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What Accounts for the Variation in Retirement Wealth Among U.S. Households?

  • B. Douglas Bernheim
  • Jonathan Skinner
  • Steven Weinberg

September 1997 Household survey data consistently depict large variations in saving and wealth, even among households with similar socio-economic characteristics. Within the context of the life cycle hypothesis, families with identical lifetime resources might choose to accumulate different levels of wealth for a variety of reasons, including variation in time preference rates, risk tolerance, exposure to uncertainty, relative tastes for work and leisure at advanced ages, income replacement rates, and so forth. These factors can be divided into a small number of classes, each with a distinctive implication concerning the relation between accumulated wealth and the shape of the consumption profile. By examining this relation empirically, one can test for the presence or absence of particular factors. Using the Panel Study of Income Dynamics and the Consumer Expenditure Survey, we find very little support for life cycle models that rely on the above factors to explain wealth variation. The data are, however, consistent with “rule of thumb” or “mental accounting” theories of wealth accumulation.

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 97035.

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Date of creation: Sep 1997
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Handle: RePEc:wop:stanec:97035
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  1. B. Douglas Bernheim, 1992. "How Strong are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities," NBER Working Papers 2942, National Bureau of Economic Research, Inc.
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