Analysis of amount of money needed for retirement in thirty years

Abstract

In each country, the establishment of pension system aims to prevent employees from suffering financial distress in their late life. Pension replacement rate is an essential indicator that reflects the pension system’s capability of coping with the risk of population aging, and indicates the workers’ general quality of live after retirement. In this thesis, the formula for calculating the replacement rate is derived based on the regulation to construct the scenario analysis model. The model calculates different replacement rates by changing variables under different assumptions, and therefore shows the relationship between variables and replacement rate under different scenarios. Multiple regression model, another methodology, is also applied in this thesis to explore the most significant economic factor affecting the replacement rate. The results of this thesis display that both retirement age and average contribution index have a positive impact on raising the replacement rate, and that inflation rate and real wage growth rate have a significant impact on the replacement rate. Based on the findings, several measures are put forward to suggest a path to improve China’s pension system, including raising statutory retirement age, easing inflationary pressure, and diversifying pension investments.