Retirement savings guidelines for residents of emerging market countries
AbstractMost literature about retirement planning treats the working (accumulation) and retirement (decumulation) phases separately. The traditional approach decides on safe withdrawal rate, uses it to derive a wealth accumulation target, and then calculates the savings rate required to achieve this wealth target. Because low sustainable withdrawal rates tend to occur after bull markets, such a formulation will push individuals toward unnecessarily high savings rates to attain their desired retirement spending goals, reducing their feasible lifestyle prior to retirement. By jointly considering both phases of retirement planning, this study provides savings rate guidelines for individuals in 25 emerging market countries. The savings rates calculated here are those which provide an adequate success rate in financing desired retirement expenditures using bootstrapped Monte Carlo simulations. For many emerging market countries, these savings rates will be high, given the high volatility of returns for savings instruments and the inflationary environment. Starting to save early and using a relatively low stock allocation, a finding that contrasts with studies about the United States, provide the lowest necessary savings rate for a given probability of success.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 31682.
Date of creation: 17 Jun 2011
Date of revision:
safe withdrawal rates; retirement planning; savings and wealth accumulation targets; asset allocations; emerging market countries;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-06-25 (Economics of Ageing)
- NEP-ALL-2011-06-25 (All new papers)
- NEP-CMP-2011-06-25 (Computational Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wade D. Pfau, 2010. "An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule?," GRIPS Discussion Papers 10-12, National Graduate Institute for Policy Studies, revised Oct 2010.
- Pfau, Wade Donald, 2011. "Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle," MPRA Paper 28796, University Library of Munich, Germany.
- Bob Baldwin, 2008. "The Shift from DB to DC Coverage: A Reflection on the Issues," Canadian Public Policy, University of Toronto Press, vol. 34(s1), pages 29-38, November.
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