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In Brief: Patterns of Dissaving in Retirement

Two broad categories of resources are available to finance consumption in retirement: (1) annuity income, including Social Security and many pensions, and (2) bequeathable wealth. Bequeathable wealth is wealth that can be spent or passed on to heirs, such as housing, savings, and stocks.

The life-cycle hypothesis (LCH) is often used to explain saving and dissaving behavior. Under the LCH, people accumulate wealth over their working lives to finance consumption after retirement.

  • Data for the 1980s from the Social Security New Beneficiary Data System (NBDS) show changes in wealth for persons in their sixties to be nearly zero. However, analyses of the Asset and Health Dynamics Among the Oldest Old (AHEAD) survey waves for the early 1990s point to wealth increases among persons in their seventies and older, possibly because of the dramatic rise in stock prices over the two years of the AHEAD sample period.
  • Yet not everyone experienced wealth gains. Households below the median percentile for wealth in the two surveys generally experienced decreases in total, housing, and non-housing wealth. In both surveys, higher income households enjoyed sharp increases in stock and bond wealth, which is where most of the large increases in wealth holdings occurred. In contrast, the value of stocks and bonds for households at the lower end of the wealth distribution tended to be zero.
  • Generally, wealth inequality among households increased: households with few assets were more likely to dissave, and households that owned considerable wealth were more likely to save. Less educated households had lower wealth holdings and were more likely to dissave, as were widowed households and households that did not own stocks or bonds.
  • Both the NBDS and AHEAD indicate that older persons shift their wealth across types of assets. There is evidence that older persons hold less housing wealth over time and more non-housing wealth. In particular, older households increased their equity holdings, as did the rest of the population.
  • Households where health declined between waves were more likely to dissave, but there was not much evidence that unanticipated expenditures, for health care in particular, led to large-scale dissaving. And while most households did not have nursing home expenditures--which means that those costs do not explain what dissaving was noted--the expenditures were considerable for those that had them. That such costs might come due in the future could be one factor slowing the dissaving observed in Patterns of Dissaving in Retirement.
  • There was little evidence that the slow dissaving was explained by a bequest motive, the explanation some researchers have given for slow dissaving among older households.

In sum, many of the important economic trends that affected the general population over the last decade have similarly affected older persons. The spectacular returns in the equity market, the shift to equity holdings, and the increase in inequality have had important effects on the saving behavior of older persons. Widespread changes in the economy do not diminish in relevance simply because households have retired from the labor force.

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Full Report (PDF)


—Steven Haider, Michael Hurd, Elaine Reardon, and Stephanie Williamson, RAND, Patterns of Dissaving in Retirement, prepared for the Public Policy Institute, AARP, 2000. For a copy of the full report, write for PPI Issue Paper 2000-10, Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049, © 2000 AARP.

Sara Rix, Project Manager, AARP Public Policy Institute August 2000 ©2000 AARP May be copied only for noncommercial purposes and with attribution; permission required for all other purposes. Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049

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