Posted: 10 Jul 2006
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: 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