Robert L. Brown

University of Waterloo, Waterloo, Ontario, Canada

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Publications (32)3.36 Total impact

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    ABSTRACT: How DO retirees draw down their financial savings? How COULD retirees draw down their financial savings? How SHOULD retirees draw down their financial savings? This paper examines these three questions by reviewing a broad range of literature that identifies and evaluates the tradeoffs among annuitization and self-managed drawdown strategies. In doing so, we provide not only the perspective of the individual, but also other stakeholders, such as family, government and financial institutions. Despite having reviewed well over one hundred papers specifically for this work, this paper’s goal is not to provide an exhaustive summary of all of published work relating to the drawdown of retirement financial wealth. Rather, this paper aims to combine, synthesize and extend the findings in a variety of these papers so as to provide an overview of this growing and multifaceted research topic. In the course of our review, we identified three significant conceptual/methodological weaknesses in the relatively recent surge of academic research on this topic. First, the types of self-managed drawdown strategies examined and recommended by analysts have been relatively limited and do not include those that make welfare-enhancing adjustments after important life events – for example, increasing payouts when life expectancy is reduced after the onset of a significant health condition. Second, nearly all previously published studies have ignored the potentially significant impact of government taxes and transfers when quantitatively evaluating alternative drawdown strategies. Lastly, there is a significant gap between the behavior implied by economic models and those of real-life individuals, particularly when it comes to voluntary annuitization. This last weakness is well acknowledged among researchers and substantial work has been done to uncover the missing pieces. The second weakness is very slowly being addressed in recently emerging literature. As of yet, however, no researcher has addressed the first weakness.
    North American Actuarial Journal 05/2012;
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    Robert L Brown
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    ABSTRACT: Recent research indicates that today's retirees are doing very well in terms of their replacement ratios and that Canadian poverty rates among the elderly are low relative to other Organization for Economic Co-operation and Development (OECD) countries. Government-sponsored plans have been strengthened either through explicit expansion - for example, the Guaranteed Income Supplement (GIS) - or through the reform of the Canada/Quebec Pension Plans (C/QPP). Also important is the maturation of employer-sponsored pension plans, although coverage rates are down. Future generations of retirees may not achieve the standard of living that exists today, however, which is a concern. The author argues that today's economic security programs are affordable and that their costs could be stabilized if the retirement age were raised.
    Canadian Journal on Aging / La Revue canadienne du vieillissement 09/2011; 30(3):391-9.
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    ABSTRACT: This article measures a Canadian National Retirement Risk Index (NRRI). Originally developed by the Center for Retirement Research at Boston College, the NRRI is a forward-looking measure that evaluates the proportion of working-aged individuals who are at risk of not maintaining their standard of living in retirement. The Canadian retirement income system has been very effective in reducing elderly poverty, but our results suggest that it has been much less successful in maintaining the living standards of Canadians after retirement. Since the earlier years of the new millennium, we find that approximately one-third of retiring Canadians have been unable to maintain their working-age consumption after retirement—a trend that is projected to worsen significantly for future Canadian retirees. The release of the Canadian NRRI is timely given the widespread concern that the current Canadian retirement income system is inadequate. Many proposals have recently emerged to extend and/or enhance Canadian public pensions, and the NRRI is a tool to test their merit. The methodology underlying the Canadian NRRI is uniquely sophisticated and comprehensive on account of our employment of Statistics Canada’s LifePaths, a state-of-the-art stochastic microsimulation model of the Canadian population. For instance, the Canadian NRRI is novel in that it models all of the relevant sources of consumption before and after retirement, while accounting for important features that are typically neglected in retirement adequacy studies such as family size, the variation of consumption over a person’s lifetime, and the heterogeneity among the life courses of individuals.
    Canadian Public Policy 01/2011; 37(Suppl):S73-S94. · 0.38 Impact Factor
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    ABSTRACT: We determined the after-tax income required to finance basic needs for Canadian elders living with different circumstances in terms of age, gender, city of residence, household size, homeowner or renter status, means of transportation, and health status. Using 2001 as our base year, we priced the typical expenses for food, shelter, medical, transportation, miscellaneous basic living items and home-based long-term care for elders living in five Canadian cities. This is the first Canadian study of basic living expenses tailored to elders instead of adults in general, prepared on an absolute rather than a relative basis. We also accounted for an individual's unique life circumstances and established the varying effect that they have on the cost of basic expenses, particularly for home care. We found that the maximum Guaranteed Income Supplement and Old Age Security benefit did not meet the cost of basic needs for an elder living in poor circumstances.
