Comparing Retirement Wealth Trajectories on Both Sides of the Pond

Abstract

We use comparable data from the US and England to examine similarities and differences in the level and trajectories of assets among households aged 70 and over. We find that in the US assets on average decline gradually with age, while in England older households actually accumulate wealth. These differences appear to be driven largely, though not entirely, by housing wealth: over the period we consider, house price growth drove increases in housing wealth in England that more than offset the slow drawdown of non-housing wealth. This suggests the illiquid nature of housing is likely to be an important factor in explaining wealth drawdown at older ages. We also consider the * Submitted October 2015.The authors thank Thomas Crossley, Mariacristina De Nardi, John Jones and an anonymous referee for comments. r This difference is partly, but not entirely, due to more rapid house price appreciation in England over the period.r Our results suggest the illiquid nature of housing is likely to be an important factor in explaining wealth drawdown at older ages.

The Retirement‐savings Puzzle Reviewed: The Role of Housing and Bequests

“…() have been recently confirmed by Blundell et al . (), who compare wealth trajectories for retirees in England and in the USA using the HRS and the English Longitudinal Study of Ageing (ELSA). They find that assets are drawn down more slowly in England than in the USA.…”

“…This idea is in line with the conclusions by Blundell et al . (), who argue that the utility value of housing, its illiquidity, and the mix of risk and returns it provides are likely to be important factors in explaining the trajectory of wealth in retirement.…”

Home Equity in Retirement

“…Nakajima and Telyukova (2016) compare asset decumulation in retirement in European countries and the U.S. Nakajima and Telyukova (2018) focus on the differences between the U.S. and Sweden to infer the importance of medical expense risk in shaping retirees' wealth decumulation patterns. Blundell et al (2016) compare the U.S. and the U.K.…”

Pension adequacy standards: an empirical estimation strategy and results for the United States and Germany

“…On the one hand, values below 100% may be considered adequate given that retired individuals have no work-related expenses (e.g., commuting), are unlikely to have children living in the household, no longer have to save for retirement, and have more time for household production (Aguiar and Hurst, 2005;Love et al, 2008). On the other hand, replacement rate values above 100% may be required because retired individuals could find that their health-related expenses are increasing with age, and that precautionary saving is therefore necessary (Blundell et al, 2016). In addition, because retirees have more free time, they may wish to spend more money on leisure activities (Crawford and O'Dea, 2012).…”

“…While the EVS measures net income, the HRS only captures gross income. To calculate net income for the U.S., we make use of the tax simulations provided by RAND, and follow the methodology of Pantoja et al (2017) and Blundell et al (2016). For both the HRS and EVS we annuitize non-housing wealth with 2.5% annually, and housing wealth with 1.25% annually (similar to Crawford and O'Dea, 2012).…”