environmental, social and governance practices contribute to their long-term performance. Accordingly, executives and investors will need to integrate these considerations into their assessment of a company’s culture and innovation potential, employee retention and consumer satisfaction. Moreover, researchers must do more to enhance our understanding of what business activities are most successful at creating long-term value. Shareholders and, indeed, all of us will benefit with this broader conception of the risks and rewards associated with the impact of corporations on the economy.
  Olivia S. Mitchell is the executive director, Pension Research Council Director, Boettner Center for Pensions and Retirement Research at The Wharton School, University of Pennsylvania.

• Liz Weston: This new law made saving for retirement more complicated, Oregon Live - 07/11/2023 Description

  The Secure Act 2.0 legislation that passed late last year added new retirement savings options but also has a few potential catches for unsuspecting savers. Understanding these possible pitfalls may help you make better decisions, or at least be prepared for what’s to come. In my last column, I covered one set of these changes: new exceptions to the 10% federal penalty for tapping retirement money early. For this column, I’ll cover what you need to know about Secure 2.0′s changes to catch-up contributions and company matches for workplace plans.

  A POTENTIALLY PROBLEMATIC CATCH-UP PROVISION
  Catch-up provisions have long allowed older workers to put more money into retirement plans. In 2023, for example, people 50 and older can contribute an additional $7,500 to 401(k)s and 403(b)s, on top of the standard $22,500 deferral limit for all employees in those plans. Contributions that go into a plan’s pre-tax option are deductible. But starting next year, people who earn $145,000 or more will no longer get a tax deduction for their catch-up contributions to workplace retirement plans. They’ll be required instead to contribute the money to the plan’s Roth option. (People earning less than $145,000 may have the option, but not the requirement, to put catch-up contributions into the Roth.)

  Withdrawals from Roths are tax-free in retirement, which can be a huge boon to many savers, says Colleen Carcone, director of wealth planning strategies at financial services firm TIAA. Contributing to a Roth is often recommended for younger workers who expect to be in the same or higher tax bracket in retirement. But many people’s tax brackets drop once they retire. Roth contributions can make less sense for older workers who may be paying a higher tax rate on their contributions than they’d avoid on their withdrawals.

  Many financial planners still recommend putting at least some money into a Roth so retirees can better control their tax bill in retirement, Carcone says. However, losing the tax deduction could discourage people from making catch-up contributions, says economist Olivia S. Mitchell, executive director of the Pension Research Council, which researches retirement security issues.

  And there’s another issue: Not all workplace plans have a Roth option. If an employer doesn’t add a Roth option, no one will be able to make catch-up contributions, Collado says.

  ANOTHER PROBLEMATIC PROVISION: LAST-MINUTE CATCH-UPS
  Beginning in 2025, workers ages 60 through 63 can make even larger catch-up contributions to workplace retirement plans. The maximum will be whichever is more: $10,000 or 150% of the standard catch-up contribution limit. The $10,000 will be adjusted annually for inflation. At age 64, the lower catch-up contribution limit again applies. Higher earners who make these catch-up contributions must use the plan’s Roth option. Lower earners must be given the option to do so. (The $145,000 income limit will be adjusted annually for inflation, so we don’t know yet what the exact cut-off amount will be when this takes effect.)

  The higher limits could be helpful for those who can take advantage of them. However, many people’s incomes are on the decline by the time they hit their 60s and they may not have the extra cash to contribute. A 2018 data analysis by ProPublica and the Urban Institute found that more than half of workers who enter their 50s with steady, full-time employment are pushed out of those jobs before they’re ready to retire — and the vast majority never recover financially. And certainly no one should put off saving for retirement thinking they can catch up later, warns certified public accountant and financial planner Marianela Collado, who serves on the American Institute of CPAs’ personal financial planning executive committee. “Nothing could make up for the power of starting to save early on in your career,” Collado says.

  COMPANY MATCHES COULD COST YOU
  Secure 2.0 continues the so-called “Rothification” of retirement plans by giving employers the option of putting matching funds in workers’ Roth accounts. Currently, matching funds are contributed to pre-tax accounts, so they don’t add to a worker’s taxable income. Matching funds contributed to a Roth account, by contrast, would be considered taxable income for the employee. This won’t be mandatory for anybody. Employers won’t be required to offer this option, and employees won’t be required to take it if it is offered, Collado says. If you do opt for Roth matching funds, though, you should be prepared to pay a higher tax bill. Again, paying taxes now can make sense if you expect to be in a higher tax bracket in retirement — and you’re prepared to cough up the extra money.

  THE TAKEAWAYS
  Roths have a number of advantages, and many people will welcome the opportunity to save this way, but Roth contributions aren’t right for every saver. The Secure 2.0 changes have added enough complexity that people should consider getting expert advice about whether they’re saving enough and in the right ways, Carcone says. “It’s just important for individuals to make sure that they’re meeting and speaking with their financial advisor,” Carcone says.

  This column was provided to The Associated Press by the personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

• Social Security Expert Claims Program ‘Faces Big Trouble’ — 60% of Americans Are Very Concerned, AOL - 06/30/2023 Description

  Social Security’s looming funding shortfall has been well documented — so much so that a majority of Americans are “very” concerned that their payments will be reduced before they retire, according to a new survey conducted on behalf of Newsweek. The survey of 1,500 eligible voters, conducted on May 31 and released June 29, found that 88% of Americans are counting on Social Security to help see them through retirement. These respondents describe Social Security payments as either “extremely” or “reasonably” important to them.

  At the same time, 60% said they are “very” concerned that payments will be reduced in the future, and another 36% said they are “fairly” or “slightly” concerned. Only 4% said they are not worried about lower payments. The reason so many Americans fret over the future of Social Security has to do with the program’s Old Age and Survivors Insurance (OASI) Trust Fund, which is expected to run out of money as early as 2032 or 2033. When that happens, the program will be solely reliant on payroll taxes for funding — and those taxes only cover about 77% of current benefits.

  This isn’t a new problem, but it has gotten a lot more attention in recent years as the funding shortfall moves closer. “As many Americans now understand, the program’s budget has run short since 2010, when program costs first exceeded payroll tax revenue. This gap continues to grow at a rapid rate,” Olivia S. Mitchell, an economics professor at University of Pennsylvania’s Wharton School of Business and director of the Pension Research Council, told Newsweek. The Social Security program “faces big trouble,” she added.

  How To Fix Social Security Funding Shortfall
  As Newsweek reported, fixing the program has become a major talking point ahead of the 2024 election. While some lawmakers have proposed either cutting Social Security benefits or raising the full retirement age, President Joe Biden favors bolstering the program through higher payroll taxes. However, he has still not offered specific proposals on how to deal with the trust fund depletion. “The President is focused on the immediate threat to Social Security: Congressional Republican attempts to cut benefits,” White House spokesperson Robyn Patterson told Newsweek. “He welcomes proposals from members of Congress on how to extend Social Security’s solvency without cutting benefits or increasing taxes on anyone making less than $400,000.”

  For their part, Republicans haven’t specifically proposed bills to cut benefits, though U.S. House Majority Leader Kevin McCarthy (R-Calif.) recently hinted that the GOP might target Social Security for cuts as part of a broader effort to rein in government spending. The one thing everyone seems to agree on is that something must be done to fix Social Security — and sooner rather than later.

  “Today’s workers, persons with disabilities, retirees, and our children simply cannot plan ahead without knowing what will happen to Social Security in the future,” Mitchell said. She estimated that the program needs an additional $20.4 trillion to keep it stable for the next 75 years. Beyond that, another $61.8 trillion is needed to keep Social Security solvent for future generations, Mitchell said.

  But others caution against pressing the panic button — mainly because payroll taxes are still sufficient to fund more than three-quarters of Social Security benefits well into the future. A March blog by the Center on Budget and Policy Priorities (CBPP) pointed out that in 2022 alone, the Social Security system collected more than $1 trillion in revenue and paid out “about the same” in benefits. “Claims of Social Security’s impending ‘bankruptcy’ are highly misleading and demonstrate misunderstanding, or deliberate misrepresentation, of Social Security’s finances,” the CBPP’s Kathleen Romig and Luis Nuñez wrote. “Because Social Security faces no imminent crisis, policymakers have time to carefully craft a financing package that minimizes cuts to the program’s modest but critical benefits.”

• Policy’s Impact on Annuities: What the QLAC Provisions in SECURE 2.0 Mean for Plans, State Street Global Advisors - 06/27/2023 Description

  The enactment of SECURE 2.0 triggered several changes to retirement income initiatives. In this video, a brief discussion of the key changes and the implications and opportunities those changes represent for both plan sponsors and participants. Melissa Kahn, Head of Retirement Public Policy at State Street Global Advisors, is joined by Olivia Mitchell, Professor of Business Economics and Public Policy at the Wharton School, University of Pennsylvania. (09:00)

• Can states solve the long-term care insurance crisis?, Policygenius - 06/26/2023 Description

  Americans paid about $55 billion out of pocket on long-term care expenses in 2018, and these costs will keep rising as the country ages. One estimate says long-term care expenses could make up 3% of the U.S. gross domestic product by 2050. [1] One way some Americans have tried to plan for these costs is long-term care insurance. But the market for long-term care insurance is in “crisis” according to a recent report from the New York State department of Financial Services. The crisis stems from “pricing errors” made when the long-term care insurance markets first launched in the 80s. “Simply stated, LTC insurance plans across the country were initially offered at premium rates that were far lower than they should have been,” the report says. As a result, when people started filing claims, insurance companies took big losses. Many stopped selling policies altogether, while others raised prices.

  What is long-term care insurance?
  Long-term care insurance pays for the costs of a nursing home and other kinds of elder care, such as in-home nursing care. Health insurance, including Medicare, typically doesn’t cover these types of care.

  “Uncertainty regarding longevity is making it increasingly difficult to determine how to price the product,” says Olivia Mitchell, a professor and executive director of the Pension Research Council at the Wharton School of the University of Pennsylvania. Basically, insurance companies have a hard time predicting how much people end up sending on things like home health attendants or assisted living over the course of their lives, making it tough to charge the right amount in premiums. Demand for long-term care insurance is dampened by a lack of information, Mitchell says. “Many people erroneously believe that Medicare will cover nursing home costs,” she says. “And some simply don’t understand the risk of needing relatively long periods of care in a nursing home.”

  America faces a dilemma in how to provide long-term care for an aging population, but as of now, long-term care insurance is far from an end-all solution — it’s expensive, poorly understood, and many people underestimate their need for long-term care. “Most of us are not planners,” says Jesse Slome, director of the American Association for Long-term Care Insurance, a trade association for long-term care insurance agents and brokers. “It’s hard enough to get people to plan for retirement let alone plan for the end of their life. We all think ‘it’s not going to happen to me.’”

  What are states doing to solve the long-term care insurance crisis?
  The federal government has done little to address the crisis, Slome says. One reason is that long-term care costs generally fall on Medicaid, which is partially funded by the states, and not Medicare, which is funded by the federal government. Unlike the federal government, states aren’t allowed to run a deficit, so they can only manage their finances by raising taxes or cutting benefits. The 2010 Affordable Care Act initially included a public long-term care insurance program for employees, but it was withdrawn after critics questioned whether it was financially workable. [2] There’s been little appetite for a renewed effort in Congress, leaving states to tackle what should be a national issue on their own, Slome says. Washington is the state that’s gone the farthest, establishing the Washington Cares Fund, which goes into effect July 1. [3] It allows beneficiaries to access up to $36,500 in lifetime long-term care benefits, paid for by an 0.58% payroll tax on people who work in Washington state. Even this only covers a fraction of the potential costs. A year of nursing home care in Washington can cost nearly $93,000. [4] And many people won’t benefit at all if they move out of the state when they need long-term care. “For many people it will not be significantly meaningful,” Slome says.

