Were They Prepared for Retirement? Financial Status at Advanced Ages in the Hrs and Ahead Cohorts

49 Pages Posted: 10 Feb 2012 Last revised: 29 Feb 2012

See all articles by James M. Poterba

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Steven F. Venti

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

David A. Wise

National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: February 2012

Abstract

Many analysts have considered whether households approaching retirement age have accumulated enough assets to be well prepared for retirement. In this paper, we shift from studying household finances at the start of the retirement period, an ex ante measure of retirement preparation, to studying the asset holdings of households in their last years of life. The analysis is based on Health and Retirement Study with special attention to Asset and Health Dynamics Among the Oldest Old (AHEAD) cohort that was first surveyed in 1993. We consider the level of assets that households hold in the last survey wave preceding their death. We study how assets at the end of life depend on three family status pathways prior to death - (1) original one-person households in 1993, (2) persons in two-person household in 1993 with a deceased spouse in the last year observed, and (3) persons in two-person households in 1993 with the spouse alive when last observed. We find that a substantial fraction of persons die with virtually no financial assets - 46.1 percent with less than $10,000 - and many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support. In addition this group is disproportionately in poor health. Based on a replacement rate comparison, many of these households may be deemed to have been well-prepared for retirement, in the sense that their income in their final years was not substantially lower than their income in their late 50s or early 60s. Yet with such low asset levels, they would have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities. This raises a question of whether the replacement ratio is a sufficient statistic for the "adequacy" of retirement preparation.

Suggested Citation

Poterba, James M. and Venti, Steven F. and Wise, David A., Were They Prepared for Retirement? Financial Status at Advanced Ages in the Hrs and Ahead Cohorts (February 2012). NBER Working Paper No. w17824. Available at SSRN: https://ssrn.com/abstract=2002576

James M. Poterba (Contact Author)

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Steven F. Venti

Dartmouth College - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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David A. Wise

National Bureau of Economic Research (NBER) ( email )

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Harvard University - Harvard Kennedy School (HKS)

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