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Financing retirement with real estate assets: an analysis of Mexico

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  • Carmen Hoyo
  • David Tuesta

Abstract

Real estate assets represent a major form of savings for families when they reach retirement age. Reverse mortgages are a financial product developed as an alternative way of generating flows of liquid income during retirement in some countries. As income during old age must be diversified from different sources, in this work we assess the potential of reverse mortgages as an alternative income stream in retirement. Our work focuses on Mexico, using projections of the replacement rate that would be received by an old-aged pensioner, only considering the pension from the Instituto Mexicano del Seguro Social (IMSS), whilst incorporating annuity income from the reverse mortgage. Using a macroeconomic-actuarial model to generate projections, we found that these rates could be increased by 45 percentage points by incorporating annuity income from real estate assets. This result reinforces the concept of establishing not only policies focused on improving formal pension schemes, but also of making private financial mechanisms available to generate other adequate income flows for old age based on alternative assets.

Suggested Citation

  • Carmen Hoyo & David Tuesta, 2013. "Financing retirement with real estate assets: an analysis of Mexico," Working Papers 1335, BBVA Bank, Economic Research Department.
  • Handle: RePEc:bbv:wpaper:1335
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    References listed on IDEAS

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    1. repec:bla:jfinan:v:72:y:2017:i:2:p:911-950 is not listed on IDEAS
    2. Alonso, Javier & Hoyo, Carmen & Tuesta, David, 2015. "A model for the pension system in Mexico: diagnosis and recommendations," Journal of Pension Economics and Finance, Cambridge University Press, vol. 14(01), pages 76-112, January.
    3. Makoto Nakajima & Irina A. Telyukova, 2017. "Reverse Mortgage Loans: A Quantitative Analysis," Journal of Finance, American Finance Association, vol. 72(2), pages 911-950, April.
    4. Hui Shan, 2011. "Reversing the Trend: The Recent Expansion of the Reverse Mortgage Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(4), pages 743-768, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    reverse mortgage; pensions; defined contribution;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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