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Tenure choice, portfolio structure and long-term care – Optimal risk management in retirement

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  • Fehr, Hans
  • Hofmann, Maurice

Abstract

We study the interplay between tenure decisions, stock market investment and the public social security system. Housing equity not only serves a dual purpose as a consumption good and as an asset, but also provides insurance to buffer long-term care risks in retirement. Our life cycle model captures these links in order to explain why homeownership in Germany is so low. Our simulation results indicate that the public long-term care system reduces the homeownership rate in Germany by up to 25 percentage points. We show that this channel may help explaining the gap in homeownership between Germany and Mediterranean countries.

Suggested Citation

  • Fehr, Hans & Hofmann, Maurice, 2020. "Tenure choice, portfolio structure and long-term care – Optimal risk management in retirement," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    • Handle: RePEc:eee:joecag:v:17:y:2020:i:c:s2212828x20300050
    DOI: 10.1016/j.jeoa.2020.100240
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    Cited by:

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    3. Michal Brzezinski & Katarzyna Salach, 2020. "Why wealth inequality differs between post-socialist countries?," Working Papers 551, ECINEQ, Society for the Study of Economic Inequality.

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    More about this item

    Keywords

    Homeownership; Stock market participation; Life-cycle models; Long-term care;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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