EconPapers    
Economics at your fingertips  
 

How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior

Vanya Horneff, Raimond Maurer and Olivia Mitchell

No 24311, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper 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 higher in a low return setting. Finally, we show that people claim Social Security benefits later in a low interest rate environment.

JEL-codes: D14 D15 D78 D91 G11 G22 H55 J14 J26 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-age and nep-dge
Note: AG
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.nber.org/papers/w24311.pdf (application/pdf)

Related works:
Working Paper: How persistent low expected returns alter optimal life cycle saving, investment, and retirement behavior (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:24311

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w24311

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-22
Handle: RePEc:nbr:nberwo:24311