TY  - JOUR
AU  - Horneff,Wolfram J.
AU  - Maurer,Raimond H.
AU  - Mitchell,Olivia S.
AU  - Stamos,Michael Z.
TI  - Money in Motion: Dynamic Portfolio Choice in Retirement
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12942
PY  - 2007
Y2  - February 2007
UR  - http://www.nber.org/papers/w12942
L1  - http://www.nber.org/papers/w12942.pdf
N1  - Author contact info:
Wolfram Horneff
Finance Department, Goethe University
Grüneburgplatz 1 (Uni-PF. H 23)
Frankfurt am Main
Germany
E-Mail: horneff@finance.uni-frankfurt.de

Raimond Maurer
Finance Department
Goethe University
Grüneburgplatz 1 (Uni-PF. H 23)
Frankfurt am Main
Germany
E-Mail: rmaurer@wiwi.uni-frankfurt.de

Olivia S. Mitchell
University of Pennsylvania
Wharton School
3620 Locust Walk, St 3000 SH-DH
Philadelphia, PA 19104-6302
Tel: 215-898-0424
Fax: 215/898-0310
E-Mail: mitchelo@wharton.upenn.edu

Michael Stamos
Finance Department, Goethe University
Kettenhofweg 139 (Uni-PF. 58)
Frankfurt am Main
Germany
E-Mail: stamos@finance.uni-frankfurt.de
AB  - Retirees confront the difficult problem of how to manage their money in retirement so as to not outlive their funds while continuing to invest in capital markets. We posit a dynamic utility maximizer who makes both asset location and allocation decisions when managing her retirement financial wealth and annuities, and we prove that she can benefit from both the equity premium and longevity insurance in her retirement portfolio. Even without bequests, she will not fully annuitize; rather, her optimal stock allocation amounts initially to more than half of her financial wealth and declines with age. Welfare gains from this strategy can amount to 40 percent of financial wealth (depending on risk parameters and other resources). In practice, it turns out that many retirees will do almost as well by purchasing a variable annuity invested 60/40 in stocks/bonds.
ER  -