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You Can’t Take It With You

According to a recent study by the National Bureau for Economic Research, 46.1 percent of retirees die with a net worth of less than $10,000.

There are two ways to achieve this outcome. The first is for those with a comfortable level of wealth in retirement. Wealth does an individual no good after he or she is dead, and some people would feel content with distributing their wealth in their last few years. The second path is more common in the study’s findings. Most people simply have a low level of wealth going into retirement, and with a lack of strong income-generating opportunities, wealth continues at the same level or is further depleted.

That isn’t to say that everyone who dies with less than $10,000 to their names are struggling during retirement. Social securities, pensions, and proceeds from retirement savings can cover living expenses, and as one ages, there is less of a need to save for long-term personal goals. A low level of savings puts one at danger for financial trouble in the event of an emergency, however, and certain types of emergencies, like medical bills, might be more common past a certain age.

Retirees without families to pass on inheritances might not see any purpose to dying with wealth, and would therefore endeavor to give much of it away. From a tax perspective, it might be better to donate a significant amount to charity before death, taking advantage of an income tax break in addition to a reduction of the value of the estate, than to bequest the same amount. That depends on earning enough income during retirement for the tax break to have an effect, and it requires having enough assets in the estate for a reduction in value to make a tax difference. Estate taxes always seem to be in flux, but in 2012, the first $5,125,000 in an estate is exempt from tax.

And that’s not the retiree this study is referring to. The study is focusing on those with $10,000 or less, ruling out this particular path of reducing wealth — perhaps. It doesn’t rule out the possibility, however, of individuals, perhaps those who are comfortable but do not consider themselves wealthy, spending down or giving away their wealth in order to avoid the rest of the world’s hassles with dealing with an estate.

Perhaps an indicator that most of the study participants are in fact not in this category — that those dying with $10,000 or less in net worth are those who did not have wealth and choose to give it away in their last days, weeks, months or years — is the finding that health is the poorest among these individuals. Conversely, wealth at the end of retirement has high correlations to other aspects of living. Those with higher levels of net worth live longer. That should be strong enough motivation to build wealth throughout one’s lifetime.

People who were never married have a higher probability of dying with less than $10,000. The same is true for those who are divorced. The study doesn’t claim there is a cause and effect relationships between marriage and wealth, but the correlation is important. The same factors might produce both results — such as a confident personality.

The study goes on to evaluate retirees at death based on three pathways. One-person households are identified as those who were never married, two-person to one-person households are retirees whose spouse had previous died, and two-person households are those where the spouse survives past the person in the study. The results show that the spouse who dies first generally dies with more wealth and better health, and for the surviving spouse, income, wealth, and health drop off quickly.

While this new study looks at wealth at the end of retirement (that is, death), most prior studies evaluated a retiree’s wealth at the beginning of this period. There’s a good reason for the ex ante analysis. A retiree’s financial condition at the onset of retirement, the choices made based on that condition, and the situations that affect that starting position determine how one lives one’s life in retirement.

The ex post analysis, where the quality of life in retirement is determined by the final outcome — wealth at the time of death — doesn’t reveal as much without context that reveals more information about the path to $10,000 or less. That isn’t to say the study isn’t relevant or interesting; it is, if just by virtue of being a different way to look at the overall picture of retirement in the United States.

There may be a few things to take away from this study pertaining to the correlation between wealth at the end of retirement and quality of life, but it also reminds me of my core philosophy of building wealth. A high net worth is not a real goal. Money is meaningless in life except for what it can be used for. Accumulating wealth is important so you have a better chance of meeting real life goals without interference.

People, but not everyone, whom I’ve asked about their personal life goals have said to me that their primary purpose in life is to die with $1 million (or $10 million, or $100 million). This isn’t a line of thinking that I would recomment. Sure, you can do a lot of good with a large sum of money in your estate, if that money goes to worthy causes or even to your relatives, but those activities — what you do with the money, not the collection of the money itself — should be defined as goals.

What this study says to me is that there are not enough people making lofty goals that require money, perhaps focusing on nothing more than the comfortability of their own selves and families, that they are unfortunately not reaching their goals, or, possibly in a few cases, are reaching their goals and no longer see a need for the accumulation of wealth.

Photo: HooLengSiong
National Bureau for Economic Research, via MarketWatch/Yahoo

Updated September 3, 2012 and originally published August 29, 2012.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar 1 Anonymous

I once heard of a retirement scenario that was perfect (albeit a little dark) and would insure you got the most out of your savings. It involved buying a gun because that was the easiest way to have a “date certain” as to the end of your retirement. The one flaw that was noted was, if you had children and began to lose some of your cognitive abilities later in life, one of the little brats would proably take the gun away from you …… and there goes your plan! Sorry, the seriousness of your article was too much for a retired guy like me – I needed a chuckle.

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avatar 2 Anonymous

If I had a large amount of cash left when I’m about to croak I’d probably build a hospital in my name. Or maybe help fund some great cure/invention like a cure for cancer or a space elevator. Something to leave a lasting legacy for others to remember me by.

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avatar 3 Anonymous

Wow, interesting facts! Definitely motivating to start saving up now rather than later. I would like to have more than $10,000 in my bank when I die.

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avatar 4 Anonymous

I don’t really see an issue of dying with nothing, many are now passing on inheritance whilst alive, helping with deposits on kids houses and things like that and I am sure that factors in too.

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avatar 5 Anonymous

I agree this is part of the equation as those with the ability and foresight to plan ahead pass on most of their wealth before dying, but I would bet the majority of those with under $10,000 did not end up that way on purpose. They either didn’t plan for retirement, planned poorly, or suffered circumstances that drained their wealth such as a prolonged illness to themselves or their spouse.

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avatar 6 Ceecee

Having taken care of some elders recently, I can’t tell you how much it costs to get old. The average nursing home in this area is about 115,000 a year. That’s before they charge extra for laundry, telephones, and hygiene products. I am not shocked that people have so little left. And the Medicare Prescription Drug Plan is not all that it is cracked up to be. You can do better by getting generics at Costco.

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avatar 7 qixx

My grandfather is in this boat. He setup a trust a couple of months after grandma passed away. He put everything into it so he gets a certain amount a month but he now owns nothing. Put the house, cars, all deposits and savings, everything into it. I think he kept a $5000 emergency fund. It was really setup to take care of my uncle after grandpa passes away. Before the trust was setup he likely would not have ended up part of the sub-$10,000 group.

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avatar 8 tigernicole86

My older brother who passed away recently was not old enough to have retired but he did make me the executor of his estate. He was not married and had no children but there was a decent amount in his regular checking account, investment accounts and Thrift Savings Plan(military equivalent of 401K). With all that taken into account, he would be out of the 10K group but it’s a matter of getting access to those items(some that the US government is already assisting as far as they have access to).

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avatar 9 Anonymous

I think there are many who enter retirement with very little money stashed away. My grandparents diligently put money aside, and my grandpa died 5 years before my grandma, who needed nursing home help the last year or two of her life. Still, they had enough to give each of their 9 children an inheritance when she passed. I hope to retire like that.

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avatar 10 Anonymous

I believe that a retirement “stash” should serve four purposes: Generate Income, Fund extra-ordinary (read expensive) retirement events, serve as a sfety net and remain as your estate. These are in priority order and it seems to me your Grandparents did everything right! I think I retired like that – but only time will tell.

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