This paper investigates the impact of health and labor income risk on portfolio choice in a realistically calibrated life-cycle model. The model shows that health risk reduces the desired exposure to risky assets, consistent with empirical findings. Moreover, the model’s prediction matches empirical evidence, including the labor supply-health-age profile and retirement behavior. Furthermore, extending the model to incorporate the stylized fact that medical expenses of elderly are more volatile than those of younger individuals suggests rebalancing the portfolio so that it becomes more conservative as an investor nears retirement. This investment strategy is consistent with target retirement funds offered by financial advisers, yet the model suggests that the next wave of life-cycle fund designs should focus on both the year and age of retirement rather than only on the year of retirement. In the presence of background risk and a high historical equity risk premium, social insurance and bequest motives play an important role in explaining observed low risky asset holdings and low withdrawals of savings in later life.
{"title":"How to Invest Over the Life-Cycle in the Presence of Background Risk?","authors":"Jingjing Chai","doi":"10.2139/ssrn.2055835","DOIUrl":"https://doi.org/10.2139/ssrn.2055835","url":null,"abstract":"This paper investigates the impact of health and labor income risk on portfolio choice in a realistically calibrated life-cycle model. The model shows that health risk reduces the desired exposure to risky assets, consistent with empirical findings. Moreover, the model’s prediction matches empirical evidence, including the labor supply-health-age profile and retirement behavior. Furthermore, extending the model to incorporate the stylized fact that medical expenses of elderly are more volatile than those of younger individuals suggests rebalancing the portfolio so that it becomes more conservative as an investor nears retirement. This investment strategy is consistent with target retirement funds offered by financial advisers, yet the model suggests that the next wave of life-cycle fund designs should focus on both the year and age of retirement rather than only on the year of retirement. In the presence of background risk and a high historical equity risk premium, social insurance and bequest motives play an important role in explaining observed low risky asset holdings and low withdrawals of savings in later life.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129634151","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper considers the impact of endogenous human capital accumulation on optimal tax policy in a life cycle model. Including endogenous human capital accumulation, either through learning-by-doing or learning-or-doing, is analytically shown to create a motive for the government to use age-dependent labor income taxes. If the government cannot condition taxes on age, then it is optimal to use a tax on capital in order to mimic such taxes. Quantitatively, introducing learning-by-doing or learning-or-doing increases the optimal tax on capital by forty or four percent, respectively. Overall, the optimal tax on capital is thirty five percent higher in the model with learning-by-doing compared to the model with learning-or-doing implying that how human capital accumulates is of significant importance when determining the optimal tax policy.
{"title":"The Effect of Endogenous Human Capital Accumulation on Optimal Taxation","authors":"William B. Peterman","doi":"10.2139/ssrn.1991840","DOIUrl":"https://doi.org/10.2139/ssrn.1991840","url":null,"abstract":"This paper considers the impact of endogenous human capital accumulation on optimal tax policy in a life cycle model. Including endogenous human capital accumulation, either through learning-by-doing or learning-or-doing, is analytically shown to create a motive for the government to use age-dependent labor income taxes. If the government cannot condition taxes on age, then it is optimal to use a tax on capital in order to mimic such taxes. Quantitatively, introducing learning-by-doing or learning-or-doing increases the optimal tax on capital by forty or four percent, respectively. Overall, the optimal tax on capital is thirty five percent higher in the model with learning-by-doing compared to the model with learning-or-doing implying that how human capital accumulates is of significant importance when determining the optimal tax policy.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129576923","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper estimates a structured life cycle model of family retirement decision using a unique historical dataset back simulated from Living in Ireland survey. Our model takes the advantages of the dataset and models retirement decisions in terms of monetary and leisure incentives, which reflect the complex welfare system in Ireland. The household extension version of the model adapts a collective modelling approach, where the intra-household bargaining is considered. We further incorporate complimentary leisure, which allows us to analyse the interactions of spouses' retirement timing. This methodology enables us to capture the dynamics of retirement and tax-benefit policies and can be used to simulate the effect of policy reform on household retirement behaviours. The paper, in addition, applies the model to assess individual budgetary implications and the labour market impact of rising the minimum retirement age. Our simulation shows that increasing the minimum age for state pension entitlement to 70 would only delay the retirement by less than 2 years according to the individual based model. When we consider the intra-household bargaining and the higher preference of leisure found in the dual career households, the effect of postponing retirement further declines. The result suggests barely postponing the minimum retirement age for state pension without redefining the occupation and private pension rules will only have limited impact for household retirement behaviour in Ireland.