    Canadian journal on aging = La revue canadienne du vieillissement 03/2010; 29(1):39-56. · 0.92 Impact Factor
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    Robert L. Brown, Patricia Scahill
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    ABSTRACT: Two forces are about to create a growing market for Individual Annuities in the U. S. and Canada. First, the Post War Baby Boom (born 1946 to 1964) is inexorably moving into retirement. Second, there is a strong move away from Employer-sponsored Defined Benefit pension plans to Defined Contribution pension plans. This trend could even extend (in the U.S.) into the provision of Social Security benefits. Under these arrangements, participants must find a way to mitigate their “longevity” risk (and the investment risk, although this is not the topic of this paper). The most obvious answer is to buy a life annuity. However, at this time in the U. S. and Canada, persons who voluntarily apply to buy a life annuity are generally assumed to be in extremely good health and annuity rates are determined using very low mortality assumptions (high life expectancy assumptions). While there is a growing market in “Enhanced/Impaired Annuities”, especially in the U.K., the present pricing structure for annuities in the U. S. and Canada means that a large proportion of the population cannot get a “fair value” annuity given their less-than-preferred health profile. This paper looks at reasons for this market reality in the U. S. and Canada. It also reviews the underwriting and marketing of life annuities in the United Kingdom where “enhanced” life annuities are available for a broader cross-section of the marketplace.
    McMaster University, Social and Economic Dimensions of an Aging Population Research Papers. 01/2010;
  • Doug Andrews, Robert L. Brown
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    ABSTRACT: Many countries are changing their social security retirement program from a defined benefit (DB) to a defined contribution (DC) basis. Other countries, such as the United States, are discussing the introduction of a DC component. The replacement of a DB social security retirement system by a DC system raises many important social and economic issues. Thoughtful consideration must be given to the choice of criteria for prioritizing objectives and outcomes, as well as in weighing the advantages and disadvantages between different cohorts. For example, if any DB obligations are not fully funded at transition, a double burden will rest with transition generation(s). Moreover, economists tend to assess the value of the system based on measures of economic efficiency and the lack of impediments to a freely operating labor market. But such an assessment may not give adequate recognition to factors such as individual wealth/poverty, an individual's ability to make optimal investment decisions, and transaction costs associated with operating individual accounts. Indeed, some countries have suggested that notional defined contribution (NDC) accounts may be the best way to address such issues. Focusing on the adoption of a funded DC social security retirement program in Chile and the adoption of a pay-as-you-go NDC social security retirement program by Sweden, this research identifies factors of financial markets, economics, and demographics necessary to enable a move to DC accounts. In addition, it identifies the characteristics of the financial markets necessary to support payments (wealth transfers) to retirees from a DC social security retirement program. The paper considers the questions of social security funding and plan type (DB vs. DC) and attempts to assess the suitability of certain reform options for the United States. It approaches the issue by identifying the features of each type and the strengths and weaknesses associated with those features. A significant part of this analysis is the illustrative description of two real-world plans, Chilean and Swedish. It then uses the theoretical considerations and the experience of those plans to draw conclusions about reform proposals in the United States, particularly the President's Commission to Strengthen Social Security Model 2.
    North American Actuarial Journal 04/2009; 13(2).
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    ABSTRACT: Our research undertakes to determine the basic living expenses required by Canadian seniors living in different circumstances in terms of age, gender, city of residence, household size, homeowner or renter, means of transportation and health status. The paper develops required expenses for food, shelter, health care, transportation and miscellaneous. The research identifies the typical expenses of seniors in each of these categories. Using 2001 as our base year, we follow the US Elder Standard to build an elderly threshold for Halifax, Montreal, Toronto, Calgary and Vancouver. The research is unique because it is the first Canadian study of absolute basic living expenses tailored to seniors, rather than simply to adults in general. This information is important to seniors, prospective retirees, financial planners, policy makers and actuaries in assessing the minimum level of income required in retirement and the adequacy of savings and income security programs. Our conclusions suggest that individual circumstances, rather than age, are the primary drivers in determining the cost of these basic expenses. Seniors are a diverse group, particularly with respect to health, so it is important that seniors and financial planners do not blindly rely on a fixed replacement ratio or universal level of income when projecting the level of finances needed to retire. This research enables the reader to determine the threshold that is suited to a senior’s general circumstances.
