Written By: Somnath Basu

The age-banded model provides a new approach to planning for retirement needs. The model reduces errors in estimating expenses, provides an algorithm to calculate the replacement ratio, allows easier incorporation of long term care benefits and significantly reduces funding needs. Two situations are used to illustrate the model, a couple nearing retirement and a younger single person. Compared to the traditional approach, results from the age-banded model show funding needs of the near- retirement couple are reduced by over 16% and contributions for the younger person are reduced by 42%. In both cases the consequent increase in risk exposure is very low. Recommendations for case-specific risk management tools are presented.

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