{"title":"Retirement Choice Simulation in Household Settings with Heterogeneous Pension Plans","authors":"Jinjing Li, C. O’Donoghue","doi":"10.2139/ssrn.1906169","DOIUrl":"https://doi.org/10.2139/ssrn.1906169","url":null,"abstract":"This paper estimates a structured life cycle model of family retirement decision using a unique historical dataset back simulated from Living in Ireland survey. Our model takes the advantages of the dataset and models retirement decisions in terms of monetary and leisure incentives, which reflect the complex welfare system in Ireland. The household extension version of the model adapts a collective modelling approach, where the intra-household bargaining is considered. We further incorporate complimentary leisure, which allows us to analyse the interactions of spouses' retirement timing. This methodology enables us to capture the dynamics of retirement and tax-benefit policies and can be used to simulate the effect of policy reform on household retirement behaviours. The paper, in addition, applies the model to assess individual budgetary implications and the labour market impact of rising the minimum retirement age. Our simulation shows that increasing the minimum age for state pension entitlement to 70 would only delay the retirement by less than 2 years according to the individual based model. When we consider the intra-household bargaining and the higher preference of leisure found in the dual career households, the effect of postponing retirement further declines. The result suggests barely postponing the minimum retirement age for state pension without redefining the occupation and private pension rules will only have limited impact for household retirement behaviour in Ireland.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"51 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-08-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123643700","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
H. Bateman, C. Ebling, J. Louviere, S. Satchell, S. Thorp, John Geweke
This research studies the propensity of individuals to violate implications of expected utility maximization in allocating retirement savings within a compulsory defined contribution retirement plan. The paper develops the implications and describes the construction and administration of a discrete choice experiment to almost 1200 members of Australia's mandatory retirement savings scheme. The experiment finds overall rates of violation of roughly 25%, and substantial variation in rates, depending on the presentation of investment risk and the characteristics of the participants. Presentations based on frequency of returns below or above a threshold generate more violations than do presentations based on the probability of returns below or above thresholds. Individuals with low numeracy skills, assessed as part of the experiment, are several times more likely to violate implications of the conventional expected utility model than those with high numeracy skills. Older individuals are substantially less likely to violate these restrictions, when risk is presented in terms of event frequency, than are younger individuals. The results pose significant questions for public policy, in particular compulsory defined contribution retirement schemes, where the future welfare of participants in these schemes depends on quantitative decision-making skills that a significant number of them do not possess.
{"title":"Economic Rationality, Risk Presentation, and Retirement Portfolio Choice","authors":"H. Bateman, C. Ebling, J. Louviere, S. Satchell, S. Thorp, John Geweke","doi":"10.2139/ssrn.1776525","DOIUrl":"https://doi.org/10.2139/ssrn.1776525","url":null,"abstract":"This research studies the propensity of individuals to violate implications of expected utility maximization in allocating retirement savings within a compulsory defined contribution retirement plan. The paper develops the implications and describes the construction and administration of a discrete choice experiment to almost 1200 members of Australia's mandatory retirement savings scheme. The experiment finds overall rates of violation of roughly 25%, and substantial variation in rates, depending on the presentation of investment risk and the characteristics of the participants. Presentations based on frequency of returns below or above a threshold generate more violations than do presentations based on the probability of returns below or above thresholds. Individuals with low numeracy skills, assessed as part of the experiment, are several times more likely to violate implications of the conventional expected utility model than those with high numeracy skills. Older individuals are substantially less likely to violate these restrictions, when risk is presented in terms of event frequency, than are younger individuals. The results pose significant questions for public policy, in particular compulsory defined contribution retirement schemes, where the future welfare of participants in these schemes depends on quantitative decision-making skills that a significant number of them do not possess.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-12-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123706148","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A number of studies have explored the empirical relevance of the Engel's law by using household budget surveys in developed and developing countries. This article presents an empirical evidence on the applicability of the Engel's law in Tanzania. The analysis is based on a micro-survey data of peasant households in Northern Tanzania. Both statistical and econometric analyses demonstrate that household size and income significantly and positively determine expenditure on food and some other consumption items, depending on the area of the study. The age of the household is established to have no significant influence on expenditure on food, but only on other consumption items investigated. The study has also established that education has no significant influence on any expenditure items of the sampled households.
{"title":"Life-Cycle Hypothesis of Savings: Empirical Evidence from Rural Households in Tanzania","authors":"M. Ndanshau","doi":"10.2139/ssrn.3274593","DOIUrl":"https://doi.org/10.2139/ssrn.3274593","url":null,"abstract":"A number of studies have explored the empirical relevance of the Engel's law by using household budget surveys in developed and developing countries. This article presents an empirical evidence on the applicability of the Engel's law in Tanzania. The analysis is based on a micro-survey data of peasant households in Northern Tanzania. Both statistical and econometric analyses demonstrate that household size and income significantly and positively determine expenditure on food and some other consumption items, depending on the area of the study. The age of the household is established to have no significant influence on expenditure on food, but only on other consumption items investigated. The study has also established that education has no significant influence on any expenditure items of the sampled households.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131487941","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Der Einfluß Der Zinsen Auf Den Privaten Verbrauch in Deutschland","authors":"H. Hansen","doi":"10.2139/ssrn.2785780","DOIUrl":"https://doi.org/10.2139/ssrn.2785780","url":null,"abstract":"No abstract available.","PeriodicalId":151802,"journal":{"name":"ERN: Life Cycle Models (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129968565","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：