Pareto Efficiency is a core assumption of most models of household decision-making. We test this assumption using a new dataset covering the retirement saving contributions of over a million U.S. individuals. While a vast literature has failed to reject household efficiency in developed countries, we find evidence of widespread inefficiency in our setting: retirement contributions are not allocated to the account of the spouse with the highest employer match rate. This lack of coordination cannot be explained by inertia, auto-enrollment, or simple heuristics. Instead, we find that indicators of weaker marital commitment correlate with the incidence of inefficient allocations.
We study heterogeneity in spending patterns around the time of retirement. Using rich consumption data from the Panel Study of Income Dynamics, and exploiting within-household spending variation, we systematically classify households into groups characterized by differences in consumption transitions at retirement. We decompose the overall spending changes into the contribution made by different subcomponents of consumption. We find that the households that increase their spending shift budget away from food and toward transportation, recreation, and trips. In contrast, those households for which spending falls reduce the budget share spent on transportation and food away from home, while increasing the share allocated to food at home and housing expenditures. Using a life-cycle model, we characterize the mechanisms capable of driving these observed patterns.
This paper documents, using a newly-constructed data set, the evolution of the characteristics of employer-sponsored DC schemes. The features we focus on are their match schedules, vesting schedules, and the extent of ‘auto-features’ (i.e. presence of auto-enrollment, the level of any default contribution, and presence and details of auto-escalation). The data we construct is formed by hand-coding the details in narrative plan descriptions attached to plan fillings. Our data covers approximately 5,000 plans, covering up to 37 million participants annually, for the period 2003-2017. We document that matching schedules, when they are offered, have become more generous over time. However, the proportion of firms offering a match fell sharply during the Great Recession and the proportion offering one did not recover to its pre-financial crisis level for almost a decade. Vesting schedules for DC plans have remained essentially unchanged since 2003, while the proportion of plans with auto-enrollment has increased dramatically over the same period. We find that the vast majority of plans that offer auto-enrollment have a default rate that is substantially lower than the level that would fully exploit the match offered by the employers.
The “annuity puzzle” refers to the fact that annuities are rarely purchased despite the longevity insurance they provide. Most explanations for this puzzle assume that individuals have accurate expectations about their future survival. We provide evidence that individuals misperceive their mortality risk, and study the demand for annuities in a setting where annuities are priced by insurers on the basis of objectively-measured survival probabilities but in which individuals make purchasing decisions based on their own subjective survival probabilities. Subjective expectations have the capacity to explain significant rates of non-annuitization, yielding a quantitatively important explanation for the annuity puzzle.
The onset of the Covid-19 pandemic has led to a dramatic reduction in employment and hours worked in the US economy. The decline can be measured using conventional data sources such as the Current Population Survey and in the number of individuals filing for unemployment. However, given the unprecedented pace of the ongoing changes to labor market conditions, detailed, up-to-date, high frequency data on wages, employment, and hours of work is needed. Such data can provide insights into how firms and workers have been affected by the pandemic so far, and how those effects differ by type of firm and worker wage level. It can also be used to detail – in real time – the state of the labor market.
We analyze lifecycle saving strategies using a recursive utility model calibrated to match empirical estimates for the value of a statistical life. We show that, with a positive value of life, risk aversion reduces savings and annuity purchase. Risk averse agents are willing to make an early death a not-so-adverse outcome by enjoying greater consumption when young and bequeathing wealth in case of death. We also find that greater risk aversion lowers stock market participation. We show that this model can rationalize low annuity demand while also matching empirically documented levels of wealth and private investments in stocks. Our findings stand in contrast to studies that implicitly assume a negative value of life.
Using a lifecycle model of consumption, saving and portfolio choice combined with linked survey and administrative data on wealth and lifetime earnings we evaluate measures of retirement preparedness. We estimate heterogeneous discount factors for households and compare the estimates of their patience to their replacement rates { the simple measure of- ten used to evaluate the adequacy of retirement savings. We find first that the specification of the model’s asset structure matters quantitatively for preference parameter estimates { households appear to be much more patient when they are assumed to have access only to a risk-free asset compared to when we account for the fact that much of their wealth is stored in higher-return tax-advantaged private pensions and in housing. Second we find that only the most patient households achieve the replacement rates out of final earnings that are often recommended by policy-makers and industry as sensible benchmarks for retirement preparedness. Notwithstanding this, we find that even quite impatient households in the population we study achieve high replacement rates out of lifetime average income { a more sensible summary measure of preparedness for retirement.