Faculty in the News


  • Olivia S. Mitchell2023 AEA Distinguished Fellows, American Economic Association – 06/01/2023
  • Olivia S. MitchellSeniors concerned about Social Security amid debt limit uncertainty, wkbw.com – 05/29/2023 Description

    President Joe Biden and House Speaker Kevin McCarthy struck a deal on the debt ceiling over the weekend in a step toward averting what many experts say could have been a financial disaster for the U.S. But weeks of political back and forth left many American seniors on edge, concerned Social Security checks could’ve been delayed. For Claudia and John Vrabel of Westminster, Maryland, their golden years have come in a palette of colors. At 76, John Vrabel has found passion in gardening at his Maryland home. “I’ve always had a garden, and had to work in one as a kid,” John Vrabel said. But these days these two retirees are concerned with one color in particular — green.

    The Vrabels are on a fixed income. They get $2,100 a month from Social Security, which helps pay bills, buy groceries and pay the mortgage. But for the Vrabels — and millions of other Americans — it’s been a nerve-wracking few weeks. Political back-and-forth over the debt ceiling left them wondering if their Social Security check might be delayed. “That would kill us,” Claudia Vrabel said. “I don’t know how we’d manage. Where are we gonna get money from? The only thing I can do is borrow money off the house.”

    By Monday, it appeared Social Security checks wouldn’t be delayed, as it would be highly unlikely the U.S. will now default on its debt obligations. “It’s irresponsible to be playing political games with a population that has worked hard, played by the rules,” said Ramsey Alwin, CEO of the National Council on Aging. An estimated 69.1 million people receive Social Security in this country, and 97% of them are seniors. “Americans are already starting to see some of the pressure this whole debate is imposing on the economy,” said Olivia Mitchell, a professor at the Wharton School.

  • Olivia S. MitchellThe case for financial literacy education, NPR.org – 05/16/2023 Description

    Financial literacy education does not have a great reputation. It’s a huge industry, spawning all sorts of books, web channels, TV shows and even social media accounts — but past studies have concluded that, for the most part, financial literacy education is kind of a waste of time. For example, a much cited paper published in the journal Management Science found that almost everyone who took a financial literacy class forgot what they learned within 20 months, and that financial literacy has a “negligible” impact on future behavior. A trio of academics at Harvard Business School, Wellesley College and the Federal Reserve Bank of Chicago, produced a working paper that showed that mandated Finlit classes given to high schoolers made no difference to the students’ ability to handle their finances. And the list goes on. The name that comes up again and again in these papers and reports on financial literacy is Annamaria Lusardi. She is a professor of economics and accountancy at the George Washington University School of Business. She’s also the founder and academic director of the Global Financial Literacy Excellence Center at GWU. She and Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School of Business, published a paper in 2013 that amounted to a study of studies about financial literacy, and it was quite critical of the way financial literacy programs are taught. This study of studies has been widely quoted ever since.

    New Hope For Financial Dullards
    Ten years later, Lusardi and Mitchell are out with a new paper, similarly titled, but much more upbeat. “The Importance of Financial Literacy: Opening A New Field,” picks up where their 2013 study of studies left off, and it draws on the two women’s experience teaching personal finance. The first thing they establish is that the level of financial literacy, globally, is just as woeful as it was when they released their seminal paper ten years ago. To establish this, they conducted a survey that asked participants three questions, which focus on interest rates, inflation and risk diversification. “These are simple questions,” Lusardi says, “Yet they test for basic and fundamental knowledge at the basis of most economic decisions. In addition, answering these questions does not require difficult calculations, as we do not test for knowledge of mathematics but rather for an understanding of how interest rates and inflation work. The questions also test knowledge of the language of finance.” How did respondents do? Let’s just say there is room for improvement. (You can test your own knowledge by checking out the paper).

    “Only 43% of the respondents (in the US) are able to answer all of the questions correctly,” Lusardi says, adding that the level of financial illiteracy is particularly acute amongst women. “Only 29% of women answer all three questions correctly, versus 48% of men,” she says, adding that this gender difference is strikingly stable across the 140 countries that they ran the test in. “We also see … that women are much more likely than men to respond that they do not know/refuse to answer at least one financial literacy question,” she says. Such gender differences are likely to be the result of lack of self-confidence, in addition to lack of knowledge.”

