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Retirement Date Effects on Pre-Retirement Wealth Accumulation: An Analysis of US Households

  • Aylit Tina Romm
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    This paper uses seven waves of data from the US Health and Retirement Study to investigate the impact of expectations regarding the timing of retirement on pre-retirement wealth accumulation. More specifically, we analyze the effect of the individual's subjective belief that he will work full time after age 62 on his current level of wealth. We use the individual's perception of the usual retirement age on the job as an instrument for his subjective belief that he will work full time after age 62. We look at single women, single men and married individuals separately. On a whole, the point estimates suggest that the responsiveness of individuals saving behaviour to retirement dates expectations is large. A ten percent-age point increase in the subjective probability of working past age 62 results in a decrease in household wealth well in excess of 20% for most demographic groups. In addition, we find that, in the case of married couples in particular, there is a threshold effect in this response

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    Paper provided by Economic Research Southern Africa in its series Working Papers with number 266.

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    Length: 33 pages
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:rza:wpaper:266
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    1. Shelly J. Lundberg & Jennifer Ward-Batts, 2000. "Saving for Retirement: Household Bargaining and Household Net Worth," Working Papers wp004, University of Michigan, Michigan Retirement Research Center.
    2. Deborah A. Cobb-Clark & Vincent Hildebrand, 2003. "The Wealth and Asset Holdings of U.S.-Born and Foreign-Born Households: Evidence from SIPP Data," Social and Economic Dimensions of an Aging Population Research Papers 89, McMaster University.
    3. Christopher D. Carroll & Karen E. Dynan & Spencer D. Krane, 1999. "Unemployment risk and precautionary wealth: evidence from households' balance sheets," Finance and Economics Discussion Series 1999-15, Board of Governors of the Federal Reserve System (U.S.).
    4. Michael D. Hurd & Daniel L. McFadden & Li Gan, 1998. "Subjective Survival Curves and Life Cycle Behavior," NBER Chapters, in: Inquiries in the Economics of Aging, pages 259-309 National Bureau of Economic Research, Inc.
    5. King, M A & Dicks-Mireaux, L-D L, 1982. "Asset Holdings and the Life-Cycle," Economic Journal, Royal Economic Society, vol. 92(366), pages 247-67, June.
    6. Michael Hurd & Susann Rohwedder, 2004. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," Working Papers wp069, University of Michigan, Michigan Retirement Research Center.
    7. Eric French, 2000. "The effects of health, wealth, and wages on labor supply and retirement behavior," Working Paper Series WP-00-2, Federal Reserve Bank of Chicago.
    8. Eric M. Engen & William G. Gale, 2000. "The Effects of 401(k) Plans on Household Wealth: Differences Across Earnings Groups," NBER Working Papers 8032, National Bureau of Economic Research, Inc.
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    11. Christopher D. Carroll & Andrew A. Samwick, 1995. "How Important is Precautionary Saving?," NBER Working Papers 5194, National Bureau of Economic Research, Inc.
    12. Steven J. Haider & Melvin Stephens, 2007. "Is There a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Expectations," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 247-264, May.
    13. James Banks & Richard Blundell & Sarah Tanner, 1995. "Is there a retirement-savings puzzle?," IFS Working Papers W95/04, Institute for Fiscal Studies.
    14. V. Kerry Smith & Donald H. Taylor & Frank A. Sloan, 2001. "Longevity Expectations and Death: Can People Predict Their Own Demise?," American Economic Review, American Economic Association, vol. 91(4), pages 1126-1134, September.
    15. John Laitner & Dan Silverman, 2005. "Estimating Life—Cycle Parameters from Consumption Behavior at Retirement”," Working Papers wp099, University of Michigan, Michigan Retirement Research Center.
    16. Ahmed Khwaja & Frank Sloan & Sukyung Chung, 2007. "The relationship between individual expectations and behaviors: Mortality expectations and smoking decisions," Journal of Risk and Uncertainty, Springer, vol. 35(2), pages 179-201, October.
    17. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
    18. Michael D. Hurd & Kathleen McGarry, 1993. "Evaluation of Subjective Probability Distributions in the HRS," NBER Working Papers 4560, National Bureau of Economic Research, Inc.
    19. Michael Hurd & Kathleen McGarry, 1993. "The Relationship Between Job Characteristics and Retirement," NBER Working Papers 4558, National Bureau of Economic Research, Inc.
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    21. Christopher D. Carroll & Andrew A. Samwick, 1995. "The Nature of Precautionary Wealth," NBER Working Papers 5193, National Bureau of Economic Research, Inc.
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