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

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: August 4, 2014

Abstract

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

Hanewald, Katja and Post, Thomas and Sherris, Michael, Portfolio Choice in Retirement – What is the Optimal Home Equity Release Product? (August 4, 2014). Forthcoming in the Journal of Risk and Insurance. Available at SSRN: https://ssrn.com/abstract=2407680 or http://dx.doi.org/10.2139/ssrn.2407680

Katja Hanewald

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 (Contact Author)

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

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