Aging With Rising Risk: Have Older Households Experienced Faster-Growing Risk Exposure Than Younger Ones Since the 1990s?

Abstract

Financial markets have been characterized by boom and bust cycles since the 1980s, while the responsibility for managing retirement wealth has increasingly shifted onto individual households at the same time. Policy makers and experts have expressed concern over rising risk exposure among older householders, who appear to be increasingly exposed to the growing financial risks just as they near retirement. We consider household data from the Federal Reserve’s Survey of Consumer Finances from 1989 to 2010 to analyze the correlation between age and risk exposure. We test whether older householders’ risk exposure has indeed grown over time, whether it has increased more than that of younger householders, whether changes in the demographic composition of older householders have contributed to older households’ rising risk exposure, and the degree to which increases in risk exposure can be traced to a growing concentration of household assets held in stocks and housing and to rising householder indebtedness. Our results indicate that risk exposure has grown more for older householders than for younger ones, that demographic changes among older householders have contributed to additional increases in older householders’ risk exposure, and that the growth of older householders’ risk exposure is driven more by rising risky asset concentration and less by greater indebtedness.