IDEAS home Printed from https://ideas.repec.org/p/uwo/epuwoc/20102.html
   My bibliography  Save this paper

Private Pensions, Retirement Wealth and Lifetime Earnings

Author

Abstract

This paper investigates the effect of private pensions on the retirement wealth distribution. The model incorporates stochastic private pension coverage into a life- cycle model with stochastic earnings. The predictions of the calibrated model are compared to the distribution of retirement net worth and private pension wealth in the PSID. While private pensions lead to higher wealth inequality and reduces the lifetime earnings - retirement wealth correlation, the model still generates too little wealth inequality. However, when we extend the model to include heterogeneous life-cycle earnings profiles and permanent return differences across households, we find that the model largely accounts for the sizeable variation in retirement wealth.

Suggested Citation

  • James MacGee & Jie Zhou, 2010. "Private Pensions, Retirement Wealth and Lifetime Earnings," University of Western Ontario, Economic Policy Research Institute Working Papers 20102, University of Western Ontario, Economic Policy Research Institute.
  • Handle: RePEc:uwo:epuwoc:20102
    as

    Download full text from publisher

    File URL: http://economics.uwo.ca/epri/workingpapers_docs/wp2010/MacGee_Zhou_02.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Huggett, Mark & Ventura, Gustavo, 2000. "Understanding why high income households save more than low income households," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 361-397, April.
    2. Hendricks, Lutz, 2007. "How important is discount rate heterogeneity for wealth inequality?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 3042-3068, September.
    3. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    4. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    5. Gustman, Alan L. & Steinmeier, Thomas L. & Tabatabai, Nahid, 2010. "Pensions in the Health and Retirement Study," Economics Books, Harvard University Press, number 9780674048669, December.
    6. McCARTHY, DAVID, 2003. "A life-cycle analysis of defined benefit pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(02), pages 99-126, July.
    7. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
    8. David McCarthy, 2003. "A Lifecycle Analysis of Defined Benefit Pension Plans," Working Papers wp053, University of Michigan, Michigan Retirement Research Center.
    9. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
    10. Steven F. Venti & David A. Wise, 2001. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Chapters,in: Aging Issues in the United States and Japan, pages 25-64 National Bureau of Economic Research, Inc.
    11. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
    12. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rios-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
    13. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
    14. Gary V. Engelhardt & Anil Kumar, 2011. "Pensions and Household Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 46(1), pages 203-236.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    private pensions; Wealth inequality; retirement;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uwo:epuwoc:20102. 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: (). General contact details of provider: http://economics.uwo.ca/research/research_papers/epri_workingpapers.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.