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Optimal Savings For Retirement: The Role Of Individual Accounts

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  • Le Blanc, Julia
  • Scholl, Almuth

Abstract

We 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 positive welfare across all income groups but gains are lower for low income earners. Default investment rules in individual accounts have a modest impact on welfare.
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Suggested Citation

  • Le Blanc, Julia & Scholl, Almuth, 2017. "Optimal Savings For Retirement: The Role Of Individual Accounts," Macroeconomic Dynamics, Cambridge University Press, vol. 21(06), pages 1361-1388, September.
  • Handle: RePEc:cup:macdyn:v:21:y:2017:i:06:p:1361-1388_00
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    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

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