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How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios

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  • Andreas Hubener
  • Raimond Maurer
  • Olivia S. Mitchell

Abstract

We show how optimal household decisions regarding work, retirement, saving, portfolio allocations, and life insurance are shaped by the complex financial options embedded in U.S. Social Security rules and uncertain family transitions. Our life cycle model predicts sharp consumption drops on retirement, an age-62 peak in claiming rates, and earlier claiming by wives versus husbands and single women. Moreover, life insurance is mainly purchased on men's lives. Our model, which takes Social Security rules seriously, generates wealth and retirement outcomes that are more consistent with the data, in contrast to earlier and less realistic models. Received March 23, 2015; accepted September 30, 2015 by Editor Andrew Karolyi.

Suggested Citation

  • Andreas Hubener & Raimond Maurer & Olivia S. Mitchell, 2016. "How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios," Review of Financial Studies, Society for Financial Studies, vol. 29(4), pages 937-978.
  • Handle: RePEc:oup:rfinst:v:29:y:2016:i:4:p:937-978.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhv070
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    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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