Working Paper: NBER ID: w25133
Authors: Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
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, and the least-educated alter their behavior less. Interestingly, wealth inequality is lower in periods of persistent low expected returns.
Keywords: household economic behavior; low expected returns; retirement saving; investment behavior
JEL Codes: D14; D91; G11; G22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Low expected returns (G19) | Reduced wealth accumulation in 401(k) accounts (G51) |
| Low expected returns (G19) | Delayed claiming of social security benefits (H55) |
| Low expected returns (G19) | Increased work effort (J29) |
| Low expected returns (G19) | Decrease in wealth inequality (D31) |
| Better-educated individuals (I24) | More sensitivity to changes in real interest rates (E43) |
| More sensitivity to changes in real interest rates (E43) | Reduce savings more than less-educated counterparts (D14) |