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Money-Back Guarantees in Individual Retirement Accounts: Are They Good Policy?

Author

Listed:
  • Vanya Horneff
  • Daniel Liebler
  • Raimond Maurer
  • Olivia S. Mitchell

Abstract

Pension products embedding guarantees have been adopted worldwide, including in the Pan-European Personal Pension Products (PEPP) recently launched in the European Union. Using an economic life cycle model where investors have access to stocks, bonds, and tax-qualified retirement accounts, we show that abandoning the guarantee could enhance old-age consumption for over 75% of retirees without harming pre-retirement consumption. Life cycle funds offer an alternative for capital preservation, but they would produce lower average payouts. Investors averse to equity losses accumulate only moderately more in guaranteed accounts, as these offer only limited protection against market crashes.

Suggested Citation

  • Vanya Horneff & Daniel Liebler & Raimond Maurer & Olivia S. Mitchell, 2019. "Money-Back Guarantees in Individual Retirement Accounts: Are They Good Policy?," NBER Working Papers 26406, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26406
    Note: AG LS
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    References listed on IDEAS

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    Cited by:

    1. Olivia S. Mitchell, 2020. "Building Better Retirement Systems in the Wake of the Global Pandemic," NBER Working Papers 27261, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G5 - Financial Economics - - Household Finance
    • G52 - Financial Economics - - Household Finance - - - Insurance

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