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Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts

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

Abstract

Many analysts have considered whether households approaching retirement age have accumulated enough assets to be well prepared for retirement. In this paper, we shift from studying household finances at the start of the retirement period, an ex ante measure of retirement preparation, to studying the asset holdings of households in their last years of life. The analysis is based on Health and Retirement Study with special attention to Asset and Health Dynamics Among the Oldest Old (AHEAD) cohort that was first surveyed in 1993. We consider the level of assets that households hold in the last survey wave preceding their death. We study how assets at the end of life depend on three family status pathways prior to death - (1) original one-person households in 1993, (2) persons in two-person household in 1993 with a deceased spouse in the last year observed, and (3) persons in two-person households in 1993 with the spouse alive when last observed. We find that a substantial fraction of persons die with virtually no financial assets - 46.1 percent with less than $10,000 - and many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support. In addition this group is disproportionately in poor health. Based on a replacement rate comparison, many of these households may be deemed to have been well-prepared for retirement, in the sense that their income in their final years was not substantially lower than their income in their late 50s or early 60s. Yet with such low asset levels, they would have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities. This raises a question of whether the replacement ratio is a sufficient statistic for the "adequacy" of retirement preparation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17824.

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Date of creation: Feb 2012
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Publication status: published as Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts , James M. Poterba, Steven F. Venti, David A. Wise. in Investigations in the Economics of Aging , Wise. 2012
Handle: RePEc:nbr:nberwo:17824

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  1. James P. Smith, 2003. "Consequences and predictors of new health events," IFS Working Papers, Institute for Fiscal Studies W03/22, Institute for Fiscal Studies.
  2. James M. Poterba & Steven F. Venti & David A. Wise, 2010. "Family Status Transitions, Latent Health, and the Post-Retirement Evolution of Assets," NBER Working Papers 15789, National Bureau of Economic Research, Inc.
  3. Wise, David A. (ed.), 2004. "Perspectives on the Economics of Aging," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226903057, 01-2013.
  4. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc.
  5. Adams, Peter & Hurd, Michael D. & McFadden, Daniel & Merrill, Angela & Ribeiro, Tiago, 2003. "Healthy, wealthy, and wise? Tests for direct causal paths between health and socioeconomic status," Journal of Econometrics, Elsevier, Elsevier, vol. 112(1), pages 3-56, January.
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  7. Steven F. Venti & David A. Wise, 2001. "Aging and Housing Equity: Another Look," NBER Working Papers 8608, National Bureau of Economic Research, Inc.
  8. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
  9. Michaud, Pierre-Carl & van Soest, Arthur, 2008. "Health and wealth of elderly couples: Causality tests using dynamic panel data models," Journal of Health Economics, Elsevier, Elsevier, vol. 27(5), pages 1312-1325, September.
  10. Robert Haveman & Karen Holden & Andrei Romanov & Barbara Wolfe, 2007. "Assessing the maintenance of savings sufficiency over the first decade of retirement," International Tax and Public Finance, Springer, Springer, vol. 14(4), pages 481-502, August.
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  12. Poterba, James & Venti, Steven F. & Wise, David Alsgaard, 2011. "The Asset Cost of Poor Health," Scholarly Articles 4669670, Harvard Kennedy School of Government.
  13. Engen, Eric & Gale, William & Uccello, Cori, 1999. "The Adequacy of Household Saving," MPRA Paper 56442, University Library of Munich, Germany.
  14. David Love & Paul A. Smith & Lucy C. McNair, 2008. "A New Look at the Wealth Adequacy of Older U.S. Households," Department of Economics Working Papers, Department of Economics, Williams College 2008-12, Department of Economics, Williams College.
  15. Michael D. Hurd & Susann Rohwedder, 2008. "The Adequacy of Economic Resources in Retirement," Working Papers, University of Michigan, Michigan Retirement Research Center wp184, University of Michigan, Michigan Retirement Research Center.
  16. David A. Wise, 2004. "Perspectives on the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise04-1, July.
  17. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(2), pages 145-166, Spring.
  18. Orazio P. Attanasio & Carl Emmerson, 2003. "Mortality, Health Status, and Wealth," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(4), pages 821-850, 06.
  19. Stephen Wu, 2003. "The Effects of Health Events on the Economic Status of Married Couples," Journal of Human Resources, University of Wisconsin Press, vol. 38(1).
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