1. Comments on: “Do Households Increase their Savings When the Kids Leave Home?” Bill Gale Brookings Institution and Retirement Security Project 17 th Annual Joint Meeting of the Retirement Research Consortium August 6-7, 2015 Washington, DC

2. Background In life-cycle models, the unit making choices is “the household” Households aim to equate the marginal utility of consumption across time periods This can be different from equating the level of consumption across periods Differences in achieving these alternative goals will be biggest at times when household size changes Specifically, when kids leave the household, keeping marginal utility constant for the (remaining) household members involves cutbacks in consumption levels (i.e., increases in saving)

3. So, the question is “does saving rise when kids leave home?” YES implies households are rational and we should worry less low rates of wealth accumulation. NO could imply households are irrational and we should worry more about retirement wealth. OR NO could imply that a “kid leaving home” is not always the same as a “kid leaving the household.”

4. Major Conclusions Household 401(k) contributions rise by less than 1 percent of earnings when kids leave home (under various definitions of “leaving home”). This is a tiny fraction of the predicted rise in saving implied by optimizing models that imply no undersaving.

5. Some Comments 401(k) contributions can under-measure saving, since saving can occur in other forms (as the authors note). – On the other hand, 401(k) contributions could overstate saving, too. Are adults with kids somehow different than adults without kids (NO -- the coefficient on “never had kids” is smaller than 1 percent of earnings). A kid leaving the home may be a one-time, discrete event, but “kid leaving “the household” may be a more gradual process. – If so, instantaneous analysis of saving (or 401(k)) changes will understate the effects of the kid leaving the household.

6. Thinking more carefully about expenditures and financing Do household expenditures go down when a kid leaves home? How are those expenditures financed? (Suggests looking at debt, as well as non- 401(k) asset accumulation.)

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9. 18 22 Expenses Payments

10. Bottom Line The authors are careful to note the caveats related to their study. I think the authors succeed, in their basic mission, which is to say that there is no evidence of a major increase in saving when children leave the home. The question that lingers in my head is how long it takes, empirically, for a kid to really have left “the household.”