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Income Uncertainty and IRAs

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  • Warren Hrung

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Abstract

In a precautionary savings setting, since Individual Retirement Accounts (IRAs) are poor substitutes for precautionary savings due to early withdrawal penalties, those facing more income uncertainty are expected to prefer more liquid assets. This paper investigates the role of income uncertainty in IRA participation. Confidential tax panel data is used to construct a measure of income uncertainty. Greater income uncertainty is found to have a negative influence on IRA participation for those in the immediate pre-retirement stage of the life-cycle. The results appear to be consistent with buffer-stock models of savings where income uncertainty is predicted to have a large effect on wealth accumulation beginning around age 50. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Warren Hrung, 2002. "Income Uncertainty and IRAs," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(5), pages 591-599, September.
  • Handle: RePEc:kap:itaxpf:v:9:y:2002:i:5:p:591-599
    DOI: 10.1023/A:1020921721147
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    References listed on IDEAS

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    1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
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    Cited by:

    1. Hans Fehr & Christian Habermann, 2010. "Private retirement savings and mandatory annuitization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(6), pages 640-661, December.
    2. Hans Fehr & Christian Habermann, 2008. "Private Retirement Savings in Germany: The Structure of Tax Incentives and Annuitization," CESifo Working Paper Series 2238, CESifo Group Munich.

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