Financial Services Review
Volume 9 Number 1, 2000

Determinants of Planned Retirement Age (full text file)
Determinants of planned retirement age are analyzed. The prediction equation indicates that planned retirement age increases substantially as people get older, and increases somewhat with higher non-investment income. Social Security reform should recognize that the capacity to continue working and the ability to afford to retire both influence the age at which people plan to retire. The range of planned retirement ages suggests that research on the adequacy of retirement preparation should focus on planned retirement age. Financial planners should consider the finding that planned retirement age increases with age.

Catherine Phillips Montalto
Assistant Professor, Consumer and Textile Sciences Department
The Ohio State University,
1787 Neil Avenue,
Columbus, OH 43210-1295, USA
Phone: 614-292-4571.
Fax: 614-688-8133.
E-mail: montalto.2@osu.edu

Yoonkyung Yuh
Lecturer in Consumer Sciences
203-Dong 1403-Ho,
Hyundai Apartment ,
Dowha-dong, Mapo-ku,
Seoul, Korea (ROK)
E-mail: yoonkyung17@hanmail.net

Sherman Hanna
Professor, Consumer and Textile Sciences Department
The Ohio State University,
1787 Neil Avenue,
Columbus, OH 43210-1295 USA
Phone: 614-292-4584.
Fax: 614-688-8133.
E-mail: hanna.1@osu.edu


The Impact of the Pension Fund on The Decision to Work One More Year (full text file)
The decision to retire or work one more year is quite complex. One factor that plays a role in this decision is the net salary derived from working one more year. The type of pension a person has, defined benefit or defined contribution, will influence whether the net salary is larger than, equal to, or less than the stated salary. The larger the net salary relative to the stated salary, the more likely an employee is to continue working. This paper defines the net salary percentage for each type of pension plan and looks at empirical estimates for these values.

Walt Woerheide
Professor of Finance
Rochester Institute of Technology
COB - RIT
108 Lomb Memorial Drive
Rochester, NY 14623-5608
Ph: 716-475-5268
Fax: 716-475-6920
WJWBBU@RIT.EDU


Beliefs and Actions: Expectations and Savings Decisions by Older Americans (full text file)
To understand the interaction of savings behavior, pension fund participation and expectations of retirement well being, we ask two questions. Are expected pension benefits a substitute for accumulated savings in replacing pre-retirement income? Are individuals’ expectations concerning their retirement standard of living realistic based on their accumulated savings and pension plan participation? First-wave data from the Health and Retirement Study (HRS) are analyzed using a probit regression. The results are consistent with the idea that pension benefits are substitutes for saving and that accumulated savings have a significant impact on the expected standard of living but pension plan participation does not.

Harold W. Elder
Associate Professor
Department of Economics, Finance
& Legal Studies
University of Alabama
Box 870224
Tuscaloosa, AL 35487
Fax: 205-348-0590

Patricia M. Rudolph
Professor
Department of Economics, Finance
& Legal Studies
University of Alabama
Box 870224
Tuscaloosa, AL 35487
Fax: 205-348-0590


The Asset Allocation Decision in Retirement: Lessons from Dollar_cost Averaging (full text file)
How should a retiree allocate his wealth between stocks and bonds? We address this question by studying whether it would have been better to have consumed periodically from stocks than from bonds over the seven decades of U.S. financial markets beginning in 1926 and ending in 1995. We find that retirees would have consistently done better by investing in stocks as opposed to bonds. When we analyze dispersion in consumption around its mean we find that there are greater chances for low consumption from the bond portfolio and greater chances for high consumption from the stock portfolio. Thus, we challenge the conventional wisdom that one should move away from stocks and towards bonds as one ages.

