Portfolio choice in retirement: Health risk and the demand for annuities,housing, and risky assets |
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| Institution: | 1. Graduate School of Financial Engineering, The University of Suwon, Hwaseong 445-743, Republic of Korea;2. Department of Mathematics, Hankuk University of Foreign Studies, Yongin 449-791, Republic of Korea;1. University of Duisburg-Essen, Germany;2. CINCH Health Economics Research Center, Germany;3. Ruhr Graduate School in Economics (RGS Econ), Germany;4. University of Paderborn, Germany;5. RWI Essen, Germany |
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| Abstract: | In a life-cycle model, a retiree faces stochastic health depreciation and chooses consumption, health expenditure, and the allocation of wealth between bonds, stocks, and housing. The model explains key facts about asset allocation and health expenditure across health status and age. The portfolio share in stocks is low overall and is positively related to health, especially for younger retirees. The portfolio share in housing is negatively related to health for younger retirees and falls significantly in age. Finally, out-of-pocket health expenditure as a share of income is negatively related to health and rises in age. |
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| Keywords: | Aging Asset allocation Life-cycle model Medical expenditure Saving |
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