Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96 Page 97 Page 98 Page 99 Page 100 Page 101 Page 102 Page 103 Page 104 Page 105 Page 106 Page 107 Page 108CH APTER 3 57 The relationship between health and wealth can now be studied in a dynamic setting over time, and the interactions of the two are important for people approaching retirement. Unexpected health events in particular can mean a substantial and ongoing financial loss from which people may never recover. People who had a major unexpected health event, such as heart attack or stroke, in 1992 experienced an average cumulative income loss of nearly $37,000 between 1992 and 2000, compared with $8,700 for a minor health event. The impact on household wealth was also substantial. On average, loss of earnings rather than out-of-pocket medical costs were the major factor in the loss of wealth. Health also affects the composition of financial portfolios. Those in poor health tend to have less risk (that is, a lower proportion of stocks) in their portfolios. Financial well-being is strongly related to the health of both partners. In the original HRS sample, average household net worth was $31,000 when both partners were in poor health but more than $400,000 when they were in excellent health. Changes in marital status strongly influence women’s wealth. After being widowed, women lose significant wealth—and women’s poverty rate rises substantially over the course of widowhood—but the negative consequences may be worse after divorce and separation. Amount and Sources of Income Data from the 2002 HRS show large variations in total household income and highlight the importance of particular sources of income (assets, pensions, Social Security, and earnings) by the total household-income level and age of HRS participants. Figure 3-1 (for married HRS participants) and Figure 3-2 (for unmarried HRS participants) divide people into five groups, or quintiles, to illustrate the large variation in income across households (i.e., the “lowest quintile” includes the one-fifth of HRS house- holds in each age group that have the lowest income levels, and the “highest quintile” includes the one-fifth of HRS households in each age group that have the highest income levels). Figure 3-1 highlights the differences in 2002 income and sources of income within each age group of married respondents. For example, among participants ages 55 to 64, average household income for those in the middle income group (i.e., the third quintile) is about $60,000, compared with about $20,000 in the lowest income group and well over $200,000 in the highest income group. The majority of income for people ages 55 to 64 comes from salary and/or hourly wage earnings, although Social Security retirement benefits become important for many households after age 62, and Social Security disability benefits are important for some before age 62. Only in the lowest quintile, where earn- ings from work are low, are earnings and Social Security equally important. With increasing age, the absolute amount of income drops significantly. Here, too, income levels differ greatly between the highest income group and the other income groups, and the composition of income also varies by quintile. Earnings are a much smaller part of total income in households after age 65, representing a large fraction of total income only in the highest fifth of participants ages 65 to 74, while pension and Social Security benefits account for at least two- thirds of total income in the other age groups. Because Social Security benefits are more evenly distributed across the population than are other income sources, they constitute a larger share of total income when total income is low than when it is high. At age 65 and above, Social Security benefits provide more income than any other source for over 60 percent of households, regard- less of marital status. Income from assets, including stocks, bonds, checking accounts, certificates of deposit (CDs), rental properties, and business/farm holdings, is a major contributor to total income only in the highest household-income group. For these households, however, income from assets is quite important, and becomes especially so at age 85 and older. Within married households in the high- est income group, asset income rises dramati- cally with age, comprising 16 percent of total income at ages 55 to 64, 21 percent at ages 65 to 74, 26 percent at ages 75 to 84, and 56 percent at age 85 and older. The income-source patterns for unmarried HRS participants are generally similar to those for married households, although overall income levels in one-person households are much lower (Figure 3-2). The average household income for the middle quintile of unmarried people ages 65 to 74 is $17,000, compared with nearly $42,000 for married households. Assets produce a smaller amount of total income among unmarried people, whereas Social Security benefits are relatively more important to unmarried people than to mar- ried people. For example, Social Security benefits constitute 42 percent of total income for unmar- ried people ages 65 to 74, versus 29 percent for married people in the same age group. Pre-Retirement Saving Behavior Given the large variation in household income, it may not seem surprising that households reach retirement with very different levels of wealth. What is considerably more surprising, however, is that the variance in retirement wealth is large,