    Young people are also more likely to be disadvantaged in this area, Lusardi and Mitchell found, as are people of color. “The young display very low financial literacy, with only one-third being able to answer all three questions correctly. Half of Whites could correctly answer all three questions, versus only 26% of Blacks and 22% of Hispanics.” This is a problem, Lusardi says, not just because it means that many people are ill equipped to handle an increasingly complicated and complex financial landscape that can impact their earnings and long-term wealth. There are obvious social implications to the fact that white males appear to have a significant edge on the rest of the population in this area. And if that isn’t enough, Lusardi says, it’s also a problem for the economy.

    “On average, Americans spend seven hours per week dealing with personal finance issues, three of which are at work. People with low financial literacy spend double that amount,” she says. The impact on productivity of people spending most of an entire working day on their personal finances whilst at work is considerable, she goes on. Add in the consequences of mismanagement of assets, investments, mortgages and other debt, and there is a significant potential effect on the economy. Lusardi says this idea, that the damage wrought by a lack of financial literacy might extend beyond the individual — to companies and even to the economy has not escaped the notice of governments. “Influential policymakers and central bankers, including former Fed Chairman, Ben Bernanke, have … spoken to the critical importance of financial literacy,” the paper says. “Additionally, the European Commission has recently acknowledged the importance of financial literacy as a key step for a capital markets union. Some governments have … implemented financial literacy training in high schools. Several years ago, the Council for Economic Education (CEE 2013) established National Standards for Financial Literacy, detailing what should be covered in personal finance courses in school.”

    Fixing The Flaws
    A decade ago, Lusardi and Mitchell were somewhat critical of the financial literacy courses offered by companies and schools. The programs were generally not effective, they said, not because the concept of personal finance education was flawed per se, but because the various programs were generally not well resourced, and often poorly conceived. “Most of these (courses) in the US were unfunded,” Lusardi says. “There was no curriculum. There were no materials, and teachers were hardly trained. So the gym teacher was teaching financial literacy, or anybody they could find. This is, of course, not going to work. It wouldn’t work for any topic. If you have a course in French and the teacher doesn’t speak good French, (students) are probably not going to learn good French either.” Moreover, the classes, whether taught in schools or in corporate offices, tended to provide one-shot, one-size-fits-all instructions, with little or no follow-up. Lusardi says that was a recipe for failure. But those organizations that have recognized the need for financial literacy programs, and that have persisted in developing them, have made progress, she says.

    “Many programs have moved beyond very short interventions, such as a single retirement seminar or sending employees to a benefits fair, to more robust programs,” Lusardi says. “Financial literacy has now become an official field of study in the economics profession. Many initiatives at national levels have been launched, and more than 80 countries have set up national committees entrusted with the design and implementation of national strategies for financial literacy.” Lusardi says it’s particularly important to teach and consolidate principles of good personal finance as early as possible, which means starting at home — where children are likely to model good financial habits — and in school. To that end, the Programme for International Student Assessment in 2012 added financial literacy to the set of topics that 15-year-old students need to know to be able to participate in modern society and be successful in the labor market. Lusardi says that in the decade since she and Mitchell released their 2013 report, their experience teaching financial literacy has proved that these programs, properly taught, can work. “Our research shows that much can be done to help people make savvier financial decisions,” she says, noting that a successful course will help people grasp key fundamental financial concepts, particularly financial risk and risk management. It will help them understand the workings of specific financial instruments and contracts, such as student loans, mortgages, credit cards, investments, and annuities. It will also make them aware of their rights and obligations in the financial marketplace.

    Most importantly of all, of course, it will attract and retain the students’ interest, which isn’t always easy in the dry world of finance. “I teach very differently now because of my research,” Lusardi says. “I say, what do you think this course is about? And as you can imagine, most of the students think it’s about investing in the stock market. That’s what personal finance is associated with. And I tell them, ‘No, this is a happiness project. We talk about all of the decisions that are fundamental and important in your life. And I want to teach you to make them well, because if you do, you are going to be happy.’”

