IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement

  • Hardy Hulley
  • Rebecca Mckibbin
  • Andreas Pedersen
  • Susan Thorp

We investigate the impact of means tested public income transfers on post-retirement decumulation and portfolio choice using theoretical simulations and panel data on Australian Age Pensioners. Means tested public pension payments in Australia have broad coverage and give insight into the incentive responsiveness of well-off, as well as poorer households. Via numerical solutions to a discrete time, finite horizon dynamic programming problem, we simulate the optimal consumption and portfolio allocation strategies for a retired household subject to assets and income tests. Relative to benchmark, means tested households should optimally decumulate faster early in retirement, and choose more risky portfolios. Panel data tests on inferred wealth for pensioner households show evidence of more rapid spending early in retirement. However they also show that better-off households continue to accumulate, even when facing a steeper implicit tax rate on wealth than applies to poorer households. Wealthier households also hold riskier portfolios. Results from tests for Lorenz dominance of the panel wealth distribution show no decrease in wealth inequality over the five years of the study.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1111/10.1111/ecor.2013.89.issue-284
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 89 (2013)
Issue (Month): 284 (03)
Pages: 31-51

as
in new window

Handle: RePEc:bla:ecorec:v:89:y:2013:i:284:p:31-51
Contact details of provider: Postal:
Central Council Administration, L.P.O. Box 2161, Hawthorn VIC 3122

Phone: 61 3 9497 4140
Fax: 61 3 9497 4140
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0013-0249
Email:


More information through EDIRC

Order Information: Web: http://www.blackwellpublishing.com/subs.asp?ref=0013-0249

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Axel Boersch-Supan & Alexander Ludwig, 2005. "Aging, pension reform, and capital flows: A multi-country simulation model," Computing in Economics and Finance 2005 123, Society for Computational Economics.
  2. Monika Bütler & Kim Peijnenburg & Stefan Staubli, 2013. "How Much Do Means-Tested Benefits Reduce the Demand for Annuities?," NRN working papers 2013-11, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  3. Hazel Bateman & Susan Thorp, 2008. "Choices and Constraints over Retirement Income Streams: Comparing Rules and Regulations," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages S17-S31, 09.
  4. Attanasio, Orazio P, et al, 1999. "Humps and Bumps in Lifetime Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 22-35, January.
  5. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
  6. Jonathan Gruber & Aaron S. Yelowitz, 1998. "Public Health Insurance and Private Savings," JCPR Working Papers 42, Northwestern University/University of Chicago Joint Center for Poverty Research.
  7. J. P. Ziliak, . "Income Transfers and Assets of the Poor," Institute for Research on Poverty Discussion Papers 1202-99, University of Wisconsin Institute for Research on Poverty.
  8. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  9. Hazel Bateman (ed.), 2007. "Retirement Provision in Scary Markets," Books, Edward Elgar Publishing, number 3489, December.
  10. Motohiro Yogo & Jessica Wachter, 2007. "Why do Household Portfolio Shares Rise in Wealth?," 2007 Meeting Papers 929, Society for Economic Dynamics.
  11. 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.
  12. Courtney Coile & Kevin Milligan, 2009. "How Household Portfolios Evolve After Retirement: The Effect Of Aging And Health Shocks," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 226-248, 06.
  13. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
  14. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the Rich Save More?," NBER Working Papers 7906, National Bureau of Economic Research, Inc.
  15. Garry F. Barrett & Stephen G. Donald & Debopam Bhattacharya, 2014. "Consistent Nonparametric Tests for Lorenz Dominance," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(1), pages 1-13, January.
  16. Cho, Sang-Wook (Stanley) & Sane, Renuka, 2013. "Means-Tested Age Pensions And Homeownership: Is There A Link?," Macroeconomic Dynamics, Cambridge University Press, vol. 17(06), pages 1281-1310, September.
  17. Petrichev, Konstantin & Thorp, Susan, 2008. "The private value of public pensions," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 1138-1145, June.
  18. Erik Hurst & James P. Ziliak, 2004. "Do Welfare Asset Limits Affect Household Saving? Evidence from Welfare Reform," NBER Working Papers 10487, National Bureau of Economic Research, Inc.
  19. David Neumark & Elizabeth Powers, 1998. "Welfare for the Elderly: The Effects of SSI on Pre-Retirement Labor Supply," NBER Working Papers 6805, National Bureau of Economic Research, Inc.
  20. James Sefton & Justin vandeVen & Martin Weale, 2008. "Means Testing Retirement Benefits: fostering equity or discouraging savings?," Economic Journal, Royal Economic Society, vol. 118(528), pages 556-590, 04.
  21. David Neumark & Elizabeth Powers, 1997. "The Effect of Means-Tested Income Support for the Elderly on Pre-Retirement Saving: Evidence from the SSI Program in the U.S," NBER Working Papers 6303, National Bureau of Economic Research, Inc.
  22. Michael D. Hurd & Daniel McFadden & Angela Merrill, 2001. "Predictors of Mortality among the Elderly," NBER Chapters, in: Themes in the Economics of Aging, pages 171-198 National Bureau of Economic Research, Inc.
  23. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
  24. Robert Novy-Marx & Joshua D. Rauh, 2008. "The Intergenerational Transfer of Public Pension Promises," NBER Working Papers 14343, National Bureau of Economic Research, Inc.
  25. Sheetal K. Chand & Albert Jaeger, 1996. "Aging Populations and Public Pension Schemes," IMF Occasional Papers 147, International Monetary Fund.
  26. Borsch-Supan, Axel, 1992. "Saving and Consumption Patterns of the Elderly: The German Case," Journal of Population Economics, Springer;European Society for Population Economics, vol. 5(4), pages 289-303.
  27. Martin Browning & Sule Alan, 2006. "Estimating Intertemporal Allocation Parameters using Simulated Expectation Errors," Economics Series Working Papers 284, University of Oxford, Department of Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bla:ecorec:v:89:y:2013:i:284:p:31-51. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.