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How Persistent Low Returns Will Shape Saving and Retirement$
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Olivia S. Mitchell, Robert Clark, and Raimond Maurer

Print publication date: 2018

Print ISBN-13: 9780198827443

Published to Oxford Scholarship Online: October 2018

DOI: 10.1093/oso/9780198827443.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 25 October 2021

Low Returns and Optimal Retirement Savings

Low Returns and Optimal Retirement Savings

(p.26) Chapter 3 Low Returns and Optimal Retirement Savings
How Persistent Low Returns Will Shape Saving and Retirement

David Blanchett

Michael Finke

Wade Pfau

Oxford University Press

Lifetime financial outcomes relate closely to the sequence of investment returns earned over the life cycle. Higher return assumptions allow individuals to save at a lower rate, withdraw at a higher rate, retire with a lower wealth accumulation, and enjoy a higher standard of living. While analysis of this topic is often based on historical investment performance, present bond yields are historically low and equity prices are quite high, suggesting that individuals will likely experience lower returns in the future. This implies the need for higher savings rates, lower withdrawal rates, a larger nest egg at retirement, and a lower lifetime standard of living. We show that lower-income workers will need to save about 50 percent more if low rates of return persist in the future, and higher-income workers will need to save nearly twice as much in a low return environment compared to the optimal savings using historical returns.

Keywords:   retirement planning, saving for retirement, sustainable spending, life cycle portfolio management, longevity

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