Eller Professors Win Prestigious TIAA Award By Demonstrating You Might Be Saving Wrong
Tucson (January 4, 2019) – Finance Professors David Brown and Scott Cederburg of the University of Arizona Eller College of Management, along with their co-author Michael O’Doherty of the University of Missouri, won the 23rd Annual TIAA Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security. The Samuelson Award recognizes outstanding research that the private and public sectors can use to maintain and enhance Americans’ financial well-being.
The award-winning article, “Tax Uncertainty and Retirement Savings Diversification” examines the best way to mix savings in traditional and Roth retirement accounts while considering uncertainty about tax rates during retirement. In contrast to conventional wisdom, the study demonstrates that the benefits of Roth IRA and Roth 401(k) accounts are not limited to investors in low current tax brackets. By saving with Roth today, retirement savers can effectively lock in their current tax rate and avoid the risk that tax rates will increase over the next few decades. Overall, most investors are better off diversifying across both traditional and Roth savings to gain the benefits of each type of account. Any amount of diversification is helpful, and the authors further suggest a rule of thumb of investing (Age+20)% of retirement savings in traditional accounts with the remainder in Roth. The article was published in the Journal of Financial Economics in 2017.
“With this research, David Brown, Scott Cederburg and Michael O’Doherty have provided data and analysis that adds new insight to our knowledge of tax uncertainty and savings best practices,” says Stephanie Bell-Rose, head of the TIAA Institute. “Their conclusions regarding the importance of diversified account types provides clear, tangible advice that will benefit the financial security of everyday Americans.”
“The Eller College is very proud of David and Scott and the important research questions they address every day,” says Rick Sias, Tyler Family Endowed Chair in Finance and Department of Finance Head. “This honor from TIAA is a great recognition of the impact quality research has on society.”
David Brown earned his PhD from the University of Colorado Boulder in 2014. His areas of expertise include institutional investors, asset management, early-stage financing and IPOs. Scott Cederburg graduated from the University of Iowa with his PhD in 2011. His expertise lies in asset pricing, expected stock returns and portfolio choice over short and long horizons.