Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets
Boston College Center for Retirement Research Working Paper No. 2009-3
40 Pages Posted: 6 Mar 2008 Last revised: 19 May 2016
Date Written: May 17, 2016
In a life-cycle model, 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 across health status and age. 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 significantly in age. Finally, out-of-pocket health expenditure as a share of income is negatively related to health and rises in age.
Keywords: Aging, Asset allocation, Life-cycle model, Medical expenditure, Saving
JEL Classification: D91, G11, I12
Suggested Citation: Suggested Citation