Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth
AbstractA 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.
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Bibliographic InfoPaper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2006-22.
Length: 32 pages
Date of creation: Nov 2006
Date of revision: Nov 2006
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optimal; decumulation; retirement; housing; non-pension wealth; reverse mortgages;
Other versions of this item:
- Sun Wei & Triest Robert K. & Webb Anthony, 2008. "Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(1), pages 1-29, September.
- Wei Sun & Robert K. Triest & Anthony Webb, 2007. "Optimal retirement asset decumulation strategies: the impact of housing wealth," Public Policy Discussion Paper 07-2, Federal Reserve Bank of Boston.
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