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What Replacement Rates Should Households Use?

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  • John Karl Scholz

    (Institute for Research on Poverty, NBER and University of Wisconsin–Madison)

  • Ananth Seshadri

    (University of Wisconsin–Madison)

Abstract

Common financial planning advice calls for households to ensure that retirement income exceeds 70 percent of average pre-retirement income. We use an augmented life-cycle model of household behavior to examine optimal replacement rates for a representative set of retired American households. We relate optimal replacement rates to observable household characteristics and in doing so, make progress in developing a set of theory-based, but readily understandable financial guidelines. Our work should be a useful building block for efforts to assess the adequacy of retirement wealth preparation and efforts to promote financial literacy and well-being.

Suggested Citation

  • John Karl Scholz & Ananth Seshadri, 2009. "What Replacement Rates Should Households Use?," Working Papers wp214, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp214
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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp214.pdf
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How much to save for retirement
      by Economic Logician in Economic Logic on 2010-01-08 22:45:00

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    Cited by:

    1. Kluth, Sebastian & Gasche, Martin, 2013. "Ersatzraten in der Gesetzlichen Rentenversicherung," MEA discussion paper series 201311, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    2. John Laitner & Daniel Silverman & Dmitriy Stolyarov, 2014. "Annuitized Wealth and Post-Retirement Saving," NBER Working Papers 20547, National Bureau of Economic Research, Inc.

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