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How Household Portfolios Evolve After Retirement: The Effect of Aging and Health Shocks

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  • Courtney Coile
  • Kevin Milligan

Abstract

In this paper, we study how the portfolios of elderly U.S. households evolve after retirement, using data from the Health and Retirement Study (HRS). In particular, we investigate the influence of aging and health shocks on a household%u2019s ownership of various assets and on the dollar value and share of total assets held in each asset class. We find that households decrease their ownership of most asset classes as they age, with the strongest evidence for principal residences and vehicles, while increasing the share of assets held in bank accounts and CDs. Consistent with prior studies, we find that the death of a spouse is a strong predictor of selling the principal residence. However, we find that widowhood also leads households to sell vehicles, businesses, and real estate and to put money into bank accounts and CDs, and further that other health shocks have very similar impacts. Finally, we explore why health shocks affect asset holdings and find that the effect of a shock is greatly magnified when households have physical or mental impairments. This suggests that factors other than standard risk and return considerations may weigh heavily in many older households%u2019 portfolio decisions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12391.

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Date of creation: Jul 2006
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Publication status: published as Courtney Coile & Kevin Milligan, 2009. "How Household Portfolios Evolve After Retirement: The Effect Of Aging And Health Shocks," Review of Income and Wealth, Blackwell Publishing, vol. 55(2), pages 226-248, 06.
Handle: RePEc:nbr:nberwo:12391

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  1. Jonathan Skinner, 1993. "Is Housing Wealth a Sideshow?," NBER Working Papers 4552, National Bureau of Economic Research, Inc.
  2. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
  3. Kevin Milligan, 2005. "Life-cycle asset accumulation and allocation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 1057-1106, August.
  4. Steven F. Venti & David A. Wise, 1987. "Aging, Moving, and Housing Wealth," NBER Working Papers 2324, National Bureau of Economic Research, Inc.
  5. Brian K. Bucks & Arthur B. Kennickell & Kevin B. Moore, 2006. "Recent changes in U.S. family finances: evidence from the 2001 and 2004 Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Mar, pages A1-A38.
  6. Rosen, H.S.Harvey S. & Wu, Stephen, 2004. "Portfolio choice and health status," Journal of Financial Economics, Elsevier, vol. 72(3), pages 457-484, June.
  7. Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
  8. Francisco Gomes & Alexander Michaelides, 2005. "Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence," Journal of Finance, American Finance Association, vol. 60(2), pages 869-904, 04.
  9. Jonathan S. Feinstein & Chih-Chin Ho, 2001. "Elderly Asset Management and Health: An Empirical Analysis," Yale School of Management Working Papers ysm159, Yale School of Management.
  10. Steven F. Venti & David A. Wise, 1989. "But They Don't Want to Reduce Housing Equity," NBER Working Papers 2859, National Bureau of Economic Research, Inc.
  11. Courtney C. Coile, 2004. "Health Shocks and Couples' Labor Supply Decisions," NBER Working Papers 10810, National Bureau of Economic Research, Inc.
  12. Jonathan Feinstein & Daniel McFadden, 1989. "The Dynamics of Housing Demand by the Elderly: Wealth, Cash Flow, and Demographic Effects," NBER Chapters, in: The Economics of Aging, pages 55-92 National Bureau of Economic Research, Inc.
  13. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  14. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
  15. Alexander Michaelides & Francisco J. Gomes, 2005. "Optimal life cycle asset allocation : understanding the empirical evidence," LSE Research Online Documents on Economics 193, London School of Economics and Political Science, LSE Library.
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