Have Households Under-Saved for Retirement?

There is a common perception that households are under-saving for retirement - indeed this has motivated many recent policy reforms in the UK. In this paper we use a structural model, specified to closely match the UK policy environment, to investigate this ‘fact’ for the cohort born in the 1940s. Using the model and administrative data linked with survey data from the English Longitudinal Study of Aging, an optimal level of wealth is calculated for each household. This is then compared to the levels of wealth observed in the data. Our results show that the vast majority of households in this cohort actually hold far greater wealth than is necessary to maintain their living standards into and through retirement.