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Economic Preparation for Retirement

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  • Michael D. Hurd
  • Susann Rohwedder

Abstract

We define and estimate measures of economic preparation for retirement based on a complete inventory of economic resources while taking into account the risk of living to advanced old age and the risk of high out-of-pocket spending for health care services. We ask whether, in a sample of 66–69 year-olds, observed economic resources could support with high probability a life-cycle consumption path anchored at the initial level of consumption until the end of life. We account for taxes, widowing, differential mortality and out-of-pocket health spending risk. We find that 71% of persons in our target age group are adequately prepared according to our definitions, but there is substantial variation by observable characteristics: 80% of married persons are adequately prepared compared with just 55% of single persons. We estimate that a reduction in Social Security benefits of 30 percent would reduce the fraction adequately prepared by 7.8 percentage points among married persons and by as much as 10.7 percentage points among single persons.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17203.

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Date of creation: Jul 2011
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Publication status: published as Economic Preparation for Retirement , Michael D. Hurd, Susann Rohwedder. in Investigations in the Economics of Aging , Wise. 2012
Handle: RePEc:nbr:nberwo:17203

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  1. Michael D. Hurd & Susann Rohwedder, 2009. "The Level and Risk of Out-of-Pocket Health Care Spending," Working Papers wp218, University of Michigan, Michigan Retirement Research Center.
  2. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  3. Michael D. Hurd & Susann Rohwedder, 2011. "Economic Preparation for Retirement," NBER Chapters, in: Investigations in the Economics of Aging, pages 77-113 National Bureau of Economic Research, Inc.
  4. Michael D. Hurd & Susann Rohwedder, 2013. "Wealth Dynamics and Active Saving at Older Ages," NBER Chapters, in: Improving the Measurement of Consumer Expenditures National Bureau of Economic Research, Inc.
  5. David A. Wise, 2004. "Introduction to "Perspectives on the Economics of Aging"," NBER Chapters, in: Perspectives on the Economics of Aging, pages 1-16 National Bureau of Economic Research, Inc.
  6. Michael D. Hurd & Susann Rohwedder, 2008. "The Adequacy of Economic Resources in Retirement," Working Papers wp184, University of Michigan, Michigan Retirement Research Center.
  7. Peter Adams & Michael D. Hurd & Daniel L. McFadden & Angela Merrill & Tiago Ribeiro, 2004. "Healthy, Wealthy, and Wise? Tests for Direct Causal Paths between Health and Socioeconomic Status," NBER Chapters, in: Perspectives on the Economics of Aging, pages 415-526 National Bureau of Economic Research, Inc.
  8. Michael Hurd & Susann Rohwedder, 2008. "Methodological Innovations in Collecting Spending Data: The HRS Consumption and Activities Mail Survey," Working Papers 646, RAND Corporation Publications Department.
  9. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
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Cited by:
  1. Michael D. Hurd & Susann Rohwedder, 2011. "Economic Preparation for Retirement," NBER Chapters, in: Investigations in the Economics of Aging, pages 77-113 National Bureau of Economic Research, Inc.

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