Income Uncertainty and IRAs

Hrung, Warren

Income Uncertainty and IRAs

International Tax and Public Finance, 2002, vol. 9, issue 5, 599 pages

Abstract: In a precautionary savings setting, since Individual Retirement Accounts (IRAs) are poor substitutes for precautionary savings due to early withdrawal penalties, those facing more income uncertainty are expected to prefer more liquid assets. This paper investigates the role of income uncertainty in IRA participation. Confidential tax panel data is used to construct a measure of income uncertainty. Greater income uncertainty is found to have a negative influence on IRA participation for those in the immediate pre-retirement stage of the life-cycle. The results appear to be consistent with buffer-stock models of savings where income uncertainty is predicted to have a large effect on wealth accumulation beginning around age 50. Copyright Kluwer Academic Publishers 2002

Keywords: Individual Retirement Accounts; Precautionary Savings (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (3)

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DOI: 10.1023/A:1020921721147

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