  Legislators in California are considering creating an even larger long-term care insurance program that could be worth up to $144,00 in benefits. Most states operate guaranty associations that protect a limited amount of benefits if a long-term care insurance company fails.

  Should you consider long-term care insurance?
  Despite the struggles of the long-term care insurance industry and the fledgling status of state efforts, people are still looking for ways to save for future long-term care — most folks don’t want to end up being a burden to their families as they age. Members of the sandwich generation are especially worried about this burden. Long-term care insurance isn’t for everyone, Slome says. The people who should consider it are between 55 and 65, with some degree of savings and retirement assets — anyone who doesn’t have some wealth will likely have to rely on Medicaid. Unlike homeowners insurance or car insurance, you should only shop for long term care insurance once in your life, Slome says. It almost never pays to switch policies because you’d have to go through medical underwriting again, and prices will only rise as you age. It’s best to work with an agent or broker who specializes in long-term care and who represents multiple companies — some people only sell products from one company.

  One option is to buy a hybrid long-term care insurance policy, which combines life insurance and long-term care insurance into one policy. But Slome warned that these policies are often more expensive than buying long-term care insurance on its own. In addition, the older you get, the lower your need for life insurance, and the more likely you are to need long-term care, so it doesn’t make much sense to pair them. Because of the industry’s struggles, premiums are higher than they were in the past. But for the right person, Slome says, long-term care insurance is worth considering. And everyone should have some kind of plan for their future long-term care expenses. “Everybody hopes to live a long life,” he says, “but we really don’t think about the consequences to ourselves or to our family.”

• Retirement Racial Wealth Gap Disproportionately Impacts Black, Hispanic Americans, Plansponser - 06/07/2023 Description

  Accumulating adequate income in retirement is especially difficult for Black and Hispanic families in the U.S., as the racial wealth gap and inequity in the housing market persists, according to research aggregated by the Wharton School of the University of Pennsylvania. At Wharton’s 2023 Pension Research Council Symposium in March, Harvard University professors Karen Dynan and Doug Elmendorf argued that the sharp decline in the share of families who have defined benefit pensions is a major factor contributing to the racial wealth gap in retirement—since defined benefit plans have traditionally provided considerable income in retirement and did not come directly out of an employee’s paycheck.

  The symposium, titled “Diversity, Inclusion, and Inequality: Implications for Retirement Income Security and Policy” was held in Philadelphia on March 30 and 31. Based on research presented at the symposium, the Wharton School published a journal article, “Closing the Racial Wealth Gap in Retirement Readiness.” For families with white heads of household in their 50s, the Harvard professors found that median real wealth fell to roughly $172,00 in 2019 from $260,000 in 2000. In contrast, median real wealth for families with Black heads of household dropped even more significantly—to about $24,000 from $72,000 over the same time period. “One might hope that families without DB pensions would save more themselves, but that is not the case,” the professors noted at the symposium. “The challenge of receiving adequate income in retirement is especially acute for many families with Black heads, as Black-headed families … are notably less likely to have defined benefit pensions.”

  Racial Inequity in the Housing Market
  Historic inequities have prevented Blacks, in particular, from building housing wealth. According to Larry Santucci—senior advisor and research fellow at the Federal Reserve Bank of Philadelphia—a 2016 survey found that 73% of white families owned their homes, with an average net housing wealth of about $216,000. By comparison, just 45% of Black families owned a home, with an average net housing wealth of only $94,400—less than half of the average white family. Housing wealth comprises two-fifths of the net wealth of retirement-age Americans, according to Amir Kermani, a professor of finance and real estate at the University of California, Berkeley. “About half of the Black-white gap can be explained by higher rates of distressed sales among Black homeowners,” Kermani and economics professor Francis Wong concluded in their presentation, “How Racial Differences in Housing Returns Shape Retirement Security.” “Closing the gap in housing returns would cut the Black-white gap in primary housing wealth at retirement in half.”

  Social Security Insolvency Poses Threat to Racial Wealth Gap
  “Retirement adequacy,” according to the Wharton School, is often defined as the ability to replace in retirement income equivalent to between 75% and 80% of pre-retirement income. For many households, retirement is mostly financed from pension accumulations, Social Security benefits and non-retirement assets, the Wharton School found. This poses a problem, as an increasing number of employees will not have access to a pension, and Social Security is on track to reach insolvency by 2034, where payable benefits are projected to fall to 80% of expected levels.

  While the median Black household earns 24% less per adult than the median white household, the latter has six times more marketable wealth—such as stocks, housing equity and bank accounts—than the former. But after taking Social Security wealth into account, the Black and white wealth gap is far smaller, reported Wharton finance professor Sylvain Catherine and Yale Law School professor Natasha Sarin in their paper, “Social Security and the Racial Wealth Gap.” Catherine and Sarin found that Social Security wealth currently comprises 61% and 59% of Black and Hispanic households’ total assets, respectively, up from just 21% and 9% three decades ago. “This is because the progressive Social Security benefit formula pays relatively higher benefits to lower-earning, versus higher-paid, workers,” the Wharton paper stated.

  Catherine and Sarin warned that unless policymakers reform Social Security to address its looming insolvency, lower-income retirees and particularly Black and Hispanic households, will confront larger racial wealth gaps.

  Debt Disproportionately Burdens Racial Minorities
  Carrying debt into retirement is another factor that is undermining older Americans’ ability to accumulate wealth. An Urban Institute presentation, “Racial Differences in Debt Delinquencies and Implications for Retirement Preparedness,” tracked about 4.8 million adults aged at least 50 who had credit bureau records and found that the median debt amount for older households with debt was about three times higher in 2016 ($55,300) than in 1989 ($18,900). The researchers also found that, compared to an older adult in a majority-white community, an older adult in a community of color is more likely to have any type of delinquent debt, carry a higher balance of total delinquent debt and have a higher balance of medical debt in collections. In a majority-white community, an older adult is more likely to have a higher balance of student loan debt and credit card debt, according to the research.

  Policy Reforms That Could Help Close Gap
  Beyond financial wellness programs and the SECURE 2.0 Act of 2022, which both aim to help employees’ retirement readiness and manage their personal finances, speakers at Wharton’s symposium identified several ways in which the racial retirement wealth gap can be narrowed. Naomi Zewde, a professor in the department of health policy and management in the Fielding School of Public Health at UCLA, noted that several states and municipalities have launched Baby Bonds programs, often with more generous financing for lower-income families. Baby Bonds set aside funds for babies born into poverty and help parents pay for their children’s education. These are federally funded, and parents and kids cannot access the money until early adulthood.

  Retirement-friendly tax reform policies could also benefit minorities. According to “Tax Policy to Reduce Racial Retirement Wealth Inequality,” the typical white household has more non-Social Security retirement wealth ($176,000) than the typical Hispanic household ($35,000) and seven times more than the typical Black household ($24,300). The authors of this study argued that racial inequities can be addressed by reorienting retirement savings incentives toward moderate-income families, taxing retirement income streams more equitably at the state level and ensuring taxation of real estate wealth in retirement.

  Expanded access to emergency savings accounts and easier portability of retirement balances from employer to employer are also solutions mentioned to close the racial retirement wealth gap. David C. John, senior strategic policy advisor at the AARP Public Policy Institute, and J. Mark Iwry and William G. Gale, both senior fellows at The Brookings Institution, found in their research that people of color and lower-income workers lack access to emergency savings devices, with 53% of Black workers and 64% of Hispanic workers in this situation, as compared with 42% of white workers. “Having an emergency savings account and auto-enrollment in pensions are especially important for enhancing retirement preparedness,” the Wharton paper stated.

• Closing the Racial Wealth Gap in Retirement Readiness, Knowledge at Wharton - 06/06/2023 Description

  Most Americans have a significant chunk of their life savings in the form of home equity, so inequities in homeownership could have far-reaching consequences for household wealth and retirement preparedness. But home equity is not the only factor contributing to retirement inequality in the U.S. The 2023 Pension Research Council Symposium delved deep into those factors and the potential policy reforms that could fix them. The symposium, titled “Diversity, Inclusion, and Inequality: Implications for Retirement Income Security and Policy,” was held in Philadelphia on March 30 and 31.

• 2023 AEA Distinguished Fellows, American Economic Association - 06/01/2023
• The Good Old Days: Was the Pension Era Really as Good as Its Reputation?, Plan Adviser - 05/31/2023 Description

  Experts point out the flaws in the often lauded ‘pension past,’ while discussing what the 401(k) present needs to be more impactful for more people.

  Some in the retirement industry look back fondly on the days when company pensions guaranteed paychecks, but experts are not convinced the nostalgia is deserved. “There’s almost like this sort of mythical Camelot,” says Brendan Curran, head of defined contribution for the Americas at State Street Global Advisors. “It’s painted as a rosy and perfect place, initially in the story, but then by the end, you understand that it’s a little bit more multifaceted than that.” Experts say the defined benefit world was not as ideal as it is made out to be, as wide swaths of the population were left without coverage. However, most agree there is still a lot the retirement industry can do to improve the 401(k) model, such as including a DB/retirement paycheck as an option. Curran’s sentiment of not over-glorifying the past pension system is shared by Olivia Mitchell, a professor at The Wharton School of the University of Pennsylvania. “I cast a skeptical eye on those who argue that DB plans represented the best that the ‘good old days’ had to offer,” Mitchell says.

  The defined benefit pension model popular 40 years ago was well-suited to the labor market at the time, Mitchell says. DB plans were offered by large, usually unionized firms at which workers tended to remain their entire careers. Additionally, DB plans typically paid benefits as a lifetime income stream, which helped cover workers protect against longevity risk. “The DB model was not well-suited to many subgroups,” Mitchell says. “[That includes] women who moved in and out of the workforce due to child-rearing, those who changed jobs, non-union workers and employees at small firms lacking the infrastructure to set up and run such complex retirement offerings. Moreover, we now know that many firms did not fully fund their DB plans, leading to drastically reduced payouts when companies went bankrupt.”

  One of the primary issues that has made the DB model less effective over the years is that coverage was built around full career employees, says Melissa Kahn, a managing director and retirement policy strategist at State Street Global Advisors. “Pensions are great for people who work at one company for 30 years or more,” says Kahn. “The reality, as we all know, is that for the majority of people, they will hold somewhere between 10 and 12 jobs in their careers. Pensions, in that situation, aren’t necessarily the best alternatives.” Even with a more transitory job market, DB plans have evolved over time, and many plan sponsors and advisories still see great value in the way they ensure income in retirement for employee bases and organizations for whom it makes sense. In a recent PLANADVISER webinar, DB experts noted that there may even be renewed interest in starting DB plans or unfreezing them to accept new participants thanks to regulations and innovations that can help make them less volatile. Overall, however, the DC world dominates the DB one today.

