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What is an adequate standard of living during retirement?

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  • Johannes Binswanger
  • Daniel Schunk

    ()
    (Munich Center for the Economics of Aging (MEA))

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 what this standard should be, despite the fact that it is crucial for the design of saving incentives and pension reforms. We address this question with a survey, individually tailored to each respondent’s financial situation, conducted both in the U.S. and the Netherlands. Key findings are that adequate levels of retirement spending exceed 70 percent of working life spending, and minimum acceptable replacement rates depend strongly on income. Key words: Life cycle preferences, pension reform, replacement rates, retirement saving.

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Bibliographic Info

Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 08171.

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Date of creation: 11 Nov 2008
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Handle: RePEc:mea:meawpa:08171

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  1. B. Douglas Bernheim, 2000. "How Much Should Americans Be Saving for Retirement?," American Economic Review, American Economic Association, vol. 90(2), pages 288-292, May.
  2. Kapteyn, Arie & Federica Teppa, 2002. "Hypothetical Intertemporal Consumption Choices," Royal Economic Society Annual Conference 2002 111, Royal Economic Society.
  3. Donkers, A.C.D. & Melenberg, B. & Soest, A.H.O. van, 1999. "Estimating Risk Attitudes Using Lotteries; A Large Sample Approach," Discussion Paper 1999-12, Tilburg University, Center for Economic Research.
  4. Jonathan Skinner, 2007. "Are You Sure You're Saving Enough for Retirement?," NBER Working Papers 12981, National Bureau of Economic Research, Inc.
  5. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C., 2008. "How are preferences revealed?," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1787-1794, August.
  6. Maarten van Rooij & Annamaria Lusardi & Rob Alessi, 2007. "Financial literacy and stock market participation," DNB Working Papers 146, Netherlands Central Bank, Research Department.
  7. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2006. "The Importance of Default Options for Retirement Savings Outcomes: Evidence from the United States," NBER Working Papers 12009, National Bureau of Economic Research, Inc.
  8. James Banks & Richard Blundell & Sarah Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
  9. Lusardi, Annamaria & Mitchell, Olivia S., 2006. "Baby boomer retirement security: The roles of planning, financial literacy, and Housing wealth," CFS Working Paper Series 2006/20, Center for Financial Studies (CFS).
  10. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  11. Binswanger, Johannes, 2007. "Risk management of pensions from the perspective of loss aversion," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 641-667, April.
  12. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
  13. James Poterba & Joshua Rauh & Steven Venti & David Wise, 2003. "Utility Evaluation of Risk in Retirement Saving Accounts," NBER Working Papers 9892, National Bureau of Economic Research, Inc.
  14. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc.
  15. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
  16. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
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Cited by:
  1. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob J. M., 2011. "Financial literacy, retirement planning, and household wealth," CFS Working Paper Series 2011/21, Center for Financial Studies (CFS).
  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 Group Munich.
  3. Thomas Crossley & Jochem de Bresser & Liam Delaney & Joachim Winter, 2014. "Can survey participation alter household saving behavior?," IFS Working Papers W14/06, Institute for Fiscal Studies.
  4. 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.

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