Lifetime Earnings, Social Security Benefits, and the Adequacy of Retirement Wealth Accumulation

Boston College, Center for Retirement Research Working Paper No. 2004-10

42 Pages Posted: 15 May 2004

See all articles by Eric M. Engen

Eric M. Engen

Federal Reserve Board

William G. Gale

Brookings Institution

Cori E. Uccello

American Academy of Actuaries

Date Written: April 2004

Abstract

This paper provides new evidence on the adequacy of household retirement saving. We depart from much previous research on the adequacy of saving in two key ways. First, our underlying simulation model of optimal wealth accumulation allows for precautionary saving against uncertain future earnings. Second, we employ data on lifetime earnings. Using data from the 1992 Health and Retirement Study, we find that households at the median of the empirical wealth-lifetime earnings distribution are saving as much or more as the underlying model suggests is optimal, and households at the high end of the wealth distribution are saving significantly more than the model indicates. But we also find significant undersaving among the lowest 25 percent of the population. We show that reductions in Social Security benefits could have significant deleterious effects on the adequacy of saving, especially among low-income households. We also show that, controlling for lifetime earnings, households with high current earnings tend to save far more adequately than other households.

Suggested Citation

Engen, Eric M. and Gale, William G. and Uccello, Cori E., Lifetime Earnings, Social Security Benefits, and the Adequacy of Retirement Wealth Accumulation (April 2004). Boston College, Center for Retirement Research Working Paper No. 2004-10. Available at SSRN: https://ssrn.com/abstract=546243 or http://dx.doi.org/10.2139/ssrn.546243

Eric M. Engen

Federal Reserve Board ( email )

20th St. and Constitution Ave., NW
Washington, DC 20551
United States

William G. Gale (Contact Author)

Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States
202-797-6148 (Phone)
202-797-6181 (Fax)

Cori E. Uccello

American Academy of Actuaries ( email )

1850 M Street, NW
Suite 300
Washington, DC 20036
United States

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