Jan 01, 2008
Download This research paper posits, calibrates, and simulates a life cycle model with earnings, lifespan, investment return, and future policy uncertainty. It then measures the excess burden from delayed resolution of policy uncertainty. The first uncertain policy researchers consider concerns the level of future Social Security benefits. Specifically, researchers examine how an age-25 agent would respond to learning at an early age whether she will experience a major Social Security benefit cut starting at age 65. This paper shows that having to wait to learn materially affects consumption, saving, and portfolio decisions.