Impact of the COVID-19 Pandemic on Retirement Income Adequacy: Evidence From EBRI’s Retirement Security Projection Model®

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.

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UNDERSTANDING ESTIMATES OF RETIREMENT INCOME ADEQUACY

The Gerontologist ◽

10.1093/geront/gnv429.01 ◽

2015 ◽

Vol 55 (Suppl_2) ◽

pp. 794-794

Keyword(s):

Retirement Income ◽

Income Adequacy

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Perceptions of Retirement Adequacy: Evidence From South Africa

Journal of Financial Counseling and Planning ◽

10.1891/1052-3073.29.2.343 ◽

2018 ◽

Vol 29 (2) ◽

pp. 343-356 ◽

Cited By ~ 5

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.

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Enhancing Retirement Security Through the Tax Code: The Efficacy of Tax-Based Subsidies in Life Annuity Markets

Journal of Pension Economics and Finance ◽

10.1017/s1474747209003990 ◽

2009 ◽

Vol 9 (2) ◽

pp. 185-218 ◽

Cited By ~ 3

Author(s):

WILLIAM M. GENTRY ◽

CASEY G. ROTHSCHILD

Keyword(s):

Secular Trend ◽

Tax Credits ◽

Retirement Income ◽

Monetary Incentives ◽

Defined Contribution ◽

Life Annuity ◽

Retirement Security ◽

Programming Techniques ◽

Annuity Markets ◽

The Government

AbstractThe under-development of existing annuity markets coupled with the secular trend away from traditional pensions towards defined contribution accounts in the U.S. raises significant concerns about the adequacy of retirement income for future retirees. We develop dynamic programming techniques to evaluate the efficacy of policies designed to address this concern by encouraging annuitization. Our analysis suggests that policies providing monetary incentives through the tax code can indeed significantly enhance annuitization among retirees: our central estimates suggest that tax-exemption based policies which have been recently proposed in Congress have the potential to increase annuitization by as much as $50,000 for each retired household, at a relatively modest revenue cost to the government. Similar sized policies based instead on refundable tax credits may be more desirable from both efficiency and distributional perspectives.

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Challenges and Opportunities of Living and Working Longer

10.1093/oso/9780198827443.003.0007 ◽

2018 ◽

Author(s):

Joseph F. Quinn ◽

Kevin E. Cahill

Keyword(s):

Interest Rates ◽

Retirement Income ◽

Older Individuals ◽

Older Americans ◽

Income Security ◽

Retirement Security ◽

Security Challenges ◽

Challenges And Opportunities ◽

Labor Resources ◽

Retirement Income Security

This chapter describes the challenges and opportunities that older Americans face, with a focus on retirement income security and the role of continued work later in life. We first overview the new world of retirement income security including a discussion of how a low return environment (e.g. low interest rates) exacerbates existing retirement income security challenges. We then document how older people have responded to the evolving retirement income landscape, especially when and how they exit the labor force, and we explore how continued work later in life can help mitigate some of the anticipated retirement security challenges. We then pose some important outstanding questions. The implications of societal aging depend in large part on how we harness or squander the labor resources of older individuals.

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