Measuring Adequacy of Retirement Savings

44 Pages Posted: 1 Apr 2014

See all articles by John Burnett

John Burnett

Willis Towers Watson

Kevin Thomas Davis

University of Melbourne - Department of Finance; Australian Centre for Financial Studies

Carsten Murawski

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Roger Wilkins

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Nicholas Wilkinson

Willis Towers Watson

Date Written: March 1, 2014

Abstract

This article introduces four metrics quantifying the adequacy of retirement savings taking into account all major sources of retirement income. The metrics are applied to a representative sample of the Australian population aged 40 and above. Employers in Australia currently make compulsory contributions of 9.25 percent of wages and salaries to tax-advantaged defined-contribution employee retirement savings accounts. Our analysis reveals that compulsory retirement savings, even when supplemented by the means-tested government pension and private wealth accumulation, are not in general sufficient to fund a comfortable lifestyle during retirement. We further find that omitting one or more 'pillars' of saving will significantly bias estimates of retirement savings adequacy. Our analysis also points to several shortcomings of the widely-used income replacement ratio as an indicator of savings adequacy.

Keywords: Retirement savings, financial literacy, life-cycle consumption and savings, household finance

JEL Classification: D14, D91, P46

Suggested Citation

Burnett, John and Davis, Kevin Thomas and Murawski, Carsten and Wilkins, Roger and Wilkinson, Nicholas, Measuring Adequacy of Retirement Savings (March 1, 2014). Melbourne Institute Working Paper No. 5/14, Available at SSRN: https://ssrn.com/abstract=2418729 or http://dx.doi.org/10.2139/ssrn.2418729

John Burnett

Willis Towers Watson ( email )

Level 14, 60 Margaret Street
Sydney, NSW 2000
Australia

Kevin Thomas Davis

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010 3010
Australia
+613 8344 5098 (Phone)
+613 8344 6914 (Fax)

Australian Centre for Financial Studies ( email )

Level 46, 525 Collins St
Melbourne, Victoria 3079
Australia

Carsten Murawski

University of Melbourne - Department of Finance ( email )

Brain, Mind & Markets Lab
Parkville, Victoria 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Roger Wilkins (Contact Author)

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Nicholas Wilkinson

Willis Towers Watson ( email )

Level 14, 60 Margaret Street
Sydney, 2000
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
201
Abstract Views
1,433
rank
168,766
PlumX Metrics