Pensions and the Non-Pension Wealth of American Families

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This project develops a simple framework that highlights the ways that household pension wealth is related to non-pension wealth. The framework illustrates potential problems that may arise with previous work examining this relationship. If some households are credit constrained (which, in a simple model, would show no relationship between pension and non-pension wealth) and some households are unconstrained (which, in a simple model, would have dollar-for-dollar pension offsets), the correlation between pension and non-pension wealth estimated from conventional specifications is not necessarily even bounded by the correlations that apply to each population type. The framework is used to specify an empirical model that characterizes the relationship between pension and non-pension wealth. The model is estimated using data from the Health and Retirement Study. The empirical portion of this study explores the robustness of estimates, accounts carefully for population heterogeneity and takes different approaches to estimating the underlying parameters. The work distinguishes between defined contribution (DC) pension wealth, defined benefit pension (DB) wealth, and social security wealth. Due to different risks associated with these pension sources, they may have different effects on wealth. Extensions to this work explore how asset revaluations between 1992 and 1998 are correlated with intergenerational transfers, saving and expectations about retirement and bequests. The work will provide new insights into factors affecting the ability of elderly households to maintain their standard of living in retirement and into factors influencing national saving.