    McMaster University, Social and Economic Dimensions of an Aging Population Research Papers. 01/2009;
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    Steven G. Prus, Robert L. Brown
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    ABSTRACT: Objectives -- The study has two primary goals. First, to test the hypothesis that higher levels of income inequality are related to lower levels of population health with updated data from around year 2000. Second, to examine the inequality-health relationship across the life course with particular focus on old age when income distributions often shift dramatically. Design -- Correlation techniques were used to assess the relationship between income inequality (Gini ratio) at ages 0+, 25+, 65+, 75+, and 85+ and life expectancy at corresponding ages (0, 25, 65, 75, 85) by sex, before and after adjusting for average population income. Analyses were conducted on two sets of data: 18 wealthy countries and 28 wealthy and non-wealthy countries. Data sources -- International cross-sectional data on income and life expectancy from about year 2000 were derived from the Luxembourg Income Study and the United Nations Demographic Yearbook respectively. Results -- Among wealthy countries the negative effect of income inequality on life expectancy at birth becomes insignificant after controlling for average absolute income: the correlation coefficient changes from -0.603 to -0.207 for men and -0.605 to 0.024 for women. A similar pattern is observed at age 25. By contrast, the effect becomes increasingly positive and significant across old age, notably for males, regardless of adjustments for average population income or countries of observation. Conclusions -- These updated results do not support the inequality-health hypothesis. The relationship between income inequality and life expectancy at earlier ages in wealthy countries can be explained by the confounding effect of average absolute income. In old age the data are entirely contrary to the hypothesis. More research is needed to understand the mechanisms that facilitate the increasing positive effect of income inequality on life expectancy in late life.
    03/2008;
  • Robert L. Brown
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    ABSTRACT: Auszug Dieser Beitrag beschftigt sich mit möglichen Modellen für Rentensysteme in der sozialen Sicherheit. Er nimmt hufig auf bestehende Systeme in den Vereinigten Staaten und Kanada (vor allem das Letztere) Bezug, um die Fragen in Zusammenhang mit der Gestaltung eines „guten“ Rentensystems in der sozialen Sicherheit zu beleuchten. Natürlich besteht eines der Probleme darin zu definieren, was „gut“ ist. In diesem Beitrag verwenden wir hierzu Kriterien wie Verringerung der Armut, Angemessenheit des Ruhestandseinkommens, Tragfhigkeit von Leistungen und Beitrgen, Einkommensgleichheit und Wohlstandsverteilung. Im Laufe der Erörterung unseres Themas wird der Leser mit einer Reihe von Fragen konfrontiert, die sich bei der Einrichtung jedes Rentensystems der sozialen Sicherheit auf der Welt stellen. Dies könnte für Lnder hilfreich sein, in denen neue Systeme geschaffen werden (wobei auch die bestehenden Systeme sich stndig weiterentwickeln). Wir hoffen auch, dass dieser Beitrag für zukünftige Studenten der sozialen Sicherheit nützlich ist, da er eine Reihe von Grundprinzipien nennt, die mit der sinnvollen Gestaltung von Rentensystemen in der sozialen Sicherheit einhergehen.
    Internationale Revue für Soziale Sicherheit 02/2008; 61(1):71 - 92.
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    Robert L. Brown
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    ABSTRACT: Extracto En el presente artículo se analizan distintos modelos posibles de regímenes de pensiones de seguridad social. Se alude con frecuencia a los regímenes existentes en los Estados Unidos y, en particular, en el Canadá a fin de exponer los elementos que intervienen en el diseño de un «buen» sistema de pensiones de seguridad social. Por supuesto, uno de esos elementos es la definición de «bueno». En este artículo se utilizan criterios tales como la pobreza, la suficiencia de los ingresos de jubilación, el equilibrio a largo plazo entre prestaciones y cotizaciones, la igualdad de ingresos y la distribución de la riqueza. Se exponen muchas cuestiones que deben abordarse a la hora de establecer un sistema de pensiones de seguridad social en cualquier lugar del mundo. Esta información puede ser útil en los países donde se establecen nuevos regímenes (o incluso donde los regímenes están en continua transformación). Esperamos también que sea de utilidad para los futuros estudiantes de seguridad social en la medida en que pretende exponer algunos principios básicos para el diseño de un buen régimen de pensiones de seguridad social.
    Revista Internacional de Seguridad Social 12/2007; 61(1):71 - 92.
