Session 3 Comments by John Turner

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Research Foundation Publications
February 2008 | Vol. 2008 | No. 1 | 8 pages
Source: CFA Institute
John Turner

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Summary

Kotlikoff challenges standard approaches to financial planning software, particularly the requirement that investors choose a spending target in retirement. He also notes that financial services companies tend to advise more saving than is required for retirement. Although not used in Kotlikoff’s software, the replacement rate—defined as income in the first year of retirement divided by annual income just before retirement—may be useful for retirement planning. Some research, however, indicates that replacement rates should be much higher than typically recommended. Finally, heterogeneity in life expectancies leads to errors in forecasting life expectancy, with most people tending to underestimate their life expectancy, thus causing them to save less than they need for retirement.

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