PREDICTING RETIREMENT SAVINGS USING SURVEY MEASURES OF EXPONENTIAL‐GROWTH BIAS AND PRESENT BIAS

In a nationally representative sample, we predict retirement savings using survey‐based elicitations of exponential‐growth bias (EGB) and present bias (PB). We find that EGB, the tendency to neglect compounding, and PB, the tendency to value the present over the future, are highly significant and economically meaningful predictors of retirement savings. These relationships hold controlling for cognitive ability, financial literacy, and a rich set of demographic controls. We address measurement error as a potential confound and explore mechanisms through which these biases may operate. Back of the envelope calculations suggest that eliminating EGB and PB would increase retirement savings by approximately 12%. (JEL D91, D14)     

Ties that bind: US suburban residents on the social and civic dimensions of work

This paper describes how individuals from eight middle class suburbs in the US expressed the social and civic dimensions of the meaning of work during interviews conducted for Boston University's Middle Class Morality Project. A modified grounded theory approach was used to analyze the interviews from this project, which incorporated aspects of both qualitative and quantitative research methods. The paper first examines where individuals located their social ties and discusses the recentering of social ties in work and work organizations among these suburban North Americans. Stories and talk of work are then analyzed to illustrate individuals' constructions of the civic and social meaning of their work. The conclusion considers more broadly how the movement of women into the formal labor force, the growth of nonprofit sector jobs, and the increasing prevalence of team-based organizations relate to these dimensions of the meaning of work. I suggest that culturally constructed divisions between the spheres of home, work, and community that emerged during industrialization may be weakening as the social and civic dimensions of work become more salient in a post-industrial era.     

Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society

As neoliberal ideology and policies gained a foothold in the early 1980s, the social safety net for older Americans contracted. Responsibility for the risks associated with aging, namely retirement income and healthcare costs, was increasingly transferred from the state to the individual. Using data from the Consumer Bankruptcy Project, we report that since 1991, there has been more than a twofold increase in the rate at which older Americans (age 65 and over) file for consumer bankruptcy and an almost fivefold increase in the percentage of older persons in the U.S. bankruptcy system. This magnitude of growth is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect. Respondents report that inadequate income and unmanageable healthcare costs are the chief reasons for their bankruptcies. Our findings suggest that neoliberal policies that offload healthcare costs and retirement savings onto older Americans may facilitate their bankruptcy filings.     

I Do … Want to Save: Marriage and Retirement Savings in Young Households

Increased policy and academic attention has been placed on promoting retirement savings early in the life course. This study investigates the extent to which retirement savings behavior among young persons, a population for which retirement savings is important but typically low, differs by marital status. We draw national survey data on young adult households (ages 22–35; N = 3,894) from the U.S. Federal Reserve Board's Survey of Consumer Finances (SCF). Results reveal considerable differences by marital status. Controlling for important characteristics, young adults who were married were more likely than all other groups (including cohabitors) to perceive retirement as an important savings goal and to have an individual retirement account. Married persons were more likely than their single counterparts to participate in a defined contribution pension plan. Single women fared particularly poorly on retirement savings outcomes. A range of possible theoretical links between marriage and retirement savings at young adulthood are discussed.     

Retirement Plan Participation in an Era of Change: The Case of a Rural Region*

Individual savings are critical for retirement as government and employer‐based provisions fade or become less secure. Rural communities are vulnerable given their higher proportion of elderly and more who rely on Social Security. Using a telephone survey of working‐age residents in Michigan's rural Upper Peninsula, this research investigates factors associated with participation in tax‐advantaged retirement plans that have largely replaced defined‐benefit pension plans for earmarked retirement savings. The project also identifies factors predictive of making maximum contributions to those retirement plans. We consider several distinct categories of variables to reflect the social embeddedness of economic action. In addition, the research included community variables describing aspects of respondents' social context, a new component of the savings discourse, which we show to be significantly related to saving outside a tax‐advantaged retirement plan and making maximum contributions to a tax‐advantaged retirement plan.     

Women’s Household Preparation for Retirement at Young and Mid-Adulthood: Differences by Children and Marital Status

There are increasing concerns about whether Americans are saving enough for retirement. Recent research has called for improved understanding of the relationship between family structure and economic preparation for retirement at earlier stages of the life course. Using multiple years of the Federal Reserve Board’s Survey of Consumer Finances, we examined how number of children and marital status were associated with women’s household retirement savings at young and mid-adulthood. Several household-level indicators of retirement preparation were considered: desire to save for retirement, retirement account ownership, eligibility to participate in a defined-contribution plan, participation in defined-contribution plans, and retirement account wealth. Results from regression analyses revealed variation in women’s household financial preparation for retirement at young and mid-adulthood by family context. Additional children were negatively associated with several measures of retirement preparation among single-female households but not for couple households. Overall, we found that low economic preparation for retirement is an additional economic disadvantage facing single mothers at young and mid-adulthood, with potentially long-term implications for their financial security. The results shed light on linkages between family structure and women’s economic status.     

