OPTIMAL SAVINGS FOR RETIREMENT: THE ROLE OF INDIVIDUAL ACCOUNTS

Julia Le Blanc and Almuth Scholl

Macroeconomic Dynamics, 2017, vol. 21, issue 6, 1361-1388

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 positive welfare effects across all income groups, but gains are lower for low income earners. Default investment rules in individual accounts have a modest impact on welfare.

Date: 2017
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Working Paper: Optimal Savings for Retirement: The Role of Individual Accounts (2015)
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