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Measuring the Adequacy of Retirement Savings

Author

Listed:
  • John Burnett
  • Kevin Davis
  • Carsten Murawski
  • Roger Wilkins
  • Nicholas Wilkinson

Abstract

This paper introduces four metrics for quantifying the adequacy of retirement savings, taking into account all major sources of retirement income. We then apply them to projections of expected future retirement income streams of a representative sample of the Australian population aged 40 and above. We find that omitting one or more pillars of savings significantly biases estimates of retirement savings adequacy. We also find that the four metrics are only weakly correlated with key commonly used indicators of financial well‐being, in particular current income and net worth. Our analysis also points to several shortcomings of the widely used income replacement ratio as an indicator of savings adequacy.

Suggested Citation

  • John Burnett & Kevin Davis & Carsten Murawski & Roger Wilkins & Nicholas Wilkinson, 2018. "Measuring the Adequacy of Retirement Savings," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(4), pages 900-927, December.
    • Handle: RePEc:bla:revinw:v:64:y:2018:i:4:p:900-927
    DOI: 10.1111/roiw.12307
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    Cited by:

    1. Xiaobo Xu & Jiali Fang & Martin Young & Liping Zou, 2024. "The impact of post‐retirement financial market participation on retirement income sufficiency in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 903-939, March.
    2. Nicole Black & Anthony Harris & David W. Johnston & Trong-Anh Trinh, 2026. "Portfolio Composition and Financial Security in Retirement," Papers 2026-01, Centre for Health Economics, Monash University.
    3. Hu, Zihao & Zhang, Dong & Xiong, Xueping, 2025. "Motivation, cognition, and capacity: How income risk shapes retirement saving in an aging society," International Review of Economics & Finance, Elsevier, vol. 102(C).
    4. Adam Butt & M. Scott Donald & F. Douglas Foster & Susan Thorp & Geoffrey J. Warren & Tom Smith, 2017. "Design of MySuper default funds: influences and outcomes," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(1), pages 47-85, March.
    5. Piotr Bialowolski & Jing Jian Xiao & Dorota Weziak-Bialowolska, 2024. "Do All Savings Matter Equally? Saving Types and Emotional Well-Being Among Older Adults: Evidence from Panel Data," Journal of Family and Economic Issues, Springer, vol. 45(1), pages 88-105, March.
    6. Vieira, Kelmara Mendes & Rosenblum, Tamara Otilia Amaral & Matheis, Taiane Keila, 2022. "And tomorrow, how will it be? Developing a Financial Preparation for Retirement Scale (FPRS)," Journal of Behavioral and Experimental Finance, Elsevier, vol. 35(C).
    7. Wei-Ting Pan, 2016. "The Impact of Mandatory Savings on Life Cycle Consumption and Portfolio Choice," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 32, July-Dece.
    8. Xiaobo Xu & Martin Young & Liping Zou & Jiali Fang, 2023. "Retirement Income and Financial Market Participation in New Zealand," IJFS, MDPI, vol. 11(1), pages 1-23, January.
    9. Ishay Wolf & Smadar Levi, 2022. "Vague Pension Future: Empirical Evidence from the Israeli Radical Privatized Market," JRFM, MDPI, vol. 15(5), pages 1-15, April.
    10. Ivanov, Katerina & Tian, Weidong, 2024. "Optimal early retirement with target wealth," Journal of Economic Dynamics and Control, Elsevier, vol. 167(C).
    11. Holzmann, Robert & Ayuso, Mercedes & Alaminos, Estefanía & Bravo, Jorge Miguel, 2019. "Life Cycle Saving and Dissaving Revisited across Three-Tiered Income Groups: Starting Hypotheses, Refinement through Literature Review, and Ideas for Empirical Testing," IZA Discussion Papers 12655, IZA Network @ LISER.
    12. Roger Wilkins, 2021. "Economic Wellbeing," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(4), pages 469-481, December.
    13. Wei-Ting Pan, 2016. "The Impact of Mandatory Savings on Life Cycle Consumption and Portfolio Choice," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2016, January-A.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • P46 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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