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Comments For: Optimal Illiquidity in the Retirement Savings System By John Beshears , James J. Choi, Christopher Clayton, Christopher Harris, David Laibson , and Brigitte C. Madrian August 2014 John Sabelhaus.
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Comments For: Optimal Illiquidity in the Retirement Savings SystemByJohn Beshears, James J. Choi, Christopher Clayton, Christopher Harris, David Laibson, and Brigitte C. MadrianAugust 2014John Sabelhaus Board of Governorsof the Federal Reserve System, Washington, DC, john.sabelhaus@frb.gov. The analysis and conclusions set forth are those of the author and do not indicate concurrence by other members of the research staff or the Board of Governors
My Takeaways • Given present-bias for at least some agents, 30% penalty better than 10% • Experimental evidence in fact suggeststhat β<1 for many households • Once you start thinking about low β households, nothing else matters… • Institutions in U.S. getting more liquid • DB to DC one example, also housing finance • Need to make system more illiquid
My Questions • Who takes early withdrawals, and under what circumstances? …and what else should those of us who work with retirement/withdrawal data be looking for? • How far is the current U.S. retirement system away from the authors’ ideal? …and are we really moving further away?
Observations on Early Withdrawals • Large (Argento, Bryant, and Sabelhaus) • Did not surge in Great Recession, though probably trending up over time • More likely to occur given income shock or marital disruption, especially at job change • Widespread across income groups • Surprising? Was to me… • Presumably, high incomes are also high β’s?
Retirement Account Early Withdrawal Rates by Year Source: IRS Statistics of Income
Retirement Account Withdrawal Rates by Income, Shocks, and Job Change Source: IRS Statistics of Income
Great Questions Spawn Research! • Current research (with Alice Henriques and Sebastian Devlin-Foltz) • Use SCF to measure all retirement claims • By lifetime income group and across cohorts • What are the actual distributional consequences of the shift from DB to DC? • Future research (with Victoria Bryant) • Add panel dimension, contributions from W2s • Will we find evidence of low vs high β’s?
How Far Are We From the Ideal? • Social Security is completely-illiquid and dominates retirement cash flow for most • More like a retirement system since 1970s • Very strong distributional component (does not necessarily mean re-distributional…) • Is DB to DC pushing us further away? • “Leakage” from DB system just different? (mid-career job change very costly in DB) • Unclear whether DB retirement claims were more equal or even overall larger than DC