New research from MIT indicates that nearly half of Americans die with essentially no financial assets. About 46% of U.S. senior citizens hold less than $10,000 in assets at the time of their deaths according to the study.
Of these people, most depend on Social Security as their sole means of support and thus have no ability to meet even relatively mild financial shocks. An unplanned medical expense not covered by Medicare, for example, could capsize the financial lifeboat these people occupy.
The study further noted that not all senior citizens are in the same boat. Levels of assets, as well as a change in the value of those assets, varies substantially between single and married households. In a household headed by a single unmarried older person, the median wealth figure is about $165,000 one year before the person’s death. Among senior citizens who have been continuously married, the median wealth is $600,000 one year before they died.
One of the study’s researcher noted:
We need to recognize that, for example, if we were to substantially reduce Social Security benefits for those later in life, that there is a share of the elderly households for whom that would translate very directly into reduced income, because they seem to have accumulated little in the way of financial resources.
A key part of the report is the effect of age and health on wealth. Here are some observations from the study:
- [The] results suggest that persons who die at older ages and in poorer health are likely to die with less wealth than persons who die young and in good health.
- [D]ying with “little” wealth is clearly concentrated among older persons who are also less healthy.
- A large fraction of single-person households have essentially no non-annuity wealth, particularly those in the bottom two health quintiles.
This research has implications for everything from changes to the Social Security payment system to the shift away from defined-benefit retirement plans to defined contribution plans such as 401(k)s. Again, one of the authors sums it up concisely:
Households that reach retirement differ widely in their financial circumstances, and that heterogeneity not only persists, but is accentuated as people go further into their retirement years.
The abstract and full study are available here.