Can the Dutch meet their own retirement expenditure goals?

Population aging and the poor performance of financial markets during recent years put the sustainability of pension arrangements in many Western countries under pressure. In order to investigate whether the Dutch will be able to cope with possible cutbacks in the generosity of pensions, we analyze their preparedness for retirement in 2008, at the eve of the prolonged slump. In contrast to previous efforts to measure preparedness for retirement, we disentangle the roles of variation in needs and accumulated resources by comparing annuitized wealth from administrative data with self-reports of minimal and preferred expenditures during retirement. In order to draw conclusions that are representative for the Dutch population we estimate a multivariate sample selection model and simulate pension annuities and consumption needs. The model takes into account that some people thought more about retirement than others and that some people found it more difficult than others to answer questions about retirement needs. We find that in the aggregate the Dutch can expect to retire quite comfortably, exceeding their expenditure floors and affording their preferred level of spending. However, both needs and resources vary widely across the sample and about a fifth cannot afford their minimal expenditures even if they would draw down housing wealth.