Abstract
Determining an appropriate and desirable income replacement rate is one of the keys to developing a successful personal financial plan for retirement. In the present investigation, we examined workers’ expectations of the pre-retirement income they believed would be necessary in order to have a “good” retirement relative to the income they anticipated they would receive. Analyses revealed an expected income shortfall, the magnitude of which was positively related to one’s income and age. Sex was also related to the magnitude of the expected shortfall, with women anticipating a larger financial discrepancy than men. Finally, a sex by marital status interaction emerged in which single women were found to have a larger shortfall than single men and married individuals of both sexes. Findings are discussed in terms of the importance of interventions aimed at educating workers to understand the value of selecting a reasonable retirement income replacement rate.
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Notes
This scenario assumes one wage earner who is 65 years of age with a spouse who is 3 years younger (therefore, the family unit would be eligible for family Social Security benefits).
As pointed out in VanDerhei (2004), it is important to control for income when examining replacement rates as different socioeconomic groups typically require different amounts of replacement income during retirement. Therefore, in this analysis, income (as a continuous variable) was covaried out of the replacement rate discrepancy scores.
The descriptive replacement rate data shown in Fig. 2 are plotted over 5 different decades of adulthood, as opposed to the 3 age categories used in the statistical tests. This more finely-grained depiction of the age dimension resulted in a smoother developmental function, which better visually illustrates the relationship between age, sex and marital status. An alternative figure based on 3 age groups was first considered before deciding to show the data as a function of 5 decades; however, we found the latter configuration to be more revealing, while at the same time not causing the data to become distorted.
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Acknowledgments
The first author is indebted to the Netherlands Network of Studies on Pensions, Aging, and Retirement (NETSPAR) at Tilburg University, as well as the Netherlands Interdisciplinary Demographic Institute (NIDI) in The Hague. Both institutions graciously provided support for this work.
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Hershey, D.A., Jacobs-Lawson, J.M. Bridging the Gap: Anticipated Shortfalls in Future Retirement Income. J Fam Econ Iss 33, 306–314 (2012). https://doi.org/10.1007/s10834-012-9281-8
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DOI: https://doi.org/10.1007/s10834-012-9281-8