Optimal savings for retirement: The role of individual accounts and disaster expectations
AbstractWe employ a life-cycle model with income risk to analyze how tax-deferred individual accounts affect households' savings for retirement. We consider voluntary accounts as opposed to mandatory accounts with minimum contribution rates. We contrast add-on accounts with carve-out accounts that partly replace social security contributions. Quantitative results suggest that making add-on accounts mandatory has adverse welfare effects across income groups. Carve-out accounts generate welfare gains for high and middle income earners but welfare losses for low income earners. In the presence of rare stock market disasters, individual accounts with default portfolio allocation crowd out direct stockholding and substantially reduce welfare. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2011,33.
Date of creation: 2011
Date of revision:
individual retirement accounts; household portfolio choice; consumption and saving over the life-cycle;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-02-20 (Economics of Ageing)
- NEP-ALL-2012-02-20 (All new papers)
- NEP-DGE-2012-02-20 (Dynamic General Equilibrium)
- NEP-MAC-2012-02-20 (Macroeconomics)
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