Bequests and Heterogeneity in Retirement Wealth∗

The data show large dispersion in households’ wealth holdings at retirement. In addition, the empirical correlation between household lifetime earnings and retirement wealth is much lower in the data than in many quantitative models. This paper quantifies and analyzes the implications of a life cycle model with intergenerational links (in the form of voluntary bequest motives and intergenerational transmission of earnings ability) that also explicitly allows for defined benefit pensions, history-dependent social security, and a government-provided minimum consumption floor. The key findings are that this model matches well the observed wealth differences at retirement and their correlation with lifetime incomes, and that intentional bequests play a key role in generating those results.