Evidence that Self-Regulatory Mode Affects Retirement Savings

We examine how self-regulatory motivations of locomotion (initiation) and assessment (evaluation) are related to retirement wealth in middle-aged and older Americans. We test a hypothesis that high locomotion and some assessment levels predict high wealth levels. We use two national data sets: the 2008 Health and Retirement Study (N?=?6,464) and the 2005 Midlife in the United States (N?=?4,963). We found that a combination of high locomotion and moderate assessment motivation can maximize wealth accumulation. By creating this combination of locomotion and assessment motivations, policy interventions can be more effective in motivating wealth accumulation for retirement, such as a required annual review of retirement savings plans and understandable disclosure of the plans' costs.     

Are baby boomer women redefining retirement?

As the baby boomers enter later life, unprecedented numbers of women are retiring. The first generation of women to encounter retirement since its institutionalisation as an expected male life course transition in the mid‐20th century, these women are leaving the labour force at a time when the meanings associated with “retirement” are changing. Longer life expectancy, improved health outcomes, and transformations in work driven by globalisation have produced greater diversity in when, why, and how people exit the labour force. Many boomer women are disadvantaged in later life by their histories of discontinuous employment and care‐giving. Consequently, we argue, opportunities to engage in “retirement” projects of their own choosing are unequal across this population. This essay reviews qualitative studies in sociology that examine boomer women's experiences of retirement and is organised in terms of the three main approaches that inform this under‐studied field: critical/feminist gerontology, identity theory, and life course approaches. Based on our review, we posit the need for socially inclusive research, beyond the prevailing emphasis on White, middle‐class professional women; more studies examining the impact of earlier life course transitions on women's later years; and attention to the effects of “successful ageing” discourses on women's lived experiences.     

The evolution of retirement: results of the 1999 Retirement Confidence Survey

The ninth annual Retirement Confidence Survey (RCS) shows continued evidence of progress in the drive for retirement income security for American workers. However, there are still hurdles to overcome. The RCS tracks Americans' retirement planning and saving behavior and their confidence regarding various aspects of their retirement. It also categorizes workers and retirees into distinct groups based on their individual views on retirement, retirement planning, and saving. The retirement envisioned by today's workers looks different in many respects from that now experienced by current retirees. Today's workers expect to work longer than current retirees actually worked before retiring--and many say they plan to work for pay after they retire. Twenty-four percent of workers reported that they are very confident they will have enough money to live comfortably in retirement, and 45 percent reported that they are somewhat confident. However, there are indications that many may be falsely confident. The good news is that 70 percent of Americans are saving for retirement, and a growing percentage (49 percent) are going further and determining how much they need to save to fund their retirement. The bad news is that 30 percent of Americans have not begun to save for their retirement, and 51 percent have never tried to determine how much they need to save. Employers play a major role in ensuring adequate retirement preparation. Forty percent of all workers said they expect that money provided by their employer will be a major source of retirement income. Forty-six percent expect the money they put into a retirement plan at work to be a major source of income. The availability of a retirement plan at work is credited by 48 percent of savers as motivation to save. While worker education is a point of emphasis among both employers and policymakers, more remains to be done. For example, 59 percent of workers expect to be eligible for full Social Security benefits sooner than they actually will be, and an additional 19 percent admit they do not know when they will be eligible. There is evidence that education can have an impact on individual behavior. Forty percent of workers receiving educational material at work in the last year said that information caused them to begin saving (19 percent) or resume saving (21 percent) for retirement, while 40 percent said they changed the amount they were contributing to a retirement savings plan and 41 percent changed the allocation of their money in a retirement savings plan.     

Financing Children's Futures: Economic Strategies for Postsecondary Education Among Middle‐Income Families

This paper, based on three waves of qualitative data with middle‐income families outside of Philadelphia, explores how families deal with the challenge of financing postsecondary education over time. Because of economic setbacks, these families adopt a variety of financial maneuvers to support their young adult children's postsecondary educational plans. In particular, families are driven to sacrifice familial savings accounts and retirement funds, take on significant student loan burdens, and downgrade children's college plans to cheaper, often less prestigious, options. These results highlight the financial vulnerability of families in the middle of the income distribution and the complicated relationship between family economics and postsecondary educational plans for children.     

