Speaker: Raphael Schoenle is an Assistant Professor of Economics at Brandeis University. More »
Abstract: Subjective mortality beliefs influence individual discount rates, affecting savings rates pre- and post-retirement. New survey evidence indicates that the salience of cohort-specific causes-of death causes younger individuals to overestimate mortality, and elderly individuals to overestimate survival probabilities. These distorted mortality beliefs correlate with savings behavior, even controlling for cognitive and socioeconomic factors. We embed an estimated survival belief function into a canonical life-cycle model. Relative to a benchmark model using actuarial transition probabilities, the young under-save (31% lower retirement savings), and retirees draw down their assets more slowly (14% lower retirement consumption), reconciling contradictory savings puzzles at opposite ends of the life-cycle.
Last Updated: Oct 14, 2016