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Title:Optimal retirement asset decumulation strategies: The impact of housing wealth PDF Logo
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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