Longitudinal Determinants of End-of-Life Wealth Inequality.

Inequality in wealth among elderly households, and in particular the prevalence of very low wealth holdings, can be an important consideration in the design of social insurance programs. This paper examines the incidence and determinants of low levels of financial and total wealth using repeated cross-sections of the Health and Retirement Study (HRS) and a small longitudinal sample of HRS respondents observed both at age 65 and shortly before death. Most of those who report very low wealth holdings at the end of their life had little wealth at the traditional retirement age of 65. There is strong persistence over time in reports of very low wealth, and more generally relatively little evidence that wealth is drawn down in the first 15 years of retirement. The age-specific probability of reporting low wealth increases slowly after age 65. Low lifetime earnings are strongly predictive of low wealth at retirement and at the end of life. The post-retirement onset of a major medical condition, and, for married women, the loss of their spouse, are both associated with small increases in the probability of reporting very low wealth, but they account for a small fraction of low-wealth outcomes. Low levels of wealth accumulation before age 65, rather than gaps in the safety net after 65 or rapid spend-down of accumulated assets, appear to be the primary determinant of low levels of wealth just before death.

Does Retiree Health Insurance Encourage Early Retirement?

The strong link between health insurance and employment in the United States may cause workers to delay retirement until they become eligible for Medicare at age 65. However, some employers extend health insurance benefits to their retirees, and individuals who are eligible for such retiree health benefits need not wait until age 65 to retire with group health coverage. We investigate the impact of retiree health insurance on early retirement using employee-level data from 54 diverse firms that are clients of Towers Watson, a leading benefits consulting firm. We find that retiree health coverage has its strongest effects at ages 62 through 64. Coverage that includes an employer contribution is associated with a 6.3 percentage point (36.2 percent) increase in the probability of turnover at age 62, a 7.7 percentage point (48.8 percent) increase in the probability of turnover at age 63, and a 5.5 percentage point (38.0 percent) increase in the probability of turnover at age 64. Conditional on working at age 57, such coverage reduces the expected retirement age by almost three months and reduces the total number of person-years worked between ages 58 and 64 by 5.6 percent.

THE LONG REACH OF EDUCATION: EARLY RETIREMENT.

The goal of this paper is to draw attention to the long lasting effect of education on economic outcomes. We use the relationship between education and two routes to early retirement - the receipt of Social Security Disability Insurance (DI) and the early claiming of Social Security retirement benefits - to illustrate the long-lasting influence of education. We find that for both men and women with less than a high school degree the median DI participation rate is 6.6 times the participation rate for those with a college degree or more. Similarly, men and women with less than a high school education are over 25 percentage points more likely to claim Social Security benefits early than those with a college degree or more. We focus on four critical "pathways" through which education may indirectly influence early retirement - health, employment, earnings, and the accumulation of assets. We find that for women health is the dominant pathway through which education influences DI participation. For men, the health, earnings, and wealth pathways are of roughly equal magnitude. For both men and women the principal channel through which education influences early Social Security claiming decisions is the earnings pathway. We also consider the direct effect of education that does not operate through these pathways. The direct effect of education is much greater for early claiming of Social Security benefits than for DI participation, accounting for 72 percent of the effect of education for men and 67 percent for women. For women the direct effect of education on DI participation is not statistically significant, suggesting that the total effect may be through the four pathways.

Health, Education, and the Post-Retirement Evolution of Household Assets.

We explore the relationship between education and the evolution of wealth after retirement. Asset growth following retirement depends in part on health capital and financial capital accumulated prior to retirement, which in turn are strongly related to educational attainment. These "initial conditions" at retirement can have a lingering effect on subsequent asset evolution. We aim to disentangle the effects of education that operate through health and financial pathways (such as Social Security benefits and the general level of health) prior to retirement from the effects of education that impinge directly on asset evolution after retirement. We also consider the additional effects of education that are not captured through these pathways. We find a substantial effect of education on asset growth through each of the pathways as well as a substantial additional effect not captured by the identified pathways.

Facilitating longer working lives: international evidence on why and how.

The article advances the view that social and economic choices in societies can reasonably adjust as the age structure of the population changes; in particular, some of the bounty of longer lives can reasonably be allocated to prolonging the labor force participation of older workers. Data on reductions in mortality and, in some countries, declines in disability are presented in ways that help to clarify that prolonged working lives may be a natural concomitant of living longer. The article reviews the problems inherent in the combination of living longer and reducing labor force participation at older ages. It discusses two ways to facilitate longer working lives: (1) eliminating penalties on work at older ages--inherent in the provisions of the social security programs in many countries--that induce older persons to leave the labor force at younger ages; and (2) correcting a false rationale--the "boxed economy" view of the labor market--that is often used to support retention of the provisions that induce older persons to leave the labor force.

The shift from defined benefit pensions to 401(k) plans and the pension assets of the baby boom cohort.

The rise of 401(k) plans and the decline of defined benefit plans will have an important effect on the wealth of future retirees. Changing demographic structure also will affect the aggregate stock of retirement wealth. We project the stock of assets held in retirement plans and the average retirement saving of retirees through 2040. Our projections show large increases in wealth at retirement, especially if the returns on corporate equities are comparable with historical returns. Retirement wealth will grow, however, even if equity returns fall substantially below their historical level.