  Pension Plans: They Weren’t For All
  When thinking about the “glory” days of pensions, however, State Street Global’s Curran says it is important to remember issues with that type of coverage. He points to 2019 testimony that Representative Andrew Biggs, R-Arizona, provided to Congress. The testimony revealed that DB pensions peaked at 39% of workers in 1975. A 1972 study by the Senate Labor Subcommittee found that between 70% and 92% of traditional DB participants did not qualify for a benefit, which Curran believes was due to pension plans having a lengthy vesting requirement. Additionally, he says the DB model did not cover for those on the lower end of the wage scale. “A 1980s Social Security Administration survey found that only about 9% of new retirees that were in the bottom half of the income distribution received any pension benefit, and it was closer to half when you looked at the top quartile of the income distribution,” he says.

  As pension was tied to pay, women and people of color were particularly at a disadvantage, says Kahn. “As we know, women, particularly minority women, make much less than white men do,” she says. “That continues today, and that obviously reflects in the kind of pensions that they’re going to get as well.” Under the DC model, among all workers aged 26 to 64 in 2018, 67% participated in a retirement plan either directly or through a spouse, according to the Investment Company Institute. That number ranged, however, from 59% of those aged 26 to 34 to about 70% of those aged 45 to 64. Coverage also varied depending on income. For those with adjusted gross income less than $20,000 per person, only 25% participated in a plan. For those with AGI of $100,000 per person or more, 88% participated.

  401(k), Social Security the Solution?
  Given the problems with the pension era, might we be better off with 401(k)s and Social Security, if they are used correctly? “The person who’s called the father of 401(k), a gentleman by the name of Ted Benna, always said that the 401(k) was never designed to be the sole source of income,” says Ray Bellucci, executive vice president and head of recordkeeping solutions at TIAA. “Just like Social Security, since its founding in the 1930s, was never designed to be the sole source of income.” However, Bellucci believes if an individual can couple Social Security with a 401(k) or a 403(b), building into their 401(k) savings plan guaranteed income, they can bring the two vehicles together as a very effective income replacement in retirement. “On shared accountability, TIAA believes that the magic number, so to speak, that you should be saving in a 401(k) or a 403(b) between the employer and employees is about 15% of your income,” he says. “That’s what we believe is the right number for you to target.”

  Furthermore, defined contribution plans, including 401(k) and 403(b) plans, are much more portable, allowing workers to roll over their contributions and, usually, employer matches from one job to the next, according to Mitchell. “DC plans also offer a choice of investment strategies to covered workers, which was not the case in the old DB world,” she says. “Of course, if people are not financially literate, they may not select the lowest-cost and best plan investments, and at retirement, people can still take all their retirement assets and spend them.”

  Therefore, Annamaria Lusardi, a professor of economics and accountancy at the George Washington University School of Business, believes it is imperative for workers to be financially literate, as the responsibility for managing and allocating retirement totals now falls largely on the individual worker. “From the time the worker gets to the firm, they have to decide whether and how much to contribute, how to allocate that pension and also, importantly, what to do when he or she changes jobs. Also, [workers have to decide] how to decumulate the wealth when [they are] going to get the wealth at retirement, so it’s not just the accumulation phase, but the decumulation phase,” says Lusardi. “I would say it is imperative that we not just change the pension and put individuals in charge, but that we provide the type of knowledge and support that is necessary for making those decisions.”

  Overall, Mitchell believes the DC model is better suited to many workers today than was the old retirement plan approach. “What is still in question is whether and how our policymakers will restore Social Security solvency before benefits need to be cut in about a decade,” she says.

  Inspiration for Lifetime Income
  It is common at retirement industry gatherings to hear talk of the “good old days” when pensions used to champion in-plan annuities as a guaranteed paycheck. To Kahn and other experts, what must be kept in mind is that, rather than trying to emulate a system that no longer works for the modern world, plans must evolve to help everyone find retirement security. “The DC market is going to evolve, and what’s driving the innovation is this push toward retirement income solutions,” she says.

  Bellucci says TIAA pays guaranteed lifetime income every month to 33,000 retirees aged 90 or older and will continue until they die. “That sense of security I talked about earlier of not outliving your savings,” he says. “It’s a theory for somebody in their 40s and 50s. It’s a reality for somebody in their 90s, and as a society, we’re living longer.” Curran cites a survey fielded by State Street, in which 76% of survey participants valued an employer retirement solution that provided predictable income. “As we think about innovation and retirement income and this idea of pension nostalgia to us, it comes back to: What are participants expressing in terms of their needs?” he says. “Through their actions and their words and what we’re hearing loud and clear is the need for solutions that address the retirement income challenge.”

• The Good Old Days: Was the Pension Era Really as Good as Its Reputation?, planadviser - 05/31/2023 Description

  Some in the retirement industry look back fondly on the days when company pensions guaranteed paychecks, but experts are not convinced the nostalgia is deserved. “There’s almost like this sort of mythical Camelot,” says Brendan Curran, head of defined contribution for the Americas at State Street Global Advisors. “It’s painted as a rosy and perfect place, initially in the story, but then by the end, you understand that it’s a little bit more multifaceted than that.” Experts say the defined benefit world was not as ideal as it is made out to be, as wide swaths of the population were left without coverage. However, most agree there is still a lot the retirement industry can do to improve the 401(k) model, such as including a DB/retirement paycheck as an option. Curran’s sentiment of not over-glorifying the past pension system is shared by Olivia Mitchell, a professor at The Wharton School of the University of Pennsylvania. “I cast a skeptical eye on those who argue that DB plans represented the best that the ‘good old days’ had to offer,” Mitchell says.

  The defined benefit pension model popular 40 years ago was well-suited to the labor market at the time, Mitchell says. DB plans were offered by large, usually unionized firms at which workers tended to remain their entire careers. Additionally, DB plans typically paid benefits as a lifetime income stream, which helped cover workers protect against longevity risk. “The DB model was not well-suited to many subgroups,” Mitchell says. “[That includes] women who moved in and out of the workforce due to child-rearing, those who changed jobs, non-union workers and employees at small firms lacking the infrastructure to set up and run such complex retirement offerings. Moreover, we now know that many firms did not fully fund their DB plans, leading to drastically reduced payouts when companies went bankrupt.”

  One of the primary issues that has made the DB model less effective over the years is that coverage was built around full career employees, says Melissa Kahn, a managing director and retirement policy strategist at State Street Global Advisors. “Pensions are great for people who work at one company for 30 years or more,” says Kahn. “The reality, as we all know, is that for the majority of people, they will hold somewhere between 10 and 12 jobs in their careers. Pensions, in that situation, aren’t necessarily the best alternatives.” Even with a more transitory job market, DB plans have evolved over time, and many plan sponsors and advisories still see great value in the way they ensure income in retirement for employee bases and organizations for whom it makes sense. In a recent PLANADVISER webinar, DB experts noted that there may even be renewed interest in starting DB plans or unfreezing them to accept new participants thanks to regulations and innovations that can help make them less volatile. Overall, however, the DC world dominates the DB one today.

  Pension Plans: They Weren’t For All
  When thinking about the “glory” days of pensions, however, State Street Global’s Curran says it is important to remember issues with that type of coverage. He points to 2019 testimony that Representative Andrew Biggs, R-Arizona, provided to Congress. The testimony revealed that DB pensions peaked at 39% of workers in 1975. A 1972 study by the Senate Labor Subcommittee found that between 70% and 92% of traditional DB participants did not qualify for a benefit, which Curran believes was due to pension plans having a lengthy vesting requirement. Additionally, he says the DB model did not cover for those on the lower end of the wage scale. “A 1980s Social Security Administration survey found that only about 9% of new retirees that were in the bottom half of the income distribution received any pension benefit, and it was closer to half when you looked at the top quartile of the income distribution,” he says.

  As pension was tied to pay, women and people of color were particularly at a disadvantage, says Kahn. “As we know, women, particularly minority women, make much less than white men do,” she says. “That continues today, and that obviously reflects in the kind of pensions that they’re going to get as well.” Under the DC model, among all workers aged 26 to 64 in 2018, 67% participated in a retirement plan either directly or through a spouse, according to the Investment Company Institute. That number ranged, however, from 59% of those aged 26 to 34 to about 70% of those aged 45 to 64. Coverage also varied depending on income. For those with adjusted gross income less than $20,000 per person, only 25% participated in a plan. For those with AGI of $100,000 per person or more, 88% participated.

  401(k), Social Security the Solution?
  Given the problems with the pension era, might we be better off with 401(k)s and Social Security, if they are used correctly? “The person who’s called the father of 401(k), a gentleman by the name of Ted Benna, always said that the 401(k) was never designed to be the sole source of income,” says Ray Bellucci, executive vice president and head of recordkeeping solutions at TIAA. “Just like Social Security, since its founding in the 1930s, was never designed to be the sole source of income.” However, Bellucci believes if an individual can couple Social Security with a 401(k) or a 403(b), building into their 401(k) savings plan guaranteed income, they can bring the two vehicles together as a very effective income replacement in retirement. “On shared accountability, TIAA believes that the magic number, so to speak, that you should be saving in a 401(k) or a 403(b) between the employer and employees is about 15% of your income,” he says. “That’s what we believe is the right number for you to target.”

  Furthermore, defined contribution plans, including 401(k) and 403(b) plans, are much more portable, allowing workers to roll over their contributions and, usually, employer matches from one job to the next, according to Mitchell. “DC plans also offer a choice of investment strategies to covered workers, which was not the case in the old DB world,” she says. “Of course, if people are not financially literate, they may not select the lowest-cost and best plan investments, and at retirement, people can still take all their retirement assets and spend them.”

  Therefore, Annamaria Lusardi, a professor of economics and accountancy at the George Washington University School of Business, believes it is imperative for workers to be financially literate, as the responsibility for managing and allocating retirement totals now falls largely on the individual worker. “From the time the worker gets to the firm, they have to decide whether and how much to contribute, how to allocate that pension and also, importantly, what to do when he or she changes jobs. Also, [workers have to decide] how to decumulate the wealth when [they are] going to get the wealth at retirement, so it’s not just the accumulation phase, but the decumulation phase,” says Lusardi. “I would say it is imperative that we not just change the pension and put individuals in charge, but that we provide the type of knowledge and support that is necessary for making those decisions.”

  Overall, Mitchell believes the DC model is better suited to many workers today than was the old retirement plan approach. “What is still in question is whether and how our policymakers will restore Social Security solvency before benefits need to be cut in about a decade,” she says.

  Inspiration for Lifetime Income
  It is common at retirement industry gatherings to hear talk of the “good old days” when pensions used to champion in-plan annuities as a guaranteed paycheck. To Kahn and other experts, what must be kept in mind is that, rather than trying to emulate a system that no longer works for the modern world, plans must evolve to help everyone find retirement security. “The DC market is going to evolve, and what’s driving the innovation is this push toward retirement income solutions,” she says.

  Bellucci says TIAA pays guaranteed lifetime income every month to 33,000 retirees aged 90 or older and will continue until they die. “That sense of security I talked about earlier of not outliving your savings,” he says. “It’s a theory for somebody in their 40s and 50s. It’s a reality for somebody in their 90s, and as a society, we’re living longer.” Curran cites a survey fielded by State Street, in which 76% of survey participants valued an employer retirement solution that provided predictable income. “As we think about innovation and retirement income and this idea of pension nostalgia to us, it comes back to: What are participants expressing in terms of their needs?” he says. “Through their actions and their words and what we’re hearing loud and clear is the need for solutions that address the retirement income challenge.”

