Housing in Retirement Across Countries

Published: 2013


The retirement saving puzzle” in the literature is the phenomenon that many households in the U.S. have significant wealth late in life, contrary to the predictions of a simple life-cycle model. In this project, we examine cross-country differences in saving behavior of retirees in order to weigh in on the discussion of the puzzle. First, we find that countries in our sample vary noticeably in the extent of the puzzle: one group of countries, in South and Central Europe, look like the U.S., while in another group, in Northern Europe, retirees spend down their wealth much more rapidly. Second, it appears that the rate of dissaving in retirement is correlated with the extent of public coverage of healthcare and long-term care, and that the differences in saving happen predominantly through dissaving of financial assets, while housing assets are less affected by this risk. In a quantitative experiment, using a life-cycle model of saving in retirement, we measure the role of out-of-pocket medical spending risk in accounting for differences in observed saving patterns among retirees in the U.S. and Sweden, considering separately housing and financial assets. The model predicts that this risk accounts, on average across age, for one-half of the difference in median net worth between U.S. and Sweden, and for about 70% of the difference in median financial  assets. The role of risk diminishes with age, and is seen primarily in financial asset saving, while housing assets do not appear to respond to spending risk, thus suggesting that housing is not a precautionary asset.

Key Findings