Abstract
This paper reviews the literature on saving behavior and portfolio choice after retirement and provides a descriptive analysis of this behavior by Dutch elderly households. Studying saving behavior in the Netherlands is informative because of the very different institutional background compared to the US, for which most of the empirical evidence is. In the Netherlands, the generous pension system and almost complete coverage of the public health- and long-term care insurance system makes precautionary saving less necessary. Using detailed administrative data, we present evidence on the extent to which the financial resources of retirees are affected by shocks such as the decease of a spouse or deteriorating health—similar to recent empirical studies by Poterba et al. (Explorations in the economics of aging. University of Chicago Press, Chicago, pp 23–69, 2011; Investigations in the economics of aging. University of Chicago Press, Chicago, pp 21–69, 2012; Discoveries in the economics of aging. University of Chicago Press, Chicago, pp 159–186, 2014) for the US. Moreover, we examine the extent to which retirees who do not experience any shocks are able to keep positive wealth at their disposal and sustain their consumption level during retirement. Our results show that the death of the spouse results in a significant reduction of household wealth compared to surviving couples—which is also found in the US—while health shocks result in higher household savings in old-age due to the almost complete coverage of health care expenditures. Although retirees in the Netherlands face limited uncertainty about health expenditures, our analysis shows that the elderly, on average, keep large amounts of assets even at a very old age. Our findings suggest that (1) the generous pension benefits are protective of household wealth, (2) illiquid housing wealth constrains the decumulation of household wealth, (3) bequests and transfers after the death of the first spouse are important.
Highlights
As the babyboomer generation has reached the statutory retirement age, public expenditures on state pensions and long-term care will increase progressively in the coming decades in the Netherlands, as in other West-European countries and the United States
We observe that the elderly have accumulated a decent buffer of financial wealth, high enough to cover small unexpected expenses but too small to significantly increase consumption in retirement
The observation that widowhood is associated with a reduction in the portfolio share and ownership of risky assets is not in line with Coile and Milligan (2009), who find that widowhood increases the share of assets held in liquid financial assets such as stocks and mutual funds and reduces the share of assets held in illiquid assets such as housing
Summary
As the babyboomer generation has reached the statutory retirement age, public expenditures on state pensions and long-term care will increase progressively in the coming decades in the Netherlands, as in other West-European countries and the United States. It is important to know the extent of financial resources available to current retirees; whether these resources are sufficient to support them in case of financial shocks such as adverse health events, widowhood or nursing home entry; and whether they will adjust their savings in response to the proposed policy reforms Answering these questions requires a thorough understanding of saving decisions in retirement. The final section draws conclusions and provides implications for public policy to facility the use of private savings in retirement
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