Comments for:
What Determines End of Life Assets?
A Retrospective View
by James Poterba, Steven Venti, and David A. Wise
John Sabelhaus
Federal Reserve Board
These comments were prepared for the Retirement Research Consortium annual meeting
in Washington, D.C., August 8th and 9th, 2015. The analysis and conclusions set forth are
those of the author and do not indicate concurrence by other members of the research
staff or the Board of Governors of the Federal Reserve System.
Main Takeaways
• For most people, LYO assets ≈ FYO assets
• Often b/c financial assets very low
o 25% zero or less, next 35% less than $50k
o Did not run out of assets, never had any!
• Given FYO assets, as likely to rise as fall
• Observed asset declines for those with money
associated with health shocks, spousal exits
• No systematic consumption spend down
2
Lack of Consumption Spend Down?
• Builds on/confirms earlier PVW papers
• Love, Palumbo, Smith (2009) create broad
“annuitized” wealth (DC, DB, Social Security)
o Decumulation in DB and SS is systematic
o Standard model: medical cost risk, uncertain lives
o Still need bequest motive to explain patterns
• PVW add 2 to 1 person household transitions,
lack of decumulation probably still a mystery
3
Implications for Standard Lifecycle Model
• Utility functions should include health
o Health evolves with age (gradually or all at once)
o Utility of some consumption declines with health
o Health maintenance also involves labor input
• Bequests have value in some states of the world
o Savings is BOTH insurance and a possible bequest
• Young and middle age people have the option to
work more/longer when bad events happen
o Saving is retirees’ only protection against some shocks
4
Lack of Retirement Assets for Many?
• Many people retire with low financial assets
o Social Security + Medicare/Medicaid enough?
o Depends on retirement age, in turn on health
• Employment-based voluntary retirement
saving programs are incomplete/getting worse
o Auto enrollment and defaults do help
o Argento, Bryant, Sabelhaus (2014): Pre-retirement
leakage from IRAs and DC plans is substantial
o SCF shows low-to-middle income losing coverage
5
Retirement Plan Coverage by Birth Cohort, Bottom 50%
100%
90%
80%
70%
1941-1950
60%
1931-1940
1951-1960
50%
1961-1970
40%
1971-1980
30%
Notes: Each line represents a ten year birth cohort. The circles are
SCF observations for that cohort, centered on the middle of their
age range in the year when the SCF was conducted. Families are
sortedSource:
by the SCF
“usual”
income measure
avoid distortionary
Survey
of Consumer
Finances,to1995-2013
effects of transitory income on classification by income.
20%
10%
1981-1990
0%
20
25
30
35
40
Source: Devlin-Foltz, Henriques, Sabelhaus (2015)
45
50
Age
55
60
65
70
75
80
6
Retirement Plan Coverage by Birth Cohort, Bottom 50%
100%
90%
80%
70%
1941-1950
60%
1931-1940
1951-1960
50%
1961-1970
40%
1971-1980
30%
Notes: Each line represents a ten year birth cohort. The circles are
SCF observations for that cohort, centered on the middle of their
age range in the year when the SCF was conducted. Families are
sorted by the SCF “usual” income measure to avoid distortionary
Source: Survey of Consumer Finances, 1995-2013
effects of transitory income on classification by income.
20%
1981-1990
10%
0%
20
25
30
35
40
Source: Devlin-Foltz, Henriques, Sabelhaus (2015)
45
50
Age
55
60
65
70
75
80
7
Retirement Plan Coverage by Birth Cohort, Next 45%
100%
1951-1960
90%
1941-1950
1961-1970
1931-1940
80%
70%
1971-1980
60%
50%
40%
1981-1990
30%
Notes: Each line represents a ten year birth cohort. The circles are
SCF observations for that cohort, centered on the middle of their
age range in the year when the SCF was conducted. Families are
sorted by the SCF “usual” income measure to avoid distortionary
Source: Survey of Consumer Finances, 1995-2013
effects of transitory income on classification by income.
20%
10%
0%
20
25
30
35
40
Source: Devlin-Foltz, Henriques, Sabelhaus (2015)
45
50
Age
55
60
65
70
75
80
8
Retirement Plan Coverage by Birth Cohort, Top 5%
100%
90%
1961-1970
1951-1960
1931-1940
1941-1950
80%
70%
1981-1990 1971-1980
60%
50%
40%
30%
Notes: Each line represents a ten year birth cohort. The circles are
SCF observations for that cohort, centered on the middle of their
age range in the year when the SCF was conducted. Families are
sorted by the SCF “usual” income measure to avoid distortionary
effects of transitory income on classification by income.
20%
10%
0%
20
25
30
35
40
Source: Devlin-Foltz, Henriques, Sabelhaus (2015)
45
50
Age
55
60
65
70
75
80
9
Cohort Home Ownership Rates, Bottom 50%
100%
90%
80%
70%
1951-1960
1931-1940
1941-1950
60%
50%
1961-1970
40%
1971-1980
30%
Notes: Each line represents a ten year birth cohort. The circles are
SCF observations for that cohort, centered on the middle of their
age range in the year when the SCF was conducted. Families are
sorted by the SCF “usual” income measure to avoid distortionary
effects of transitory income on classification by income.
20%
10%
1981-1990
0%
20
25
30
35
Source: Devlin-Foltz, Sabelhaus (2015)
40
45
50
Age
55
60
65
70
75
80
Improving Social Security in Theory
• Focus on why the voluntary employmentbased system is only part of the solution
o Voluntary choice is a desirable feature
o Employment-based aspect problematic?
o Focus on more choice within Social Security?
• Eliminate real and imagined impediments to
work, retirement gradual for more people
• Preserve within/across-generation fairness in
the system, change both taxes and benefits
11
Improving Social Security in Practice
• Add voluntary actuarially-fair buy-down of FRA,
people age 50+ can save more in Social Security
• Eliminate behavioral (it’s my money) bias against
delayed claiming: guarantee some payout
• Eliminate Retirement Earnings Test
• Eliminate employee share of payroll tax after
(say) age 62 for people with long work histories
• Raise taxes now, tie future benefits to longevity
12
Thanks!
john.sabelhaus@frb.gov
Cites
• Argento, Robert, Victoria L. Bryant, and John
Sabelhaus. 2015. “Early Withdrawals from Retirement
Accounts in the Great Recession,” Contemporary
Economic Policy, 33(1): 1-16. (January)
• Devlin-Foltz, Sebastian, Alice Henriques, and John
Sabelhaus. 2015. “The Evolution of Retirement
Wealth,” Federal Reserve Board: Finance and
Economics Discussion Series 2015-9. (January)
• Devlin-Foltz, Sebastian, and John Sabelhaus. 2015.
“Heterogeneity in Economic Shocks and Household
Spending,” Federal Reserve Board: Finance and
Economics Discussion Series 2015-49. (June)
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