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Savings Between Cohorts: The Role of Planning

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Author Info
Annamaria Lusardi (Dartmouth College)
Jason Beeler (Mercer Oliver Wyman)
Abstract

We compare the saving behavior of two cohorts: the Early Baby Boomers (EBB, age 51-56 in 2004) and the HRS cohort (age 51-56 in 1992). We find that EBB have accumulated more wealth than the previous cohort but they benefited from a large increase in house prices, which lifted the wealth of many home-owners. In fact, there are many families among EBB, particularly those headed by respondents with low education, low income, and minorities, which have less wealth than the previous cohort. Lack of wealth can be traced to lack of retirement planning. Notwithstanding the many initiatives aimed at fostering planning in the 1990s, a large portion of EBB still do not plan for retirement even though most respondents are close to it. The effect of planning is remarkably similar between the two cohorts; those who do not plan accumulate much lower amounts of wealth - from 20 to 45 percent depending on the location in the wealth distribution- than those who do plan. Thus, for both the EBB and the HRS cohort, lack of planning is tantamount to lack of saving irrespective of the many changes in the economy between 1992 and 2004.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp122.

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Length: 46 pages
Date of creation: Jul 2006
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Handle: RePEc:mrr:papers:wp122

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  1. 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)
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  2. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," Working Papers wp114, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
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  3. 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)
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  4. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2006. "The Polarization of the U.S. Labor Market," American Economic Review, American Economic Association, vol. 96(2), pages 189-194, May. [Downloadable!]
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  5. 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)
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  6. 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)
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  7. 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)
  8. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Financial Literacy and Planning: Implications for Retirement Wellbeing," DNB Working Papers 078, Netherlands Central Bank, Research Department. [Downloadable!]
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  9. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier. [Downloadable!] (restricted)
  10. 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)
  11. 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)
  12. 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)
  13. Kapteyn, Arie & Alessie, Rob & Lusardi, Annamaria, 1999. "Explaining the wealth holdings of different cohorts : productivity growth and social security," Serie Research Memoranda 0038, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
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  1. Annamaria Lusardi, 2006. "Planning and Financial Literacy: How Do Women Fare?," Working Papers wp136, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  2. 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)
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