Advancing our Understanding of the Science of Personal Finance.
Recently the IARFC published and mailed to its members, a new issue of the Journal of Personal Finance (JPF). When asked for comments regarding his recent work on the publication, Dr. Finke, JPF editor, had this to tell the IARFC members…
IARFC: Dr. Finke, how did you go about selecting the four papers for the recent JPF or papers in general?
Dr. Finke: Papers submitted to the Journal are first given a quick review by me to determine whether they are suitable for the journal and contribute enough to the literature to warrant an evaluation by a reviewer. In general, I’m looking for authors to show me that they have a good understanding of the current literature and have something new to add.
These papers [in the most recent issue] were an excellent mix of applied and theoretical research related to personal finance. Each went through a review process where someone who is an expert on the topic evaluates the paper and suggests possible improvements. The authors each did an excellent job of responding to the reviewers and improving their manuscripts. For example, the reviewer on the Roth IRA paper provided a number of useful suggestions to improve the analysis that the author incorporated into the final paper.
Dr. Finke: I’ll use David Blanchett’s social security optimization paper as an example. Many individuals and advisors decide to claim social security benefits when they are first eligible at age 62, or at the so-called full retirement age. The author takes a more scientific approach where he first treats the decision to claim social security for what it is – an inflation-adjusted joint and survivor annuity. Citizens have the option to choose a smaller annuity payment early in retirement, or possibly live off other assets and claims social security later in retirement. Blanchett shows which retirees should be most attracted to delaying social security, for example married couples, women, those with a more conservative investment portfolio and those with higher than average expected longevities. He also introduces the consequence of tax implications, which is an important addition that is often ignored.
Dr. Finke: Each article makes its own contribution to the literature. In general, financial planning is an emerging professional field and practitioners need to make evidence-based recommendations to clients about when to claim social security or how to efficiently use a Roth IRA. We also need to understand what households are actually doing in order to better recognize how to provide the greatest value. For example, why is it that more households fail to annuitize when many scholars believe that annuities are often useful in retirement?
This is the purpose of the Journal – to help advance our understanding of the science of personal finance.
Read the most recent copy…