Jump to ContentJump to Main Navigation
Risk Aspects of Investment-Based Social Security Reform$
Users without a subscription are not able to see the full content.

John Y. Campbell and Martin Feldstein

Print publication date: 2000

Print ISBN-13: 9780226092553

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226092560.001.0001

Show Summary Details
Page of

PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 28 September 2021

Investing Retirement Wealth

Investing Retirement Wealth

A Life-Cycle Model

(p.439) 11 Investing Retirement Wealth
Risk Aspects of Investment-Based Social Security Reform

John Y. Campbell

Joaõ F. Cocco

Francisco J. Gomes

Pascal J. Maenhout

University of Chicago Press

During the past few decades, U.S. households have begun to display increasing financial sophistication and awareness of rates of return on alternative investments. At the same time, the implicit rate of return on contributions to the social security system has declined as the system has matured, and this rate of return is projected to decline further in the twenty-first century in response to unfavorable demographic trends. This chapter examines the demand for financial assets by working investors by solving a calibrated life cycle model of consumption and portfolio choice with labor income uncertainty. Households are assumed to be constrained by restrictions on borrowing and short-selling risky assets. Heterogeneity across demographic groups appears to have important effects on optimal portfolios, suggesting the inadequacy of a “one-size-fits-all” social security system. In a benchmark case, the chapter shows a welfare gain equivalent to 3.7 percent of consumption from the investment of half of retirement wealth into equities, accompanied by a reduction in the social security tax rate to maintain the same average replacement rate of income in retirement.

Keywords:   retirement wealth, life cycle, households, social security, investments, consumption, labor income, optimal portfolios, welfare, equities

Chicago Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs, and if you can't find the answer there, please contact us.