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Retirement Wealth and Lifetime Earnings

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  • Hendricks, Lutz A.

Abstract

This article argues that a satisfactory theory of wealth inequality should account not only for the marginal distribution of wealth, but also for the joint distribution of wealth and earnings. The paper describes the joint distribution of retirement wealth and lifetime earnings in the Panel Study of Income Dynamics. It then evaluates the ability of a stochastic life-cycle model to account for key features of this distribution. The life-cycle model fails to account for three key features of the data. (i) The correlation between lifetime earnings and retirement wealth is too high. (ii) The wealth gaps between earnings rich and earnings poor households are too large. (iii) Wealth inequality among households with similar lifetime earnings is too small. Models in which households differ in rates of return or time preferences account much better for the joint distribution of retirement wealth and lifetime earnings.

Suggested Citation

  • Hendricks, Lutz A., 1970. "Retirement Wealth and Lifetime Earnings," Staff General Research Papers Archive 12668, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:12668
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    Cited by:

    1. Albertini, Julien & Fairise, Xavier & Terriau, Anthony, 2021. "Health, wealth, and informality over the life cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 129(C).
    2. Svetlana Pashchenko & Ponpoje (Poe) Porapakkarm & Mariacristina De Nardi, 2017. "The Lifetime Costs of Bad Health," 2017 Meeting Papers 533, Society for Economic Dynamics.
    3. Hendricks, Lutz, 2007. "How important is discount rate heterogeneity for wealth inequality?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 3042-3068, September.
    4. repec:dpr:wpaper:1241r is not listed on IDEAS
    5. Gang Sun, 2013. "Consumption Inequality and Discount Rate Heterogeneity," CDMA Working Paper Series 201311, Centre for Dynamic Macroeconomic Analysis.
    6. Mika Akesaka & Ryo Mikami & Yoshiyasu Ono, 2024. "Insatiable Wealth Preference: Evidence from Japanese Household Survey," Discussion Paper Series DP2024-16, Research Institute for Economics & Business Administration, Kobe University, revised Oct 2024.
    7. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    8. Frank Cowell & Brian Nolan & Javier Olivera & Philippe Van Kerm, 2017. "Wealth, Top Incomes and Inequality," LWS Working papers 24, LIS Cross-National Data Center in Luxembourg.
    9. De Nardi, Mariacristina & Yang, Fang, 2014. "Bequests and heterogeneity in retirement wealth," European Economic Review, Elsevier, vol. 72(C), pages 182-196.
    10. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    11. Ingvild Almås & Magne Mogstady, 2009. "Older or wealthier? The impact of age adjustments on the wealth inequality ranking of countries," Working Papers 113, ECINEQ, Society for the Study of Economic Inequality.
    12. Antoine BozioBy & Carl Emmerson & Cormac O’Dea & Gemma Tetlow, 2017. "Do the rich save more? Evidence from linked survey and administrative data," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 1101-1119.
    13. Toda, Alexis Akira, 2019. "Wealth distribution with random discount factors," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 101-113.
    14. Bingley, Paul & Martinello, Alessandro, 2017. "The Effects of Schooling on Wealth Accumulation Approaching Retirement," Working Papers 2017:9, Lund University, Department of Economics.
    15. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    16. Frank A. Cowell & Philippe Kerm, 2015. "Wealth Inequality: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 671-710, September.
    17. Pijoan-Mas, Josep & Cerletti, Enzo, 2012. "Durable Goods, Borrowing Constraints and Consumption Insurance," CEPR Discussion Papers 9035, C.E.P.R. Discussion Papers.
    18. Dionissi Aliprantis & Daniel R. Carroll & Eric Young, 2019. "The Dynamics of the Racial Wealth Gap," Working Papers 19-18R, Federal Reserve Bank of Cleveland, revised 29 Nov 2022.
    19. repec:dpr:wpaper:1241 is not listed on IDEAS
    20. Ferreira, Pedro Cavalcanti & Gomes, Diego B.P., 2017. "Health care reform or more affordable health care?," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 126-153.
    21. David W. Eccles & Paul Ward & Elizabeth Goldsmith & Guler Arsal, 2013. "The Relationship between Retirement Wealth and Householders' Lifetime Personal Financial and Investing Behaviors," Journal of Consumer Affairs, Wiley Blackwell, vol. 47(3), pages 432-464, November.

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