The Impact of Individual Investment Behavior for Retirement Welfare:
Evidence from the United States and Germany
Thomas Post, Helmut Gründl, Joan T. Schmit, and Anja Zimmer -
This draft: May-05-2008
Abstract Much of the industrialized world is undergoing a significant
demographic shift, placing strain on public pension systems. Policymakers are
responding with pension system reforms that put more weight on privately managed
retirement funds. One concern with these changes is the effect on individual welfare
if individuals invest suboptimally. Using micro-level data from the United States and
Germany, we compare the optimal expected lifetime utility computed using a
realistically calibrated model with the actual utility as reflected in empirical asset
allocation choices. Through this analysis, we are able to identify the population
subgroups with relatively large welfare losses. Our results should be helpful to public
policymakers in designing programs to improve the performance of privately
organized retirement systems.
Keywords Asset Allocation, Retirement Welfare, Pension Reform
JEL-Classification D14, D91, G11, G28, I31
Helmut Gründl, Thomas Post (contact author), and Anja Zimmer are with the Humboldt-
Universitat zu Berlin, Dr. Wolfgang Schieren Chair for Insurance and Risk Management,
sponsored by Allianz SE and Stifterverband für die Deutsche Wissenschaft, phone: +49-
30-2093-9922; fax: +49-30-2093-5616; e-mail: [email protected]. Joan T. Schmit
is the American Family Insurance Chair in Risk Management and Insurance at the
University of Wisconsin-Madison, School of Business.