THE ROLE OF INFORMATION ON RETIREMENT PLANNING: EVIDENCE FROM A FIELD STUDY

Many households neglect the pivotal task of planning for retirement. Proposals to stimulate employees to save for retirement in the workplace include tax subsidies, which are costly, and using automatic defaults, which may not complement the heterogeneous preferences of savers. This randomized field study shows that an information‐based intervention increases reported retirement plan participation, emergency savings, and using a budget. Employees offered access to education increased actual retirement deferrals by $26 per month. These results suggest that retirement education programs may be an effective strategy to increase retirement planning and saving behavior. (JEL J26, D14, D91)     

THE ROLE OF FINANCIAL LITERACY IN DETERMINING RETIREMENT PLANS

Workers nearing retirement face many important, and often irreversible, choices. We collected detailed demographic and financial literacy data on over 1,500 workers nearing retirement at three large companies to assess how individuals are planning for retirement. Many respondents display limited knowledge and understanding of public and company‐provided retirement benefits. Controlling for basic demographics and wealth, we find that misconceptions about eligibility ages and plan generosity influence workers' expected age of retirement. Although retirement‐related decisions will affect workers' well‐being for the remainder of their lifetimes, many do not possess enough basic financial knowledge to confidently make optimal choices. (JEL J26, J320, J240)     

White Racism,Social Class,and the Backlash Against Affirmative Action

Among scholars in sociology and history, the backlash against affirmative action has been blamed on White working‐class Americans. What has received far less attention is the individual and collective institutional role(s) played by the White middle and upper middle‐class in backlash politics. Given that individuals in these social classes have far greater institutional power than White working‐class Americans, their beliefs and practices deserve sustained critical attention, and, as the few existing research studies demonstrate, White middle‐class and upper middle‐class Americans have played an influential role in backlash politics. Part of the reason for this gap in the literature is that these groups are more difficult to access as research subjects. Gaining access to this population may require working through many levels of a bureaucratic organization designed to protect their time and privacy. Moreover, when interviewed, these Americans are more likely than their working‐class counterparts to mask racist sentiments through the polite language of “color blindness.” Research methods that complement surveys and in‐depth interviews are recommended as strategies for probing White middle and upper middle‐class Americans' deeply hidden beliefs.     

Middle‐Class Parents and Urban Public Schools: Current Research and Future Directions

Middle‐class flight from urban public schools to suburban districts or private schools is a key source of educational inequality. Recently, however, a number of studies have focused on middle‐class and upper‐middle‐class families who have made a different choice, opting to remain in the city and send their children to neighborhood public schools. While the movement of advantaged families into urban public schools has received positive attention in the media, this growing body of research tells a more complicated story. Middle‐class families – with their economic, cultural, and social capital – can bring important resources to schools, resulting in widespread benefits. However, their engagement in urban public schools can also lead to marginalization and exclusion. We review the emergent literature on this topic, highlighting four themes: (i) parent preferences, identities, and values; (ii) the role of marketing campaigns and informal networks in attracting the middle class; (iii) the nature and consequences of middle‐class parent engagement in urban schooling; and (iv) the relationship between neighborhood change and school change. We conclude by outlining a research agenda aimed at deepening our understanding of the mechanisms by which middle‐class parent engagement in urban schooling may serve to mitigate, reproduce, or exacerbate educational inequalities.     

What Happens to Defined Contribution Accounts When Labor Markets and Financial Markets Move Together?

The relationship among earnings, savings, and retirement is well known; however, the linkage between labor market outcomes and financial market performance is generally unacknowledged. We examine the implications of the link between labor markets and financial markets for workers who save money in individual retirement accounts. Specifically, differences in labor market outcomes across groups may imply differences in the timing of investments, which may reduce savings over time for these groups compared to their counterparts. Using monthly data from the Current Population Survey (1979–2002), we generate hypothetical investment portfolios using stock and bond indices. We exploit differences across demographic groups in unemployment and wage growth and use these differences to examine each group's investment outcomes. We then disaggregate the total effects into short-term and long-term components. We find some evidence of short-term market timing effects on investment, but we find much larger long-term effects for some groups. Our findings suggest that, for many people, the retirement savings losses associated with the timing of markets are similar to the costs of annuitizing savings upon retirement. The differences are especially pronounced by education and gender.     

ECONOMICS COURSEWORK AND LONG‐TERM BEHAVIOR AND EXPERIENCES OF COLLEGE GRADUATES IN LABOR MARKETS AND PERSONAL FINANCE

Using survey data from over 2,000 students who attended one of four large public universities in 1976, 1986, or 1996, we investigate the relationship between taking more coursework in economics, or choosing economics as an undergraduate major, and a wide range of later decisions and outcomes in labor markets and personal finance, many of which have not been analyzed in earlier research. Generally, economics coursework and majoring in economics are significantly related to higher levels of earnings, home equity, and savings. They are also associated with working more hours and negatively related to completing graduate degrees (except the MBA). Among graduates with positive savings, those with more economics coursework invest more in individual stocks and money market accounts, and are more likely to have employer‐provided life insurance. They have fewer credit cards, which are more often paid in full each month. Most of these findings also hold for graduates who majored in business, but on average economics majors worked more hours and earned more than business majors, were more likely to have been self‐employed, and expected to retire at an older age. Business majors were more likely to have experienced a layoff, and were even less likely than economics majors to complete graduate degrees (except the MBA). Economics majors expected to save even more than business majors by retirement, and viewed short‐term and precautionary motives for saving as more important. Finally, our results suggest that exposure to economics through course‐taking is more important for later outcomes than actual performance in those courses. (JEL A22, J3, D12)     

