Who is saving privately for retirement and how much? New evidence for Germany

Due to demographic change, the replacement rates of the German statutory pension scheme will decrease over the next decades. Voluntary savings for retirement will therefore increase in relevance as a method of maintaining one’s standard of living during retirement. This article examines the savings behavior for retirement on an individual level in Germany at the extensive as well as the intensive margin. First, the decision to save in general is analyzed, showing that the main determinants for saving are personal income and disposable household income. Furthermore, it is shown that migrants and individuals living in the Eastern part of Germany turn out to be less likely to have additional private savings. Second, the chosen gross saving rates are analyzed using a Tobit model, a log-normal hurdle model and a Type II Tobit model. The results suggest that the decision to save in general, as well as the saving rate, are independent of each other, leading to a loss of information if only a standard Tobit model is used. For example, higher personal income increases the probability to save for retirement, but decreases the resulting saving rate. Modeling both decisions separately thus, leads to a better understanding of the determinants of saving for old-age.