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Strategic Asset Allocation for Individual Investors: The Impact of the Present Value of Social Security Benefits

Posted: 10 Jul 2006  

Steve P. Fraser

Florida Gulf Coast University

William W. Jennings

U.S. Air Force Academy - Department of Management

David R. King

U.S. Air Force Academy - Department of Mangement

Abstract

This paper demonstrates the dramatic effect of social security wealth on individuals' asset allocation. We first discuss why social security wealth should be included in portfolio asset-mix decisions. We then draw parallels between social security benefits and inflation-indexed treasury bonds to help quantify the present value of social security benefits. Finally, we show the portfolio impact of including social security wealth under several asset-mix decision rules. Excluding social security wealth from the asset mix decision results in sub-optimal portfolios. Including social security wealth provides an incentive for including more stock in the asset mix.

Keywords: social security, portfolio choice, mean-variance optimization, valuation

JEL Classification: G11, H55, J26, J17, K13

Suggested Citation

Fraser, Steve P. and Jennings, William W. and King, David R., Strategic Asset Allocation for Individual Investors: The Impact of the Present Value of Social Security Benefits. Financial Services Review, Vol. 9, No. 4, 2006. Available at SSRN: https://ssrn.com/abstract=912809

Steve P. Fraser (Contact Author)

Florida Gulf Coast University ( email )

Ft. Myers, FL 33965-6565
United States

William W. Jennings

U.S. Air Force Academy - Department of Management ( email )

2354 Fairchild Drive
Suite 6H-94
Academy, CO 80840-2944
United States

David R. King

U.S. Air Force Academy - Department of Mangement ( email )

2354 Fairchild Drive
Suite 6H-94
Academy, CO 80840-2944
United States

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