comparing wealth in retirement: state-local versus private sector workers

8/4/2019 Comparing Wealth in Retirement: State-Local Versus Private Sector Workers

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State and Local Pension Plans Number 21, October 2011

COMPARING WEALTH IN RETIREMENT:STATE-LOCAL VERSUS PRIVATE SECTOR

WORKERSBy Alicia H. Munnell, Jean-Pierre Aubry, Joshua Hurwitz, and Laura Quinby*

* Alicia H. Munnell is the Peter F. Drucker Proessor o Management Sciences in Boston College’s Carroll School o Management and director o the Center or Retirement Researchat Boston College (CRR). Jean-Pierre Aubry is the assistant director o state and local research at the CRR. Josh Hurwitzand Laura Quinby are research associates at the CRR. The au-thors would like to thank Andrew Biggs, David Blitzstein, KeithBrainard, Peter Diamond, Elizabeth Kellar, Steven Kreisberg,

Jason Richwine, and Nathan Scovronick or helpul comments.

Introduction

Th mp p mpy h p h wk h . Fdd v p p p dd hpy h mm h d v pd. A , p p m k wy d p . Th mp –h xp mpd – h p . P, , j p mp, y mp m dw d h . Th q mp-y mp h - d pv w h Issue in Brie . Th w h w wk wh mh, d, d xp w hh h pv h h p, - wk hy h w py.

Tk wh, mp h w hy mp.

Th brie k mwh d pph h q mp hhdd m h Health and Retirement Study . I kwhh, h d h dy, - mpyd p wh m wh m h hpv p. Th , k hwh p wh h hd 65 d , my h h d hm, whh - mpym h p-v v wh d hw h d h - .

Th d pd w. Th - p h d d mhdy mh mp - mpym wh 65. Th d p h . Thyhw h h wh - mpym wh

p m h h h p wk – -hd h p – hd p

RESEARCH

RETIREMENT

LEARN MORE

Sh h p h p :crr.bc.edu



C Rm Rh

p m wh 65 h m pv p. Th h w-hd h wh- mpym wh p h h h p wk dd p wh less wealth h pv mpy. Th hd d-

d y h y – h pyh - wk y, h dd p, d dvpm h mhm h ppy h dy’ v-m. Th d h, dp mm, h h h - wk p d p h h hpv p.

The Relationship between StateLocal Employment and Wealth

Th pp h brie h “m-” - d pv wk h “d h dy.” Em mdy wh, whh d , , dd , w h p v S Sy, dd p , d hh . “Ed h dy” dd 65. A 65 w d p whhmy hhd wd d d wd Md, wd hv m hh . Th dm h x whh hhd wh 65 d y -

mpym, h v hd h m.Th y d m h Health and Retire-

ment Study (HRS), y pv p d Am hhd. Th dy y vw ,65 dvd m 7,6 hhd 5-6 d h p(d ), d h vy h -dm-d vy w y . Ov m hh hv ddd h vy, y h mp z. Th y h h h d m h y- d md p. Gv h

h mp, h p h 65 6d h p 6. Th mp d, hhd, hy 37 p whh hdp m m h - .

Th md q hhdwh wh h pd 65 h p h pd’ d h p’ p - wk. (By , h p-d m d h p wm.) B- dd p k-dd – dydv, , d d

– h hp w - d wh wd xpd . Th, k h pd: p 5 p p -mpy; 5 p 5 p; d m h 5

p.3 F hw h hy q h - wk h h .4

Source: Ah’ m Uvy Mh,Health and Retirement Study (HRS) (1992-2008).

Figure 1. Distribution of State-Local Worersb Percent of Career Sent in te State-LocalSector, 199-200

32.4%

28.3%

39.3%

28.9%

42.2%

28.9%

0%

10%

20%

30%

40%

50%

RespondentSpouse

S-L% 5%

S-L5% 5%

S-Lv 5%

B pd wh h y, - hw h wh hhd wh - wk mp h hhdwh hy pv mpym. F- ( h x p) hw h h hpy v wh hw h dvd wkd - mpym. Cp wh -d- wk hv p m wh, whh wh h-d wk hv 3 p. Th q hw mh h d xpd y h h dvd d

h h j.I d h mp wk h- , y p- d j h h d whm. Th md p 65, qd m h pd. Th v dd h q p: dmph;py ; h wh; d jh.



