Significant Research

The US Retirement Income Journal lists a research paper, co-authored by House of Finance scholars, among the top ten most significant academic studies in 2011 in the area of retirement research: "Optimal Portfolio Choice over the Life-Cycle with Flexible Work, Endogenous Retirement, and Lifetime Payouts" by Jingjing Chai, Wolfram Horneff, Raimond Maurer, and Olivia S. Mitchell (Review of Finance, May 2011).

This is what Kerry Pechter from the Retirement Income Journal wrote about it:

In this paper, the director of the Boettner Center on Pensions and Retirement Research at Penn (Mitchell) and collaborators from Goethe University in Germany demonstrate a new mathematical model designed to help public policymakers predict how people of different ages and economic circumstances will react to employment disruptions and financial market crashes.

"Some will be able to hedge adverse capital market developments they face in the crisis, not only by altering their asset allocations, but also by altering their work hours and retirement ages", they write.

Near-retirees, in general, will save more, work harder and retire later. "In particular, we find that when hit by a financial and economic crisis, households near-retirement must cut their consumption both in the short-term and also over the long-term. Moreover, they will have to increase their work effort and postpone retirement."

Younger people will adapt differently. "During the first five years after the onset of the crisis, young households will reduce work hours, savings, and equity exposure and suffer from a drop in consumption. In the long run, however, they will work more, retire later, invest more in stocks, consume less, save more, and spend less on private annuities."

The authors speculate that variable payout income annuities, which are currently rarely used, could play a bigger role. "Though fixed payout annuities have been prevalent in the marketplace to date", they write, "we anticipate that investment-linked payout annuities will become more popular as Baby Boomers age and Social Security benefits will fail to grow."

Link to the article