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What is an adequate standard of living during Retirement?

  • BINSWANGER, JOHANNES
  • SCHUNK, DANIEL

Many economists and policy-makers argue that households do not save enough to maintain an adequate standard of living during retirement. However, there is no consensus on the answer to the underlying question about what this standard should be, despite the fact that it is crucial for the design of saving incentives and pension systems. We address this question with a randomized survey design, individually tailored to each respondent's financial situation, and conducted both in the U.S. and The Netherlands. We find that adequate levels of retirement spending exceed 80% of working life spending for a majority of respondents. Minimum acceptable income replacement rates range from 95 to 45% across income quintiles in the U.S., and from 75 to 60% across income quintiles in The Netherlands. The smaller range in The Netherlands may in part reflect the much tighter income distribution there.

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Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

Volume (Year): 11 (2012)
Issue (Month): 02 (April)
Pages: 203-222

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Handle: RePEc:cup:jpenef:v:11:y:2012:i:02:p:203-222_00
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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  1. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc.
  2. Binswanger, Johannes, 2007. "Risk management of pensions from the perspective of loss aversion," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 641-667, April.
  3. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "The importance of default options for retirement saving outcomes: evidence from the United States," CeRP Working Papers 43, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  4. James Banks & Richard Blundell & Sarah Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
  5. Jonathan Skinner, 2007. "Are You Sure You're Saving Enough for Retirement?," NBER Working Papers 12981, National Bureau of Economic Research, Inc.
  6. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," CeRP Working Papers 54, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  7. Maarten van Rooij & Clemens Kool & Henri�tte Prast, 2005. "Risk-return preferences in the pension domain: are people able to choose?," DNB Working Papers 025, Netherlands Central Bank, Research Department.
  8. Mark Aguiar & Erik Hurst, 2005. "Lifecycle Prices and Production," NBER Working Papers 11601, National Bureau of Economic Research, Inc.
  9. repec:ner:tilbur:urn:nbn:nl:ui:12-381463 is not listed on IDEAS
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