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

41 Pages Posted: 8 Sep 2009 Last revised: 25 Sep 2010

See all articles by Motohiro Yogo

Motohiro Yogo

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 2009

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.

Suggested Citation

Yogo, Motohiro, Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets (September 2009). NBER Working Paper No. w15307. Available at SSRN: https://ssrn.com/abstract=1469104

Motohiro Yogo (Contact Author)

Princeton University - Department of Economics ( email )

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