Working Paper: NBER ID: w15682
Authors: Raimond Maurer; Olivia S. Mitchell; Ralph Rogalla
Abstract: This paper examines how labor income volatility and social security benefits can influence lifecycle household portfolios. We examine how much the individual optimally saves and where, taking into account liquid financial wealth and annuities, and stocks as well as bonds. Higher labor income uncertainty and lower old-age benefits boost demand for stable income in retirement, but also when young. In addition, a declining equity glide path with age is appropriate for the worker with low income uncertainty; for the high income risk worker, equity exposure rises until retirement. We also evaluate how differences in social security benefits can influence retirement risk management.
Keywords: labor income volatility; social security; lifecycle portfolios; asset allocation; annuity demand
JEL Codes: G11; G22; G23; H55; J14; J24; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor income volatility (J39) | Demand for stable income (J26) |
| Social security benefits (H55) | Demand for stable income (J26) |
| Labor income volatility (J39) | Demand for annuities and bonds (G52) |
| Labor income stability (J39) | Optimal asset allocation (declining equity glide path) (G11) |
| High-income risk (G52) | Equity exposure until retirement (J26) |