Consideration of Retirement Income Stages in Planning for Retirement

Abstract

Previous retirement adequacy studies have ignored expected retirement income stages. Ignoring retirement income stages results in biased estimations of retirement adequacy. This study analyzes retirement income stage theoretically and then empirically. Based on the 1995 to 2007 Survey of Consumer Finances (SCF) datasets, about 73% of working households with the head and/or spouse/partner age 35-70 and working full-time will have more than one retirement income stage. When income stages are taken into account, the proportion of households with retirement adequacy ranges from 44% in 1995 to 58% in 2007. Ignoring retirement income stages results in adequacy proportions being 23 to 28 percentage points higher. Financial planners and researchers evaluating retirement adequacy should take retirement income stages into account.

Keywords: retirement adequacy, personal finance, labor force

JEL Classification: D14, D91, J14