Premal P. Vora
Assistant Professor of Finance
Penn State Great Valley
30 E. Swedesford Rd.
Malvern, PA 19355.
(610) 648-3374
Fax: (610) 725-5224
fpv@psu.edu

John D. McGinnis
Assistant Professor of Finance
Penn State Altoona
3000 Ivyside Park
Altoona, PA 16601.
(814) 949-5824
Fax: (814) 949_5547
jdm114@psu.edu


Social Security Investment Accounts: Lessons from Participant-Directed 401(k) Data (full text file)
Newly available 401(k) participant investment data may have implications for individual Social Security account (IA) proposals. We found that women with wages between $25,000 and $50,000 have a significantly greater probability of investing a small percentage of their 401(k) in equities than their male counterparts, but those with salaries over $75,000 have a smaller probability. Hence, women’s less aggressive investment behavior may be primarily due to younger cohorts and may not apply above a threshold wage. However, overall, 28.4 percent of men and 33.8 percent of women are conservative investors, suggesting the possible risk low IA accumulations under some proposals.

Jack L. VanDerhei
1000 Great Springs Road
Rosemont, PA 19010
(610) 525-6139
jack@vanderhei.com
Kelly A. Olsen
1801 South George Mason Drive
Arlington, VA 22204
(703) 575-7680


Asset Allocation Decisions in Retirement Accounts: An All-or-Nothing Proposition? (full text file)
An examination of survey responses about Individual Retirement Account (IRA) holdings reveals that individuals often take all-or-nothing approaches in their decisions to diversify across the asset categories of cash, bonds, and equity. Two thirds of survey respondents put their entire IRA holdings into a single asset category. A surprisingly large proportion of funds is held in cash, while only a minimal amount is invested in bonds. These findings also contrast with those of Bodie and Crane's (1997) examination of TIAA-CREF participants, which is heavily weighted with individuals holding fixed income annuities. Our results suggest that there is a compelling need for risk education for investors.

Doug Waggle
Campbell School of Business
Berry College
Mount Berry, GA 30149-5024
Office: (706) 290-2681
Fax: (706) 238-7854
dwaggle@berry.edu

Basil Englis
Campbell School of Business
Berry College
Mount Berry, GA 30149-5024
Office: (706) 290-2645
Fax: (706) 238-7854
benglis@berry.edu


Social Security Reform: The Effect of Investing in Equities (full text file)
Several proposals have been developed to reform the Social Security System to ensure that it is fully funded. The investment of a portion of Social Security funds in equities has often been proposed as a means to avoid increasing payroll taxes. This paper develops a general equilibrium model to demonstrate that investing Social Security funds in equities will decrease the return on equities and increase interest rates on bonds, which also leads to an increase in general income taxes. Thus, investing Social Security funds in equities simply shifts a potential increase in payroll taxes to an increase in income taxes.

Erick Elder
College of Business Administration,
University of Arkansas at Little Rock,
Little Rock, AR 72207-1099

Larry Holland
College of Business Administration,
University of Arkansas at Little Rock,
Little Rock, AR 72207-1099


An Analysis of the Medical Savings Account as an Alternative Retirement Savings Vehicle
(full text file)
Personal savings as a percentage of disposable income have dropped steadily since the early 1980s. Savings have continued to decline in 1999, as the savings rate – savings as a percentage of after-tax income – dropped to a record low of minus 0.7 percent in April 1999, according to the Department of Commerce. The study finds that MSA-type accounts are a viable supplement to retirement savings, buy should not be used as a replacement for existing retirement alternatives given their current structure. Results show that future health care expenditures are an important factor in the success or failure of MSAs as supplemental retirement accounts. Medical Savings Accounts are currently eligible for long-term care expenses, and to the extent that such expenses occur during retirement, MSA balances could be used to pay for retirement expenses. In that respect the accounts already capture the characteristics of a retirement savings account. A comparison of the Roth IRA with the MSA as defined by the 1996 HIPAA legislation is also conducted.

J. Tim Query
University of Georgia
Terry College of Business
206 Brooks Hall
Athens, GA 30602
Email: jtq@arches.uga.edu
Telephone: 706-542-4290
Fax: 706-542-4295

Illinois Wesleyan University
Department of Business Administration
301 E. Beecher Street, 324 CLA
Bloomington, IL 61702
Email: tquery@titan.iwu.edu
Telephone: 309-556-3827
Fax: 309-556-3719