• Seniors concerned about Social Security amid debt limit uncertainty, wkbw.com - 05/29/2023 Description

  President Joe Biden and House Speaker Kevin McCarthy struck a deal on the debt ceiling over the weekend in a step toward averting what many experts say could have been a financial disaster for the U.S. But weeks of political back and forth left many American seniors on edge, concerned Social Security checks could’ve been delayed. For Claudia and John Vrabel of Westminster, Maryland, their golden years have come in a palette of colors. At 76, John Vrabel has found passion in gardening at his Maryland home. “I’ve always had a garden, and had to work in one as a kid,” John Vrabel said. But these days these two retirees are concerned with one color in particular — green.

  The Vrabels are on a fixed income. They get $2,100 a month from Social Security, which helps pay bills, buy groceries and pay the mortgage. But for the Vrabels — and millions of other Americans — it’s been a nerve-wracking few weeks. Political back-and-forth over the debt ceiling left them wondering if their Social Security check might be delayed. “That would kill us,” Claudia Vrabel said. “I don’t know how we’d manage. Where are we gonna get money from? The only thing I can do is borrow money off the house.”

  By Monday, it appeared Social Security checks wouldn’t be delayed, as it would be highly unlikely the U.S. will now default on its debt obligations. “It’s irresponsible to be playing political games with a population that has worked hard, played by the rules,” said Ramsey Alwin, CEO of the National Council on Aging. An estimated 69.1 million people receive Social Security in this country, and 97% of them are seniors. “Americans are already starting to see some of the pressure this whole debate is imposing on the economy,” said Olivia Mitchell, a professor at the Wharton School.

• U.S. debt default could hit Social Security payments first, The Washington Post - 05/24/2023 Description

  Seniors nationwide are on the front lines of the fight to raise the debt ceiling, because if the federal government can’t make a June 2 payment slated for Social Security recipients, the oldest beneficiaries — those over 88 — and people with disabilities will be the first to suffer.

  Roughly $98 billion worth of benefits, including Medicare, Medicaid, and military and civil retirement payments, are scheduled to go out in the first two days of June, according to an analysis by the Bipartisan Policy Center.

  Representatives from the White House and House Republicans continued talks on Wednesday aimed at raising the debt ceiling, before the government risks defaulting on debts owed, which could happen as soon as June 1.

  The timing of an early June default threatens to hurt the country’s oldest and poorest Social Security recipients, said Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities.

• The case for financial literacy education, NPR.org - 05/16/2023 Description

  Financial literacy education does not have a great reputation. It’s a huge industry, spawning all sorts of books, web channels, TV shows and even social media accounts — but past studies have concluded that, for the most part, financial literacy education is kind of a waste of time. For example, a much cited paper published in the journal Management Science found that almost everyone who took a financial literacy class forgot what they learned within 20 months, and that financial literacy has a “negligible” impact on future behavior. A trio of academics at Harvard Business School, Wellesley College and the Federal Reserve Bank of Chicago, produced a working paper that showed that mandated Finlit classes given to high schoolers made no difference to the students’ ability to handle their finances. And the list goes on. The name that comes up again and again in these papers and reports on financial literacy is Annamaria Lusardi. She is a professor of economics and accountancy at the George Washington University School of Business. She’s also the founder and academic director of the Global Financial Literacy Excellence Center at GWU. She and Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School of Business, published a paper in 2013 that amounted to a study of studies about financial literacy, and it was quite critical of the way financial literacy programs are taught. This study of studies has been widely quoted ever since.

  New Hope For Financial Dullards
  Ten years later, Lusardi and Mitchell are out with a new paper, similarly titled, but much more upbeat. “The Importance of Financial Literacy: Opening A New Field,” picks up where their 2013 study of studies left off, and it draws on the two women’s experience teaching personal finance. The first thing they establish is that the level of financial literacy, globally, is just as woeful as it was when they released their seminal paper ten years ago. To establish this, they conducted a survey that asked participants three questions, which focus on interest rates, inflation and risk diversification. “These are simple questions,” Lusardi says, “Yet they test for basic and fundamental knowledge at the basis of most economic decisions. In addition, answering these questions does not require difficult calculations, as we do not test for knowledge of mathematics but rather for an understanding of how interest rates and inflation work. The questions also test knowledge of the language of finance.” How did respondents do? Let’s just say there is room for improvement. (You can test your own knowledge by checking out the paper).

  “Only 43% of the respondents (in the US) are able to answer all of the questions correctly,” Lusardi says, adding that the level of financial illiteracy is particularly acute amongst women. “Only 29% of women answer all three questions correctly, versus 48% of men,” she says, adding that this gender difference is strikingly stable across the 140 countries that they ran the test in. “We also see … that women are much more likely than men to respond that they do not know/refuse to answer at least one financial literacy question,” she says. Such gender differences are likely to be the result of lack of self-confidence, in addition to lack of knowledge.”

  Young people are also more likely to be disadvantaged in this area, Lusardi and Mitchell found, as are people of color. “The young display very low financial literacy, with only one-third being able to answer all three questions correctly. Half of Whites could correctly answer all three questions, versus only 26% of Blacks and 22% of Hispanics.” This is a problem, Lusardi says, not just because it means that many people are ill equipped to handle an increasingly complicated and complex financial landscape that can impact their earnings and long-term wealth. There are obvious social implications to the fact that white males appear to have a significant edge on the rest of the population in this area. And if that isn’t enough, Lusardi says, it’s also a problem for the economy.

  “On average, Americans spend seven hours per week dealing with personal finance issues, three of which are at work. People with low financial literacy spend double that amount,” she says. The impact on productivity of people spending most of an entire working day on their personal finances whilst at work is considerable, she goes on. Add in the consequences of mismanagement of assets, investments, mortgages and other debt, and there is a significant potential effect on the economy. Lusardi says this idea, that the damage wrought by a lack of financial literacy might extend beyond the individual — to companies and even to the economy has not escaped the notice of governments. “Influential policymakers and central bankers, including former Fed Chairman, Ben Bernanke, have … spoken to the critical importance of financial literacy,” the paper says. “Additionally, the European Commission has recently acknowledged the importance of financial literacy as a key step for a capital markets union. Some governments have … implemented financial literacy training in high schools. Several years ago, the Council for Economic Education (CEE 2013) established National Standards for Financial Literacy, detailing what should be covered in personal finance courses in school.”

  Fixing The Flaws
  A decade ago, Lusardi and Mitchell were somewhat critical of the financial literacy courses offered by companies and schools. The programs were generally not effective, they said, not because the concept of personal finance education was flawed per se, but because the various programs were generally not well resourced, and often poorly conceived. “Most of these (courses) in the US were unfunded,” Lusardi says. “There was no curriculum. There were no materials, and teachers were hardly trained. So the gym teacher was teaching financial literacy, or anybody they could find. This is, of course, not going to work. It wouldn’t work for any topic. If you have a course in French and the teacher doesn’t speak good French, (students) are probably not going to learn good French either.” Moreover, the classes, whether taught in schools or in corporate offices, tended to provide one-shot, one-size-fits-all instructions, with little or no follow-up. Lusardi says that was a recipe for failure. But those organizations that have recognized the need for financial literacy programs, and that have persisted in developing them, have made progress, she says.

  “Many programs have moved beyond very short interventions, such as a single retirement seminar or sending employees to a benefits fair, to more robust programs,” Lusardi says. “Financial literacy has now become an official field of study in the economics profession. Many initiatives at national levels have been launched, and more than 80 countries have set up national committees entrusted with the design and implementation of national strategies for financial literacy.” Lusardi says it’s particularly important to teach and consolidate principles of good personal finance as early as possible, which means starting at home — where children are likely to model good financial habits — and in school. To that end, the Programme for International Student Assessment in 2012 added financial literacy to the set of topics that 15-year-old students need to know to be able to participate in modern society and be successful in the labor market. Lusardi says that in the decade since she and Mitchell released their 2013 report, their experience teaching financial literacy has proved that these programs, properly taught, can work. “Our research shows that much can be done to help people make savvier financial decisions,” she says, noting that a successful course will help people grasp key fundamental financial concepts, particularly financial risk and risk management. It will help them understand the workings of specific financial instruments and contracts, such as student loans, mortgages, credit cards, investments, and annuities. It will also make them aware of their rights and obligations in the financial marketplace.

  Most importantly of all, of course, it will attract and retain the students’ interest, which isn’t always easy in the dry world of finance. “I teach very differently now because of my research,” Lusardi says. “I say, what do you think this course is about? And as you can imagine, most of the students think it’s about investing in the stock market. That’s what personal finance is associated with. And I tell them, ‘No, this is a happiness project. We talk about all of the decisions that are fundamental and important in your life. And I want to teach you to make them well, because if you do, you are going to be happy.'”

• Projecting the Future of Health Care Needs in Aging Populations, Penn LDI - 05/08/2023 Description

  The second annual University of Pennsylvania Population Aging Research Center (PARC) Aging Retreat focused on the dramatic demographic changes that represent one of the American health care system’s most daunting challenges as its population continues to skew ever older.

  Co-Directed by LDI Senior Fellows Norma Coe and Hans-Peter Kohler, PARC was established in 1994 with a grant from the National Institute on Aging. The organization brings together multidisciplinary health services researchers from seven of Penn’s Schools to study the demography and economics of aging, with a particular focus on aging in marginalized minority and ethnic populations.

  Coe, PhD, is an Associate Professor of Medical Ethics and Health Policy at the Perelman School of medicine with research interests in health economics and public finance. Kohler, PhD, is a Professor of Demography in the Department of Sociology with research interests in fertility and health in developing and developed countries.

  The day-long Aging Retreat on May 1 at Penn’s Perry World House featured 14 speakers who presented on the latest research looking ahead at what the sweeping demographic changes mean for the economy of health care, health equity, and the wellbeing of both the ballooning elderly population and its caregivers.

• Pandemic-Era Debt Weakened Retirement Readiness, Think Advisor - 03/21/2023 Description

  What You Need to Know
  A new paper set to be published in the Financial Planning Review underscores how debt problems interact with retirement readiness.
  The data shows significant retirement readiness gaps and differences in debt constraints between various demographic groups.
  People who correctly answered fundamental financial literacy questions appear to have less debt and to be better prepared for retirement.

  Driven by the COVID-19 pandemic, many households have experienced financial shocks over the past several years due to unemployment, working-hour cuts, furloughs and drops in compensation. Such shocks, combined with insufficient emergency savings, have constrained their balance sheets — and jeopardized their retirement preparedness. This is according to a new analysis set to be published in the Certified Financial Planner Board of Standards’ Financial Planning Review. The forthcoming paper, written by contributing researchers Andrea Hasler, Annamaria Lusardi and Olivia S. Mitchell, details which U.S. population subgroups report feeling most debt-constrained, how this perception was affected by the COVID-19 pandemic, and how it relates to financial literacy and retirement readiness. The researchers say their analysis shows that, prior to and during the pandemic, one in three American adults felt constrained by their debt. The percentage was higher among what the authors refer to as “vulnerable” subgroups, including Black and Hispanic individuals, those lacking a bachelor’s degree, those with lower incomes and those with low levels of financial literacy. According to the trio, being debt-constrained also has negative long-term financial consequences, particularly when it comes to planning and saving for retirement. Ultimately, the authors explain, financial literacy has a strong connection to both debt and retirement money management, “confirming that financial knowledge is essential if people are to be able to manage their debt and build financial well-being.”

