Comments For: Optimal Illiquidity in the Retirement Savings System By John Beshears, James J. Choi, Christopher Clayton, Christopher Harris, David Laibson, and Brigitte C. Madrian August 2014 John Sabelhaus Board of Governors of the Federal Reserve System, Washington, DC, [email protected]. The analysis and conclusions set forth are those of the author and do not indicate concurrence by other members of the research staff or the Board of Governors
Comments For: Optimal Illiquidity in the Retirement Savings System By John Beshears , James J. Choi, Christopher Clayton, Christopher Harris, David Laibson , and Brigitte C. Madrian August 2014 John Sabelhaus. - PowerPoint PPT Presentation
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Comments For:
Optimal Illiquidity in the Retirement Savings System
By John Beshears, James J. Choi, Christopher Clayton, Christopher Harris, David Laibson, and Brigitte C. Madrian
August 2014John Sabelhaus
Board of Governors of the Federal Reserve System, Washington, DC, [email protected]. The analysis and conclusions set forth are those of the author and do not indicate concurrence by other members of the research staff or the Board of Governors
My Takeaways
• Given present-bias for at least some agents, 30% penalty better than 10%
• Experimental evidence in fact suggests that β<1 for many households
• Once you start thinking about low β households, nothing else matters…
• Institutions in U.S. getting more liquid– DB to DC one example, also housing finance– Need to make system more illiquid
My Questions
1. Who takes early withdrawals, and under what circumstances?
…and what else should those of us who work with retirement/withdrawal data be looking for?
2. How far is the current U.S. retirement system away from the authors’ ideal?
…and are we really moving further away?
Observations on Early Withdrawals
• Large (Argento, Bryant, and Sabelhaus)
• Did not surge in Great Recession, though probably trending up over time
• More likely to occur given income shock or marital disruption, especially at job change
• Widespread across income groups– Surprising? Was to me…– Presumably, high incomes are also high β’s?
2004 2005 2006 2007 2008 2009 20100%
10%
20%
Net Taxable Withdrawals
Penalized Withdrawals
Year
Per
cen
t of
Tax
Un
its
Note: Population is taxpayers ages<55 with evidence of current pension coverage and/or retirement accounts. Net taxable withdrawals exclude Roth conversions.
Source: IRS Statistics of Income
Retirement Account Early Withdrawal Rates by Year
Withdrawal Rates Across Job Change and Shock Groups, 2004-2010 No Job Change Job ChangeNo Shocks 7.7% 13.8%Income Shock Only 20.4% 29.8%Marital Shock Only 9.2% 15.4%Both Income and Marital Shock 21.2% 29.5%Notes: Income shocks based on per capita AGI less taxable pensions. Population is all tax units with evidence of pension coverage or retirement accounts. Income shock is defined as a decline of ten percent or more relative to the prior year value. Marital shock is defined as a movement from joint to non-joint filing or joint filing with a different co-filer within past two years. Job change based on employer EINs changing in prior or current year.
1 2 3 4 5 6 7 8 9 100%
20%
40%Both Shocks No Job ChangeBoth Shocks with Job ChangeNo Shocks and No Job ChangeNo Shocks with Job Change
Decile of (Three Year Average) Income
Per
cen
t of
Tax
Un
its
Note: Population is taxpayers ages<55 with evidence of current pension coverage and/or retirement accounts. See income and net taxable definitions on previous slides.
Retirement Account Withdrawal Rates by Income, Shocks, and Job Change
Source: IRS Statistics of Income
Great Questions Spawn Research!
• Current research (with Alice Henriques and Sebastian Devlin-Foltz)– Use SCF to measure all retirement claims – By lifetime income group and across cohorts– What are the actual distributional consequences
of the shift from DB to DC?
• Future research (with Victoria Bryant)– Add panel dimension, contributions from W2s– Will we find evidence of low vs high β’s?
How Far Are We From the Ideal?
• Social Security is completely-illiquid and dominates retirement cash flow for most– More like a retirement system since 1970s– Very strong distributional component (does
not necessarily mean re-distributional…)
• Is DB to DC pushing us further away?– “Leakage” from DB system just different?
(mid-career job change very costly in DB)– Unclear whether DB retirement claims were