  • Alex Rees-JonesThe Subtle Levers That Influence Affirmative Action, Knowledge@Wharton – 04/25/2023
  • Olivia S. MitchellPandemic-Era Debt Weakened Retirement Readiness, Think Advisor – 03/21/2023 Description

    What You Need to Know
    A new paper set to be published in the Financial Planning Review underscores how debt problems interact with retirement readiness.
    The data shows significant retirement readiness gaps and differences in debt constraints between various demographic groups.
    People who correctly answered fundamental financial literacy questions appear to have less debt and to be better prepared for retirement.

    Driven by the COVID-19 pandemic, many households have experienced financial shocks over the past several years due to unemployment, working-hour cuts, furloughs and drops in compensation. Such shocks, combined with insufficient emergency savings, have constrained their balance sheets — and jeopardized their retirement preparedness. This is according to a new analysis set to be published in the Certified Financial Planner Board of Standards’ Financial Planning Review. The forthcoming paper, written by contributing researchers Andrea Hasler, Annamaria Lusardi and Olivia S. Mitchell, details which U.S. population subgroups report feeling most debt-constrained, how this perception was affected by the COVID-19 pandemic, and how it relates to financial literacy and retirement readiness. The researchers say their analysis shows that, prior to and during the pandemic, one in three American adults felt constrained by their debt. The percentage was higher among what the authors refer to as “vulnerable” subgroups, including Black and Hispanic individuals, those lacking a bachelor’s degree, those with lower incomes and those with low levels of financial literacy. According to the trio, being debt-constrained also has negative long-term financial consequences, particularly when it comes to planning and saving for retirement. Ultimately, the authors explain, financial literacy has a strong connection to both debt and retirement money management, “confirming that financial knowledge is essential if people are to be able to manage their debt and build financial well-being.”

    Setting Up the Analysis
    As the researchers explain, the key underlying data for the new analysis stems from the TIAA Institute-Global Financial Literacy Excellence Center Personal Finance Index, which is a survey tool designed to measure Americans’ knowledge and understanding of the factors leading to sound financial decision-making and effective management of personal finances. The index itself is based on a repeating, nationally representative survey that was first fielded in 2017. For their present study, the researchers analyzed and compared the 2020 and 2021 data waves, both of which were collected in January of their respective years. Accordingly, this design permits the researchers to compare data collected right before the COVID-19 pandemic hit, and then again 10 months into the crisis. Notably, Black and Hispanic Americans were oversampled in 2021, permitting Hasler, Lusardi and Mitchell to analyze these historically underrepresented groups in finer detail, though both surveys included statistical weights to generate nationally representative results. From this starting point, the researchers examine how people reported that debt has constrained their progress toward personal finance goals, and they also study responses to questions asking about late debt payments — a clear indicator of debt being burdensome for people’s personal finances. According to the researchers, this late-payment question is additionally useful as a robustness check on the debt-constraint measure, though they admit they cannot perfectly compare results over time, as the wording of the questions in 2020 and 2021 changed somewhat.

    Running the Numbers
    The analysis shows that, in 2021, almost one-third of respondents indicated that they felt debt-constrained, and 22% reported being late on their debt payments. By comparison, in early 2020, prior to the pandemic’s full-fledged arrival in the U.S., the same percentage of the U.S. population stated it felt debt-constrained, but only 13% of respondents reported being late on their debt payments. Hasler, Lusardi and Mitchell suggest these results show that debt and debt management is not a short-term issue facing many Americans. “Rather, it has been a concern for some time,” they write. “The changed wording of the late debt payment question explains why so many answered the 2021 question positively, as it included not only those who were late on loan payments (similar to 2020), but also people in arrears on their bills.”

    Next, the researchers turn to an investigation of the long-term consequences of debt by examining two indicators of retirement readiness, including retirement planning and saving for retirement. According to the authors, it is important to understand retirement readiness for three reasons. First, retirement planning is a strong predictor of wealth. Second, given the fact that the income replacement rates provided by Social Security are far less than 100% for most retirees, workers today must set aside private savings to ensure their financial security after they stop working. Accordingly, a lack of retirement wealth may be a leading indicator of financial fragility in retirement. Third, people who plan for retirement also tend to be savvier about their life cycle financial resources. Across both survey years, results show that around 58% of U.S. non-retirees saved for retirement on a regular basis. However, only about 37% reported having ever tried to figure out how much they needed to save for retirement.

