Abstract

http://ssrn.com/abstract=1002388
 
 

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The Theory of Life-Cycle Saving and Investing


Zvi Bodie


Boston University - Department of Finance & Economics

Jonathan Treussard


Ziff Brothers Investments - Risk Management

Paul Willen


Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

May 2007

FRB of Boston Public Policy Discussion Paper No. 07-3

Abstract:     
How much should a family save for retirement and for the kids' college education? How much insurance should they buy? How should they allocate their portfolio across different assets? What should a company choose as the default asset allocation for a mandatory retirement saving plan? We believe that the life-cycle model developed by economists over the last fifty years provides guidance for making such decisions. The theory teaches us to view financial assets as vehicles for transferring resources across different times and outcomes over the life cycle, and that perspective allows households and planners to think about their decisions in a logical and rigorous way. This paper lays out and illustrates the basic analytical framework from the theory in nonmathematical terms, with the aim of providing guidance to financial service providers, consumers, and policymakers.

Number of Pages in PDF File: 27

JEL Classification: D14, D91

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Date posted: July 27, 2007  

Suggested Citation

Bodie, Zvi and Treussard, Jonathan and Willen, Paul, The Theory of Life-Cycle Saving and Investing (May 2007). FRB of Boston Public Policy Discussion Paper No. 07-3. Available at SSRN: http://ssrn.com/abstract=1002388 or http://dx.doi.org/10.2139/ssrn.1002388

Contact Information

Zvi Bodie
Boston University - Department of Finance & Economics ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-4160 (Phone)
617-353 6667 (Fax)
HOME PAGE: http://smgnet.bu.edu/mgmt/profiles/BodieZvi.html
Jonathan Treussard
Ziff Brothers Investments - Risk Management ( email )
New York, NY
United States
Paul Willen (Contact Author)
Federal Reserve Bank of Boston - Research Department ( email )
600 Atlantic Avenue
Boston, MA 02210
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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