Uncertain Lifetimes, Pensions, and Individual Saving

Robert Hubbard

No 1363, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Attempts to measure the impacts of pensions on household saving have occupied much of the literature in empirical public finance over the past decade. The emphasis here is on the annuity insurance aspects of social security and pensions. A simple life-cycle model is put forth to show that even anactuarially fair, fully funded social security system can reduce individual saving by more than the tax paid. Hence, previous partial equilibrium estimates of the impact of social security on saving drawn solely from consideration of the intergenerational wealth transfer at the introduction of the system are, if anything too small. The large partial equilibrium effects are mitigated when initial endowments are considered. To the extent that the introduction of social security reduces the size of unplanned bequests, its net effect on the consumption of subsequent generations is diminished. The final sections of the paper extend the approach to private pensions and address empirical issues. Using a model specification for individual wealth accumulation from the literature, potential offsets are interpreted according to the presence or absence of a bequest motive and according to the ability of individuals to adjust their participation in private pensions to counteract involuntary changes in social security.

Date: 1984-06
Note: PE
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Published as Hubbard, R. Glenn. "Uncertain Lifetimes, Pensions, and Individual Saving." Issues in Pension Economics, edited by Zvi Bodie, John Shoven and David A. Wise, pp. 175-206. Chicago: University of Chicago Press, 1987.
Published as Uncertain Lifetimes, Pensions, and Individual Saving , R. Glenn Hubbard. in Issues in Pension Economics , Bodie, Shoven, and Wise. 1987

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