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Do households have enough wealth for retirement?


  • David A. Love
  • Paul A. Smith
  • Lucy C. McNair


Dramatic structural changes in the U.S. pension system, along with the impending wave of retiring baby boomers, have given rise to a broad policy discussion of the adequacy of household retirement wealth. We construct a uniquely comprehensive measure of wealth for households aged 51 and older in 2004 that includes expected wealth from Social Security, defined benefit pensions, life insurance, annuities, welfare payments, and future labor earnings. Abstracting from the uncertainty surrounding asset returns, length of life and medical expenses, we assess the adequacy of wealth using two expected values: an annuitized value of comprehensive wealth and the ratio of comprehensive wealth to the actuarial present value of future poverty lines. We find that most households in these older cohorts can expect to have sufficient total resources to finance adequate consumption throughout retirement, taking as given expected lifetimes and current Social Security benefits. We find a median annuity value of wealth equal to $32,000 per person per year in expected value and a median ratio of comprehensive wealth to poverty-line wealth of 3.56. About 12 percent of households, however, do not have sufficient wealth to finance consumption equal to the poverty line over their expected lifetimes, even after including the value of Social Security and welfare benefits, and an additional 9 percent can expect to be relatively close to the poverty line.

Suggested Citation

  • David A. Love & Paul A. Smith & Lucy C. McNair, 2007. "Do households have enough wealth for retirement?," Finance and Economics Discussion Series 2007-17, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2007-17

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    References listed on IDEAS

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    Cited by:

    1. Christian E. Weller, 2009. "Did Retirees Save Enough to Compensate for the Increase in Individual Risk Exposure?," Working Papers wp206, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. David A. Love & Paul A. Smith, 2010. "Does health affect portfolio choice?," Health Economics, John Wiley & Sons, Ltd., vol. 19(12), pages 1441-1460, December.
    3. Campbell, Doug & Weinberg, John A., 2015. "Are We Saving Enough? Households and Retirement," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 99-123.
    4. repec:dau:papers:123456789/11143 is not listed on IDEAS
    5. Karen E. Dynan & Donald L. Kohn, 2007. "The rise in U.S. household indebtedness: causes and consequences," Finance and Economics Discussion Series 2007-37, Board of Governors of the Federal Reserve System (U.S.).


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