Rich retirees are the main losers from inflation

Armen Hareyan's picture
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Inflation and Your Money

How would distribution of wealth change if the United States were to enter a period of inflation? A study from the December issue of the Journal of Political Economy finds that even mild inflation can lead to substantial redistribution of nominal assets from lenders to borrowers, specifically, the transfer of wealth from older, wealthier households to younger, middle-class households.

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"Inflation affects all nominal asset positions, not just cash positions," write Matthias Doepke (University of California, Los Angeles and National Bureau of Economic Research) and Martin Schneider (Federal Reserve Bank of Minneapolis and New York University). "As a result we find that even moderate inflation leads to substantial wealth redistribution."

Young, middle-class households have the largest ratios of net debt to net worth. Doepke and Schneider find that borrowing in the form of mortgage loans positions young, middle-class households to be the greatest beneficiaries in the event of inflation. In contrast, old households in the top 10 percent of net worth keep a large part of their savings in long-term bonds.

In a scenario where inflation increased at five percentage points more than expected over the next decade, rich retirees would be hurt more

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