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Optimal savings for retirement: The role of individual accounts and disaster expectations

Julia Le Blanc and Almuth Scholl

No 2011,33, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

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 welfare gains for high and middle income earners but welfare losses for low income earners. In the presence of rare stock market disasters, individual accounts with default portfolio allocation crowd out direct stockholding and substantially reduce welfare.

Keywords: individual retirement accounts; household portfolio choice; consumption and saving over the life-cycle (search for similar items in EconPapers)
JEL-codes: E21 G11 H55 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-age, nep-dge and nep-mac
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