    Nuances in the Results
    The researchers then turn to a more detailed analysis of the self-reported debt-constraint measure, including its correlation with financial literacy and retirement readiness. They find that, in 2021, around 30% of Americans reported feeling constrained by their debt, while some 20% took a neutral position and the remaining 50% did not feel that debt and debt payments prevented them from adequately addressing other financial priorities. Comparably, 22% reported being late on their debt and bill payments in 2021. The researchers say these figures are alarming enough on their own, but the averages hide large differences across demographic subgroups. Specifically, among Black Americans and Hispanics, 38% and 46% felt debt-constrained, respectively, in stark contrast to the white population, where 26% reported being financially constrained by their debt. The researchers say these figures underscore meaningful differences by race and ethnicity, indicating that Black Americans and Hispanics likely face more challenges with short- and long-term financial well-being. The researchers say their findings match those of other recent research investigating broad measures of financial well-being that include debt management across different racial and ethnic groups. As in those analyses, Hasler, Lusardi and Mitchell find education appears to be another factor important to debt management.

    Significantly fewer respondents with at least a bachelor’s degree (23%) reported feeling constrained by their debt, compared to their peers with some college but no degree (33%) or only a high school degree (32%). This gap exists even when controlling for a range of socio-demographic variables including income, according to the researchers. Beyond general education levels, Hasler, Lusardi and Mitchell also analyze respondents’ financial literacy and financial education levels. Overall, people who could correctly answer three fundamental financial literacy questions assessing knowledge of interest, inflation and risk diversification were significantly less likely to indicate that they felt debt-constrained. Specifically, one in five (21%) of the financially literate reported being debt-constrained, versus more than one in three (35%) among those who could not correctly answer a handful of targeted financial literacy questions.

    Overall, according to Hasler, Lusardi and Mitchell, fewer survey respondents who had participated in a financial education class or program offered in high school or college, in the workplace, or by an organization or institution in their community felt debt-constrained compared to respondents who did not participate in a financial education class or program.

    Takeaways for Retirement Advisors
    The researchers suggest a key part of their work is the effort to determine whether being debt-constrained matters not just for short-term but also for long-term financial outcomes. To get at the question, they examine the link between the debt-constraint measure and retirement readiness. The data provides initial evidence of a strong correlation, the researchers say. According to Hasler, Lusardi and Mitchell, in January 2021, only 31% of non-retired debt-constrained respondents reported having ever tried to figure out how much they need to save for their retirement. Of non-retired respondents who were not debt-constrained, 47% indicated that they had been planning for retirement. “This large difference underscores the strong correlation between struggling with debt and lack of retirement readiness,” the researchers posit. “An even more pronounced result arises in the pre-pandemic data (for 2020), with 26% of debt-constrained respondents indicating that they planned for retirement, versus 49% of respondents who were not debt-constrained.” Similarly, in 2021, 41% of non-retired debt-constrained respondents said they regularly saved for retirement, whereas 74% of non-retired respondents who said they were not debt-constrained saved for retirement. Findings are similar for the previous year and for the late-on-debt payments measure, the researchers note, providing strong evidence that being debt-constrained affects retirement readiness.

  • Olivia S. MitchellAmericans are saving the least since 2005, miamitimesonline.com – 03/08/2023 Description

    Unusual. Historic. Concerning. These are terms economists use when they look at American saving habits today. Stacker examined what the decline in setting aside those funds means for the future financial health of the average American. Consumers saved about 3.4% of their monthly income in December, a slight uptick from November’s 2.9%, according to the Bureau of Economic Analysis. That figure has hovered around the lowest since 2005, when the United States was careening toward the Great Recession. At the same time, data suggests Americans have continued spending at rates above pre-pandemic norms. And they’re putting even more expenses on credit cards – a trend that began to pick up in the summer of 2021. The rate is “unusually low,” said Anthony Murphy, a senior economic policy adviser for the Federal Reserve Bank of Dallas.

