More than 46 percent of Americans die with less than $10,000 in their bank accounts, according to a study by economics professor Steven Venti, Harvard Kennedy School of Government political economy professor David Wise and Massachusetts Institute of Technology economics professor James Poterba. The study, published in February and highlighted this month by The Washington Post, found that the elderly rely heavily on social security programs at the end of their lives.
The findings address one of the biggest concerns facing middle-aged Americans: how much money they need to save before retiring. The exact dollar amount needed to retire comfortably is highly debated, and many worry that the current generation of near-retirees has not saved enough money, Venti said.
"Rather than looking at people on the cusp of retirement and asking, Are they prepared?' we look at people in the last year or two of life and ask, Were they prepared?'" Venti said.
The research suggests that most retirees were not adequately prepared for retirement, he said.
With such limited financial assets in old age, the elderly often turn to government programs such as social security benefits.
"What is novel about this paper, with baby boomers reaching retirement, is that there is much question about how much these individuals are relying on social security rather than investing in their own assets," Porteba said.
These benefits, combined with pension benefits, provide less than $20,000 to 87 percent of elderly households with less than $10,000 in financial assets, according to Venti.
The study also suggests a link between low financial assets at the end of life and disproportionately poor health. When those with poor health and meager bank accounts are confronted with unexpected expenses, they might not be able to pay their bills, according to Venti.
"With few assets, these seniors are unable to withstand financial shocks such as medical, home care and nursing home expenses not covered by Medicare or Medicaid, or other health-related expenses such as remodeling a home to accommodate a disability," he said.
Even expenses such as travel or entertainment are difficult for such seniors to afford, according to Venti.
The findings indicate that a reduction in social security benefits would directly lead to reduced financial security for many elderly households, The Post reported.
"With health costs continuing to climb, these findings suggest that any cuts in social security benefits will have a substantial impact on the well-being of the elderly," Venti said.
The researchers said that policies should encourage low and middle-income households to prepare more robustly for retirement.
The paper used data from the Health and Retirement Study, a longitudinal study sponsored by the National Institute on Aging. The study surveyed people over the age of 70 starting in 1993 and followed up every two years until 2010, Venti said. The information about assets was used from the latest surveys before the death of each participant.
The three professors have collaborated previously and have jointly published 30 papers over more than 20 years, according to Venti. Their research is funded by the National Institute on Aging and the Social Security Administration.
"This study is an example of how economics is becoming more collaborative and interdisciplinary through joint research with experts from other academic areas," Porteba said.
