36 Pages Posted: 23 Sep 2011
Date Written: June 21, 2011
The authors define and estimate measures of economic preparation for retirement based on a complete inventory of economic resources while taking into account the risk of living to advanced old age and the risk of high out-of-pocket spending for health care services. They ask whether, in a sample of 66-69 year-olds, observed economic resources could support with high probability a life-cycle consumption path anchored at the initial level of consumption until the end of life. They account for taxes, widowing, differential mortality and out-of-pocket health spending risk. They find that 71% of persons in their target age group are adequately prepared according to our definitions, but there is substantial variation by observable characteristics: 80% of married persons are adequately prepared compared with just 55% of single persons. They estimate that a reduction in Social Security benefits of 30 percent would reduce the fraction adequately prepared by 7.8 percentage points among married persons and by as much as 10.7 percentage points among single persons.
Keywords: saving adequacy, life-cycle consumption
JEL Classification: J14, J26, E21
Suggested Citation: Suggested Citation
Hurd, Michael D. and Rohwedder, Susann, Economic Preparation for Retirement (June 21, 2011). RAND Working Paper Series WR- 872. Available at SSRN: https://ssrn.com/abstract=1931775 or http://dx.doi.org/10.2139/ssrn.1931775
By Theo Kocken