Stanford University

To enhance the understanding of the options faced by households whose previous retirement plans now appear unrealistic, perhaps due to slow growth, lower than projected wage growth, or poor past or projected asset returns

  • Amount $234,987
  • City Stanford, CA
  • Investigator John Shoven
  • Year 2017
  • Program Research
  • Sub-program Working Longer

Many economists predict that the global economy is entering a sustained period of historically low productivity and real wage growth. This grant funds work by economists John Shoven and Sita Slavov that will analyze the implications of working longer and strategies for saving for retirement in a such a low-growth, low-return, low real-wage-growth environment. How do optimal retirement and savings strategies change as the prospects of robust economic growth dim? This research will include two projects related to the broader theme of retirement-focused behaviors in a slow growth economy. The first will focus on the measuring the benefits accruing to working longer in a low-return environment. Using data taken from the influential Health and Retirement Study (HRS), Shoven and Slavov they will compute the rate of return to working longer for HRS respondents between ages 50 and 62 using a life cycle model that assumes individuals face borrowing constraints and that incorporates the actuarial benefit adjustments they receive when they delay Social Security The second project will explore in depth the impact of low wage growth and low asset returns in a slow growth economy. Shoven and Slavov will work through the theoretical implications of optimal savings and working decisions. Because savings depresses current standards of living in exchange for future benefits, the attractiveness of saving drops as asset returns slow. Likewise, the attractiveness of future work dips as wage growth slows. Shoven and Slavov will work out how these differing factors interact under standard economic modeling assumptions, paying special attention to the implications for working longer to raise or maintain living standards. The two projects form interesting and compelling research agenda that has real-life consequences for millions of Americans.

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