Optimal retirement asset decumulation strategies: the impact of housing wealth

Wei Sun, Robert Triest and Anthony Webb ()

No 07-2, Public Policy Discussion Paper from Federal Reserve Bank of Boston

Abstract: A considerable literature examines the optimal decumulation of financial wealth in retirement. We extend this line of 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, the results show that housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.

Keywords: Retirement; income (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-age and nep-ure
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth (2008)
Working Paper: Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth (2006)
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