Can Low Retirement Savings Be Rationalized?

Simple presentations of the life cycle model often suggest a constant level real consumption in retirement. Similarly, financial planners commonly that people save for retirement such way as to enable them maintain standard living equal their while working. However, with age is only optimal under precise and unlikely condition subjective rate time preference interest rate. Most exhibit positive pure preference, additionally discount future by both mortality morbidity risks. In comparison, roughly 0%—and term structure rates suggests this likely persist. These considerations declines age. This finding has major implications saving. For instance, we find many, perhaps most, bottom half lifetime earnings distribution, it spend out wealth well before death live on Social Security alone after that. Very low earners may not engage saving at all. TOPICS:Long-term/retirement investing, portfolio theory Key Findings ▪ Under plausible assumptions, many results stand contrast planning advice