Expected Bequests and Current Wealth in SHARE

The life-cycle theory predicts that wealth should be fully annuitized to insure longevity risks. If annuity markets are incomplete and elderly individuals face other risks (notably, health risks) wealth holdings will include other financial and real assets. However, the life-cycle model under uncertainty does imply that non-annuitized wealth should be decumulated in old age. The extent to which this happens is an open issue. There are three questions in SHARE that provide information on intended bequests: they record the probability that the respondent will give any bequest, a bequest above 50,000 euro or a bequest above 150,000 euro. Using this information and current wealth holdings in SHARE data we assess whether and to what extent households plan to decumulate assets in old age. We build upon previous work by Hurd and Smith (2002) to estimate expected bequests for each respondent, and show how bequests differ across countries. This estimation assigns the expected value of the intended bequest conditional on being in a stated bequest interval and on various covariates (demographics, current income and wealth, health status etc). By comparing the current wealth holdings and the expected intended bequests we compute the pattern of future saving and assess its variability with respect to presence and of children, as well as current health and economic indicators