IDEAS home Printed from https://ideas.repec.org/p/mrr/papers/wp051.html
   My bibliography  Save this paper

Lifetime Earnings Variability and Retirement Wealth

Author

Listed:
  • Olivia S. Mitchell

    (University of Pennsylvania)

  • John W. R. Phillips

    (Social Security Administration)

  • Andrew Au

    (University of Pennsylvania)

  • David McCarthy

    (Oxford University)

Abstract

This paper explores how earnings variability is related to retirement wealth. Past research has demonstrated that the average American household on the verge of retirement would need to save substantially more, in order to preserve consumption flows in old age. While several socioeconomic factors have been examined that might explain such problems, prior studies have not assessed the role of earnings variability over the lifetime as a potential explanation for poor retirement prospects. Thus two workers having identical levels of average lifetime earnings might have had very different patterns of earnings variability over their lifetimes. Such differences could translate into quite different retirement wealth outcomes. This paper evaluates the effect of earnings variability on retirement wealth using information supplied by respondents to the Health and Retirement Study (HRS). This is a rich and nationally representative dataset on Americans on the verge of retirement, with responses linked to administrative records from the Social Security Administration. Our research illuminates the key links between lifetime earnings variability and retirement wealth.

Suggested Citation

  • Olivia S. Mitchell & John W. R. Phillips & Andrew Au & David McCarthy, 2003. "Lifetime Earnings Variability and Retirement Wealth," Working Papers wp051, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp051
    as

    Download full text from publisher

    File URL: http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp051.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mitchell, Olivia S & Fields, Gary S, 1984. "The Economics of Retirement Behavior," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 84-105, January.
    2. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
    3. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1149-1187.
    4. Olivia S. Mitchell & James F. Moore, "undated". "Retirement Wealth Accumulation and Decumulation: New Developments and Outstanding Opportunities," Pension Research Council Working Papers 97-8, Wharton School Pension Research Council, University of Pennsylvania.
    5. James F. Moore & Olivia S. Mitchell, "undated". "Projected Retirement Wealth and Saving Adequacy," Pension Research Council Working Papers 98-1, Wharton School Pension Research Council, University of Pennsylvania.
    6. John Y. Campbell & Martin Feldstein, 2001. "Risk Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number camp01-1.
    7. Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, vol. 110(460), pages 1-26, January.
    8. Olivia S. Mitchell & James Moore & John Phillips, "undated". "Explaining Retirement Saving Shortfalls," Pension Research Council Working Papers 98-13, Wharton School Pension Research Council, University of Pennsylvania.
    9. John F. Cogan & Olivia S. Mitchell, 2003. "Perspectives from the President's Commission on Social Security Reform," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 149-172, Spring.
    10. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, "undated". "Pension and Social Security Wealth in the Health and Retirement Study," Pension Research Council Working Papers 97-3, Wharton School Pension Research Council, University of Pennsylvania.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dalton Conley & Rebecca Glauber, 2007. "Family Background, Race, and Labor Market Inequality," The ANNALS of the American Academy of Political and Social Science, , vol. 609(1), pages 134-152, January.
    2. Thomas L. Hungerford, 2006. "The role of earnings and financial risk in distributional analyses of Social Security reform measures," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(2), pages 417-438.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Phillip B. Levine & Olivia S. Mitchell & John W. Phillips, "undated". "Worklife Determinants of Retirement Income Differentials Between Men and Women," Pension Research Council Working Papers 99-19, Wharton School Pension Research Council, University of Pennsylvania.
    2. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
    3. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
    4. Annamaria Lusardi, 2003. "The Impact of Financial Education on Savings and Asset," Working Papers wp061, University of Michigan, Michigan Retirement Research Center.
    5. Andrew Au & Olivia S. Mitchell & John W.R. Phillips, 2005. "Saving Shortfalls and Delayed Retirement," Working Papers wp094, University of Michigan, Michigan Retirement Research Center.
    6. Edward N. Wolff, 2006. "The Adequacy of Retirement Resources among the Soon-to-Retire, 1983-2001," Economics Working Paper Archive wp_472, Levy Economics Institute.
    7. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
    8. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
    9. Robert Östling & Erik Lindqvist & David Cesarini & Joseph Briggs, 2016. "Wealth, Portfolio Allocations, and Risk Preference," 2016 Meeting Papers 1089, Society for Economic Dynamics.
    10. Michael Haliassos & Alexander Michaelides, 2003. "Portfolio Choice and Liquidity Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 143-177, February.
    11. Gary V. Engelhardt & Anil Kumar, 2007. "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study," NBER Chapters, in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 1920-1943, National Bureau of Economic Research, Inc.
    12. Gomes, Francisco & Fugazza, Carolina & Campanale, Claudio, 2015. "Life-Cycle Portfolio choice with Liquid and Illiquid Assets," CEPR Discussion Papers 10369, C.E.P.R. Discussion Papers.
    13. Sule Alan, 2012. "Do disaster expectations explain household portfolios?," Quantitative Economics, Econometric Society, vol. 3(1), pages 1-28, March.
    14. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    15. Lynch, Anthony W. & Tan, Sinan, 2011. "Labor income dynamics at business-cycle frequencies: Implications for portfolio choice," Journal of Financial Economics, Elsevier, vol. 101(2), pages 333-359, August.
    16. John Y. Campbell & João F. Cocco, 2003. "Household Risk Management and Optimal Mortgage Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1449-1494.
    17. Muermann, Alexander & Mitchell, Olivia S. & Volkman, Jacqueline M., 2006. "Regret, portfolio choice, and guarantees in defined contribution schemes," Insurance: Mathematics and Economics, Elsevier, vol. 39(2), pages 219-229, October.
    18. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
    19. Sule Alan, 2006. "Entry Costs and Stock Market Participation over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 588-611, October.
    20. Olivia S. Mitchell, "undated". "New Trends in Pension Benefit and Retirement Provisions," Pension Research Council Working Papers 2000-1, Wharton School Pension Research Council, University of Pennsylvania.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mrr:papers:wp051. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MRRC Administrator (email available below). General contact details of provider: https://edirc.repec.org/data/isumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.