What Accounts for the Variation in Retirement Wealth Among U.S. Households?
73 Pages Posted: 10 Jun 2000 Last revised: 7 Oct 2010
Date Written: October 1997
Household survey data consistently depict large variations in saving and wealth 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 for the presence or absence of these particular explanations for differences in wealth. Using" the Panel Study of Income Dynamics and the Consumer Expenditure Survey 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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