    The Personal Saving Rate, a figure economists watch to keep a pulse on the health of consumers from month to month, measures how much income Americans are storing away in a bank account. It is not a measure of the actual amount of money sitting in savings accounts or the equity they may hold in real estate or the stock market. The saving rate provides a sense of how American consumers are behaving at the moment – what decisions Americans are making today as they think about the future and how they’ll cover expenses down the road. As low as the rate is now, it might not be rock bottom, says Olivia S. Mitchell, a professor at the University of Pennsylvania’s Wharton School of Business, where she researches retirement and saving behavior. She says the saving rate could turn negative in 2023, meaning households are spending more than they make in income.

    A big unknown
    In early 2020, the pandemic’s impact on spending and the thousands of dollars in stimulus checks approved by Congress made it possible for Americans to squirrel away a record $1 out of every $3 they received. “I’ve never seen a number like that,” Mitchell said. As Americans saved far less in recent months, analysts and experts have varying views on how long it will be before all that stashed cash runs out. “The big unknown really is … will there be a recession?” Mitchell said. A recession, she says, would mean Americans may have a harder time finding consistent employment and building their savings back up. Without padding in savings accounts, consumers run the risk of an emergency expense causing them to fall behind, or even default, on debt payments for a vehicle, home or rent. There is evidence, for example, that an increased number of Americans defaulted on their vehicle loans last year, according to Cox Automotive, though the rate remains below historical standards.

    The last time Americans saved as little month-to-month as they do today was in the run-up to the 2008 financial crisis. From 2010-2020, the U.S. saving rate hovered around 7% of income. The saving rate turned negative in 2005, causing debate among economists as to whether a “reckoning for consumers” was “finally” in store. They received their answer in 2007 as lenders began to collapse due to the poorly structured loans that helped fuel consumer spending on homes. The silver lining for this current moment, according to economists like Mitchell, is that many Americans who want to work have jobs, as evidenced by the continually low unemployment rate. Americans who have set financial goals say they’re optimistic about making financial progress in the year ahead, according to a January 2023 survey from Morning Consult. In December, just 5.7 million Americans were unemployed despite wanting a job, a total of about 3.5% of the working population, according to the Bureau of Labor Statistics. That rate is also a low figure for the U.S., which required nearly a decade of job creation and recovery to reach following the Great Recession.

    Paycheck to paycheck
    The National Bureau of Economic Research has yet to officially declare a recession. Still, Bankrate senior analyst Mark Hamrick in a statement called the prospect of a recession “concerning.” Economists are generally watching to see when, and if, layoffs may spread beyond the tech sector, which has seen 200,000 job cuts since the start of 2022. That’s because mass layoffs could impact whether the current financial profile of the American consumer is sustainable. More than half of Americans say that if they had to pay for a one-time $1,000 emergency expense, they would not do it with savings, according to Bankrate’s annual Emergency Savings Report conducted in December 2022. Instead, 25% of respondents told Bankrate they would sooner cover that expense with a credit card, and others said they would use personal loans or other means. That’s the sentiment even as credit debt is at a recorded high and interest rates on credit cards are climbing. Bankrate has performed its survey since 2014 and said the 1-in-4 response rate on its question about covering an emergency expense with credit was a record high.

  • Olivia S. Mitchell‘It’s not their money’: Older Americans worried debt default means no Social Security, abc News – 01/01/2023 Description

    If the United States defaults on its financial obligations, millions of Americans might not be able to pay their bills as well.

    With Social Security and other government benefits at risk amid a political stalemate over the government’s debt ceiling, experts and older Americans told ABC News that the consequences of the impasse in Washington could be dire, including for older Americans who need the money to pay for basic needs such as food, housing or health care costs.

    A quarter of Americans over age 65 rely on Social Security to provide at least 90% of their family income, according to the Social Security Administration.

  • Olivia S. MitchellLa función de copiar y pegar los contenidos del Diario Financiero es exclusiva de los usuarios DF Full. Si está suscrito ingrese con su clave y podrá hacerlo. Si no cuenta con suscripción puede suscribirse llamando al 23391048 o escribiendo a suscripciones@df.cl De otra manera queda expresamente prohibida la publicación, retransmisión, distribución, venta, edición y cualquier otro uso de los contenidos (Incluyendo, pero no limitado a, contenido, texto, fotografías, audios, videos y logotipos). Muchas gracias., Diario Financiero – 01/01/2023 Description

    -¿Cómo cree que se debiese avanzar en una reforma a las pensiones en Chile? ¿Qué elementos debería contener la reforma?
    When I served on the last Presidential Pension Reform Commission, our group recommended many proposals, the most important of which included strengthening the funded pension pillar by raising the retirement age, boosting contributions, cutting commissions and fees, and boosting benefits for the very low-income elderly. The adoption of the PGU has helped the lot of the elderly poor, but the other three recommendations have still not been adopted.

