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What Replacement Rates Should Households Use?

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Author Info

  • John Karl Scholz

    (Institute for Research on Poverty, NBER and University of Wisconsin–Madison)

  • Ananth Seshadri

    (University of Wisconsin–Madison)

Abstract

Common financial planning advice calls for households to ensure that retirement income exceeds 70 percent of average pre-retirement income. We use an augmented life-cycle model of household behavior to examine optimal replacement rates for a representative set of retired American households. We relate optimal replacement rates to observable household characteristics and in doing so, make progress in developing a set of theory-based, but readily understandable financial guidelines. Our work should be a useful building block for efforts to assess the adequacy of retirement wealth preparation and efforts to promote financial literacy and well-being.

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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp214.

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Length: 38 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:mrr:papers:wp214

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  1. How much to save for retirement
    by Economic Logician in Economic Logic on 2010-01-08 16:45:00

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