NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets

Motohiro Yogo

NBER Working Paper No. 15307
Issued in September 2009
NBER Program(s):   AG   AP   HE

In a life-cycle model, a retiree faces stochastic health depreciation and chooses consumption, health expenditure, and the allocation of wealth between bonds, stocks, and housing. The model explains key facts about asset allocation and health expenditure across health status and age. The portfolio share in stocks is low overall and is positively related to health, especially for younger retirees. The portfolio share in housing is negatively related to health for younger retirees and falls significantly in age. Finally, out-of-pocket health expenditure as a share of income is negatively related to health and rises in age.

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This paper was revised on May 20, 2016

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Document Object Identifier (DOI): 10.3386/w15307

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