How persistent low expected returns alter optimal life cycle saving, investment, and retirement behavior

This Chapter explores how an environment of persistent low returns influences saving, investing, and retirement behaviors, as compared to what in the past had been thought of as more “normal” financial conditions. Our ca
This Chapter explores how an environment of persistent low returns influences saving, investing, and retirement behaviors, as compared to what in the past had been thought of as more “normal” financial conditions. Our calibrated lifecycle dynamic model with realistic tax, minimum distribution, and Social Security benefit rules produces results that agree with observed saving, work, and claiming age behavior of U.S. households. In particular, our model generates a large peak at the earliest claiming age at 62, as in the data. Also in line with the evidence, our baseline results show a smaller second peak at the (system-defined) Full Retirement Age of 66. In the context of a zero-return environment, we show that workers will optimally devote more of their savings to non-retirement accounts and less to 401(k) accounts, since the relative appeal of investing in taxable versus tax-qualified retirement accounts is lower in a low return setting. Finally, we show that people claim Social Security benefits later in a low interest rate environment.
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Metadaten
Author:Vanya Horneff, Raimond Maurer, Olivia S. Mitchell
URN:urn:nbn:de:hebis:30:3-451952
URL:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3076397
Parent Title (English):SAFE working paper series ; No. 190
Series (Serial Number):SAFE working paper series (190)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2017
Year of first Publication:2017
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2017/12/12
Tag:401(k) plan; Social Security claiming age; dynamic portfolio choice; mnimum distribution requirements; retirement income; saving; tax
Issue:June 23, 2017
Pagenumber:21
HeBIS PPN:424516470
Institutes:Wirtschaftswissenschaften
House of Finance (HoF)
Center for Financial Studies (CFS)
Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:D14 Personal Finance
D91 Intertemporal Consumer Choice; Life Cycle Models and Saving
G11 Portfolio Choice; Investment Decisions
G22 Insurance; Insurance Companies
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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