Optimal Savings with Taxable and Tax-Deferred Accounts

Francisco Gomes (), Alexander Michaelides and Valery Polkovnichenko ()
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Alexander Michaelides: London School of Economics

Review of Economic Dynamics, 2009, vol. 12, issue 4, pages 718-735

Abstract: We solve and estimate a life-cycle model with earnings risk and liquidity constraints in the presence of tax-deferred retirement accounts (TDAs). We explicitly consider two very different types of households (with TDAs): direct and indirect stockholders. The latter hold stocks only through TDAs and, consistent with the data, save considerably less than the former, who hold stocks both inside and outside these accounts. We find that TDAs promote higher wealth accumulation but only marginally higher net savings. Consumption increases mostly during retirement, as desired, but the effect is largest for those households with higher savings rates already. (Copyright: Elsevier)

Keywords: Tax-deferred accounts; Retirement savings; Liquidity constraints; Portfolio choice; Uninsurable earnings risk (search for similar items in EconPapers)
JEL-codes: E21 H2 (search for similar items in EconPapers)
Date: 2009
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