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

Means-Tested Income Support, Portfolio Choice and Decumulation in Retirement

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.

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://www.qfrc.uts.edu.au/research/research_papers/rp248.pdf
Download Restriction: no

Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 248.

as
in new window

Length: 36 pages
Date of creation: 01 Apr 2009
Date of revision:
Publication status: Published as: Thorp, S., Hulley, H., McKibbin, R. and Pedersen, A., 2013, "Means-Tested Income Support, Portfolio Choice and Decumulation in Retirement", Economic Record, 89(284), 31-51.
Handle: RePEc:uts:rpaper:248
Contact details of provider: Postal:
PO Box 123, Broadway, NSW 2007, Australia

Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.qfrc.uts.edu.au/

More information through EDIRC

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. Monika Butler & Kim Peijnenburg & Stefan Staubli, 2011. "How Much Do Means-Tested Benefits Reduce the Demand for Annuities?," Working Papers 418, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Jonathan Gruber & Aaron Yelowitz, 1997. "Public Health Insurance and Private Savings," UCLA Economics Working Papers 772, UCLA Department of Economics.
  3. 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.
  4. Jessica A. Wachter & Motohiro Yogo, 2010. "Why Do Household Portfolio Shares Rise in Wealth?," Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3929-3965, November.
  5. Hazel Bateman (ed.), 2007. "Retirement Provision in Scary Markets," Books, Edward Elgar Publishing, number 3489, June.
  6. Martin Browning & Sule Alan, 2006. "Estimating Intertemporal Allocation Parameters using Simulated Expectation Errors," Economics Series Working Papers 284, University of Oxford, Department of Economics.
  7. 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.
  8. Börsch-Supan, Axel & Ludwig, Alexander & Winter, Joachim, 2001. "Aging, pension reform, and capital flows: a multi-country simulation model," Papers 01-08, Sonderforschungsbreich 504.
  9. 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.
  10. Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc.
  11. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
  12. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 03-95, Wharton School Rodney L. White Center for Financial Research.
  13. Stephen G. Donald & Garry F. Barrett, 2004. "Consistent Nonparametric Tests for Lorenz Dominance," Econometric Society 2004 Australasian Meetings 321, Econometric Society.
  14. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. Courtney Coile & Kevin Milligan, 2006. "How Household Portfolios Evolve After Retirement: The Effect of Aging and Health Shocks," NBER Working Papers 12391, National Bureau of Economic Research, Inc.
  20. 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.
  21. 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.
  22. 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.
  23. Konstantin Petrichev & Susan Thorp, 2007. "The Private Value of Public Pensions," Research Paper Series 211, Quantitative Finance Research Centre, University of Technology, Sydney.
  24. Sang-Wook (Stanley) Cho & Renuka Sane, 2011. "Means-Tested Age Pension and Homeownership: Is There a Link?," Discussion Papers 2011-02, School of Economics, The University of New South Wales.
  25. Robert Novy-Marx & Joshua D. Rauh, 2008. "The Intergenerational Transfer of Public Pension Promises," NBER Working Papers 14343, National Bureau of Economic Research, Inc.
  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. Sheetal K. Chand & Albert Jaeger, 1996. "Aging Populations and Public Pension Schemes," IMF Occasional Papers 147, International Monetary Fund.
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:uts:rpaper:248. 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: (Duncan Ford)

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.