38 Pages Posted: 27 Nov 2009 Last revised: 3 Dec 2009
Date Written: September 1, 2009
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: Suggested Citation
Scholz, John Karl and Seshadri, Ananth, What Replacement Rates Should Households Use? (September 1, 2009). Michigan Retirement Research Center Research Paper No. 2009-214. Available at SSRN: https://ssrn.com/abstract=1513387 or http://dx.doi.org/10.2139/ssrn.1513387