Subjective Survival Beliefs and Savings Decisions

Topic & Objectives

Quantitatively characterize biases between subjective survival beliefs and objective survival probabilities and the implications of these biases for savings behavior. Key Findings

Key Findings

Young people tend to underestimate their survival chances old people tend to overestimate them. This implies too little savings for retirement at young ages and asset decumulation at a too low speed at old age. 

Policy Implications

Conjecture: Optimal policy mix characterized by PAYG pension system and capital income taxes or, as an alternative, age dependent capital income taxes with negative capital income taxes (subsidies) in young age and positive taxes in old age.