Choice, Chance, and Wealth Dispersion at Retirement

Steven F. Venti and David A. Wise

in Aging Issues in the United States and Japan

Published by University of Chicago Press

Published in print September 2001 | ISBN: 9780226620817
Published online February 2013 | e-ISBN: 9780226620831 | DOI:
Choice, Chance, and Wealth Dispersion at Retirement

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In a previous study, the authors of this chapter evaluated the extent to which the different wealth accumulation of households with similar lifetime earnings could be accounted for by random shocks, such as health status and inheritances, that could reduce or increase the available resources out of which saving could be drawn. They concluded that only a small fraction of the dispersion in wealth accumulation within lifetime earnings deciles could be accounted for by random shocks, and thus that most of the dispersion could be attributed to choice; some people save while young, others do not. This chapter continues that analysis but with two additions: first, it evaluates the effect of investment choice on the accumulation of assets — in particular, how much of the dispersion in wealth can be accounted for by the choice between investment in the stock market and investment in presumably less risky assets such as bonds or bank saving accounts. Second, it attempts to understand the relationship between asset accumulation and individuals' assessment, just prior to retirement, of the adequacy of their saving and their saving behavior. The results indicate that the bulk of the dispersion in wealth at retirement results from the choice of some families to save while other similarly situated families choose to spend. For the most part, controlling for lifetime earnings, persons with little saving on the eve of retirement have simply chosen to save less and spend more over their lifetimes. Families with modest lifetime earnings would have accumulated substantial wealth had they saved consistently and invested prudently over the course of their working lives.

Keywords: lifetime earnings; wealth accumulation; investment choice; asset accumulation; retirement savings; saving behavior

Chapter.  14681 words.  Illustrated.

Subjects: Economic History

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