Income as the Outcome: How to Broaden the Narrow Framing of U.S. Retirement Policy

• Author: Jeffrey R. Brown
• Date: 01 March 2014
• DOI: http://doi.org/10.1111/rmir.12021
• Published date: 01 March 2014

Risk Management and Insurance Review

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Risk Management and Insurance Review, 2014, Vol.17, No. 1, 7-16

DOI: 10.1111/rmir.12021

INVITED ARTICLE

INCOME AS THE OUTCOME:HOW TO BROADEN

THE NARROW FRAMING OF U.S. RETIREMENT POLICY

Jeffrey R. Bro wn

ABSTRACT

This article provides a brief review of behavioral economics research on an-

nuitization. It applies the lessons learned from this literature to examine how

public policy toward defined contribution plans has narrowly framed the con-

versation about retirement in a manner that may discourage the provision of

lifetime income. It then discusses a number of policy changes that could be

made to reframe the conversation to focus on retirement income security rather

than wealth accumulation.

INTRODUCTION

With the leading edge of the U.S. Baby-Boom Generation entering their retirement years

during a period of economic and financial market volatility, the issue of how to create

sustainable retirement income security is now on the minds of policymakers, retirement

plan sponsors, and participants. A key part of this discussion pertains to the role that

guaranteed lifetime income products, such as annuities, play in the retirement system.

This article discusses how the U.S. retirement landscape—including public policy, plan

and product design, and participant communication—has been “narrowly framed” over

the past several decades to focus on saving and wealth accumulation, rather than more

broadly framing the issue in terms of providing sustainable retirement income security.

Although saving and wealth accumulation are necessary conditions for most individuals

to generate retirement income security, they are not sufficient. Even if an individual

enters retirement with a reasonable amount of accumulated wealth, he or she must

still determine how to draw down this wealth in an optimal manner, a problem that is

complicated by concerns about uncertain longevity, inflation, financial market returns,

expenditure shocks, and more.

Jeffrey R. Brown is with the University of Illinois at Urbana-Champaign and NBER; e-mail:

brownjr@illinois.edu.

Financial Disclosures: The author is a Trustee for TIAA and has received compensation from

several insurance companies, financial services companies, and trade organizationsf or delivering

speeches and writing policy papers about retirement income security. The author received no

compensation or funding for writing this article. All views represented in this article, as well as

any errors, are those of the author alone and do not represent the views of any organizationwith

which the author is, or has in the past been, affiliated.

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