Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth
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Wei Sun
A considerable literature examines the optimal decumulation of financial wealth in retirement. We extend this research to incorporate housing, which comprises the majority of most households’ non-pension wealth.We estimate the relationship between the returns on housing, stocks, and bonds, and simulate a variety of decumulation strategies incorporating reverse mortgages. We show that homeowner’s reversionary interest, the amount that can be borrowed through a reverse mortgage, is a surprisingly risky asset. Under our baseline assumptions, we find that the average household would be as much as 24 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy: delaying tapping housing wealth until financial wealth is exhausted and then taking a line of credit. In addition, we show that housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Artikel in diesem Heft
- Featured Article
- Longevity Risk and Capital Markets: The 2007-2008 Update
- The Birth of the Life Market
- Mortality Declines, Longevity Risk and Aging
- Financial Innovation and the Hedging of Longevity Risk
- Hedging Pension Longevity Risk: Practical Capital Markets Solutions
- Assessing Investment and Longevity Risks within Immediate Annuities
- Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth
- An Empirical Study of Mortality Models in Taiwan
- Pricing and Implementation of Longevity Bonds in Taiwan
- The Volatility of Mortality
Artikel in diesem Heft
- Featured Article
- Longevity Risk and Capital Markets: The 2007-2008 Update
- The Birth of the Life Market
- Mortality Declines, Longevity Risk and Aging
- Financial Innovation and the Hedging of Longevity Risk
- Hedging Pension Longevity Risk: Practical Capital Markets Solutions
- Assessing Investment and Longevity Risks within Immediate Annuities
- Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth
- An Empirical Study of Mortality Models in Taiwan
- Pricing and Implementation of Longevity Bonds in Taiwan
- The Volatility of Mortality
