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 108Early Baby Boomers have slightly less wealth than those in the previous cohort. 53 CHAPTER 3 | ECONOMIC PREPAR ATION FOR RETIREMENT For those in the 25th wealth percentile, including all sources of wealth in the form of an annuity results in a 67% replacement rate. Replacement rates fall over time in retirement, however, and by the ninth year in retirement, even a fully annu- itized household in the 25th percentile would achieve only a 60% replacement rate. Traditional replacement rate measures focus on relative incomes before and after retirement but do not capture the chances of falling into poverty in retirement. Thus an apparently adequate retirement replacement rate could be found for households living in poverty. To address this, Love et al. (2008) estimate poverty-line wealth, which they define as the amount of wealth a household needs to ensure that every member maintains a living standard over the poverty line throughout the rest of his or her life. As other studies find, the median household is in reasonably good financial shape. About 18% of households, though, have insufficient wealth to remain above 150% of the poverty level during retirement. Comparing the Early Baby Boomers to households of the same age in 1998, they find that Early Baby Boomers have slightly less wealth than those in the previous cohort. Nonetheless, median wealth, even for Early Baby Boomers, appears to be adequate. Another line of research uses spending in retirement to create an alterna- tive to the replacement rate in the assessment of retirement wealth adequacy. In a series of studies, Hurd and Rohwedder take advantage of the longi- tudinal nature of the Consumption and Activities Mail Survey (see facing page) data to create a consumption path, i.e., how spending changes as people age. This allows them to determine if assets are adequate to fund the consumption path through retirement. Using a consumption-based rather than an income-based measure of financial well-being in retirement lowers estimates of poverty, especially among older widows (Hurd and Rohwedder 2006). This is because a consumption-based measure of adequacy recognizes that older people can spend out of their wealth. Using the consumption path to estimate retirement preparedness, Hurd and Rohwedder (2012) suggest that if households have at least a 95% chance of solvency, they are considered prepared for retirement. They account for different risks faced by most retirees including taxes, widowhood, as well as different levels of mortality risk and out-of-pocket medical (OOPM) spending risk. Given this conceptualization, they find that 71% of new retirees aged 66 to 69 are adequately prepared. However, marital status has a big impact: 80% of those who are married are adequately prepared compared with just 55% of singles. Educational level has a similarly large impact. The lowest level of retirement preparation is among single women with less than a high school education. To understand more about the adequacy of resources in retirement, HRS asks questions about material hardships including food in- security, skipped meals, medication cutbacks, difficulty paying bills, and dissatisfaction with one’s financial situation. About 20% of the elderly report at least one of these hardships (Levy 2015). Poor health affects material hardship by lowering income and increasing OOPM spending. Even accounting for these effects, though, poor health has a direct effect on hardship, perhaps by making it more difficult to get around. The Composition of Wealth at Retirement Another angle to consider in retirement prepara- tion is the value of wealth holdings at different wealth deciles for different categories of wealth. Poterba et al. (2013) compare all households aged 65 to 69, single households, and married house- holds for a range of wealth deciles and wealth categories including net worth, Social Security, defined benefit (DB) pensions, non-annuitized wealth, financial assets, personal retirement ac- count benefits, and housing and other real estate wealth. Not surprisingly, the wealth of married households is substantially greater — in many cases more than double — than that of single households. Taken together, Social Security and DB pension wealth represent 34.9% of the mean value of average household wealth. Home equity accounts for 20.2% of all wealth; the share of all real estate combined is 31.1%. The median net worth at the 10th percentile is $141,465 (in 2016 dollars), and at the 90th percentile is $2,029,634. A consumption-based measure of adequacy recognizes that older people can spend out of their wealth.