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A New Look At The Wealth Adequacy Of Older U.S. Households

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  • David A. Love
  • Paul A. Smith
  • Lucy C. McNair

Abstract

We examine the current wealth adequacy of older U.S. households using the 1998-2006 waves of the Health and Retirement Study (HRS). We find that the median older U.S. household is reasonably well situated, with a ratio of comprehensive net wealth to present value poverty-line wealth of about 3.9 in 2006. About 18 percent of households, however, have less wealth than would be needed to generate 150 percent of poverty-line income over their expected future lifetimes. We see similar patterns of wealth adequacy when we examine ratios of annualized comprehensive wealth to pre-retirement earnings. Comparing the leading edge of the baby boomers in 2006 to households of the same age in 1998, we find that the baby boomers show slightly less wealth, in real terms, than their elders did, but still appear to have adequate resources at the median. Moreover, we find a rising age profile of annualized wealth, even within households over time and after controlling for other factors, suggesting that older households are not spending their wealth as quickly as their survival probabilities are falling. Copyright 2008 The Authors. Journal compilation 2008 International Association for Research in Income and Wealth Published by Blackwell Publishing.

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Bibliographic Info

Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 54 (2008)
Issue (Month): 4 (December)
Pages: 616-642

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Handle: RePEc:bla:revinw:v:54:y:2008:i:4:p:616-642

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  1. Michael Hurd & Susann Rohwedder, 2006. "Alternative Measures of Replacement Rates," Working Papers, University of Michigan, Michigan Retirement Research Center wp132, University of Michigan, Michigan Retirement Research Center.
  2. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(1), pages 205-224, January.
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  5. Shiller Robert J., 2006. "Long-Term Perspectives on the Current Boom in Home Prices," The Economists' Voice, De Gruyter, De Gruyter, vol. 3(4), pages 1-11, March.
  6. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
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  9. Engen, Eric & Gale, William & Uccello, Cori, 1999. "The Adequacy of Household Saving," MPRA Paper 56442, University Library of Munich, Germany.
  10. Willaim G. Gale & Karen M. Pence, 2006. "Are Successive Generations Getting Wealthier, and If So, Why?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 155-234.
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Cited by:
  1. Christian E. Weller, 2009. "Did Retirees Save Enough to Compensate for the Increase in Individual Risk Exposure?," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp206, Political Economy Research Institute, University of Massachusetts at Amherst.
  2. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts," NBER Chapters, in: Investigations in the Economics of Aging, pages 21-69 National Bureau of Economic Research, Inc.
  3. Elsa Fornero & Annamaria Lusardi & Chiara Monticone, 2009. "Adequacy of Saving for Old Age in Europe," CeRP Working Papers 87, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  4. Barry Bosworth & Rosanna Smart, 2009. "The Wealth of Older Americans and the Sub-Prime Debacle The Wealth of Older Americans and the Sub-Prime Debacle," Working Papers, Center for Retirement Research at Boston College wp2009-21, Center for Retirement Research, revised Nov 2009.

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