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Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth Author info | Abstract | Publisher info | Download info | Related research | Statistics Annamaria Lusardi (Dartmouth College)
Olivia S. Mitchell (Wharton School, University of Pennsylvania)
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Recent research on wealth and household finances seeks to blend neoclassical models with an understanding of real-world imperfections to answer questions about why some people save and others do not. This paper focuses on Baby Boomers standing on the verge of retirement, many of whom have saved little and will face financial insecurity in old age. The new 2004 wave of the Health and Retirement Study is invaluable for this first analysis of the financial situation of leading-edge Boomers, as it reports not only wealth levels but also information about respondents’ planning behaviors and economic literacy. We show that the distribution of net worth among Early Baby Boomers is quite skewed; those in the 75th percentile had over 10 times the net worth ($400K) of households in the bottom 25th percentile ($37K). There is substantial heterogeneity in wealth within this cohort: the median high-school dropout had less than $23K in total net worth, while the median college graduate had over 10 times as much. Many Black and Hispanic Boomer households hold miniscule levels of wealth. Further, many in this cohort have accumulated little wealth outside their homes: at the mean, one-third of the early Boomers’ wealth is held in the form of home equity, and at the median the fraction is close to half. Since many members of this EBB cohort are reaching retirement with a substantial portion of its wealth in housing, they are particularly vulnerable to housing value shocks. By contrast, holders of stocks, IRAs, and business equity are concentrated in the top quartiles. Finally, we show that planning and economic literacy are important predictors of savings and investment success.
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number
wp114.
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Length: 40 pages
Date of creation: Apr 2006Date of revision:
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Article Lusardi, Annamaria & Mitchell, Olivia S., 2007.
"Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth ,"
Journal of Monetary Economics ,
Elsevier, vol. 54(1), pages 205-224, January.
[Downloadable!] (restricted) Paper Annamaria Lusardi & Olivia S. Mitchell, 2006.
"Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy,and Housing Wealth ,"
CFS Working Paper Series
2006/20, Center for Financial Studies.
[Downloadable!] Annamaria Lusardi & Olivia S. Mitchell, 2006.
"Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth ,"
CeRP Working Papers
54, Center for Research on Pensions and Welfare Policies, Turin (Italy).
[Downloadable!] Annamaria Lusardi & Olivia S. Mitchell, 2006.
"Baby Boomer Retirement Security: the Roles of Planning, Financial Literacy, and Housing Wealth ,"
NBER Working Papers
12585, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) This paper has been announced in the following NEP Reports :
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Mitchell, Olivia S, 1988.
"Worker Knowledge of Pension Provisions ,"
Journal of Labor Economics ,
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[Downloadable!] (restricted)
Other versions: John Ameriks & Andrew Caplin & John Leahy, 2003.
"Wealth Accumulation And The Propensity To Plan ,"
The Quarterly Journal of Economics ,
MIT Press, vol. 118(3), pages 1007-1047, August.
[Downloadable!] (restricted)
Other versions: Martin Browning & Annamaria Lusardi, 1996.
"Household Saving: Micro Theories and Micro Facts ,"
Discussion Papers
96-01, University of Copenhagen. Department of Economics.
Other versions: Venti, Steven F. & Wise, David A., 1991.
"Aging and the income value of housing wealth ,"
Journal of Public Economics ,
Elsevier, vol. 44(3), pages 371-397, April.
[Downloadable!] (restricted)
Other versions: Olivia S. Mitchell & James Moore & John Phillips, .
"Explaining Retirement Saving Shortfalls ,"
Pension Research Council Working Papers
98-13, Wharton School Pension Research Council, University of Pennsylvania.
William Gentry & R. Hubbard, 2004.
"Entrepreneurship and Household Saving ,"
Advances in Economic Analysis & Policy ,
Berkeley Electronic Press, vol. 4(1), pages 1053-1053.
[Downloadable!] (restricted)
Other versions: Annamaria Lusardi & Jason Beeler, 2006.
"Savings Between Cohorts: The Role of Planning ,"
Working Papers
wp122, University of Michigan, Michigan Retirement Research Center.
[Downloadable!]
Calvet, Laurent & Campbell, John Y. & Sodini, Paolo, 2006.
"Down or out: assessing the welfare costs of household investment mistakes ,"
Les Cahiers de Recherche
832, Groupe HEC.
[Downloadable!]
Other versions:
Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2006.
"Down or Out: Assessing the Welfare Costs of Household Investment Mistakes ,"
NBER Working Papers
12030, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2006.
"Down or Out: Assessing the Welfare Costs of Household Investment Mistakes ,"
Harvard Institute of Economic Research Working Papers
2107, Harvard - Institute of Economic Research.
[Downloadable!] Calvet, Laurent E. & Campbell, John Y. & Sodini, Paolo, 2006.
"Down or Out: Assessing The Welfare Costs of Household Investment Mistakes ,"
Working Paper Series
195, Sveriges Riksbank (Central Bank of Sweden).
[Downloadable!] James F. Moore & Olivia S. Mitchell, .
