Portfolio choice in retirementHealth risk and the demand for annuities, housing and risky assets

Portfolio choice in retirement

Health risk and the demand for annuities, housing and risky assets

Yogo

Motohiro

Yogo, Motohiro

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College20092009monographic

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

2009

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

This paper develops a consumption and portfolio-choice model of a retiree who allocates wealth among four assets: a riskless bond, a risky asset, a real annuity, and housing. Unlike previous studies that treat health expenditures as exogenous negative income shocks, this paper builds on the Grossman model to endogenize health expenditures as investments in health. I calibrate the model to explain the joint evolution of health status and the composition of wealth for retirees, aged 65 to 96, in the Health and Retirement Study. I use the calibrated model to assess the welfare gains of an actuarially fair annuity market. The welfare gain is less than 1% of wealth for the median-health retiree at age 65, and the welfare gain is about 10% of wealth for the healthiest.

Motohiro Yogo.

CRR WP2009-3

CRR WP

2009-3

http://crr.bc.edu/images/stories/Working_Papers/wp_2009-3.pdf

MChBEnglisheng

MChB

Englisheng

English

eng