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What Determines End-of-Life Assets? A Retrospective View

James Poterba, Steven Venti & David WiseRRC Symposium, WashingtonAugust 5 2015

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?

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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

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Wealth in Last Year Observed

Asset Interval Age 51-61 in 1992 Age 70+ in 1993< 0 14.9% 13.3%$0-50K 23.0 25.4$50-100K 9.4 10.8$100-250K 20.9 18.0$250-500K 12.5 15.6> $500K 19.3 17.1

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Sample: Individuals who died by 2012 and who were observed for at least eight years.

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?

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Wealth Holdings in First and Last Year Observed, 51-61 in 1992 Asset Interval LYO FYO< 0 14.9% 12.8%$0-50K 23.0 18.9$50-100K 9.4 14.2$100-250K 20.9 23.6$250-500K 12.5 17.0> $500K 19.3 13.6

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Sample: Individuals who died by 2012 and who were observed for at least eight years.

Wealth Holdings in First and Last Year Observed, 70+ in 1993Asset Interval LYO FYO< 0 13.3% 6.9%$0-50K 25.4 17.0$50-100K 10.8 12.7$100-250K 18.0 28.8$250-500K 15.6 19.3> $500K 17.1 15.4

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Sample: Individuals who died by 2012 and who were observed for at least eight years.

“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

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“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

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-200,000 -150,000 -100,000 -50,000 0 50,000 100,000 150,000 200,000-200,000

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

200,000

Figure 3-1b. Assets in LYO by assets in FYO, with axis truncated at $200,000

Assets in FYO

Ass

ets

in L

YO

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4738.1 36.7 34.9

23.9

82.8

19.716.6

32.8 37.476.1

17.233.3

45.330.5 27.7

0102030405060708090

100

< $25,000 $25,000 -$50,000

$50,000 -$75,000

$75,000 -$150,000

$150,000 -$350,000

> $350,000

Perc

enta

ge

Asset interval in FYO

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

assets in lower interval in LYO assets in same interval in LYOassets in higher interval in LYO

Asset Balances in Last Year Observed (LYO), HRS Sample

< $0 $0 > $0Percent of Population 7.0% 7.9% 85.1%Mean Assets ($000) -25.7 0 474.8Median Assets ($000) -6.4 0 153.8Percent with Home Equity ≤ 0

91.6 (82.9 = 0)

100 17.5 (17.2 = 0)

Percent with Consumer Debt

95.3 0 26.3

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Asset Balances in Last Year Observed (LYO), AHEAD Sample

< $0 $0 > $0Percent of Population 1.8% 11.5% 86.7%Mean Assets ($000) -8.6 0 357.8Median Assets ($000) -2.3 0 145.9Percent with Home Equity ≤ 0

100(97 = 0)

100 41.8(41.6 = 0)

Percent with Consumer Debt

97.0 0 6.3

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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)

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Median Assets Each Year by LYO, Persons 70-75 in 1993

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1993 1995 1998 2000 2002 2004 2006 2008 2010 20120

50

100

150

200

250

300

asse

ts (i

n 00

0's)

Median Assets Each Year by LYO, Persons 56-61 in 1992

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1994 1996 1998 2000 2002 2004 2006 2008 2010 20120

50

100

150

200

250

300

350

asse

ts (i

n 00

0's)

Median Assets, Persons 70+ in 1993, 1→1 (dashed), 2→2 (solid)

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1994 1996 1998 2000 2002 2004 2006 2008 2010 20120

50

100

150

200

250

300

350

400

450

500

550

asse

ts (i

n 00

0's)

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)

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Simulated Assets in Last Year If $100K in First Year, AHEADIndividual Characteristics

HS Degree College or Beyond

Mean Attributes $84,559 $111,752No 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 93,109Family Status 2 → 2 104,448 138,037Stroke 80,981 107,023

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Annuity Income vs. Wealth in LYO, AHEAD SampleWealth 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

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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

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