can an inference be made from the two fed papers whos conclusions i have posted here...with links
6 Conclusion
The model developed in this paper demonstrates the way in which perfectly
anticipated inflation, even when reflected in the nominal interest rate on mort-
gages, can distort the household’s portfolio allocation over the life cycle. A
standard thirty-year fixed-rate nominal mortgage contract results in declining real
mortgage payments. The longer a mortgage is held, the greater the difference
between the household’s mortgage payment and the payment for a mortgage re-
financed in the current period. This widening gap discourages households from
shifting assets from home equity to financial portfolios. When calibrated using
commonly accepted parameters, the results can explain at least some of the “over-
investment in housing” documented in the earlier literature and also help explain
why retired households hold such a significant portion of their wealth in housing.
Inflation distorts the household’s portfolio allocation by introducing a hidden
transaction cost through its effect on the real value of the fixed nominal mortgage
payment. When inflation is high, the gap in the real value of a new mortgage and
an existing mortgage is larger, and households rebalance their portfolio between
home equity and financial assets less frequently. When inflation is low, household
find extracting their home equity to be cheaper, and therefore more frequently
rebalance their portfolio.
federalreserve.gov
and
8 Conclusions
Comparing comprehensive wealth to poverty-line wealth, and the annualized value of wealth to pre-retirement earnings, we find that the median older U.S. household appears to hold adequate resources. Median household wealth is about 3.9 times poverty wealth in 2006, and the median "replacement rate" of earnings is about 105 percent. However, about 18 percent of households do not have the wealth needed to generate income of at least 150 percent of the poverty line over their expected future lifetimes, and 13 percent of households experience replacement rates of less than 50 percent. Most of the households with "inadequate" resources are single at the time of the interview--some who have been recently widowed, and some who were never married.
Comparing the leading edge of the baby boom generation to their immediate elders, we find that overall, the baby boomers have slightly less wealth, but are generally about as well situated as their elders were at the same age. Again, the main group of concern is single households: the incidence of "inadequate" resources among single boomers is fairly high, and is a bit higher than that of their elders at the same age. On the other hand, we find that even among single boomers, the median household appears to have reasonably adequate wealth. Thus the concern might be limited to the lower half of the single boomer distribution. One implication for these households might be that they find they will not be able to retire as early as they expect to. Since we value their future compensation according to their self-report on when they expect to begin Social Security receipt, these households can significantly improve their adequacy outlook by delaying retirement longer than they say they will.
Finally, we find a rising age profile of annualized wealth, even within households over time and after controlling for other factors, such as bequest motives, health, longevity, and medical costs. This suggests that older households are not spending their wealth as quickly as their survival probabilities are falling.
We close with a few caveats about our results. First, our measures of adequacy are based on expected values, and thus do not account for the utility value of substantial risks that arise from uncertain lifetimes, medical expenses and asset returns. Thus a risk-averse household with "adequate" wealth by our measures may not have enough wealth after accounting for the effect of these risks on utility. Second, our analysis focuses on households aged 55 and older in 1998-2006, which includes the leading edge of baby boomers, but not younger boomers or succeeding generations. Our findings therefore do not provide evidence about the adequacy of retirement savings among younger cohorts. Finally, our results should not be taken to imply that current household savings are necessarily sufficient in the long-run macroeconomic sense. Given the broad demographic trends at work over the next half century, including declining fertility and increasing longevity, a higher household savings rate could, by increasing the size of the capital stock, significantly reduce the burden of higher taxes or lower spending that will otherwise fall on following generations.
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