What Determines End-of-Life
Assets? A Retrospective View
James Poterba, Steven Venti &
David Wise
RRC Symposium, Washington
August 5 2015
1
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?
2
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
Wealth in Last Year Observed
Asset Interval
<0
$0-50K
$50-100K
$100-250K
$250-500K
> $500K
Age 51-61 in 1992
14.9%
23.0
9.4
20.9
12.5
19.3
Age 70+ in 1993
13.3%
25.4
10.8
18.0
15.6
17.1
Sample: Individuals who died by 2012 and who were observed for at least
eight years.
4
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?
5
Wealth Holdings in First and Last
Year Observed, 51-61 in 1992
Asset Interval
<0
$0-50K
$50-100K
$100-250K
$250-500K
> $500K
LYO
14.9%
23.0
9.4
20.9
12.5
19.3
FYO
12.8%
18.9
14.2
23.6
17.0
13.6
Sample: Individuals who died by 2012 and who were observed for at least
eight years.
6
Wealth Holdings in First and Last
Year Observed, 70+ in 1993
Asset Interval
<0
$0-50K
$50-100K
$100-250K
$250-500K
> $500K
LYO
13.3%
25.4
10.8
18.0
15.6
17.1
FYO
6.9%
17.0
12.7
28.8
19.3
15.4
Sample: Individuals who died by 2012 and who were observed for at least
eight years.
7
“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
8
“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
9
Figure 3-1b. Assets in LYO by assets in FYO, with axis
truncated at $200,000
200,000
150,000
Assets in LYO
100,000
50,000
0
-50,000
-100,000
-150,000
-200,000
-200,000 -150,000 -100,000 -50,000
0
50,000
Assets in FYO
100,000 150,000 200,000
10
Percentage
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
100
90
80
70
60
50
40
30
20
10
0
17.2
33.3
30.5
45.3
76.1
19.7
16.6
82.8
47
< $25,000
$25,000 $50,000
27.7
38.1
32.8
37.4
36.7
34.9
$50,000 $75,000 $75,000
$150,000
Asset interval in FYO
assets in lower interval in LYO
$150,000 $350,000
23.9
> $350,000
assets in same interval in LYO
assets in higher interval in LYO
11
Asset Balances in Last Year
Observed (LYO), HRS Sample
< $0
$0
> $0
Percent of Population
7.0%
7.9%
85.1%
Mean Assets ($000)
-25.7
0
474.8
Median Assets ($000)
-6.4
0
153.8
Percent with Home
Equity ≤ 0
91.6
(82.9 = 0)
100
17.5
(17.2 = 0)
Percent with Consumer
Debt
95.3
0
26.3
12
Asset Balances in Last Year
Observed (LYO), AHEAD Sample
< $0
$0
> $0
Percent of Population
1.8%
11.5%
86.7%
Mean Assets ($000)
-8.6
0
357.8
Median Assets ($000)
-2.3
0
145.9
Percent with Home
Equity ≤ 0
100
(97 = 0)
100
41.8
(41.6 = 0)
Percent with Consumer
Debt
97.0
0
6.3
13
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)
14
Median Assets Each Year by
LYO, Persons 70-75 in 1993
300
assets (in 000's)
250
200
150
100
50
0
1993
1995
1998
2000
2002
2004
2006
2008
2010
2012
15
Median Assets Each Year by
LYO, Persons 56-61 in 1992
350
300
assets (in 000's)
250
200
150
100
50
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
16
Median Assets, Persons 70+ in
1993, 1→1 (dashed), 2→2 (solid)
550
500
450
assets (in 000's)
400
350
300
250
200
150
100
50
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
17
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)
18
Simulated Assets in Last Year If
$100K in First Year, AHEAD
Individual
Characteristics
HS Degree
College or Beyond
Mean Attributes
$84,559
$111,752
No 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
93,109
Family Status 2 → 2 104,448
138,037
Stroke
107,023
80,981
19
Annuity Income vs. Wealth in
LYO, AHEAD Sample
Wealth 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
20
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
21