Asset Allocation and Location over the Life Cycle with Survival-Contingent Payouts

Wolfram J. Horneff, Raimond H. Maurer, Olivia Mitchell and Michael Z. Stamos

No 14055, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper shows how lifelong survival-contingent payouts can enhance investor wellbeing in the context of a portfolio choice model which integrates uninsurable labor income and asymmetric mortality expectations. Our model generates optimal asset location patterns indicating how much to hold in liquid versus illiquid survival-contingent payouts over the lifetime, and also asset allocation paths, showing how to invest in stocks versus bonds. We confirm that the investor will gradually move money out of her liquid saving into survival-contingent assets to retirement and beyond, thereby enhancing her welfare by as much as 50 percent. The results are also robust to the introduction of uninsurable consumption shocks in housing expenses, income flows during the worklife and retirement, sudden changes in health status, and medical expenses.

JEL-codes: G11 G22 G23 H55 J26 J32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age and nep-dge
Date: 2008-06
Note: AG LS PE
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w14055.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:14055

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14055
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().