Risky pensions and household saving over the life cycle

Risky pensions and household saving over the life cycle

Risky pensions and household saving over the life cycle

Love

David A.

Love, David A.

Author

Author

Smith

Paul A.

Smith, Paul A.

Author

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College20082008monographic

Chestnut Hill, Mass.

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

2008

2008

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

Recent defined benefit (DB) pension freezes in large healthy firms such as Verizon and IBM, as well as terminations of plans in the struggling steel and airline industries, highlight the fact that these traditional pensions cannot be viewed as risk-free promises from the employee's perspective. In this paper we develop an empirical dynamic programming framework to investigate household saving decisions in a model economy with risky DB pensions. The model incorporates important sources of uncertainty facing households, including asset returns, employment, income, and mortality, as well as pension freezes. Applying a compensating variation measure of welfare, we find that pension freezes reduce welfare by a maximum of about $6,000 for individuals with a high school degree and about $2,000 for individuals with a college degree.

David A. Love and Paul A. Smith.

CRR WP2008-19

CRR WP2008-19

CRR WP

2008-19

http://crr.bc.edu/images/stories/2008-19.pdf

MChBEnglisheng

MChB

Englisheng

English

eng