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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

We study how the portfolios of 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's ownership of various assets and on the share of total assets held in each asset class. We find that households decrease their ownership of principal residences, vehicles, financial assets, businesses, and real estate as they age, while increasing the share of assets held in liquid assets and time deposits. We find that widowhood and other health shocks are associated with the same kinds of portfolio changes, and that the effect of shocks strengthens with time since the shock. Finally, we show 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 weigh heavily in many older households' portfolio decisions. Copyright 2009 The Authors. Journal compilation International Association for Research in Income and Wealth 2009.

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Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 55 (2009)
Issue (Month): 2 (06)
Pages: 226-248

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Handle: RePEc:bla:revinw:v:55:y:2009:i:2:p:226-248
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Find related papers by JEL classification:
  • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
  • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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  1. 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.
  2. Kevin Milligan, 2004. "Life-cycle Asset Accumulation and Allocation in Canada," Social and Economic Dimensions of an Aging Population Research Papers 122, McMaster University.
  3. 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.
  4. 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.
  5. Steven F. Venti & David A. Wise, 1987. "Aging, Moving, and Housing Wealth," NBER Working Papers 2324, National Bureau of Economic Research, Inc.
  6. 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.
  7. Courtney C. Coile, 2004. "Health Shocks and Couples' Labor Supply Decisions," NBER Working Papers 10810, National Bureau of Economic Research, Inc.
  8. Jonathan S. Skinner, 1996. "Is Housing Wealth a Sideshow?," NBER Chapters, in: Advances in the Economics of Aging, pages 241-272 National Bureau of Economic Research, Inc.
  9. 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.
  10. 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.
  11. Jonathan Feinstein & Daniel McFadden, 1987. "The Dynamics of Housing Demand by the Elderly: Wealth, Cash Flow, and Demographic Effects," NBER Working Papers 2471, National Bureau of Economic Research, Inc.
  12. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
  13. 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.
  14. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
  15. 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.
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