  Setting Up the Analysis
  As the researchers explain, the key underlying data for the new analysis stems from the TIAA Institute-Global Financial Literacy Excellence Center Personal Finance Index, which is a survey tool designed to measure Americans’ knowledge and understanding of the factors leading to sound financial decision-making and effective management of personal finances. The index itself is based on a repeating, nationally representative survey that was first fielded in 2017. For their present study, the researchers analyzed and compared the 2020 and 2021 data waves, both of which were collected in January of their respective years. Accordingly, this design permits the researchers to compare data collected right before the COVID-19 pandemic hit, and then again 10 months into the crisis. Notably, Black and Hispanic Americans were oversampled in 2021, permitting Hasler, Lusardi and Mitchell to analyze these historically underrepresented groups in finer detail, though both surveys included statistical weights to generate nationally representative results. From this starting point, the researchers examine how people reported that debt has constrained their progress toward personal finance goals, and they also study responses to questions asking about late debt payments — a clear indicator of debt being burdensome for people’s personal finances. According to the researchers, this late-payment question is additionally useful as a robustness check on the debt-constraint measure, though they admit they cannot perfectly compare results over time, as the wording of the questions in 2020 and 2021 changed somewhat.

  Running the Numbers
  The analysis shows that, in 2021, almost one-third of respondents indicated that they felt debt-constrained, and 22% reported being late on their debt payments. By comparison, in early 2020, prior to the pandemic’s full-fledged arrival in the U.S., the same percentage of the U.S. population stated it felt debt-constrained, but only 13% of respondents reported being late on their debt payments. Hasler, Lusardi and Mitchell suggest these results show that debt and debt management is not a short-term issue facing many Americans. “Rather, it has been a concern for some time,” they write. “The changed wording of the late debt payment question explains why so many answered the 2021 question positively, as it included not only those who were late on loan payments (similar to 2020), but also people in arrears on their bills.”

  Next, the researchers turn to an investigation of the long-term consequences of debt by examining two indicators of retirement readiness, including retirement planning and saving for retirement. According to the authors, it is important to understand retirement readiness for three reasons. First, retirement planning is a strong predictor of wealth. Second, given the fact that the income replacement rates provided by Social Security are far less than 100% for most retirees, workers today must set aside private savings to ensure their financial security after they stop working. Accordingly, a lack of retirement wealth may be a leading indicator of financial fragility in retirement. Third, people who plan for retirement also tend to be savvier about their life cycle financial resources. Across both survey years, results show that around 58% of U.S. non-retirees saved for retirement on a regular basis. However, only about 37% reported having ever tried to figure out how much they needed to save for retirement.

  Nuances in the Results
  The researchers then turn to a more detailed analysis of the self-reported debt-constraint measure, including its correlation with financial literacy and retirement readiness. They find that, in 2021, around 30% of Americans reported feeling constrained by their debt, while some 20% took a neutral position and the remaining 50% did not feel that debt and debt payments prevented them from adequately addressing other financial priorities. Comparably, 22% reported being late on their debt and bill payments in 2021. The researchers say these figures are alarming enough on their own, but the averages hide large differences across demographic subgroups. Specifically, among Black Americans and Hispanics, 38% and 46% felt debt-constrained, respectively, in stark contrast to the white population, where 26% reported being financially constrained by their debt. The researchers say these figures underscore meaningful differences by race and ethnicity, indicating that Black Americans and Hispanics likely face more challenges with short- and long-term financial well-being. The researchers say their findings match those of other recent research investigating broad measures of financial well-being that include debt management across different racial and ethnic groups. As in those analyses, Hasler, Lusardi and Mitchell find education appears to be another factor important to debt management.

  Significantly fewer respondents with at least a bachelor’s degree (23%) reported feeling constrained by their debt, compared to their peers with some college but no degree (33%) or only a high school degree (32%). This gap exists even when controlling for a range of socio-demographic variables including income, according to the researchers. Beyond general education levels, Hasler, Lusardi and Mitchell also analyze respondents’ financial literacy and financial education levels. Overall, people who could correctly answer three fundamental financial literacy questions assessing knowledge of interest, inflation and risk diversification were significantly less likely to indicate that they felt debt-constrained. Specifically, one in five (21%) of the financially literate reported being debt-constrained, versus more than one in three (35%) among those who could not correctly answer a handful of targeted financial literacy questions.

  Overall, according to Hasler, Lusardi and Mitchell, fewer survey respondents who had participated in a financial education class or program offered in high school or college, in the workplace, or by an organization or institution in their community felt debt-constrained compared to respondents who did not participate in a financial education class or program.

  Takeaways for Retirement Advisors
  The researchers suggest a key part of their work is the effort to determine whether being debt-constrained matters not just for short-term but also for long-term financial outcomes. To get at the question, they examine the link between the debt-constraint measure and retirement readiness. The data provides initial evidence of a strong correlation, the researchers say. According to Hasler, Lusardi and Mitchell, in January 2021, only 31% of non-retired debt-constrained respondents reported having ever tried to figure out how much they need to save for their retirement. Of non-retired respondents who were not debt-constrained, 47% indicated that they had been planning for retirement. “This large difference underscores the strong correlation between struggling with debt and lack of retirement readiness,” the researchers posit. “An even more pronounced result arises in the pre-pandemic data (for 2020), with 26% of debt-constrained respondents indicating that they planned for retirement, versus 49% of respondents who were not debt-constrained.” Similarly, in 2021, 41% of non-retired debt-constrained respondents said they regularly saved for retirement, whereas 74% of non-retired respondents who said they were not debt-constrained saved for retirement. Findings are similar for the previous year and for the late-on-debt payments measure, the researchers note, providing strong evidence that being debt-constrained affects retirement readiness.

• Americans are saving the least since 2005, miamitimesonline.com - 03/08/2023 Description

  Unusual. Historic. Concerning. These are terms economists use when they look at American saving habits today. Stacker examined what the decline in setting aside those funds means for the future financial health of the average American. Consumers saved about 3.4% of their monthly income in December, a slight uptick from November’s 2.9%, according to the Bureau of Economic Analysis. That figure has hovered around the lowest since 2005, when the United States was careening toward the Great Recession. At the same time, data suggests Americans have continued spending at rates above pre-pandemic norms. And they’re putting even more expenses on credit cards – a trend that began to pick up in the summer of 2021. The rate is “unusually low,” said Anthony Murphy, a senior economic policy adviser for the Federal Reserve Bank of Dallas.

  The Personal Saving Rate, a figure economists watch to keep a pulse on the health of consumers from month to month, measures how much income Americans are storing away in a bank account. It is not a measure of the actual amount of money sitting in savings accounts or the equity they may hold in real estate or the stock market. The saving rate provides a sense of how American consumers are behaving at the moment – what decisions Americans are making today as they think about the future and how they’ll cover expenses down the road. As low as the rate is now, it might not be rock bottom, says Olivia S. Mitchell, a professor at the University of Pennsylvania’s Wharton School of Business, where she researches retirement and saving behavior. She says the saving rate could turn negative in 2023, meaning households are spending more than they make in income.

  A big unknown
  In early 2020, the pandemic’s impact on spending and the thousands of dollars in stimulus checks approved by Congress made it possible for Americans to squirrel away a record $1 out of every $3 they received. “I’ve never seen a number like that,” Mitchell said. As Americans saved far less in recent months, analysts and experts have varying views on how long it will be before all that stashed cash runs out. “The big unknown really is … will there be a recession?” Mitchell said. A recession, she says, would mean Americans may have a harder time finding consistent employment and building their savings back up. Without padding in savings accounts, consumers run the risk of an emergency expense causing them to fall behind, or even default, on debt payments for a vehicle, home or rent. There is evidence, for example, that an increased number of Americans defaulted on their vehicle loans last year, according to Cox Automotive, though the rate remains below historical standards.

  The last time Americans saved as little month-to-month as they do today was in the run-up to the 2008 financial crisis. From 2010-2020, the U.S. saving rate hovered around 7% of income. The saving rate turned negative in 2005, causing debate among economists as to whether a “reckoning for consumers” was “finally” in store. They received their answer in 2007 as lenders began to collapse due to the poorly structured loans that helped fuel consumer spending on homes. The silver lining for this current moment, according to economists like Mitchell, is that many Americans who want to work have jobs, as evidenced by the continually low unemployment rate. Americans who have set financial goals say they’re optimistic about making financial progress in the year ahead, according to a January 2023 survey from Morning Consult. In December, just 5.7 million Americans were unemployed despite wanting a job, a total of about 3.5% of the working population, according to the Bureau of Labor Statistics. That rate is also a low figure for the U.S., which required nearly a decade of job creation and recovery to reach following the Great Recession.

  Paycheck to paycheck
  The National Bureau of Economic Research has yet to officially declare a recession. Still, Bankrate senior analyst Mark Hamrick in a statement called the prospect of a recession “concerning.” Economists are generally watching to see when, and if, layoffs may spread beyond the tech sector, which has seen 200,000 job cuts since the start of 2022. That’s because mass layoffs could impact whether the current financial profile of the American consumer is sustainable. More than half of Americans say that if they had to pay for a one-time $1,000 emergency expense, they would not do it with savings, according to Bankrate’s annual Emergency Savings Report conducted in December 2022. Instead, 25% of respondents told Bankrate they would sooner cover that expense with a credit card, and others said they would use personal loans or other means. That’s the sentiment even as credit debt is at a recorded high and interest rates on credit cards are climbing. Bankrate has performed its survey since 2014 and said the 1-in-4 response rate on its question about covering an emergency expense with credit was a record high.

• SENATE LAWMAKERS WORK TO ADDRESS SOCIAL SECURITY AND MEDICARE SOLVENCY, medillonthehill.edu - 02/16/2023
• La función de copiar y pegar los contenidos del Diario Financiero es exclusiva de los usuarios DF Full. Si está suscrito ingrese con su clave y podrá hacerlo. Si no cuenta con suscripción puede suscribirse llamando al 23391048 o escribiendo a suscripciones@df.cl De otra manera queda expresamente prohibida la publicación, retransmisión, distribución, venta, edición y cualquier otro uso de los contenidos (Incluyendo, pero no limitado a, contenido, texto, fotografías, audios, videos y logotipos). Muchas gracias., Diario Financiero - 01/01/2023 Description

  -¿Cómo cree que se debiese avanzar en una reforma a las pensiones en Chile? ¿Qué elementos debería contener la reforma?
  When I served on the last Presidential Pension Reform Commission, our group recommended many proposals, the most important of which included strengthening the funded pension pillar by raising the retirement age, boosting contributions, cutting commissions and fees, and boosting benefits for the very low-income elderly. The adoption of the PGU has helped the lot of the elderly poor, but the other three recommendations have still not been adopted.

  -El Gobierno propone un mecanismo de “cuentas nocionales” en la cotización adicional del 6%. ¿Qué le parece que Chile transite a un mecanismo como este?
  I am opposed to a notional accounts proposal, as it would be nothing more than moving to a pay-as-you-go system – one which Chile will not be able to afford without massive cuts in other spending or large tax increases, due to rapid population aging.

