Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth

Boston College Center for Retirement Research Working Paper No. 2006-22

36 Pages Posted: 28 Aug 2013

See all articles by Wei Sun

Wei Sun

Boston College - Center for Retirement Research

Robert K. Triest

Federal Reserve Bank of Boston - Research Department; Boston College

Anthony Webb

Boston College - Center for Retirement Research

Date Written: November 1, 2006

Abstract

A considerable literature examines the optimal decumulation of financial wealth in retirement. We extend this line of research to incorporate housing, which comprises the majority of most households’ non-pension wealth. We use VARs to estimate the relationship between the returns on housing, stocks, and bonds, and use simulation techniques to investigate a variety of decumulation strategies incorporating reverse mortgages. Under a wide variety of assumptions, we find that the average household would be as much as 33 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy of delaying until financial wealth is exhausted and then taking a line of credit. It would be as much as 62 percent better off relative to not taking a reverse mortgage at all. Housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.

Suggested Citation

Sun, Wei and Triest, Robert and Webb, Anthony, Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth (November 1, 2006). Boston College Center for Retirement Research Working Paper No. 2006-22. Available at SSRN: https://ssrn.com/abstract=2316939 or http://dx.doi.org/10.2139/ssrn.2316939

Wei Sun (Contact Author)

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

Robert Triest

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-3431 (Phone)
617-973-3957 (Fax)

Boston College ( email )

Chestnut Hill, MA 02167
United States

Anthony Webb

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

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