Optimizing the equity-bond-annuity portfolio in retirement: The impact of uncertain health expenses
Gaobo Pang and
Mark Warshawsky
Insurance: Mathematics and Economics, 2010, vol. 46, issue 1, 198-209
Abstract:
This paper derives optimal equity-bond-annuity portfolios for retired households who face stochastic capital market returns, differential exposures to mortality risk and uncertain uninsured health expenses, and differential Social Security and defined benefit pension coverage. The results show that the health spending risk drives household portfolios to shift from risky equities to safer assets and enhances the demand for annuities due to their increasing-with-age superiority over bonds in hedging against life-contingent health spending and longevity risks. Households with higher income have a greater incremental demand for life annuities. The annuities in turn provide greater leverage for equity investment in the remaining asset portfolios.
Keywords: Annuity; Asset; allocation; Health; expense; Precautionary; savings; Pension; Life; cycle (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-6687(09)00098-5
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:46:y:2010:i:1:p:198-209
Access Statistics for this article
Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu
More articles in Insurance: Mathematics and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().