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How will persistent low expected returns shape household economic behavior?

Author

Listed:
  • Horneff, Vanya
  • Maurer, Raimond
  • Mitchell, Olivia S.

Abstract

Many believe that global capital markets will generate lower returns in the future versus the past. We examine how persistently lower real returns will reshape work, retirement, saving, and investment behavior of older persons using a calibrated dynamic life cycle model. In a low return regime, workers build up less wealth in their tax-qualified 401(k) accounts versus the past, claim social security benefits later, and work more. Moreover, the better-educated are more sensitive to real interest rate changes, while the least-educated alter their behavior less. Interestingly, the distribution of wealth is more uniform in periods of persistent low expected returns.

Suggested Citation

  • Horneff, Vanya & Maurer, Raimond & Mitchell, Olivia S., 2019. "How will persistent low expected returns shape household economic behavior?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 18(4), pages 612-622, October.
    • Handle: RePEc:cup:jpenef:v:18:y:2019:i:04:p:612-622_00
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    Cited by:

    1. Annamaria Lusardi & Olivia S. Mitchell & Noemi Oggero, 2020. "Debt and Financial Vulnerability on the Verge of Retirement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 1005-1034, August.
    2. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    3. Jean-Michel Beacco & Catherine Lubochinsky & Marie Brière & Alain Monfort & Caroline Hillairet & Sylvain Benoît, 2019. "Invited Editorial “The challenges imposed by low interest rates”," Journal of Asset Management, Palgrave Macmillan, vol. 20(6), pages 413-420, October.
    4. Vanya Horneff & Raimond Maurer & Olivia S. Mitchell, 2019. "How Would 401(k) ‘Rothification’ Alter Saving, Retirement Security, and Inequality?," Working Papers wp398, University of Michigan, Michigan Retirement Research Center.
    5. Horneff, Vanya & Maurer, Raimond & Mitchell, Olivia S., 2023. "How would 401(k) ‘Rothification’ alter saving, retirement security, and inequality?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 22(3), pages 265-283, July.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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