What Happens to Household Portfolios After Retirement?

Courtney C. Coile Kevin Milligan

IB#56

Introduction

The typical older household in the United States now arrives at retirement with an array of financial resources. These resources usually include home equity, vehicles, and bank accounts and may also include financial assets such as Individual Retirement Accounts (IRAs) and stocks or other property like small businesses and real estate. These assets are important for the financial security of older households. Households may use them to finance routine consumption in retirement or reserve them to cope with the financial consequences of a negative event like the death of a spouse. Households’ ability to manage their assets in retirement is becoming more important over time, as the shift towards defined contribution pension plans means that households are more likely to receive their pension as a stock of assets at retirement rather than as a flow of monthly benefits. Older households hold a sizeable share of total U.S. household net worth, so the spend-down patterns of these households may affect asset markets, particularly as the large baby boom cohort enters retirement…