Means-Tested Income Support, Portfolio Choice and Decumulation in Retirement

Susan Thorp, Hardy Hulley (), Rebecca McKibbin and Andreas Pedersen
Additional contact information
Hardy Hulley: Finance Discipline Group, UTS Business School, University of Technology Sydney, https://www.uts.edu.au/staff/hardy.hulley

No 248, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: We investigate the impact of means tested public income transfers on post-retirement decumulation and portfolio choice using theoretical simulations and panel data on Australian Age Pensioners. Means tested public pension payments in Australia have broad coverage and give insight into the incentive responsiveness of well-off, as well as poorer households. Via numerical solutions to a discrete time, finite horizon dynamic programming problem, we simulate the optimal consumption and portfolio allocation strategies for a retired household subject to assets and income tests. Relative to benchmark, means tested households should optimally decumulate faster early in retirement, and choose more risky portfolios. Panel data tests on inferred wealth for pensioner households show evidence of more rapid spending early in retirement. However they also show that better-off households continue to accumulate, even when facing a steeper implicit tax rate on wealth than applies to poorer households. Wealthier households also hold riskier portfolios. Results from tests for Lorenz dominance of the panel wealth distribution show no decrease in wealth inequality over the five years of the study.

Keywords: retirement wealth; life-cycle saving; public pension; portfolio choice (search for similar items in EconPapers)
JEL-codes: D91 E21 G11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009-04-01
New Economics Papers: this item is included in nep-age
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Citations: View citations in EconPapers (3)

Published as: Thorp, S., Hulley, H., McKibbin, R. and Pedersen, A., 2013, "Means-Tested Income Support, Portfolio Choice and Decumulation in Retirement", Economic Record, 89(284), 31-51.

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Related works:
Journal Article: Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement (2013)
Working Paper: Means-tested income support, portfolio choice and decumulation in retirement (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:uts:rpaper:248

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