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Uncertain Lifetimes, Pensions, and Individual Saving

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  • R. Glenn Hubbard

Abstract

Attempts to measure the impacts of pensions on household saving have occupied much of the literature in empirical public finance over the past decade. The emphasis here is on the annuity insurance aspects of social security and pensions. A simple life-cycle model is put forth to show that even anactuarially fair, fully funded social security system can reduce individual saving by more than the tax paid. Hence, previous partial equilibrium estimates of the impact of social security on saving drawn solely from consideration of the intergenerational wealth transfer at the introduction of the system are, if anything too small. The large partial equilibrium effects are mitigated when initial endowments are considered. To the extent that the introduction of social security reduces the size of unplanned bequests, its net effect on the consumption of subsequent generations is diminished. The final sections of the paper extend the approach to private pensions and address empirical issues. Using a model specification for individual wealth accumulation from the literature, potential offsets are interpreted according to the presence or absence of a bequest motive and according to the ability of individuals to adjust their participation in private pensions to counteract involuntary changes in social security.

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  • R. Glenn Hubbard, 1984. "Uncertain Lifetimes, Pensions, and Individual Saving," NBER Working Papers 1363, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1363
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    Cited by:

    1. Michael D. Hurd, 1989. "The Poverty of Widows: Future Prospects," NBER Chapters, in: The Economics of Aging, pages 201-230, National Bureau of Economic Research, Inc.
    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. Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, vol. 89(5), pages 1299-1318, December.
    4. 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.
    5. Willman, Alpo, 2007. "Sequential optimization, front-loaded information, and U.S. consumption," Working Paper Series 765, European Central Bank.
    6. Benjamin M. Friedman & Mark Warshawsky, 1988. "Annuity Prices and Saving Behavior in the United States," NBER Chapters, in: Pensions in the U.S. Economy, pages 53-84, National Bureau of Economic Research, Inc.
    7. Lei He & Shuyi Zhou & Zilan Liu, 0. "How is aggregate household consumption affected jointly by longevity, pension, and aging? Theory and evidence," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 0, pages 1-14.
    8. Ligon, James A., 1995. "The impact of retirement wealth upon portfolio composition of individuals," Journal of Economics and Business, Elsevier, vol. 47(3), pages 303-316, August.
    9. Brown, Jeffrey R., 2001. "Private pensions, mortality risk, and the decision to annuitize," Journal of Public Economics, Elsevier, vol. 82(1), pages 29-62, October.
    10. R. Glenn Hubbard & Kenneth L. Judd, 1987. "Finite Lifetimes, Borrowing Constraints, and Short-Run Fiscal Policy," NBER Working Papers 2158, National Bureau of Economic Research, Inc.
    11. Hugo Benitez-Silva, 2000. "A Dynamic Model of Labor Supply, Consumption/Saving, and Annuity Decisions under Uncertainty," Department of Economics Working Papers 00-06, Stony Brook University, Department of Economics.
    12. Peláez Fermoso, Francisco J. & García González, Ana & Gómez García, Jesus Mª., 2012. "Implicaciones del consumo y de la flexibilidad de la oferta laboral en el bienestar de los partícipes de planes de pensiones del Sistema de Empleo/Implications of Consumption and Labor Supply Flexibil," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 30, pages 1069(22.)-1, Diciembre.
    13. Lei He & Shuyi Zhou & Zilan Liu, 2020. "How is aggregate household consumption affected jointly by longevity, pension, and aging? Theory and evidence," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(4), pages 499-512, December.
    14. Fauvel, Yves, 1985. "Théorie du cycle de vie et rentes publiques," L'Actualité Economique, Société Canadienne de Science Economique, vol. 61(2), pages 220-238, juin.
    15. Anna d’Addio & Muriel Roger & Frédérique Savignac, 2019. "Pensions and Household Savings: Cross-Country Heterogeneity in Europe," Working papers 738, Banque de France.
    16. Michael D. Hurd, 1987. "The Marginal Value of Social Security," NBER Working Papers 2411, National Bureau of Economic Research, Inc.
    17. Hugo Benítez-Silva, 2003. "The Annuity Puzzle Revisited," Working Papers wp055, University of Michigan, Michigan Retirement Research Center.
    18. Gál, Róbert Iván, 1996. "A társadalombiztosítási programok ösztönző hatásai [Incentive effects of social security programs: a survey]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 128-140.

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