Year: 2020
Type: article
Study design: Observational Study
Abstract: Using a lifecycle model of consumption, saving and portfolio choice combined with linked survey and administrative data on wealth and lifetime earnings we evaluate measures of retirement preparedness. We estimate heterogeneous discount factors for households and compare these estimates of their patience to their replacement rates—the simple measure often used to evaluate the adequacy of retirement savings. We find first that the specification of the model's asset structure matters quantitatively for preference parameter estimates—households appear to be much more patient when they are assumed to have access only to a risk‐free asset compared to when we account for the fact that much of their wealth is stored in higher‐return tax‐advantaged private pensions and in housing. Second, we find that only the most patient households achieve the replacement rates out offinalearnings that are often recommended by policymakers and industry as sensible benchmarks for retirement preparedness. Notwithstanding this, we find that even quite impatient households in the population we study achieve high replacement rates out of lifetimeaverageincome—a more sensible summary measure of preparedness for retirement.
Source: Quantitative Economics
DOI: 10.2139/ssrn.3595198
Authors: Rowena Crawford, Cormac O’Dea
Institutions: Institute for Fiscal Studies, Yale University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: diamond
Awards: G1202771974, G1763030414, Centre for the Microeconomic Analysis of Public Policy, Programme Evaluation for Policy Analysis, Inequality and the insurance value of transfers across the life cycle, G5392852981, The adequacy and optimality of retirement provision: household behaviour and the design of pensions, G8219231320, G8436254704
OpenAlex ID: W3022285015