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The Composition and Draw-down of Wealth in Retirement

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  • James M. Poterba
  • Steven F. Venti
  • David A. Wise

Abstract

This paper presents evidence on the resources available to households as they enter retirement. It draws heavily on data collected by the Health and Retirement Study and calculates the "potential additional annuity income" that households could purchase, given their holdings of non-annuitized financial assets at the start of retirement. Even if households used all of their financial assets inside and outside personal retirement accounts to purchase a life annuity, only 47 percent of households between the ages of 65 and 69 in 2008 could increase their life-contingent income by more than $5,000 per year. At the upper end of the wealth distribution, however, a substantial number of households could make large annuity purchases. The paper also considers the role of housing equity in the portfolios of retirement-age households, and explores the extent to which households draw down housing equity and financial assets as they age. Many households appear to treat housing equity and non-annuitized financial assets as “precautionary savings,” tending to draw them down only when they experience a shock such as the death of a spouse or a period of substantial medical outlays. Because home equity is often conserved until very late in life, for many households it may provide some insurance against the risk of living longer than expected.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17536.

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Date of creation: Oct 2011
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Handle: RePEc:nbr:nberwo:17536

Note: AG EFG PE
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References

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  1. Jeffrey R. Brown & Jeffrey R. Kling & Sendhil Mullainathan & Marian V. Wrobel, 2008. "Why Don’t People Insure Late-Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle," American Economic Review, American Economic Association, vol. 98(2), pages 304-09, May.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Ahorro para el Retiro y Pensiones
    by Alejandro Villagomez in Tintero Económico Diario on 2012-04-23 02:17:00
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Cited by:
  1. Mark Huggett & Greg Kaplan, 2012. "The Money Value of a Man," PIER Working Paper Archive 12-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Davoine, Thomas, 2012. "Time constraints, saving and old age," Economics Working Paper Series 1221, University of St. Gallen, School of Economics and Political Science.

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