Optimal onset and exhaustion of retirement savings in a life-cycle model

Marie-Eve Lachance

Journal of Pension Economics and Finance, 2012, vol. 11, issue 1, 21-52

Abstract: This paper facilitates the exploration of optimal individual retirement savings strategies within a life-cycle framework by providing a convenient tool to implement a model suggested by Yaari (1965) with an uncertain lifetime and borrowing constraints. The solution is given both for the general case and for cases leading to closed-form equations such as power utility and Gompertz mortality. Illustrations for a wide range of parameters indicate that starting to save for retirement in the first phase of one's career is rarely optimal. Of course, this is not to say that young workers should not save for other motives – a limitation of this model is that risks besides mortality are not considered. The conclusion should also be interpreted cautiously as it is difficult to represent every possible individual circumstance and saving incentive in a single model. The intuition behind the result is that an efficient strategy allocates the burden of financing retirement first to periods with higher income (i.e. lower opportunity costs), creating the potential for an initial period without savings when income grows.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
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:cup:jpenef:v:11:y:2012:i:01:p:21-52_00

Access Statistics for this article

More articles in Journal of Pension Economics and Finance from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().