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Liquidity in Retirement Savings Systems: An International Comparison

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Listed:
  • John Beshears
  • James J. Choi
  • Joshua Hurwitz
  • David Laibson
  • Brigitte C. Madrian

Abstract

We compare the liquidity that six developed countries have built into their employer-based defined contribution (DC) retirement schemes. In Germany, Singapore, and the UK, withdrawals are essentially banned no matter what kind of transitory income shock the household realizes. By contrast, in Canada and Australia, liquidity is state-contingent. For a middle-income household, DC accounts are completely illiquid unless annual income falls substantially, in which case DC assets become highly liquid. The US stands alone in the universally high liquidity of its DC system: whether or not income falls, the penalties for early withdrawal are low or non-existent.

Suggested Citation

  • John Beshears & James J. Choi & Joshua Hurwitz & David Laibson & Brigitte C. Madrian, 2015. "Liquidity in Retirement Savings Systems: An International Comparison," American Economic Review, American Economic Association, vol. 105(5), pages 420-425, May.
  • Handle: RePEc:aea:aecrev:v:105:y:2015:i:5:p:420-25
    Note: DOI: 10.1257/aer.p20151004
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    References listed on IDEAS

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    Cited by:

    1. Andersen, Torben M. & Bhattacharya, Joydeep, 2016. "Why mandate young borrowers to contribute to their retirement accounts?," ISU General Staff Papers 201609260700001016, Iowa State University, Department of Economics.
    2. Sumit Agarwal, 2015. "Age of Decision: Pension Savings Withdrawal and Consumption and Debt Response," 2015 Meeting Papers 709, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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