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OPTIMAL SAVINGS FOR RETIREMENT: THE ROLE OF INDIVIDUAL ACCOUNTS

Published online by Cambridge University Press:  07 July 2016

Julia Le Blanc  and
Almuth Scholl
Julia Le Blanc*
Affiliation:
Deutsche Bundesbank
Almuth Scholl
Affiliation:
University of Konstanz
*
Address correspondence to: Julia Le Blanc, Deutsche Bundesbank, Research Centre, Wilhelm-Epstein Str. 14, D-60431 Frankfurt am Main, Germany; e-mail: julia.le.blanc@bundesbank.de.
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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.

Keywords

Individual AccountsRetirementHousehold Portfolio ChoiceSaving over the Life Cycle
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Issue 6 , September 2017 , pp. 1361 - 1388
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

Previous versions of this paper were circulated under the titles “Pension Reform and Individual Accounts” and “Optimal Savings for Retirement: The Role of Individual Accounts and Disaster Expectations.” We thank two anonymous referees, Michael Haliassos, seminar participants at the Deutsche Bundesbank, and participants at the International Netspar Pension Workshop 2011, the Meeting of the Canadian Economic Association 2010, and the Meetings of the European Economic Association 2009 for very useful comments and suggestions. The usual disclaimer applies.

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