Maintaining one’s living standard at old age: What does that mean?

Abstract

How much retirement income is needed in order to maintain one’s living standard at old age? As it is difficult to find a firm basis for an empirical treatment of this question, we employ a novel approach to assessing an adequate replacement rate vis-a-vis income in the pre-retirement period. We subject indications regarding satisfaction with current income as collected in the German Socio-Economic Panel to longitudinal analyses, using linear fixed-effects models and fixed-effects ordered logit models as our main analytical tools. We obtain a required net replacement rate of about 87 % for the year of entry into retirement as a rather robust result, while replacement rates keeping the living standard unchanged may slightly decline over the retirement period.