  -¿Cómo cree que se podría llegar a un acuerdo en esta materia considerando que el Gobierno y la oposición en el Congreso tienen visiones muy distintas en materia de pensiones?
  Reforming retirement systems is always difficult, but doing so in Chile is particularly important now, in the wake of the pandemic, where politicians permitted people to withdraw far too much, too early, from their retirement accounts. The economic reality is that this policy had quite regressive effects, cutting future pensions the most for workers earning lower wages and having lower contribution density. Our research suggest that projected benefits for pre-retirees could drop by over 70%, which would necessitate 9-11 additional years of work to make up the difference.

  -¿Qué opina sobre el rol del Estado en la administración de fondos? Debiese existir un administrador estatal con un rol con ventaja (por ejemplo default) o cree que las condiciones deben ser parejas tanto para administradores privados como para uno estatal?
  From an economic viewpoint, I see no need for a new government agency to get involved in administration of the Chilean pension system. There is already a well-functioning mechanism to collect contributions, manage assets, and pay benefits. Additionally, there is a Pension Superintendency in charge of overseeing plan investments and fees. What could be useful is the adoption of a policy requiring all pension system members to be periodically defaulted to the lowest cost plan, where all AFPs would have to provide tender offers on fees and expenses. This could enhance retirement security for all employees, and not just new entrants.

• Early Pension Withdrawals in Chile During the Pandemic, Penn Libraries - 01/01/2023 Description

  Chile, with one of the largest and best funded defined contribution programs in Latin America, held over USD $200 bn in assets at the onset of the Covid-19 crisis, or more than 80% of GDP. Reacting to populist pressures during the pandemic, however, the government gave non-retired participants three separate opportunities to tap into their retirement accounts, leaving some 4.2 million participants with zero retirement savings and draining around $50 bn from the system. This paper explores several hypotheses regarding why people withdrew their pension money early, and it also presents evidence regarding the likely impact of this short-term policy on long-term retirement wellbeing. We conclude with lessons for global policymakers seeking to protect pension assets critical for retirement security.

• 'It's not their money': Older Americans worried debt default means no Social Security, abc News - 01/01/2023 Description

  If the United States defaults on its financial obligations, millions of Americans might not be able to pay their bills as well.

  With Social Security and other government benefits at risk amid a political stalemate over the government’s debt ceiling, experts and older Americans told ABC News that the consequences of the impasse in Washington could be dire, including for older Americans who need the money to pay for basic needs such as food, housing or health care costs.

  A quarter of Americans over age 65 rely on Social Security to provide at least 90% of their family income, according to the Social Security Administration.

• Can you afford to retire?, The Economist - 12/05/2022
• Americans' 4 biggest retirement regrets and how to avoid them - 12/02/2022 Description

  Saving for retirement is all about preparing for the future. But once they reach retirement age, many Americans find themselves regretting the past. Research shows a majority of older Americans wish they’d prepared better for their golden years. According to a paper by researchers at the Hebrew University of Jerusalem and the University of Pennsylvania published in the National Bureau of Economic Research, almost six in 10 Americans aged 50 and older wish they’d saved more for retirement. Other regrets are more specific: Respondents wish they’d prepared better for health expenses, filed for Social Security later or stayed in the workforce longer. The good news is there are ways to avoid these regrettable decisions before it’s too late — or even afterward, to mitigate their consequences. Advisors can help. The key, experts say, is to have the client envision what their ideal retirement looks like — and doesn’t look like — in as much detail as possible. “Don’t have the goal be simply to not have any regrets, but think through what regrets you don’t want to have,” said Jacquette Timmons, a financial behaviorist and the CEO of Sterling Investment Management. “The more specific you are about the regret you want to avoid, the more intentional you can be about what you do or don’t do today.”

  Here’s a look at America’s top retirement regrets and how advisors can help clients steer clear of them.
  Not saving enough
  The most common regret of all is undersaving. According to the study published by the NBER, 57% of Americans regret not having stashed away more for their post-work years — either because they started too late or just saved too little. “Everybody wishes they had started sooner or contributed more,” Timmons said. When a client still has many years left before retirement, the solution is obvious: Save more. Nicole Cope, senior director of Ally Invest Advisors, said she encourages younger clients to scale back on dining out, taking vacations and “keeping up with the Joneses.” But even for older clients, minor tweaks can result in big savings — like spending less on family gifts or waiting longer to buy a new car. It’s after retirement, she said, when the conversation gets harder. Two or three years after leaving their jobs, some clients realize they can’t afford the lifestyle they’d been looking forward to. At that point, Cope said, the best thing an advisor can do is help readjust the client’s expectations — while staying as positive as possible. “The first thing is, you don’t shame anybody. It should be a judgment-free zone,” Cope said. “You can’t go back in time. You can only plan for the future.”

  Healthcare costs
  Another major regret has to do with healthcare, which is extraordinarily expensive in the United States. According to the Kaiser Family Foundation, U.S. spending on healthcare per capita is more than twice that of the average wealthy country. One regret Cope often hears from her clients, she said, is that they neglected to save specifically for these costs. “They think of their living expenses, including healthcare, as one lump sum,” she said. “And we all know that healthcare inflates at a much higher rate than basic living expenses.” When clients still have years left to save, Cope said, advisors can help by pushing them to plan in as much detail as possible — “to break those goals up and get very granular.” But later in life, many clients regret not planning for long-term care, such as nursing homes, home care and assisted living. According to the NBER study, 40% of respondents regretted not buying long-term care insurance, which gets more expensive the longer one waits to buy it. Timmons said she’s heard this regret from her clients. But instead of despairing, she got creative. “If it’s too expensive for you to do it now, can you create your own version?” Timmons recalled asking. “So maybe you can’t do that through an insurance company… but can you perhaps set up an investment account that’s purely for long-term care?”

  Social Security
  Procrastination is normally a bad thing, but when it comes to filing for Social Security, later is usually better. Those born in 1961, for example, can start collecting at age 62, but they’ll only receive 70% of the benefit. To get 100%, they need to file at 67 — and if they can wait even longer, they’ll get even more money in the form of delayed retirement credits. “The longer you can wait, the better, because the amount will be more,” Timmons said. Unfortunately, some seniors don’t understand this until it’s too late. Cope said clients sometimes come to her asking for ways to maximize their Social Security, long after they filed at the earliest possible age. “Clients always want to understand the loopholes,” she said. “Like, ‘Oh boy! I took this at 62, now I’m at full retirement age, how do I get the full benefit?’ That’s a misunderstanding that could easily be rectified by speaking with an advisor 10 years before you retire.” This mistake fills many retirees with regret — the authors of the NBER study found that 23% wished they’d filed for Social Security later. To avoid this, Cope said, investors should discuss their plan for the program with an advisor — and unlike filing, they should do this as early as possible. “That, to me, is the retirement red zone — 10 years before you retire, you should have a plan in place for retirement,” she said. “Part of that plan should be Social Security optimization.”

  Retiring too early
  Sometimes retirement itself is the regret. More than a third of the seniors who spoke to the NBER study’s authors — 37% — felt they left the workforce too early. The financial advantages of retiring later are obvious: more earnings, more time to save and the retiree can claim Social Security later. But there are also other, less tangible benefits. “Personally, I do think people should work a little bit longer,” Timmons said. “Not just from a financial standpoint, but from an engagement standpoint, it’s beneficial.” Both Timmons and Cope said working longer — when possible — is often good for the mental and social health of a client. But even in retirement, there are ways to keep one’s mind just as active. “One thing that I always tell my clients is that you’re not retiring from something; you’re retiring to something,” Cope said. “So that becomes a very important conversation: finding out what their hobbies are, finding ways to fill their time.” Cope recalled one client whose “entire identity” was wrapped up in his work, and she worried he would struggle in retirement. After many discussions with him, Cope realized the thing that gave this client joy was “building something from nothing.” So to fill the void left by his job, Cope helped him get involved in several local charities, where he put his creative skills to work. “He ended up flourishing in retirement,” Cope said. And flourishing is a much healthier state of mind than regret.

• Tweet by UW-Madison CDHA on Twitter - 09/14/2022
• Opinion: Social Security could be insolvent ‘within 8 years,’ economist warns, Brett Arends, marketwtach.com - 08/25/2021 Description

  How much financial damage has the Covid crisis done to Social Security? We may be about to find out. The 2021 annual report from the Social Security trust fund administration is expected to drop within weeks, possibly days, my sources say. This will be the first official status report on the fund’s finances since COVID-19 swept across America last year. This year’s report is already about four months late. The report will be critical. One of the country’s leading experts is warning that ‎the Social Security trust fund could run out of money as soon as 2029, five years ahead of official projections, because of the fallout from the Covid crisis. That’s the warning from Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School of Business and director of their Pension Research Council.

  “It seems that the date of insolvency of SS has crept sooner — perhaps as early as 2029,” Mitchell says in a new Wharton podcast. She adds: “So that’s in eight years. And that’s partly a function of a lot of people having lost their jobs, so they’re not paying in [to] Social Security. Some people have retired early, so they’re claiming earlier and therefore drawing down.” The last official projection from the trustees said the system would be OK until 2034. But that prediction was made early last year. It is hopelessly out of date. ‎ “This year the trustees are very late,” says Mitchell. “They have not issued their report, and it’s August. They’re supposed to put it out in March or April. So nobody really knows what the numbers are going to be.”

  The independent Congressional Budget Office has already brought forward its expected date of insolvency to 2032. Almost all of us will be relying on Social Security to varying degrees in our senior years. Some 180 million Americans are members of our national pension plan, which was set up by Franklin Roosevelt during the Depression and has been the mainstay of American retirement ever since.

