Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

A Retirement Model: Constant Savings Rate Considering Real Income Growth

Author(s): Fernando Arellano, Elizabeth Mulig, Susan Rhame

Retirement planning years in advance of an anticipated retirement date has become increasingly crucial in recent years. Previous generations relied on income from social security in addition to other pensions; however, the future solvency of the Old-Age Survivors and Disability Insurance (OASDI) program is questionable (Lew et al., 2016). Workers also need a larger retirement fund due to increased life expectancy. This paper provides a realistic, easily used model (including Excel implementation), with variables that are adjustable as the individual’s circumstances change. Like the Gustafson et al. model (2005), this paper proposes a savings rate that remains constant as a proportion of income. Original contributions are incorporation of a variable for a real growth rate of income and the possibility of including different real rates of return for the savings and retirement periods and for current accumulated assets. An implicit contribution is the elimination of the need to forecast inflation.

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