Measuring the Adequacy of Retirement Savings

28 Pages Posted: 16 Nov 2018

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 of Applied Economic and Social Research

Nicholas Wilkinson

Willis Towers Watson

Date Written: December 2018

Abstract

This paper introduces four metrics for quantifying the adequacy of retirement savings, taking into account all major sources of retirement income. We then apply them to projections of expected future retirement income streams of a representative sample of the Australian population aged 40 and above. We find that omitting one or more pillars of savings significantly biases estimates of retirement savings adequacy. We also find that the four metrics are only weakly correlated with key commonly used indicators of financial well‐being, in particular current income and net worth. 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

Suggested Citation

Burnett, John and Davis, Kevin Thomas and Murawski, Carsten and Wilkins, Roger and Wilkinson, Nicholas, Measuring the Adequacy of Retirement Savings (December 2018). Review of Income and Wealth, Vol. 64, Issue 4, pp. 900-927, 2018. Available at SSRN: https://ssrn.com/abstract=3285388 or http://dx.doi.org/10.1111/roiw.12307

John Burnett (Contact Author)

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

University of Melbourne - Melbourne Institute of Applied Economic and 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

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