Preprintgreen1995

Optimal Life Cycle Savings

Sherman D. Hanna · Jessie X. Fan · Y. Regina Chang

61 citations0/0 files storedSSRN Electronic Journal

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Financial Literacy, Pension, Retirement Analysis Stochastic processes and financial applications Retirement, Disability, and Employment

Abstract

How much should a family save for retirement? A prescriptive life cycle savings model is presented. Scenarios are developed with simulations to provide implications for personal financial planning. The percent of income to save today depends on the expected lifetime non-investment income pattern. Households who are sure that their real incomes will increase substantially in the future may be rational in not starting to save for retirement until 25 years before retirement. With uncertain future incomes and retirement ages, saving early may be rational. A computer program based on this model has been used in financial planning classes.

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References

1992Anomalies in Intertemporal Choice: Evidence and an Interpretation 1981Intertemporal Substitution in Consumption 1990Anomalies: Saving, Fungibility, and Mental Accounts 1989Mortality Risk and Bequests 1982Intertemporal Substitution in Macroeconomics 1981Capital Taxation and Accumulation in a Life Cycle Growth Model 1981Uncertain Lifetime, Consumption, and Dissaving in Retirement 2005The "Life-Cycle" Hypothesis of Saving

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