Portfolio Choice in Retirement – What is the Optimal Home Equity Release Product?
Forthcoming in the Journal of Risk and Insurance
40 Pages Posted: 12 Mar 2014 Last revised: 26 Aug 2014
Date Written: August 4, 2014
We study the decision problem of the optimal choice between home equity release products from a retired homeowner’s perspective in the presence of longevity, long-term care, house price, and interest rate risk. The individual can choose to release home equity using reverse mortgages or home reversion plans, to buy annuities, and long-term care insurance. 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 and provide downside protection for house prices.
Keywords: retirement, home equity release, reverse mortgage, home reversion plan
JEL Classification: D14, D91, G11, R20
Suggested Citation: Suggested Citation