Rising income and wealth inequality across the developed world has prompted a renewed focus on the mechanisms driving inequality. This paper contributes to the existing literature by studying the impact from life-cycle savings, intergenerational transfers, and fertility differences between the rich and the poor on the wealth distribution. We find that bequests increase the level of wealth inequality and that fertility differences between the rich and the poor amplify this relationship. The counterfactual exercises show that the interaction between bequests and differential fertility is quantitatively important for understanding wealth inequality in the United States.

Strengthening climate resilience requires farmers to select climate adaptation strategies like weather index insurance. Acknowledging that decision-making is not isolated, this study explores simultaneous peer imitation in climate adaptation choices consisting of index insurance, savings, and their interaction. We present results from a lab-in-the-field experiment that introduces innovative index insurance. Findings indicate significant and strong imitation attitudes. While the bigger peer surrounding seems relevant in the static perspective, the closer surrounding gains importance in the dynamic perspective. Additionally, credit, trust, and practical understanding stimulate adoption. Community-based extension interventions and credit-bundled products may increase index insurance diffusion and improve climate resilience.

Few retirees use reverse mortgages. In this paper, we investigate how financial literacy and prior knowledge of the product influence take-up by conducting a stated-preference experiment. We exogenously manipulate characteristics of reverse mortgages to tease out how consumers value them and investigate differences by financial literacy and prior knowledge of reverse mortgages. We find that those with higher financial knowledge are more likely to know about reverse mortgages, not more likely to purchase them at any cost but are more sensitive to the interest rate and the insurance value of these products in terms of the non-negative equity guarantee.

People do not save enough for retirement and this can have serious repercussions on their well-being. We tested an intervention in a large field study (N = 20,507) with the goal of nudging a population of freelance workers to save more for the future. First, we changed the default from the earlier contribution rate of 10% to a contribution rate of 20%, but left people free to choose how much they wanted to contribute. Second, those who reduced their contribution were reminded that they would receive a lower pension as a result. Third, we informed people about how much tax they would save as a result of their contribution. This nudging intervention proved to be a cost-effective, yet powerful way to remind people about the long-term implications of their savings decisions. It was also successful at counteracting the temptation to keep as much money as possible for present consumption while losing out on the long run. Overall, we were able to increase cash flow to the fund by more than eight million Euros (in addition to the roughly 50 million collected in the previous year), with an almost seven-fold increase in the number of people who chose to contribute more than the minimum.

The body of literature on the relationship between risk aversion and wealth is extensive. However, little attention has been given to examining how future realizations of wealth might affect (current) risk decisions. Using paired lottery choice experiments and exposing subjects experimentally to imagined future wealth frames, I find that individuals are more risk-seeking if they are asked to imagine that they will be wealthy in the future. Yet I find that individuals are not significantly more risk-averse if they are asked to imagine that they will be poor in the future. I discuss theoretical and policy implications of these findings, including why savings rates are so low in the United States.

This study assesses the effect of tax withholding on pre-retirement withdrawals from a tax-preferred savings account in Canada. Using a large sample of administrative tax records and exploiting inter-provincial variation in tax withholding rates over time in the identification, the withdrawal elasticity to the net-of-tax withholding rate is estimated to be approximately 0.40 for many prime-aged savers. Hence, tax withholding discourages pre-retirement savings withdrawals and serves as a de facto savings commitment device. This finding is not well-explained by rational agency, and theories of present-biased time preferences and fiscal illusion are shown to be a better explanation of such behavior.

Despite the large and growing returns to deferring Social Security benefits, most individuals claim Social Security before the full retirement age. In this paper, we use a panel of administrative tax data on individuals likely to financially benefit from delaying Social Security claiming to explore the relationship between Social Security claiming and distributions from tax-advantaged retirement savings accounts. We find that the majority of our sample claim Social Security prior to taking distributions from Individual Retirement Accounts (IRAs). We also find that a third of our sample have IRA balances equivalent to at least two additional years of Social Security benefits, and a quarter have IRA balances equivalent to at least 4 years of Social Security benefits. We complement our analysis with data from the Health and Retirement Study and find that these percentages are considerably higher when other financial assets are taken into account.