I B 3

Source: Ah’ m HRS (1992-2008).

Figure 2. Difference in Age- Wealt forHouseols it State-Local s. Priate SectorEloent, b State-Local Tenure, 199-200

13.0%

22.0%

-20% -10% 0% 10% 20% 30%

S-L% 5%

S-L5% 5%

S-Lv 5%

-12.8%

Dmph v d:

• Lie expectancy . Th v h -pdpy v 75. A hh p-y wd xpd d wh mwh.

• Education. Th v m d -m h h hd d w m y h. M d hd

d wh m wh.

• Race. A dmmy v q h p-d k d z hw. A dmmy v- q h pd Hp dz hw. N-wh wd xpd hv wh.

• Age o spouse. Ahh h pd 65, hp y . Th hyph hd p wd hv hd m m -m wh, h hp w p d wh hd pv.

Th h dvd d hv mp wh m.

• Stocks %. Th p h hhd’ vd q 65 dd m k. Th h hh-k/hh- vm, h hwh.5

• Risk aversion. Th HRS k pp hw p j wh h py m ky. Bd h p, hy d v k p m k v 6 m k v.Rk v dd v 5 6.Rk v d wh wd xpd pvy d.

• Long horizon. Th p hz h pd d h p mp m v. A hz dd h h v y. Th h hz, h m ky h hhd v, d h h wh.

Oh h d wh m- d whh h hhd w d whh h hhd h vd xp v h.

• Career spouse. Tw- hhd, py hh d v, wd xpd hvm wh h . Th, h q- d v q h pwkd y d d h 5 d v h d d p h hyph h hmp wh d w vy wh

d.

• Expect inheritance. Th HRS k h p-y v h d h kym. A q, hhd xp v h wd hv w wh.Hwv, v d m, d y d h, h hhd xp v h d hv hh wh.

• Received inheritance. Th HRS d h dd m p h. Th m

djd 6 d d md 3 p. Hhdhv dy vd h wd hvhh wh.

J h d p, m z,d .



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• Occupation. Th j d: m-m, p, v, , dm-v pp, d y, d x, m d p, pd-

, d p p.6

• Firm size. Fm z v p: 4mpy ; 5 ; 4; 5 ;d , .7

• Census region. Th dvdd v: Nh, Mdw, Sh, W, dOh.

N h h v d - y m m . Th h w not k: “F v v ,wh h mp wh -wk?” I y kwdd h qvdvd wd hv d m d-pd whh hy wkd h p p-v . Th q h “Gvp h, p, p z,d h y, d m m hhd wh 65 whh dvd pdh/h h pv p ?” Thd q d q .

ResultsDd pd h Ap-pdx. B d h mp -mpym, wh h h h v m wh h xpd d y .

Th mp - mpym pd F 3. Th hw h pd mh 5 p ’ - wk d wh p p mwh 65, d h y. A -hd h wh m -

mpym h y.Th hp w h pd

- d wh whxp, hh m h y . Th wh pd y m - mpym pp d p wh wh h h wh v wk pmpy. A -hd h wh p mpym h p. Th d p, v h my v wh v h p d v y d h -

N: Sd d h y - h 10-p v. Th ph hp w h h d wh.F pd h Appdx.Source: Ah’ m HRS (1992-2008).

Figure . Iact of Percent of Career as a State-Local Worer on Wealt of Coules itHusban Age , 199-200

-0.15

-0.07

0.18

-0.08

-0.03

0.11

-0.2 -0.1 0 0.1 0.2

Respondent

Spouse

S-L% 5%

S-L5% 5%

S-Lv 5%

d m m pym. Adh wh wk mpy wh S Syv wh mh h hy wd hv d h pv . Th wh pd md- p h (5 p 5 p) - mpym k vy m pv mpy m wh 65.

