The central goal of this research is to analyze how public policies affect saving for retirement and the financial status of the elderly. A particular goal is to assess the effectiveness of tax-based incentives for private retirement saving. A related goal is to compare the effects of mandated retirement savings plans and incentive-based plans. To accomplish this long-term objective, the research as several specific aims: (1) to develop, specify, and solve a model of how forward-looking people save and spend their income and wealth over their lifetime when faced with the need to provide for retirement saving as well as the need to save as a precaution against uncertain income and mortality risk. The lifetime focus of the model is crucial because the financial status of the elderly is the cumulative result of decisions that occur over many years. Incorporation of uncertainty has important effects at all stages of the life-cycle, but particularly for the elderly, on how saving decisions are made, and hence on how government policies affect saving for retirement. (2) To complete the validation of the model by comparing microeconomic and aggregate saving and consumption patterns generated by the model to those that can be documented from empirical sources, such as the Health and Retirement Survey. (3) To use the model to predict the effects on (i) retirement saving, (ii) the financial status of the elderly, (iii) national saving and (iv) economic efficiency, of expansion of the Individual Retirement Accounts (IRAs) program. Further validation of the model can be provided by exploiting the empirical literature on IRAs. (4). To estimate the effects of other enacted or proposed tax-based incentives for private saving for retirement. Examples include 4O1(k) plans, or recently proposed variants of the IRA. (5) To analyze the effects of mandated saving plans. These include an expanded Social Security program; plans based on policies in other countries, which require people to save a certain amount of their income every year, to be consumed only for specified purposes or at specified ages; and reduced government budget deficits through increased taxation (6) To provide comparisons of the policy options and examine the importance of interactions among the policies.
