Article thumbnail

The Impact of Individual Investment Behavior for Retirement Welfare: Evidence from the United States and Germany

By Thomas Post, Helmut Gründl, Joan Schmit and Anja Zimmer


Much of the industrialized world is undergoing a significant demographic shift, placing strain on public pension systems. Policymakers are responding with pension system reforms that put more weight on privately managed retirement funds. One concern with these changes is the effect on individual welfare if individuals invest suboptimally. Using micro-level data from the United States and Germany, we compare the optimal expected lifetime utility computed using a realistically calibrated model with the actual utility as reflected in empirical asset allocation choices. Through this analysis, we are able to identify the population subgroups with relatively large welfare losses. Our results should be helpful to public policymakers in designing programs to improve the performance of privately organized retirement systems.Asset Allocation, Retirement Welfare, Pension Reform

OAI identifier:

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.

Suggested articles


  1. (2006). 25 The power of default options—the tendency that pension plan members stick to predefined asset allocations—is demonstrated in Beshears et al.
  2. (2007). and Inflation
  3. (2006). Are Americans Saving “Optimally” for Retirement?,
  4. (1997). Are Women Conservative Investors? Gender Differences in Participant-Directed Pension Investments,
  5. (2005). Borrowing Costs and the Demand for Equity over the Life Cycle,
  6. (1997). Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis,
  7. (2006). Defined Contribution Plans, Defined Benefit Plans, and the Accumulation of Retirement Wealth,
  8. (1958). Estimation of Relationships for Limited Dependent Variables,
  9. (2003). Federal Ministry of Health and Social Affairs (2005), Old-age Pension Schemes in Germany
  10. (2006). Federal Statistical Office
  11. Federal Statistical Office (2003), Germany’s population by 2050: Results of the 10th coordinated population projection, Wiesbaden: Federal Statistical Office.
  12. (2007). Federal Statistical Office (2007), Statistical Yearbook
  13. (2007). Gender Differences in Risk Aversion and Expected Retirement Benefits,
  14. (1999). Gender differences in risk taking: A meta-analysis,
  15. (2002). Gender Wage Differences in West Germany: A Cohort Analysis,
  16. (2007). Hedging House Price Risk: Portfolio Choice with Housing Futures, working paper, Available at SSRN:
  17. (2006). Household Finance,
  18. (2002). Household Portfolios
  19. (2002). Household Portfolios in the United States,
  20. (2002). Household Portfolios,
  21. (2007). Housing Price Volatility and Downsizing in Later Life, NBER Working Paper No. 13496,
  22. (2004). How do Household Portfolios Vary with Age, mimeo,
  23. (2003). How Marriage Matters to Pension Investment Decisions,
  24. (2005). Individual Risk Attitudes: New Evidence from a Large, Representative Experimentally-Validated Survey,
  25. (2007). Learning Your Earning: Are Labor Income Shocks Really Very Persistent?,
  26. (2006). Life-Cycle Asset Allocation with Annuity Markets: Is Longevity Insurance a Good Deal?, working paper, Johann Wolfgang Goethe-Universität Frankfurt am Main.
  27. (2007). Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk, The Review of Financial Studies,
  28. (1969). Lifetime Portfolio Selection By Dynamic Stochastic Programming,
  29. (1969). Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case,
  30. (1975). Multivariate Risk Aversion, Utility Independence and Separable Utility Functions,
  31. (2004). Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing,
  32. (2005). Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints,
  33. (1989). Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence, The Quarterly
  34. (1970). Optimal Investment and Consumption Strategies Under Risk for a Class of Utility Functions,
  35. (1969). Optimal Investment and Consumption Strategies Under Risk, an Uncertain Lifetime,
  36. (2005). Optimal life-cycle asset allocation: understanding the empirical evidence,
  37. (1968). Optimal Multiperiod Portfolio Policies,
  38. (2001). Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income,
  39. (1971). Optimum Consumption and Portfolio Rules in a ContinuousTime Model,
  40. (2005). Options, Futures, and Other Derivatives (Upper Saddle River:
  41. (2006). Portfolio and Retirement Management: What is the Best Arrangement for a Family?, Financial Markets and Portfolio
  42. (2003). Portfolio Choice and Liquidity Constraints,
  43. (2003). Portfolio Choice and Trading in a Large 401 (k)
  44. (2005). Portfolio Choice in the Presence of Housing, The Review of
  45. (1997). Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study,
  46. (2001). Private Pensions, Mortality Risk and the Decision to Annuitize,
  47. (2004). Retirement Income Insurance: A Do-It-Yourself Approach, working paper, available at SSRN:
  48. (1997). Risk aversion and Pension Investment Choices,
  49. (2007). Risk-return preferences in the pension domain: Are people able to choose?,
  50. Samwick (2001), Household Portfolio Allocation over the Life-Cycle, in: Seiritsu Ogura, Toshiaki Tachibanaki,
  51. (1991). Saving and Liquidity Constraints,
  52. (1998). Self-Control and Saving for Retirement, Brookings Papers on Economic Activity,
  53. (2006). Social Security Administration
  54. (2007). Social Security and Retirement Income Adequacy, Social Security Brief No. 25 (Washington D.C.: National Academy of Social Insurance).
  55. (2002). Strategic Asset Allocation: Portfolio Choice for Long-Term Investors (Oxford:
  56. (2003). Survey measures of risk aversion and prudence,
  57. (1962). The Accumulation of Risky Capital: A Sequential Utility Analysis,
  58. (1992). The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence, Brookings Papers on Economic Activity,
  59. (2001). The Economics of Risk and Time, Cambridge (MA) et al.:
  60. (2003). The estimation of male earnings under panel attrition. A cross country comparison based on the European Community 24 See footnote 3.
  61. (1981). The Family as an Incomplete Annuities Market,
  62. (2004). The German Public Pension System: How it Was, How it Will Be, NBER Working Paper No. 10525,
  63. (2006). The Importance of Default Options for Retirement Saving Outcomes: Evidence from the United States, NBER Working Paper No. 12009,
  64. (1994). The Importance of Precautionary Motives for Explaining Individual and Aggregate Saving,
  65. (2004). Theoretical Foundations of Buffer Stock Saving, NBER Working Paper No. 10867,
  66. (2006). United States Life Tables,
  67. (2000). Women and Pensions: A Decade of Progress?,
  68. (2007). World Population Ageing