The Comprehensive Wealth of
Immigrants and Natives
David Love and Lucie Schmidt
Williams College
Retirement Research Consortium Annual Meeting
August 6, 2015
Motivation
• The 1965 Immigration and Nationality Act changed
the composition of immigrants arriving in the U.S.
• A large literature has investigated relative earnings of
immigrants and natives, both at time of entry to the
U.S., as well as convergence over time
• Less is known about relative wealth accumulation
and the preparation of immigrants for retirement
Contributions
• Calculate measures of comprehensive wealth for
immigrants and natives using 1998-2012 HRS
• Examine median profiles of annualized wealth over
the retirement period
• Use a life-cycle framework to try to understand
observed trajectories of annualized wealth
• Estimate descriptive regressions of levels and growth
rates of annualized wealth
Immigrant Retirement Resources
• Lower actual and projected SS benefits (Cohen and Iams,
2007; Favreault and Nichols, 2011; Sevak and Schmidt,
2014)
– Higher replacement rate due to progressive nature of SSA
formula (Gustman and Steinmeier, 2000)
– Older immigrants have higher employment rates, in part to
accumulate necessary work credits (Borjas, 2010)
• Lower levels of private wealth
– Lower savings rates (Carroll et al., 1994, 1999)
– Lower levels of net worth (Cobb-Clark and Hildebrand, 2006;
Favreault and Nichols, 2011; Sevak and Schmidt, 2014)
– Lower levels of pension coverage (Heim et al., 2012)
Immigrant Retirement Resources
• Lower rates of homeownership (Borjas 2002)
– Conditional on homeownership, higher levels of home
equity (Chatterjee and Zahirovic-Herbert 2011; Sevak
and Schmidt, 2014)
• Both years in the US and country of origin matter in
explaining immigrant-native differentials in retirement
resources
Comprehensive Wealth
• Financial wealth: checking, saving, money-market, CDs,
stocks, bonds, mutual funds, retirement accounts, and
trusts, net of non-mortgage debts
• Non-financial wealth: housing, businesses, vehicles, and
investment real estate, net of debt
• Annuitized wealth: Social Security, DB pensions, future
wages, annuities, life insurance, veterans payments, SSI,
and food stamps
Annualizing Wealth
• Price of a joint-life annuity that pays $x > 1 when
both members are alive and $1 when one member is
alive
• Similar to permanent income, but adjusts for
longevity and (potentially) household scale
economies
• If annualized wealth is rising (falling), it signals slow
(fast) drawdown of resources
Why Would Annualized Wealth
Increase with Age?
• Standard life-cycle model predicts downward-sloping
profiles of annualized wealth
• Declining survival probabilities mean that
households should discount the future at an
increasing rate as they age
• What might explain upward-sloping age profiles of
annualized wealth?
– Bequests
– Uncertain medical costs
– Housing
AW and Immigrant Cohorts
Native-Immigrant AW Differences
Controlling for Observables
Baseline
+ Demographics
+ Life-Cycle
+ Origins
-0.748***
-0.138
-0.175**
-0.110
Immigrated 1955-1964
0.146
0.112
0.090
0.114
Immigrated 1965-1974
-0.165**
-0.104
-0.052
0.013
Immigrated 1975-1984
-0.306***
-0.258*
-0.199**
-0.131
Immigrated 1985+
-0.388**
-0.659***
-0.476***
-0.404***
Immigrant
Median regressions of log AW controlling for year effects and other covariates.
Within-Immigrant AW Differences
Controlling for Observables
Baseline
+ Demographics
+ Life-Cycle
+ Origins
Immigrated 1955-1964
0.034
0.167*
0.111*
0.162**
Immigrated 1965-1974
-0.469***
-0.219***
-0.199***
-0.074
Immigrated 1975-1984
-0.672***
-0.386***
-0.314***
-0.151**
Immigrated 1985+
-0.981***
-0.820***
-0.684***
-0.537***
Median regressions of log AW controlling for year effects and other covariates.
Conclusions
• Immigrants have less total wealth than natives, but
decumulate more slowly
• Earlier waves of immigrants look similar to natives in
terms of annualized wealth
• More recent waves of immigrants have accumulated
lower annualized wealth
• Demographics, life-cycle factors, and country-oforigin explain some of the differences, but not all