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Retirement Wealth And Lifetime Earnings

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  • Lutz Hendricks

Abstract

This article argues that a satisfactory theory of wealth inequality should account not only for the marginal distribution of wealth, but also for the joint distribution of wealth and earnings. The article describes the joint distribution of retirement wealth and lifetime earnings in the Panel Study of Income Dynamics. It then evaluates the ability of a stochastic life-cycle model to account for key features of this distribution. The life-cycle model fails to account for three key features of the data. (1) The correlation between lifetime earnings and retirement wealth is too high. (2) The wealth gaps between earnings rich and earnings poor households are too large. (3) Wealth inequality among households with similar lifetime earnings is too small. Models in which households differ in rates of return or time preferences account much better for the joint distribution of retirement wealth and lifetime earnings. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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  • Lutz Hendricks, 2007. "Retirement Wealth And Lifetime Earnings," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 421-456, May.
  • Handle: RePEc:ier:iecrev:v:48:y:2007:i:2:p:421-456
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-2354.2007.00433.x
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    1. repec:red:issued:16-340 is not listed on IDEAS
    2. repec:oup:oxecpp:v:69:y:2017:i:4:p:1101-1119. is not listed on IDEAS
    3. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    4. Frank Cowell & Brian Nolan & Javier Olivera & Philippe Van Kerm, 2017. "Wealth, Top Incomes and Inequality," LWS Working papers 24, LIS Cross-National Data Center in Luxembourg.
    5. Gang Sun, 2013. "Consumption Inequality and Discount Rate Heterogeneity," Discussion Paper Series, Department of Economics 201318, Department of Economics, University of St. Andrews.
    6. De Nardi, Mariacristina & Yang, Fang, 2014. "Bequests and heterogeneity in retirement wealth," European Economic Review, Elsevier, vol. 72(C), pages 182-196.
    7. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    8. Bingley, Paul & Martinello, Alessandro, 2017. "The Effects of Schooling on Wealth Accumulation Approaching Retirement," Working Papers 2017:9, Lund University, Department of Economics.
    9. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    10. Ingvild Almås & Magne Mogstady, 2009. "Older or wealthier? The impact of age adjustments on the wealth inequality ranking of countries," Working Papers 113, ECINEQ, Society for the Study of Economic Inequality.
    11. Frank A. Cowell & Philippe Kerm, 2015. "Wealth Inequality: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 671-710, September.
    12. repec:eee:dyncon:v:79:y:2017:i:c:p:126-153 is not listed on IDEAS
    13. David W. Eccles & Paul Ward & Elizabeth Goldsmith & Guler Arsal, 2013. "The Relationship between Retirement Wealth and Householders' Lifetime Personal Financial and Investing Behaviors," Journal of Consumer Affairs, Wiley Blackwell, vol. 47(3), pages 432-464, November.
    14. Ferreira, Pedro Cavalcanti & Gomes, Diego B.P., 2017. "Health care reform or more affordable health care?," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 126-153.

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