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How Much Should Americans Be Saving for Retirement?


How much should Americans save prior to retirement? Given Social Security’s shaky financial condition, this is a critical question for baby boomers. A financial planning program— ESPlanner—is applied to data from the Health and Retirement Survey (HRS) to consider the amount that households approaching retirement should save. ESPlanner calculates households’ highest sustainable living standards under borrowing constraints, simultaneously determining the saving and life insurance required to preserve those living standards through time.2 Two alternative assumptions are made—first, Social Security’s promised benefits are fully paid and, second, benefits are permanently cut by 30 percent after 15 years. We find that ESPlanner’s recommended saving rates are quite high for all except the poorest households. Moreover, if these households are assuming that Social Security benefits will be fully paid, their saving will turn out to be much too low if major benefit-cuts occur after the baby boomers retire.


Suggested citation: Bernheim, B. Douglas, Lorenzo Forni, Jagadeesh Gokhale, and Laurence J. Kotlikoff, 2000. “How Much Should Americans Be Saving for Retirement?,” Federal Reserve Bank of Cleveland, Working Paper, no. 00-02.

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