The Wealth Decumulation Behavior of the Retired Elderly in Japan: The Relative Importance of Precautionary Saving and Bequest Motives

Abstract

This paper analyzes the determinants of the wealth decumulation behavior of the retired elderly in Japan using unique information from two household surveys, and by so doing, attempts to assess the relative importance of precautionary saving and bequest motives in explaining the lower than expected rates of wealth decumulation of the retired elderly. Taken together, our analyses of these two datasets show that precautionary saving plays a relatively important role in explaining the lower than expected wealth decumulation rate of the retired elderly, at least in the case of Japan, even though both precautionary saving and bequest motives are important drivers behind this puzzle. Our results also suggest the possibility that financial burden of parental care may also affect the wealth decumulation behavior of the retired elderly in Japan. Given that parental care responsibilities tend to i The empirical work undertaken in this paper utilizes micro data from the Preference Parameters Study of Osaka University's 21 st Century Center of Excellence (COE) Program "Behavioral Macrodynamics Based on Surveys and Experiments" and its Global COE Project "Human Behavior and Socioeconomic Dynamics." We acknowledge the program/project's contributors─Yoshiro Tsutsui, Fumio Ohtake, and Shinsuke Ikeda. We also use data from the Survey on Households and Saving for our empirical analysis. We are grateful to the Yu-cho Foundation for providing us with these data. We are also grateful to

Is the selfish life-cycle model more applicable in Japan and, if so, why? A literature survey

“…In this section, we survey studies that attempt to estimate the contribution of saving for each motive to total household saving in Japan and other countries and consider whether or not the findings are consistent with the selfish lifecycle model. Our findings support the selfish life-cycle model because they show that 2 Horioka and Niimi (2017) and Niimi and Horioka (2019) point out that the rate of wealth decumulation of the retired elderly in Japan is slower than one might expect but show that this can be explained by the presence of precautionary saving and bequest motives, especially the former. See Ventura and Horioka (2020) for a similar analysis of the determinants of the saving behavior of the retired elderly in Italy.…”

“…Horioka (2006Horioka ( , 2010 and Horioka and Niimi (2017) analyze tabulated data on the retired elderly from the "Family Income and Expenditure Survey," which is conducted by the Statistic Bureau of the Japanese Ministry of Internal Affairs and Communications, and find that the saving rate of such households has fluctuated in the −40 to −10% range and that their decumulation rate of financial assets has fluctuated in the 1 to 3% range since 2000. 2 These findings constitute convincing evidence that the retired elderly in Japan are dissaving and suggest that the selfish life-cycle model applies in the case of Japan (see also Horioka et al (1996), Horioka and Niimi (2017), and Niimi and Horioka (2019)).…”

The Wealth Decumulation Behavior of the Retired Elderly in Italy: The Importance of Bequest Motives and Precautionary Saving

“…Niimi and Horioka (2019) distinguish between those intending to leave bequests for altruistic reasons and those intending to leave bequests for strategic reasons, but the above conclusions are unchanged regardless of which type of bequest one refers to.…”

“…Most obviously, it is related to the many studies that have been conducted in the United States and other countries that attempt to shed light on the relative importance of bequest motives and precautionary saving as explanations for the failure of the retired elderly to decumulate their wealth as quickly as expected. For examples, studies for the U.S. include Bernheim (1987), Hurd (1987), Weil (1994), Poterba, et al (2011), Palumbo (1999), Dynan, et al (2002), French, et al (2006), De Nardi, et al (2010, and Ameriks, et al (forthcoming), studies for Europe include Borsch-Supan (1992), Alessie, et al (1995Alessie, et al ( , 1999, and Dobrescu (2015), and studies for Japan include Horioka, et al (1996), Horioka (2010), Usuki, et al, (2016), Horioka and Niimi (2017), Murata (2018), and Niimi and Horioka (2019) (see Hurd, 1990, De Nardi, et al (2016, and Niimi and Horioka, 2019, for more comprehensive literature surveys). Virtually all of these studies find that both bequest motives and precautionary saving are important as explanations for the failure of the retired elderly to decumulate their wealth as quickly as expected.…”

Household Debt and Aging in Japan

“…In the case of Japan, since almost 70 percent of total financial wealth is held by households whose heads are age 60+ and more than 90 percent of financial net worth is held by such households, 3 empirical work to date has tended to focus more on analyzing possible reasons for the relatively slow wealth decumulation rates of the retired elderly (e.g., Horioka and Niimi 2017;Murata 2018;Niimi and Horioka 2019). Nevertheless, given that indebtedness is likely to have important implications for retirement security, this chapter seeks to examine whether the recent phenomenon of increased indebtedness among near retirees is unique to the US or whether it is also observed in another rapidly aging nation, Japan.…”