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Is the Brazilian saving enough to retire?

Author

Listed:
  • Ricardo D. Brito

    (Insper)

  • Paulo T. P. Minari

    (Insper)

Abstract

This article answers the question: how much wealth should a Brazilian accumulate along time to sustain his (her) consumption during retirement? Using a life-cycle model, we simulate scenarios for different household incomes, family size, and life circumstances, to obtain the additional saving effort needed by future beneficiaries of the Regime Geral de Previdência Social (RGPS). Given the current high replacement rates, we show that more than 95% of the population needs no additional savings during their working age, because they will enjoy an increase in their “free” per capita income during retirement. In other words, surprisingly, a low voluntary saving rate is the right decision from the perspective of an average Brazilian that plans a smooth consumption, in the belief that current social security arrangements will persist. Were it not for the very high banking spread, it would be optimal for the average Brazilian to borrow in the working age to increase his (her) consumption level.

Suggested Citation

  • Ricardo D. Brito & Paulo T. P. Minari, 2015. "Is the Brazilian saving enough to retire?," Brazilian Review of Finance, Brazilian Society of Finance, vol. 13(1), pages 1-39.
    • Handle: RePEc:brf:journl:v:13:y:2015:i:1:p:1-39
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    Cited by:

    1. Ershov, М.А. & Grigoreva, E.V. & Habibullin, I.F. & Emelyanov, V.E. & Strekalina, D.M., 2016. "Prospects of bioethanol fuels E30 and E85 application in Russia and technical requirements for their quality," Renewable and Sustainable Energy Reviews, Elsevier, vol. 66(C), pages 228-232.
    2. Bayer, Benjamin, 2018. "Experience with auctions for wind power in Brazil," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P2), pages 2644-2658.
    3. Llanto, Gilberto M., 2016. "Risks, Shocks, Building Resilience: Philippines," Discussion Papers DP 2016-09, Philippine Institute for Development Studies.

    More about this item

    Keywords

    Life-Cycle Theory; Savings; Social Security;
    All these keywords.

    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
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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