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• Streamlined DC Investment Menu Could Save Participants Millions, Plansponsor - 12/30/2015
• To Delay Social Security Claiming, Offer Lump Sum Benefit: Report, ThinkAdvisor - 12/10/2015
• Target Date Funds: Top 3 for Each Retirement Period, Yahoo! Finance - 11/25/2015
• Obama's MyRA Retirement Savings Plan Goes Nationwide, Bloomberg Business - 11/04/2015
• What the U.S. can learn from Chile’s retirement system, Fortune - 10/29/2015
• Retirement Living: Debt holds many Boomers back, USA Today - 10/21/2015
• Loan is not a four-letter word, Vanguard Blog for Institutional Investors - 10/07/2015
• Yes, Chilean Personal Retirement Accounts Work, Investors.com - 10/05/2015
• Baby Boomer Women and the Burden of Debt, Wall Street Journal - 10/01/2015
• Pension advances draw scrutiny, Market Place - 09/29/2015
• What really happens when pensions disappear, CNBC - 07/24/2015
• 10 top women in economics, Agenda - 07/23/2015
• Choice a Detriment to Public Worker Retirement Savings, Plansponsor - 07/20/2015
• Financial Literacy Among CEOs and CFOs on LinkedIn, Plansponsor - 07/13/2015
• Leakage from 401(k) loans, defaults is greater than thought, benefitspro - 07/01/2015
• GFOR: Adding annuities to DC plans still open to debate, Pensions & Investments - 06/25/2015
• Why people don’t buy long-term-care insurance, MarketWatch - 06/25/2015
• With long-term care coverage so costly, what do the pros do?, Philly.com - 06/22/2015
• Why People Don’t Buy Long-Term-Care Insurance, Wall Street Journal - 06/14/2015
• Powell: How to fix America's retirement problems, USA Today - 05/21/2015
• When one partner makes more than the other, CNN Money - 04/20/2015
• Sponsors’ Approach to Loans Affects Retirement Plan Leakage, Plansponsor - 04/20/2015
• New Proposed Rules for Retirement Investments, Market Place - 04/15/2015
• One Economics Book We All Should Read, Wall Street Journal - 04/15/2015
• The Biggest Hit to Your Retirement Savings: Living Too Long, NY Times - 04/03/2015
• Retirement plans adding annuities, Consumers Digest - 03/31/2015
• A Three-Question Test of Financial Literacy, Wall Street Journal - 03/25/2015
• Higher financial literacy would benefit everyone, Philly.com - 03/16/2015
• NYC comptroller announces group to study retirement plan for private-sector employees, Pensions & Investments - 02/27/2015
• Delay Social Security, get a bonus?, Bankrate - 02/11/2015
• A Retirement Age of 100? It’s Coming, Wall Street Journal - 02/09/2015
• The Timing of Pension Payouts and Social Security Claiming, NBER - 02/06/2015
• Late Retirement Bonus: How the Government can Incentivize Working Longer, Chicago Policy Review - 01/30/2015
• Fiduciary Re-Proposal, Fee Disclosures On Deck for 2015; MEPs Wait in the Wings, Bloomberg BNA - 01/16/2015
• Easing Into Leisure, One Step at a Time, NY Times - 01/02/2015
• Annuities, IRAs and other retirement game-changers, MarketWatch - 12/29/2014
• Decision on pension payout will last a lifetime, The Boston Globe - 12/21/2014
• Congress Says It Has to Cut Pensions to Save Them, Bloomberg - 12/11/2014
• One weird trick to shore up Social Security's finances (really), Vox - 11/18/2014
• Female Financial Advisers Sought as Boomers Need Planning, Bloomberg - 11/18/2014
• Can stock purchase plans help contain 401(k) loans?, FierceCFO - 11/17/2014
• Why Prenups Aren’t Just for Financial Issues, Wall Street Journal Blog - 11/12/2014
• With court's approval, Detroit emerges from bankruptcy, Los Angles Times - 11/07/2014
• Pension problem: What to do if the PGW deal is dead, Philly.com - 10/31/2014
• Cities Are Eliminating the Healthcare Benefits Once Promised to Retirees, The Atlantic - 10/14/2014
• Student loans plus financial illiteracy equals big debts for some older women, The Washington Post - 10/03/2014
• Retirement and debt usually don't mix, Consumer Affairs - 09/19/2014
• Retirement and debt usually don't mix, Consumer Affairs - 09/19/2014
• Better no Social Security replacement rates than wrong replacement rates, AEI-Ideas - 09/03/2014
• Boomer Wealth Dented by Mortgages Poses U.S. Risk, Bloomberg - 08/28/2014
• 2014 RRC Meeting: Olivia S. Mitchell, Youtube - 08/20/2014
• Comisión Pensiones sesiona por primera vez con integrantes internacionales, Comisionpensiones - 08/20/2014
• Financial Savviness Linked to Better 401(k) Returns, Plansponsor - 07/07/2014
• Want to Add 130 Bps to Your Clients’ 401(k) Returns? Educate Them, Think Advisior - 06/30/2014
• The Risks of Taking a 401(k) Loan, US News - 06/09/2014
• The Financial Sacrifice of Socially Responsible Investing, Wall Street Journal - 06/05/2014
• Financial knowledge and investment performance. No monkey business?, The Economists - 06/04/2014
• Get smart and get better 401(k) returns, USA Today - 05/26/2014
• The Power of Knowledge: Focus on Funds Video, Barrons - 05/21/2014
• Got Knowledge? Informed Investors Get Juicier 401(k) Returns, Barrons - 05/19/2014
• How to Evaluate the Costs of MyRAs, Wall Street Journal - 05/08/2014
• Cost of living as a retirement priority, Bankrate - 05/05/2014
• Why a sale of PGW makes sense, Philly.com - 04/27/2014
• The tweeting professors, Daily Pensylvanian - 04/18/2014
• Reading, writing, arithmetic - and financial literacy, The Hill - 04/16/2014
• The 401(k) Loan: America’s Pricey New Piggy Bank, The Fiscal Times - 04/08/2014
• Exchanging Delayed Social Security Benefits for Lump Sums, Youtube - 04/08/2014
• The Staggering Statistic Threatening Your Retirement, Time - 04/07/2014
• A 401(k) Loan? The Answer Isn’t So Obvious, Wall Street Journal - 03/17/2014
• Low Rates Haven't Stopped Annuities Sales, Business Week - 03/06/2014
• Boeing Shifts 26,000 Non-Union Workers In The Seattle Region Away From A Pension, KPLU 88.5 - 03/06/2014
• Advisers Warn Against 401(k) Loans, Wall Street Journal - 03/03/2014
• Why Long-Term-Care Coverage Is Right for Me, Wall Street Journal Blog - 02/13/2014
• 10 Ways to Boost Your Retirement Savings, US News - 02/04/2014
• For Some, Retirement Is Out of Reach. For Others, Boring., NY Times - 01/31/2014
• The Secret to Success in a Global Economy, Time - 01/27/2014
• Millions of Americans lack basic financial literacy, studies show, Los Angles Times - 12/27/2013
• Realistic Financial Resolutions for 2014, Wall Street Journal - 12/26/2013
• Debt and Retirement, Vanguard Blog - 12/23/2013
• As pensions vanish, workers forced to adjust, Dallas News - 12/21/2013
• As Pensions Vanish, Workers Forced to Adjust, Dallas News - 12/18/2013
• Employer Groups Oppose Pension Fees in Budget Deal, Associated Press - 12/18/2013
• Detroit ruling opens door to pension cuts across the nation, LA Times - 12/07/2013
• Most Americans accumulating debt faster than they’re saving for retirement, Washington Post - 10/23/2013
• Financial literacy, Radio Times - 10/21/2013
• Poll: Half of Older Workers Delay Retirement Plans, ABC News - 10/14/2013
• Confusion about Obamacare isn’t unique, MSNBC - 10/10/2013
• Financial Literacy, Beyond the Classroom, New York Times - 10/05/2013
• Where did the boomer women go?, Market Place - 09/27/2013
• Advisers have big role helping plan Social Security benefit, Investment News - 09/26/2013
• Professor Olivia S. Mitchell Testifies before the Senate Special Committee on Aging, Wharton Public Policy Initiative - 09/25/2013
• Mortgage debt a threat for near-retirees, Market Watch - 09/25/2013
• Get an early start on retirement, CNN Money - 09/16/2013
• Should you pay off your mortgage? Pursue the tactic that offers the highest return on investment, Market Watch - 08/14/2013
• Olivia Mitchell: Make Your Youngster Take This Financial Test, Wall Street Journal - 08/01/2013
• Why retirement planning requires a really long view, Vanguard - 07/22/2013
• Olivia Mitchell: Build a Joint ‘Financial Dream’ List, Wall Street Journal - 07/10/2013
• Investing in Gold, Little India - 06/19/2013
• Another Discount Rate Illusion, The Economist - 05/30/2013
• Don't Get 'Framed' When Claiming Social Security, US News - 05/22/2013
• Should U.S. Pay Workers to Delay Social Security?, Wall Street Journal - 05/21/2013
• How to see the world and 'arbitrage' your retirement, Reuters - 05/17/2013
• Making a Move Abroad, and Working There, Too, New York Times - 05/16/2013
• President Obama looks to reduce Social Security cost of living increases with 'chained CPI', Marketplace - 04/05/2013
• Personnel pensions on cutting block, ESPN - 03/20/2013
• How to retire on just $25,000 in the bank, Marketplace - 03/19/2013
• Boeing's latest move confirms nationwide trend to end pensions, KPLU - 03/01/2013
• U.S. Homeowners Are Repeating Their Mistakes, Business Week - 02/14/2013
• Not Ready to Retire, Knowledge at Wharton Today - 02/05/2013
• Inaugural Speech, Part II, Knowledge at Wharton Today - 01/22/2013
• Why Aren't You Raising Your Financial IQ?, US News - 01/14/2013
• Olivia Mitchell: Saving Social Security, With Lessons From Down Under, Advisor One - 01/11/2013
• Why Boeing’s fighting to retire pensions, Business Journal - 01/11/2013
• Medicare Gaps Leave Many With Big Bill at End of Life, Study Finds, HealthDay - 09/14/2012
• Olivia Mitchell, Kent Smetters, Others Reveal Holes in Retirement Advice, Advisor One - 08/17/2012
• Reforming Jacksonville's pension plans likely to be a long, hard slog, Jackonville.com - 08/06/2012
• Dr. Olivia S. Mitchell on global financialliteracy - 07/31/2012
• PwC and Knowledge@Wharton High School to Co-host Business and Financial Responsibility Training Seminar for 150 High School Educators, All Expenses Paid, Wharton News - 07/30/2012
• Is This the Solution to America's Retirement Crisis?, Next Avenue - 07/27/2012
• Companies win cut in pension contributions; critics say saving the plans is even bigger worry, Washington Post - 07/09/2012
• ERISA Advisory Council Meeting Roundup: Annuities, Bloomberg BNA - 06/15/2012
• Reinventing retirement in challenging times, Tentino - 06/02/2012
• Reinventere l' età della pensione in tempi di grandi sfide?, Economics Festival in Trento, Italy - 06/01/2012
• The Changing Face of Retirement, Morning Star - 05/03/2012
• Stop Financial Illiteracy From Endangering Your Retirement, Next Avenue - 05/02/2012
• Compounding Kiwis and interest rates, Project M - 03/30/2012
• Financial Literacy Low Among Vulnerable Populations: NBER, AdvisorOne - 02/16/2012
• Lack of financial literacy can hurt retirement, Reuters.com - 02/16/2012
• In a calculating, chaotic world, statisticians are almost cool, Philly.com - 02/16/2012
• GM's Pension Plan May be Replaced with 401k, Nightly Business Report - 02/16/2012
• How Long Should I Work Before Retirement?: Delaying retirement can significantly boost your nest egg, Chicago Tribune - 02/14/2012
• 10 Ways to Save Your Retirement, US News - 02/01/2012
• Q&A: How secure are your retiree benefits?, Wall Street Journal - 01/27/2012
• AMR Bankruptcy's Domino Effect, PBS.org - 12/02/2011
• You'll Never Guess Who's Influencing How You're Planning For Retirement, Business Insider - 11/15/2011
• How Co-Workers Influence Your 401(k) Choices, US News - 11/14/2011
• Poll: Boomers anxiety about retirement grows, MercuryNews.com - 11/10/2011
• New Rules for Retirement, Institutional Investor - 11/01/2011
• Editorial, 11/2: Good for grandma, but worries mount, JournalStar - 11/01/2011
• The debt fallout: How Social Security went ‘cash negative’ earlier than expected, Washington Post - 10/29/2011
• What Women Can Teach Us About Money, Forbes.com - 10/21/2011
• Leakage, ProManage - 10/09/2011
• RIIA names winners of the 2011 Excellence in Communications awards, Investment News - 10/03/2011
• Olivia Mitchell comenta por qué los consumidores jóvenes deberían limitar el gasto, YouTube - 09/19/2011
• Steve Forbes Interview: Olivia Mitchell, Pension And Retirement Expert, Forbes.com - 08/29/2011
• Retirement Advice: Don't Get Old, Don't Get Sick, Don't Retire, Forbes.com - 08/26/2011
• Optimal Portfolio Choice over the Life Cycle with Flexible Work, Endogenous Retirement, and Lifetime Payouts, Oxford Journal - 08/26/2011
• Ed Schultz says Social Security lifts more than a million Floridians out of poverty, PolitFact.com - 08/25/2011
• How Gender and Personality Count in the Age of Who-Pays-Wins Retirement, Knowledge@Australian School of Business - 08/16/2011
• Baby boomers fret about the rising cost of aging, Philly.com - 07/31/2011
• Olivia Mitchell discusses financial literacy at the Global Corporate Center, Global Corporate Center - 07/14/2011
• The Top Women in Wealth in 2011, Advisor One - 07/12/2011
• Squared Away Blog: Frontiers in Financial Literacy, Financial Security Project - 06/28/2011
• Should Social Security set a higher age qualification to receive benefits?, Penn Population Studies Center - 06/27/2011
• Financial Engines and the Pension Research Council Host Second Annual Retirement Income Summit, Traders Huddled - 06/21/2011
• 3 Questions That Predict Your Retirement Readiness, US News - 06/10/2011
• Begin Social Security Benefits for the Right Reasons, Money - 05/13/2011
• Report Rebuffs Arguments for Privatizing Social Security, Plan Sponsor - 05/09/2011
• Http://www.advisorone.com/article/olivia-mitchell-international-foundation-employee-benefit-plans-extended-2011-ia-25-profile, Advisor One - 04/28/2011
• Over to you: Workers need to fend for themselves, The Economist - 04/07/2011
• Loan Defaults Costly for Certain Group of Participants, Plan Sponsor - 04/01/2011
• Paying for Risk and Insurance Higher Ed, Risk & Insurance - 04/01/2011
• Nine reasons to be optimistic about retirement, Market Watch - 03/25/2011
• Workplace change spurs 'pension envy', NewsDay.com - 03/10/2011
• (k)Plans:Frame of Reference, Plan Sponsor - 03/08/2011
• Anger brews over government workers' benefits, Courierpostonline - 03/08/2011
• Pension Envy: Anger Brews Over Government Workers' Benefits, NBC4i.com - 03/08/2011
• Pensions or 401(k)s: Which is better?, Market Place - 03/04/2011
• Olivia Mitchell on Why Young Consumers Should Just Say No to Spending, Knowledge@Wharton High School - 03/03/2011
• Debate Heats Up Over Public And Private Pensions, NPR.org - 02/25/2011
• How to Get Paid $850 for Getting Healthy, Money Watch - 02/09/2011
• 4 Traditional Money Rules to Break Now, Smart Money - 02/07/2011
• Savers’ impatience hinders retirement goals, Market Watch - 02/07/2011
• 7 Reasons You Don't Have a Pension, US News - 02/07/2011
• Why We're Not Wired for Successful Retirements, US News - 02/02/2011
• New Jersey's $53M Pension Problem, Fox 29 News - 01/04/2011
• Redefining Retirement, AdvisorOne - 12/28/2010
• Baby boomers near 65 with retirements in jeopardy, KOTA Territory News - 12/27/2010
• Investment books for budding Warren Buffetts, Market Watch - 12/23/2010
• Trend of late retirement might be a good thing, Market Place - 12/22/2010
• 3 Reasons Your Boss Should WANT You to Keep Working Past 60, Money Watch - 12/20/2010
• Why Women Risk Retirement Disaster, and How They Can Avoid It, AdvisorOne - 12/08/2010
• Medication nation: Are baby boomers declining, or just whining?, Philly.com - 11/18/2010
• Politicians helped bring Chicago's public pension funds to the brink, Chicago Tribune - 11/16/2010
• ‘Retirewent’…and how to get it back, AdvisorOne - 10/26/2010
• Financial Literacy Brigades, AdvisorOne - 10/26/2010
• Who Says Women Can't Get Rich Investing?, The Motley Fool - 09/28/2010
• How Boomers Can Act Now to Repair Their Nest Egg, US News - 09/15/2010
• Olivia Mitchell to Get RIIA Award at Annual Meeting, Business Week - 09/03/2010
• The 2010 Martin Feldstein Lecture – National Bureau of Economic Research, TIAA-CREF - 07/28/2010
• Retirement Income Gap Poses Another Challenge for Women, The Huffington Post - 07/21/2010
• Intriguing People of the Week, CNN - 07/13/2010
• Financial Literacy, 2010 Wharton Impact Conference - 07/13/2010
• Fix Social Security by hiking retirement age: A lawmaker suggests raising the retirement age to 70 -- and experts agree, Market Watch - 07/02/2010
• Calpers and risk: Together forever?, Fortune - 06/30/2010
• The Economy's Lasting Impact on Your Retirement, U.S. News - 06/28/2010
• Pension Cuts Face Test in Colorado, Minnesota, Wall Street Journal - 06/11/2010
• National Retirement Expert: 75 needs to be the new 62, CBSMoneyWatch.com - 06/02/2010
• Defaulting on Yourself: Who Loses at 401k Loans?, RAND - 06/01/2010
• Living Longer, Planning Better, Thestate.com - 05/09/2010
• The Savings Sweepstakes, Reirement Income Journal - 05/05/2010
• Who are the 50 Top Women in Wealth?, Wealth Manager - 05/04/2010
• Financial Literacy Center, A Joint Center for RAND, Dartmouth College, and The Wharton School, Financial Literacy Center - 03/15/2010
• America's Financial Illiteracy, Forbes.com - 01/10/2010
• Financial Literacy: The Time Is Now, BusinessWeek.com - 07/22/2009
• Pension Problems, Here and Now, WBUR Radio - 04/10/2009
• Financial Literacy, Reirement Planning, and Retirement Wellbeing: Lessons and Research Gaps, The Retirement Security Project - 03/20/2009
• New Strategies for Retirement, 4G Wireless Evolution - 03/12/2009
• Video on Crisis and Risk Management, Financial Times - 01/30/2009
• Stocks Are Less of Your Net Worth Than You Think, Wall Street Journal Online - 12/02/2008
• The $700 Billion Question: How Much Is That Exotic Security?, Knowlege@Wharton - 10/01/2008
• As life expectancy increases, Olivia S. Mitchell says it takes financial planning to take the worry out of extra retirement years, Finance & Development Magazine - 01/01/1970 Description

