The Comprehensive Wealth of Immigrants and Natives David Love and Lucie Schmidt Williams College Retirement Research Consortium Annual Meeting August 6, 2015

Motivation The 1965 Immigration and Nationality Act changed the composition of immigrants arriving in the U.S. A large literature has investigated relative earnings of immigrants and natives, both at time of entry to the U.S., as well as convergence over time Less is known about relative wealth accumulation and the preparation of immigrants for retirement

Contributions Calculate measures of comprehensive wealth for immigrants and natives using HRS Examine median profiles of annualized wealth over the retirement period Use a life-cycle framework to try to understand observed trajectories of annualized wealth Estimate descriptive regressions of levels and growth rates of annualized wealth

Immigrant Retirement Resources Lower actual and projected SS benefits (Cohen and Iams, 2007; Favreault and Nichols, 2011; Sevak and Schmidt, 2014) – Higher replacement rate due to progressive nature of SSA formula (Gustman and Steinmeier, 2000) – Older immigrants have higher employment rates, in part to accumulate necessary work credits (Borjas, 2010) Lower levels of private wealth – Lower savings rates (Carroll et al., 1994, 1999) – Lower levels of net worth (Cobb-Clark and Hildebrand, 2006; Favreault and Nichols, 2011; Sevak and Schmidt, 2014) – Lower levels of pension coverage (Heim et al., 2012)

Immigrant Retirement Resources Lower rates of homeownership (Borjas 2002) – Conditional on homeownership, higher levels of home equity (Chatterjee and Zahirovic-Herbert 2011; Sevak and Schmidt, 2014) Both years in the US and country of origin matter in explaining immigrant-native differentials in retirement resources

Comprehensive Wealth Financial wealth: checking, saving, money-market, CDs, stocks, bonds, mutual funds, retirement accounts, and trusts, net of non-mortgage debts Non-financial wealth: housing, businesses, vehicles, and investment real estate, net of debt Annuitized wealth: Social Security, DB pensions, future wages, annuities, life insurance, veterans payments, SSI, and food stamps

Annualizing Wealth Price of a joint-life annuity that pays $x > 1 when both members are alive and $1 when one member is alive Similar to permanent income, but adjusts for longevity and (potentially) household scale economies If annualized wealth is rising (falling), it signals slow (fast) drawdown of resources

Why Would Annualized Wealth Increase with Age? Standard life-cycle model predicts downward-sloping profiles of annualized wealth Declining survival probabilities mean that households should discount the future at an increasing rate as they age What might explain upward-sloping age profiles of annualized wealth? – Bequests – Uncertain medical costs – Housing

AW and Immigrant Cohorts

Native-Immigrant AW Differences Controlling for Observables Baseline+ Demographics+ Life-Cycle+ Origins Immigrant-0.748*** ** Immigrated Immigrated ** Immigrated ***-0.258*-0.199** Immigrated **-0.659***-0.476***-0.404*** Median regressions of log AW controlling for year effects and other covariates.

Within-Immigrant AW Differences Controlling for Observables Baseline+ Demographics+ Life-Cycle+ Origins Immigrated *0.111*0.162** Immigrated ***-0.219***-0.199*** Immigrated ***-0.386***-0.314***-0.151** Immigrated ***-0.820***-0.684***-0.537*** Median regressions of log AW controlling for year effects and other covariates.

Conclusions Immigrants have less total wealth than natives, but decumulate more slowly Earlier waves of immigrants look similar to natives in terms of annualized wealth More recent waves of immigrants have accumulated lower annualized wealth Demographics, life-cycle factors, and country-of- origin explain some of the differences, but not all