Using the pension multiple to measure retirement outcomes

• The Pension Multiple is a simple measure or retirement income strategies. • The Pension Multiple enables intertemporal comparison of retirement income. • It can be adapted to value bequests and incorporate downside risks. • Retirement and investment strategies are tested using a stochastic environment. This paper presents a simple and intuitive measure of retirement income adequacy: the Pension Multiple which captures and quantifies the level of income for each future retirement year as a multiple of the government-provided social security pension. This Pension Multiple at each future retirement year is then mortality-weighted to produce an average Pension Multiple for the entire retirement. An expected shortfall from this average Pension Multiple is introduced to measure the potential shortfall at each future retirement year from the average Pension Multiple. A single measure of retirement income and potential shortfall is then calculated as the averaged Pension Multiple minus the averaged expected shortfall, which is called the adjusted Pension Multiple. Finally, any residual estate is also included as part of the retirement income adequacy measure. The Pension Multiple and estate residue can be calculated by any forecast model for future retirement income. In this paper, we use a robust stochastic forecasting model to demonstrate the effectiveness of using the Pension Multiple to measure and compare different retirement income strategies.