Optimal Savings for Retirement: The Role of Individual Accounts and Disaster Expectations

52 Pages Posted: 8 Jun 2016

See all articles by Julia Le Blanc

Julia Le Blanc

Joint Research Centre, Italy

Almuth Scholl

Goethe University Frankfurt

Date Written: 2011

Abstract

We employ a life-cycle model with income risk to analyze how tax-deferred individual accounts affect households' savings for retirement. We consider voluntary accounts as opposed to mandatory accounts with minimum contribution rates. We contrast add-on accounts with carve-out accounts that partly replace social security contributions. Quantitative results suggest that making add-on accounts mandatory has adverse welfare effects across income groups. Carve-out accounts generate welfare gains for high and middle income earners but welfare losses for low income earners. In the presence of rare stock market disasters, individual accounts with default portfolio allocation crowd out direct stockholding and substantially reduce welfare.

Keywords: individual retirement accounts, household portfolio choice, consumption and saving over the life-cycle

JEL Classification: E21, H55, G11

Suggested Citation

Le Blanc, Julia and Scholl, Almuth, Optimal Savings for Retirement: The Role of Individual Accounts and Disaster Expectations (2011). Bundesbank Series 1 Discussion Paper No. 2011,33, Available at SSRN: https://ssrn.com/abstract=2785449

Julia Le Blanc (Contact Author)

Joint Research Centre, Italy ( email )

Via E. Fermi 1
I-21020 Ispra (VA)
United States

Almuth Scholl

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
12
Abstract Views
392
PlumX Metrics