The Trajectory of Wealth in Retirement

David Love, Michael Palumbo and Paul Smith
Additional contact information
David Love: Williams College
Michael Palumbo: Federal Reserve Board, http://www.federalreserve.gov
Paul Smith: Federal Reserve Board, http://www.federalreserve.gov

No 2008-10, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: In this paper, we develop a measure of household resources that converts total financial, nonfinancial, and annuitized assets into an expected annual amount of wealth per person in retirement. We use this measure, which we call "annualized comprehensive wealth," to investigate spend-down behavior among a panel of older households in the Health and Retirement Study (HRS) from 1998 to 2006. Our analysis indicates that for most retired households, comprehensive wealth balances decline much more slowly than their remaining life expectancies, so that the predominate trend is for real annualized wealth actually to rise significantly with age over the course of retirement. Comparing the estimated age profiles for annualized wealth with profiles simulated from several different life cycle models, we find that a model that takes into account uncertain longevity, random medical expenses, and intended bequests lines up best with the broad patterns of rising annualized wealth in the HRS.

Keywords: Retirement wealth; life-cycle saving; mortality risk; precautionary saving; bequests; risk and uncertainty. (search for similar items in EconPapers)
JEL-codes: D91 E21 I10 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008-06
References: View references in EconPapers View complete reference list from CitEc
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Published in Journal of Public Economics, 2009, Vol. 93 (February), pp. 191-208.

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