The Trajectory of Wealth in Retirement
Center for retirement research at Boston College, February 2008
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.
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