Financing retirement consumption and bequests

This dissertation consists of three essays that evaluate possible vehicles for financing either retirement consumption or bequests. Chapter 1 compares the use of Roth and tax-deferred retirement accounts for retirement consumption with the use of taxable accounts. Previously, economists have often assumed that retirement savings should be done in a tax-deferred account. However, the advent of Roth-style tax-favored accounts and concerns about the tax implications of increasing retirement income through distributions from tax-deferred accounts warrant revisiting this question. I use data on married couples in the HRS and NBER's TAXSIM model to measure the probability of a household facing a higher tax rate at ages 62, 65, and 69 than the household faced at age 57. When the marginal tax rate is higher, the household could decrease their lifetime tax burden by choosing a Roth-style account over a tax-deferred account. I also measure the probability of facing a marginal tax rate that is sufficiently high that the household minimizes tax payments by using a taxable account rather than a tax-deferred account, when a Roth option is not available. I find that for distributions beginning at age 69, between 10 and 35% of households with taxable income at age 57 should prefer a Roth account to a tax-deferred account, but very few households prefer a taxable account. Chapter 2 models the tax-savings available through the use of tax-favored retirement accounts for bequests. Past research on tax-favored retirement accounts has focused on the incentives and effects of these accounts within the framework of the life-cycle model.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2009

Author dc:creator

• Bishop, Tonja Bowen

Advisor dc:contributor.advisor

• James M. Poterba.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/54642

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/54642