    -El Gobierno propone un mecanismo de “cuentas nocionales” en la cotización adicional del 6%. ¿Qué le parece que Chile transite a un mecanismo como este?
    I am opposed to a notional accounts proposal, as it would be nothing more than moving to a pay-as-you-go system – one which Chile will not be able to afford without massive cuts in other spending or large tax increases, due to rapid population aging.

    -¿Cómo cree que se podría llegar a un acuerdo en esta materia considerando que el Gobierno y la oposición en el Congreso tienen visiones muy distintas en materia de pensiones?
    Reforming retirement systems is always difficult, but doing so in Chile is particularly important now, in the wake of the pandemic, where politicians permitted people to withdraw far too much, too early, from their retirement accounts. The economic reality is that this policy had quite regressive effects, cutting future pensions the most for workers earning lower wages and having lower contribution density. Our research suggest that projected benefits for pre-retirees could drop by over 70%, which would necessitate 9-11 additional years of work to make up the difference.

    -¿Qué opina sobre el rol del Estado en la administración de fondos? Debiese existir un administrador estatal con un rol con ventaja (por ejemplo default) o cree que las condiciones deben ser parejas tanto para administradores privados como para uno estatal?
    From an economic viewpoint, I see no need for a new government agency to get involved in administration of the Chilean pension system. There is already a well-functioning mechanism to collect contributions, manage assets, and pay benefits. Additionally, there is a Pension Superintendency in charge of overseeing plan investments and fees. What could be useful is the adoption of a policy requiring all pension system members to be periodically defaulted to the lowest cost plan, where all AFPs would have to provide tender offers on fees and expenses. This could enhance retirement security for all employees, and not just new entrants.


  • Olivia S. MitchellCan you afford to retire?, The Economist – 12/05/2022
  • Olivia S. MitchellAmericans’ 4 biggest retirement regrets and how to avoid them – 12/02/2022 Description

    Saving for retirement is all about preparing for the future. But once they reach retirement age, many Americans find themselves regretting the past. Research shows a majority of older Americans wish they’d prepared better for their golden years. According to a paper by researchers at the Hebrew University of Jerusalem and the University of Pennsylvania published in the National Bureau of Economic Research, almost six in 10 Americans aged 50 and older wish they’d saved more for retirement. Other regrets are more specific: Respondents wish they’d prepared better for health expenses, filed for Social Security later or stayed in the workforce longer. The good news is there are ways to avoid these regrettable decisions before it’s too late — or even afterward, to mitigate their consequences. Advisors can help. The key, experts say, is to have the client envision what their ideal retirement looks like — and doesn’t look like — in as much detail as possible. “Don’t have the goal be simply to not have any regrets, but think through what regrets you don’t want to have,” said Jacquette Timmons, a financial behaviorist and the CEO of Sterling Investment Management. “The more specific you are about the regret you want to avoid, the more intentional you can be about what you do or don’t do today.”

    Here’s a look at America’s top retirement regrets and how advisors can help clients steer clear of them.
    Not saving enough
    The most common regret of all is undersaving. According to the study published by the NBER, 57% of Americans regret not having stashed away more for their post-work years — either because they started too late or just saved too little. “Everybody wishes they had started sooner or contributed more,” Timmons said. When a client still has many years left before retirement, the solution is obvious: Save more. Nicole Cope, senior director of Ally Invest Advisors, said she encourages younger clients to scale back on dining out, taking vacations and “keeping up with the Joneses.” But even for older clients, minor tweaks can result in big savings — like spending less on family gifts or waiting longer to buy a new car. It’s after retirement, she said, when the conversation gets harder. Two or three years after leaving their jobs, some clients realize they can’t afford the lifestyle they’d been looking forward to. At that point, Cope said, the best thing an advisor can do is help readjust the client’s expectations — while staying as positive as possible. “The first thing is, you don’t shame anybody. It should be a judgment-free zone,” Cope said. “You can’t go back in time. You can only plan for the future.”

