John Karl Scholz, Ananth Seshardi, and Surachai Khiatrakun write,
We find that over 80 percent of HRS households [a sample of households aged 51-62 in 1992] have accumulated more wealth than their optimal targets. These targets indicate the amounts of private saving households should have acquired at the time we observe them in the data, given their life cycle planning problem and social security and defined-benefit pension expectations and realizations. For those not meeting their targets, the magnitudes of the deficits are typically small.
This sounds like wonderful news, for it suggests that Americans are saving plenty for their retirements. But the median net worth in the data is $102,600, which does not impress me. The median “optimal” net worth as calculated by the authors is $63,116, which impresses me even less.
Maybe there is a good case to be made that $63,116 is plenty of savings for the median household in their fifties. But for now, I am inclined to treat this as another case in which the prose has gotten ahead of the data.
Thanks to Tyler Cowen for the pointer.
READER COMMENTS
dearieme
Sep 10 2006 at 8:21am
Do I understand correctly that the 63k dollars is in addition to their expected DB pension and social security payouts?
Matt
Sep 10 2006 at 6:19pm
Retire?
triticale
Sep 10 2006 at 8:03pm
I’m in my mid-fifties, and am disappointed with a liquid (let alone total) net worth around twice the median. I certainly don’t expect to retire on it.
Dale
Sep 11 2006 at 10:37am
Even after adjusting those numbers for the inflation of the last 14 years, they seem far too low. Honestly, those numbers would be adequate for two scenarios: people who will work until they can’t, and people with a defined benefits pension.
Aside from that, I don’t think it is meaningful to average the net worth of people over such a wide range of ages. The 51-year-olds have the potential benefit of 11 more years of savings and compounding. Those of us capable of understanding the consequences of compound interest understand that a 51-year-old with a net worth of $100k is wealthier than a 62-year-old with the same $100k, assuming they both have that money invested. How much wealthier is a function of the the rate of return.
Clint Hennessee
Sep 13 2006 at 3:37pm
First off why would you take a person who is 51 and even begin looking at their retirement when they aren’t even close to it unless they have been in the military or worked towards early retirement? Secondly, when you look into retirement there are funds that people don’t see and count sometimes it can be in mutual funds that have a certain way of not showing themselves as retirement money but in actuality it is. Also, everyone has different plans so “opportunity cost” their are people out their who just plan to work until they die so may bring this number down drastically being the reason it is so low and they don’t want to save.
Jerod
Sep 14 2006 at 11:21am
HOnestly i feel we shouldnt have anyone under the age of 60 getting retirement. The life expectency was alot lower then which allowed people to retire at a young age of about 51 or 52. I think by the time im 60 theres not going to be any money left for me to retire and im going to have to work until i die.
Steven McMullen
Sep 15 2006 at 3:53pm
These types of results seem to use circular logic to me. The model figures out “optimal” savings by fitting a life-cycle model to the data. Doing so will give estimates for the parameters of the model which best fit actual behavior, not some other standard of how much people should save. They then see who is above or below the standard predicted by their model.
In other words, they assume, in their modeling and methodology, that people are optimizing, use that assumption to find out what is optimal, and then check to see if people are behaving optimally. Thus it is not suprising that they end up agreeing with their original assumption.
Comments are closed.