Measuring Retirement Resource Adequacy
Author | : Peter J. Brady |
Publisher | : |
Total Pages | : 36 |
Release | : 2008 |
ISBN-10 | : OCLC:1290304374 |
ISBN-13 | : |
Rating | : 4/5 (74 Downloads) |
Book excerpt: To maintain their standard of living in retirement, it is often assumed that individuals need to save enough to replace 75 percent to 80 percent of their final pay. This paper develops a replacement rate measure that better corresponds to a replacement of consumption by properly accounting for savings, taxes, and owner-occupied housing. Savings and investment behavior judged by standard analysis to be inadequate is shown to result in high real consumption in retirement relative to pre-retirement consumption. For example, the simulated savings and investment behavior of single individuals in this study results in retirement income of about 60 percent of final earnings, well below the typical adequacy threshold of 75 to 80 percent. However, this corresponds to replacing about 90 percent of pre-retirement consumption for renters and over 100 percent for homeowners who have paid off their mortgage.