Are Americans Saving "Optimally" for Retirement?

John Scholz, Ananth Seshadri and Surachai Khitatrakun

No 10260, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the degree to which Americans are saving optimally for retirement. Our standard for assessing optimality comes from a life-cycle model that incorporates uncertain lifetimes, uninsurable earnings and medical expenses, progressive taxation, government transfers, and pension and social security benefit functions derived from rich household data. We solve every household''s decision problem from death to starting age and then use the decision rules in conjunction with earnings histories to make predictions about wealth in 1992. Ours is the first study to compare, household by household, wealth predictions that arise from a life-cycle model that incorporates earnings histories for a nationally representative sample. The results, based on data from the Health and Retirement Study, are striking we find that the model is capable of accounting for more than 80 percent of the 1992 cross-sectional variation in wealth. Fewer than 20 percent of households have less wealth than their optimal targets, and the wealth deficit of those who are undersaving is generally small.

JEL-codes: E21 H31 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-mac and nep-pbe
Note: AG PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Published as Scholz, John Karl, Ananth Seshadri and Surachai Khitatrakun. "Are Americans Saving 'Optimally' For Retirement?," Journal of Political Economy, 2006, v114(4,Aug), 607-643.

Downloads: (external link)
http://www.nber.org/papers/w10260.pdf (application/pdf)

Related works:
Journal Article: Are Americans Saving "Optimally" for Retirement? (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10260

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10260

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by (wpc@nber.org).