IDEAS home Printed from https://ideas.repec.org/a/bla/ecinqu/v60y2022i1p9-20.html
   My bibliography  Save this article

Is automatic enrollment consistent with a life cycle model?

Author

Listed:
  • Jason S. Scott
  • John B. Shoven
  • Sita N. Slavov
  • John G. Watson

Abstract

We examine retirement saving for young adults in a life cycle model. We find that optimal retirement saving is zero for liquidity‐constrained young adults who anticipate significant earnings growth. With a plausible age‐earnings profile for college‐educated workers, retirement saving does not begin until the late 30s or early 40s. Workers facing a flat earnings profile begin saving much sooner. Participating may be optimal for younger workers facing steep earnings profiles if they anticipate switching jobs and cashing out after 1–2 years. Our results suggest that automatically enrolling workers, regardless of age, is not consistent with a life cycle model.

Suggested Citation

  • Jason S. Scott & John B. Shoven & Sita N. Slavov & John G. Watson, 2022. "Is automatic enrollment consistent with a life cycle model?," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 9-20, January.
    • Handle: RePEc:bla:ecinqu:v:60:y:2022:i:1:p:9-20
    DOI: 10.1111/ecin.13040
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecin.13040
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ecin.13040?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lachance, Marie-Eve, 2012. "Optimal onset and exhaustion of retirement savings in a life-cycle model," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(1), pages 21-52, January.
    2. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
    3. Hamermesh, Daniel S, 1984. "Consumption during Retirement: The Missing Link in the Life Cycle," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 1-7, February.
    4. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-577, June.
    5. Leung, Siu Fai, 1994. "Uncertain Lifetime, the Theory of the Consumer, and the Life Cycle Hypothesis," Econometrica, Econometric Society, vol. 62(5), pages 1233-1239, September.
    6. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    7. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
    8. Jason S. Scott & John B. Shoven & Sita N. Slavov & John G. Watson, 2020. "Can Low Retirement Savings Be Rationalized?," NBER Working Papers 26784, National Bureau of Economic Research, Inc.
    9. Alicia H. Munnell & Anthony Webb, 2015. "The Impact of Leakages from 401(k)s and IRAs," Working Papers, Center for Retirement Research at Boston College wp2015-2, Center for Retirement Research.
    10. Leung, Siu Fai, 2001. "The life-cycle model of saving with uncertain lifetime and borrowing constraint;: characterization and sensitivity analysis," Mathematical Social Sciences, Elsevier, vol. 42(2), pages 179-201, September.
    11. Tan, Sui Chin & Ho, Chong Mun & Pang, Vincent, 2015. "Education inequality: become better or worse?," MPRA Paper 61627, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Derby, Elena & Mackie, Kathleen & Mortenson, Jacob, 2023. "Worker and spousal responses to automatic enrollment," Journal of Public Economics, Elsevier, vol. 223(C).
    2. Nicoleta Ciurilă & Carolijn Kok & Harry ter Rele & Peter Zwaneveld, 2022. "Optimizing the Life-Cycle Path of Pension Premium Payments and the Pension Ambition in the Netherlands," De Economist, Springer, vol. 170(1), pages 69-105, February.
    3. Harry ter Rele & Carolijn de Kok & Nicoleta Ciurila & Peter Zwaneveld, 2021. "Optimizing the life cycle path of pension premium payments and the pension ambition in the Netherlands," CPB Discussion Paper 421.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Huang, Huaxiong & Milevsky, Moshe A. & Salisbury, Thomas S., 2012. "Optimal retirement consumption with a stochastic force of mortality," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 282-291.
    2. Leung, Siu Fai, 2007. "The existence, uniqueness, and optimality of the terminal wealth depletion time in life-cycle models of saving under uncertain lifetime and borrowing constraint," Journal of Economic Theory, Elsevier, vol. 134(1), pages 470-493, May.
    3. Huang, Huaxiong & Milevsky, Moshe A., 2016. "Longevity risk and retirement income tax efficiency: A location spending rate puzzle," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 50-62.
    4. Huang, H. & Milevsky, M.A. & Salisbury, T.S., 2017. "Retirement spending and biological age," Journal of Economic Dynamics and Control, Elsevier, vol. 84(C), pages 58-76.
    5. Ralph Stevens & Jennifer Alonso Garcia & Hazel Bateman & Arthur van Soest & Johan Bonekamp, 2022. "Saving preferences after retirement," ULB Institutional Repository 2013/342267, ULB -- Universite Libre de Bruxelles.
    6. Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994. "The importance of precautionary motives in explaining individual and aggregate saving," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 59-125, June.
    7. Gahramanov, Emin, 2013. "Survival misperception, time inconsistency, and implications for life-cycle saving and welfare," Economic Modelling, Elsevier, vol. 32(C), pages 539-550.
    8. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Savings After Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 177-204, October.
    9. Julien Hugonnier & Florian Pelgrin, 2013. "Health and (Other) Asset Holdings," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 663-710.
    10. Schunk Daniel, 2009. "What Determines Household Saving Behavior: An Examination of Saving Motives and Saving Decisions 06.01.2009," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(4), pages 467-491, August.
    11. HILDEBRAND Vincent, 2001. "Wealth Accumulation of US Households: What do we learn from the SIPP data?," IRISS Working Paper Series 2001-01, IRISS at CEPS/INSTEAD.
    12. Mariacristina De Nardi & Eric French & John Bailey Jones, 2005. "Differential mortality, uncertain medical expenses, and the saving of elderly singles," Working Paper Series WP-05-13, Federal Reserve Bank of Chicago.
    13. Ben J. Heijdra & Jochen O. Mierau, 2009. "Annuity Market Imperfection, Retirement and Economic Growth," CESifo Working Paper Series 2717, CESifo.
    14. Sergi Jiménez-Martín & Alfonso R. Sánchez Martín, 2007. "An evaluation of the life cycle effects of minimum pensions on retirement behavior," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(5), pages 923-950.
    15. Willman, Alpo, 2007. "Sequential optimization, front-loaded information, and U.S. consumption," Working Paper Series 765, European Central Bank.
    16. Love, David A. & Palumbo, Michael G. & Smith, Paul A., 2009. "The trajectory of wealth in retirement," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 191-208, February.
    17. Marta Melguizo Garde, 2007. "La motivación de las transmisiones lucrativas entre generaciones de una familia: modelos teóricos y evidencia empírica," Hacienda Pública Española / Review of Public Economics, IEF, vol. 181(2), pages 81-118, June.
    18. Zhao, Kai, 2015. "The impact of the correlation between health expenditure and survival probability on the demand for insurance," European Economic Review, Elsevier, vol. 75(C), pages 98-111.
    19. Bong-Gyu Jang & Hyeng Keun Koo & Yuna Rhee, 2016. "Asset demands and consumption with longevity risk," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 587-633, August.
    20. Schunk, Daniel, 2007. "What determines the saving behavior of German households? : an examination of saving motives and saving decisions," Papers 07-10, Sonderforschungsbreich 504.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecinqu:v:60:y:2022:i:1:p:9-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.