New Study Examines Impact of Health and Education on the Post-Retirement Evolution of Assets

Healthier and more educated Americans typically accumulate greater amounts of assets than their less-educated peers prior to retirement but asset growth following retirement is also strongly related to educational attainment. That is the finding in a new research paper, "Health, Education, and the Post-Retirement Evolution of Household Assets," co-authored by Harvard Kennedy School Professor David Wise and published by the National Bureau of Economic Research.

Drawing upon data from the Health and Retirement Study (HRS), the authors examined different sets of "health and financial pathways" through which education could impact asset growth over the course of many years. The analysis tracks the assets of persons aged 65 and older between the years 2000-08.

"Older persons with different levels of education may make different consumption and investment decisions in retirement and thus accumulate or draw down assets at different rates," the authors write. "However, asset growth in retirement also depends on choices made long before retirement. Such choices —which were strongly influenced by education—affect the financial and health capital that persons have upon entering retirement and will affect the future evolution of assets."

The authors “aim is to disentangle the effects of education on post-retirement asset evolution that operate through health and financial capital accumulated prior to retirement from the effects of education that impinge directly on asset evolution after retirement.”

The authors make several conclusions:

• A 10-percent point increase in the level of health is associated with a substantial increase in the level of assets between survey waves (a two year period) in each of five different asset intervals, ranging from about $7,000 in the first bottom asset quintile to about $27,000 in the top quintile;

• A 10-percentage point increase in the change of health between survey waves is associated with an increase in assets ranging from about $3,000 in the bottom quintile to about $14,000 in the top quintile;

• For two-person households the evolution of assets for college graduates is much greater than for those with less than a high school degree, ranging from about $82,000 for the bottom asset quintile to over $600,000 for the top asset quintile;

• The results for one-person households are less consistent across financial resources and health capital, but they still show a strong relationship between health and the return on assets and the post-retirement evolution of assets. The total effect of education—the indirect effect through the pathways plus the additional effect—is again very large, ranging from more than $19,000 in the bottom quintile to almost $322,000 in the top quintile.

The authors also conclude that "more educated households not only have more wealth on average in retirement but those with more education also allocate their wealth in a different way than their less-educated counterparts [resulting in] a pronounced education gradient in the return to assets, with more educated households earning more, as a percentage of their asset holdings, than less educated households."

David Wise is John F. Stambaugh Professor of Political Economy at Harvard Kennedy School. His past research includes analysis of youth employment, the economics of education and schooling decisions, and methodological econometric work. His work now focuses on issues related to population aging, and he coordinates large programs on the economics of aging and health care at the National Bureau of Economic Research.