Faculty of Economics and Business Administration Publications Database

How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios

Selected
Authors:
Hubener, Andreas
Mitchell, Olivia S.
Source:
Volume: 29
Number: 4
Pages: 937 - 978
ISSN-Print: 0893-9454
Link External Source: Online Version
Year: 2016
Abstract:

We show how optimal household decisions regarding work, retirement, saving, portfolio allocations, and life insurance are shaped by the complex financial options embedded in U.S. Social Security rules and uncertain family transitions. Our life cycle model predicts sharp consumption drops on retirement, an age-62 peak in claiming rates, and earlier claiming by wives versus husbands and single women. Also, life insurance is mainly purchased on men’s lives. Our model, which takes Social Security rules seriously, generates wealth and retirement outcomes that are more consistent with the data, in contrast to earlier and less realistic models.

back