1. 1 What Determines End-of-Life Assets? A Retrospective View James Poterba, Steven Venti & David Wise RRC Symposium, Washington August 5 2015

2. 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? 2

3. 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 3

4. Wealth in Last Year Observed Asset IntervalAge 51-61 in 1992Age 70+ in 1993 < 014.9%13.3% $0-50K23.025.4 $50-100K9.410.8 $100-250K20.918.0 $250-500K12.515.6 > $500K19.317.1 4 Sample: Individuals who died by 2012 and who were observed for at least eight years.

5. 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? 5

6. Wealth Holdings in First and Last Year Observed, 51-61 in 1992 Asset IntervalLYOFYO < 014.9%12.8% $0-50K23.018.9 $50-100K9.414.2 $100-250K20.923.6 $250-500K12.517.0 > $500K19.313.6 6 Sample: Individuals who died by 2012 and who were observed for at least eight years.

7. Wealth Holdings in First and Last Year Observed, 70+ in 1993 Asset IntervalLYOFYO < 013.3%6.9% $0-50K25.417.0 $50-100K10.812.7 $100-250K18.028.8 $250-500K15.619.3 > $500K17.115.4 7 Sample: Individuals who died by 2012 and who were observed for at least eight years.

8. “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 8

9. “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 9

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12. Asset Balances in Last Year Observed (LYO), HRS Sample < $0$0> $0 Percent of Population7.0%7.9%85.1% Mean Assets ($000)-25.70474.8 Median Assets ($000)-6.40153.8 Percent with Home Equity ≤ 0 91.6 (82.9 = 0) 10017.5 (17.2 = 0) Percent with Consumer Debt 95.3026.3 12

13. Asset Balances in Last Year Observed (LYO), AHEAD Sample < $0$0> $0 Percent of Population1.8%11.5%86.7% Mean Assets ($000)-8.60357.8 Median Assets ($000)-2.30145.9 Percent with Home Equity ≤ 0 100 (97 = 0) 10041.8 (41.6 = 0) Percent with Consumer Debt 97.006.3 13

14. Regression Summary: Wealth LYO vs. Wealth FYO AHEAD Sample: Assets LYO, i = 18714 + 0.964*Assets FYO,i (3466) (0.010) HRS Sample: Assets LYO, i = 11677 + 1.085*Assets FYO,i (5076) (0.013) 14

15. Median Assets Each Year by LYO, Persons 70-75 in 1993 15

16. Median Assets Each Year by LYO, Persons 56-61 in 1992 16

17. Median Assets, Persons 70+ in 1993, 1→1 (dashed), 2→2 (solid) 17

18. 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) 18

19. Simulated Assets in Last Year If $100K in First Year, AHEAD Individual Characteristics HS DegreeCollege or Beyond Mean Attributes$84,559$111,752 No Health Conditions 86,225114,615 Health 25h Percentile 82,057108,445 Health 75 th Percentile 91,809121,333 Family Status 2 → 170,45393,109 Family Status 2 → 2104,448138,037 Stroke80,981107,023 19

20. Annuity Income vs. Wealth in LYO, AHEAD Sample Wealth in LYOAnnuity Income < $10K$10-20K$20-30K> $30K < 036.8%48.3%9.4%5.4% $0-50K23.548.118.49.9 $50-100K16.546.622.514.4 $100-250K9.841.224.324.6 $250-500K6.230.631.831.4 > $500K6.927.423.242.5 20

21. 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 21