Research

For Many Elderly, Little Left as Life Ends

About half of the elderly living alone and one-third of elderly couples have less than $10,000  left in their savings and investment accounts just before they leave this world.

These grim statistics may be a more accurate gauge of retirement survival than the balances Americans have accumulated as they enter retirement, a pursuit that pre-retirees and the financial-services industry tend to focus on.

To determine where retirees wind up financially, economists James Poterba at the Massachusetts Institute of Technology, Steven Venti at Dartmouth College, and David Wise at Harvard University crunched a mass of data.  Tracking a nationally representative sample of middle-aged and older Americans, they tabulated the financial assets held by elderly couples and the elderly living alone as they approached retirement, retired and aged, and when they were last observed in the sample.

The following is a small slice of what the researchers found in the last years before the elderly died:

  • Elderly living alone:
    57.0 percent had less than $10,000 in financial assets;
    57.1 percent had no home equity.
  • Two-person households:
    31.7 percent had less than $10,000 in financial assets;
    20.4 percent had no home equity.

“What we take away from this is that a significant number of households have a very small cushion if they encounter any kind of financial need,” Poterba said in a telephone interview last week, referring to a new working paper, “Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts.”

Financial assets included in the study (detailed in the pie charts below) were held in IRAs, Keoghs, 401(k) plans, investments, and bank accounts.  Social Security and income from traditional defined-benefit pensions were excluded here, though the paper tabulates that too.

These findings “raise fundamental questions about the health of the US retirement savings system,” said Harvard economist David Laibson, in a published comment on their paper.  Laibson isn’t optimistic about the financial prospects for retirement among younger Americans either.

It doesn’t have to be all gloom.  It’s possible some people have been extremely accurate in estimating their financial needs in retirement – virtually down to the last penny.  Or perhaps some may have given almost everything away in time to avoid estate taxes.  Indeed, the well-off also shine through in these data, which show that nearly half of two-person households have more than $50,000 left – this can mean millions of dollars for a small minority of them.

But a frightening share of the elderly seems to run out of money, and plausible explanations run the gamut.  They may have started with few financial assets as they entered retirement, a well-documented problem.  Inadequate retirement income from employer pensions or Social Security is another reason to deplete assets rapidly.  And a mere $10,000 in the bank at the end of one’s life provides no clues as to how many corners were cut during years, even decades, of retirement.

Daily living expenses do tend to decline as one ages: income taxes are lower for most retired people, as are commuting and work expenses like pricey business suits.  “A lot of the discussion of changes in expenses has focused on what happened in the early years,” Poterba said.

But he noted that late-life expenses can be steep, ranging from installing a wheelchair-accessible walkway at home to paying full freight for a nursing home.  By one estimate, $250,000 in retirement savings is the minimum required if nursing-home costs are included in retirement expenses.

The reasons for the low balances are beyond the scope of the new research.  That, Poterba said, “needs to be investigated.”

10 Responses to For Many Elderly, Little Left as Life Ends

  1. John Graves says:

    As always, it all depends on how you read the statistics. I read this as, “nearly 50 percent had more than $50,000 in assets when they died.”
    Yes, many people are underfunded; yes, more people have more than enough during their lives and for their heirs.
    Review the annual EBRI survey and its summary. The summary is just as disenchanting; The data themselves show quite a different story or wealth spread across the spectrum of retirees.

  2. Don Caouette says:

    If retired people did not face the threat of their savings being decimated by health care costs, they would stand a much better chance of passing away with dignity. Shame on our poorly constructed, and politically warped, U.S. health care system.

  3. David W Haartz says:

    One thing that this study does not take into account is the propensity for individuals with high five-figure and low six-figure asset accumulations to spend down and qualify for Medicaid. There is a whole subset of lawyers who specialize in this area of the law. I have prepared tax returns for individuals for 42 years; as my clientele ages, I have watched assets just disappear from their accounts, homes sold with no sign of the proceeds, and homes turned over to children.

    Some people expect the government to take care of them in their old age, even if they have assets.

  4. Michael Waggoner says:

    One should also consider the data on Social Security and income from traditional defined-benefit pensions (excluded here, though the paper tabulates that too). Having a reliable income mitigates having little other net wealth.

    Of course, the next generation of retirees will have a lower percentage of income from traditional pensions.

  5. David Wray says:

    The study does not account for the significant number of middle class elderly who intentionally impoverish themselves by giving their remaining assets to their children well before they die. They do this to qualify for Medicaid nursing home benefits. Using this approach, they can provide a legacy for those they love while the government picks up the tab for their end of life care. How much these elderly had in their last years of life has no relationship to how financially prepared they were when they retired.

  6. This brings up the question: How Rich Should You Be When You Die?

    Perhaps these quotations about money that come from the book, “The 777 Best Things Ever Said about Money,” will put things in proper perspective.

    “Any man who has $10,000 left when he dies is a failure.”
    — Errol Flynn

    “It’s better to live rich than to die rich.”
    — Henry David Thoreau

    “It’s a wise man who lives with money in the bank; it’s a fool who dies that way.”
    — French proverb

    “To die rich is to have lived in vain.”
    — Jiddu Krishnamurti

    “He who gives while he lives also knows where it goes.”
    — Percy Ross

    “Thy money perish with thee.”
    — New Testament

  7. This study is disturbing no matter how you read it.

  8. Ernie J. Zelinski says:

    Further to your article, just a reminder that a happy retirement is dependent on a number of factors, as detailed in my book “How to Retire Happy, Wild, and Free.”

  9. Larry Chapman says:

    The last paragraph is the most important. The reason for the low balances are beyond the scope of the new research. That, Poterba said, “needs to be investigated.” I look forward to the sequel.

  10. Dave G. says:

    We can barely afford medical services, much less expect the “politically-warped U.S. health care system,” to pay for long-term care expenses.

    A better question is why aren’t more people prepared financially to support themselves in retirement?