Chapter

The Economics of Bequests in Pensions and Social Security

Martin Feldstein and Elena Ranguelova

in The Distributional Aspects of Social Security and Social Security Reform

Published by University of Chicago Press

Published in print June 2002 | ISBN: 9780226241067
Published online February 2013 | e-ISBN: 9780226241890 | DOI: http://dx.doi.org/10.7208/chicago/9780226241890.003.0010
The Economics of Bequests in Pensions and Social Security

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This chapter explores the potential magnitudes of the bequests that might result in an investment-based plan under different rules about bequests. It is assumed that the personal retirement account (PRA) balances are invested in a portfolio consisting of 60 percent stocks and 40 percent corporate bonds. Permitting preretirement bequests significantly reduce the risk to retirees and the possible increased risk can be fully offset by raising the PRA saving rate from 6 percent to 7 percent. An investment-based Social Security system in which the PRA deposits represent incremental saving raises the national saving rate. If the PRA saving rate is adjusted to stabilize the annuity levels, the net effects of bequests on asset accumulation would be positive. The size of the bequests and the impact on asset accumulation are proportional to the PRA saving rate.

Keywords: bequests; investment-based plan; personal retirement account; Social Security system; saving; asset accumulation

Chapter.  12742 words. 

Subjects: Public Economics

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