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    Robert L. Brown
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    ABSTRACT: Abstract This paper looks at potential models of social security pension systems. It refers often to the systems that exist in the United States and Canada (the latter more particularly) to outline the issues involved in attempting to design a “good” social security pension system. Of course, one of the issues is the definition of “good”. This paper will use criteria such as poverty alleviation, retirement income adequacy, benefit/contribution sustainability, income equality and wealth distribution. In the course of the discussion, the reader will be exposed to many issues that need to be addressed in the establishment of any social security pension system in the world. This may prove to be helpful in countries where new systems are established (and even for evolving systems). It is also hoped that future students of social security will find this paper helpful in that it is meant to lay out some basic principles consistent with good social security pension design.
    International Social Security Review 12/2007; 61(1):61 - 79.
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    ABSTRACT: Many private business relationships are increasingly characterized by claims that certain actions should not be permitted since particular right claims are involved. Such claims should be taken seriously, but are they always ethically legitimate? This paper analyzes one context, the use of age as a rating variable in the pricing of automobile insurance, where such claims are made. By identifying, evaluating and assessing the relevant basis for the differentiation, actuarial equity, it is concluded that there is an ethical basis for such a practice. The analysis also provides an equivalent means for considering other such analogous claims where actuarial equity is involved. Copyright Springer Science+Business Media, Inc. 2007
    Journal of Business Ethics 02/2007; 72(2):103-114. · 0.96 Impact Factor
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    Robert L. Brown, Steven G. Prus
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    ABSTRACT: This paper examines income inequality over stages of the later-life course (age 45 and older) and systems that can be used to mitigate this inequality. Two hypotheses are tested: (i) Levels of income inequality decline during old age because public benefits are more equally distributed than work income; (ii) Because of the progressive nature of government benefits, countries with stronger public income security programs are better able to reduce income inequalities during old age. The analysis is performed by comparing age groups within seven OECD countries (Canada, Germany, the Netherlands, Norway, Sweden, the United Kingdom, and the United States) using Luxembourg Income Study data. Both hypotheses are supported. Several conclusions are drawn from the findings.
    07/2006;
  • Robert L. Brown, Steven G. Prus
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    ABSTRACT: This paper examines variation in old-age income inequality between industrialized nations with modern welfare systems. The analysis of income inequality across countries with different retirement income systems provides a perspective on public pension policy choices and designs and their distributional implications. Because of the progressive nature of public pension programs, we hypothesize that there is an inverse relationship between the quality of public pension benefits and old-age income inequality—that is, countries with comprehensive, universal, and generous public pension systems will exhibit more equal distributions of income in old age.
    North American Actuarial Journal 10/2004; 8(4):30-36.
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    Robert L. Brown, Uma Suresh
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    ABSTRACT: The Canadian public health care delivery system continues to experience growing needs for increased funding. The total health care delivery system today costs Canadians $98 B a year or about 9.7 percent of GDP. Of that total cost, 71 pe rcent is paid by the government, which means the taxpayers. While that may pale in comparison to the costs in the U.S., it does make the Canadian system one of the five most expensive health care delivery systems in the world. While today's cost pressures are of major concern, of even more concern are the costs being projected by many participants in the current health care debate for the period when the Baby Boom makes higher demands on the Canadian health care delivery system. Traditional projection methods, however, do not differentiate between the elderly who survive the year versus those who die as to their use of health care systems. This paper first looks at the impact that this differentiation could have on projected costs. Second, the paper looks at the impact that the wide use of Advance Directives might have on future health care costs and some of the issues surrounding their use.
    North American Actuarial Journal 04/2004; 8(2).
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    Robert L. Brown, Steven G. Prus
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    ABSTRACT: This paper examines variation in old-age income inequality between industrialized nations with modern welfare systems. The analysis of income inequality across countries with different retirement income systems provides a perspective on public pension policy choices and designs and their distributional implications. Because of the progressive nature of public pension programs, we hypothesize that there is an inverse relationship between the quality of public pension benefits and old-age income inequality -- that is, countries with comprehensive, universal, and generous public pension systems will exhibit more equal distributions of income in old age. Luxembourg Income Study data indeed show that cross-national variation in old-age income inequality is partly explained by differences in the percentage of seniors' total income derived from public pension transfers. Sweden, for example, has the highest level of government transfers and the lowest level of old-age income inequality, while Israel and the U.S. have the lowest levels of dependency on government transfers and the highest levels of income inequality. A notable exception is Canada where public transfers represent only a moderate portion of elderly income, yet old-age income inequality is relatively low. This suggests that other factors besides quality of public pension benefits play a role in differences in old-age income inequality across countries.
