Family Status Transitions, Latent Health, and the Post-Retirement Evolution of Assets

James Poterba, Steven Venti, David Wise

NBER Retirement Research Center Paper No. NB 09-03
Issued in September 2009

We consider the evolution of assets after retirement. We ask whether total assets-including housing equity, personal retirement accounts, and other financial assets--tend to be husbanded for a rainy day and drawn down primarily at the time of precipitating shocks. We give particular attention to the relationship between family status transitions and the evolution of assets, and the relationship between “latent” health status and the evolution of assets. Our analysis is based primarily on longitudinal data from the HRS and AHEAD cohorts of the Health and Retirement Study. We find that the evolution of assets is strongly related to family status transitions. The total assets of continuing two-person households increase substantially well into old age. The assets of continuing one-person households also typically increase well into old age. In contrast, persons in households that experience a family status transition during an interval—widowed or divorced—often experience a large decline or no increase in total assets. In addition, the evolution of assets is very strongly related to health, measured by a latent health index. For continuing two-person HRS households age 56 to 61 in 1992, for example, the ratio of assets of persons in the top health quintile to the assets of persons in the bottom quintile is 1.7 in 1992. By the end of 2006 the ratio of assets in the top quintile to assets in the bottom quintile was over 2.2.

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