Changes in retirement adequacy, 1995--2004: Accounting for retirement stages

In this study, retirement income stage is first being analyzed theoretically and then empirically. The effect of having retirement income stages on retirement adequacy is tested through two-sample t-tests and logistic regressions according to the theory of consumer psychology and bounded rationality. In addition, the life cycle saving hypothesis and modern portfolio theories are used to project asset accumulation and distribution during retirement. Retirement adequacy is measured by Palmer's (1992, 1994) required retirement ratio concept with adjustments according to Maslow's hierarchy-need theory. A retirement income stage is defined as a period in which the income source number is constant. The maximum stage number for a married household is eight, based on the stage drivers of Social Security retirement benefit, Defined Benefit pension, and part-time job wage. The retirement adequacy indicator fluctuates across the retirement stages, while the method of previous studies concludes that retirement adequacy is constant across retirement life. The more stages a household has, the greater the difference of retirement adequacy between this new methodology and traditional methodology, i.e., ignoring stages.; A replacement rate serves as an indicator of economic measurement, in which the numerator includes retirement income, such as Social Security benefits, Defined Benefit pensions, part-time job wages, and annuity distribution, while the denominator includes only pre-retirement income. Normal income is used as a proxy of pre-retirement income, and therefore, it is also used to calculate the Social Security benefit and the Defined Benefit pension. The benchmark replacement ratio is calculated according to the income distribution from the Consumer Expenditure Survey 2005.; The median replacement ratio ranges from 47.8% to 109.8% across categories and new stages and from 47.8% to 186.1% when stage partition is ignored. The corresponding adequacy proportion based on the replacement ratio of retirement adequacy proportions ranges from 33.6% to 83.0% across categories and new stages, but ignoring stage partition, the proportion ranges from 33.6% to 74.6%. The percentage interval of adequacy proportion for non-stage partition is sufficiently larger than that of stage partition method.; The overall adequacy proportion of new stage 1 ranges from 45.9% to 59.8%, while the adequacy proportion of new stage 2 ranges from 48.4% to 61.2%. It shows that the overall adequacy taking stages into account increased each survey period from 1995 to 2004. The combined stage adequacy proportion ranges from 47.2% to 60.5%. When ignoring stage partition, the adequacy proportion ranges from 58.0% to 61.7%. Compared these two methods, the adequacy proportion difference is about 11.7% in 1995, 8.4% in 1998, 3.8% in 2001, and 1.2% in 2004.; The descriptive results, it shows that households with only one stage of retirement had much lower adequacy because of having fewer sources of retirement income, typically only a Social Security pension. Furthermore, the descriptive result shows that households with more than one stage of retirement, who were projected to accumulate enough retirement assets to even out spending across retirement stages, had a very high rate of retirement adequacy, 83% in 2004.; Using two-sample t-test and stage partition method, the adequacy proportion of 1998 is significantly less than that of 2001. In addition, the adequacy proportion of 2001 is significantly less than that of 2004. Nevertheless, when ignoring stages, only adequacy proportion of 2001 is significantly less than that of 2004.; Using logistic regression and stage partition method, households in 2004 are significantly more likely to have adequate retirement than those in 2001. However, when ignoring stage, households in 2004 are significantly less likely to have adequate retirement.; Tested by two-sample t-test with RII technique and logistic regression with RII technique, th...