Questions Raised by the Analysis

Th pd v m q-. Hw d w p y -m - wk? D mpy vd y dd p pp vm? A 6-6 pp ?

Early Retirement

Th y mpy m h - d

pv wk h m m. Bwh - wk hd d pd hy w vd 65? T k xm xmp, pp hy hd -d m - j d hd vd pd hh 5 y, m 5 65. Sh p q dd w : )h v p d hh vdd h pd; d ) h v h jyd. Th p h



I B 5

y pd h y. Th p vwd qv w, d h x h vd vd h dwdw md, w d h wh -. Smy, v m hv ph

hh w hw p h wh 65. Th y m wd h h m hd 5 y . V h wd mp y m mpy p v pv mp.

A d , h w mjpm. A hw F 4, m h p-d wh hd p m h - dd p m pv j. I m m , h p mpy whmvd h pv d hy hm wk wh hd p h - h pv ( F 5). Th whd dy m h - j dd y, hy d y m h wh - mpym. I h, h d hv mpd h y d h mp.

A d h m h mvd y - mpy wh v h p- j d mv h pv . Thdvd wd w m h pvmpy d ( ) d myv p m h m - m-py. A, h x h y h m

vd, w d h wh .


Figure . Distribution of Resonents b Job atRetireent, 199-200

3%

21%

76%

0%

20%

40%

60%

80%

Retired fromS-L job

S-L retired fromprivate job

Private worker


Figure . Aerage Retireent Age of Men WoHae Retire b Age , b Sector

58.2

61.661.2

55

57

59

61

63

Retired fromS/L job

S/L retired fromprivate job

Private workerRd mS-L j

S-L d mpv j

Pv wk

The Role o Deined Beneit Plans

Th hhd wh -d - wk- d p wh wh h hhd wh hy pv mpym d -h h ) hy vd m mp; ) hy wkd dd vmwh hy w d v. Idd, 7 p - hhd h mp v dd p mpd 5 p pv - hhd.

T h mp vd y

dd p, w -md h q,d v d h p dd p. Th hw h h dv -d - wk dppy m, h yd m z ( F 6, h x p). I h wm, h m, dd. Th d p v hwm’ v w hh h p h h pv . I y v, h h wh mp w -d pv wk d y h d-p mpd y h p .



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N: Sd d h y - h 10-p v.Source: Ah’ m HRS (1992-2008).

Figure . Iact of Long State-Local Tenure onTotal Houseol Wealt, Controlling forDefine Benefit Particiation

0.14

0.06

0.18

0.11

0 0.05 0.1 0.15 0.2

Spouse

Respondent

Without DB control

With DB control

Applicability to Today

Th y v h pd 6-6, d hq h x whh -m. A m h hv d h v pd. F xmp, dy’ pv ky hv dd

p d hh h h -p h p, whh wd h h h wd mpd p mpy-. O h h hd, p w v h h pv hv dd v m,d y vm p hv dmpy p, --vdjm, dd w mpy,d d mpy pmm d -pym hh, whh wd h h hh d.3 O , hw dvpm wd h p.

Conclusion

Th y d h dv - v pv mp. I

v whh, h d h dy, -mpy d p h p h h p-v p. Th vvd k- h wh – dd dy d hh w S Syd dd p wh – -d pv p wh h hd w65. A ky whm, h hwd h h -hd h wh - mpym wh p mh -h h p mpym hdhhd wh h w p p 65. Sq y h h

wh my w d vhh pp dd p.Th h w-hd h wh - mpy-m wh p h h h pwk dd p wh wh h pv mpy. I h, p, p wh - wk, q, d d p h hp wh pv .



APPENDIX



Appendix. Total Wealth Regression in the HRS

Deining the Sample

Th mp d md p wh h hd 65 m h h ( w 3d 4) h Health and Retirement Study (HRS).

Rm d RAND v h k whh h pd d hm/h -d. Th pd m m mpy d, h wh m py d q-y wk h - p-m. Sp d my.

