The Michigan Retirement Research Center Working Papers has released three new working papers. ************************************************************ Gain and Loss: Marriage and Wealth Changes Over Time by Julie Zissimopoulos Abstract: Family composition has changed dramatically over the past 25 years. Divorce rates increased and remarriage rates declined. While considerable research established a link between marriage and earnings, far less is empirically understood about the effect of marriage on wealth although wealth is an important measure for older individuals because it represents resources available for consumption in retirement. In this paper we employ eight waves of panel data from the Health and Retirement Study to study the relationship between wealth changes and marital status among individuals over age 50. This research advances understanding of the relationship by first, incorporating measures of current and lifetime earnings, mortality risk and other characteristics that vary by marital status into models of wealth change; second, measuring the magnitude of wealth loss and gain associated with divorce, widowing and remarriage and third, estimating wealth change before and after marital status change so the change in wealth change is not the result of individuals entering or leaving the household and other sources of unobserved differences are removed from estimates of the effect of marriage on wealth. Our results suggest no differences in wealth change over time among individuals that remain married, divorced, widowed, never married and partnered over 7 years. In the short-run there are substantial wealth changes associated with marital status changes. Divorce at older ages is costly, remarriage is wealth enhancing and people appear to change their savings in response to changes in marital status. Key Findings: * Married people over age 50 save more out of their lifetime earnings than remarried, divorced, widowed or partnered individuals. * Changes in wealth at older ages is similar for married couples and single men who do not change marital status, but divorced and widowed women save less. * Individuals who divorce experience a loss of wealth two to four years before the divorce and during the divorce, and wealth recovery from increased savings after divorce. * Divorced individuals that remarry accumulate wealth at higher rates than those who remain divorced. View/Download Working Paper (PDF): http://www.mrrc.isr.umich.edu/dl.cfm?pid=651&type=102 -------------------------------------------------------------------------------- What Replace Rates Should Households Use? by John Karl Scholz and Ananth Seshadri Abstract: Common financial planning advice calls for households to ensure that retirement income exceeds 70 percent of average pre-retirement income. We use an augmented life-cycle model of household behavior to examine optimal replacement rates for a representative set of retired American households. We relate optimal replacement rates to observable household characteristics and in doing so, make progress in developing a set of theory-based, but readily understandable financial guidelines. Our work should be a useful building block for efforts to assess the adequacy of retirement wealth preparation and efforts to promote financial literacy and well-being. Key Findings: * Common financial planning advice calls for households to ensure that retirement income fall between 70 and 85 percent of pre-retirement income in order to maintain pre-retirement living standards. * However, the common rules of thumb do not consider important factors that impact lifetime earnings and consumption, such as marital status, level of education, race, and number of children. * We find that 48 percent of married couples have an optimal replacement rate of less than 65 percent of pre-retirement income. View/Download Working Paper (PDF): http://www.mrrc.isr.umich.edu/dl.cfm?pid=652&type=102 -------------------------------------------------------------------------------- Proximity and Coresidence of Adult Children and their Parents: Description and Correlates by Janice Compton and Robert A. Pollak Abstract: The ability of family members to engage in intergenerational transfers of hands-on care requires close proximity or coresidence. In this paper we describe and analyze the patterns of proximity and coresidence involving adult children and their mothers using data from the National Survey of Families and Households (NSFH) and the U.S. Census. Although intergenerational coresidence has been declining in the United States, most Americans live within 25 miles of their mothers. In both the raw data and in regression analyses, the most robust predictor of proximity of adult children to their mothers is education. Individuals are less likely to live near their mothers if they have a college degree. Virtually all previous studies have considered coresidence alone, or else treat coresidence as a limiting case of close proximity. We show that this treatment is misleading. We find substantial differences in the correlates of proximity by gender and marital status, indicating the need to model these categories separately. Other demographic variables such as age, race and ethnicity also affect the probability of coresidence and close proximity, but characteristics indicating a current need for transfers (e.g., disability) are not correlated with close proximity. Key Findings: * While intergenerational coresidence has been declining in the United States, most Americans live within 25 miles of their mothers. * Individuals are less likely to live near their mothers if they have a college degree. * Adult children are more likely to live with their mother when the mother is older, in poor health, and unmarried. * Compared to whites, black Americans are more likely to live near and to live with their mothers, while Hispanic Americans are no more likely to live close to their mothers, but are twice as likely to live with their mothers. View/Download Working Paper (PDF):
Tuesday, November 24, 2009
New working papers from the Michigan Retirement Research Center
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