The retirement savings crisis is overblown. Not at all shocking in an era of sensationalized, 24-hour cable news, but the amount of the supposed discrepancy has retirement experts taking notice.
In a new academic paper that’s a round-up of other academic papers on the topic of retirement saving, Andrew Biggs of conservative think tank American Enterprise Institute notes that some researchers predict a retirement savings shortfall as high as $14 trillion, while in actuality it could be closer to $1 trillion.
Not an insignificant amount, to be sure, but far smaller than the doomsday scenarios put forth by the first figure.
Taking aim at “pop” retirement analyses in newspapers or in financial blogs, and even high-profile academic studies from such notable names as the Center for Retirement Research and The National Institute for Retirement Research, Biggs argues part of the reason might be in the difference between a “life cycle model” approach used by some and replacement rates used by others.
“We can’t know if households are saving enough for retirement if we don’t know how much ‘enough’ is,” Biggs writes. “Economists measure ‘enough’ using what’s called the “life cycle model,” which predicts that households will borrow and save in an effort to smooth out the variations in their annual incomes and consume roughly the same amount in each year.”
Practically every academic paper on retirement income adequacy will either “explicitly or implicitly reference the life cycle model as a guidepost for how households think about saving for retirement,” he adds.
Those academic studies tend to find a more encouraging picture than the retirement crisis that popular studies and the news media often portray.
Examining studies from the University of Wisconsin, The Investment Company Institute and the RAND Corporation, among others, he finds that “everything isn’t hunky-dory and some Americans are under-saving for retirement …but we’re not looking at a retirement crisis where most Americans are under-saving by a large amount.”