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.