"Projected Retirement Wealth and Saving Adequacy ,"
Pension Research Council Working Papers
98-1, Wharton School Pension Research Council, University of Pennsylvania.
John Y. Campbell, 2006.
"Household Finance ,"
NBER Working Papers
12149, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: Erik Hurst & Arthur Kennickell & Annamaria Lusardi & Francisco Torralba, 2005.
"Precautionary Savings and the Importance of Business Owners ,"
NBER Working Papers
11731, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: Steven F. Venti & David A. Wise, 2000.
"Choice, Chance, and Wealth Dispersion at Retirement ,"
NBER Working Papers
7521, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Erik Hurst & Annamaria Lusardi, 2004.
"Liquidity Constraints, Household Wealth, and Entrepreneurship ,"
Journal of Political Economy ,
University of Chicago Press, vol. 112(2), pages 319-347, April.
[Downloadable!] (restricted)
Andrew B. Abel, 2003.
"The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security ,"
Econometrica ,
Econometric Society, vol. 71(2), pages 551-578, March.
[Downloadable!] (restricted)
Other versions: Annamaria Lusardi & Olivia S. Mitchell, 2006.
"Financial Literacy and Planning: Implications for Retirement Wellbeing ,"
DNB Working Papers
078, Netherlands Central Bank, Research Department.
[Downloadable!]
Other versions: Brian Bucks & Karen Pence, 2006.
"Do homeowners know their house values and mortgage terms? ,"
Finance and Economics Discussion Series
2006-03, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!]
Andrew B. Abel, 2001.
"The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks ,"
American Economic Review ,
American Economic Association, vol. 91(1), pages 128-148, March.
[Downloadable!] (restricted)
Other versions:
Andrew B. Abel, 2000.
"The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks ,"
NBER Working Papers
7739, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Andrew B. Abel, .
"The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks ,"
Rodney L. White Center for Financial Research Working Papers
09-00, Wharton School Rodney L. White Center for Financial Research.
[Downloadable!] Andrew B. Abel, .
"The Effects of Investing Social Security Funds in the Stock Market When Fixed Costs Prevent Some Households from Holding Stocks ,"
Rodney L. White Center for Financial Research Working Papers
9-00, Wharton School Rodney L. White Center for Financial Research.
[Downloadable!] Alan L. Gustman & Thomas L. Steinmeier, 2002.
"Retirement and the Stock Market Bubble ,"
NBER Working Papers
9404, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994.
"Sticking It Out: Entrepreneurial Survival and Liquidity Constraints ,"
Journal of Political Economy ,
University of Chicago Press, vol. 102(1), pages 53-75, February.
[Downloadable!] (restricted)
Other versions: John Ameriks & Andrew Caplin & John Leahy, 2004.
"The Absent-Minded Consumer ,"
NBER Working Papers
10216, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: Steven F. Venti & David A. Wise, 1990.
"But They Don't Want to Reduce Housing Equity ,"
NBER Working Papers
2859, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Haliassos, Michael & Bertaut, Carol C, 1995.
"Why Do So Few Hold Stocks? ,"
Economic Journal ,
Royal Economic Society, vol. 105(432), pages 1110-29, September.
[Downloadable!] (restricted)
Douglas D. Bernheim, .
"Financial Illiteracy, Education, and Retirement Saving ,"
Pension Research Council Working Papers
96-7, Wharton School Pension Research Council, University of Pennsylvania.
Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, .
"Pension and Social Security Wealth in the Health and Retirement Study ,"
Pension Research Council Working Papers
97-3, Wharton School Pension Research Council, University of Pennsylvania.
Other versions: Sewin Chan & Ann Huff Stevens, 2003.
"What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision Making ,"
NBER Working Papers
10185, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Marianne A. Hilgert & Jeanne M. Hogarth & Sondra G. Beverly, 2003.
"Household financial management: the connection between knowledge and behavior ,"
Federal Reserve Bulletin ,
Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 309-322.
[Downloadable!]
Gustman, Alan L. & Steinmeier, Thomas L., 1999.
"Effects of pensions on savings: analysis with data from the health and retirement study ,"
Carnegie-Rochester Conference Series on Public Policy ,
Elsevier, vol. 50, pages 271-324, June.
[Downloadable!] (restricted)
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Annamaria Lusardi & Jason Beeler, 2006.
"Savings Between Cohorts: The Role of Planning ,"
Working Papers
wp122, University of Michigan, Michigan Retirement Research Center.
[Downloadable!]
Annamaria Lusardi & Olivia Mitchell, 2006.
"Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs ,"
Working Papers
wp144, University of Michigan, Michigan Retirement Research Center.
[Downloadable!]
Mark Aguiar & Erik Hurst, 2008.
"Deconstructing Lifecycle Expenditure ,"
NBER Working Papers
13893, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Annamaria Lusardi & Olivia S. Mitchell, 2008.
"Planning and Financial Literacy: How Do Women Fare? ,"
NBER Working Papers
13750, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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