    Healthcare costs
    Another major regret has to do with healthcare, which is extraordinarily expensive in the United States. According to the Kaiser Family Foundation, U.S. spending on healthcare per capita is more than twice that of the average wealthy country. One regret Cope often hears from her clients, she said, is that they neglected to save specifically for these costs. “They think of their living expenses, including healthcare, as one lump sum,” she said. “And we all know that healthcare inflates at a much higher rate than basic living expenses.” When clients still have years left to save, Cope said, advisors can help by pushing them to plan in as much detail as possible — “to break those goals up and get very granular.” But later in life, many clients regret not planning for long-term care, such as nursing homes, home care and assisted living. According to the NBER study, 40% of respondents regretted not buying long-term care insurance, which gets more expensive the longer one waits to buy it. Timmons said she’s heard this regret from her clients. But instead of despairing, she got creative. “If it’s too expensive for you to do it now, can you create your own version?” Timmons recalled asking. “So maybe you can’t do that through an insurance company… but can you perhaps set up an investment account that’s purely for long-term care?”

    Social Security
    Procrastination is normally a bad thing, but when it comes to filing for Social Security, later is usually better. Those born in 1961, for example, can start collecting at age 62, but they’ll only receive 70% of the benefit. To get 100%, they need to file at 67 — and if they can wait even longer, they’ll get even more money in the form of delayed retirement credits. “The longer you can wait, the better, because the amount will be more,” Timmons said. Unfortunately, some seniors don’t understand this until it’s too late. Cope said clients sometimes come to her asking for ways to maximize their Social Security, long after they filed at the earliest possible age. “Clients always want to understand the loopholes,” she said. “Like, ‘Oh boy! I took this at 62, now I’m at full retirement age, how do I get the full benefit?’ That’s a misunderstanding that could easily be rectified by speaking with an advisor 10 years before you retire.” This mistake fills many retirees with regret — the authors of the NBER study found that 23% wished they’d filed for Social Security later. To avoid this, Cope said, investors should discuss their plan for the program with an advisor — and unlike filing, they should do this as early as possible. “That, to me, is the retirement red zone — 10 years before you retire, you should have a plan in place for retirement,” she said. “Part of that plan should be Social Security optimization.”

    Retiring too early
    Sometimes retirement itself is the regret. More than a third of the seniors who spoke to the NBER study’s authors — 37% — felt they left the workforce too early. The financial advantages of retiring later are obvious: more earnings, more time to save and the retiree can claim Social Security later. But there are also other, less tangible benefits. “Personally, I do think people should work a little bit longer,” Timmons said. “Not just from a financial standpoint, but from an engagement standpoint, it’s beneficial.” Both Timmons and Cope said working longer — when possible — is often good for the mental and social health of a client. But even in retirement, there are ways to keep one’s mind just as active. “One thing that I always tell my clients is that you’re not retiring from something; you’re retiring to something,” Cope said. “So that becomes a very important conversation: finding out what their hobbies are, finding ways to fill their time.” Cope recalled one client whose “entire identity” was wrapped up in his work, and she worried he would struggle in retirement. After many discussions with him, Cope realized the thing that gave this client joy was “building something from nothing.” So to fill the void left by his job, Cope helped him get involved in several local charities, where he put his creative skills to work. “He ended up flourishing in retirement,” Cope said. And flourishing is a much healthier state of mind than regret.

  • Katherine L. MilkmanWhat we learned from Philadelphia’s vaccine lottery, The Philadelphia Inquirer – 09/29/2022 Description

    Whether developing a safe vaccine or figuring out how to encourage its adoption, the same scientific method — systematically experimenting to see what works and what doesn’t — is key.

