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Estimating replacement rate targets, and using them to assess the current state of retirement savings adequacy, has been the of much attention and analysis. Building on his earlier work published in Benefits Quarterly, the author conceptually defines retirement income adequacy, estimates replacement rate targets and reviews research on the current state of baby boomers' retirement savings. He concludes that, despite existing data limitations, researchers have made considerable strides in recent years in thinking about saving for retirement and the adequacy of workers' preparation for it. These advances suggest that singular rules of thumb for replacement are naive and that estimates should take into account the risks that individuals face.1
A recurring theme in media stories these days is that the baby boomers are barreling toward retirement age and many of them are inadequately prepared for it financially. Partly, this is a story about a Social Security pension system and a Medicare health insurance program for the elderly that are badly underfunded for the baby boomers' anticipated retirement years. But much of the story is about the baby boomers' own inadequate saving during their working lives. The concerns being raised are not idle musings by reporters worried about their personal situation-They are broadly backed by a number of empirical studies that suggest many people are not saving adequately to meet their retirement needs, even if Social Security and Medicare somehow continue to provide benefits now defined in law. The picture is even worse if modifications to these programs are factored into the analysis.2
At the same time we seem to be concerned about the plight of future retirees, we see a markedly different picture when we look at people who have recently retired. There we see a group of people whose poverty rates are among the lowest of any group in the nation. We may see or hear stories about the elderly struggling to keep up with medical bills, but recent Medicare reforms should help with that problem to a considerable extent. We certainly have not seen a mass migration of older folks back into the labor markets to make ends meet. When asked to assess the quality of their retirement years relative to the years just before retirement, 85% indicate their retirement years...