Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



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.


401(k) plan; saving; investment, Social Security claiming; retirement; tax consequences

JEL Code

G11, G22, D14, D91

Working Paper Number


Copyright/Permission Statement

Opinions and any errors are solely those of the authors and not of the institutions with which the authors are affiliated, or any individual cited. © 2018 Horneff, Maurer, and Mitchell


The authors are grateful for research support from the German Investment and Asset Management Association (BVI), the SAFE Research Center funded by the State of Hessen and the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania. We also thank the initiative High Performance Computing in Hessen for grating us computing time at the LOEWE-CSC and Lichtenberg Cluster. David Richardson and participants at the 2018 NBER workshop in Jackson Hole, Wyoming provided helpful comments



Date Posted: 06 February 2019