Bequests and Heterogeneity in Retirement Wealth

By Mariacristina De Nardi and Fang Yang

Households hold vastly heterogeneous amounts of wealth when they reach retirement, and differences in lifetime earnings explain only part of this variation. This paper studies the role of intergenerational transmission of ability, voluntary bequest motives, and the recipiency of accidental and intended bequests (both in terms of timing and size), in generating wealth dispersion at retirement, in the context of a rich quantitative model. Modeling voluntary bequests, and realistically calibrating them, not only generates more wealth dispersion at retirement and reduces the correlation between retirement wealth and lifetime income, but also generates a skewed bequest distribution that is close to the one in the observed data.

My take-aways from this paper are: 1) Understanding the heterogeneity of wealth accumulation is very difficult and involves multiple dimensions; 2) Among those, voluntary bequests play an important role; 3) We need to learn much more about voluntary bequest motives. The latter point is crucial, otherwise it just becomes a free parameter that can explain anything, like preference shocks are too often.

2 Responses to Bequests and Heterogeneity in Retirement Wealth

  1. Mariacristina says:

    Thanks a lot, Christian! I think that you raise some really good points and I agree with all of them. There is a lot of conflicting evidence on the nature of bequest motives, and more work is needed to really understand how to best model them. In addition, health and family shocks are also likely to play an important role in generating wealth inequality at retirement (and beyond). We thus see our paper as pointing out an important channel, which is by no means the only one.

    Mariacristina De Nardi

  2. M.H. says:

    The point about preferences shocks is dead on. It is very annoying that they are used to justify deviations from existing theory, yet are impossible to measure or even restrict in some way.

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