Optimal savings with taxable and tax-deferred accounts
Journal
Review of Economic Dynamics
Subject
Finance
Publishing details
Authors / Editors
Gomes F;Michaelides A;Polkovnichenko V
Biographies
Publication Year
2009
Abstract
We solve and estimate a life-cycle model with earnings risk and liquidity constraints in the presence of tax-deferred retirement accounts (TDAs). We explicitly consider two very different types of households (with TDAs): direct and indirect stockholders. The latter hold stocks only through TDAs and, consistent with the data, save considerably less than the former, who hold stocks both inside and outside these accounts. We find that TDAs promote higher wealth accumulation but only marginally higher net savings. Consumption increases mostly during retirement, as desired, but the effect is largest for those households with higher savings rates already.
Keywords
Tax-deferred accounts; Retirement savings; Liquidity constraints; Portfolio choice; Uninsurable earnings risk
Publication Research Centre
Institute of Finance and Accounting
Available on ECCH
No