USA: Household Wealth Rises as Retirees Age

NEW YORK (Wall Steet Journal), March 27, 2008: U.S. public pension and old-age health programs may dry up in anywhere from 10 to 30 years, but there is some good news for retirees: Their own age-adjusted wealth is increasing, not decreasing, as they get older. According to a recent Federal Reserve paper, that trend reflects precautionary saving and spending amid uncertainty about life spans, potential medical expenses and a desire to bequeath money. Adjusted for inflation, "the median household's wealth declines more slowly than its remaining life expectancy, so that real annualized wealth actually tends to rise with age over retirement," authors David Love of Williams College and Michael Palumbo and Paul Smith of the Fed staff wrote. That finding is somewhat at odds with usual models of spending that suggest wealth would fall with expected life spans, they wrote. The paper was posted last week on the Fed's Web site. "In particular, we find that the prospect of large medical expenses induces retirees to build a precautionary buffer early on, while a desire to leave a bequest leads them to maintain 'excess savings' toward the end of life," the authors said. The paper defined "annualized comprehensive wealth" as wealth "per expected year of remaining life per person" over the age of 70 from 1998 and to 2004. In addition to financial and nonfinancial wealth that include things like stocks and homes, the authors included the value of Social Security, defined-benefit pensions and transfer payments like Food Stamps. All income groups saw an increase in wealth over the six-year span, according to the paper. By BRIAN BLACKSTONE Tom Barkley contributed to this article. Copyright © 2008 Dow Jones & Company