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Empirical Strategy HRS and AHEAD Longitudinal Data, Focus on Last Observation Before Death Total Wealth Excluding 401(k) Wealth (Due to Data Limitations) and Annuitized Value of DB & SS Payments Wealth Distribution at Older Ages Can Inform the Analysis of Social Security Policy as well as Models of Saving Behavior 3
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What Determines End-of-Life Assets? A Retrospective View
James Poterba, Steven Venti & David WiseRRC Symposium, WashingtonAugust 5 2015
Growing Interest in Low Wealth at End of Life EBRI Study of HRS Data: “1 in 5 Americans
Die Broke” PVW (2012) Found Low Asset Levels for
Significant Group When Last Observed in HRS
How do Individuals Reach this Condition? Declining Wealth in Retirement vs. Low Wealth at Start?
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Empirical Strategy
HRS and AHEAD Longitudinal Data, Focus on Last Observation Before Death
Total Wealth Excluding 401(k) Wealth (Due to Data Limitations) and Annuitized Value of DB & SS Payments
Wealth Distribution at Older Ages Can Inform the Analysis of Social Security Policy as well as Models of Saving Behavior
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Wealth in Last Year Observed
Asset Interval Age 51-61 in 1992 Age 70+ in 1993< 0 14.9% 13.3%$0-50K 23.0 25.4$50-100K 9.4 10.8$100-250K 20.9 18.0$250-500K 12.5 15.6> $500K 19.3 17.1
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Sample: Individuals who died by 2012 and who were observed for at least eight years.
Three Questions
How Did Low-Wealth Individuals Reach that Point?
Do Low-Wealth Households Have Substantial Income to Support Them?
What Attributes Are Correlated with Low Late-Life Wealth?
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Wealth Holdings in First and Last Year Observed, 51-61 in 1992 Asset Interval LYO FYO< 0 14.9% 12.8%$0-50K 23.0 18.9$50-100K 9.4 14.2$100-250K 20.9 23.6$250-500K 12.5 17.0> $500K 19.3 13.6
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Sample: Individuals who died by 2012 and who were observed for at least eight years.
Wealth Holdings in First and Last Year Observed, 70+ in 1993Asset Interval LYO FYO< 0 13.3% 6.9%$0-50K 25.4 17.0$50-100K 10.8 12.7$100-250K 18.0 28.8$250-500K 15.6 19.3> $500K 17.1 15.4
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Sample: Individuals who died by 2012 and who were observed for at least eight years.
“Backward” Transition Probabilities
HRS: Pr(FYO < 0 │LYO < 0) = 0.482 Pr(FYO < $50K │ LYO < $50K) = 0.700
AHEAD: Pr(FYO < 0│LYO < 0) = 0.287 Pr(FYO < $50K │LYO < $50K) = 0.518
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“Forward” Transition Probabilities
HRS: Pr(LYO < 0 │FYO < 0) = 0.563 Pr(LYO < $50K │ FYO < $50K) = 0.840
AHEAD: Pr(LYO < 0│FYO < 0) = 0.552 Pr(LYO < $50K │FYO < $50K) = 0.838
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-200,000 -150,000 -100,000 -50,000 0 50,000 100,000 150,000 200,000-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
Figure 3-1b. Assets in LYO by assets in FYO, with axis truncated at $200,000
Assets in FYO
Ass
ets
in L
YO
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4738.1 36.7 34.9
23.9
82.8
19.716.6
32.8 37.476.1
17.233.3
45.330.5 27.7
0102030405060708090
100
< $25,000 $25,000 -$50,000
$50,000 -$75,000
$75,000 -$150,000
$150,000 -$350,000
> $350,000
Perc
enta
ge
Asset interval in FYO
Figure 2-1a. Percentage of persons with assets in LYO that were more/same/less than assets in FYO, by asset interval in FYO, persons age 51 to 61 in 1992
assets in lower interval in LYO assets in same interval in LYOassets in higher interval in LYO
Asset Balances in Last Year Observed (LYO), HRS Sample
< $0 $0 > $0Percent of Population 7.0% 7.9% 85.1%Mean Assets ($000) -25.7 0 474.8Median Assets ($000) -6.4 0 153.8Percent with Home Equity ≤ 0
91.6 (82.9 = 0)
100 17.5 (17.2 = 0)
Percent with Consumer Debt
95.3 0 26.3
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Asset Balances in Last Year Observed (LYO), AHEAD Sample
< $0 $0 > $0Percent of Population 1.8% 11.5% 86.7%Mean Assets ($000) -8.6 0 357.8Median Assets ($000) -2.3 0 145.9Percent with Home Equity ≤ 0
100(97 = 0)
100 41.8(41.6 = 0)
Percent with Consumer Debt
97.0 0 6.3
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Regression Summary:Wealth LYO vs. Wealth FYO AHEAD Sample: AssetsLYO, i = 18714 + 0.964*AssetsFYO,i
(3466) (0.010) HRS Sample: AssetsLYO, i = 11677 + 1.085*AssetsFYO,i
(5076) (0.013)
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Median Assets Each Year by LYO, Persons 70-75 in 1993
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1993 1995 1998 2000 2002 2004 2006 2008 2010 20120
50
100
150
200
250
300
asse
ts (i
n 00
0's)
Median Assets Each Year by LYO, Persons 56-61 in 1992
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1994 1996 1998 2000 2002 2004 2006 2008 2010 20120
50
100
150
200
250
300
350
asse
ts (i
n 00
0's)
Median Assets, Persons 70+ in 1993, 1→1 (dashed), 2→2 (solid)
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1994 1996 1998 2000 2002 2004 2006 2008 2010 20120
50
100
150
200
250
300
350
400
450
500
550
asse
ts (i
n 00
0's)
Expanded Regression Framework: ln(LYO) Depends on ln(FYO) + Covariates Estimate on Trimmed Sample (LYO >0
and FYO > 0) More Education and 2→2 Family Status
Positively Affect ln(LYO) Health Shocks Lower ln(LYO)
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Simulated Assets in Last Year If $100K in First Year, AHEADIndividual Characteristics
HS Degree College or Beyond
Mean Attributes $84,559 $111,752No Health Conditions
86,225 114,615
Health 25h Percentile
82,057 108,445
Health 75th Percentile
91,809 121,333
Family Status 2 → 1 70,453 93,109Family Status 2 → 2 104,448 138,037Stroke 80,981 107,023
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Annuity Income vs. Wealth in LYO, AHEAD SampleWealth in LYO Annuity Income
< $10K $10-20K $20-30K > $30K
< 0 36.8% 48.3% 9.4% 5.4%
$0-50K 23.5 48.1 18.4 9.9
$50-100K 16.5 46.6 22.5 14.4
$100-250K 9.8 41.2 24.3 24.6
$250-500K 6.2 30.6 31.8 31.4
> $500K 6.9 27.4 23.2 42.5
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Conclusions Most Households with Low Late-Life
Wealth Had Low Wealth at Retirement Many Low-Wealth Households Also Have
Low Annual Income Health Shocks Depress Assets in LYO Many Households Show Little Sign of
Drawing Down Assets Until Change in Family Status or Health Shock
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