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How Accurate are Expected Retirement Savings?

Author

Listed:
  • Steven Haider

    (Michigan State University)

  • Mel StephensJr.

    (Carnegie Mellon University and NBER)

Abstract

This paper examines the ability of workers nearing retirement to report their expected retirement savings, where retirement savings refers to funds held in savings, checking, and investment-type accounts. Responding to such a question is likely to be difficult, even for those who are near retirement, because it requires respondents to assess when they will retire, their likely income stream between the survey date and retirement, and what portfolio choices will be made at retirement. Based on two nationally representative surveys collected two decades apart, we find that most individuals provide some response to the question, particularly when they are allowed to provide a range. Moreover, the responses that are given have substantial predictive power for actual retirement savings, even when compared to the savings in the initial wave. Despite this predictive power, there is evidence that responses do not satisfy the more stringent requirements of the rational expectations hypothesis.

Suggested Citation

  • Steven Haider & Mel StephensJr., 2006. "How Accurate are Expected Retirement Savings?," Working Papers wp128, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp128
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    File URL: http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp128.pdf
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    References listed on IDEAS

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    1. V. Kerry Smith & Donald H. Taylor & Frank A. Sloan, 2001. "Longevity Expectations and Death: Can People Predict Their Own Demise?," American Economic Review, American Economic Association, vol. 91(4), pages 1126-1134, September.
    2. Steven J. Haider & Melvin Stephens, 2007. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 247-264, May.
    3. J. Dominitz & C. F. Manski, "undated". "Using expectations data to study subjective income expectations," Institute for Research on Poverty Discussion Papers 1050-94, University of Wisconsin Institute for Research on Poverty.
    4. Michael D. Hurd & Kathleen McGarry, 2002. "The Predictive Validity of Subjective Probabilities of Survival," Economic Journal, Royal Economic Society, vol. 112(482), pages 966-985, October.
    5. Sewin Chan & Ann Huff Stevens, 2008. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision-Making," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 253-266, May.
    6. Richard Disney & Tanner, Tanner, 1999. "What can we learn from retirement expectations data?," IFS Working Papers W99/17, Institute for Fiscal Studies.
    7. Nicole Maestas, 2004. "Back to Work: Expectations and Realizations of Work After Retirement," Working Papers wp085, University of Michigan, Michigan Retirement Research Center.
    8. Kathryn H. Anderson & Richard V. Burkhauser & Joseph F. Quinn, 1986. "Do Retirement Dreams Come True? The Effect of Unanticipated Events on Retirement Plans," ILR Review, Cornell University, ILR School, vol. 39(4), pages 518-526, July.
    9. Michael D. Hurd & Kathleen McGarry, 1995. "Evaluation of the Subjective Probabilities of Survival in the Health and Retirement Study," Journal of Human Resources, University of Wisconsin Press, vol. 30, pages 268-292.
    10. Susann Rohwedder & Arthur van Soest, 2006. "The Impact of Misperceptions about Social Security on Saving and Well-being," Working Papers wp118, University of Michigan, Michigan Retirement Research Center.
    11. Nicole Maestas, 2004. "Back to Work Expectations and Realizations of Work after Retirement," Working Papers WR-196, RAND Corporation.
    12. Lee Lillard & Robert J. Willis, 2001. "Cognition and Wealth: The Importance of Probabilistic Thinking," Working Papers wp007, University of Michigan, Michigan Retirement Research Center.
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    Citations

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    Cited by:

    1. Pierre-Carl Michaud & Arthur vanSoest, 2006. "How Did the Elimination of the Earnings Test Above the Normal Retirement Age Affect Retirement Expectations?," Working Papers wp135, University of Michigan, Michigan Retirement Research Center.
    2. Bissonnette, L. & van Soest, A.H.O., 2010. "Retirement Expectations, Preferences, and Decisions," Other publications TiSEM 45e93b08-cc1d-47c6-ba06-d, Tilburg University, School of Economics and Management.

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