Retirement Savings and Expenditure Patterns of Renters and Homeowners: Different Resources or Different Views?

Article excerpt

This study examines the retirement preparation of renters and homeowners. Housing is commonly the largest asset for consumers and often provides benefits related to retirement such as reduced costs for housing services and the potential for reverse mortgages or other uses of equity. Consequently, the retirement preparation of renters is especially of interest, given their lack of housing equity. We examine two cohorts of renters and homeowners nearing retirement age using ten years of data from the Consumer Expenditure Survey (1995-2004). Although, standard life cycle theory suggests that similarly situated renters will attempt to compensate for the lack of housing equity by investing more heavily in other assets, this does not appear to be the case. Rather, renting appears to reflect an underlying time preference resulting in lack of investment in both housing and any other form of long-term investment.

A probit analysis of participation in retirement savings during the previous twelve months of renters and owners in the 45-54 age group and the 55-64 age group shows that renter status is significantly negatively associated with participating in retirement savings in both groups, even after controlling for percentage of income spent on housing costs and various economic and demographic variables. A truncated maximum likelihood analysis of those participating in retirement savings finds that renters participating in retirement savings save smaller amounts than similarly situated homeowners, again controlling for the same factors. …