MyMoney Resources - Researcher

In this report, GAO's objectives were to determine: (1) what benefit payout options and accompanying information pension plans make available to participants at retirement, (2) what benefit payouts plan participants receive at retirement, and (3) the actions available to help retiring participants preserve their pension and retirement savings plan assets. GAO found that defined benefit (DB) plans make annuities available to all participants at retirement, while defined contribution (DC) plans make lump sums available to almost all participants. In general, plans provided applicable notices on benefit payouts and saving, but not other relevant risks or considerations. According to GAO’s analysis, while 60 percent of recent retirees received annuities, an increasing percentage from 1992 to 2000 directly rolled over lump sum benefits into an individual retirement account or deferred their receipt by leaving these assets in the plan. Additionally, GAO found that a growing percentage of those retirees who reported having a choice of benefit payouts chose to directly roll over their lump sum benefits or leave benefits in the plan rather than receive annuities. Actions available to help retiring participants range from options that would encourage the receipt of annuities to providing information to help participants make better decisions about managing their pension assets at and during retirement.According to an expert panel GAO used as part of this study, retirees need to be aware of the risk of outliving one’s assets in retirement and the financial risks individuals face in retirement.

Abstract: It is well accepted that households increase consumption of goods and services in response to an unexpected increase in wealth. Consensus estimates of this wealth effect are in the range of 3 to 5 cents of additional consumption spending in the long run for each additional dollar of wealth. Economic theory also suggests that consumption of leisure, like consumption of goods and services, should increase with positive shocks to wealth. In this paper, we ask whether the run-up in equity prices during the 1990s led older workers to retire earlier than they had previously planned. We identify the effect by exploiting unique data on retirement expectations from the Health and Retirement Survey. Our econometric results suggest that respondents who held corporate equity immediately prior to the bull market of the 1990s retired, on average, 7 months earlier than other respondents.

GAO was asked to report on the implications of proposals to restructure the U.S. Social Security system by using a voluntary approach to individual retirement savings accounts accounts. GAO studied three countries that have enacted voluntary.individual account plans—the Czech Republic, Germany, and the United Kingdom. GAO found that making participation voluntary has significant implications for designing and administering the plan. While offering the choice to participate may be desirable, doing so substantially increases the complexity of an individual account plan and potentially its total costs. The design features of voluntary individual account plans can affect whether individuals participate in the accounts and what retirement incomes they will receive. Voluntary individual account plans can also affect the total system costs to the government, providers, employers, or participants, depending on design. Moreover, the uncertainty of participation rates in turn creates uncertainty for a variety of costs associated with individual account plans. Individuals would face complex participation decisions in addition to the contribution, investment, and withdrawal decisions they might face in a mandatory plan. Additional costs would arise from the need to educate individuals to help them make informed decisions about participating in voluntary accounts.

This article reviews research on the effectiveness of general financial literacy training to draw implications for literacy training related to predatory lending. The article concludes that training offered by high schools and workplaces is associated with improved financial knowledge and behavior, especially for low-income or less-educated recipients. Although evidence on homeowner education and counseling is less clear cut, the article concludes that financial literacy training has the potential to curb predatory lending.

Abstract: This article presents descriptive findings from new survey data on households' decisions to change or remain with their providers of checking or savings accounts. The data show that the distribution of household tenure is wide, and that about a third of households have never changed depository institutions. The primary reason reported for changing banks is a household relocation; other reasons are customer service and price factors. Customer service and location are the most frequently cited reasons for remaining with a bank. The importance of location and mobility supports previous survey evidence that the local area is the appropriate market for competitive analysis in banking. The findings presented here are consistent with earlier studies showing that population migration increases competitive pressure on firms and therefore should mitigate the anticompetitive effects of bank mergers.