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Tax-Deferred Savings and Early Retirement

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  • Gaobo Pang

Abstract

This paper analyzes the effects of tax-deferred accounts (TDAs) in a stochastic life-cycle model. The simulations reveal that conventional savings (CSAs) serve mainly for liquidity and TDAs for retirement and bequests. The tax incentives are generally effective in stimulating new savings for the middle and upper income groups. TDAs facilitates wealth accumulation, which perhaps unintentionally encourages earlier retirement. TDAs fail to induce new savings and affect the retirement choice for impatient and low-income individuals since they face lower marginal tax rates and have limited resources to take advantage of TDAs. They tend to retire and claim Social Security early.

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Paper provided by Watson Wyatt Worldwide in its series Research Reports with number 3.

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Handle: RePEc:www:resrep:3

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Cited by:
  1. Manuel Kallweit, 2009. "Rentenreform und Rentenzugangsentscheidung – Eine numerische Gleichgewichtsanalyse," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(4), pages 426-449, August.

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