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Money-Back Guarantees in Individual Retirement Accounts: Still a Good Deal?

Author

Listed:
  • Vanya Horneff
  • Daniel Liebler
  • Raimond Maurer
  • Olivia S. Mitchell

Abstract

Capital market volatility spurs interest in protecting retirement accounts; one such approach is to require money-back guarantees. Using a lifecycle model where investors have access to stocks, bonds, and tax-qualified retirement accounts, we show that such guarantees alter participant consumption, saving, and investment behavior during times of high interest rates, but impacts are even larger in a low-return environment. We conclude that abandoning guarantees could enhance old-age consumption for over 80% of retirees, particularly lower earners, without harming pre-retirement consumption. Our results are of interest for default investment options in individual retirement accounts such as the Pan-European Personal Pension Products.

Suggested Citation

  • Vanya Horneff & Daniel Liebler & Raimond Maurer & Olivia S. Mitchell, 2019. "Money-Back Guarantees in Individual Retirement Accounts: Still a Good Deal?," NBER Working Papers 26406, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26406
    Note: AG LS
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    References listed on IDEAS

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    Cited by:

    1. Olivia S. Mitchell, 2020. "Building Better Retirement Systems in the Wake of the Global Pandemic," NBER Working Papers 27261, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G5 - Financial Economics - - Household Finance
    • G52 - Financial Economics - - Household Finance - - - Insurance

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