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What is an Adequate Standard of Living during Retirement?

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  • Johannes Binswanger
  • Daniel Schunk

Abstract

Many economists and policy-makers argue that households do not save enough to maintain an adequate standard of living during retirement. However, there is no consensus on the answer to the underlying question about what this standard should be, despite the fact that it is crucial for the design of saving incentives and pension systems. We address this question with a randomized survey design, individually tailored to each respondent’s financial situation, and conducted both in the U.S. and the Netherlands. Key findings include the following. Adequate levels of retirement spending exceed 80 percent of working life spending for a majority of respondents. Minimum acceptable replacement rates depend strongly on income. Households in the Netherlands are much more risk averse than U.S. households.

Suggested Citation

  • Johannes Binswanger & Daniel Schunk, 2009. "What is an Adequate Standard of Living during Retirement?," CESifo Working Paper Series 2893, CESifo.
    • Handle: RePEc:ces:ceswps:_2893
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    Cited by:

    1. Christian Dudel & Notburga Ott & Martin Werding, 2016. "Maintaining one’s living standard at old age: What does that mean?," Empirical Economics, Springer, vol. 51(3), pages 1261-1279, November.
    2. Christian Dudel & Notburga Ott & Martin Werding, 2013. "Maintaining One's Living Standard at Old Age: What Does that Mean? Evidence Using Panel Data from Germany," CESifo Working Paper Series 4223, CESifo.
    3. Rowena Crawford & Cormac O'Dea, 2014. "Retirement sorted? The adequacy and optimality of wealth among the near-retired," IFS Working Papers W14/23, Institute for Fiscal Studies.
    4. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
    5. Thomas F. Crossley & Jochem Bresser & Liam Delaney & Joachim Winter, 2017. "Can Survey Participation Alter Household Saving Behaviour?," Economic Journal, Royal Economic Society, vol. 127(606), pages 2332-2357, November.
    6. Kluth, Sebastian, 2014. "Should I Stay or Should I Go? The Role of Actuarial Reduction Rates in Individual Retirement Planning in Germany," MEA discussion paper series 201409, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    7. van Rooij, Maarten C.J. & Lusardi, Annamaria & Alessie, Rob J.M., 2011. "Financial literacy and retirement planning in the Netherlands," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 593-608, August.
    8. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
    9. Zhou, Y., 2014. "Essays on habit formation and inflation hedging," Other publications TiSEM 4886da12-1b84-4fd9-aa07-3, Tilburg University, School of Economics and Management.
    10. Binswanger, Johannes & Carman, Katherine Grace, 2012. "How real people make long-term decisions: The case of retirement preparation," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 39-60.
    11. Christian Dudel & Julian Schmied, 2019. "Pension adequacy standards: an empirical estimation strategy and results for the United States and Germany," MPIDR Working Papers WP-2019-003, Max Planck Institute for Demographic Research, Rostock, Germany.
    12. Meritxell Solé & Guadalupe Souto & Concepció Patxot, 2019. "Sustainability and Adequacy of the Spanish Pension System after the 2013 Reform: A Microsimulation Analysis," Hacienda Pública Española / Review of Public Economics, IEF, vol. 228(1), pages 109-150, March.
    13. Kluth, Sebastian, 2014. "Should I Stay or Should I Go? The Role of Actuarial Reduction Rates in Individual Retirement Planning in Germany," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100413, Verein für Socialpolitik / German Economic Association.
    14. Lokshin,Michael M. & Ravallion,Martin, 2021. "Would Mexican Migrants be Willing to Guarantee Americans a Basic Income ?," Policy Research Working Paper Series 9708, The World Bank.
    15. Congressional Budget Office, 2017. "Measuring the Adequacy of Retirement Income: A Primer," Reports 53191, Congressional Budget Office.
    16. van Rooij, Maarten C.J. & Lusardi, Annamaria & Alessie, Rob J.M., 2011. "Financial literacy and retirement planning in the Netherlands," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 593-608, August.
    17. Zarul Khaliff Kamal* & Siti Mardhiah Isa & Ros Idayuwati Alaudin & Noriszura Ismail, 2018. "Adequacy of Retirement Wealth in Malaysia: Spending Behaviour Analysis," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 429-435:6.
    18. Olckers, Matthew, 2021. "On track for retirement?," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 76-88.
    19. Bart Dees & Theo Nijman & Arthur Soest, 2023. "Stated Product Choices of Heterogeneous Agents are Largely Consistent with Standard Models," De Economist, Springer, vol. 171(3), pages 267-302, September.
    20. Jim Been & Michael Hurd & Susann Rohwedder, 2014. "Responses of Time-use to Shocks in Wealth during the Great Recession," Working Papers wp313, University of Michigan, Michigan Retirement Research Center.
    21. de Bresser, Jochem & Knoef, Marike, 2015. "Can the Dutch meet their own retirement expenditure goals?," Labour Economics, Elsevier, vol. 34(C), pages 100-117.
    22. Christian Dudel & Julian Schmied, 2023. "Pension benchmarks: empirical estimation and results for the United States and Germany," Fiscal Studies, John Wiley & Sons, vol. 44(2), pages 171-188, June.
    23. Alserda, G.A.G. & Steenbeek, O.W. & van der Lecq, S.G., 2017. "The Occurrence and Impact of Pension Fund Discontinuity," ERIM Report Series Research in Management ERS-2017-008-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

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    More about this item

    Keywords

    : life cycle preferences; pension reform; replacement rates; retirement saving; cross-country survey studies;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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