The Trajectory of Wealth in Retirement

52 Pages Posted: 6 Dec 2007 Last revised: 15 Jan 2009

See all articles by David A. Love

David A. Love

Williams College - Department of Economics

Michael Palumbo

Board of Governors of the Federal Reserve System

Paul A. Smith

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: January 9, 2008

Abstract

As the baby boomers begin to retire, a great deal remains unknown about the evolution of wealth toward the end of life. In this paper, we develop a new measure of household resources that converts total financial, nonfinancial, and annuitized assets into an expected annual amount of wealth per person. We use this measure, which we call annualized comprehensive wealth, to investigate spend-down behavior among older households in the Health and Retirement Study. Our analysis indicates that, in (real) dollar terms, the median household's wealth declines more slowly than its remaining life expectancy, so that real annualized wealth actually tends to rise with age over 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, uncertain medical expenses, and (for higher-income retirees) intended bequests lines up best with the HRS data.

Keywords: Retirement wealth, mortality risk, precautionary saving, bequests, risk and uncertainty

JEL Classification: G22

Suggested Citation

Love, David A. and Palumbo, Michael G. and Smith, Paul A., The Trajectory of Wealth in Retirement (January 9, 2008). FEDS Working Paper No. 2008-13, Available at SSRN: https://ssrn.com/abstract=1055641 or http://dx.doi.org/10.2139/ssrn.1055641

David A. Love

Williams College - Department of Economics ( email )

South Academic Building, RM 202
Williamstown, MA 01267
United States

Michael G. Palumbo

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2296 (Phone)

Paul A. Smith (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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