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How Accurate are Expected Retirement Savings?

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Author Info
Steven Haider (Michigan State University)
Mel StephensJr. (Carnegie Mellon University and NBER)

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Abstract

This paper examines the ability of workers nearing retirement to report their expected retirement savings, where retirement savings refers to funds held in savings, checking, and investment-type accounts. Responding to such a question is likely to be difficult, even for those who are near retirement, because it requires respondents to assess when they will retire, their likely income stream between the survey date and retirement, and what portfolio choices will be made at retirement. Based on two nationally representative surveys collected two decades apart, we find that most individuals provide some response to the question, particularly when they are allowed to provide a range. Moreover, the responses that are given have substantial predictive power for actual retirement savings, even when compared to the savings in the initial wave. Despite this predictive power, there is evidence that responses do not satisfy the more stringent requirements of the rational expectations hypothesis.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp128.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp128.

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Length: 39 pages
Date of creation: Sep 2006
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Handle: RePEc:mrr:papers:wp128

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  1. Steven Haider & Melvin Stephens Jr., 2004. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," NBER Working Papers 10257, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Kathryn Anderson & Richard V. Burkhauser & Joseph F. Quinn, 1986. "Do retirement dreams come true? The effect of unanticipated events on retirement plans," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 39(4), pages 518-526, July.
  3. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," Econometrics 9411003, EconWPA. [Downloadable!]
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  4. Susann Rohwedder & Arthur van Soest, 2006. "The Impact of Misperceptions about Social Security on Saving and Well-being," Working Papers wp118, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  5. V. Kerry Smith & Donald H. Taylor Jr. & Frank A. Sloan, 2001. "Longevity Expectations and Death: Can People Predict Their Own Demise?," American Economic Review, American Economic Association, vol. 91(4), pages 1126-1134, September. [Downloadable!] (restricted)
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  6. Michael D. Hurd & Kathleen McGarry, 2002. "The Predictive Validity of Subjective Probabilities of Survival," Economic Journal, Royal Economic Society, vol. 112(482), pages 966-985, October. [Downloadable!] (restricted)
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  7. Richard Disney & Sarah Tanner, 1999. "What can we learn from retirement expectations data?," IFS Working Papers W99/17, Institute for Fiscal Studies. [Downloadable!]
  8. Lee Lillard & Robert J. Willis, 2001. "Cognition and Wealth: The Importance of Probabilistic Thinking," Working Papers wp007, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  9. Nicole Maestas, 2004. "Back to Work: Expectations and Realizations of Work After Retirement," Working Papers wp085, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  10. Sewin Chan & Ann Huff Stevens, 2003. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision Making," NBER Working Papers 10185, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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