Lifetime Earnings Variability and Retirement Wealth

42 Pages Posted: 14 Feb 2008

See all articles by Olivia S. Mitchell

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

John W. R. Phillips

National Institutes on Aging

Andrew Au

University of Pennsylvania - The Wharton School

David McCarthy

Imperial College Business School

Date Written: June 1, 2003

Abstract

This paper explores how earnings variability is related to retirement wealth. Past research has demonstrated that the average American household on the verge of retirement would need to save substantially more, in order to preserve consumption flows in old age. While several socioeconomic factors have been examined that might explain such problems, prior studies have not assessed the role of earnings variability over the lifetime as a potential explanation for poor retirement prospects. Thus two workers having identical levels of average lifetime earnings might have had very different patterns of earnings variability over their lifetimes. Such differences could translate into quite different retirement wealth outcomes. This paper evaluates the effect of earnings variability on retirement wealth using information supplied by respondents to the Health and Retirement Study (HRS). This is a rich and nationally representative dataset on Americans on the verge of retirement, with responses linked to administrative records from the Social Security Administration. Our research illuminates the key links between lifetime earnings variability and retirement wealth.

Suggested Citation

Mitchell, Olivia S. and Phillips, John W. R. and Au, Andrew and McCarthy, David, Lifetime Earnings Variability and Retirement Wealth (June 1, 2003). Michigan Retirement Research Center Research Paper No. WP 2003-051. Available at SSRN: https://ssrn.com/abstract=1091441 or http://dx.doi.org/10.2139/ssrn.1091441

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John W. R. Phillips

National Institutes on Aging ( email )

Building 31, Room 5C27
31 Center Drive, MSC 2292
Bethesda, MD 20892
United States

Andrew Au

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

David McCarthy

Imperial College Business School ( email )

South Kensington Campus
Room 312
London SW7 2AZ
United Kingdom

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