About 46 percent of senior citizens in the United States have less than $10,000 in financial assets when they die. Most of them rely on Social Security payments as their means of support. That is why Americans worry about not having enough money to live on in old age. Many of America’s old people have few savings in bank accounts, stocks and bonds, and die with almost no financial assets. It means seniors have can hardly withstand financial shocks, such as expensive medical treatments that may not be covered by Medicare or Medicaid, or other unexpected, costly events. James Poterba, the Mitsui Professor of Economics at MIT who studied the wealth of elderly Americans, said:
There are substantial groups that have basically no financial cushion as they are reaching their latest years.
The study, which also involved Steven Venti of Dartmouth College, and David A Wise of Harvard University, was among the few that have examined the economics of aging in the US, revealed a diversity of outcomes among senior citizens, and that the single elderly fared worse than married couples. While attention has been paid to how much wealth people needed to accumulate by the time of their retirement, this study focused on how that wealth panned out during retirement—right up to death.
Between 1993 and 2008, unmarried older people a year before they died had median wealth of about $165,000, including current and future Social Security income, job-related pension benefits, home equity and financial assets. In the same period, the median wealth for continuously married senior citizens, roughly a year before they died, was more than $600,000. Poterba says:
If we were to substantially reduce Social Security benefits for those later in life, there is a share of the elderly households for whom that would translate very directly into reduced income, because they seem to have accumulated little in the way of financial resources.
The work used data collected in the Health and Retirement Study (HRS), a continuing survey of people through their retirement, sponsored by the National Institutes of Health and based at the University of Michigan.
Poterba, Venti and Wise studied people who were older than 70 in 1993 when the HRS began, until the end of 2008. People were surveyed every two years, which averaged out to a year before the deaths of all those who died in the study period. Three main paths are possible in the years before death with different financial outcomes:
- those consisting of one person who remained single until death
- married people who outlive their spouses and die single
- married people who die before their spouses.
Married couples are better able to mitigate the financial burdens of old age. Among retirees in the study, 52 percent who were single had annual incomes of less than $20,000 and less than $10,000 in other financial assets. In contrast, just 36 percent of single people who started out in two person households at retirement fell below those levels, and only 26 percent of people in two person households fit that description.
The study found a strong correspondence between wealth in 1993 and the length of time that people lived. That relationship held true across a variety of asset classes. People whose homes were worth more, who had larger retirement incomes, and who had more financial savings all tended to live longer than those who had fewer assets. Poterba observes that patterns of health status in these years are quite persistent. Better off senior citizens are healthier and live longer.
The paper has been praised by other researchers. David Laibson, an economist at Harvard, calls it “a terrific paper, which should have a significant impact on our national conversation about savings adequacy”. Laibson suggests that the replacement of “fixed benefit” retirement plans with plans subject to market fluctuations means that the financial situation for some seniors “is likely to get even worse in the years ahead. … For many reasons, especially pre-retirement leakage and poor stock market returns, households are accumulating far too little wealth in their 401(k) plans”, though many who end up in the bottom in tier of income, when they are very old, are folks who were probably not covered by defined-benefit plans during their working lives in any event.