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How will persistent low expected returns shape household economic behavior?

Published online by Cambridge University Press:  27 December 2018

Vanya Horneff ,
Raimond Maurer  and
Olivia S. Mitchell Open the ORCID record for Olivia S. Mitchell [Opens in a new window]
Vanya Horneff
Affiliation:
Finance Department, Goethe University, Theodor-W.-Adorno-Platz 3 (Uni-PF. H 23), Frankfurt am Main, Germany
Raimond Maurer
Affiliation:
Finance Department, Goethe University, Theodor-W.-Adorno-Platz 3 (Uni-PF. H 23), Frankfurt am Main, Germany
Olivia S. Mitchell*
Affiliation:
Wharton School, University of Pennsylvania, 3620 Locust Walk, 3000 SH-DH, Philadelphia, PA 19104, USA
*
*Corresponding author. Email: mitchelo@wharton.upenn.edu
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Abstract

Many believe that global capital markets will generate lower returns in the future versus the past. We examine how persistently lower real returns will reshape work, retirement, saving, and investment behavior of older persons using a calibrated dynamic life cycle model. In a low return regime, workers build up less wealth in their tax-qualified 401(k) accounts versus the past, claim social security benefits later, and work more. Moreover, the better-educated are more sensitive to real interest rate changes, while the least-educated alter their behavior less. Interestingly, the distribution of wealth is more uniform in periods of persistent low expected returns.

Keywords

401(k) planinvestmentsocial security claimingretirementsavingtax consequencesD14D91G11G22
Type
Article
Information
Journal of Pension Economics & Finance , Volume 18 , Special Issue 4: Incentives and Limitations of Employment Policies on Retirement Transitions , October 2019 , pp. 612 - 622
Copyright
Copyright © Cambridge University Press 2018 

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