Longevity Risk and Retirement Income Adequacy : Evidence from the Survey of Consumer Finances

Using replacement rate as a measure of retirement income adequacy, this study examines the effect of longevity risk on retirement adequacy. Based on lognormal portfolio projections and current portfolio allocation, about 50 percent of pre-retirees can maintain their pre-retirement standard of living while in retirement even if they live longer than the average life sapn. Households with members who are White, married, and college graduates have larger replacement rate variability by living longer than the average life span. As the longevity advances, decreasing positive income effect and increasing negative longevity effect on the replacement rate are confirmed.