  • Olivia S. MitchellTweet by UW-Madison CDHA on Twitter – 09/14/2022
  • Elizabeth E. BaileyElizabeth Bailey, pathbreaker for women in economics, dies at 83, Washington Post – 08/31/2022



















  • Olivia S. MitchellHow Much Private Equity Is Too Much for a Public Pension? – 01/01/1970
  • Olivia S. MitchellMake Social Security Fairer to Workers – Morning Consult, Morning Consult – 01/01/1970 Description

    It’s well-documented that Social Security faces a massive financing shortfall that threatens its solvency unless lawmakers swiftly enact corrections. However, this isn’t the only reason to reform Social Security. The program doesn’t treat work or workers fairly, and this needs to change.

    By the time workers reach late middle age, each dollar of payroll taxes they contribute delivers on average only 2.5 cents in additional benefits. The reasons for this mistreatment are various, but are rooted in the fact that lawmakers have never adequately considered Social Security’s effects on work.

    The 1935 Committee on Economic Security that advised President Franklin Roosevelt on Social Security’s design took it for granted, amid the Great Depression, that workers “past middle life” had “uncertain prospects of ever again returning to steady employment.” In the 1970s, lawmakers enacted automatic annual benefit increases that cannot be sustained unless workers’ tax burdens rise dramatically. Workers now beginning their careers are projected to be made poorer by Social Security, on average, by an amount exceeding 3 percent of their lifetime earnings.

    The damage wrought by Social Security’s work disincentives is enormous. Healthy, productive workers are induced to drop out of the workforce, right at a moment in life when they are typically deciding whether to retire or continue working. Evidence shows that workers respond to these incentives by quitting work when their marginal Social Security tax rate is high.

    Even before the pandemic, we faced an enormous labor participation challenge, with the baby boomer generation retiring in droves to spend more of their lives drawing government benefits than any previous generation. But especially now, when America lacks enough willing workers to fill employers’ needs, the last thing we need is for our largest domestic program to make the problem worse.

    One problem is the archaic design of Social Security benefits. The benefit formula, reflecting bygone data limitations, is based on a worker’s average earnings in their highest 35 years (adjusted for national wage growth). The problem with this is obvious: As soon as a worker works for 35 years, he or she no longer accrues benefits at the same rate, because each subsequent year of earnings only counts toward benefits to the extent that it exceeds a previous year’s earnings.

    Far better would be for workers to accrue Social Security benefits each year they work, just as workers in private pensions do. This requires changing the formula so that it operates separately on each year of earnings rather than on a career average. A side benefit of this reform is that it would actually save the system money, mostly by constraining benefit growth for sporadic high-income workers (to whom the current formula pays windfalls because it mistakes them for low-income workers).

    We should also reform Social Security’s early retirement penalties and delayed retirement credits. The current system rightly adjusts monthly benefits for one’s age of claim — reducing benefits for those who claim early and draw for more years, while increasing benefits for those who delay retirement. The problem is that these adjustments are weak. Wharton economics professor Olivia Mitchell has found that offering the delayed retirement credit in a lump sum option (typically in the tens of thousands of dollars) could be a more powerful inducement to delay retirement than the current method of adjusting monthly benefits by a few percentage points. Current early/delayed retirement adjustments also don’t consider that those who keep working also continue to pay payroll taxes. To properly take workers’ taxes into account, early retirement penalties and delayed retirement credits need to be made larger than they now are.

    Of course, there is no avoiding the most politically difficult issues, including Social Security’s outdated eligibility ages. There is only so much that other adjustments can accomplish, so long as eligibility ages remain badly out of sync with demographic realities.

    The most common age of benefit claim today is 62. As long as healthy workers continue to claim benefits so early, program costs will be inflated, and workers’ tax burdens will be needlessly compounded. It bears noting that the current earliest eligibility age of 62 could be raised by three years, and still allow 21st-century workers to claim Social Security benefits at a younger age than those of the generation that fought the Spanish-American War of 1898. Then, too, initial benefit levels are currently indexed to grow faster than workers’ after-tax earnings. Until this cost growth is moderated, American workers’ standards of living will continue to fall behind.

    While specific reforms should be thoroughly debated, we would all benefit from a general shift in Social Security’s posture toward work. To serve 21st-century needs, Social Security must be converted from a program that penalizes work to a program that rewards it.

  • Olivia S. MitchellOn Delaying 401(k) Distributions, NBER – 01/01/1970
  • Olivia S. MitchellHow to Think Long Term With Near-Zero Interest Rates, Wall Street Journal – 01/01/1970