US - A new tier of retirement savings must take into account market and interest volatility to be effective, researchers at the Center for Retirement Research (CRR) at Boston College have said.
The paper, 'How much risk is acceptable?' said: "The question is whether such variation is ac¬ceptable in a new tier of retirement income. If so, policymakers would be agreeing to widely different replacement rates each year depending on the perfor¬mance of the market over the participants' working years."
The paper added if such an outcome was not acceptable to policy makers, then "mecha¬nisms would be needed to eliminate some or all of the variation", although this would therefore incur higher costs.
Combined with the approximately US$1trn which has been wiped off the value of 401(k) plans over the past few months, the researchers showed the average household had not increased savings to offset the decline in social security, which meant "the outlook for retirement income for future cohorts of retirees is dismal".
The paper concluded that: "Replacement rates vary significantly over time. To take the most recent period as an example, a person retiring in October 2000 with an inflation-adjusted annuity would have had a replacement rate of 50 percent whereas someone retiring in October 2008 would have had a replacement rate of 28 percent."
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