Faculty of Economics and Business Administration Publications Database

Optimal Portfolio Choice with Annuities and Life Insurance for Retired Couples

Hubener, Andreas
Rogalla, Ralph
Volume: 18
Number: 1
Pages: 147 - 188
ISSN-Print: 1572-3097
Link External Source: Online Version
Year: 2014

Using a portfolio choice model, we derive the optimal demand for stocks, bonds, annuities, and term life insurance for a retired couple with uncertainty in both lifetimes. We show that the optimal portfolio is heavily weighted with joint annuities and that life insurance is purchased mainly to protect a surviving spouse from loss of annuitized income rather than for bequest. Consistent with these predictions, empirical analyses on Health and Retirement Study data indicate that life insurance holdings are related to the degree of asymmetry in the couple’s annuitized income distribution.