In a research paper, John Karl Scholz says that over 80 percent of households are saving at least as much as is optimal. However, much of their result is based on counting Social Security wealth in their analysis.

Private net worth significantly exceeds the value of social security only in the top two deciles of the lifetime income distribution. The metaphor of the “three-legged stool,” in which retirement income security is supported by the three legs of social security, employer-provided pensions, and private wealth accumulation, appears to apply only to households in the top 70 percent of the lifetime income distribution because low-income workers lack employer-provided
pension coverage.

I found the following statement difficult to fathom:

Optimal wealth targets are $69,777 for the median household and are $253,631 for the median household in the highest decile of the lifetime income distribution.

Those figures represent the simulation of a life-cycle consumption model for wealth accumulation in addition to Social Security and pension wealth. The figures strike me as ludicrously low. Perhaps part of the answer is that “the mean age of households in our sample is 55.7, so the average household will work many additional years before retiring.”

One exercise I wish that the author had conducted is to look exclusively at households aged 60 and over. It strikes me that in the simulation model, the bar for optimal saving for someone below age 40 may be so low that just about every household steps over it. It’s probably the case that only above, say, 50 years of age, are the model’s predictions of adequate saving high enough to be interesting.

If 100 percent of households under the age of 56 have met the model’s modest targets for wealth accumulation, while only 60 percent of households over the age of 56 have met their targets, that would say suggest a rather different interpretation of the conclusion that 80 percent of all households have met the targets.

UPDATE: For a discussion the Scholz study, go here and click on the event materials in the upper right of the page.

For Discussion. Scholz’ data are from 1992. How would changes in asset prices since then affect optimal saving?