This study considers adult mortality and analyzes the effect of public health investment on economic development, whereby investment increases savings but decreases fertility through a decrease in adult mortality. As the labor force increases, investment temporarily decreases capital per unit of labor. However, the decrease in fertility increases capital per unit of labor in subsequent periods. By considering these two opposing effects of decreasing fertility, we clarify the conditions required for investment to improve economic development via increasing savings and decreasing fertility. We examine panel estimation and present some weak evidence for our model.

This paper studies the role of taxation and bequest motives in households’ demand for life insurance. We develop a stylized three-period life cycle model of life insurance demand and test its predictions regarding tax changes and bequests motives. An unexpected halving of the tax exemption limit for interest and dividend income in Germany allows us to identify the impact of changes in taxation on the demand for life insurance in a difference-in-differences setting. In line with our theoretical predictions, we document that ownership of life insurance products increased significantly among households affected by the reform. We also find some evidence of a more pronounced response among households with stronger bequest motives.

The Dutch pension system is highly ranked on adequacy. These rankings, however, are based on fictitious replacement rates for median income earners. This paper investigates whether the Dutch pension adequacy is still high when we take into account the resources that people really accumulate, using a large administrative data set. A comprehensive approach is followed: not only public and private pension rights, but also private savings and housing wealth are taken into account. Summed over all age- and socioeconomic groups we find a median gross replacement rate of 83% and a net replacement rate of 101%. At retirement age, 31% of all households face a gross replacement rate that is lower than 70% of current income. Public and occupational pensions each account for more than 35% of total pension annuities. Private non-housing assets account for 14% and imputed rental income from net housing wealth accounts for about 10%. Some vulnerable groups, such as the self-employed, have below average replacement rates. Results are fairly similar to results found in the UK, indicating that we should be careful in evaluating the adequacy of pensions systems on the basis of fictitious replacement rates.

We use an overlapping-generations model with endogenous retirement and saving to study the trade-off between saving and retirement age in response to mortality decline. When life expectancy increases by one year, people delay retirement by about four months. With this magnitude of delay in retirement age, the percentage of lifetime spent in working decreases, and people have to save more for postretirement years. Neither the pure form of sole adjustment through savings nor the proportionality hypothesis is consistent with our results, but the proportionality hypothesis is a better rule of thumb in predicting future behavior. Our choice of the modified Boucekkine et al. (2002) survival function gives a convenient one-to-one correspondence between life expectancy increase and a change in the survival parameter.

This paper analyzes the process of decision-making on consumption in a two-period consumption setting, assuming the return on savings is uncertain in the sense of Knight [Risk, Uncertainty, and Profit. Boston: Houghton Mifflin (1921)]. The results imply that a naïve strategy to save zero is optimal for a continuum of income values. Under the Permanent Income Hypothesis, consumption equals current income only when current income is equal to permanent income. Indeed Campbell and Mankiw [in Olivier Blanchard and Stanley Fischer (eds.), NBER Macroeconomics Annual, pp. 185–214. Cambridge, MA: MIT Press (1989)] assumed that consumers who spend their total income are only following a simple rule of thumb. However, the naïve strategy obtained casts doubt on their interpretation.

The main aim of this paper is to decompose the effects of social security on private savings and quantify to what extent each factor that impacts saving behavior account for the effects of social security. For this purpose, I estimate a stochastic dynamic model in which households facing income and survival uncertainty choose optimal levels of consumption, asset holdings and labor supply. In this model, social security pensions reduce private assets by less than 10%. Bequest and precautionary savings motives are the main reasons of this partial offset. Uncertainty on future benefits has no role to play on the effect.

Social security pension schemes around the world are facing a number of problems, of which demographic ageing is the most commonly discussed. This paper provides an overview of expected future demographic developments in European Union and some other OECD countries, and evaluates some of the range of solutions which have been, or are being, considered to address this and other problems facing social security in the late 1990s, drawing on examples from OECD countries, from Latin America and from central and eastern Europe. Consideration is given to the possibilities for increasing the level of funding in social security pension schemes or developing funded complementary pension schemes.

This paper considers the variety of social security and complementary pension scheme arrangements which have developed in different countries, and examines some recent trends in pension reforms, designed to address the problem of the ageing population and other structural shortcomings in existing structures.