Study Looks At How Seniors Reallocate Assets in Retirement

What’s a senior to do with their personal finances today with the stock and housing markets in the gutter?  The Boston Center for Retirement Research recently released a working paper entitled “How Seniors Change Their Assets Holdings In Retirement” that examines the changes from 1998 to 2006 in the asset holdings of those who were 60 and older in 2006.  Not surprisingly, the findings show that the net wealth of the older population outside of Social Security and DB wealth rose significantly between 1998 and 2006, primarily because of the increase in housing values.  While the study does not examine the downturn in housing, the study was motivated by a concern that the substitution of defined contribution retirement accounts for defined benefit plans may create too much of a challenge for the investment management skills of the older population in that most will end up having to plan their rate of spending so that they do not end up impoverished should they end up living longer than expected.  Unfortunately, the study does not examine in depth what happens if a senior decides to sell their home and use any equity for investments or spending strategies.

Those in the upper income brackets (upper quartile) showed an increase in value of their non-annuitized assets while the others showed varying levels of decreases in their retirement assets.  Asset preservation almost become a fault for the upper quartile group as they show more conservatism in their propensity to spend.  The study points out that it appears as though most in the top five quintiles of the income distribution will end their lives with assets to spare.  Good news for the heirs and Uncle Sam.

How Seniors Change Their Assets Holdings In Retirement – Executive Summary