Total Wealth

RAND m hhd – d d , ppy d p -, d IRA hd – d d. RAND d xpy d 4(k) h whm, h HRS k q h p y wh pd h j . Hw-v, dy d h p 4(k) d v IRA wh v y h mpy v wk.4 F h , w m h h IRA v p h mjy 4(k)

. I d , wh m w d v p wk.O p h wh m, h y dd wh m p, S Sy, d hh . Ly, wh d 6 d h CPI.

Pension wealth. A h mm h mp d, w v h m mdd p. P m pd wv h pd m hv d. F h , w k h p m h pd wv h pd 65. I v, w pd 65 6 p h h RAND -mp.

Th m h p v p wh :

NPV pension

= ∑

Annual Pensioni,t

Wh Survival Probability q h mpd py v h y v h pd’ , d d S Sy . COLA h --v djm. Th HRS kwhh p h j v COLA. I h v m, w m h d wk v COLA, d h pv wk d . W d mk mp h v h COLA; w h .5 p d h v COLA h Public Plans Database (PPD).5 Th d 6 p – 3 p d 3 p .

Th q mpd y h h m p h y wh h j vv. I h p dd hh h p’ dh, w h p

v (NPV) h ) h NPV d d h m my ; ) h NPV dd h m my . I h p dd h p’ dh, h vvp’ md 5 p h wk’.

Social Security . Th x S Sy wh m h p. Th - h Respondent Cross-Year Summary Earnings d. Th COLA q 3 p, d h d q 6 p.

Bh m d wm v vv , w d y h vv h h dvd . Th S Sy Adm v m - vv d h F Rm A, h m , d mp, d hp’ .

Center for Retirement Research8 C Rm Rh

Annual Pensioni,t

= Annual Pensioni,t-1

* Survival Probability Respondent i,t

* ( + COLAi,t

) / ( + Discount Ratet

)

-age

i=



I B

Wh m vv q :

Retiree Health Insurance. Th RAND d m whh h pd d p v-d y hh . Th dvd wv d d whh h mpy v , p, h pmm. P v dd 5 p h pmm. Th, hhd whh mpy v h pmm wdd h NPV h m m pmm, whhhd wh h mpy y v h wdd h h m.

Survivor Beneft

i,t-1* Mortality Probability Spouse

i,t * Survival Probability Respondent

i,t *

( + COLAt ) / ( + Discount

t )

Survivor Beneft i,t

=

Th pmm m m 6 K/Hw vy hh .6 Ad h dy, h v -y pmm w 65 d w $3,4 6.7 Wd h dvd pmm h hhd wh h h hd d w vd.

Pmm wh q:

Premium i,t = Premium i,t-1 * Survival Probability Maleit * ( + COLAt ) / ( + Discount t )

F mpy, w h md y h m my . COLA q h d p-jd real md , pd y h C Bd O (). Smy, h d 3 p.

Independent Variables

S-L tenure. Th v h p p - wk. Th m y p wk dd h dvd wv d d d hRAND d. Th p - v mpy dvd h w, d h z h hhh (v 5 p), mdm (v 5 p h 5 p), d w ( h q

5 p).

Age o spouse. Th v h p’ wh h pd 65. I d y hp’ h y, vd h RAND d, m h y h h pd 65.

Lie expectancy . Th v h -pd py v 75 pd h RAND d.

Education. Th v m y d d m m RAND.

Career spouse. Th v q h p wkd y d d h 5.Rm dmd y h y m m y pd h RAND d.

Career spouse* ed . Th v d d p h hyph h h mp

wh d w vy wh d.

Stocks %. Th v m k p (h whh pd RAND).

Risk aversion. Th HRS k pp h w p j wh h py m ky.Bd h p, hy d v k p m k v 6 m k v. Rk v dd v 5 6.

Long horizon. A dmmy v m h RAND d q h p hz h v y d z hw.



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Received inheritance. A v q h v p h h p pd h wv d. Th HRS v m p h p h, d h y whh hh w vd. Th h d y 6-p m m h y hy w

vd h pd 65.

Expect inheritance. A v q h xpd v h pd hwv d. Th HRS k hhd h py h h pd p v h- h , wh h xpd m. F h x, h xpd m mpd yh py p.

