Saving Behavior and Wealth Accumulation in a Pure Life-Cycle Model with Income Uncertainty

Several models of economic behavior currently compete for an explanation of individual wealth accumulation and savings patterns. In this paper we focus in particular upon the role of income uncertainty, and the role played by a retirement period, during which time expected earnings are zero. We find that income uncertainty can alter savings patterns over the lifecycle significantly, with the greatest influence on the wealth of young individuals. However, its influence on the aggregate stock of wealth is less than earlier theoretical work indicates