Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal retirement asset decumulation strategies: the impact of housing wealth

Contents:

Author Info

  • Wei Sun
  • Robert K. Triest
  • Anthony Webb

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 estimate the relationship between the returns on housing, stocks, and bonds, and simulate a variety of decumulation strategies incorporating reverse mortgages. We show that homeowner’s reversionary interest, the amount that can be borrowed through a reverse mortgage, is a surprisingly risky asset. Under our baseline assumptions we find that the average household would be as much as 24 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy: delaying tapping housing wealth until financial wealth is exhausted and then taking a line of credit. In addition, the results show that housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bostonfed.org/economic/ppdp/2007/ppdp0702.htm
Download Restriction: no

File URL: http://www.bostonfed.org/economic/ppdp/2007/ppdp0702.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Public Policy Discussion Paper with number 07-2.

as in new window
Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:fip:fedbpp:07-2

Contact details of provider:
Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210
Phone: 617-973-3397
Fax: 617-973-4221
Email:
Web page: http://www.bos.frb.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Retirement income;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Olivia S. Mitchell & James F. Moore, . "Retirement Wealth Accumulation and Decumulation: New Developments and Outstanding Opportunities," Pension Research Council Working Papers 97-8, Wharton School Pension Research Council, University of Pennsylvania.
  2. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
  3. Ivica Dus & Raimond Maurer & Olivia S. Mitchell, 2003. "Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities versus Phased Withdrawal Plans," Working Papers wp063, University of Michigan, Michigan Retirement Research Center.
  4. Dushi, Irena & Webb, Anthony, 2004. "Household annuitization decisions: simulations and empirical analyses," Journal of Pension Economics and Finance, Cambridge University Press, vol. 3(02), pages 109-143, July.
  5. Venti, Steven F. & Wise, David A., 1991. "Aging and the income value of housing wealth," Journal of Public Economics, Elsevier, vol. 44(3), pages 371-397, April.
  6. Blake, David & Cairns, Andrew J. G. & Dowd, Kevin, 2003. "Pensionmetrics 2: stochastic pension plan design during the distribution phase," Insurance: Mathematics and Economics, Elsevier, vol. 33(1), pages 29-47, August.
  7. Sally R. Merrill & Meryl Finkel & Nandinee K. Kutty, 1994. "Potential Beneficiaries from Reverse Mortgage Products for Elderly Homeowners: An Analysis of American Housing Survey Data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 257-299.
  8. Steven F. Venti & David A. Wise, 2001. "Aging and Housing Equity: Another Look," NBER Working Papers 8608, National Bureau of Economic Research, Inc.
  9. Sarin, Rakesh K. & Weber, Martin, 1993. "Risk-value models," European Journal of Operational Research, Elsevier, vol. 70(2), pages 135-149, October.
  10. Wolfram Horneff & Raimond Maurer & Olivia Mitchell & Ivica Dus, 2006. "Optimizing the Retirement Portfolio: Asset Allocation, Annuitization, and Risk Aversion," Working Papers wp124, University of Michigan, Michigan Retirement Research Center.
  11. Alicia H. Munnell & Mauricio Soto, 2006. "What Replacement Rates Do Households Actually Experience In Retirement?," Working Papers, Center for Retirement Research at Boston College wp2005-10, Center for Retirement Research.
  12. Albrecht, Peter & Maurer, Raimond, 2001. "Self-Annuitization, Ruin Risk in Retirement and Asset Allocation: The Annuity Benchmark," Sonderforschungsbereich 504 Publications 01-35, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  13. N. Gregory Mankiw & David N. Weil, 1988. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
  14. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2013. "Superstar Cities," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 167-99, November.
  15. Jeffrey R. Brown & James M. Poterba, 1999. "Joint Life Annuities and Annuity Demand by Married Couples," NBER Working Papers 7199, National Bureau of Economic Research, Inc.
  16. Ivica Dus & Raimond Maurer & Olivia S. Mitchell, 2005. "Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities," NBER Working Papers 11271, National Bureau of Economic Research, Inc.
  17. Shiller Robert J., 2006. "Long-Term Perspectives on the Current Boom in Home Prices," The Economists' Voice, De Gruyter, vol. 3(4), pages 1-11, March.
  18. Lina Walker, 2004. "Elderly Households and Housing Wealth: Do They Use It or Lose It?," Working Papers wp070, University of Michigan, Michigan Retirement Research Center.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jonathan Skinner, 2007. "Are You Sure You're Saving Enough for Retirement?," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 59-80, Summer.
  2. Blake, David & Cairns, Andrew & Dowd, Kevin, 2008. "Turning pension plans into pension planes: What investment strategy designers of defined contribution pension plans can learn from commercial aircraft designers," MPRA Paper 33749, University Library of Munich, Germany.
  3. Gregorio Impavido & Esperanza Lasagabaster & Manuel Garcia-Huitron, 2010. "New Policies for Mandatory Defined Contribution Pensions : Industrial Organization Models and Investment Products," World Bank Publications, The World Bank, number 2462, July.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedbpp:07-2. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.