What Accounts for the Variation in Retirement Wealth Among U.S. Households?

Household survey data consistently depict large variations in saving and wealth among households with similar socio-economic characteristics. Within the context of the lifequot; cycle hypothesis, families with identical lifetime resources might choose to accumulatequot; different levels of wealth for a variety of reasons, including variation in time preference rates risk tolerance, exposure to uncertainty, relative tastes for work and leisure at advanced ages income replacement rates, and so forth. These factors can be divided into a small number ofquot; classes, each with a distinctive implication concerning the relation between accumulated wealthquot; and the shape of the consumption profile. By examining this relation empirically for the presence or absence of these particular explanations for differences in wealth. Usingquot; the Panel Study of Income Dynamics and the Consumer Expenditure Survey little support for life cycle models that rely on the above factors to explain wealth variation. quot; The data are, however, consistent with rule of thumb' or mental accounting' theories ofquot; wealth accumulation