How Will Persistent Low Expected Returns Shape Household Economic Behavior?
Many believe that global capital markets will generate lower returns in the future versus the past. We examine how persistently lower real returns will reshape work, retirement, saving, and investment behavior of older persons using a calibrated dynamic life cycle model. In a low return regime, workers build up less wealth in their tax-qualified 401(k) accounts versus the past, claim social security benefits later, and work more. Moreover, the better-educated are more sensitive to real interest rate changes, and the least-educated alter their behavior less. Interestingly, wealth inequality is lower in periods of persistent low expected returns.
Published Versions
How Will Persistent Low Expected Returns Shape Household Economic Behavior?, Vanya Horneff, Raimond Maurer, Olivia S. Mitchell. in Incentives and Limitations of Employment Policies on Retirement Transitions, Clark and Newhouse. 2019
Vanya Horneff & Raimond Maurer & Olivia S. Mitchell, 2019. "How will persistent low expected returns shape household economic behavior?," Journal of Pension Economics and Finance, vol 18(04), pages 612-622. citation courtesy of 
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