Means‐Tested Public Pensions, Portfolio Choice and Decumulation in Retirement

21 Pages Posted: 26 Feb 2013

See all articles by Hardy Hulley

Hardy Hulley

University of Technology, Sydney (UTS) - Finance Discipline Group; Financial Research Network (FIRN)

Rebecca J. McKibbin

Australian National University (ANU) - Research School of Social Sciences (RSSS)

Andreas Pedersen

affiliation not provided to SSRN

Susan Thorp

The University of Sydney Business School

Date Written: March 2013

Abstract

Age Pension means‐testing buffers retired households against shocks to wealth and may influence decumulation patterns and portfolio allocations. Simulations from a simple model of optimal consumption and allocation strategies for a means‐tested retired household indicate that, relative to benchmark, eligible and near‐eligible households should optimally decumulate faster, and choose more risky portfolios, especially early in retirement. Empirical modelling of a Household, Income and Labour Dynamics in Australia panel of pensioner households confirms a riskier portfolio allocation by wealthier retired households. Poorer pensioner households decumulate at around 5 per cent p.a. on average; however, better‐off households continue to add around 3 per cent p.a. to wealth, even when facing a steeper implicit tax rate on wealth.

JEL Classification: D91, E21, G11

Suggested Citation

Hulley, Hardy and McKibbin, Rebecca J. and Pedersen, Andreas and Thorp, Susan, Means‐Tested Public Pensions, Portfolio Choice and Decumulation in Retirement (March 2013). Economic Record, Vol. 89, Issue 284, pp. 31-51, 2013, Available at SSRN: https://ssrn.com/abstract=2224444 or http://dx.doi.org/10.1111/ecor.12002

Hardy Hulley (Contact Author)

University of Technology, Sydney (UTS) - Finance Discipline Group ( email )

Haymarket
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Rebecca J. McKibbin

Australian National University (ANU) - Research School of Social Sciences (RSSS) ( email )

Canberra, Australian Capital Territory 0200
Australia

Andreas Pedersen

affiliation not provided to SSRN ( email )

Susan Thorp

The University of Sydney Business School ( email )

Abercrombie Building
H70
The University Of Sydney, NSW 2006
Australia
0290366354 (Phone)

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