TY  - JOUR
AU  - Scholz,John Karl
AU  - Seshadri,Ananth
AU  - Khitatrakun,Surachai
TI  - Are Americans Saving "Optimally" for Retirement?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10260
PY  - 2004
Y2  - February 2004
UR  - http://www.nber.org/papers/w10260
L1  - http://www.nber.org/papers/w10260.pdf
N1  - Author contact info:
John Karl Scholz
University of Wisconsin - Madison
Department of Economics
1180 Observatory Drive
Madison, WI 53706
Tel: 608/262-5380
Fax: 608/263-3876
E-Mail: jkscholz@facstaff.wisc.edu

Ananth Seshadri
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53705
E-Mail: aseshadr@ssc.wisc.edu
AB  - This paper examines the degree to which Americans are saving optimally for retirement. Our standard for assessing optimality comes from a life-cycle model that incorporates uncertain lifetimes, uninsurable earnings and medical expenses, progressive taxation, government transfers, and pension and social security benefit functions derived from rich household data. We solve every household''s decision problem from death to starting age and then use the decision rules in conjunction with earnings histories to make predictions about wealth in 1992. Ours is the first study to compare, household by household, wealth predictions that arise from a life-cycle model that incorporates earnings histories for a nationally representative sample. The results, based on data from the Health and Retirement Study, are striking   we find that the model is capable of accounting for more than 80 percent of the 1992 cross-sectional variation in wealth. Fewer than 20 percent of households have less wealth than their optimal targets, and the wealth deficit of those who are undersaving is generally small.
ER  -