Social Security Data Overestimate Early Retirement

Social Security analysis is not accurately portraying when people retire, says a brief by the Center for Retirement Research (CRR) at Boston College.

Social Security’s claim year analysis does not accurately take into account the claiming behavior of individuals, according to the brief.

According to claim analysis, the group of people claiming Social Security benefits at age 62 has been falling since the mid-“90s. Yet the brief asserts that this data is misleading, as the proportion of people claiming benefits early has not changed over the years.

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In order to uncover that information, the analysis took into consideration both claim year data and the behavior of cohorts, or segments of people by age.

In the past, the brief says both claim year analysis and cohort analysis provided reasonable estimates of those claiming benefits at any age, but the changing landscape of retirement has caused differences. The claim year analysis masks changes in claiming behavior by overestimating the proportion of retirees claiming benefits at 62.

As the Boomers approach retirement in larger numbers, the differences are likely to be amplified, then eventually stabilize, the brief says. “As the retirement income system contracts, now more than ever, it is necessary to measure Social Security beneficiaries’ claiming behavior accurately,” the brief reads.

The good news is that CRR’s data show that more people are claiming retired-worker benefits at later ages—consistent with increased labor force participation at older ages, the brief says. Yet in 2006, 46% of insured workers still claimed Social Security benefits as soon as they became eligible.

The full brief is available here.

Target-Date Funds Display Wide Range of Equity Allocation

When looking at 2020 funds, the range of equity allocations spans from 51% to 95%, according to a study by Financial Research Corporation (FRC).

In a press release, FRC said its study, Future Outlook for Lifecycle Funds: Insights into Emerging Trends and Growth Opportunities, profiles 58 of the leading target-date and target-risk providers.

A majority of the firms (56%) use a tactical rebalancing approach (changes in allocations allowed within specified ranges), which keeps the target-date series on its glide path while still allowing for some flexibility to take advantage of market opportunities.

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More than one-quarter (27%) of firms reviewed by FRC indicated that they offer exposure to at least one non-traditional asset class. That represents a large, disparate group of asset classes, including sectors (real estate, commodities), specialty fixed income (high yield, TIPS), regions (emerging markets), and hedged options (long/short, market neutral).

The FRC says most (60%) of target-date funds use a mainstream index as their primary benchmark. The most popular index is the S&P 500, with nearly three-quarters of firms that use a mainstream index selecting it as their primary benchmark.

The report also provides a peer group analysis through which like funds with similar allocations are ranked within a single target-date category. “FRC’s peer group analysis allows for an “apples-to-apples’ comparison of target-date funds based on current allocations,” said FRC study author Lynette DeWitt, in the release. “Using FRC’s methodology, advisers can add value by selecting the most appropriate allocation for an investor among the range of funds available.’

More information on this report is available here.

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