Black. A dmmy v m h k q h pd k d z hw.

Hispanic . A dmmy v m h k q h pd Hp d z h-w.

Occupation. RAND p hd j 7 , whh w d mp-

y wh M . (). Th dd : mm, p, v, , dm-v pp, d y, d x, m d p, pd, dp p. Lk M ., w xd mm h md .

Census region. A v v dhm v m h RAND d.

Firm size. Th v h m mpy h pd’ m h dvd wv d.Hwv, m m v mp d p v m h Cur-rent Population Survey h p d pv wk py. Ly, m z k dw v dmmy v: 4 mpy ; 5 ; 4; 5 ; d , .



I B

Table B1. Suar Statistics for Regression on Total Houseol Wealt, 199-200

V M Sdd dv Mmm Mxmm

T whS-L 1 1 [R]

S-L 1 0 [R]

S-L v 0 [R]

S-L 1 1 [S]

S-L 1 0 [S]

S-L v 0 [S]

H DB [R]

H DB [S]

A [S]

L xpy [R]L xpy [S]

Ed [R]

Ed [S]

C p

Sk %

Rk v [R]

Rk v [S]

L hz [R]

L hz [S]

Rvd h [H]Exp h [H]

Bk

Hp

1,129,180.0

0.08

0.0918

0.011

0.102

0.020

0.881

0.2

1.

.2 9.829

12.9

12.1

0.02

2.2

0.209

0.19

0.10

0.92

22,921,119

0.09

0.0

1,,00.22

0.281

0.2889

0.21

0.0

0.28

0.92

0.8

.2

22.2022.

.0112

2.1

0.2

.290

0.02

0.8

0.001

0.99

92,2111,0

0.2

0.22

1,100

0

0

0

0

0

0

0

0

2

0

0

0

0

0

0

0

0

00

0

0

.9+01

1

1

1

1

1

1

1

8

100100

1

1

1

100

1

1

1

1

1,02,8,8,21

1

1

N: [R] d h pd, [S] d h p, d [H] d h hhd.Source: Ah’ m Health and Retirement Study (1992-2008).



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Table B2. Regression Results on Total Houseol Wealt, 199-200

V Exd DB Id DB

S-L 1 1 [R] -0.0810 -0.092

(0.0) (0.0)

S-L 1 0 [R] -0.02 -0.02

(0.0) (0.0)

S-L v 0 [R] 0.1118 * 0.01

(0.0) (0.0)

S-L 1 1 [S] -0.12 ** -0.19 **

(0.08) (0.0)

S-L 1 0 [S] -0.008 -0.092

(0.0) (0.0)

S-L v 0 [S] 0.1 *** 0.19 **(0.0) (0.0)

H DB [R] — 0.22 ***

(0.02)

H DB [S] — 0.089

(0.0)

A [S] 0.018 *** 0.01 ***

(0.00) (0.00)

L xpy [R] 0.001 * 0.001 *

(0.001) (0.001)

L xpy [S] 0.0011 0.0011(0.001) (0.001)

Ed [R] 0.090 *** 0.00 ***

(0.010) (0.009)

Ed [S] 0.0 *** 0.00 ***

(0.01) (0.01)

C p 0.902 ** 0.2 **

(0.20)**

(0.20)

C * d [S] -0.01 -0.099 **

(0.01) (0.01)

Sk % 0.008 *** 0.00 ***

(0.001) (0.001)

Rk v [R] -0.1290 *** -0.120 ***

(0.0) (0.0)

Rk v [S] 0.191 *** 0.19 ***

(0.0) (0.02)

L hz [R] 0.19 *** 0.11 ***

(0.01) (0.00)



3I B

Table B2. Regression Results on Total Houseol Wealt, 199-200 (continue)

V Exd DB Id DB

L hz [S]

Rvd h [H]

Exp h [H]

Bk

Hp

C

0.001(0.00)

8.-0

(1.99-0)

2.-0

(1.01-0)

-0.8

(0.00)

-0.21

(0.0)

10.

