Liquidity in Retirement Savings Systems: An International Comparison
What is the socially optimal level of liquidity in a retirement savings system? Liquid retirement savings are desirable because liquidity enables agents to flexibly respond to preretirement events that raise the marginal utility of consumption. On the other hand, preretirement liquidity is undesirable when it leads to under-saving arising from, for example, planning mistakes or self-control problems. This paper compares the liquidity that six developed economies have built into their employer-based defined contribution (DC) retirement savings systems. We find that all of them, with the sole exception of the United States, have made their DC retirement assets overwhelmingly illiquid before age 55. This paper compares the liquidity that six developed economies have built into their employer-based defined contribution (DC) retirement savings systems. We find that all of them, with the sole exception of the United States, have made their DC systems largely illiquid before age 55.
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