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Sita Slavov

Industry Spotlight > Women in Wealth

Why This Scholar Is Challenging Long-Held Assumptions About Retirement

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What You Need to Know

  • Sita Nataraj Slavov made headlines recently with a paper asserting that young people should not prioritize saving for retirement.
  • She and other scholars are questioning many long-held assumptions about the nature and desirability of 'retirement' in a changing world.
  • Another of her papers examines how rule changes have made delaying Social Security less attractive for singles and substantially more attractive for couples.

Ever since Sita Nataraj Slavov earned a doctorate in economics from Stanford University in 2003, she has been keenly interested in topics pertaining to the intersection of economics, retirement readiness and financial planning.

The reasons why, she tells ThinkAdvisor, have to do with the inherent complexity involved in framing and answering questions about the financial lives of working Americans. This is what Slavov does every day as a researcher working at the Schar School of Policy and Government at George Mason University.

On the one hand, Slavov says, the U.S. retirement planning system is undergoing a generational transformation away from defined benefit pensions in favor of defined contribution-style plans.

At the same time, the long-term solvency of the federal Social Security system, upon which many millions of Americans rely for the bulk of their retirement income, is in question — as are long-held assumptions about the nature and desirability of “retirement” itself in a world in which longevity continues to increase.

All of these interplaying factors present rich ground for academic exploration, Slavov says. Any given research project, whether it seeks to understand the Social Security claiming patterns of immigrants in the U.S. or to measure the “implicit” taxation of work at older ages, will involve considerations that cut across the traditional fields of economics, psychology, public health, statistics and more.

The stakes are high, Slavov says, considering the impending retirement of the baby boomers and the new pressures being put on younger generations to manage their own financial wellness during and after their time in the labor force.

As such, Slavov hopes her work can provide ongoing insight and guidance to financial planning professionals, policymakers and the broader public alike. Only by grappling with tough questions can these stakeholders hope to optimize outcomes and improve the collective retirement readiness of workers in the U.S.

The Early Savings Debate

Among her most recent analyses is a paper that grabbed the attention of ThinkAdvisor readers in its conclusion that, as Slavov summarizes, “more savings isn’t always better.” Developed with a team of three other respected researchers, Slavov’s paper questions the common wisdom that it is almost always better for individuals to begin saving and investing for retirement as early as possible.

According to Slavov and her colleagues, this assumption is so deeply baked into the mind of the typical financial professional that it seems almost beyond dispute. But, according to the analysis, the assumption is often not evaluated against a meaningful benchmark, such that it deserves to be questioned.

The authors suggest a reasonable benchmark would be a lifecycle model, in which rational individuals allocate resources over their lifetimes with the aim of avoiding sharp changes in their standard of living.

In running their analysis, Slavov and her colleagues conclude that the lifecycle model implies that most young people should not, in fact, be saving for retirement. Rather, they should prioritize shorter-term needs and wants, from paying down student loan debt to enjoying vacations while life permits, and then start saving for retirement once their incomes grow in their 30s or 40s.

Slavov says she appreciates and welcomes the spirited responses the paper has generated among the financial planning community. Many advisors wrote to ThinkAdvisor expressing admiration for the academic work underlying the paper but questioning its assumptions and conclusions as they pertain to the practical reality of financial planning.

Slavov says she is not surprised by the feedback, and indeed, she says the real goal of the paper was to ask tricky questions and analyze some broadly held but often untested assumptions. In practice, she says, no single paper about such a complicated topic is going to be able to deliver a final verdict or conclusion regarding optimal savings behaviors.

“The real point is that these are fascinating and important questions to grapple with,” Slavov says. “Dealing with an aging society is one of the biggest collective economic challenges we face here in the United States. We have to bring a critical eye to this field and work to improve our understanding of the solutions and responses to this challenge.”

Social Security Claiming Strategies Under the Microscope

Among Slavov’s other popular analyses are papers asking whether the decision to retire actually results in greater happiness or better health outcomes among older Americans, and to what extent the ‘Great Resignation’ helps to explain ongoing changes in employer-sponsored retirement plans.

