Marriage and wealth determine whether retirement is a success

What is the secret to leading a financially successful and healthy retirement? Accumulate wealth while you are working and stay married in retirement. And, for the best individual outcome, die before your spouse does. Those are some of the findings of a study done by three economics professors at MIT, Dartmouth, and Harvard. It seems obvious that accumulating wealth is one of the keys to retirement success. The finding that being married at retirement and staying married leads to a healthier, wealthier retirement is novel. The study also uncovered some dismal statistics: Nearly half of retirees are virtually wiped out of financial assets at death, with $10,000 or less, including home equity.

The study by James Poterba of MIT, Steven Venti of Dartmouth, and David Wise of Harvard, started with a unique premise: instead of focusing on the assets and income retirees had at the start of retirement, they looked at what was left at death. They used statistics from 1993 through 2008 gathered by the Health and Retirement Study at the University of Michigan, which regularly surveys 26,000 people over age 50. Retirement studies usually focus on income replacement rates at retirement. They look at income and assets to determine if the retiree can replace enough of his or her income to support themselves in retirement.

Poterba and his co-authors found that many of the households with less than $10,000 in assets at death appeared to be financially healthy on a replacement income basis, because “their income in their final years was not substantially lower than their income in their late 50s or early 60s.” Many still had pensions and Social Security benefits to carry them through. However, reaching old age with virtually no assets leaves them with “little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities,” they wrote.

On average, retirees who were single in 1993 died with the least average wealth – $142,000, the survey found. Single retirees who had lost a spouse in subsequent surveys had an average of $253,000 in assets, while married couples where a spouse had just died before the 2008 survey had an average of $692,000 in wealth. Higher wealth also predicted a longer life: Those with a higher income in the 1993 survey tended to live longer. “We find a very strong relationship between health – and the level of assets just before death,” they wrote. “Those in poor health have much lower assets than those in good health.”

Married couples and those who entered retirement single had stable incomes during retirement, while those who lost a spouse saw a drop in income of up to 75 percent. This was probably caused by the loss of one Social Security benefit and/or the loss of a pension that did not include survivor’s benefits, the study found. Spouses can guard against this by making sure one survivor will not suffer financially when the other dies, usually by selecting a pension with survivor’s benefits or by using life insurance to replace lost income.