Deferred Income Annuity Purchases: Optimal Levels for Retirement Income Adequacy

2019 ◽  
Author(s):  
Jack VanDerhei
Keyword(s):  
Retirement Income ◽  
Income Adequacy

scholarly journals HOW ACCURATELY DOES 70% FINAL EMPLOYMENT EARNINGS REPLACEMENT MEASURE RETIREMENT INCOME (IN)ADEQUACY? INTRODUCING THE LIVING STANDARDS REPLACEMENT RATE (LSRR)

2016 ◽  
Vol 46 (3) ◽  
pp. 627-676 ◽  
Author(s):  
Bonnie-Jeanne MacDonald ◽  
Lars Osberg ◽  
Kevin D. Moore
Keyword(s):  
Living Standards ◽  
Living Standard ◽  
Retirement Income ◽  
Home Equity ◽  
Replacement Rate ◽  
Policy Makers ◽  
Income Adequacy ◽  
Rate Measure ◽  
The Right ◽  
Dynamic Population

AbstractWill 70% of a worker's final annual employment earnings sustain living standards after retirement? Despite increasing skepticism, the most dominant measure of retirement income adequacy by financial planners, pensions plan advisors, academics and public policy makers is the “final employment earnings replacement rate”, where 70% is considered the right target to ensure living standards remain at approximately the same level after retirement. Using Statistics Canada's LifePaths dynamic population micro-simulation model, this paper asks whether those individuals from the 1951–1958 Canadian birth cohort who attain roughly a 70% final employment earnings replacement rate (as conventionally measured) at retirement do, in fact, achieve approximate continuity in their living standards. We find that the conventional final earnings replacement rate measure has little predictive value for living standards continuity between working-life and retirement. The primary reason is that employment earnings in a single year is not a reliable representation of a worker's standard of living — it relies on an inadequate pre-retirement measurement period, does not incorporate important components of consumption sources (such as home equity), and ignores household size (particularly children). As a result, we find that the correlation between the conventional earnings replacement rate and actual living standards continuity is relatively low (0.11). The paper therefore suggests an alternative metric for assessing how well a worker's living standard is maintained after retirement — i.e., the Living Standards Replacement Rate, or the LSRR. The LSRR provides a more accurate, understandable and consistent measure of retirement income adequacy.

Perceptions of Retirement Adequacy: Evidence From South Africa

2018 ◽  
Vol 29 (2) ◽  
pp. 343-356 ◽  
Author(s):  
Michelle Reyers
Keyword(s):  
Financial Risk ◽  
Time Perspective ◽  
Future Time Perspective ◽  
Risk Tolerance ◽  
Financial Behavior ◽  
Retirement Income ◽  
Retirement Savings ◽  
Savings Behavior ◽  
South Africans ◽  
Income Adequacy

Concerns regarding the adequacy of retirement savings have contributed to the move to encourage better savings behavior. One area of research focuses on understanding the profile of individuals who believe they are preparing adequately for retirement. The current study uses data from a national survey of South Africans to determine how confident workers are about their future retirement income adequacy, and whether behavioral characteristics play a role in their perception of retirement readiness. This study highlights the role that behavioral factors play in perceptions of retirement income adequacy in an African developing market context. In particular, financial risk tolerance, future time perspective, good financial behavior, and self-assessed financial knowledge are all found to be positively related to respondents’ retirement confidence.

scholarly journals How Much Should the Poor Save for Retirement? Data and Simulations on Retirement Income Adequacy among Low-earning Households

2020 ◽  
pp. 167-183
Author(s):  
Andrew G. Biggs
Keyword(s):  
Social Security ◽  
Low Income ◽  
Retirement Income ◽  
Retirement Savings ◽  
Lower Income ◽  
Income Adequacy ◽  
Retirement Saving ◽  
Investment Returns ◽  
Explicit Analysis ◽  
Social Security Benefits

A number of US states have introduced automatic enrollment retirement accounts as a means to raise retirement savings for lower-income households. The presumption is that such households, whose rates of formal retirement saving are low, would benefit from higher saving and higher incomes in retirement. Nevertheless, there has been little explicit analysis of how much lower-income households should save in excess of their social security contributions. There is also little evidence that many current lower-income retirees are unable to maintain their pre-retirement standards of living. To study this issue, this chapter builds a simple model of retirement saving, allowing for the inclusion of social security benefits, different standards of retirement income adequacy, and different assumptions regarding pre- and post-retirement investment returns. Interestingly, low-income retirees express less satisfaction with the adequacy of their retirement incomes than other retirees, but their self-assessed retirement income adequacy has actually increased in recent years. The chapter also shows that, for very low earners, little savings are necessary on top of social security payments.

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