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Measuring the Adequacy of Retirement Savings
Author(s) -
Burnett John,
Davis Kevin,
Murawski Carsten,
Wilkins Roger,
Wilkinson Nicholas
Publication year - 2018
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12307
Subject(s) - economics , sample (material) , econometrics , net worth , actuarial science , finance , debt , chemistry , chromatography
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.