Optimal retirement asset decumulation strategiesThe impact of housing wealth

Optimal retirement asset decumulation strategies

The impact of housing wealth

Sun

Wei

Sun, Wei

Author

Triest

Robert K.

Triest, Robert K.

Author

Webb

Anthony

Webb, Anthony

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College20062006monographic

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

2006

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

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 use VARs to estimate the relationship between the returns on housing, stocks, and bonds, and use simulation techniques to investigate a variety of decumulation strategies incorporating reverse mortgages. Under a wide variety of assumptions, we find that the average household would be as much as 33 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy of delaying until financial wealth is exhausted and then taking a line of credit. It would be as much as 62 percent better off relative to not taking a reverse mortgage at all. Housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.

Wei Sun, Robert K. Triest, and Anthony Webb.

CRR WP2006-22

CRR WP

2006-22

http://crr.bc.edu/images/stories/Working_Papers/wp_2006-22.pdf

MChBEnglisheng

MChB

Englisheng

English

eng