Do Households Have Enough Wealth for Retirement?

Abstract

Dramatic structural changes in the U.S. pension system, along with the impending wave of retiring baby boomers, have given rise to a broad policy discussion of the adequacy of household retirement wealth. We construct a uniquely comprehensive measure of wealth for households aged 51 and older in 2004 that includes expected wealth from Social Security, defined benefit pensions, life insurance, annuities, welfare payments, and future labor earnings. Abstracting from the uncertainty surrounding asset returns, length of life and medical expenses, we assess the adequacy of wealth using two expected values: an annuitized value of comprehensive wealth and the ratio of comprehensive wealth to the actuarial present value of future poverty lines. We find that most households in these older cohorts can expect to have sufficient total resources to finance adequate consumption throughout retirement, taking as given expected lifetimes and current Social Security benefits. We find a median annuity value of wealth equal to $32,000 per person per year in expected value and a median ratio of comprehensive wealth to poverty-line wealth of 3.56. About 12 percent of households, however, do not have sufficient wealth to finance consumption equal to the poverty line over their expected lifetimes, even after including the value of Social Security and welfare benefits, and an additional 9 percent can expect to be relatively close to the poverty line.

Health shocks and mortgage debt payoff among American homeowners over age 50: A survival analysis

“…Mortgage debt could also entail the opportunity cost of forgone savings since the repayment of a contracted financial obligation may take priority over saving (CFPB, 2014). Pre‐retirees aged 51–56 have a median saving of $47,500 (Love et al, 2007), suggesting that they may not have saved adequately to maintain the standard of living they had in their working years. When cash is allocated to mortgage payments and locked up in home equity, liquidating assets in an emergency may be more difficult (Webb, 2009).…”

Chapter 5 The Role of Individual Retirement Accounts in US Retirement Planning

“…In addition, some employees have an individual account in an employer-sponsored defined benefit plan (mainly in cash balance plans) and many can opt to receive a lump-sum distribution from their company defined benefit plans. 2 See, for instance,Copeland (2007);Love, Smith, and McNair (2007);Poterba, Venti, and Wise (2007);Blitzstein, Mitchell, and Utkus (2006); Holden, Brady, and Hadley (2006); VanDerhei,Copeland, and Salisbury (2006);Holden et al (2005);Holden and VanDerhei (2005, 2002a, 2002b and Mitchell and Utkus (2004).3 For example, seeCopeland (2005); Investment Company Institute (ICI) (2000a, 2000b); Sabelhaus(2000);Burman, Coe, and Gale (1999);Purcell (1999); Sabelhaus and Weiner (1999);Wise (1999, 1995); andChang (1996). 4 For more discussion, seeHolden et al (2005) andHolden, Brady, and Hadley (2006) 5.…”

The Future Shock of Retirement

“…Recent work in this field suggests that 88% of households have wealth sufficient to fund a standard of living above the poverty line. 4 Our analysis uses the calculation methodology and selected computations from Love, Smith and McNair [2007]. 3.…”