(UM02-06) - A Structural Model of the Family that Jointly Explains Retirement and Saving Behavior, with Analyses of the Effects of Current and Proposed Social Security Policies In A Family Context
Alan L. Gustman and Thomas L. Steinmeier
We use this model to simulate the retirement effects of a system of personal accounts based on a 10.6 percent contribution rate over the lifetime. One version allows individuals to make lump sum withdrawals at retirement instead of annuitizing. This program would increase the retirement rates of husbands at age 62 by about 15 percentage points compared to the current system. Adding a lump sum option, by itself, would increase retirements at 62 by about 6 percentage points. According to estimates available from current retirement models, introducing personal accounts as a substitute for the current Social Security system with its actuarially fair formula should have a small effect on retirement outcomes, reflecting the income effect from higher returns. In contrast, we find that in the long run a complete substitution of personal individual accounts for the current benefit formula would have major effects on retirement. Similarly, allowing lump sum payouts of returns to individual accounts instead of mandatory annuitization would also have major effects on retirement.