    10/2003;
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    Robert L. Brown, Robin Damm, Ishmael Sharara
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    ABSTRACT: This paper explores the relationship between the Wealth Transfer Index (WTI), a statistic defined by Brown and Bilodeau (1999), and retirement age, which is the age at which the workers in an economy cease to be economically productive. Appropriately expressed as ratio of consumption demand to labor productivity, the WTI is a barometer for the demand for wealth placed on the workers of an economy. This paper explains why a relationship between this statistic and retirement age must exist. Using Canadian historical median retirement age data compiled by Statistics Canada and calculated values of the WTI for the same period, three linear regression models are fitted. The conclusion from this analysis is that there is a strong positive correlation between the WTI and average retirement age. This paper also briefly looks at the well-documented demographic shift expected to occur in Canada because of the baby boom-baby bust tidal wave. The aged dependency ratio is expected to increase dramatically, reaching 45% in 2036. A practical application of the WTI model suggests that the baby boom cohort may experience a rise in the normal retirement age in the period 2017-34. They will, in effect, be forced to retire at ages that will allow for an "acceptable" transfer of wealth from the workers to dependent Canadians. Using one of the fitted linear regression models and projected values of the WTI, the paper then projects the median retirement age to 2041 for Canadian workers. The paper concludes by speculating on how the marketplace might respond to higher retirement ages.
    North American Actuarial Journal 04/2003;
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    Robert L. Brown
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    ABSTRACT: Politicians and the public are all beginning to worry about how people will be able to afford the health care demands of an aging population, especially when the baby boomers retire. Politicians are also worried about how much money is lost from tax revenues today because of the tax advantages offered in employer-sponsored Qualified Pension Plans (QPPs) and Individual Retirement Accounts (IRAs), including 401(k) plans. Under these schemes, contributions (for some plans, both employer and employee) within limits are tax-deductible and investment income accrues tax-free until the pension funds are taken as income. Thus, there is significant taxpayer participation in these schemes. While it is true that these Qualified Plans cost the government tax revenues today, it is also true that the same schemes will create increased tax revenues for the government when the baby boomers retire and turn their pension assets into taxable retirement income. This paper models the extent of the tax dollars being lost by the government today because of QPPs and IRAs, then goes on to project the extra revenue that will accrue to the government from these same pension plans when the baby boomers retire. It then points out that these extra pension income dollars of tax revenue will arrive at exactly the time that the baby boomers will need extra government support to pay for their increased health care delivery. In short, this paper shows that it is possible to create the perfect macroeconomic immunized portfolio.
    SSRN Electronic Journal 04/2003;
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    Robert L Brown, Joanne Mcdaid
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    ABSTRACT: As many countries consider mandatory individual retirement accounts as their answer to a secure social security system, the question arises as to whether all workers can get true "market value" annuities when they retire. It is clear today that private-sector life annuities are priced assuming that the applicant is healthy—very healthy. Very little underwriting or risk classification now exists in the individual annuity marketplace. However, if a large percentage of the population were looking to annuitize their social security accounts upon retirement, there would be strong pressure for more risk classes in the annuity-pricing structure. Even without the advent of individual accounts for social security, the authors of this paper feel there may be real market opportunities for more risk classification in the individual annuity market and the offering of "impaired life annuities." Given that this pressure does or might soon exist, this paper reviews 45 recent research papers that look at factors that affect mortality after retirement. In particular, factors that seem to be important in predicting retirement mortality include age, gender, race and ethnicity, education, income, occupation, marital status, religion, health behaviors, smoking, alcohol, and obesity. For each factor, this paper gives highlights relative to the named factor of the impact expected from that variable as described in the 45 reviewed research papers. The authors believe there is a wealth of information contained in the summaries that follow, and it is our sincere hope that this paper will cause an increased interest in a more broadly based risk classification structure for individual annuities. Summaries of the 45 papers can be found at www.soa.org/sections/farm/farm.html.
    North American Actuarial Journal 04/2003; 7(2).
  • Robert L. Brown, Jianxun Liu
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    ABSTRACT: There has been a strong shift away from defined benefit (DB) pension plans toward defined contribution (DC) pension plans in the United States over the last 20 years. A variety of reasons for this shift have been proposed. In another paper in this issue, Krzysztof Ostaszewski presents a new hypothesis to explain the shift to DC plans in the United States. He argues that the decline in importance of DB plans is due to a shift in the way relative returns to macroeconomic factors of production, that is, capital and labor, are being rewarded in the national economy.
    North American Actuarial Journal 07/2001; 5(3):65-77.