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The Economics of Bequests in Pensions and Social Security

The Economics of Bequests in Pensions and Social Security

Chapter:
(p.371) 9 The Economics of Bequests in Pensions and Social Security
Source:
The Distributional Aspects of Social Security and Social Security Reform
Author(s):
Martin FeldsteinElena Ranguelova
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226241890.003.0010

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

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