and Abstract: This project is designed to provide new information on the degree to which American households are financially well-prepared for retirement. We rely on an augmented life-cycle model, modified to incorporate essential aspects of the various pieces of the problems that we study, to conduct our work. We focus on two factors that the literature (and we) believe are important influences on the wealth available for retirement. First, despite a vast literature relying on the life-cycle model to examine wealth accumulation, few papers focus on the role of children. Our work will highlight the role children play in wealth accumulation. In doing so, we compare the effects of children on wealth to the effects if asset- and income-tested transfers on wealth. Our work also has potentially important implications for thinking about Social Security replacement rates. Second, we will examine the role of pensions on non-pension wealth accumulation. While a large prior literature examines this topic, our work differs by accounting fully for lifetime (past and future) resources. More importantly, past estimates of the effects of pensions on non-pension wealth accumulation are difficult to interpret if there is a mixture of credit constrained and unconstrained households in the samples used for estimation. We clarify these issues and offer a new way of thinking about the effects of pensions on wealth accumulation. Our third proposed project will examine the way in which wealth interacts with retirement expectations and retirement. One way for some households to respond to actual or perceived shortfalls (surpluses) in retirement wealth is to defer (hasten) retirement. We will use differences between actual and optimal net worth (derived from an augmented life cycle model with uncertainty) to study the way retirement expectations and wealth are correlated with retirement decisions. We will also develop and estimate the parameters from a new model of retirement. Our fourth project will provide a comprehensive look at the adequacy of retirement wealth preparation of households in different U.S. birth cohorts. In earlier work we showed that the original HRS cohort, born between 1931 and 1941, overwhelmingly were on track in 1992 to having resources in retirement necessary to maintain their accustomed living standards. A critical unresolved issue, however, is the degree to which these results hold for other cohorts, particularly those born after 1941. Our proposed work will answer this question.
We propose new fundamental analyses of factors central to understanding the living standards of Americans in and prior to retirement. There is a well-documented association between wealth and health. Understanding the factors associated with wealth accumulation may improve understanding of the health-wealth relationship. Moreover, consumption and health are fundamental inputs to the well-being of elderly households. Our work will provide new models and empirical work on factors influencing consumption and hence, well-being.
