Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth

Wei Sun (), Robert Triest and Anthony Webb ()

Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research

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 use VARs to estimate the relationship between the returns on housing, stocks, and bonds, and use simulation techniques to investigate a variety of decumulation strategies incorporating reverse mortgages. Under a wide variety of assumptions, we find that the average household would be as much as 33 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy of delaying until financial wealth is exhausted and then taking a line of credit. It would be as much as 62 percent better off relative to not taking a reverse mortgage at all. Housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.

Keywords: optimal; decumulation; retirement; housing; non-pension wealth; reverse mortgages (search for similar items in EconPapers)
Pages: 32 pages
Date: 2006-11, Revised 2006-11
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (2)

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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 (2007)
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