Bequests and heterogeneity in retirement wealth

- Households hold vastly heterogeneous amounts of wealth when they reach retirement, even conditioning on lifetime income.
- We use a rich, quantitative model to examine its implications about wealth accumulation at retirement time.
- We find that voluntary bequest motives help explain the observed low correlation between lifetime income and retirement wealth.

Households hold vastly heterogeneous amounts of wealth when they reach retirement, and differences in lifetime earnings explain only part of this variation. This paper studies the role of intergenerational transmission of ability, voluntary bequest motives, and the recipiency of accidental and intended bequests (both in terms of timing and size) in generating wealth dispersion at retirement, in the context of a rich quantitative model. Modeling voluntary bequests, and realistically calibrating them, not only generates more wealth dispersion at retirement and reduces the correlation between retirement wealth and lifetime income, but also generates a skewed bequest distribution that is close to the one in the observed data.