What Replacement Rates Should Households Use?
John Scholz () and
Ananth Seshadri ()
Working Papers from University of Michigan, Michigan Retirement Research Center
Common financial planning advice calls for households to ensure that retirement income exceeds 70 percent of average pre-retirement income. We use an augmented life-cycle model of household behavior to examine optimal replacement rates for a representative set of retired American households. We relate optimal replacement rates to observable household characteristics and in doing so, make progress in developing a set of theory-based, but readily understandable financial guidelines. Our work should be a useful building block for efforts to assess the adequacy of retirement wealth preparation and efforts to promote financial literacy and well-being.
Pages: 38 pages
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Persistent link: https://EconPapers.repec.org/RePEc:mrr:papers:wp214
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