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What Accounts for the Variation in Retirement Saving Across U.S. Households?

Jonathan Skinner, Steven Weinberg

American Economic Review, 91(4), 2001, 832-857

Even among households with similar socioeconomic characteristics, saving and wealth vary considerably. Life-cycle models attribute this variation to differences in time preference rates, risk tolerance, exposure to uncertainty, relative tastes for work and leisure at advanced ages, and income replacement rates. These factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile. Using the Panel Study of Income Dynamics and the Consumer Expenditure Survey, we find little support for these implications. The data are instead consistent with "rule of thumb," "mental accounting," or hyperbolic discounting theories of wealth accumulation.

Research Fields : 
Aging and retirement
Behavioral Economics
Financial Competence
Household finance
Psychology of Choice