Savings decisions under life-time and earnings uncertainty

Ralf Rodepeter () and Joachim Winter ()

No 98-58, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: We analyze a model of life-cycle savings decisions which allows for both life-time and income uncertainty. We then simulate life-cycle saving rates based on empirical income processes estimated from West German household data. Our main findings are, first, that allowing for mortality risk improves the life-cycle model's predictions slightly, and second, that simulated saving rates still fail to match their empirical counterparts. While our model correctly predicts differential peak saving rates during working life for three household types that face different income processes, it cannot explain an important salient feature of saving in Germany: Empirically, there is almost no post-retirement dissaving, while our life-cycle model predicts substantial dissaving even though we control for the generous German pension system which results in relatively high post-retirement income.

Pages: 25 pages
Date: 1998-11-01
New Economics Papers: this item is included in nep-mon
Note: Financial Support from Deutsche Forschungsgemeinschaft, SFB 504 at the University of Mannheim, is gratefully acknowledged.
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Citations: View citations in EconPapers (10)

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