Growing Old

The recent financial crisis has scuttled retirement plans around the world, and many others have been redrawn and scaled down. Certainly this is a global problem, but it is of special concern in industrial economies where the median age of the population continues to rise, a trend not likely be reversed anytime soon. In Growing Old, the newest in a series of collaborations between the Brookings Institution and Japan's Nomura Institute for Capital Markets Research, top-flight economists and analysts dissect several key issues haunting pensions and retirement. As with the previous Brookings-Nomura collaborations, Growing Old focuses largely on developments within the United States and Japan, but it looks at other nations as well. Following the introduction by volume editors Yasuyuki Fuchita of Nomura, Richard Herring of the University of Pennsylvania's Wharton School, and Robert E. Litan of Brookings, Akiko Nomura examines and compares pension reforms in Japan, South Korea, and China. Nomura provides a useful introduction to many of the issues that relate more specifically to the United States and Western Europe and are addressed later in the book. Robert Novy-Marx and Joshua Rauh then try to determine the size and scope of municipal pension obligations in the United States. Figures vary, for a number of reasons, but Novy-Marx and Rauh estimate that the total of unfunded liabilities could approach $600 billion. Many employers have switched from the traditional defined benefit to defined contribution plans. The recent crisis all-too-vividly illustrated, however, that the assets in such systems are still subject to the risks and uncertainties of financial markets. Olivia Mitchell identifies four particular types of risk that exist with defined contribution plans: individual risk, institutional risk, country risk, and global risk. She then considers what the future might hold for each. Finally, a trio of analysts from MFS Investment Management discusses how recent difficulties are altering the asset-allocation patterns and strategies of institutional investors.