Personal Retirement Accounts and Saving

Published in: American Economic Journal: Economic Policy, v. 3, no. 4, Nov. 2011, p. 1-24

Posted on on November 01, 2011

by Emma Aguila

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Aging populations are leading countries worldwide to social security reforms. Many countries are moving from pay-as-you-go to personal retirement account (PRA) systems because of their financial sustainability and positive impact on private savings. PRA systems boost private savings at a macro level by converting a government liability into financial wealth managed by private fund managers. However, at a micro level, changes in retirement wealth affect individuals' saving and consumption patterns through their working lives. Retirement wealth increased for lower-income workers after Mexico introduced PRAs, crowding out saving, increasing consumption, and offsetting some of the PRA effect on private savings.

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