Wealth Accumulation and Portfolio Choice with Taxable and Tax-Deferred Accounts

Francisco Gomes (), Alexander Michaelides and Valery Polkovnichenko ()

No 4852, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We calibrate a life-cycle model with uninsurable labour income risk and borrowing constraints to match wealth accumulation and portfolio allocation profiles of direct and indirect stockholders in both taxable and tax-deferred accounts. Tax-deferred accounts generate an increase in wealth accumulation that is larger for wealthier households. Furthermore, while the cost of following a fixed contribution rate over the life cycle is small, the optimal rate can differ substantially across households, and the welfare losses from choosing the wrong one can be substantial. Finally, the welfare gain from having access to a tax-deferred account ranges from less than 0.1% to 11.5%, depending on the preference parameters.

Keywords: liquidity constraints; portfolio choice; retirement savings; tax-deferred accounts; uninsurable labour income risk (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2005-01
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Working Paper: Wealth Accumulation and Portfolio Choice with Taxable and Tax-Deferred Accounts (2006)
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