(0.8)

***

**

***

***

***

0.010(0.09)

8.1-0

(2.0-0)

2.0-0

(9.0-08)

-0.9

(0.0)

-0.219

(0.02)

10.2

(0.8)

***

**

***

***

***

R-qd

Nm v

0.1

1,100

0.988

1,100

N: Add dpd d v p, m z, d dmmy v. [R] dh pd, [S] d h p, d [H] d h hhd. C h 10-p v(*), -p v (**), 1-p v (***).Source: Ah’ m Health and Retirement Study (1992-2008).



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Endnotes

M . ().

Th HRS dd y h I SRh (ISR) h Uvy Mh d md p y d m h N I A. M m v h ISRw: hp://h..mh.d/.

3 Th mpy v 3 y,4 y, d y m d y, y,d y wm. Th, p y d wh h .

4 A wd xp, h wh d hv - mpym y h

wh h wh d . Thv dp h-d wkw 37; h v dp h-d wk w 54.

5 P q d d h yp p v. Hhd whdd p dy hv d m m, d my hv m hvy q. Th, h v p m k.

6 Mm h md xdd.

7 Th v h m mpy hpd’ m h dvd wv d.Hwv, m m v mp d p v m hCurrent Population Survey h p d pv wk py.

S M . () d h.

Th xpd h, whxpd w m, d p-v, h p hd

v. W d v p dd m k v d d mp h .

Th d w 6.6 - wk- d 6. pv wk w -y .

Th dd h dd hdvy mp h md h h .

Bj ().

3 S M . () d h.

4 Uk d Y ().

5 Public Plans Database ().

6 MAd . (6).

7 A vy md d h PPD hwd hh v -y dvd pmm w $3 $4 mhy w 6 d . Mwh,h pv pmm w $7 mhy, -d MAd . (6).



Reerences

Bj, G J. . “Th W S d S- Wk h P S.” Wk

Pp N. 33. Cmd, MA: N B Em Rh.

MAd, Fk, Amy Ah, D Ymm,Mh Khm S, d T Nm.“R Hh B Exmd: Fd mh K/Hw 6 Svy R HhB.” Th Hy J. K Fmy Fdd Hw A.

M, A H., J-P Ay, Jh H-wz, d L Qy. . “CmpCmp: S-L V Pv S

Wk.” Issue in Brie SLP-. Ch H,MA: C Rm Rh BC.

Oz, P R. . “Gwh Hh CC.” CBO Tmy: Sm DP R. Oz h Cmm hBd, Ud S S. Wh, DC:C Bd O.

Public Plans Database. . C RmRh B C d C Sd L Gvm Ex.

U.S. Dpm L. Current Population Survey, -. Wh, DC.

Uvy Mh. Health and Retirement Study (HRS), -. A A, MI.

Uk, Sph P. d J A. Y. . “D- D m Rm-A D-d C P Pp.” VdRh. Vy F, PA: Th Vd Gp,I.

5I B



About the CenterTh C Rm Rh B C- w hd hh m hS Sy Adm. Th C’ m pd - h d d d k w h dm m-my d d-mk h p d pv d mp h’ . T hv h m, h Cp wd vy h pj, mw d d d, w h-, d d v d .S p, h C h hd p- hv m mj p h m m d.

Ailiated InstitutionsAm Ep ITh Bk IMh I ThySy UvyU I

Contact InormationC Rm RhB CHvy H4 Cmmwh AvCh H, MA 467-3Ph: (67) 55-76Fx: (67) 55-E-m: @.dW: hp://..d

© 2011, T B C, C R R. A v. S , , q v f , , v T B C, C R R.

pubplans.bc.edu

Visit our:

T C’P P. T f v C R R B C.

The Center or Retirement Research thanks AARP, Bank o America, InvescoSM, MetLie, MFS Investment Management, National Reverse Mortgage Lenders Association, Prudential Financial, Putnam Investments,State Street, TIAA-CREF Institute, T. Rowe Price, and USAA or support o this project.

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comparing wealth in retirement: state-local versus private sector workers

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