The retirement system in transition: the 2007 Retirement Confidence Survey

WORKERS SLOW TO SEE OR ADAPT TO A CHANGING U.S. RETIREMENT SYSTEM: The 17th annual wave of the Retirement Confidence Survey (RCS) suggests that American workers may be slow to recognize how the U.S. retirement system is changing, and those who are aware of these changes may not be adapting to them in ways that are likely to secure them a comfortable retirement. HALF OF WORKERS LESS CONFIDENT ABOUT PENSION BENEFITS: The RCS finds pension-plan changes by employers have left nearly half of workers less confident about the benefits they will receive from a traditional pension plan, but that those experiencing a decline in retirement benefits often fail to react constructively. Moreover, although Americans will rely increasingly on 401(k) retirement savings plans and other personal savings and investments to fund their retirement security, data suggest that many may not follow professional investment advice when it is offered to them. MANY WORKERS COUNTING ON BENEFITS THAT WON'T BE THERE: Many workers are counting on employer-provided benefits in retirement that are increasingly unavailable. Only 41 percent of workers indicate they or their spouse currently have a defined benefit pension plan, yet 62 percent say they are expecting to receive income from such a plan in retirement. Likewise, workers are as likely to expect as retirees are to receive retiree health insurance through an employer, even though the number of employers offering this benefit to future retirees is declining. MANY WORKERS UNLIKELY TO HEED INVESTMENT ADVICE EVEN IF THEY GET IT: More than half of workers indicate they would be likely to take advantage of professional investment advice offered by companies that manage employer-sponsored retirement plans. However, two-thirds of these workers say they would probably implement only some of the recommendations they receive and 1 in 10 think they would implement none of them. AMERICANS OVERESTIMATE LONG-TERM CARE COVERAGE: One-quarter of workers and more than one-third of retirees report they have long-term care insurance (separate from health insurance, Medicare, and Medicaid) to help pay for care they might need in a nursing home, assisted living facility, or at home. But only 10 percent of Americans age 65 and older are estimated to have had private long-term care insurance in 2002, suggesting that many are counting on coverage they do not actually have. MOST SAVINGS LEVELS ARE MODEST: Almost half of workers saving for retirement report total savings and investments (not including the value of their primary residence or any defined benefit plans) of less than $25,000. The majority of workers who have not put money aside for retirement have little in savings at all: Seven in 10 of these workers say their assets total less than $10,000. CONTINUED IGNORANCE ABOUT SOCIAL SECURITY COVERAGE: Despite the longstanding increase in the eligibility age for Social Security, only a small minority of workers are aware of the age at which they can receive full retirement benefits from Social Security without a reduction for early retirement.     

THE FRAGILE AMERICAN: Hardship and Financial Troubles in the 21st Century

Rising economic insecurity at the turn of the 21st century made Americans increasingly vulnerable to financial distress. Studies of bankruptcy records show that personal hardships like health problems, divorce, job loss, and income disruption are the major reasons Americans fall into financial ruin. This article uses nationally representative data from the Survey of Consumer Finances to study the relationship between hardship and a range of financial troubles including bankruptcy, default, and credit access. We differentiate this analysis by class, expecting that debt troubles fall especially hard on middle‐income families. Our results show that while the middle class is distinctly vulnerable, multiple financial troubles accompany hardship for all classes.     

Interpretative Freedom and New Combination: The Way in Which the “Middle Class” Has Been Narrated

The English words “middle class” have experienced much more connotations and denotations—typically “bourgeoisie,” “white‐collar,” and professional—than any other class‐referring word since the latter half of the 18th century. On the one hand, in response to such diverse narrations during about two and a half centuries, I partially agree with some of the nominalistic theories of class, in that the middle classes were not created until they were named by contemporaries. On the other hand, my view diverges from those theories, in my asserting that the contemporaries have had an interpretative freedom to recognize “middle classes” only within the bounds of plausibility on the side of the realistic social world. The typical middle class in each period has emerged in such a way that Schumpeter's new combination is performed in a stage of recession by new entrepreneurs, who will move into the “middle” strata and hold some cultural leadership but still obtain inconsistent statuses, to be recognized as “middle class”ex post facto in a boom time. Two Kondratieff's cycles have had one recognition of the typical “middle class.” The new combination is one of the pressures bringing middle classes into a modern society, contrary to the so‐called class decomposition into the two poles.