Slavov’s most widely cited paper, written in collaboration with Stanford’s John Shoven, examines the mechanics and efficacy of delaying Social Security claiming.

As the paper points out, upon reaching the age of 62, most Americans face an important and irrevocable decision, and that is when to claim Social Security benefits. While the vast majority of individuals claim immediately upon reaching age 62 or stopping work, claiming may be delayed until age 70.

As Social Security benefits are paid as a life annuity, delayed claiming reduces the expected length of time over which benefits are received, the paper explains. Thus, the benefit calculation rules call for an actuarial adjustment so that individuals who claim later receive larger monthly payments.

According to Slavov and Shoven, delaying Social Security is the functional equivalent of purchasing an annuity. That is, an individual who delays drawing Social Security forgoes benefits during the delay period in exchange for an increase in monthly benefit payments for life.

“Conventional wisdom has long held that the adjustments made for delaying Social Security benefits are actuarially fair,” Slavov says. “In other words, the average individual receives the same expected present value regardless of when benefits begin. In our paper, we revisit the question of actuarial fairness in light of the dramatic mortality improvements of the past several decades, as well as historically low interest rates.”

Slavov and Shoven find both of these factors can be expected to increase the gains from delaying Social Security. In addition, as a result of law changes seen since the 1960s, the terms for delaying Social Security have become substantially more generous, such that couples can now delay benefits on more advantageous terms between ages 62 and 65 due to changes in the rules for calculating survivor benefits.

Moreover, for both couples and singles, the terms for delaying beyond full retirement age have become more generous over the years. Specifically, members of the 1924 birth cohort could earn 3% of their base benefit per year of delay beyond full retirement age, while members of cohorts born in 1943 and later can earn 8% of their base benefit per year of delay beyond full retirement age.

The paper also investigates how the gains from delaying benefits vary across demographic groups and household structures, because even if the adjustments to Social Security benefits were actuarially fair for the population on average, they would not necessarily be so for every individual.

For example, those who expect to live longer than average could benefit from delaying, while those who expect to live shorter than average could benefit from claiming early.

In addition, Slavov and Shoven find, the spousal and survivor benefits offered by Social Security make delaying benefits a particularly attractive option for married couples.

As the paper posits, one member of a two-earner married couple may claim spousal benefits upon reaching full retirement age, leaving the benefit based on his or her own earnings record to accumulate through deferral. The secondary earner in a couple also receives a survivor benefit that is equal to the primary earner’s benefit. Thus, delaying the primary earner’s benefit is equivalent to purchasing a second-to-die or joint life annuity.

In contrast, a single person who delays claiming only receives a single life annuity based on his or her own earnings record, the paper explains.

Ultimately, comparing across time, Slavov and Shoven find that the terms for delay between ages 62 and 65 were “slightly actuarially disadvantageous” in the early 1960s for those in average health, except for single women.

Rule changes since that time have made delays slightly less attractive for singles and substantially more attractive for couples.

What Comes Next

Slavov says there is no end to the possible avenues of research for her and her colleagues to tackle in the future. In fact, Slavov just recently attended the 10th annual Working Longer and Retirement conference at Stanford, organized by Shoven, and she says she came away with fresh inspiration and ideas for new projects.

Notably, the conference was originally funded by a series of grants from the Sloan Foundation, but this year’s conference was supported by the Financial Freedom Initiative funded by the Charles Schwab Foundation. Shoven says such support is critical for the continuation of her work and the work of her esteemed colleagues across academia.

As Slavov explains, the conference concentrated on all manner of issues regarding retirement, including Social Security, employer-sponsored retirement plans, increasing life expectancy, labor force participation, long-term care and health insurance.

The basic premise of the conference, Slavov explains, is that Social Security, Medicare and most state pension plans are inadequately funded to meet their obligations. How to adjust these programs to deal with this problem is one of the key topics Slavov and her colleagues will continue to explore.

In the end, Slavov says, it will take ongoing collaboration among researchers, policymakers and financial professionals to ensure U.S. workers achieve positive outcomes in an evolving and challenging world.


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