Investor retirement survey and outlook on empirical analyses about individual retirement-specific FPB

Part of the Contributions to Economics book series (CE)


While Chapter 4 focused on the normative part, Chapters 5 to 7 deal with the empirical dimension of this study:


Mutual Fund Single Mother Financial Asset Financial Wealth Wealth Level 
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  1. 305.
    Trommsdorff 1998 illustrates the breakdown of sciences into formal sciences and real sciences. Within real sciences he then further distinguishes between natural sciences and social sciences. Economic science is defined as part of social sciences. See Trommsdorff 1998, p. 16.Google Scholar
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    “Examination”, in this sense, can be understood broadly as controlled, direct or indirect perception of reality through human senses and observation tools (such as a survey) that have been constructed for this end. See Kromrey 1995, p. 28.Google Scholar
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    The share of equity relates to the direct stock holding as well as the indirect holding of equity through mutual funds. For the indirect stock holdings a for Germany typical share of equity holdings in mutual funds is taken into consideration. According to the BVI, the German “Bundesverband Investment und Asset Management”, the share of pure equity funds amounts to 31% of total fund shareholdings and the share of balanced funds amounts to 5%. As a consequence, about a third of the volume invested in mutual funds can be assumed to be equity investments in 2004. See Schardt von Barby 2005, p. 86.Google Scholar
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    In Frick 2005 the term “Baby Boomers” refers to individuals born 1946 to 1964. The focus in this study has been expanded to include slightly older individuals to capture also the behavior of already retired individuals and thus to allow for inter-generational comparisons.Google Scholar
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    According to Braun et al. 2002 the current generation of retirees disposes of substantial wealth that they will pass on to the next generation in a major “money-in-motion” act. See Braun et al. 2002, p. 3f. Also the EVS, conducted by the STBA, has revealed that individuals aged 45 to 70 own around 57% of the total pot of financial wealth that they cover with their survey. See STBA 2003b.Google Scholar
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    Population statistics are based on the distribution of the German population as of 2004. See STBA 2005a.Google Scholar
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    The EVS is conducted every five years by the German Statistical Federal Office and gives insights into the economic situation of households in Germany. Contrary to the statistics of the German Federal Bank, the EVS looks only at private households with less than €∼18,000 monthly income. The EVS excludes the very wealthy individuals (i.e., the HNWI) and private organizations without pecuniary purpose such as churches and unions. The EVS components include savings accounts, building savings agreements, other savings at banks or savings banks, securities, life-insurance and money lent to private persons. Cash holdings and checking accounts are excluded. See STBA 2003b. This explains why the total financial wealth covered in the EVS is below the estimate of the German federal bank (in 1993, they had a total of €1.95bn while the EVS came up to €1bn). See STBA 1997. In 2004, the total volume of the German Federal Bank amounted to €2.5bn. See DIA 2005d. Since however these other groups are not in the focus of this study and since the EVS is more appropriate from an academic perspective (see e.g., Börsch-Supan et al. 1999), this study is relying on the data of the EVS to characterize the target group.Google Scholar
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    The same difficulty is also discussed by Börsch-Supan et al. 1999, p. 8ff.Google Scholar
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    See Friedrichs 1990, p. 207ff and Stier 1996, p. 173ff or Meffert 2000, p. 156.Google Scholar
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    For further details refer to Bortz/Döring 2002, p. 238ff, Kromrey 1995, p. 394ff or Meffert 2000, p. 156.Google Scholar
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    Nominally and ordinally scaled variables are non-metrical scales, whereas interval and ratio scale variables are metrical scales and allow significantly more statistical operations. See Backhaus et al. 2003, p. 6.Google Scholar
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    The requirements for this kind of data to be collected and evaluated correctly are described by Bortz/Döring 2002 as accuracy, exclusiveness and exhaustion. See Bortz/Döring 2002, p. 139f.Google Scholar
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    This is similar to the definition of risk capability in the context of life-cycle investing described by Spremann 1995. There the individual risk capability — which he terms “risk aversion” — is derived from the sum of human capital (i.e., the discounted value of all future work-related income) and the sum of financial capital (i.e., the discounted value of total investments, inheritances less donations, pensions) minus the liabilities for financing retirement.Google Scholar
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    Building on these thoughts, the model takes into consideration the trade-off between saving, consumption and additionally, leisure time. “Specifically, the model does not assume that individuals solely maximize wealth and reduce their allocation in equities based primary on their age. Instead, it assumes that individuals make decisions to maximize leisure time in addition to wealth.” Boscaljon 2005, p. 46. Therefore, the model induces the individual to adapt his investment decisions and work supply (e.g., how much to work and when to retire) accordingly.Google Scholar
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    The Rentenversicherungsbericht 2005 revealed that women have on average 28.9 contribution years with 0.79 earnings points (EPs) per year whereas men have on average 41.2 contribution years with on average 1.06 earnings points (EPs). See BMAS 2006b, p. 22. Furthermore, Kortmann et al. 2005 mention that women often fail to meet the eligibility criteria for supplementary pension schemes for public service. See Kortmann et al. 2005, p. 20.Google Scholar
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    Average income levels for men in the age group 65 and over amount to €1,515 per month. Unmarried women have on average €1,189, widowed women with €1,195 about the same. The situation is worst for divorced women with an average of €1,051 per month. See Kortmann et al. 2005, p. 91.Google Scholar
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    According to the Rentenversicherungsbericht 2005, the share of state pension provision amounts to 68% and 95% for women (for the old and new Bundesländer) while it accounts for only 60% respectively 87% for men. See BMAS 2006b, p. 25. Furthermore, Kortmann et al. 2005 state that men have traditionally had higher pension income as they “were drawing on several types of income”. Kortmann et al. 2005, p. 37.Google Scholar
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    Börsch-Supan et al. 2005 find that women on average expect the duration of their retirement to amount to 17.5 years whereas, on the basis of the dynamic life tables used by the Rürup Commission, the actual duration is estimated to be 24.2 years. While life-expectancy for older people can be approximated quite well using the public mortality tables, the dynamic life tables should be taken into consideration for younger individuals. See Börsch-Supan et al. 2005, p. 13ff.Google Scholar
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    Dehm et al. 2000 have shown that first, aging per se seems to be a very difficult subject for women due to e.g., the fear from physical limitations, intellectual weakening and social isolation, while for men aging seems to be less of a threat. Second, many women suppress the retirement provision for psychological reasons of fear, unwillingness, lack of motivation or the feeling of helplessness. Third, women seem to show a lower preparedness to trade in consumption today in order to save for retirement, often assume fatalistic attitudes, and Höllger/Sobull 2001 also find that over half of the women say that they do not have the means to provide for retirement. Lastly, the surveys have also revealed that women often rely on their partner to provide for retirement.Google Scholar
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    Applying the logic for the derivation of the risk capability from the sum of an individual’s human capital, his financial capital less the personal liabilities, as documented in Spremann 1995, it can be concluded that since an individual with a good education has a high level of human capital after a few years of work experience and can calculate with a more or less safe income stream, his human capital makes up a substantial part of his total wealth and thus leads to a higher risk capability.Google Scholar
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    DeFusco et al. 2004 mention that a sample size of 30 can be considered as large enough. See DeFusco et al. 2004, p. 312.Google Scholar

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