Asset Rundown after Retirement: The Importance of Rate of Return Shocks
Do people run down their assets after retirement? This is an important question for a number of reasons. First, the elderly have a lot of wealth: Households with heads who are 65 years old and older have more than one-third of all U.S. household wealth. Given that the baby boomer cohort is approaching retirement age, this fraction will likely increase. Whether the baby boomers run down their wealth has important implications for all of us. Some have argued that when the boomers retire, they will run down their assets. They will wish to sell their assets, which will in turn drive down the price of assets. Poterba (2001) refers to this as the “asset market meltdown hypothesis.” As Poterba points out, however, this depends critically upon how quickly the elderly actually run down their assets.