TY - JOUR AU - Horneff, Vanya AU - Maurer, Raimond AU - Mitchell, Olivia S TI - How Will Persistent Low Expected Returns Shape Household Economic Behavior? JF - National Bureau of Economic Research Working Paper Series VL - No. 25133 PY - 2018 Y2 - October 2018 DO - 10.3386/w25133 UR - http://www.nber.org/papers/w25133 L1 - http://www.nber.org/papers/w25133.pdf N1 - Author contact info: Vanya Horneff Goethe University Frankfurt Finance Department Theodor-W. Adorno Platz 3 60323 Frankfurt Germany E-Mail: vhorneff@finance.uni-frankfurt.de Raimond Maurer Goethe University Frankfurt Finance Department Theodor-W. Adorno Platz 3 60323 Frankfurt am Main Germany E-Mail: maurer@finance.uni-frankfurt.de Olivia S. Mitchell University of Pennsylvania The Wharton School 3620 Locust Walk, St 3000 SH-DH Philadelphia, PA 19104-6302 Tel: 215-898-0424 E-Mail: mitchelo@wharton.upenn.edu M1 - published as Vanya Horneff, Raimond Maurer, Olivia S. Mitchell. "How Will Persistent Low Expected Returns Shape Household Economic Behavior?," in Robert L. Clark and Joseph P. Newhouse, organizers, "Incentives and Limitations of Employment Policies on Retirement Transitions" Cambridge University Press, Journal of Pension Economics and Finance, vol. 18, special issue 4 (2019) M3 - presented at "Incentives and Limitations of Employment Policies on Retirement Transitions", August 10-11, 2018 AB - 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. ER -