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| Title: | | Optimal retirement asset decumulation strategies: The impact of housing wealth  |
| Authors: | | Sun, Wei Triest, Robert K. Webb, Anthony |
| Issue Date: | | 2007 |
| Series/Report no.: | | Public policy Discussion Papers, Federal Reserve Bank of Boston 07,2 |
| Abstract: | | We estimate the relationship between the returns on housing, stocks, and bonds, and simulate a variety of decumulation strategies incorporating reverse mortgages. We show that homeowner's reversionary interest, the amount that can be borrowed through a reverse mortgage, is a surprisingly risky asset. Under our baseline assumptions we find that the average household would be as much as 24 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy: delaying tapping housing wealth until financial wealth is exhausted and then taking a line of credit. In addition, the results show that housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle. |
| JEL: | | D14 D91 G11 J14 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Public Policy Discussion Papers, Federal Reserve Bank of Boston
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