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Reorienting Retirement Risk Management$
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Robert L. Clark and Olivia S. Mitchell

Print publication date: 2010

Print ISBN-13: 9780199592609

Published to Oxford Scholarship Online: September 2010

DOI: 10.1093/acprof:oso/9780199592609.001.0001

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The Effect of Uncertain Labor Income and Social Security on Life‐Cycle Portfolios

The Effect of Uncertain Labor Income and Social Security on Life‐Cycle Portfolios

Chapter:
(p.107) Chapter 6 The Effect of Uncertain Labor Income and Social Security on Life‐Cycle Portfolios
Source:
Reorienting Retirement Risk Management
Author(s):

Raimond Maurer

Olivia S. Mitchell (Contributor Webpage)

Ralph Rogalla

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199592609.003.0006

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

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