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Working Paper
The trajectory of wealth in retirement
As the baby boomers begin to retire, a great deal remains unknown about the evolution of wealth toward the end of life. In this paper, we develop a new measure of household resources that converts total financial, nonfinancial, and annuitized assets into an expected annual amount of wealth per person. We use this measure, which we call "annualized comprehensive wealth," to investigate spend-down behavior among older households in the Health and Retirement Study. Our analysis indicates that, in (real) dollar terms, the median household?s wealth declines more slowly than its remaining life ...
Journal Article
Asset building and the wealth gap
Building and maintaining financial security is increasingly difficult for a growing portion of American households. Wealth is less prevalent in middle-class households and increasing among the already well-to-do. At the same time, poverty is growing and concentrating disproportionately among the nonwhite population. As the cost of living outpaces income and wealth accumulation, a majority of U.S. households are ill-prepared for financial emergencies or retirement.
Working Paper
Stock market participation, portfolio choice and pensions over the life-cycle
The empirical evidence on stock market participation and portfolio choice defies the predictions of standard life-cycle theory. In this paper we develop and estimate a model of portfolio choice that can account for the limited stock market participation and substantial portfolio diversification seen in the data. We present three realistic extensions to the basic framework: per period fixed costs, public pension provision, and a small chance of a disastrous event in the stock market. The estimated model is able to explain observed patterns at reasonable wealth levels, while keeping to a fairly ...
Working Paper
Do households have enough wealth for retirement?
Dramatic structural changes in the U.S. pension system, along with the impending wave of retiring baby boomers, have given rise to a broad policy discussion of the adequacy of household retirement wealth. We construct a uniquely comprehensive measure of wealth for households aged 51 and older in 2004 that includes expected wealth from Social Security, defined benefit pensions, life insurance, annuities, welfare payments, and future labor earnings. Abstracting from the uncertainty surrounding asset returns, length of life and medical expenses, we assess the adequacy of wealth using two ...
Discussion Paper
A new approach to raising Social Security’s earliest eligibility age
While Social Security?s Normal Retirement Age (NRA) is increasing to 67, the Earliest Eligibility Age (EEA) remains at 62. Similar plans to increase the EEA raise concerns that they would create excessive hardship on workers who are worn-out or in bad health. One simple rule to increase the EEA is to tie an increase to the number of quarters of covered earnings. Such a provision would allow those with long work lives?presumably the less educated and lower paid?to quit earlier. We provide evidence that this simple rule would not satisfy the goal of preventing undue hardship on certain workers. ...
Working Paper
Accounting for the heterogeneity in retirement wealth
This paper studies a quantitative dynamic general equilibrium life-cycle model where parents and their children are linked by bequests, both voluntary and accidental, and by the transmission of earnings ability. This model is able to match very well the empirical observation that households with similar lifetime incomes hold very different amounts of wealth at retirement. Income heterogeneity and borrowing constraints are essential in generating the variation in retirement wealth among low lifetime income households, while the existence of intergenerational links is crucial in explaining the ...
Journal Article
Opt in or opt out?
Journal Article
Retirement savings and decision errors: lessons from behavioral economics
Long gone are the days when most American workers could rely on their employers to manage their retirement savings. Today, most people handle their retirement portfolios themselves, gaining the right and responsibility to determine their own best strategies. Research on retirement planning suggests, however, that many fall short of consensus targets for optimal savings and investment. While part of the shortfall is explained by information gaps and income constraints, research in behavioral economics suggests that "decision errors," arising out of human tendencies such as procrastination, ...
Working Paper
A new look at the wealth adequacy of older U.S. households
We construct two measures of the current wealth adequacy of older U.S. households using the 1998--2006 waves of the Health and Retirement Study (HRS). The first is the ratio of "comprehensive wealth"--defined as net worth plus the expected value of future income streams--to the wealth that would be needed to generate expected poverty-line income in future years. By this measure, we find that the median older U.S. household is reasonably well situated, with a "poverty ratio" of about 3.9 in 2006. However, we find that about 18 percent of households have less wealth than would be needed to ...
Journal Article
Fuzzy math : public pensions are underfunded - how bad is it?
Related links: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/econ_focus/2010/q3/cover_weblinks.cfm