IDEAS home Printed from https://ideas.repec.org/p/red/sed014/181.html
   My bibliography  Save this paper

Private Pensions, Retirement Wealth and Lifetime Earnings

Author

Listed:
  • Jie Zhou

    (Bank of Canada)

  • James MacGee

    (UWO)

Abstract

This paper investigates the effect of private pensions on the retirement wealth distribution. We incorporate stochastic private pension coverage into a calibrated life-cycle model with stochastic earnings. Private pensions lead to higher net worth inequality at retirement, which is closer to the inequality observed in the PSID than a model without private pensions. However, the offset effect of private pension wealth on net worth is much larger in the model than in the data. We find that taxation and inflation can largely account for the difference.

Suggested Citation

  • Jie Zhou & James MacGee, 2014. "Private Pensions, Retirement Wealth and Lifetime Earnings," 2014 Meeting Papers 181, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:181
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2014/paper_181.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
    2. 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.
    3. 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.
    4. Annamaria Lusardi, 2000. "Explaining Why So Many Households Do Not Save," JCPR Working Papers 203, Northwestern University/University of Chicago Joint Center for Poverty Research.
    5. Wolff, Edward N., 2007. "The retirement wealth of the baby boom generation," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 1-40, January.
    6. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    7. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    8. Gustman, Alan L. & Steinmeier, Thomas L. & Tabatabai, Nahid, 2010. "Pensions in the Health and Retirement Study," Economics Books, Harvard University Press, number 9780674048669, Spring.
    9. Engen, Eric & Gale, William & Uccello, Cori, 1999. "The Adequacy of Household Saving," MPRA Paper 56442, University Library of Munich, Germany.
    10. McCARTHY, DAVID, 2003. "A life-cycle analysis of defined benefit pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(2), pages 99-126, July.
    11. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249, Elsevier.
    12. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
    13. David McCarthy, 2003. "A Lifecycle Analysis of Defined Benefit Pension Plans," Working Papers wp053, University of Michigan, Michigan Retirement Research Center.
    14. John Knowles & Nezih Guner, 2007. "Marital Instability and the Distribution of Wealth," 2007 Meeting Papers 785, Society for Economic Dynamics.
    15. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(3), pages 743-768.
    16. 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.
    17. Kathleen M. McGarry & Andrew Davenport, 1998. "Pensions and the Distribution of Wealth," NBER Chapters, in: Frontiers in the Economics of Aging, pages 463-486, National Bureau of Economic Research, Inc.
    18. 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.
    19. William G. Gale, 1998. "The Effects of Pensions on Household Wealth: A Reevaluation of Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 706-723, August.
    20. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
    21. Javier Diaz-Gimenez & Vincenzo Quadrini & José-Víctor Ríos-Rull & Santiago Budria Rodriguez, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 26(Sum), pages 2-35.
    22. Juster, F. Thomas & Smith, James P. & Stafford, Frank, 1999. "The measurement and structure of household wealth," Labour Economics, Elsevier, vol. 6(2), pages 253-275, June.
    23. Orazio P. Attanasio & Susann Rohwedder, 2003. "Pension Wealth and Household Saving: Evidence from Pension Reforms in the United Kingdom," American Economic Review, American Economic Association, vol. 93(5), pages 1499-1521, December.
    24. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
    25. 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.
    26. 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.
    27. 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.
    28. Venti, Steven F & Wise, David A, 1998. "The Cause of Wealth Dispersion at Retirement: Choice or Chance?," American Economic Review, American Economic Association, vol. 88(2), pages 185-191, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Campanale, Claudio & Sartarelli, Marcello, 2024. "Life-cycle wealth accumulation and consumption insurance," Journal of Macroeconomics, Elsevier, vol. 79(C).
    2. Claudio Campanale, 2020. "Consumption insurance and education: A puzzle?," Working papers 069, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    2. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    3. Blau, David M., 2011. "Pensions, Household Saving, and Welfare: A Dynamic Analysis," IZA Discussion Papers 5554, Institute of Labor Economics (IZA).
    4. De Nardi, Mariacristina & Yang, Fang, 2014. "Bequests and heterogeneity in retirement wealth," European Economic Review, Elsevier, vol. 72(C), pages 182-196.
    5. A Lusardi & J Skinner & S Venti, 2001. "Saving puzzles and saving policies in the United States," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(1), pages 95-115, Spring.
    6. Fang Yang, 2012. "Lifetime Earning and Heterogeneity in Retirement Wealth: the Role of Bequests, Minimum Consumption, and Social Security," Discussion Papers 12-03, University at Albany, SUNY, Department of Economics.
    7. Altonji Joseph G & Villanueva Ernesto, 2007. "The Marginal Propensity to Spend on Adult Children," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-52, February.
    8. Andersen, Torben M. & Bhattacharya, Joydeep & Grodecka-Messi, Anna & Mann, Katja, 2024. "Pension reform and wealth inequality: Theory and evidence," European Economic Review, Elsevier, vol. 165(C).
    9. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    10. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    11. Andersen, Torben M & Bhattacharya, Joydeep & Grodecka-Messi, Anna & Mann, Katja, 2022. "Pension reform and wealth inequality: evidence from Denmark," CEPR Discussion Papers 17078, C.E.P.R. Discussion Papers.
    12. Claudio Campanale, 2007. "Increasing Returns to Savings and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 646-675, October.
    13. Antoine BozioBy & Carl Emmerson & Cormac O’Dea & Gemma Tetlow, 2017. "Do the rich save more? Evidence from linked survey and administrative data," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 1101-1119.
    14. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Savings After Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 177-204, October.
    15. 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.
    16. Jess Benhabib & Shenghao Zhu, 2008. "Age, Luck, and Inheritance," NBER Working Papers 14128, National Bureau of Economic Research, Inc.
    17. Bertrand Garbinti & Pierre Lamarche, 2014. "Les hauts revenus épargnent‑ils davantage ?," Économie et Statistique, Programme National Persée, vol. 472(1), pages 49-64.
    18. Gaobo Pang, "undated". "Tax-Deferred Savings and Early Retirement," Research Reports 3, Watson Wyatt Worldwide.
    19. Christoph Winter, 2014. "Accounting for the Changing Role of Family Income in Determining College Entry," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(4), pages 909-963, October.
    20. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.

    More about this item

    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:red:sed014:181. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.