  Career paths are rarely straight lines, but as new technologies transform jobs at a dizzying pace the twists and turns can throw retirement plans off course. Born to globe-trotting economist parents, Olivia S. Mitchell was introduced to economic principles early on. At the age of five, while living in Pakistan, she observed construction workers pouring concrete by bucket brigade rather than using a cement truck and asked her father why. “Labor is cheaper than capital,” he responded. Mitchell went on to study economics at Harvard and the University of Wisconsin–Madison, with a focus on public economics and development. She has published hundreds of highly regarded research papers and books on the topic and is considered a founder of modern academic pension research.

  Mitchell, professor of business economics and executive director of the Pension Research Council at the University of Pennsylvania’s Wharton School, spoke with F&D contributor Rhoda Metcalfe about how supporting healthy aging and improving financial literacy will help society reap the benefits of longer lives.

• On Delaying 401(k) Distributions, NBER - 01/01/1970
• Make Social Security Fairer to Workers - Morning Consult, Morning Consult - 01/01/1970 Description

  It’s well-documented that Social Security faces a massive financing shortfall that threatens its solvency unless lawmakers swiftly enact corrections. However, this isn’t the only reason to reform Social Security. The program doesn’t treat work or workers fairly, and this needs to change.

  By the time workers reach late middle age, each dollar of payroll taxes they contribute delivers on average only 2.5 cents in additional benefits. The reasons for this mistreatment are various, but are rooted in the fact that lawmakers have never adequately considered Social Security’s effects on work.

  The 1935 Committee on Economic Security that advised President Franklin Roosevelt on Social Security’s design took it for granted, amid the Great Depression, that workers “past middle life” had “uncertain prospects of ever again returning to steady employment.” In the 1970s, lawmakers enacted automatic annual benefit increases that cannot be sustained unless workers’ tax burdens rise dramatically. Workers now beginning their careers are projected to be made poorer by Social Security, on average, by an amount exceeding 3 percent of their lifetime earnings.

  The damage wrought by Social Security’s work disincentives is enormous. Healthy, productive workers are induced to drop out of the workforce, right at a moment in life when they are typically deciding whether to retire or continue working. Evidence shows that workers respond to these incentives by quitting work when their marginal Social Security tax rate is high.

  Even before the pandemic, we faced an enormous labor participation challenge, with the baby boomer generation retiring in droves to spend more of their lives drawing government benefits than any previous generation. But especially now, when America lacks enough willing workers to fill employers’ needs, the last thing we need is for our largest domestic program to make the problem worse.

  One problem is the archaic design of Social Security benefits. The benefit formula, reflecting bygone data limitations, is based on a worker’s average earnings in their highest 35 years (adjusted for national wage growth). The problem with this is obvious: As soon as a worker works for 35 years, he or she no longer accrues benefits at the same rate, because each subsequent year of earnings only counts toward benefits to the extent that it exceeds a previous year’s earnings.

  Far better would be for workers to accrue Social Security benefits each year they work, just as workers in private pensions do. This requires changing the formula so that it operates separately on each year of earnings rather than on a career average. A side benefit of this reform is that it would actually save the system money, mostly by constraining benefit growth for sporadic high-income workers (to whom the current formula pays windfalls because it mistakes them for low-income workers).

  We should also reform Social Security’s early retirement penalties and delayed retirement credits. The current system rightly adjusts monthly benefits for one’s age of claim — reducing benefits for those who claim early and draw for more years, while increasing benefits for those who delay retirement. The problem is that these adjustments are weak. Wharton economics professor Olivia Mitchell has found that offering the delayed retirement credit in a lump sum option (typically in the tens of thousands of dollars) could be a more powerful inducement to delay retirement than the current method of adjusting monthly benefits by a few percentage points. Current early/delayed retirement adjustments also don’t consider that those who keep working also continue to pay payroll taxes. To properly take workers’ taxes into account, early retirement penalties and delayed retirement credits need to be made larger than they now are.

  Of course, there is no avoiding the most politically difficult issues, including Social Security’s outdated eligibility ages. There is only so much that other adjustments can accomplish, so long as eligibility ages remain badly out of sync with demographic realities.

  The most common age of benefit claim today is 62. As long as healthy workers continue to claim benefits so early, program costs will be inflated, and workers’ tax burdens will be needlessly compounded. It bears noting that the current earliest eligibility age of 62 could be raised by three years, and still allow 21st-century workers to claim Social Security benefits at a younger age than those of the generation that fought the Spanish-American War of 1898. Then, too, initial benefit levels are currently indexed to grow faster than workers’ after-tax earnings. Until this cost growth is moderated, American workers’ standards of living will continue to fall behind.

  While specific reforms should be thoroughly debated, we would all benefit from a general shift in Social Security’s posture toward work. To serve 21st-century needs, Social Security must be converted from a program that penalizes work to a program that rewards it.

• - 01/01/1970
• How to Think Long Term With Near-Zero Interest Rates, Wall Street Journal - 01/01/1970
• How Much Private Equity Is Too Much for a Public Pension? - 01/01/1970

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