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Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets


Motohiro Yogo


Federal Reserve Bank of Minneapolis

April 16, 2014

AFA 2009 San Francisco Meetings Paper
Boston College Center for Retirement Research Working Paper No. 2009-3

Abstract:     
This paper develops a life-cycle model in which a retiree faces stochastic health depreciation and chooses consumption, health expenditure, and the allocation of wealth between bonds, stocks, and housing. The model explains key facts about asset allocation and health expenditure for single retirees, aged 65 or older, in the Health and Retirement Study. The portfolio share in stocks is low overall and is positively related to health, especially for younger retirees. The portfolio share in housing is negatively related to health for younger retirees and falls rapidly in age. The portfolio share in bonds is positively related to health for younger retirees and rises rapidly in age. Finally, out-of-pocket health expenditure as a share of income is negatively related to health and rises rapidly in age.

Number of Pages in PDF File: 37

Keywords: Aging, Asset allocation, Life-cycle model, Medical expenditure, Saving

JEL Classification: D91, G11, I12

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Date posted: March 6, 2008 ; Last revised: April 18, 2014

Suggested Citation

Yogo, Motohiro, Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets (April 16, 2014). Boston College Center for Retirement Research Working Paper No. 2009-3. Available at SSRN: http://ssrn.com/abstract=1085306 or http://dx.doi.org/10.2139/ssrn.1085306

Contact Information

Motohiro Yogo (Contact Author)
Federal Reserve Bank of Minneapolis ( email )
90 Hennepin Avenue
Minneapolis, MN 55401-1804
United States
HOME PAGE: http://https://sites.google.com/site/motohiroyogo/
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