The Effect of Uncertain Labor Income and Social Security on Life-cycle Portfolios

Raimond Maurer, Olivia Mitchell and Ralph Rogalla

No 15682, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines how labor income volatility and social security benefits can influence lifecycle household portfolios. We examine how much the individual optimally saves and where, taking into account liquid financial wealth and annuities, and stocks as well as bonds. Higher labor income uncertainty and lower old-age benefits boost demand for stable income in retirement, but also when young. In addition, a declining equity glide path with age is appropriate for the worker with low income uncertainty; for the high income risk worker, equity exposure rises until retirement. We also evaluate how differences in social security benefits can influence retirement risk management.

JEL-codes: G11 G22 G23 H55 J14 J24 J26 (search for similar items in EconPapers)
Date: 2010-01
Note: AG LS PE
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Citations: View citations in EconPapers (6)

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