Retirement Behaviorist: Wharton Economist Olivia S. Mitchell
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Bibliographic details
- Authors: PETER J WALKER
- Published: March 2, 2020
Profile and career highlights
- Author of more than 250 books and articles.
- Received more than 60 professional honors and awards.
- Began working on pensions "40 years ago" when the field was largely actuarial.
- Education and early career:
- Bachelor’s degree in economics from Harvard in 1974.
- Completed PhD at the University of Wisconsin in 1978, at the age of 25; dissertation on the effect of high local unemployment on married women’s participation in the labor force.
- Early academic posts included Cornell University; later moved to the University of Pennsylvania’s Wharton School in 1993.
- Public service:
- Served on George W. Bush’s bipartisan President’s Commission to Strengthen Social Security in 2001.
- Served on then-President Michelle Bachelet’s pension commission in Chile (reported as "five years ago" in the profile).
Key findings on retirement trends and Social Security solvency
- Demographics and scale:
- US population aged 65 and over rose from 37 million to 49 million between 2006 and 2016.
- By 2060 the number will almost double—to 90 million.
- Social Security financing:
- The trillion-dollar Social Security system is the main source of retirement income in the United States.
- Starting in 2020, Social Security’s total cost is expected to outstrip its total income.
- By 2035, system reserves will be depleted, making it able to honor just three-quarters of scheduled benefits.
- Claiming behavior and incentives:
- More than 40 percent of recipients currently claim Social Security benefits at the minimum age of 62.
- Waiting until age 70 (maximum benefits) can increase monthly income by 75 percent compared with claiming at 62.
- Social Security Administration has stopped using “break-even” analyses and now provides a more neutral treatment—reflecting findings that break-even framing biases early claiming.
- Policy-relevant behavioral insights:
- Framing retirement decisions as a break-even gamble on longevity encourages early claiming despite longevity risk and the fact that half of people live longer than their life expectancy.
- Lump-sum incentives to defer claiming can be structured so they do not change overall program costs and are attractive to older people carrying debt.
Financial literacy, wealth, and retirement preparedness
- Transition from defined-benefit to defined-contribution plans increases individual responsibility and the need for financial knowledge.
- Mitchell and Annamaria Lusardi developed the “Big Three” financial literacy questions used in the University of Michigan Health and Retirement Study of people over age 50; the “Big Three” have been used in surveys in more than 20 countries.
- Measured impacts of financial literacy:
- Financial literacy can explain between 30 and 40 percent of wealth inequality.
- The most financially knowledgeable employees in a business received retirement plan returns 130 basis points, or 1.3 percentage points, higher each year compared with the average worker.
- Scenario: If Social Security benefits were reduced by 20 percent (reflective of a projected future shortfall), incentives for low-wage workers to save and invest in financial literacy would rise; projections found median assets would increase by 32 percent among those without a college education and by 19 percent among the college-educated.
Generational and household saving challenges
- Millennials (born between 1980 and 2000):
- Given low capital market returns, millennials seeking to retire at 65 must set aside 40 percent of their paycheck.
- Current average savings rate is just 6 percent of paycheck.
- Competing obligations—student loans, high housing costs—make a 40 percent saving target difficult; Mitchell recommends planning to work longer, redefining retirement to include part-time work, and embracing lifelong learning.
- Increasing prevalence of debt among retirees:
- Retirees today are more likely to have debt due to bigger mortgages, larger credit card debt, and the growth of student and payday loans.
Policy design and practical interventions
- Plan design to encourage later retirement:
- Redesign Social Security and workplace communications to avoid break-even framing that biases toward early claiming.
- Offer lump-sum incentives for delayed claiming that maintain overall program cost neutrality and appeal to indebted older workers.
- Longevity income annuities:
- A federal measure signed into law in December 2019 encourages employers to include annuities that start paying at least by age 85 in workplace pension plans.
- Mitchell’s research shows that if people used just 10 percent of their retirement nest egg to buy a longevity annuity, it would boost well-being at age 85 by 6 to 14 percent.
- Chilean reforms and international advising:
- Recommendations for Chile included broader coverage, a more generous solidarity pillar for the poor, higher contribution rates, and lower fees and commissions for private pension funds; the government is pursuing some recommendations, including a higher solidarity benefit and lower fees and commissions.
Current research agenda and outlook
- Ongoing work includes:
- Determinants and consequences of debt at older ages.
- Impact of pension guarantees.
- How alternative tax structures will alter the way people work, save, invest, consume, and retire.
- Personal stance on retirement:
- Mitchell states that, “barring very poor health, I will never retire!”
International Monetary Fund, F&D Magazine profile by Peter J. Walker, March 2020.
Content in this bundle
- خبيرة سلوكيات التقاعد
- La pensadora de las pensiones ● Finanzas y Desarrollo ● Marzo de 2020
- La béhavioriste des retraites
- Retirement Behaviorist: Wharton Economist Olivia S. Mitchell – IMF F&D
- 专注于退休研究的行为经济学家 - 经济学人物 - 金融与发展 - 国际货币基金组织季刊 -2020年3月号·第57卷·第1期