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The Impact of Individual Investment Behavior for Retirement Welfare: Evidence from the United States and Germany

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Author Info
Thomas Post
Helmut Gründl
Joan Schmit
Anja Zimmer

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Abstract

Much of the industrialized world is undergoing a significant demographic shift, placing strain on public pension systems. Policymakers are responding with pension system reforms that put more weight on privately managed retirement funds. One concern with these changes is the effect on individual welfare if individuals invest suboptimally. Using micro-level data from the United States and Germany, we compare the optimal expected lifetime utility computed using a realistically calibrated model with the actual utility as reflected in empirical asset allocation choices. Through this analysis, we are able to identify the population subgroups with relatively large welfare losses. Our results should be helpful to public policymakers in designing programs to improve the performance of privately organized retirement systems.

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Publisher Info
Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-037.

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Length: 56 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2008-037

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Related research
Keywords: Asset Allocation; Retirement Welfare; Pension Reform;

Find related papers by JEL classification:
D14 - Microeconomics - - Household Behavior - - - Personal Finance
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare

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References listed on IDEAS
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  11. Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
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    Other versions:
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