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Health, Education, and the Post-Retirement Evolution of Household Assets

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

Abstract

This paper explores the relationship between education and the evolution of wealth after retirement. Asset growth following retirement depends in part on health capital and financial capital accumulated prior to retirement, which in turn are strongly related to educational attainment. These "initial conditions" for retirement can have a lingering effect on subsequent asset evolution. Our aim is to disentangle the effects of education on post-retirement asset evolution that operate through health and financial capital accumulated prior to retirement from the effects of education that impinge directly on asset evolution after retirement. We consider the indirect effect of education through financial resources--in particular Social Security benefits and defined benefit pension benefits--and through health capital that was accumulated before retirement. We also consider the direct effect of education on asset growth following retirement, emphasizing the correlation between education and the returns households earn on their post-retirement investments. Households with different levels of education invest, on average, in different assets, and they may consequently earn different rates of return. Finally, we consider the additional effects of education that are not captured through these pathways. Our empirical findings suggest a substantial association between education and the evolution of assets. For example, for two person households the growth of assets between 1998 and 2008 is on average much greater for college graduates than for those with less than a high school degree. This difference ranges from about $82,000 in the lowest asset quintile to over $600,000 in the highest.

Suggested Citation

  • James M. Poterba & Steven F. Venti & David A. Wise, 2013. "Health, Education, and the Post-Retirement Evolution of Household Assets," NBER Working Papers 18695, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18695 Note: AG HC
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    References listed on IDEAS

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    Cited by:

    1. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, pages 5-44.
    2. Poterba, James M. & Venti, Steven F. & Wise, David A., 2017. "The asset cost of poor health," The Journal of the Economics of Ageing, Elsevier, vol. 9(C), pages 172-184.
    3. Alain Jousten & Mathieu Lefebvre, 2016. "Work Capacity and Longer Working Lives in Belgium," NBER Chapters,in: Social Security Programs and Retirement Around the World: The Capacity to Work at Older Ages, pages 35-58 National Bureau of Economic Research, Inc.
    4. repec:spr:inrvec:v:64:y:2017:i:2:d:10.1007_s12232-017-0279-2 is not listed on IDEAS
    5. repec:eee:joecag:v:6:y:2015:i:c:p:133-148 is not listed on IDEAS
    6. Alan L. Gustman & Thomas L. Steinmeier, 2014. "The Role of Health in Retirement," NBER Working Papers 19902, National Bureau of Economic Research, Inc.
    7. Paul Bingley & Nabanita Datta Gupta & Peder J. Pedersen, 2016. "Health Capacity to Work at Older Ages in Denmark," NBER Chapters,in: Social Security Programs and Retirement Around the World: The Capacity to Work at Older Ages, pages 85-110 National Bureau of Economic Research, Inc.
    8. Courtney Coile & Kevin Milligan & David A. Wise, 2014. "Introduction to "Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement"," NBER Chapters,in: Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement, pages 1-44 National Bureau of Economic Research, Inc.
    9. Courtney Coile & Kevin S. Milligan & David A. Wise, 2014. "Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement - Introduction and Summary," NBER Working Papers 20120, National Bureau of Economic Research, Inc.
    10. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, pages 5-44.
    11. Venti, Steven & Wise, David A., 2015. "The long reach of education: Early retirement," The Journal of the Economics of Ageing, Elsevier, vol. 6(C), pages 133-148.
    12. Steven F. Venti, 2013. "Comment on "A Comparison of Different Measures of Health and their Relation to Labor Force Transitions at Older Ages"," NBER Chapters,in: Discoveries in the Economics of Aging, pages 151-156 National Bureau of Economic Research, Inc.
    13. James Banks & Carl Emmerson & Gemma Tetlow, 2016. "Health Capacity to Work at Older Ages: Evidence from the United Kingdom," NBER Chapters,in: Social Security Programs and Retirement Around the World: The Capacity to Work at Older Ages, pages 329-357 National Bureau of Economic Research, Inc.
    14. James Banks & Carl Emmerson & Gemma C. Tetlow, 2014. "Effect of Pensions and Disability Benefits on Retirement in the UK," NBER Working Papers 19907, National Bureau of Economic Research, Inc.
    15. Alexandra Spicer & Olena Stavrunova & Susan Thorp, 2016. "How Portfolios Evolve after Retirement: Evidence from Australia," The Economic Record, The Economic Society of Australia, vol. 92(297), pages 241-267, June.
    16. Ludovico Carrino & Cristina Elisa Orso & Giacomo Pasini, 2015. "Demand of Long-Term Care and benefit eligibility across European countries," Working Papers 2015:26, Department of Economics, University of Venice "Ca' Foscari".
    17. Duca, John V. & Kumar, Anil, 2014. "Financial literacy and mortgage equity withdrawals," Journal of Urban Economics, Elsevier, pages 62-75.
    18. James Banks & Carl Emmerson & Gemma Tetlow, 2014. "Effect of Pensions and Disability Benefits on Retirement in the United Kingdom," NBER Chapters,in: Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement, pages 81-136 National Bureau of Economic Research, Inc.
    19. John Ameriks & Joseph S. Briggs & Andrew Caplin & Matthew D. Shapiro & Christopher Tonetti, 2015. "Long-Term-Care Utility and Late-in-Life Saving," NBER Working Papers 20973, National Bureau of Economic Research, Inc.
    20. Arie Kapteyn & Erik Meijer, 2013. "A Comparison of Different Measures of Health and their Relation to Labor Force Transitions at Older Ages," NBER Chapters,in: Discoveries in the Economics of Aging, pages 115-150 National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality

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