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

Journal of Monetary Economics, Vol. 80, 2016

Boston College Center for Retirement Research Working Paper No. 2009-3

AFA 2009 San Francisco Meetings Paper

40 Pages Posted: 6 Mar 2008 Last revised: 19 May 2016

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: May 17, 2016

Abstract

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

Yogo, Motohiro, Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets (May 17, 2016). Journal of Monetary Economics, Vol. 80, 2016; Boston College Center for Retirement Research Working Paper No. 2009-3; AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1085306 or http://dx.doi.org/10.2139/ssrn.1085306

Motohiro Yogo (Contact Author)

Princeton University - Department of Economics ( email )

Julis Romo Rabinowitz Building
Princeton, NJ 08544
United States

HOME PAGE: http://sites.google.com/site/motohiroyogo/

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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