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The biggest financial challenge for most Americans is funding their retirement. In recent decades, working lives have not kept pace with increasing life expectancies, leading to longer retirements. (1) Longer [...]

Media reports predicted that the stock market decline in October 2008 would cause changes in retirement intentions, due to declines in retirement assets. We use panel data from the Health and Retirement Study to investigate the relationship between stock market performance and retirement intentions during 1998-2008, a period that includes the recent crisis. While we find a weak negative correlation between stock returns and retirement intentions, further investigation suggests that this relationship is not driven by wealth shocks brought about by stock market fluctuations, but by other factors that are correlated with both the stock market and retirement intentions. (Contains 3 figures, 7 tables, and 9 footnotes.)

We examine retirement saving for young adults in a life cycle model. We find that optimal retirement saving is zero for liquidity‐constrained young adults who anticipate significant earnings growth. With a plausible age‐earnings profile for college‐educated workers, retirement saving does not begin until the late 30s or early 40s. Workers facing a flat earnings profile begin saving much sooner. Participating may be optimal for younger workers facing steep earnings profiles if they anticipate switching jobs and cashing out after 1–2 years. Our results suggest that automatically enrolling workers, regardless of age, is not consistent with a life cycle model. [ABSTRACT FROM AUTHOR]

Typical neoclassical life-cycle models predict that Social Security has a large and negative effect on private savings. We review this theoretical literature by constructing a model where individuals face uninsurable longevity risk and differ by wage earnings, while Social Security provides benefits as a life annuity with higher replacement rates for the poor. We use the model to generate numerical examples that confirm the standard result. Using several benefit and tax changes from the 1970s and 1980s as natural experiments, we investigate the empirical relationship between Social Security and private savings and find little evidence to support the predictions from the theoretical model. We explore possible reasons for the lack of strong empirical findings. [ABSTRACT FROM AUTHOR]

Implicit taxes are present in many government programs and can create substantial work disincentives. The implicit tax created by Social Security is the payroll tax used to fund the retirement portion of Social Security minus the present value of the incremental retirement benefits associated with the earnings. While the payroll tax is always 10.6%, the implicit tax varies over a worker's career because additional earnings translate nonlinearly into additional retirement benefits. We show that workers at the start of their careers experience lower implicit tax rates, as the increase in benefits from additional work is relatively large. However, workers who are closer to retirement earn little or no additional benefit from additional work. The main implicit tax in Medicare lies in the Medicare as Secondary Payer (MSP) policy, which requires Medicare to be a secondary payer for Medicare-eligible workers whose employers offer a health plan and have 20 or more employees. Thus, affected workers effectively forgo the Medicare benefits that they would have received if they had not been working. We investigate a combination of policies that can reduce average implicit tax rates on older workers by as much as 45%. [ABSTRACT FROM PUBLISHER]