EconPapers    
Economics at your fingertips  
 

Welfare costs of suboptimal retiree decisions

Harun Aydilek and Asiye Aydilek

PLOS ONE, 2024, vol. 19, issue 8, 1-29

Abstract: We make a novel investigation of welfare costs associated with various suboptimal decisions made by retirees, both analytically and numerically. We utilize a unique framework that incorporates recursive utility with housing, and also encompasses expected utility and recursive utility without housing as special cases. Our findings indicate that under-investment in stocks incurs lower welfare costs compared to an equivalent over-investment. Suboptimal allocations in bond holdings result in higher costs than similar misallocations in stocks. Choosing not to participate in the stock market is less detrimental than avoiding the bond market. Should retirees opt to simplify their decision-making by investing solely in one type of asset, it is less costly for them to invest exclusively in bonds. Overconsumption of housing is less costly than an equivalent underconsumption. Suboptimal consumption imposes the highest welfare cost. Decisions regarding consumption, housing, and savings are found to be more crucial than the choice of how to distribute liquid savings between stocks and bonds. Additionally, recursive utility model better captures retirees’ preference for bonds over stocks than expected utility model. Our results, which are consistent across various parameter settings, provide valuable insights for academics and policymakers aiming to enhance retiree welfare.

Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0307379 (text/html)
https://journals.plos.org/plosone/article/file?id= ... 07379&type=printable (application/pdf)

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: https://EconPapers.repec.org/RePEc:plo:pone00:0307379

DOI: 10.1371/journal.pone.0307379

Access Statistics for this article

More articles in PLOS ONE from Public Library of Science
Bibliographic data for series maintained by plosone ().

 
Page updated 2025-05-10
Handle: RePEc:plo:pone00:0307379