Portfolio Choice in Retirement - What is the Optimal Home Equity Release Product?

34 Pages Posted: 19 Jun 2013

See all articles by Katja Hanewald

Katja Hanewald

University of New South Wales - ARC Centre of Excellence in Population Ageing Research (CEPAR)

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

Michael Sherris

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies; UNSW Australia Business School

Multiple version iconThere are 3 versions of this paper

Date Written: June 18, 2013

Abstract

We study the optimal product choice of home equity release products from the homeowner’s perspective in the presence of longevity, long-term care, house price, and interest rate risk. The individual can choose to buy annuities, long-term care insurance, and release home equity using reverse mortgages or home reversion plans. The individual enjoys utility gains from having access to either one of the two equity release products. Higher utility gains are found for the reverse mortgage as its product features allow for higher lump-sum payouts. When given a timing choice, the individual chooses to unlock home equity early in retirement. These key results emerge consistently across a range of cases with different parameter values. The availability of a government-provided LTCI does not change the use of equity release products significantly, but does change the demand for annuities.

Keywords: retirement, home equity release, reverse mortgage, home reversion plan

JEL Classification: D14, D91, G11, R20

Suggested Citation

Hanewald, Katja and Post, Thomas and Sherris, Michael, Portfolio Choice in Retirement - What is the Optimal Home Equity Release Product? (June 18, 2013). UNSW Australian School of Business Research Paper No. 2013ACTL13. Available at SSRN: https://ssrn.com/abstract=2280883 or http://dx.doi.org/10.2139/ssrn.2280883

Katja Hanewald (Contact Author)

University of New South Wales - ARC Centre of Excellence in Population Ageing Research (CEPAR) ( email )

ARC Centre of Excellence in Population Ageing Rese
The University of New South Wales
Sydney, New South Wales NSW 2052
Australia

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands
+31 43 38 83899 (Phone)
+31 43 38 84875 (Fax)

HOME PAGE: http://www.thomas-post.com

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

Michael Sherris

University of New South Wales - ARC Centre of Excellence in Population Ageing Research and School of Risk and Actuarial Studies ( email )

Australian School of Business
Quadrangle Building
Sydney, NSW 2052
Australia
+61 2 9385 2333 (Phone)
+61 2 9385 1883 (Fax)

HOME PAGE: http://www.asb.unsw.edu.au/schools/Pages/MichaelSherris.aspx

UNSW Australia Business School ( email )

Sydney, NSW 2052
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
92
rank
131,674
Abstract Views
1,159
PlumX Metrics