Faculty of Economics and Business Administration Publications Database

The Effect of Uncertain Labor Income and Social Security on Life-cycle Portfolios

Mitchell, Olivia S.
Rogalla, Ralph

This paper examines how labor income volatility and social security benefits influence life?cycle household portfolios. Specifically, it examines the quantity and location of household saving, taking into account liquid financial wealth and annuities, and stocks versus 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 but for the high?income risk worker, equity exposure rises until retirement. We also evaluate how changes in social security benefits influence retirement risk management.

Keywords: Saving; Investment; Portfolio Allocation; Annuities; Stocks; Bonds; Labor Income Uncertainty; Retirement
Year: 2010
Book Title: Reorienting Retirement Risk Management
ISBN: 978-0199592609
Adress: Oxford 2010
Editor: Clark, Robert L. / Mitchell, Olivia S.
Publisher: Oxford University Press
Pages: 107