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Liquidity in Retirement Savings Systems: An International Comparison

Author

Listed:
  • Beshears, John

    (Harvard University)

  • Choi, James J.

    (Yale University)

  • Hurwitz, Joshua

    (National Bureau of Economic Research)

  • Laibson, David

    (Harvard University)

  • Madrian, Brigitte C.

    (Harvard University)

Abstract

What is the socially optimal level of liquidity in a retirement savings system? Liquid retirement savings are desirable because liquidity enables agents to flexibly respond to pre-retirement events that raise the marginal utility of consumption. On the other hand, pre-retirement liquidity is undesirable when it leads to under-saving arising from, for example, planning mistakes or selfcontrol problems. This paper compares the liquidity that six developed economies have built into their employer-based defined contribution (DC) retirement savings systems. We find that all of them, with the sole exception of the United States, have made their DC systems overwhelmingly illiquid before age 55.

Suggested Citation

  • Beshears, John & Choi, James J. & Hurwitz, Joshua & Laibson, David & Madrian, Brigitte C., 2015. "Liquidity in Retirement Savings Systems: An International Comparison," Working Paper Series rwp15-024, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp15-024
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    Cited by:

    1. Torben M. Andersen & Joydeep Bhattacharya, 2021. "Why mandate young borrowers to contribute to their retirement accounts?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(1), pages 115-149, February.
    2. Sumit Agarwal & Jessica Pan & Wenlan Qian, 2020. "Age of Decision: Pension Savings Withdrawal and Consumption and Debt Response," Management Science, INFORMS, vol. 66(1), pages 43-69, January.
    3. John Beshears & James J. Choi & Christopher Clayton & Christopher Harris & David Laibson & Brigitte C. Madrian, 2020. "Optimal Illiquidity," NBER Working Papers 27459, National Bureau of Economic Research, Inc.
    4. Lu Yang & Yuhuang Zheng & Rui Chen, 2021. "Who has a cushion? The interactive effect of social exclusion and gender on fixed savings," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(4), pages 1398-1415, December.
    5. Cristian Badarinza & John Y. Campbell & Tarun Ramadorai, 2016. "International Comparative Household Finance," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 111-144, October.
    6. Chowdhury, Shyamal & Smits, Joeri & Sun, Qigang, 2020. "Contract structure, time preference, and technology adoption," GLO Discussion Paper Series 633, Global Labor Organization (GLO).
    7. John Beshears & James J. Choi & Christopher Harris & David Laibson & Brigitte C. Madrian & Jung Sakong, 2015. "Self Control and Commitment: Can Decreasing the Liquidity of a Savings Account Increase Deposits?," NBER Working Papers 21474, National Bureau of Economic Research, Inc.
    8. Mahmoudi, Samir Elsadek, 2023. "Late-career unemployment shocks, pension outcomes and unemployment insurance," Journal of Public Economics, Elsevier, vol. 218(C).
    9. Seonghoon Kim & Kanghyock Koh, 2020. "Does Early Access To Pension Wealth Improve Health?," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1783-1794, October.
    10. Beshears, John & Kosowsky, Harry, 2020. "Nudging: Progress to date and future directions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 161(S), pages 3-19.
    11. Wang-Ly, Nathan & Newell, Ben R., 2022. "Allowing early access to retirement savings: Lessons from Australia," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 716-733.
    12. Goda, Gopi Shah & Jones, Damon & Ramnath, Shanthi, 2022. "Temporary and permanent effects of withdrawal penalties on retirement savings accounts✩," Journal of Public Economics, Elsevier, vol. 215(C).
    13. Axelle Arquié, 2023. "Fire Sales and Bank Runs in the Presence of a Saving Allocation by Depositors," Working Papers 2023-09, CEPII research center.
    14. Andersen, Torben M. & Bhattacharya, Joydeep & Liu, Pan, 2023. "Commitment and partial naïveté: Early withdrawal penalties on retirement accounts," Journal of Mathematical Economics, Elsevier, vol. 106(C).
    15. Bateman, Hazel & Dobrescu, Loretti I. & Liu, Junhao & Newell, Ben R. & Thorp, Susan, 2023. "Determinants of early-access to retirement savings: Lessons from the COVID-19 pandemic," The Journal of the Economics of Ageing, Elsevier, vol. 24(C).
    16. Chowdhury, Shyamal & Smits, Joeri & Sun, Qigang, 2020. "Contract Structure, Time Preference, and Technology Adoption," IZA Discussion Papers 13590, Institute of Labor Economics (IZA).
    17. Teresa Ghilarducci & Siavash Radpour & Anthony Webb, 2018. "New Evidence on the Effect of Economic Shocks on Retirement Plan Withdrawals," SCEPA working paper series. 2018-03, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    18. Beshears, John & Choi, James J. & Harris, Christopher & Laibson, David & Madrian, Brigitte C. & Sakong, Jung, 2020. "Which early withdrawal penalty attracts the most deposits to a commitment savings account?," Journal of Public Economics, Elsevier, vol. 183(C).
    19. Kucuk, Merve & Ulubasoglu, Mehmet & Vu, Ha, 2024. "Stormy Futures? The Impact of Climatic Shocks on Retirement Savings," MPRA Paper 121241, University Library of Munich, Germany.
    20. Sumit Agarwal, 2015. "Age of Decision: Pension Savings Withdrawal and Consumption and Debt Response," 2015 Meeting Papers 709, Society for Economic Dynamics.
    21. Garcia Huitron, Manuel & Ponds, Eduard, 2016. "Participation and Choice in Funded Pension Plans : Guidance for the Netherlands from Worldwide Diversity," Other publications TiSEM 5351a381-f866-4566-82d8-9, Tilburg University, School of Economics and Management.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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