Use Your Small Business as Your Retirement Plan

Use Your Small Business as Your Retirement Plan

Retirement Research: Debriefing the Military's Retirement Shift

In shifting from a pension system to a 401(k) system (defined benefit vs. defined contribution), approximately 40% of military members did not respond to market incentives to maximize their employer-sponsored retirement benefits to reach a social optimum point.
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Debriefing the Military's Retirement Shift

Abstract: In 2018, the United States military shifted retirement plans from a defined benefit plan (pension) to an employer-sponsored defined contribution plan (401(k)). 

The option to switch retirement plans was optional for select military members and automatic for new military members. 

Upon requesting public information related to retirement contributions for 100,000 service members, we can observe patterns across different military branches related to demand for retirement contributions. 

In shifting from a pension system to a 401(k) system (defined benefit vs. defined contribution), approximately 40% of military members did not respond to market incentives to maximize their employer-sponsored retirement benefits to reach a social optimum point. 

Service members missed their claim to approximately $100-$130 million in available retirement contributions in 2019. Read https://ssrn.com/abstract=3692646

Survival Pessimism and the Demand for Annuities

Abstract 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. Read https://ssrn.com/abstract=3675229

When Should Retirees Tap Their Home Equity?

Abstract: This paper studies a household's optimal demand for a reverse mortgage. These contracts allow homeowners to tap their home equity to finance consumption needs. In stylized frameworks, we show that the decision to enter a reverse mortgage is mainly driven by the differential between the aggregate appreciation of the house price and principal limiting factor on the one hand and the funding costs of a household on the other hand. We also study a rich life-cycle model that can explain the low demand for reverse mortgages as observed in US data. In this model, we analyze the optimal response of a household that is confronted with a health shock or financial disaster. If an agent suffers from an unexpected health shock, she reduces the risky portfolio share and is more likely to enter a reverse mortgage. On the other hand, if there is a large drop in the stock market, she keeps the risky portfolio share almost constant by buying additional shares of stock. Besides, the probability to take out a reverse mortgage is hardly affected. Read https://ssrn.com/abstract=3681834

Debriefing the Military's Retirement Shift

Abstract: In 2018, the United States military shifted retirement plans from a defined benefit plan (pension) to an employer-sponsored defined contribution plan (401(k)). 

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