Hanna, S., Fan, J. X. & Chang, Y. R. (1995). Optimal life cycle savings. Financial Counseling and Planning, 6, 1-15.
Optimal Life Cycle Savings
Sherman
Hanna (1), Jessie X.
Fan (2) and Y. Regina Chang (3)
How much should a family save for retirement? A prescriptive life cycle savings model is presented. Scenarios are developed with simulations to provide implications for personal financial planning. The percent of income to save today depends on the expected lifetime non-investment income pattern. Households who are sure that their real incomes will increase substantially in the future may be rational in not starting to save for retirement until 25 years before retirement. With uncertain future incomes and retirement ages, saving early may be rational. A computer program based on this model has been used in financial planning classes.
Key Words: Retirement planning, Investment, Saving, Life cycle model, Risk
tolerance
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1. Sherman Hanna, Professor, Family Resource Management and Textiles and
Clothing Department, The Ohio State University, 1787 Neil Ave., Columbus, OH
43210-1295. Phone: (614) 292-4584. Fax: (614) 292-7536. E-mail: hanna.1@osu.edu.
2. Jesse X. Fan, Assistant Professor, Family and Consumer Studies, University of Utah, 228 Alfred Emery Building, Salt Lake City, UT 84112. Phone: (801) 581-4170. FAX: (801) 581-5156. E-mail: fan@fcs.utah.edu
3. Y. Regina Chang, Assistant
Professor, Department of Consumer and Family Economics, University of
Missouri-Columbia, 239 Stanley Hall, Columbia, MO 65211. Phone: (573) 882-9343.
E-mail: cfechang@showme.missouri.edu.
Information about the Life Cycle Savings computer program